Search the archive.

Ensuring people have the opportunity to work and earn a good life is a shared value across the country. But, the federal jobs guarantee approach raises a number of concerns. And voters seem to be wary of it. In our , only 9% support a new program that guarantees a full-time government job—36 points less than those who support a new program where government works with business to create more good-paying jobs in the private sector. Among just Democrats, the divide was starker: 14% support a federal jobs guarantee while 59% want government to work with business to create private sector jobs. Politics aside, the federal jobs guarantee raises five substantive concerns.

#1: It solves a different problem. Right now there are over seven million open jobs and six million unemployed people. Yet, many of these jobs are going unfilled. Why? Many people don’t have the right mix of skills or training. New jobs are often in different places than old ones. Childcare and transportation are often prohibitively expensive. And others struggle with opioid addiction and other conditions. And yet, a federal jobs guarantee doesn’t address any of this. Even during economic downturns, there are better and far more efficient ways to help workers and communities such as targeted public works programs, hiring credits for employers, temporary tax cuts for working families, extended unemployment insurance, and money to shore up state and local budgets.

And my colleague Tim Harford’s latest column is devoted to thepsychological effectsa jobs guarantee might produce, in contrast with universal basic income, the even more radical policy often held up as the alternative. We have often, and sympathetically, covered UBI in Free Lunch, but given scant attention to the jobs guarantee. The reason is that I find it a policy proposal that raises more questions than it solves — and the many unanswered questions make it hard to pass judgment one way or the other. That is true even in the case of relatively detailed and costed schemes such as the one put forward by the Center on Budget and Policy Priorities. First, is a jobs guarantee seen as linked to an (otherwise unconditional) universal basic income? The model could be: we will give everyone an unconditional income, but we will do so by offering everyone an unconditional job. The obvious question then is: what about those who turn down the jobs offered? Is this workfare or welfare-to-work by a nicer name? If so, it is confused or dishonest to think of it as a new or indeed a particularly progressive policy. Much more interesting is to treat it on its own merits as a standalone system, which could be put in place alongside a UBI if one so wished. Then, of course, the test is what it achieves that UBI does not (or better than UBI does). Second, is the rationale for a jobs guarantee a cyclical one — to step in to hire when the private sector sheds jobs in downturns? That would meet a clear need. It would also go some way towards addressing the biggest problem with a work guarantee: that it would guarantee neither meaningful nor useful work, since a countercyclical jobs policy would presumably employ people who would otherwise not work at all. Some sympathetic commentary on a jobs guarantee fits it into a context of macroeconomic policy that is too timid to ensure genuine full employment, which causes particular harm to vulnerable groups that are the first to be fired in a downturn and the last to be hired in an upswing. But it would seem that the right policy answer to this real problem is better (more aggressive) macroeconomic demand management in fiscal and monetary policy. And in unavoidable cyclical downturns, why are New Deal-style public works programmes (temporary public sector employment expansion) or policies to encourage private businesses to keep people employed (such as Germany’s Kurzarbeit) not superior better than a guarantee system? If a jobs guarantee is advocated because it is thought to be impossible to do these other policies well, then it is literally a third-best solution. Third, is the jobs guarantee instead to be seen as a permanent solution to a structural problem of insufficient or bad job opportunities that persist over time or in particular places? Some versions clearly see it this way, as a main argument offered in its favour is that by guaranteeing jobs at decent wages, it put a floor under wages and labour conditions in all jobs in the economy. Again, this addresses a very real problem — but again, the question is whether it distracts from better solutions. Dean Baker sets out some serious concerns about a permanent jobs guarantee programme. In addition to the difficulty of ensuring that government can offer enough “real” jobs, he worries that they may displace better jobs, because it could be cheaper for public sector managers to hire workers on jobs guarantee terms than through conventional recruitment. Paradoxically, a jobs guarantee could worsen conditions in the middle even if it lifts the floor. We need to go back to basics. The root problems are twofold. First, in the US in particular, there are insufficient employment opportunities, overall and especially in the most left-behind places. In Europe, labour market participation is a smaller problem — participation rates are at record highs and rising. But, second, too many of what jobs are on offer are precarious and on poor terms everywhere. The solution to these problems would involve strong labour demand, widely dispersed across an economy’s territory, and sufficient outside opportunities for workers to be able to demand decent terms. Correct macroeconomic policy helps with the former, and redistributive policies (including UBI) can ensure sufficient demand also in hard-hit areas. Active labour market policies, income floors through minimum wages and redistributive policies (including, again, UBI) address the latter. A jobs guarantee, in contrast, still needs to prove it is more than a distant second-best on either count.

