SOEP Brown Bag Seminar

Unions decide how to allocate their resources to organise new workers and to benefit existing members. While there is a growing literature studying the aggregate effects of shocks to union power, little is known about how individual unions change their behaviour in response to these shocks. We illustrate the importance of accounting for union equilibrium responses when studying the impact of shocks to union power. We do this in the context of state-level Right-to-Work (RTW) laws in the US. RTW makes it optional for workers to pay union dues even when they benefit from coverage, thereby creating a freeriding problem and lowering union resources. Using the introduction of RTW laws in five states and a novel dataset that links a union’s exposure to these laws to its financial performance, we use an event-study approach to show that unions substitute away from affected states towards non-affected states. Unions also change the composition of workers they represent by shifting away from service sector firms where the freeriding problem is likely to be worse due to high labour turnover. Through this substitution, they blunt losses to revenues. Our results 1) show how shocks to union power can lead to a geographic and sectoral reallocation of union jobs, 2) illustrate the importance of revenue collection in the union objective function, and 3) highlight how union responses can constitute SUTVA violations in the existing literature on RTW laws.