Abstract
This paper provides a comprehensive assessment of the margins along which firms respond to shifts in union density. Based on identification designs that exploit exogenous variation in exposure to union density across Norwegian manufacturing firms, we show that the average firm responds to increased unionization by raising worker wages and expanding their production. This expansion involves hiring more workers and investing in additional capital and materials. The scaling effect translates into an increase in the nominal value of firm sales. This increase is slightly larger than the increase in labor usage, such that value added per worker also increases. In addition, product price markups rise while labor markdowns fall. We find no decline in profits. Estimates of price pass-through from customs data suggest that firms pass on the entire labor cost increase in prices and that the measured increase in value added is driven by price increases rather than by productivity increases. We synthesize these results through a model of firm decision-making that incorporates union bargaining, product-market price-setting power, and labor market monopsony power.
The seminar will be held in room 1249 (12th floor) at Eilert Sundts Hus. The address is Moltke Moes vei 31.