The Future of Labor Unions
This week the U.S. Supreme Court will hear the case of Mark Janus, a state worker in Illinois, versus the American Federation of State, County, and Municipal Employees (AFSCME), a union representing mostly public-sector workers across many states. The court’s ruling could leave government workers with less incentive to fund unions, said Andras Danis, an assistant professor of finance in the Scheller College of Business.
On the one side, Mr. Janus is arguing he should not be required to pay mandatory union fees if he does not want to. On the other side, labor unions have argued for decades that these fees are necessary to support collective bargaining efforts. If the fees were not mandatory, most workers would choose not to pay them, resulting in a free-rider problem.
The stakes are high: If Mr. Janus wins the case, mandatory fees might fall for all non-federal public workers in the U.S. (federal employees are already exempt from these fees). Labor unions are afraid that this will lead to significantly less funds available to unions, and a decline in union membership rates. In the private sector, union rates have been falling consistently for decades. Membership rates are still relatively high in the public sector, but the ruling could change that.
In a recent working paper, together with my Georgia Tech colleagues Sudheer Chava and Alex Hsu, we explored the effect of limitations on these fees in the private sector on workers and firms. We look at the state-level introduction of right-to-work (RTW) laws, which prohibit unions from charging the fees in five different states.
Our research shows that these laws have a negative effect on wages for the affected workers that exists in both the short-term and long-term.
In the year when the law is introduced, wage growth drops by 0.6 percentage points. This is a sizable effect because the reduction in wage growth is likely bigger than the total inflation-adjusted growth rate in wages.
However, our results also show that the drop in wage growth is temporary, and reverts to the normal growth rate in the second year after the introduction of the law. But this doesn’t undo the negative effects in the year when the RTW laws were introduced. This means there is likely a small permanent negative effect on wages for workers in the affected states.
