Organized Labor Effects on SG&A Cost Behavior

This study examines the effect of organized labor on corporate SG&A cost behavior. Organized labor could reduce the stickiness of SG&A costs through reducing a firm’s SG&A spending, or increase cost stickiness through raising adjustment costs. Using multiple data sources, we find that a stronger power of organized labor is associated with a lower level of SG&A cost stickiness. Further analyses indicate that this relationship is consistent with labor unions’ influence on managers’ spending incentive that arises from unions’ rent seeking behavior. Our results suggest that organized labor is an important determinant of SG&A cost behavior.