Unions and Investment in British Manufacturing Industry
| Published date | 01 March 1991 |
| Author | Kevin Denny,Stephen Nickell |
| DOI | http://doi.org/10.1111/j.1467-8543.1991.tb00231.x |
| Date | 01 March 1991 |
British Journal
of
Industrial Relations
29:l
March
1991
0007-1080
$3.00
Unions and Investment in British
Manufacturing Industry
Kevin Denny
*
and
Stephen Nickell
* *
Final version accepted 4 September 1990.
Abstract
This
paper
is
concerned with the impact of unions on the investment rate in
British industry. On the basis of an analysis
of
some
72
industries in the
manufacturing sector, we find that,
ceteris paribus,
firms
that recognize
manual unions and have an average level of union density invest some
23
per
cent less than firms that do not recognize unions. However, once we allow for
union effects on wages and productivity, this overall effect is reduced to
between
4
and
13
per
cent, depending on the degree of competition in the
product market.
1.
Introduction
There has been a great deal
of
discussion in recent years on the impact
of
trade unions on company performance, particularly with regard to produc-
tivity (see Metcalf 1989 for a summary), but there have been few studies
of
investment. Since capital accumulation is the driving force behind the
growth
of
companies, this is obviously an important area for analysis.
Furthermore, those who have investigated this question, notably Manning
(1987),
Machin and Wadhwani (1989), and Wadhwani and Wall
(1989),
have been unable to isolate any clear-cut effects.
There are a number
of
mechanisms whereby unions might influence
investment. Thus Grout (1984) and van der Ploeg (1985) note that, when
firms
invest in new capital, unionised workers may capture some
of
the
returns in the form
of
higher wages.
If
firms are unable
to
resist this, the
overall effect
is
to reduce the incentive to invest. Furthermore, irrespective
of
the investment plans of firms, unions tend to raise wages and this
of
itself
will influence the desired capital stock and hence the rate
of
investment.
Here things can go either way. Higher wages tend to raise costs, lower
output and hence lower capital requirements. On the other hand, union
*
Institute
for
Fiscal Studies
**
oxford University, Institute
of
Economics and Statistics
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