Corporate Diversification, Employee Bargaining Power, and Wages

Corporate diversification benefits employees by decreasing unemployment risks associated with the financial distress and bankruptcy of their firms. However, its implications for wages are ambiguous. This paper examines the possibility that the effect of diversification on wages is contingent upon employee bargaining power based on Japanese data. I find that diversified firms pay higher (lower) wages than representative-focused firms in the same industries when their employees are unionized (nonunionized). This pattern is robust to alternative measures of employee power and the controls for unobserved heterogeneity and endogeneity. My results suggest that diversification is valuable for powerful organizational insiders even when it is not for shareholders.