DP4079 | Unionization Structures and Innovation Incentives

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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.