Unions and Firm Solvency

The purpose of the project is to provide the first rigorous empirical analysis of the impact of unionization on firm bankruptcy, liquidation and unemployment due to plant closings. A consistent empirical finding is that unions raise wages above those found in nonunion firms and that in a competitive product market one would expect to find that unionized firms would go out of business more than nonunion firms. However, if unions engage in economic rent sharing then during periods of economic hardship unionized firms may be able to remain solvent by giving back some of these rents. These potential outcomes will be empirically analyzed by first examining the extent to which unionized firms become insolvent relative to nonunion firms. Second, the extent to which firms drop unionized lines of business relative to nonunionized ones will be determined. Finally, the extent to which unionized plants close and workers become unemployed relative to nonunionized ones will be investigated. Data from COMPUSTAT, Census of Manufactures data on plant closings, the Current Population Survey, as well as new survey data developed from these companies will be used. The project will make an important contribution in two areas of economics - labor economics and industrial organization. The results will improve our understanding of firm shutdowns, the role of unions on firm performance and how these are related to varying levels of profit, employment and industrial structure.