Financial Resilience in Labor Negotiations
99 Pages Posted: 19 Mar 2021 Last revised: 21 Nov 2022
Date Written: January 6, 2021
Abstract
Financial obligations may improve firms' bargaining position with labor by pushing money off the negotiation table. However, financial obligations make firms vulnerable to default during worker strikes, which hampers their ability to negotiate with labor. We formalize this tension in a dynamic model of bargaining. Evaluating labor negotiations, right-to-work laws, and union election events, we show that firms shape their financial obligations to gain resilience to strikes. We show that by increasing firm resilience to negative cash flow shocks, stronger worker protections reduce employment vulnerability. In contrast, the passage of right-to-work laws may have increased employment vulnerability by reducing firm resilience.
Keywords: labor unions, right-to-work laws, bargaining, debt structure.
JEL Classification: G32, J51, C78.
Suggested Citation: Suggested Citation