The Microeconomic Impacts of Employee Representatives: Evidence from Membership Thresholds

• Published date: 01 October 2019
• Date: 01 October 2019
• Author: Pedro Silva Martins
• DOI: http://doi.org/10.1111/irel.12248

The Microeconomic Impacts of Employee

Representatives: Evidence from Membership

Thresholds

PEDRO SILVA MARTINS*

Employee representatives in firms are a potentially key but not yet studied source of

the impact of unions and works councils. Their actions can shape multiple drivers of

firm performance, including collective bargaining, strikes, and training. This article

examines the impact of union representative mandates by exploiting legal member-

ship thresholds present in many countries. In the case of Portugal, which we exam-

ine here, while firms employing up to forty-nine union members are required to

have one union representative; this increases to two (three) union reps for firms with

fifty to ninety-nine (100–199) union members. Drawing on matched employer–em-

ployee data on the unionized sector and regression discontinuity methods, we find

that a one percentage point increase in the legal union representative/members ratio

leads to an increase in firm performance of at least 7 percent. This result generally

holds across multiple dimensions of firm performance and appears to be driven by

increased training. However, we find no effects of union representatives on firm-

level wages, given the predominance of sectoral collective bargaining.

Introduction

The performance of organizations can be strongly affected by the people

that work in them. This applies in the case of businesses as well as in the case

of trade unions. Employee representatives, given their dual affiliation as work-

ers in a firm and members of a trade union or works council, can therefore

play critical roles on both organizations. In particular, union representatives

will thus be key drivers of the economic effects of trade unions upon firms.

JEL codes: J51, J31, L25.

*The author's affiliation is Queen Mary University of London, London, UK. E-mail: p.martins@qmul.ac.uk.

The author thanks Alex Bryson, Pierre Cahuc, Gill Kirton, Maria Koumenta, Claudio Lucifora, Pedro Portu-

gal, Rodrigo Queiroz e Melo, Alcides Martins, Joana Saraiva, Tessa Wright, and seminar participants at the

Catholic University (Milan), University College Dublin, Queen Mary University of London, European Com-

mission (Brussels) and IZA (Bonn) for comments; the Ministry of Employment, Portugal, for data access;

and the European Union for financial support (CoBExt action, grant VS/2016/0340). The European Com-

mission is not responsible for any use that may be made of the information that the study contains.

INDUSTRIAL RELATIONS, DOI: 10.1111/irel.12248. Vol. 58, No. 4 (October 2019). ©2019 Regents of the

Universit y of Calif ornia. Published by Wiley Periodicals, Inc., 350 Main Street, Malden, MA 02148, USA,

and 9600 Garsington Road, Oxford, OX4 2DQ, UK.

591

In fact, union representatives (also commonly referred to as “union dele-

gates,’’ “shop stewards,’’ or “union stewards,’’ and henceforth simply as

“union reps’’) can be influential, in a positive or negative way, in multiple

business dimensions, with ultimately positive or negative effects upon firm

performance. These dimensions include collective bargaining, training, innova-

tion, health and safety, compliance with regulations, information dissemination,

strikes, restructuring, and dismissals. Union reps can also potentially contribute

toward higher labor income levels, an important policy goal in many countries,

faced with stagnant wages and declining labor shares. This union contribution

can arise through the productivity channels above (if their positive effects

exceed any negative contributions) and/or by strengthening the bargaining

power of workers in rent sharing. One may argue that the future of unions will

depend more on their contributions toward rent generation than on their

achievements in terms of rent extraction.

This study contributes to the large literature on unions as the first explicit exam-

ination of the impact of employee representatives.

1

In contrast to but complement-

ing the existing research, in this paper we examine the entirely novel question of

the (causal) impact of additional union reps in firms. Indeed, the quantity and

quality of the union activities conducted by reps can depend critically on the num-

ber of workers that are not only recognized by the firm as legitimate representa-

tives of (unionized) employees but also supported in terms of paid time off work

(and greater employment protection) to conduct the union activities above. Impor-

tantly, while some of these activities will be directly aligned with the interests of

employers, others will not, at least not in a short-run perspective.