(AI) can devise methods of wealth distribution that are more popular than systems designed by people, new research suggests. The findings, made by a team of researchers at UK-based AI company DeepMind, show that systems aren't just good at solving and , but may also help deliver on more open-ended social objectives, such as the goal of realizing a fair, prosperous society. Of course, that's not an easy task. Building a machine that can deliver beneficial results humans actually want – called in AI research – is complicated by the fact that people often disagree on the best method to resolve all kinds of things, and especially social, economic, and political issues. "One key hurdle for value alignment is that human society admits a plurality of views, making it unclear to whose preferences AI should align," researchers , led by first author and DeepMind research scientist Raphael Koster. "For example, political scientists and economists are often at loggerheads over which mechanisms will make our societies function most fairly or efficiently." To help bridge the gap, the researchers developed an agent for wealth distribution that had people's interactions (both real and virtual) built into its training data – in effect, guiding the AI towards human-preferred (and hypothetically fairer overall) outcomes. While AIs can produce , they can also arrive at when left to their own devices; human feedback can help to steer neural networks in a better direction. "In AI research, there is a growing realization that to build human-compatible systems, we need new research methods in which humans and agents interact, and an increased effort to learn values directly from humans to build value-aligned AI," the . In experiments involving thousands of human participants in total, the team's AI agent – called 'Democratic AI' – studied an investment exercise called the , in which players receive varying amounts of money, and can contribute their money to a public fund, and then draw a return from the fund corresponding to their level of investment. In a series of different game styles, wealth was redistributed to players via three traditional redistribution paradigms – strict egalitarian, libertarian, and liberal egalitarian – each of which rewards player investments differently. A fourth method was also tested, called the Human Centered Redistribution Mechanism (HCRM), developed using , using feedback data from both human players and virtual agents designed to imitate human behavior. Subsequent experiments showed that the HCRM system for paying out money in the game was more popular with players than any of the traditional redistribution standards, and also more popular than new redistribution systems designed by human referees who were incentivized to create popular systems by receiving small per-vote payments. "The AI discovered a mechanism that redressed initial wealth imbalance, sanctioned free riders, and successfully won the majority vote," . "We show that it is possible to harness for value alignment the same democratic tools for achieving consensus that are used in the wider human society to elect representatives, decide public policy or make legal judgements." It's worth noting that the researchers acknowledge their system raises a number of questions – chiefly, that value alignment in their AI revolves around democratic determinations, meaning the agent could actually exacerbate inequalities or biases in society (provided they are popular enough to be voted for by a majority of people).

The buzz around artificial intelligence has investors snapping up shares of startups on alternative venues, looking to find the next wave of technology giants before they even go public. 

AI and machine learning have remained the most in-demand sectors every month this year, accounting for 25% to 30% of investor interest, according to EquityZen Securities Inc., a marketplace for privately held shares. On , a platform that facilitates secondary stock transactions for private businesses, investors are paying up for shares of companies like OpenAI and Anthropic, startups that are seen as  in AI. 

Tech layoffs are way up — and so are tech stocks. Two charts tell this story. The big picture: The tech industry's layoffs began last year and have kept up a relentless — in some companies' cases, like Meta's, coming in multiple waves. The industry, which had during the pandemic, started trimming its workforce last year, just as the Federal Reserve started raising interest rates to cool the inflation-rattled U.S. economy. Between the lines: Layoffs are often understood as an indicator of incipient recession, and stock prices typically fall in step with both of those trends. That's exactly what happened in 2022 — the worst year for tech stocks since the great dotcom bust more than 20 years ago. Yes, but: The new year brought a turnaround to tech stock prices, as this second chart lays out (courtesy ). What's happening: Tech stocks have always been volatile, and it's never a good bet to blame their fluctuations on any single cause. Here are some possible explanations for the resurgence, more than one of which might apply: Wall Street is rewarding tech for all those layoffs. Investors applaud "discipline," and thinner payrolls could mean more profits to come. No, it's the wave of enthusiasm in the industry for ChatGPT and generative AI is driving the market up. Many observers are framing the new generation of AI as the biggest leap forward in tech since the iPhone's 2007 debut. Or maybe the market just oversold tech in 2022 and it's correcting course now. Some of these companies are also spending some of their cash hoards , which can help lift share prices. Alternately, this resurgence is an illusory "dead cat bounce." It will fizzle out as the pain of higher interest rates continues. However you interpret the numbers, the tech-stock rebound has raised spirits in Silicon Valley and provided some hope that the industry's toughest sledding may be behind it. The bottom line: Some discouraging reports continue — including and — but tech's leaders are beginning to see a turnaround. We'll know they're really feeling good when they start hiring in droves again.

Good luck getting a big raise if you’re in a union right now. That’s the unspoken message of a July 29 report from the federal Bureau of Labor Statistics. It showed that nonunion workers’ nominal pay in June was up 5.8% year over year, compared with only 3.8% for union workers’. The gap has been widening for a year. Why? Inflation. This divergence makes sense when you think of how union contracts operate. Unions negotiate long-term collective-bargaining agreements between workers and employers, with a typical contract lasting three to five years. That locks in the union’s gains but leaves it with little bargaining power or flexibility when something sudden or severe, like the current inflation, hits. So unless the contract is about to expire, union members are trapped when they need the freedom to negotiate better raises much faster. Consider a collective-bargaining agreement that was reached in, say, 2020 or early 2021. It probably won’t expire until the middle of the decade. The employees it covers need immediate relief from inflation. While they can expect regular “cost of living” wage hikes, these are typically at a fixed rate, not tied to actual inflation. Most unionized employees aren’t as lucky as those at John Deere, which agreed to a new six-year contract with a 10% raise and two 5% raises after the previous contract expired last fall. Faced with the knowledge that their members are falling behind, labor leaders will talk a big game about putting the squeeze on management. But federal labor law prevents changes to working conditions (including wages) without contract negotiations, which a unionized business has little incentive to begin earlier than necessary. By contrast, for the tens of millions of employees who aren’t covered by a union contract, getting a raise is often as simple as asking for one. What may take months or years for a union member may take hours for a nonunion worker. Consider Delta Air Lines. In June, the company started paying flight attendants for the 30 to 50 minutes that passengers spend boarding—time that was previously off the clock. Delta could make this move quickly because its attendants aren’t unionized. Yet the attendants at 17 other airlines, who are represented by the Association of Flight Attendants, have no chance of seeing the same pay policy until their contracts are renegotiated. The contrast at Starbucks is even more stark. In May, CEO Howard Schultz announced $200 million in raises and other investments at about 9,000 nonunion stores. The roughly 200 stores that have recently been organized by Starbucks Workers United were excluded; negotiations on wages and other demands are under way. Last week the union asked Starbucks to extend the same wage hikes to its members, but outside the collective-bargaining process—a unilateral concession by management that Starbucks says it can’t make under federal labor law. The union is tacitly admitting that in this time of high inflation, its members can’t keep up with their nonunion peers.

