THE EFFECT OF UNION DENSITY ON MULTI-FACTOR PRODUCTIVITY
This study investigates the direct effect of union density on multi-factor productivity growth, which is widely accepted as a measure of technical change in the economy. A regression analysis was conducted on a panel of 17 OECD countries over the period of 1990-2003. An indirect link between union density and multi-factor productivity (through union density's effect on research and development) has been established in the literature, but the existence of a direct effect has not previously been explored. This analysis has found that union density has a positive, but insignificant relationship with multi-factor productivity. While this finding signals that union density levels are positively related with multi-factor productivity to some extent, the indirect, negative effect of unions on multi-factor productivity is likely to outweigh the benefits of the positive relationship that has been uncovered in this essay. Policymakers should continue to create incentives for businesses to invest in R&D (which is the major route to growth in multi-factor productivity). Incentives to increase R&D will need to be balanced with the desire of policymakers to promote higher union density levels due to their positive effects on various other social measures, particularly income distribution.
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