Shareholder Risk and Returns in Union and Nonunion Firms

This study examines shareholder risk and rates of return in union and nonunion companies in 1973-87. Shareholder risk declined with the extent of union coverage in the 1970s, and returns were lower among highly unionized companies than among other companies during the late 1970s and early 1980s. Unionnonunion differences in risk were small and insignificant by the mid-1980s, however, and there was no systematic relationship between union coverage and shareholder returns in the mid-1970s or mid-1980s. Finally, firms with relatively low rates of return to investors in 1977-82 tended to experience larger than average declines in firm-level union coverage between 1977 and 1987. As a partial explanation for these findings, the authors posit a relationship between shareholder risk and the differential use of COLAs across industries and time. Helpful comments were received from Gary Fournier, David Macpherson, and an anonymous referee. Financial assistance from the Florida State University Committee on Faculty Research Support is gratefully acknowledged. Computer programs and data for purposes of replication are available from Barry Hirsch at the Department of Economics, Florida State University, Tallahassee, Florida 32306-2045.