The Effect of Adopting Right to Work Laws: A Paired State Approach

The issue of unionization is an enduring one both politically and economically. A major subset within union studies deal with so-called “right-to-work laws.” States with right to work laws are concentrated heavily in the South and in the Plains states and have been that way since the 1940s or 1950s. The most recent additions of right-to-work states are Indiana and Michigan both in 2012. This paper will contribute to the debate by creating a new and novel dataset to analyze what the effects of adopting right to work laws are for a state over time as well as between a state and neighboring non-right to work state. It will use a four stage estimation strategy (consisting of regression and fixed effect models) to answer the following questions: 1) Do right-to-work laws allow workers to free-ride off of the dues paid by others? 2) What is the effect of right-to-work laws on the unemployment rate? 3) What is the effect of right-to-work laws on the labor force participation rate? 4) What is the effect of right-to-work laws on median salary? 5) What is the effect of right-to-work laws on average number of manufacturing jobs? 6) What is the effect of right-to-work laws on state business tax collection? 7) What is the effect of right-to-work laws on manufacturing jobs? 8) What is the effect of right-to-work laws on union membership? While the conclusions vary as there is not one clear effect for all estimations there are some general conclusions to be gleaned. For states that adopt right to work laws, over time both the unemployment rate will grow and labor force participation will grow. I hypothesize that this is due to more people looking for jobs. The business tax revenues and wages will fall and the free rider effect will also decline. When compared to neighboring non-right to work states, right to work states had higher wages, lower unemployment rate and lower percentage of the workforce unionized. Contrary to popular belief, being right to work did not have any significant impact on manufacturing jobs. The fixed effect models, both for the before and after adoption analysis as well as neighboring states analysis, show that whatever their ultimate effects, adopting right to work laws are only a piece of the economic story for any state. The findings tentatively lead to the conclusion that controlling for right to work status, other state characteristics matter more for the state economy