Firm Unionization and Disruptions in Customer Relationships

51 Pages Posted: 1 Aug 2017 Last revised: 6 May 2021

See all articles by Gary Chen

Gary Chen

University of Illinois at Chicago

J. Scott Judd

University of Illinois at Chicago

Shail Pandit

University of Illinois at Chicago

Multiple version iconThere are 2 versions of this paper

Date Written: February 13, 2020

Abstract

Relationships with major customers may be advantageous to suppliers due to economies of scale and reputational benefits. In this study, we investigate whether unionization leads to disruptions in a firm’s relationships with its customers. We argue that major customers shift purchases away from suppliers that unionize to avoid potential disruptions. Using a difference-in-differences research design, our results show a negative association between supplier unionization and sales to major customers. Our findings are robust to addressing endogeneity concerns through a propensity score matched analysis and regression discontinuity research design. Additionally, we find that supplier firm performance declines subsequent to unionization. We also find that suppliers experience significant increases in their cost of goods sold and the number of employees after supplier unionization, suggestive of higher input prices driving the disruption with major customers. Finally, we provide evidence that higher switching costs mitigate the decline in sales to major customers. Overall, our findings suggest that employee unionization can adversely affect a firm’s relationships with their major customers.

Keywords: labor unions; major customers; supply chain disruptions; firm performance

JEL Classification: M41, J51, L25, L14, G30

Suggested Citation

Chen, Gary and Judd, Joshua and Pandit, Shailendra, Firm Unionization and Disruptions in Customer Relationships (February 13, 2020). Available at SSRN: https://ssrn.com/abstract=3010829 or http://dx.doi.org/10.2139/ssrn.3010829

Gary Chen (Contact Author)

University of Illinois at Chicago ( email )

601 South Morgan Street
Chicago, IL 60607
United States

Joshua Judd

University of Illinois at Chicago ( email )

601 S Morgan St. 2302 UH
Chicago, IL 60607
United States

Shailendra Pandit

University of Illinois at Chicago ( email )

601 South Morgan Street
University Hall, Room 2303
Chicago, IL 60607
United States
(312) 355-1331 (Phone)
(312) 996-4520 (Fax)

HOME PAGE: http://business.uic.edu/faculty/shailendra-shail-pandit

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