Principal investigator: Bruno Benevit
Original title: Do Right-to-Work Laws Work? Evidence on Individuals' Well-Being and Economic Sentiment
Authors: Christos Andreas Makridis
Location of the Intervention: United States
Sample Size: 2,45 million person-years
Sector: Labor Economics
Primary Variable of Interest: Well-being of individuals
Type of Intervention: "Right to work" law
Methodology: OLS,DID, Entropy Pairing
Summary
Over the past few decades, the proportion of states adopting "right-to-work" (RTW) laws has become a majority in the United States. These laws allow workers in unionized workplaces to work without having to pay union dues. In this sense, the subjective sense of well-being of workers who benefit from union representation without contributing can be affected. This study evaluated how the adoption of RTW laws impacts workers' life satisfaction and feelings about economic prospects. The results showed that the adoption of RTW laws is associated with an increase in life satisfaction and economic sentiment. These improvements were more evident among unionized workers. The evidence also suggests that increased competition among unions, resulting from RTW laws, has led to the provision of higher-quality services valued by members.
- Policy Problem
The laws of “right to work” (“right-to-work"RTW" laws have become increasingly prevalent in the United States. Previously a minority among states, those with RTW laws accounted for just over half in 2018. These laws prevent companies and unions from establishing agreements that require mandatory contributions from unionized workers to maintain union representation. As a consequence, even in unionized firms, employees can choose not to pay union dues, although they still benefit from collective bargaining.
The literature on RTW laws and unionization presents mixed evidence regarding their impacts (MAKRIDIS, 2019). While some studies suggest that these laws have a symbolic effect, without substantially reducing union density, others indicate an initial drop in membership, followed by stabilization over time. RTW laws can influence the labor market by favoring pro-business policies associated with manufacturing growth and increased employment and wages. Furthermore, the impacts of unions can modify the financial structure of companies and, on the other hand, offer workers a collective bargaining platform for negotiating better wages and working conditions.
In this context, the adoption of these laws generates intense debate, especially among unions and advocates for labor representation, due to the potential implications for union membership and working conditions.
- Policy Implementation Context
Labor relations in the United States underwent transformations throughout the 20th century, driven by legislative changes that shaped the role of labor unions. The enactment of National Labor Relations Act The National Labor Act (NLRA) in 1935 allowed private sector workers to organize into unions and negotiate collective agreements, establishing the mandatory payment of union dues for all employees covered by the contracts. However, the approval of Taft-Hartley Act In 1947, this structure was modified by allowing states to adopt RTW laws, eliminating the requirement for mandatory contributions and altering the dynamics of union financing. Since then, 27 states have instituted RTW laws.
Literature on RTW laws has primarily investigated their effects on union membership, employment, and wages. Generally, there is evidence that these laws reduce union density (EREN; OZBEKLIK, 2016), although this effect may diminish over time. The impacts on employment and compensation are less conclusive. While some evidence suggests that states with RTW laws experience greater growth in manufacturing activity (KALENKOSKI; LACOMBE, 2006), other studies indicate no effect on these variables (EREN; OZBEKLIK, 2016). Furthermore, these laws can incentivize unions to offer better services to attract and retain members. However, collective bargaining capacity may be compromised by a restriction on revenue.
- Evaluation Details
The primary data source for the study was the daily surveys conducted by Gallup Inc., which interviewed approximately 1.000 adults in the United States via computer-assisted telephone calls. This sample included individuals aged 18 and older, randomly selected from all 50 states and the District of Columbia, with detailed location information such as zip code and metropolitan area. The survey questions were divided into two main blocks: one focused on well-being and the other on politics and economics, both collecting the same demographic information. The well-being index used in the study was based on scales of satisfaction with present life and future expectations, while economic sentiment is measured by indicators of the perceived current and future state of the economy. The interviews also considered socioeconomic context variables such as educational level and racial distribution.
Additionally, the study also considered supplementary data from government sources. Current Population Survey (CPS), Country Business Patterns (CBP), Time Use Survey (ATUS) and Panel Study of Income Dynamics (PSID), encompassing demographic, behavioral, and time-use data. The main samples considered in the study were segmented into distinct periods, encompassing periods between 2008 and 2017. The analysis allowed for the observation of trends over time and comparisons between states with and without RTW laws, specifically the impact on RTW adoption in five states during this period: Michigan (2012), Indiana (2012), Wisconsin (2015), West Virginia (2016), and Kentucky (2017). The data were weighted to ensure national representativeness.
The data revealed that states with and without RTW laws showed differences in several demographic, economic, and institutional characteristics. In terms of population composition, RTW states (with laws) tend to have a lower proportion of white individuals compared to those without RTW laws. Furthermore, the participation of individuals with postgraduate degrees is slightly lower in RTW states. In the labor market, these states registered greater population and employment growth, as well as a relatively larger share of the manufacturing sector. Unionization rates were also substantially lower in RTW states, potentially influencing differences in working conditions and workers' perceptions of the work environment. Regarding subjective well-being, individuals in RTW states showed slightly higher levels of life satisfaction and greater optimism regarding the economy.
