DP4079 Unionization Structures and Innovation Incentives

Author(s): Justus Haucap, Christian Wey
Publication Date: October 2003
Keyword(s): centralization, hold-up, innovation, unions
JEL(s): D43, J50, L13
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4079

This Paper examines how different unionization structures affect firms' innovation incentives and industry employment. We distinguish three modes of unionization with increasing degree of centralization: (1) ?decentralization? where wages are determined independently at the firm-level, (2) ?coordination? where one industry union sets individual wages for all firms, and (3) ?centralization? where an industry union sets a uniform wage rate for all firms. While firms' investment incentives are largest under ?centralization?, investment incentives are non-monotone in the degree of centralization: ?decentralization? carries higher investment incentives than ?coordination?. Labour market policy can spur innovation by decentralizing unionization structures or through non-discrimination rules.