FRIDAY: Who Pays for Unions?

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If unions raise worker wages, who pays? Do consumers pay through higher prices, firm owners through lower profits, other workers through reduced employment, or does it pay for itself through productivity gains? This paper provides a comprehensive assessment of the margins along which manufacturing firms in Norway respond to increased union density, using legislative changes in the tax deductibility of union dues as a quasi-exogenous shock to firm-level unionization rates. In response to union-induced increases in labor costs, the average firm increases employment, reduces estimated labor markdowns, raises output prices, improves productivity by enhancing workforce composition and lowering turnover, and experiences no decline in profitability. We estimate that three quarters of the increased labor cost is paid for by consumers in the form of higher prices, and the remainder pays for itself in the form of improved productivity. Overall, our findings show that increases in unionization on this margin (1) redistribute from consumers to workers but from shareholders to workers; (2) improve firm productivity; (3) counteract employer monopsony power; and (4) reallocate employment and market shares toward larger, more productive, more profitable, and more-unionized firms. We synthesize these findings through a partial-equilibrium model of firm decision-making that incorporates union bargaining, product-market price-setting power, and labor market monopsony power.