Union Contracts and the Firm's Financial Structure

Elie Appelbaum

Working Papers from York University, Department of Economics

Abstract: This paper examines the effects of union contracts on the firm’s capital structure. We consider one-stage and two-stage models, as well as wage and wage/employment contracts. We show that, for all Pareto efficient bargaining solutions, a higher debt reduces the expected tax bill, but increases the expected cost of labour contracts. This trade-off determines the optimal capital structure. We also show that a stronger union tends to increase the amount of equity used.

Pages: 18 pages
Date: 2002-07
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