Unions and Innovation: A Survey of the Theory and Empirical Evidence

This Paper surveys the economic literature on the impact of trade unions on innovation. There are many theoretical routes through which unions may have an effect on innovation, for example through their effects on relative factor prices, profitability and their attitudes towards the introduction of new technology. Recent theoretical work has focused on the possibility that trade unions will ‘hold up’ firms by expropriating sunk R&D (research and development) investments through demanding higher rewards. The hold up problem may be mitigated (or exacerbated) by strategic incentives to compete in R&D races. In an attempt to resolve the theoretical ambiguity we focus on surveying recent micro-econometric results in the areas of R&D, innovation, technological diffusion and productivity growth. North American results find consistently strong and negative impacts of unions on R&D. By contrast, European studies (mainly in the UK) generally do not uncover negative effects of unions on R&D. There is no consensus of the effects of unions on our other main measures: technological diffusion, innovation or productivity growth even in the North American studies. These cross-country differences in the R&D impact of unions could represent either unsolved econometric problems or genuine institutional differences between nations in union attitudes and ability to bargain. We suspect the latter is the main reason.