Abstract
Institutions shape the distribution of power within societies and organizations, affecting resource distribution among their members. This paper explores whether reallocating power to disadvantaged groups can enhance equality and efficiency. By introducing the “burden of power" mechanism, I show that powerful groups can benefit by transferring power, thereby mitigating coercive actions on the part of the powerless that would otherwise reduce total surplus. I investigate this dynamic in the context of labor unions by examining how an increase in unions’ bargaining power influences firms’ profits. Utilizing data from a Chilean labor code reform, I run an event study based on a quasi-random treatment assignment. It reveals that while profits were unaffected, remuneration of nonmanagerial workers increased, the number of hours worked did not fall, and unionization rates declined. The heterogeneity in the effects by prepolicy bargaining power indicates that firms’ profits are concave in unions’ bargaining power while remunerations and unionization rates are convex in the same variable. I present a Nash bargaining model rationalizing these findings, formalizing the “burden of power" and characterizing Pareto-efficient bargaining power distributions. A model calibration for an average firm indicates that the union’s surplus share increases from 0.39 (prereform) to 0.48 (postreform) without harming profits.

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