Long-run Impacts of Unions on Firms: New Evidence from Financial Markets, 1961-1999∗


We estimate the effect of new private-sector unionization on publicly-traded firms’ equity value in the U.S. over the 1961-1999 period using a newly assembled sample of National Labor Relations Board (NLRB) representation elections matched to stock market data. Event-study estimates show an average union effect on the equity value of the firm equivalent to $40,500 per unionized worker, an effect that takes 15 to 18 months after unionization to fully materialize, and one that could not be detected by a shortrun event study. At the same time, point estimates from a regression-discontinuity design – comparing the stock market impact of close union election wins to close losses – are considerably smaller and close to zero. We find a negative relationship between the cumulative abnormal returns and the vote share in support of the union, allowing us to reconcile these seemingly contradictory findings. JEL Codes: J01, J08, J5, J51 ∗We thank Jonathan Berk, David Card, John DiNardo, Harrison Hong, Lawrence Katz, Morris Kleiner, Robert Moffitt, Jesse Rothstein, Eric Verhoogen, Hans-Joachim Voth, Wei Xiong, and numerous seminar participants for helpful suggestions. Diane Alexander, Eric Auerbach, Emily Buchsbaum, Mariana Carrera, Elizabeth Debraggio, Briallen Hopper, Pauline Leung, Sanny Liao, Stephen Nei, Xiaotong Niu, Zhuan Pei, Andrew Shelton, and Fanyin Zheng provided outstanding research assistance. We gratefully acknowledge research support from the Center for Economic Policy Studies at Princeton University. “[L]aymen and economists alike tend, in my view, to exaggerate greatly the extent to which labor unions affect the structure and level of wage rates.” – Milton Friedman, 19501 “Everyone ‘knows’ that unions raise wages. The questions are how much, under what conditions, and with what effects on the overall performance of the economy.” – Richard Freeman and James Medoff, 19842

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@inproceedings{Lee2008LongrunIO, title={Long-run Impacts of Unions on Firms: New Evidence from Financial Markets, 1961-1999∗}, author={David S. Lee and Alexandre Mas and Pauline Leung and Sanny Liao and Stephen Nei and Xiaotong Niu and Zhuan Pei and Andrew Shelton and Richard Freeman and James Medoff}, year={2008} }