The Effects of Unions of Investment and Innovation: Evidence from WIRS

The above is representative of much popular discussion of the effects of unions on investment and innovation. In the professional literature, the view that unions deter investment by expropriating quasi rents is also commonplace (see, e.g. Simons (I944), Baldwin (I983), Grout (I984)). In addition, it is argued that union-foisted restrictive work practices might make investment a more costly process (see, e.g. Denny and Nickell (I989)). In recent years, the above theoretical notions have appeared to receive some empirical support, in that in the United States, the level of the investment-capital ratio does appear to be lower in union firms (see Hirsch (I988) and references therein). In this paper, we use information contained in the i 984 Workplace Industrial Relations Survey in order to investigate the actual impact of unions on investment. The rest of the paper is organised as follows. In Section I. I we informally review the alternative channels through which unions might affect investment. Section I.2 contains a simple theoretical model of investment which embodies all the alternative channels. Our results are to be found in Section II, and, finally, some conclusions are contained in Section III.