Unionization Structures and Innovation Incentives

This Paper examines how different unionization structures affect firms' innovation incentives and industry employment. We distinguish three modes of unionization with increasing degree of centralization: (1) ‘decentralization’ where wages are determined independently at the firm-level, (2) ‘coordination’ where one industry union sets individual wages for all firms, and (3) ‘centralization’ where an industry union sets a uniform wage rate for all firms. While firms' investment incentives are largest under ‘centralization’, investment incentives are non-monotone in the degree of centralization: ‘decentralization’ carries higher investment incentives than ‘coordination’. Labour market policy can spur innovation by decentralizing unionization structures or through non-discrimination rules.