Sunk capital,unions and the hold-up problem: Theory and evidence from cross-country sectoral data |
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Affiliation: | 1. FEDEA, Jorge Juan 46, 28001 Madrid, Spain;2. IAE (CSIC) Barcelona, Spain;3. Paris School of Economics, University Paris 1 Panthéon-Sorbonne, Centre d''Economie de la Sorbonne, 106-112 Bd. de l''Hopital, 75013 Paris, France;4. Bar-Ilan University, Ramat Gan, Israel;1. FAME | GRAPE, Poland;2. IAAEU, Germany;3. IZA, Germany;4. University of Warsaw, Poland;5. Warsaw School of Economics, Poland;1. Faculty of Commerce, Waseda University, 1-6-1 Nishiwaseda, Shinjuku-ku, Tokyo 169-8050, Japan;2. Research School of Economics, Australian National University, H.W. Arndt Building, Canberra, ACT 0200, Australia;3. School of Economics, University of Sydney, NSW 2006, Australia |
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Abstract: | In this paper we study the hold-up problem by considering the effect of union bargaining power on the level of investment per worker across sectors characterised by different levels of sunk capital investment. We develop a search and matching model with heterogeneous sectors and ex-post collective wage bargaining and test the predictions of the model using a difference-in-difference approach on manufacturing sector data in a set of OECD countries during the period 1980–2000. We find that union power reduces investment per worker particularly in sunk capital intensive industries. We refine our empirical analysis showing that the underlying hold-up problem is exacerbated when strikes are not regulated after a collective contract is signed and there is no arbitration, while the presence of social pacts may sustain cooperative equilibria that alleviate the hold-up problem. Our results are robust to a series of controls and possible endogeneity of union power. |
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Keywords: | Hold-up Unions Sunk investments Search and matching Difference-in-difference J51 J64 L60 E22 |
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