Firm Unionization and Disruptions in Customer Relationships

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