“Organized Labor and the Cost of Debt: Evidence from Union Votes” by Jiaping Qiu
Under U.S. law, unionization assigns extraordinary rights to workers in bankruptcy court. Such discrete change in the bargaining position in default states is detrimental to senior unsecured creditors. We gather detailed data on union election results from 1977 through 2010 and employ a regression discontinuity design to identify the effect of unions on bond values. Closely-won union elections lead to significant losses in bond values, but do not lead to poorer firm performance or higher bankruptcy likelihood. We show that unionization is associated with longer bankruptcy proceeding, more bankruptcy reemergences and refillings, and higher bankruptcy fees and expenses, all of which aggravate creditors' losses. The value effects of unions are weakened in states where collective bargaining is undermined by right-to-work laws.