President Joe Biden promised to not increase taxes on the middle-class, but his gift to organized labor, the Protecting the Right to Organize Act (), has the same impact as a tax increase on millions of Americans. The PRO Act does not protect anyone’s right to organize; those rights already exist. Quite the opposite, it strips employees of their right to not associate with a union and forces them to annually pay to unions against their will. Currently, people living in and working for a unionized private-sector company are not required to join the union or pay dues. But Biden and House and Senate Democrats want to strip private-sector Americans of their right to choose and compel expensive union membership in companies that are unionized. (Public-sector employees would still enjoy right-to-work protections due to the U.S. Supreme Court’s ruling in the .) The rationale behind the PRO Act is simple. says unions poured $27.6 million into Biden’s campaign, and he wants to repay them by forcing millions of Americans to pay them dues or agency fees. Right to Work states have superior job growth Forced union payments is the most obvious cost the PRO Act will have on the middle-class, but job loss could be an even greater cost. There were 22 Right to Work States in 1998 and five more have been added since then — Kentucky (2017), Michigan (2012), Oklahoma (2001), West Virginia (2016), and Wisconsin (2015). Between 1998 and 2019, increased by 28.2% in the 22 original Right to Work states, but only 16.2% in the other 28 states. To put that in perspective, there would have been 7.7 million more jobs in those 28 states in 2019 if employment had increased as much as in the Right to Work states. PRO Act hurts American workers and businesses Our colleagues at State Policy Network list that the PRO Act will hurt American workers and businesses, including these examples. The PRO Act would implement California’s nationwide. As a result, tens of millions of independent workers will be at risk of losing their businesses or being forced into untenable work arrangements. Franchise owners can’t run their businesses as they see fit. The PRO Act would re-classify many small businesses that franchise or contract with larger companies as “joint-employers,” making both businesses liable for employment decisions of the other. The PRO Act would allow unions to strike and picket businesses that aren’t even involved in a labor dispute. Currently, striking is only allowed of businesses that have some involvement with a labor union, but the PRO Act would allow striking of completely neutral parties. For example, if a union is involved in a dispute with an auto manufacturer, it could also strike in front of a parts supplier that provides material to the manufacture, even though the supplier has no involvement with or way to solve the dispute. The PRO Act would also harm workers’ privacy by giving unions access to their personal information in an electronic, searchable format. During an organizing election, unions would have access to employees’ personal cell phone numbers and home and email addresses. Employees would not be able to prevent the company from distributing this information.

The administration has demanded trillions in tax hikes on the American people despite President Joe Biden’s not to raise taxes on anyone making less than $400,000. New research shows that the “Protecting the Right to Organize” (PRO) Act violates Biden’s tax pledge by raising taxes on 7.7 million Americans, 96 percent of whom make less than $400,000. There are plenty of reasons to oppose the PRO Act, which rewrites American labor law in favor of union bosses and at the expense of workers. It nullifies right-to-work laws in 27 states nationwide, forcing workers across the country to choose between putting food on the table or kicking up dues to a union boss. It forces employers to disclose sensitive employee contact information to organizers during union drives, opening workers up to harassment at all hours of the day and night. Thanks to a from Americans for Tax Reform, the Tholos Foundation and Beacon Hill Institute, we now know that the PRO Act is a massive tax hike on millions of Americans. How is the PRO Act a violation of Biden’s $400,000 tax pledge? The PRO Act contains a stringent three-part “ABC” test to determine if a worker is an independent contractor or a W-2 employee. Under the PRO Act, businesses must prove that a contractor is [A] “free from control or direction,” [B] doing duties “outside the usual course of work of the hiring entity,” and [C] “customarily engaged in an independently established…business of the same nature of the work performed.” Under part C, an individual must be providing services to more than one client in order to be considered an independent contractor. The practical effect of the ABC test is to force the mass reclassification of millions of independent contractors into W-2 employees. This would damage every Uber driver in the country. Workers have seen this movie before. California enacted an ABC test as part of Assembly Bill 5, which Governor Gavin Newsom signed into law in January 2019. The test was so reviled that nearly of Californians voted to implement an exemption for rideshare drivers in November 2020. Rideshare drivers aren’t the only Americans that work as independent contractors. Court stenographers, florists, ballroom dancers, auctioneers, doctors, dentists, financial professionals and veterinarians all work as independent contractors. The study uses IRS data from a Treasury study to calculate taxes on a sample of independent contractors. The sample comprises the four different types of independent contractors most likely to be reclassified if the PRO Act became law. The population size is 13.81 million independent contractors with 1099 income, with a sample size of 1 percent. The study assumes that both the independent contractor and the employee take the standard deduction and computes the tax differences from there. The results are striking. Based on the sample, a nationwide ABC test would lead to 7,749,443 workers paying more in tax as W-2 employees than independent contractors. It is important to note that independent contractors already pay taxes — the reclassification would lead to them paying a different mix of taxes resulting in a higher overall tax burden. As the study notes: “BHI found that 56 percent of the independent contractors most likely to be reclassified would pay more tax as employees, which we estimate to be about 7.7 million taxpayers. We estimate that 96 percent, or 7.5 million, of those reclassified taxpayers who would pay more tax, make less than $400,000.” The study uses the best available data from 2016 to reach these conclusions. Due to the rising popularity of the gig economy and workers turning to side hustles to make ends meet during the COVID-19 pandemic, the real number is likely much higher. According to Upwork’s “” study, an estimated 59 million Americans engage in some form of freelancing. Using that number, the study assumes that 33 million Americans would pay more in tax if reclassified as W-2 employees. The PRO Act has been one of Biden’s top priorities despite the fact that it has yet to move in the Senate. The PRO Act’s ABC test is a clear tax hike on millions of Americans, 96 percent of whom make less than $400,000 per year. If Biden is serious about upholding his tax pledge, a central part of his presidential campaign, he should kick the PRO Act and the ABC test to the curb.

