Unionisation Structures and Innovation Incentives

This paper examines how different unionisation structures affect firms' innovation incentives and industry employment. We distinguish three modes of unionisation with increasing degree of centralisation: (1) 'Decentralisation' where wages are determined independently at the firm-level, (2) 'coordination' where one industry union sets individual wages for all firms, and (3) 'centralisation' where an industry union sets a uniform wage rate for all firms. While firms' investment incentives are largest under 'centralisation', investment incentives are non-monotone in the degree of centralisation: 'Decentralisation' carries higher investment incentives than 'coordination'. Labour market policy can spur innovation by decentralising unionisation structures or through non-discrimination rules.