Imperfect Product Competition and the Capital-Labor Ratio of an Unionized Firm : Some Theory and Evidence from Belgian Manufacturing Firms

The paper develops a theory of the firm’s capital-labor ratio unionization of its labor force. Using explicit game theoretical solutions to union-firm bargaining, it is demonstrated how the firm’s product market power interacts with the inputs allocation rule in such a way that unionism represents a new channel by which the firm’s capital intensity is related to imperfect product competition. Some tests are conducted on a panel of Belgian manufacturing firms, which confirm both the effects of market power on the capital-labor ratio as well as the diversity of the union-firm bargaining locus at the industry level.