Measure Will Disrupt an Economy Already Struggling with Inflation and Supply Chain Challenges, Increasing the Risk of a Recession, And Forces Workers to Become the Victims of Unrelated Disputes The Associated General Contractors of America’s chief executive officer, Stephen E. Sandherr, issued the following statement in reaction to the reintroduction in Congress tomorrow of the so-called PRO Act: “Bad ideas in D.C. are a lot like weeds: no matter what you do, they keep coming back. A prime example of that is the pending reintroduction of the PRO Act. This anti-worker, anti-privacy and anti-growth measure will harm our economy at a time when many employers are struggling to cope with inflation, supply chain disruptions and labor shortages. “By allowing secondary boycotts and other actions against firms that are not directly involved in labor disputes, the measure will force many workers to remain idle because of disagreements where they do not stand to benefit. The measure also makes it extremely difficult for entrepreneurial workers to establish their own businesses by discriminating against independent contractors. “More broadly, the PRO Act will unleash a new era of labor unrest and strikes that the country has not seen since President Truman had to federalize the steel industry during the Korean War. Worse, the Pro Act undermines the collective bargaining process that has been the central pillar of union construction for the past half century. “Despite the many flaws of this bill, some in Congress continue to push a policy that will harm the economy, hurt workers, and make a recession far more likely. While we assume Congress will not support this measure, we taken nothing for granted and will aggressively work to again protect the American worker and economy from this harmful measure.”

