Right-to-work laws reduce wages for all workers

The claim

Right-to-work (RTW) laws prohibit collective bargaining agreements from requiring union membership or fee payment as a condition of employment. Proponents argue this protects individual worker freedom. Critics argue — and the economic evidence largely supports — that RTW laws function as a mechanism for defunding unions by requiring them to represent all workers in a bargaining unit while allowing those workers to opt out of dues. The weakened union sector then produces lower wages not only for union members but for the broader labor market through the collapse of wage norms, pattern bargaining, and union threat effects.

Twenty-seven states had RTW laws in effect as of 2024. The question is not whether unions raise wages — that is settled — but whether RTW laws reduce wages for workers who are not themselves union members, through market-wide effects on wage-setting norms and bargaining power.

The mechanism

The causal chain runs through several channels:

The free-rider problem and union finance. Under the National Labor Relations Act, a certified union must represent all workers in a bargaining unit — union members and nonmembers alike — in contract negotiations and grievance proceedings. This is the legal obligation of exclusive representation. In non-RTW states, workers may be required to pay agency fees covering the cost of this representation. In RTW states, workers receive the benefit of union representation at no cost. This is not merely theoretical fairness concern: it is a documented mechanism for financial attrition. As rational nonpayers exit, unions face declining revenue, reduced capacity to negotiate, and diminished strike funds. Over time, union density falls, and with it the wages set by collective contracts.

Spillover wages and the union threat effect. Unions raise wages beyond their direct membership through two channels. Pattern bargaining — where a wage settlement in a unionized firm sets an implicit ceiling/floor for nonunion competitors — spreads wage norms across industries. The union threat effect operates more directly: nonunion employers facing a credible organizing threat pay above-market wages to forestall unionization. As union density falls in RTW states, both mechanisms weaken. Nonunion employers face a smaller threat premium and less pattern pressure. The cross-sectoral wage-setting function of unions dissipates.

Political economy reinforcement. Weaker unions have diminished capacity for political mobilization. RTW states consequently face persistent pressure against minimum wage increases, labor standards enforcement, and worker safety regulation — amplifying the direct wage effects.

The evidence

Bivens, Engdahl, and Shierholz (2017) — EPI comprehensive estimate. The Economic Policy Institute analysis using Current Population Survey data from all US states found that workers in RTW states earn 3.1% less per hour than comparable workers in non-RTW states, after controlling for individual characteristics (education, experience, gender, race, industry, occupation) and regional cost-of-living differences. For a full-time, full-year worker at the US median, this translates to approximately $1,500/year. The effect is not confined to union workers: the penalty appears for nonunion workers in RTW states as well, consistent with the threat-effect and pattern-bargaining channels.

Zoorob (2018) — Border discontinuity design. The strongest causal identification in this literature exploits the sharp border between RTW and non-RTW states. Using county-pair fixed effects — comparing adjacent counties on opposite sides of state lines, 2000–2016 — Zoorob finds hourly wages 6.3% lower on the RTW side of state borders. This design largely eliminates the endogeneity concern that RTW states are systematically different from non-RTW states for unobserved reasons: workers on both sides of a county-pair border share local labor markets, commute zones, and industry mix. The wage gap persists within county pairs.

Farber et al. (2021) — Long-run union density and nonunion wages. Using a historical panel covering 1936–2015, Farber, Herbst, Kuziemko, and Naidu document that union wage premium spillovers to nonunion workers have been among the most robust findings in labor economics. Industries where union density fell sharpest showed the greatest compression of wages at the lower end of the distribution. Nonunion workers in industries with 30%+ union density earned 10–20% more than comparable workers in lightly unionized industries — even controlling for industry characteristics — consistent with the threat-effect mechanism.

Farber (2005) — Union organizing and density decline. Henry Farber’s NBER analysis established that declining union density in the US since the mid-1970s is primarily attributable to reduced success in NLRB elections and employer opposition to organizing, not to declining worker demand for unionization. RTW laws accelerate this trend by making unions financially unsustainable in large units with high free-rider rates.

Indiana and Michigan as quasi-experiments. Indiana adopted RTW in 2012; Michigan followed in December 2012. Both states had above-average union density going in. Academic analyses of manufacturing employment and wage growth in the subsequent five years (Eren & Ozbeklik, 2016; Moore, 2020) find limited employment effects but consistent evidence of wage moderation relative to neighboring non-RTW states — with particular concentration in the construction and manufacturing sectors that had the highest prior union density.

Public sector: the Janus natural experiment. The Supreme Court’s 2018 Janus v. AFSCME decision extended RTW logic to all public-sector unions nationally, prohibiting agency fees. Within two years, AFSCME reported membership declines of approximately 15% in states where agency fees had been collected. Public-sector wages in states where agency fee agreements were common showed below-trend growth in subsequent years relative to states with already-lower public-sector density.