Our empirical analysis of this question is based on labor law regulations

common in many countries that establish the number of recognized and sup-

ported union reps and that do so as a (nonlinear) function of the number of

workers in the firm.

2

We consider the case of Portugal, in which the

1

This literature is surveyed in Doucouliagos, Freeman, and Laroche (2017), including DiNardo and Lee

(2004); Lee and Mas (2012); Sojourner et al. (2015); and Barth, Bryson, and Dale-Olsen (2017), which pre-

sent causal evidence of the impact of collective bargaining mandates for unions in the United States and of

union density in Norway. See also OECD (2017) for an international analysis of collective bargaining and

social partners and Freeman and Lazear (1994) and Mueller and Stegmaier (2017) for early and recent stud-

ies of works councils.

2

For instance, in France both the number of union reps in each firm and per union varies between one

and five depending on the firm size. Moreover, the paid time off work for union activities that each union

rep is entitled also varies depending on firm size, between 12 to 24 hours per month for union activities.

(See Breda 2016 for a detailed description of union representatives in France.) In Italy, the number of union

reps starts at three (firms with sixteen to two hundred employees), increasing by three more for each three

hundred additional employees up to three thousand and then for each five hundred additional employees. In

contrast, in the UK, there is no fixed amount of paid time off determined in law nor a fixed number of union

reps per firm. Similar regulations are found in many other countries with respect to workers’councils. See

CESifo DICE (2015) for more information.

592 / PEDRO SILVA MARTINS

(nonlinear) legal function determining the number of union reps is based

exclusively on the number of unionized workers in the firm (and not all work-

ers, unionized or not, as in France and Italy). Specifically, employers with up

to forty-nine unionized workers are required to support at least one union rep,

a number that increases to two in the case of firms with fifty to ninety-nine

unionized workers, three (100–199), six (200–499) and then one more for each

200 additional unionized workers (Figure 1).

We exploit empirically the legal requirements above using a regression dis-

continuity approach, considering the case of multiple cut-offs (see Angrist and

Lavy 1999 for a similar application; see also Cattaneo et al (2016)). Intuitively,

our analysis is based on a comparison of firms within the unionized sector that

happen to have small differences in their numbers of unionized workers around

the legal thresholds above (such as fifty, one hundred, and two hundred) to

tackle the potential endogeneity that would otherwise confound our estimates.

The fact that these thresholds are based on union members and not all workers

is also important. Indeed, this virtually eliminates the possibility that these dis-

continuities are picking up the effect of regulations that are a function of the

number of workers of the firm (Martins 2009a; Garicano, Lelarge, and Van

Reenen 2016), that could otherwise be based on the same threshold levels used

for union reps (in our case this could only be an issue in the very uncommon

cases of 100 percent union density rates). Thresholds based on union reps also

provide for greater stability in the characterization of firms, in this case in terms

of the number of union reps, given the lower volatility over time in union mem-

bership size compared to workforce size.

We then exploit the wide range of variables of our matched-employee data,

covering all firms in the country with unionized workers, to evaluate the

impact of the union reps’legal mandates on a large number of firm- and

worker-level outcomes. Our analysis of all unionized firms allows us to have a

representative view of the effects of unions in firms within a country, rather

than focus only on new unions (DiNardo and Lee 2004; Lee and Mas 2012).

Our analysis is also in contrast to earlier causal studies of the economic

impacts of unions because of our focus on a novel, intensive margin of union-

ization (Barth, Bryson, and Dale-Olsen 2017). Earlier studies (DiNardo and

Lee 2004; Lee and Mas 2012) focus instead on an extensive margin driven by

the legal mandate to conduct collective bargaining following a vote by workers

to unionize.

Our results also differ from earlier research as we find that union reps have

a significantly positive effect on many dimensions of firm performance, includ-

ing sales, exports, profits, and survival. This is notwithstanding the costs

incurred by firms with union reps, namely in (paid) time off work and greater

employment protection. More specifically, we find that a one percentage point

The Impact of Employee Representatives / 593