A bipartisan group of House and Senate members has reintroduced the Protecting the Right to Organize (PRO) Act (), which seeks to strengthen labor unions and increase their leverage in collective bargaining negotiations by reclassifying independent contractors, broadening the joint employer standard, repealing right-to-work laws, and eliminating employers’ ability to replace striking workers. While the intent of the bill is to increase worker protections, many of the provisions ignore stated worker preferences and have the potential to harm the labor market through increased costs that small businesses, franchisees, and entrepreneurs likely cannot afford. This paper updates previous assessing the macroeconomic costs of the PRO Act and estimates that the bill could increase employment costs by anywhere from $18 – $61 billion and put up to $2.3 trillion of gross domestic product at risk. Introduction A bipartisan group of House and Senate members recently reintroduced the Protecting the Right to Organize (PRO) Act (). The bill is intended to be “pro-worker” legislation, as it seeks to strengthen labor unions and increase their collective bargaining power. Many of the provisions in the bill, however, do not align with the majority of workers’ stated preferences and have the potential to harm employers, freelancers, and consumers across a wide array of industries. Among other things, the provisions of the PRO Act would narrow the classification criteria for independent contractors (ICs), expand the number of businesses subject to joint-employer liability, repeal all right-to-work laws, and restrict employers from replacing strikers. The PRO Act would have dramatic implications for the labor market and the U.S. economy. The legislation would impose significant costs on employers, particularly small business owners such as franchisees and entrepreneurs, who would be subject to higher costs that they would likely be unable to absorb. Higher employer costs would result in higher prices for consumers and lost growth opportunities for businesses and their workers. This research provides an update to previous and estimates that the PRO Act could increase employment costs by approximately $18–$61 billion and put up to $2.3 trillion in gross domestic product (GDP) at risk. Provisions This research focuses on those provisions of the PRO Act with the greatest economic impact. The following provisions are likely to produce the greatest economic costs. The combined impact of the PRO Act’s provisions would put approximately $2.3 trillion of GDP at risk: $2.2 trillion from the bill’s IC reclassification provisions, $20–$38.7 billion from broadening the joint employer standard, and $16.1 billion from eliminating employers’ ability to replace striking workers. Reclassification of Workers The PRO Act would narrow the definition of ICs in the National Labor Relations Act (NLRA) for the purposes of classification with the intent of reclassifying most independent contractors as employees. Yet reclassification is generally against the wishes of many independent contractors, with only about of the American freelancers reporting that they prefer a traditional employee status to their status as ICs. ICs cite flexibility, entrepreneurial opportunity, and autonomy in choosing work hours and location as their chief considerations for pursuing freelancing. The PRO Act would limit workers’ ability to choose freelancing by narrowing the NLRA’s definition of who can qualify as an independent contractor. Reclassification would jeopardize ICs’ ability to set their own schedules, prices, and gigs. The bill would do this by inserting what is typically called the “ABC test,” – a rule used to determine worker classification – into the NLRA. The ABC test holds that an individual is an employee, and not an independent contractor, unless: (A) The individual is free from the employer’s control and direction in connection with the performance of the service, both under the contract for the performance of service and in fact; (B) The service is performed outside the usual course of the business of the employer; and (C) The individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed. To be considered an IC, the employer must prove that the worker meets all of these criteria. If an employer is found to have misclassified employees as ICs, they may be subject to additional costs such as tax and payroll fines, back payments to reclassified workers, and legal damages. Imposing the ABC test would significantly disrupt the labor market through mass reclassification of workers. Workers would face a reduction in autonomy, flexibility, and in some cases wages. Businesses, many of which rely on the work of independent contractors, would likely need to adjust their business models and adapt to higher costs. This study used recent and the to estimate the additional costs associated with worker reclassification. Assuming a conservative 15–50 percent of ICs would be reclassified as employees under the ABC test, this could produce between $18.4–$61.4 billion in additional weekly employment costs for businesses.[i] California implemented the ABC test in January 2020 through the passage of Assembly Bill 5 (AB 5) into California labor law. Previous found that a national version of AB 5 could risk up to 8.5 percent ($2.2 trillion) of U.S. GDP. The economic impact could be more substantial if, as the California courts have asserted, the ABC test were interpreted to apply to franchise relationships as well. Previous estimated that franchisors across the country would likely face an additional $4.9 million per hour in employment costs due to worker reclassification under the Biden Administration’s proposed independent contractor rule, which would narrow the classification criteria for independent contractors in a way similar to the PRO Act. Thus, implementation of the ABC rule under the PRO Act would likely result in similar costs. Under the PRO Act, franchisees would likely not meet the criteria of the ABC test, potentially replacing the franchise model entirely with one of traditional employment. Such an arrangement would require the franchisor to assume joint responsibility for employment decisions, collective bargaining negotiations, and unfair labor practice claims, which would disincentivize the franchise model. Broadening the Joint Employer Standard The PRO Act would significantly alter the joint-employer standard under the NLRA. “Joint employment” describes a situation in which two or more distinct entities share responsibility in the terms and conditions of employment including hiring, disciplinary action, and supervision of employees. When labeled as a joint employer, an entity may be responsible for participating in union negotiations and responding to unfair labor practice claims on behalf of the other employers. It may also be subject to accretion, the addition of employees to existing bargaining unions without an election, and a greater likelihood that employee complaints be lawfully upheld. Under a broad joint employer standard, such as that in the PRO Act, a company is considered a joint employer if it has indirect or potential control over a group of employees. This vague definition of the standard would make it easier for companies to be labeled as joint employers. (See additional information on the joint employer standard .) Franchises would be hit especially hard by a broader joint employer standard. Under the model, the franchisor provides support for franchisees through brand recognition and corporate procedures. Under the PRO Act, it is likely that the support given by franchisors could be enough for the NLRB to classify them as joint employers. The prospect of reclassification would make these companies less likely to provide the brand support they can offer under a narrow joint employer definition or to disengage from the franchise model. (See additional information on the impacts of the joint employer standard on franchises .) found that the broadened joint employer standard would lead to an estimated lost potential output for franchisees of 2.55–4.93 percent. If the recently introduced PRO Act were to pass, the annual loss of economic output for franchises would range between $20–$38.7 billion. Repealing Right-to-work The PRO Act would repeal right-to-work (RTW) laws, which protect workers’ right to refrain from joining a union as a condition of employment, across the country. If employment offers were to become contingent on union membership, many workers could be required to pay union fees, lose employment opportunities, or risk job loss. A found that those who live in RTW states have 1.6 percentage points higher employment and 1.4 percentage points higher labor force participation than those who live in non-RTW states. Replacing Striking Workers Under the NLRA, unions and employers are allowed to use economic tools, such as strikes and lockouts, respectively, to settle disagreements. The law limits reliance on these tools, however, to reduce the economic harm these tools produce. Under the PRO Act, employers would be stripped of their ability to replace striking workers, regardless of the circumstances. This would tip the bargaining power balance in favor of unions, leaving employers with little option but to accept union demands or operate without staff. Under these provisions, strikes would likely become more common, consumer prices would increase, and businesses with little resource capacity would be unable to operate. According to BLS, there were and lockouts in 2022. These work stoppages involved 120,600 workers. Assuming these workers usually operated at peak productivity, the loss in productive output alone was approximately $16.1 billion for the year. That said, BLS considers a major strike to include at least 1,000 workers and to last at least one shift during the work week. Therefore, the estimate is likely a conservative one as it does not account for strikes that involved fewer workers. Broad Impacts The PRO Act is, among other things, designed to improve union leverage in collective bargaining negotiations. This will likely increase union density which itself has negative economic consequences. Previous found statistically significant evidence that an increase of 1 percentage point in union membership rates correlates with a reduction of 0.25 percentage points in a state’s real GDP growth rate. The study also reported that declines in union density in a state led to more jobs and increased weekly earnings. Conclusion The PRO Act’s provisions to increase union membership would be detrimental to the economy. Businesses would face higher costs and increased union activity, consumers would see higher prices, and GDP growth would suffer. The most harmful provisions could increase employment costs by anywhere from $18–$61 billion and put up to $2.3 trillion of GDP at risk. Lawmakers should consider the negative impacts of the PRO Act before approving such a drastic change to U.S. labor law.

