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Sunk Capital, Unions and the Hold-Up Problem: Theory and Evidence from Sectoral Data

Gabriele Cardullo (), Maurizio Conti () and Giovanni Sulis ()

Working Paper CRENoS from Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia

Abstract: In this paper we test for the hold-up problem by considering the effect of unions' bargaining power on the rate of growth of investment per worker and labour productivity across sectors characterised by different levels of sunk capital investments. We develop a search and matching model with hetereogeneous 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 1980-2005. We do find that union power slows down investment and labour productivity particularly in high sunk capital 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 concentration of unions and the presence of social pacts sustain cooperative equilibria and alleviate such a problem. Our results are robust to a series of controls and possible endogeneity of union power.

Keywords: hold-up; unions; sunk investments; search and matching; difference- in- difference; sectors (search for similar items in EconPapers)
JEL-codes: J64 L60 O43 J51 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-lab
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https://crenos.unica.it/crenos/node/3819
https://crenos.unica.it/crenos/sites/default/files/WP12-26.pdf (application/pdf)

Related works:
Journal Article: Sunk capital, unions and the hold-up problem: Theory and evidence from cross-country sectoral data (2015) Downloads
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