The global supply chain has faced considerable difficulties of late. Worker shortages have caused delays in both production and shipping, posing further complications for companies across many sectors. For one e-commerce giant in particular, it has also meant a renewed focus on the treatment of workers. This week brought news that the workers of an Amazon (NASDAQ:AMZN) warehouse in Staten Island, New York are moving to unionize in response to the ways they say their safety has been compromised during the Covid-19 pandemic. AMZN stock hasn’t been impacted yet, but that could be about to change.
So what do you need to know?
To start, Amazon is no stranger to crushing unionization efforts.
The company made headlines this spring after successfully stopping the biggest union drive in its history. As a refresher, workers of a Bessemer, Alabama warehouse voted against unionizing after a well-publicized campaign endorsed by President Joe Biden. Should investors be concerned by the latest attempt by Amazon workers to organize and fight? Let’s see what history tells us.
Some Historical Context
As it turns out, the question of the effect on a company’s stock price posed by worker unionization has received considerable research, most of it fairly current. The studies have primarily focused on examining stock prices both before and following a company’s unionization. The results have not all been the same, though. In fact, one 2019 study almost directly contradicts another that was published in 2015.
It’s important to note that some studies on this topic are less current than others. In 2009, a study from the National Bureau of Economic Research titled “Long-Run Effects of Unions on Firms” found evidence that the losses for a unionized public company were, on average, $40,500 per each worker eligible to vote to organize. The study’s findings also included that a “doubling of unionization in the U.S. would lead to a 4.3 percent decrease in the equity value of all firms at risk of unionization.” The data examined, though, were collected between 1961 and 1999.
The other two studies are more current. In 2015, a study published in the International Journal of Financial Research examined the question in its title — “Do Labor Unions Affect Stock Price Crash Risk?” Using similar data collected between 1984 and 2014, it found that the risk of a stock price crashing is directly correlated with labor union strength. This is due primarily to tendencies on the part of management to report lower accounting information.
It’s easy to see how such a trend could affect a company such as Amazon and pose negative effects for AMZN stock. Four years later, though, another study was released that presented evidence to the contrary. This research team’s results demonstrated that the risk of stock price crash decreases significantly post-unionization. According to the study, unionization can lead to reductions in managerial resource diversion, over-investment, risk-taking and an increase in reporting transparency, all of which can help lower stock price crash risk.
What This Could Mean for AMZN Stock
While the results of the aforementioned studies vary, their collective findings suggest that while unionization can pose positive effects for a company’s stock performance, that outcome is not guaranteed. An important variable it seems is how companies choose to engage with their unionized workers.
So what does this mean for AMZN stock? If Amazon workers were to succeed in unionizing, it could cause stock prices to suffer.
That said, in order for such a thing to happen, the union drive would have to succeed. As Amazon’s workers know, that path is far from easy. Amazon’s legal team managed to stop a massive union campaign even after Biden came out in support. This Staten Island workforce is smaller and doesn’t have any such endorsements so far.
While the mission has garnered enough support to hold a union election, we saw the same scenario play out in Alabama. The reasons to think these efforts won’t succeed therefore outnumber the ones to think it will, at least at the present.
“We’re skeptical that a sufficient number of legitimate employee signatures has been secured to warrant an election,” Amazon spokesperson Kelly Nantel said in an emailed statement. “If there is an election, we want the voice of our employees to be heard and look forward to it. Our focus remains on listening directly to our employees and continuously improving on their behalf.”
A People’s History of Pro-Union Stocks
What the studies above should also tell us, though, is that even if Amazon’s workers were to unionize, it wouldn’t necessarily pose negative consequences for AMZN stock. There are ways for companies to take care of both workers and investors. A few years ago, InvestorPlace contributor Will Ashworth laid out a list of pro-labor stocks. At the time, he highlighted that companies United Parcel Service (NYSE:UPS), Caterpillar (NYSE:CAT) and Boeing (NYSE:BA) were busy engaging with their unions while still producing returns for shareholders.
If Amazon workers do unionize, this highlights a path forward for the company. Essentially, it must be willing to engage with union workers and participate in transparent accounting. This would help buoy AMZN stock if the Staten Island drive succeeds.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