Congressional Democrats reintroduced the pro-union Protect the Right to Organize Act, known as the PRO Act for short. The bill’s sponsor, Rep. Bobby Scott of Virginia, says will build up the middle class and help American workers. So that they can reap the benefits of higher pay, better benefits, and a safer workplace that people who belong to unions enjoy," Scott said. House Minority Leader Hakeem Jefferies, D-N.Y., and Senate Majority Leader , D-N.Y. are backing the effort. Public support for unions hitting a six-decade high. A found 71% of Americans approve of labor unions. The U.S. Chamber of Commerce staunchly saying it would undermine worker rights, ensnare employers in labor disputes, disrupt the economy and force Americans to pay union dues regardless of if they want to. Small business franchise owners like Susan Cornish say the bill will increase operational costs. "Additional responsibilities that I’ll have as an employer already on top of the tightening labor market and the wages that have increased since COVID," Cornish said. Businesses often pass these increases in overhead onto the consumer in the form of higher-priced goods and services. Cornish says the new bill will also cut franchise owners out of labor decisions by allowing unions to negotiate with the corporations directly rather than individual owners. Republicans are against the PRO Act as they did previous versions. With the GOP in control of the House, the bill has a tough path forward. Scott says he believes Democrats can get some colleagues to cross the aisle to support the effort. "If you’re talking about people who are working for a living, need to be able to negotiate for better wages, safer workplaces, better benefits, I think they have workers in their districts too and a lot of people are interested in the legislation," said Scott. Democrats did get a handful of Republicans to vote for of the PRO Act but now that the House is under GOP control, the hurdles are much higher.

After years of struggle, America’s labor unions enjoy than at any time in more than 50 years. Yet even as the Republican party seeks to itself as the , its lawmakers, by and large, remain as hostile as ever toward organized labor. It doesn’t look like that situation is about to change. With the midterm elections approaching, and many polls indicating that the Republicans will win control of the House, nearly all Republican lawmakers in Congress oppose proposals that would make it easier to unionize. One hundred and eleven Republican House members and 21 senators are co-sponsoring of paying any fees to the unions that represent them. And at a time when many young workers – among them, Starbucks workers, Apple store workers, museum workers, grad students – are flocking into unions, Republican lawmakers often deride unions as woke, leftwing and obsolete. Congressional Democrats – seeing the surge in unionization drives along with the aggressive anti-union campaigns by Starbucks, Amazon and other companies – say there is increased urgency to enact the (Pro Act), which would make it easier for workers to unionize. The – with – but it faces an uphill battle in the Senate, largely because of a GOP filibuster, and will almost certainly fail to pass if Republicans gain Senate seats in the midterms. The Pro Act remains the Democrats’ overwhelming legislative priority for helping unions – it would, among other things, ban employers’ captive audience meetings and create substantial penalties for corporations that break the law when fighting unionization. Republicans denounce the legislation, vigorously opposing a provision that would override the right-to-work laws enacted in 27 states, laws that allow workers to opt out of paying union dues. The Senate Republicans’ , saying it would undermine worker freedom, “heavily tilt the scales in favor of labor” and “curb workers’ choices, threaten jobs and increase costs on employers”. It wasn’t always this way. Two decades ago, there were 30 union-friendly Republicans in the House, but that number has dwindled to a handful, partly because many of the party’s billionaire and corporate donors frown on pro-union Republicans. These donors see unions as bothersome institutions that favor Democrats and reduce corporate profits. Indeed, many Republican lawmakers treat unions and their leaders as enemies. Virginia Foxx, the senior Republican on the House Education and Labor Committee, scoffed at the idea that there is a union resurgence and said Democrats “are in the pocket of Big Labor”. “Unions are hitting the panic button and praying that Democrats can gin up a PR campaign to cover up the declining numbers and lack of interest in union membership,” Foxx told the Guardian, noting that union membership has sunk to just 6% of the private-sector workforce. Foxx, who often serves as Congress’s chief spokesperson on labor matters, belittled unions’ recent gains, saying that only a tiny percentage of and Apple stores have been unionized. Foxx, a nine-term House member from North Carolina, said: “If Democrats genuinely believe that union popularity is soaring and that union campaigns and strikes are resonating with American workers, then they truly have a tortured relationship with both math and reality.” Even as the National Labor Relations Board (NLRB) reported a 53% jump over the past year in the number of workplace petitions for union elections, Foxx and many other Republicans are backing bills that would make it harder to unionize. With corporations prohibiting union organizers from setting foot on company property to speak with workers, unions rely on NLRB rules requiring employers to give them workers’ home addresses, phone numbers and email addresses so they can communicate with them. But the Employee Privacy Protection Act, a Republican-sponsored bill re-introduced last March, shortly after the recent union surge began, would limit unions to obtaining just one of those three ways to contact workers. Foxx said workers should “never have to hand over their personal contact information” to “a union to which they object”. Bill Samuel, legislative director of the AFL-CIO, the nation’s main union federation, said he has seen no sign of Republicans warming up to unions despite their increased popularity – . “I haven’t seen any change” among Republicans, Samuel said. “There’s been no outreach. We haven’t been getting calls from Republicans asking, ‘How can we help workers organize?’” Bobby Scott, a Virginia Democrat who is chairman of the House education and labor committee, agreed, adding: “Republicans are pretty much as hostile as ever toward unions – pretty much down the line.” Scott said Democrats should rush to enact the Pro Act in light of the many daunting obstacles that workers face in seeking to unionize at Starbucks, and other companies due to intense corporate opposition and a flurry of alleged illegalities by management. In Scott’s view, especially important is a provision that would for the first time allow the NLRB to impose substantial fines against companies that violate the law when battling union drives. “The biggest improvement we need is to have some meaningful sanctions for unfair labor practices,” Scott said. “Right now, there is no meaningful deterrent.” Oren Cass, executive director of American Compass, a thinktank for conservative economics, said that many Republicans have grown more interested in worker issues. Cass acknowledged, however, that most Republican lawmakers remain hostile to organized labor because “unions are predominantly financing mechanisms for the Democratic party.” He said some Republicans are open to the idea of increasing worker power, but only if it’s done largely outside the framework of traditional unions. Nevertheless, whether with or without unions, hardly any Republicans are pushing to expand worker power – an idea that would irk corporate Republicans. Many GOP lawmakers instead emphasize worker choice and worker freedom – part of their decades-long effort to enact state right-to-work laws that allow workers to opt out of paying any dues or fees to the unions that represent them. of South Carolina are co-sponsoring the National Right to Work Act, which would let workers in all 50 states opt out of union dues. Wilson told the Guardian that the bill would “eliminate forced-dues clauses” and “allow workers to choose for themselves”. He said Joe Biden and the Democrats were on “a mission to force unionization” on “workers by eliminating employee choice”. Senator Paul said their bill , in the hands of American workers”. Unions assert, however, that workers have far more bargaining power by bargaining collectively, rather than as individuals. Cass, who worked in Mitt Romney’s 2012 presidential campaign, supports steps to give workers more power and said it’s a good time for Republicans to push to increase worker power. Their “constituents are significantly and increasingly working class”, Cass noted, adding that Republicans might be more willing to distance themselves from corporations now that more business executives “are on the other side”, having endorsed Democrats. For years, most Republicans lawmakers have opposed any increase in the NLRB’s budget; that agency oversees private-sector union elections and cracks down on employers that break the law in fighting unions. The labor board’s budget hasn’t increased since 2014, a budget freeze that has angered union leaders because they say it hampers the board’s ability to move quickly against law-breaking, anti-union employers. “The NLRB has been flat-funded for a long time,” said Scott, chair of the House labor committee. “With the popularity of unions increasing, the work of the NLRB has increased. In order to get their work done, the board needs significant increases in funding.” But Foxx called increasing NLRB funding , asserting that the labor board tilts in favor of unions, just as Democrats asserted that President Trump’s labor board was far too anti-union. The AFL-CIO’s Samuel voiced dismay that many Republicans seem implacably opposed to anything that would help unions expand. “All this,” Samuel said, “illustrates their hostility to make it easier for workers to enjoy what is supposed to be their basic right under the law: to come together to form a union.”