- Method
To estimate the impact of adopting state RTW laws on workers' well-being and sentiment about the economy, the author adopted two main identification strategies. First, an Ordinary Least Squares (OLS) model was employed for the period from 2008 to 2017. Covariates considered were the individuals' level of education, gender, age, and race, in addition to the fixed effects of state and time.
Subsequently, the difference-in-differences (DID) method was adopted to identify the interaction effect between the presence of RTW law in the state and worker unionization. This model assumes that unionized workers would maintain similar, “parallel” trends to non-unionized workers in their respective states if RTW law had not been adopted. The analysis with this model covered the period from 2009 to 2016 and considered the same covariates as the OLS model. Additionally, the entropy matching method was also implemented to control for possible unobservable time-varying effects.
Finally, the study presented a series of analyses to verify the robustness and possible mechanisms behind the results identified in the main analyses. Thus, the existence of four mechanisms was verified. First, possible income impacts of the "free-rider problem" were estimated (free ridingThis study examined the impact of increased consumption driven by the absence of mandatory union dues. Second, it analyzed the potential impacts related to changes in the composition of workers who remained unionized after the adoption of RTW laws. Third, the author observed whether RTW laws induced unions to be more competitive due to the non-mandatory nature of dues. Fourth, it sought to identify potential shocks induced by business-friendly policies concurrent with the adoption of RTW laws.
- Main results
The results of the OLS estimation indicated that the adoption of RTW laws is associated with an increase in current life satisfaction, expectation of future satisfaction, and economic sentiment among workers. Without the inclusion of fixed effects, workers in RTW states showed a 2,7 to 3,1 percentage point (pp) higher life satisfaction, as well as a 3,2 pp higher economic sentiment. With the inclusion of fixed state and time effects, the impacts remain positive, but slightly smaller, with increases of 2,9 pp in current life satisfaction, 1,2 pp in expectation of future satisfaction, and 4,1% in economic sentiment, although this last effect is not statistically significant.
The results of the DID estimation reinforced the previous positive results of RTW laws on worker well-being, especially among unionized workers. Implementation of these laws is associated with a 2,1 pp increase in current life satisfaction and a 7,6 pp increase in the economic sentiment of unionized workers. These effects are statistically significant, with the impact on economic sentiment being more robust. Comparison between model specifications suggests that states that adopted RTW laws were not previously on a differentiated growth trajectory that could explain these results.
Regarding the mechanisms, the results indicated that income and composition effects do not explain the impact of RTW laws on workers' well-being. The analysis showed that the necessary increase in income to justify the observed effect would be significantly greater than the savings generated by the exemption from contributions, indicating that this mechanism is not decisive. The composition effect suggests that the departure of less satisfied workers from unions could increase the average satisfaction of those who remain. However, estimates showed that the unobserved productivity of unionized workers does not vary significantly after the adoption of RTW laws, so this mechanism would explain, at most, half of the identified effect.
On the other hand, there is evidence that competition between unions and pro-business policies could contribute to the observed results, inducing improvements in workplace management. The results revealed that the probability of workers perceiving their supervisors as partners increases by 1 percentage point, while the perception of an open and trustworthy work environment grows by 0,7 percentage points, suggesting changes in union practices. Furthermore, the analysis of the impacts of simultaneous policies ruled out the hypothesis that the effects are driven by pro-business policies associated with the passage of RTW laws.
- Lessons in Public Policy
In this article, the authors evaluated the effects of adopting RTW (Rate-to-Work) laws on workers' well-being and their sentiment towards the economy. The results indicate that the implementation of these laws was associated with an increase in life satisfaction among unionized workers, without significant adverse effects for non-unionized workers. Furthermore, the adoption of RTW laws was accompanied by an improvement in workers' perception of the work environment, including greater trust in managers and a greater sense of partnership in the professional environment. These effects were more evident in the private sector, where competition between unions appears to have encouraged better management practices.
The evidence presented contributes to understanding the impacts of RTW (Rate, Work, and Work) laws on the labor market and worker well-being, providing input for the debate on formulating labor policies aligned with workers' demands. Given that the adoption of these laws is associated with changes in union structure and workers' perception of the work environment, policies that seek to balance workers' freedom of choice with incentives for good union and business practices may be important for improving their well-being.
References
EREN, O.; OZBEKLIK, S. What Do Right‐to‐Work Laws Do? Evidence from a Synthetic Control Method Analysis. Journal of Policy Analysis and Management, v. 35, no. 1, p. 173–194, Jan. 2016.
KALENKOSKI, CM; LACOMBE, DJ Right-to-Work Laws and Manufacturing Employment: The Importance of Spatial Dependence. Southern Economic Journal, v. 73, no. 2, p. 402, 1 Oct. 2006.
MAKRIDIS, CA Do Right-to-Work Laws Work? Evidence on Individuals' Well-Being and Economic Sentiment. The Journal of Law and Economics, v. 62, no. 4, p. 713–745, nov. 2019.
