Unionization = 10% Decline in Firm Value
We estimate the effect of new unionization on firms' equity value over the 1961-1999 period using a newly assembled sample of National Labor Relations Board (NLRB) representation elections matched to stock market data. Our event-study analysis reveals substantial losses in market value following a union election victory – about a 10% decline, equivalent to about $40,500 per unionized worker. The evidence supporting this finding is compelling: we find that these firms’ average returns are quite close to the predicted returns every month leading up to the election, but at precisely at the time of the election, the actual and counterfactual returns diverge (see bottom chart above).
For example, in a March 1999 National Labor Relations Board (NLRB) representation election, workers at National Linen Service (NLS) Corp., a large linen supplier, voted by an over 2 to 1 margin to organize as a local chapter of the Union of Needletrades, Industrial, and Textile Employees (UNITE). The stock market response appeared to punish NLS in a severe, though perhaps not swift, fashion. Figure 1 (top chart above) shows the cumulative return of NLS’ stock for the two years prior to and following the election, as well as the cumulative return of a broad market index over the same period. Before the election, the returns for NLS and the market tracked each other quite closely. But immediately following the election, NLS began to lag. By March 2001, the price of NLS shares had fallen by 25%, while the broad market index had increased by 50%.
HT: Travis Walker (and Freakonomics)