Can Right-To-Work Laws Reduce Hiring Discrimination?

New research shows that right-to-work laws are associated with a substantial reduction in hiring discrimination for older women.

It is well-documented in economics research that employers engage in hiring discrimination practices based on race, gender, age, ethnic origin, criminal background, and many other types of characteristics. Yet, little is known about how different policies can prevent or contribute to this type of discrimination. 

One of the most significant labor policy developments in the 20th century in the U.S. was the introduction and growth of right-to-work laws. These laws, which are sometimes pinned as “anti-union,” have become increasingly common in the U.S. In 2022, 27 states had right-to-work laws on the books, up from 19 in 1980. 

In a new empirical study, my co-author Liam Sigaud and I ask a simple question: do right-to-work laws prevent or contribute to hiring discrimination? 

The historical roots of these laws go back to the National Labor Relations Act of 1935, which substantially strengthened union rights by allowing union contracts to stipulate that the employer had to require every worker in the bargaining unit to pay dues to the union. The Taft-Hartley Act of 1947 relaxed this restriction, banning so-called “closed shop” arrangements that prevented employers with unionized workforces from hiring non-union labor and granting states additional flexibility to regulate union contracts.

Congress permitted states to adopt one of two approaches: 

1. Allow union contracts to require non-union workers to pay agency fees (essentially reduced-rate union dues).

2. Prohibit employees from being compelled to join a union or to contribute anything to support union activities as a condition of employment. 

The passage of the Taft-Hartley Act led many state legislatures to implement option (2). These laws have become known as right-to-work laws. Through collective bargaining, unions negotiate contracts with their employers to determine what economists call “compensation floors”. These compensation floors establish a mandatory minimum for the compensation that employers must offer their employees, preventing them from offering wages, benefits, or any other forms of compensation that fall below this threshold. 

A large literature in economics suggests that right-to-work laws weaken union membership rates and revenue, thereby reducing their ability to negotiate compensation floors above market levels.

For example, imagine a company is looking at two job applicants. The first applicant can produce work worth about $5 per hour, and would be willing to accept $4 per hour to do the job. Without a compensation floor, the company might consider hiring this person. But if there's a rule set by the union mandating that everyone must be paid at least $8 per hour, now the company wouldn't hire anyone whose work is worth less than that amount. On the other hand, if another applicant can do work worth $10 per hour and is willing to accept $9 per hour to do the job, the company would probably still hire them, even with the $8 minimum in place.

This example illustrates how a compensation floor is expected to decrease the hiring of applicants who are perceived to have lower productivity than the compensation floor. 

If older workers are more likely to have lower perceived productivity, the number of job offers they receive will be reduced further than the number of offers that younger workers receive. 

Right-to-work laws are expected to decrease union strength and thus decrease unions' ability to set compensation floors above equilibrium levels. This reduction in compensation floors is expected to increase the number of job offers that older workers receive more than the number of offers that younger workers receive. This means that right-to-work laws are expected to decrease discrimination against older workers.

In our forthcoming working paper, we explore evidence from a national field experiment examining age discrimination in all US states. We find that the presence of right-to-work laws counteract about one-third of the baseline discrimination against older women (aged 64-66) compared to younger women (aged 29-31). 

This means that both our theoretical and empirical analysis point to a single result: reducing union strength via right-to-work laws will lead to substantial reductions in labor market discrimination.

We'll be sure to share the paper once it's published in the next few weeks!