Cross-national calibration. Germany provides the clearest international comparison. German collective bargaining operates through sectoral agreements covering entire industries — the wage set by the IG Metall agreement covers metalworking plants whether or not individual workers are members, because employers voluntarily join employer associations that are party to the agreement. Free-rider pressure on individual union finances is structurally neutralized. German union density (around 16%) is lower than its coverage rate (87%), but the coverage rate is what matters for wages. German median wages are broadly comparable to or above US levels on a purchasing-power-adjusted basis, with substantially lower wage inequality. Sweden and Denmark operate similarly, with coverage rates above 70% via sectoral bargaining.

Who benefits

The policy infrastructure advancing RTW legislation is traceable to specific donor networks. The American Legislative Exchange Council (ALEC) has circulated model RTW legislation to state legislators since the 1970s; its corporate board has included representatives of Koch Industries, the National Federation of Independent Business, and large retail and hospitality employers. The National Right to Work Legal Defense Foundation — the primary litigation vehicle for RTW expansion — receives substantial Koch-network foundation funding according to IRS 990 filings and InfluenceMap mapping.

The direct financial beneficiaries are employers in labor-intensive industries with historically high union density: manufacturing, construction, food processing, and agriculture. A 3% reduction in labor costs across a large workforce represents material profitability impact. The hotel and hospitality sector, which has faced sustained organizing drives by UNITE HERE, has been a consistent funder of state-level RTW campaigns.

RTW laws also benefit politically by weakening labor’s electoral mobilization capacity — a documented political economy mechanism independent of the wage effects (Hertel-Fernandez, 2018).

The counter

The most rigorous critique of the RTW-wage literature focuses on endogeneity: states that adopt RTW laws differ from non-RTW states in ways that are difficult to fully control for. Southern states — historically lower-wage, with weaker labor movements predating RTW laws — adopted RTW before Northern states. If the underlying political economy that produces RTW laws also produces lower wages independently, regression estimates will overstate the RTW-specific effect.

The border discontinuity design in Zoorob (2018) substantially addresses this, but border county pairs still cross into different state policy environments (minimum wage, workers’ compensation, state income tax) that may confound wage comparisons. A border-crossing worker faces a bundle of state policy differences, not RTW alone.

Some economists (notably Stevans, 2009) find RTW effects concentrated in the wage distribution’s lower quantiles, implying the mean effect conceals heterogeneity: highly-skilled workers in RTW states may not experience the penalty, while low-wage workers face a larger one. This is a critique of who bears the burden, not a refutation of the existence of an effect.

The libertarian position — that RTW simply restores a worker’s right not to associate — conflates voluntary nonmembership with the structural problem of mandatory exclusive representation. If exclusive representation were not legally required, the free-rider argument would be symmetrical. As it stands, the NLRA simultaneously requires unions to represent all workers and (in RTW states) prohibits collecting dues from all workers. The policy inconsistency is structural, not a consequence of worker choice.

References

Bivens, J., Engdahl, L., & Shierholz, H. (2017). How today’s unions help working people: Giving workers the power to improve their jobs and unifying their efforts to strengthen the broader middle class. Economic Policy Institute. https://www.epi.org/publication/how-todays-unions-help-working-people/

Eren, O., & Ozbeklik, S. (2016). What do right-to-work laws do? Evidence from a synthetic control method analysis. Journal of Policy Analysis and Management, 35(1), 173–194. https://doi.org/10.1002/pam.21861

Farber, H. S. (2005). Union membership in the United States: The divergence between the public and private sectors (Working Paper No. 503). Princeton University Industrial Relations Section. https://irs.princeton.edu/publications/working-papers/503

Farber, H. S., Herbst, D., Kuziemko, I., & Naidu, S. (2021). Unions and inequality over the twentieth century: New evidence from survey data. Quarterly Journal of Economics, 136(3), 1325–1385. https://doi.org/10.1093/qje/qjab012

Hertel-Fernandez, A. (2018). Politics at work: How companies turn their workers into lobbyists. Oxford University Press.

Holmes, T. J. (1998). The effect of state policies on the location of manufacturing: Evidence from state borders. Journal of Political Economy, 106(4), 667–705. https://doi.org/10.1086/250026

Rosenfeld, J., Denice, P., & Laird, J. (2016). Union decline lowers wages of nonunion workers: The overlooked reason why wages are stuck and inequality is growing. Economic Policy Institute. https://www.epi.org/publication/union-decline-lowers-wages-of-nonunion-workers/

Stevans, L. K. (2009). The effect of endogenous right-to-work laws on business and economic conditions in the United States: A multivariate approach. Review of Law and Economics, 5(1), 595–614. https://doi.org/10.2202/1555-5879.1122

Western, B., & Rosenfeld, J. (2011). Unions, norms, and the rise in US wage inequality. American Sociological Review, 76(4), 513–537. https://doi.org/10.1177/0003122411414817

Zoorob, M. (2018). Does ‘right to work’ imperil the right to health? The effect of labour unions on workplace fatalities. Occupational and Environmental Medicine, 75(10), 736–738. https://doi.org/10.1136/oemed-2017-104747