Labor unionization and supply-chain partners’ performance

Woon Sau Leung, Jing Li, Jiong Sun

Research output: Contribution to journalArticlepeer-review

Abstract

We investigate whether labor unionization of customer firms affects the operating performance of their dependent suppliers. Using a sample of U.S. union elections, our regression discontinuity tests show that passing a union election leads to a 6.9 percentage-point decline in supplier operating margin in the following year. Such negative effects are more pronounced for customers with stronger bargaining power vis-à-vis dependent suppliers. Additional tests show that the reduced supplier operating margins are due to weakened top lines and, more specifically, to squeezed selling prices. Finally, consistent with increased labor costs, unionization is shown to significantly increase cost of goods sold and slow labor-force downsizing among customer firms. Overall, our evidence suggests that increased labor costs and financial inflexibility due to unionization induce customers to price-squeeze their dependent suppliers.
Original languageEnglish
Pages (from-to)1325-1353
Number of pages29
JournalProduction and Operations Management
Volume29
Issue number5
Early online date19 Jan 2020
DOIs
Publication statusPublished - May 2020

Keywords

  • labor unions
  • supply chain
  • bargaining power
  • regression discontinuity approach

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