Unions' and firms' attitudes towards research joint ventures: When will the incentives be aligned?

This paper studies the relationship between unionization and innovation activity. Under a unionized labour market, we find that when R&D spillovers are relatively low (high), cooperative, as well as non-cooperative R&D is a strategic substitute (complement). Furthermore, irrespective of the spillover rate, cooperation increases firms' profits, whereas it increases union utility only if spillovers are sufficiently high. Alignment of incentives between firms and unions requires that firms pay transfers in the form of 'rent-sharing' to make a Research Joint Venture attractive to unions. Our results suggest that if spillovers are low enough, the amount of money that firms give up in order to buy unions' acquiescence weakens their incentives to form a Research Joint Venture. © 2007 The Authors; Journal compilation © 2007 CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd