The Ambiguous Role of Trade Unions in Startup Formation

Introduction

Entrepreneurs planning or setting up a firm must engage in an ongoing process of appraising their prospects for success (Cooper, Woo & Dunkelberg, 1998; Shepherd, Williams & Patzelt, 2015), and there has been research on factors that the authors might expect to influence these perceptions. This includes research on the survival and success of new firms and related environmental factors that are conducive to entrepreneurial activity (e.g. Henrekson, 2007; Kanniainen & Vesala, 2005). Presumably, entrepreneurs might adjust their assessments for their own businesses in the light of the actual survival rate of new firms. There has also been research examining relationships between entrepreneurs’ characteristics and their firms’ actual performance. These relationships, if recognized, might lead entrepreneurs to take their own preparation and characteristics into account when judging whether prospects for their firms are favorable or unfavorable (see Shepherd et al., 2015). While the research takes perceptions on variables stemming from the external environment as well as entrepreneurs’ characteristics into account, to the best of the authors’ knowledge there has been no previous examination on how perceptions about economic actors, more specifically trade unions, influence firm formation decisions by entrepreneurs.

While there is little doubt that trade unions are an important economic body that provides a structure for human interactions by being responsible for collective bargaining and representation tasks (North, 1990: pp. 4-5), their role in economic development is in dispute. In the context of the debate on economic growth, unions are seen in the literature as either conducive to or unfavorable for economic development (e.g. Traxler, 2003; Streeck & Hassel, 2003; Kanniainen & Leppämäki, 2009). Yet they are widely acknowledged as important actors. Economists usually consider trade unions as economic actors, especially as labor market monopolists and because of their role in collective bargaining to determine wages. At the same time unions can obtain political influence by converting their industrial power into political power (Pizzorno, 1978). This happens when unions possess strong bargaining power and when collective bargaining agreements are important for macroeconomic performance, including employment (Streeck & Hassel, 2003). Their political power stems primarily from their traditional links with political parties and from their inclusion in the governance structures of parastate agencies, such as economic and social policy councils, which allow them to influence the substance and implementation of public policy.

From the entrepreneur perspective, the literature suggests that people management issues are a key personal and professional concern on which they actively seek information. For instance, Marlo (2000) underlines the criticality of efficient use of people in small firms to achieve sustainability. Hayton and colleagues (2013) point to the importance of people management practices for initiating and sustaining enterprises, even new startups. Research also shows the importance of external labor market structures and processes for SME creation and development (Golpe, Millán & Ramon, 2008; Kanniainen & Vesala, 2005). While such research provides some insights into the influence of employee relations and labor market conditions, it does not provide a consolidated account of the specific role of trade unions for firm formation from the perspective of the individual entrepreneur. This paper therefore studies the role of trade unions in firm formation decisions taken by budding entrepreneurs.

To address this question, the authors examine the Spanish economy. First, assessment of trade unions in economic development via firm formation is timely. The global financial and economic crisis has hit the Spanish labor market particularly hard and the harmonized unemployment rate reached an all-time high in July 2013 of 26.5%, the second highest in the OECD area and more than three times the OECD average (Organization for Economic Co-operation and Development 2013).