Organized Labor and Audit Fees

SYNOPSIS This study investigates the empirical relationship between organized labor and audit fees. We find that audit fees are negatively related to the firm-level unionization rate—the higher the unionization rate, the lower the audit fees. We further observe that the unionized firms are less likely to hire Big 4 or industry-specialist auditors. Additional analyses show that the negative relationship between the firm-level unionization rate and audit fees is significantly attenuated for unionized firms with poor financial performance. Our results are consistent with unionized firms preferring less audit scrutiny, which helps them maintain information asymmetry with the labor unions. The study facilitates our understanding of firms' demand for audit services and the consequential effect on audit fees when faced with strong organized labor, and adds to the extant literature investigating the impact of organized labor on various aspects of firms' financial reporting decisions. JEL Classifications: M41; M42. Data Availability: Data used in the analyses are obtained from public sources described in the text.

Diverging Male Wage Inequality in the United States and Ganada, 1981–1988: Do Institutions Explain the Difference?

The U.S. and Canadian economies have much in common, including similar collective bargaining structures. During the period 1981–88, however, although both countries witnessed a decline in the percentage of workers belonging to unions and an increase in hourly wage inequality, those changes were much more pronounced in the United States than in Canada. Using data on men in Canada and the United States in 1981 and 1988 (from the Labour Force Survey and supplements to the Current Population Survey), the authors study the effect of labor market institutions on changes in wage inequality by computing simple counterfactuals such as the distribution of wages that would prevail if all workers were paid according to the observed nonunion wage schedule. Their results suggest that much more severe declines in the unionization rate in the United States than in Canada account for two-thirds of the differential growth in wage inequality between the two countries.