The Protecting the Right to Organize (PRO) Act of 2021 is a dangerous piece of legislation that would dramatically upend long-standing employment law in favor of labor unions at the expense of small businesses and their employees. The bill is currently before the U.S. Senate, having passed the House of Representatives on March 9, 2021. NFIB balloted our members on many aspects of the PRO Act and found that small business owners were overwhelmingly opposed to the bill’s key measures. Importantly: The PRO Act abolishes state “Right to Work” laws that protect non-union workers from contributing to union fees. 70% of NFIB members oppose repealing state “Right to Work” laws. The PRO Act removes the right of workers to hold a secret ballot regarding if they should or should not join a union. 79% of NFIB members believe that employers should not be required to recognize unions by way of signed authorization cards. The PRO Act includes a stricter version of California’s “ABC” independent contractor laws that forced the state of California to immediately carve out dozens of exceptions. The PRO Act has no such exceptions. 95% of NFIB members believe small businesses should be able to hire independent contractors to perform tasks essential to their business. There would be other harmful effects to the PRO Act, such as making small businesses responsible for the hiring decisions of their subcontractors, requiring employers to provide the personal contact information for all their employees to union organizers without the consent of the employee, and legalizing “secondary boycotts,” where a union can pressure businesses that do dealings with the business they are in dispute with.

