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.