Do firms' political connections depress the union wage effect? Evidence from China |
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| Institution: | 1. South China Research Center for Market Economy, School of Economics and Management, South China Normal University, Guangzhou, Guangdong Province, China;2. Sun Yat-sen Business School, Sun Yat-sen University, Guangzhou, Guangdong Province, China;1. China Economics and Management Academy, Central University of Finance and Economics, 39 South College Road, Beijing 100081, China;2. Center for Chinese Agricultural Policy, Institute of Geographical Sciences and Natural Resource Research, Chinese Academy of Sciences, 11A Datun Road, Chaoyang, Beijing 100101, China;3. School of Advanced Agricultural Sciences, Peking University, 5 Yiheyuan Rd, Haidian, Beijing 100089, China;4. U.S. Grains Council China, Beijing, China World Office 1, Suite 1010C, No. 1 Jianguomenwai Ave., Beijing 100004, China;1. ESSCA School of Management, 1 rue Lakanal, BP 40348, 49003 Angers, France;2. Economics and Finance Department, SUNY Buffalo State, Buffalo, NY 14222, USA |
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| Abstract: | Our paper reconciles the debated literature on the role of the Chinese unions by exploring the heterogeneous effects of unionization on wages in firms with and without political connections. We utilize a survey of 1268 firms in 12 cities to verify our hypothesis that wages increase due to unionization, but this union wage effect is significantly depressed by firms' political connections. Through a detailed analysis of the mechanism behind the empirical results, we conclude that unions increase workers' wages by strengthening the bargaining power of workers, while this bargaining power can be weakened by firms' political connections. Our main conclusion is robust to a series of robustness checks. Moreover, the results from quantile regressions inform us that the union wage effect and the role of political connections may vary along with the firms' wage distribution. Our findings suggest that the solution to further increase wages for low-wage workers and reduce wage inequality is to make the labor union an independent organization which can freely bargain with firms in terms of workers' wages and benefits, rather than an agency subordinate to the government whose role can be affected by the government support and undermined largely by firms' political connections. |
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