Revisiting the impact of organized labor on corporate bottom lines

Relying on an international panel data set, the purpose of this paper is to quantify the economic impact of labor unionization on corporate financial performance.

Static panel regression analysis is performed for a firm-level multinational data set to elucidate the postulated empirical relationships between employee unionization and corporate performance. The transmission mechanisms intermediating the studied effects are discussed and operationalized.

The empirical evidence demonstrates that firms with a higher level of employee unionization spend more on wages and labor-related expenses. The concomitant downside of higher resource extraction by unions is a lower rate of net employment creation and a higher possibility of redundancy layoffs.

Overall, the authors demonstrate that by creating a credible threat of employee disobedience manifested through strikes and internal wage disputes, labor unions remain an effective mechanism of increasing employees’ bargaining power. Despite the discovered weak negative associative link between the degree of unionization and corporate financial performance, the authors perceive the overall evidence to be inconclusive on this matter.