July 2019

IZA DP No. 12515: Unions and Firms' Investments: A Unified View

Fabio Berton, Stefano Dughera, Andrea Ricci

published as 'A simple model of holdup, union voice, and firm investments' in: S.W. Polachek, K. Tatsiramos, G. Russo and G. van Houten (eds.): Workplace productivity and management practices (Research in Labor Economics, 49), 2021, 67 - 84

In this paper, we present a simple model in which a unionized and non-unionized firm optimally make investment decisions given their labor productivity. By allowing workers' organizations to have positive effects on labor effort, we find that the classic hold-up problem does not necessarily survive. We also derive conditions under which rent-seeking by unions may actually encourage firms' investments.