Unions, innovation and cross-country wage inequality

Abstract

This study explores the macroeconomic e¤ects of labor unions in a two-country R&D-based growth model in which the market size of each country determines the incentives for innovation. We …nd that an increase in the bargaining power of a wage-oriented union leads to a decrease in employment in the domestic economy. This result has two important implications on innovation. First, it reduces the rates of innovation and economic growth. Second, it causes innovation to be directed to the foreign economy, which in turn causes a negative e¤ect on domestic wages relative to foreign wages in the long run. We also derive welfare implications and calibrate our model to data in the US and the UK to quantify the e¤ects of labor unions on social welfare and wage inequality across countries. Our calibrated model is able to explain about half of the decrease in relative wage between the US and the UK from 1980 to 2007. Furthermore, the decrease in unions'bargaining power leads to quantitatively signi…cant welfare gains in the two countries.JEL classi…cation: O30, O43, E24, J51

Labor union and the wealth-income ratio

“…This …nding is consistent with the above stylized facts and also with the negative relationship in Figure 4 between union membership density and the wealth-income ratio across OECD countries. 4 The above results can be explained as follows. A decrease in union bargaining power reduces labor income and increases pro…t income, 5 which in turn increases the value of …rms.…”

The relationship between Unions and Innovation in Chile

“…Expressly, U.S studies from 2010 onwards mainly agree that unions negatively affect innovation. For instance, Angus, Cozzi, and Furukawa (2016) find that an increase in the bargaining power of wage-oriented unionism leads to a decrease in R&D expenditures in the UK and the US. In the same line, Bradley, Kimb and Tianc, (2017), studying innovation at the firm level, find that three years after the union election, the patent quantity, and quality of the U.S companies significantly decline.…”

The Future of Social Dialogue in the Age of Artificial Intelligence

“…The countryspecific social model seems to somehow influence the results, partially reducing the image of the trade unions as a brake on innovation. A significant variable seems to be the orientation of the union: if it is strictly oriented towards increasing the earnings of those whom it represents, then the impact on innovation tends to be negative, while the orientation towards employment tends to have a positive effect (Chu, Cozzi, & Furukawa, 2016). Another variable is the direction of innovation: towards production efficiency (which may have the effect of reducing the number of employees) or towards the product, this increasing the competitiveness.…”