Working Paper: NBER ID: w2019
Authors: Steven C. Allen
Abstract: This paper examines the effect of unions on efficiency by estimating cost function systems over three different sets of construction projects. The results show that union contractors have greater economies of scale. This gives them a cost advantage in large commercial office buildings, but in school and hospital construction, nonunion contractors have lower costs at all output levels. Despite the cost differences, profits for nonunion contractors in school and hospital construction are no higher than those for union contractors because the burden of higher union costs is shifted to buyers.
Keywords: unions; construction efficiency; cost function; economies of scale
JEL Codes: J51; L74
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| union contractors (J51) | greater economies of scale in large commercial office buildings (R33) |
| greater economies of scale in large commercial office buildings (R33) | cost advantage over nonunion contractors (L79) |
| union contractors (J51) | higher wages (J39) |
| union contractors (J51) | productivity (O49) |
| unionization (J50) | cost efficiency in school and hospital construction (I21) |
| nonunion contractors (J51) | lower costs at all output levels in school and hospital construction (I21) |
| higher costs of union contractors (J51) | equal profit rates across union and nonunion contractors (J50) |
| geographic market segmentation (R23) | monopoly-like environment for union contractors in school and hospital sectors (L12) |