If unions raise worker wages, who pays? We provide a comprehensive assessment of firm responses to increased unionization, using changes in the tax deductibility of union dues in Norway as a quasi-exogenous source of variation in firm-level union density. In the average private sector firm, higher union density raises labor costs and leads firms to contract employment and production, lowering profits without increasing the labor share. The incidence is shared: consumers bear part of the cost through higher prices, shareholders through lower profits, and the remainder is offset by productivity improvements. The total wage bill falls, with losses concentrated among less-attached “outsider” workers. Firm responses vary systematically by the degree of market competition. In manufacturing, where firms operate in less competitive product and labor markets, the response is reversed: the average firm expands employment and production, reduces labor markdowns, and does not experience profit declines. Instead, higher labor costs are largely passed on to consumers through higher prices, with the remainder offset by productivity gains. Workers benefit as both wages and employment rise. These patterns suggest that unions can offset employer monopsony power and that firm responses–and therefore who ultimately bears the cost-depend importantly on market structure. Overall, unionization in this setting primarily redistributes from consumers rather than shareholders and has effects that differ sharply across firms, including a reallocation toward larger and more productive firms. We rationalize these patterns using a partial-equilibrium model of union bargaining with product- and labor-market power. That is forthcoming in the QJE by Samuel Dodini , Anna Stansbury , and Alexander Willén. The post Who Pays for Unions? appeared first on Marginal REVOLUTION .
Who Pays for Unions?
Brief
Dodini, Stansbury, and Willén's forthcoming QJE paper uses Norway's change in tax deductibility of union dues as a quasi-exogenous shock to firm-level union density to estimate firm responses. In average private-sector firms higher union density raises labor costs, cuts employment and output and lowers profits (wage bills fall, outsiders lose). In manufacturing, firms expand output, raise wages, and pass costs to consumers.
Why it matters
Using Norway's change in the tax deductibility of union dues as a quasi-exogenous shock, Samuel Dodini, Anna Stansbury, and Alexander Willén (forthcoming QJE) find that in the average private-sector firm higher union density raises labor costs, reduces employment and output, lowers profits, and shrinks the total wage bill—losses concentrated among less-attached “outsider” workers.
Key details
- In manufacturing—where product and labor markets are less competitive—the same increase in union density expands employment and output, raises wages, reduces labor markdowns, avoids profit declines, and largely passes higher labor costs onto consumers; results imply unions can offset employer monopsony power and reallocate activity toward larger, more productive firms.
- Tyler Cowen summarized the paper on Marginal Revolution (published 2026-08-06); the authors rationalize the heterogeneous firm responses using a partial-equilibrium model of union bargaining with product- and labor-market power.