Collective bargaining subsidizes low-wage work in some states

Aug 29, 2014 by Phil Ciciora
Workers in collective-bargaining states subsidize the low-wage model of employment in right-to-work states, says a new study co-written by Robert Bruno, a professor of labor and employment relations on the Urbana campus. Credit: L. Brian Stauffer

States with right-to-work laws "free ride" on the higher tax revenues generated by workers in collective bargaining states, says a new study from a University of Illinois labor expert.

According to Robert Bruno, a professor of labor and employment relations on the Urbana campus, workers in states are effectively subsidizing the low-wage model of employment in right-to-work states.

"Our study found that right-to-work laws weaken state economies and strain public budgets," said Bruno, also the director of the Labor Education Program in Chicago. "Right-to-work laws not only sap government revenue in the form of reduced tax receipts, but they also increase government spending in outlays for food stamps and the earned income tax credit."

Bruno and study co-author Frank Manzo IV, the policy director of the Illinois Economic Policy Institute, investigated the impact of right-to-work laws on worker earnings, employment, and government assistance.

The authors found that right-to-work laws:

  • Reduce worker income from wages and salaries by 3.2 percent on average.
  • Lower both the share of workers who are covered by a health insurance plan (by 3.5 percent) and the share of workers who are covered by a pension plan (by 3 percent).
  • Reduce union membership rates by 9.6 percent.
  • Increase the employment rate (by 0.4 percent), but at the expense of a lower labor force participation rate (by 0.5 percent).

While workers in right-to-work states account for just 37.4 percent of all revenues, they receive 41.9 percent of all non-health, non-retirement government assistance, the paper says.

"Essentially, what that means is workers in collective bargaining states – New York, California and Illinois, to name a few – are subsidizing the low-wage model of employment in right-to-work states such as Mississippi, Louisiana and Texas."

Workers in right-to-work states also receive $0.232 in non-health, non-retirement government assistance per dollar of federal income tax contributions, compared with $0.187 per dollar for each worker in collective bargaining states.

"It's clear that workers in right-to-work states are being subsidized by the efforts of their peers in collective bargaining states," Bruno said. "Poorer right-to-work states are essentially being propped up by the higher income tax revenues generated by workers in collective bargaining states. The net effect is that right-to-work laws weaken state economies and strain public coffers."

A right-to-work law has nothing to do with an individual seeking gainful employment, Bruno cautions.

"It's a government regulation that bars labor unions from including union security clauses in joint agreements with employers," he said.

Union security clauses ensure that each member of a bargaining unit who receives the benefits of collective bargaining – for example, a higher wage, better health care and retirement benefits, grievance representation, a voice at work – also provides their fair share of dues or fees.

In a collective bargaining state, employers and labor unions are able to negotiate a range of union security clauses, Bruno said.

"There's no mandate to do so, but they may agree to a union security clause that requires everyone covered by the contract to pay dues or fees to cover the cost of bargaining activities," he said. "In these states, covered employees are only required to pay for bargaining costs and are not forced to finance non-bargaining or political activities. Some collective bargaining agreements also allow union objectors to contribute their dues to charity."

The study also found that a right-to-work policy decreases a state's rate.

"Working-age residents who drop out of the labor force depend more on government assistance, which raises the poverty rate and, in turn, leads to increased government spending on food stamps, as well as a lower share of workers who are covered by a ," Bruno said.

To illustrate their conclusions, the authors created a hypothetical case study of what would happen if the state of Illinois were to have adopted right-to-work legislation in 2013. They calculated the state's labor income would have fallen by $12.3 billion, and accompanying declines in government revenue would have totaled $4.8 billion in lost federal income tax revenue as well as about $500 million in lost revenue.

"Government assistance in the form of food stamps and EITC benefits would have increased by over $440 million during that time," Bruno said.

Although workers in states with right-to-work laws work slightly more hours per week and per year than their counterparts in collective bargaining , that's likely only because workers need to offset the effects of lower wages, Bruno said.

"The question for policymakers is whether a small increase in the employment rate is worth a significant decrease in total labor income, a considerable decline in state income tax revenues, an even larger drop in federal revenues and an increased erosion of public budgets," he said. "Ultimately, the negative impact of right-to-work laws greatly outweighs the uptick in employment rates it creates."

Explore further: Do government technology investments pay off?

More information: The paper, "Free-Rider States: How Low-Wage Employment in 'Right-to-Work' States is Subsidized by the Economic Benefits of Collective Bargaining," is available online:

Related Stories

State workers underpaid, new study finds

Mar 12, 2013

A comparison of public sector workers in Illinois with their peers in the private sector shows a general wage and salary penalty for state and local government employees, according to research by a University of Illinois ...

Low-wage fast-food jobs leave hefty tax bill, report says

Oct 16, 2013

The fast-food industry costs American taxpayers nearly $7 billion annually because its jobs pay so little that 52 percent of fast-food workers are forced to enroll their families in public assistance programs, ...

Right-to-work laws endanger workers

Apr 08, 2011

Right-to-work laws not only hurt labor unions financially, they also may jeopardize worker safety, says a University of Michigan researcher.

NCAA football exploits players in 'invisible labor market'

Aug 23, 2012

College football exploits players in an "invisible labor market," and the only plausible way for student-athletes to address their interests is the credible threat of unionization, according to research from a University ...

Recommended for you

Do government technology investments pay off?

22 hours ago

Studies confirm that IT investments in companies improve productivity and efficiency. University of Michigan professor M.S. Krishnan wondered if the same was true for government.

Study finds assisted housing works, but it could be improved

22 hours ago

Two researchers from the University of Kansas Department of Urban Planning have just completed a study on the locations of assisted housing units and assisted households across the nation. It examines one of the key issues ...

Economist probes the high cost of health care

Mar 27, 2015

When Zack Cooper arrived at Yale as assistant professor of public health and economics, he gained access to a first-of-its-kind dataset. Working with the non-profit Health Care Cost Institute, Cooper and ...

Cash remains king in Chile but its days could be numbered

Mar 26, 2015

For more than a year now, Chileans have endured a crisis of cash access. Despite global moves toward new forms of payment such as contactless and mobile transfers, the crisis in Chile highlights the continuing ...

User comments : 0

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.