This project is important because it will significantly extend our understanding of the impact of unions on the behavior of firms. Recent studies on the effect of unions on the profitability of firms indicate that unions have the effect of reducing shareholder wealth. A recent paper by the principal investigator suggests that an unanticipated increase in new wage settlements results in an equal reduction in shareholder wealth. The purpose of this study is to determine how the effect of labor unions on profits influences investment decisions of firms. This research has the potential of explaining the degree to which union activity affects firm-investment behavior, which in turn may have altered employment patterns and union membership in the U.S. A comprehensive model of investment behavior will be developed which explicitly considers, among other traditional determinants of investment, unionization and collective bargaining. The model will be tested extensively with firm level bargaining and unionization data, and investment and financial data.