The Protecting the Right to Organize Act (PRO Act), aka the “,” has arrived in the Senate after passing the House of Representatives in March. As the liaison to NRF’s , I’ve heard from small businesses across the country that want to know how this legislation could impact them if it becomes law. Here are four ways the PRO Act hurts small businesses, as explained by owners of small retail businesses. The PRO Act allows picketing and union coercion to come to your storefront. Secondary boycotts, which have been illegal for decades, would be allowed if the PRO Act becomes law. Unions would be permitted to strike or boycott neutral third parties that are not directly involved in an underlying labor dispute, effectively allowing unions to picket innocent small businesses. Trey Kraus, owner of Carlton’s Men’s and Women’s Apparel in Rehoboth Beach, Del., says, “If one of the brands I sell at my store ends up in a dispute with a labor union, passage of this bill would allow that union to come to Rehoboth to boycott and picket my store simply for selling merchandise from that brand. “It’s not my fight, and it’s not fair to my business and my employees to subject them to the financial and emotional trauma picketing can cause. Why should it be legal to be faced with boycotts and picketing over an issue I have nothing to do with and no control over?” The PRO Act eliminates small businesses’ ability to utilize independent contractors. The PRO Act contains a provision that severely limits opportunities to pursue flexible work opportunities. By codifying California’s “ABC test” for classifying workers as either employees or independent contractors, the legislation would essentially prohibit small businesses from contracting with freelancers or independent contractors. According to SBRC member Vivian Sayward of Vivacity Sportswear in San Diego, “Vivacity Sportswear could not meet our customers’ needs without vital partnerships with independent contractors. As a small business, I rely on contractors to provide specialized services that meet the needs of my business while keeping my overhead at a manageable level. The PRO Act would completely blow up my business model and make it harder for individuals to work independently.” The PRO Act overrides the will of voters in 27 right-to-work states. Twenty-seven states have chosen to adopt right-to-work laws that give employees the free choice to decide whether to join a union without risking their jobs. The PRO Act would override the will of the voters in those states, depriving workers of the freedom to decide for themselves and forcing them to pay union dues. John and Mary Jo Morman chose Virginia, a right-to-work state, to open their specialty store Celtic Tides after immigrating to the United States from Ireland. For Morman, the end of right-to-work protections included in the PRO Act could have devastating consequences. “Living in a right-to-work state signifies what it means to my wife and I to pursue the American Dream,” Morman says. “The PRO Act threatens all of that. It means the removal of personal choice in our employment practices, unprecedented interference with our ability to run our own business and several other clauses that would lead us to inevitably closing our doors and the loss of jobs.” The PRO Act makes it harder to do business in general. The PRO Act and its more than 30 radical provisions will force small businesses to comply with numerous new burdensome federal regulations. One particularly concerning provision is the so-called “persuader rule,” which would make it harder for small businesses to secure legal advice on complex labor law matters. If enacted, small businesses would be forced to file significant paperwork to the federal government any time they request advice on a labor matter. That even includes outreach to trade associations like NRF and state retail associations. As pandemic hardships continue, the last thing small businesses need is more complicated federal regulations and extensive paperwork. Erin Calvo-Bacci, owner of CB Stuffer in Swampscott, Mass., was forced to overcome significant hardships related to the pandemic. “We are a small family chocolate manufacturing business selling mainly into other small family businesses. We take care of our employees, providing opportunities and relationships with community organizations. We’ve overcome a lot of hardships and burdensome legislative hurdles and cannot deal with more.”

Congressional Democrats are pushing a bill that would impose many harmful policies on the economy. They say the so-called “Protecting the Right to Organize” Act, which the House recently passed, is pro-worker. In reality, it would threaten jobs and heavily tilt the scales in favor of labor unions, at the expense of workers and job creators. DANGEROUS POLICIES IN THE PRO ACT PRO Act Millions of Americans are trying to go back to work or find a new job. This bill would restrict their freedom to choose independent contract work. It could increase costs on job creators or upset their business model. Vaccinations are increasing and states are easing pandemic restrictions, making it a terrible time to cripple businesses’ efforts to rebound. One business group called it “the worst bill in Congress” and “completely unworkable.” SOUNDLY REJECTED BY BUSINESSES The PRO Act is yet another partisan bill that congressional Democrats are pushing − the House passed it almost entirely on party lines. Soon after, the AFL-CIO effectively said it would support ending the Senate’s legislative filibuster to allow the Senate to pass this and other partisan elements of President Biden’s agenda. Republican leader Mitch McConnell has said such a move would “break the Senate” and produce a “radically less stable and less consensus-driven system of government.” Organizations representing small and large businesses around the country have rejected the PRO Act. The Chamber of Commerce called it “a litany of almost every failed idea from the past 30 years of labor policy.” Associated Builders and Contractors said the bill would “strip workers of entrepreneurial opportunities to freelance as independent contractors, denying them the freedom to earn a living on their own terms and pursue the American dream.” The National Restaurant Association said it would jeopardize the economic recovery and COVID relief spending, “essentially setting fire to billions in taxpayer dollars.” PRO ACT WOULD OVERRIDE 27 STATES’ RIGHT-TO-WORK LAWS PRO Act THREATENS JOBS AND WORKER FREEDOMS The House-passed PRO Act and its Senate companion bill would impose sweeping changes to labor law that would affect non-union and unionized workers and their employers. Twenty-seven states have laws that protect workers from being compelled to join or pay fees to a union – in some cases those laws have been in place since the 1940s. The PRO Act would override these states’ right-to-work laws. It would allow collective bargaining agreements to require all employees to pay union fees as a requirement for employment. Workers would be forced to pay money to a union whether or not they want to be represented by it. One area that would not be directly affected by the PRO Act is the Supreme Court’s decision in Janus v. AFSCME. In that case, the Supreme Court held that mandatory union fees applied by a state violated the First Amendment. Congress cannot overrule the Supreme Court’s decision in Janus without a constitutional amendment. Given that Janus only applies to public-sector unions, however, its holding would not affect the constitutionality of the PRO Act.

WASHINGTON, Feb. 27—Associated Builders and Contractors today released the following statement ahead of congressional Democrats’ reintroduction of the Protecting the Right to Organize Act, which is set for Feb. 28. Among its many harmful provisions, the PRO Act would violate workers’ free choice and privacy rights, force unions on employees who have voted against such representation, cost millions of American jobs and threaten vital supply chains. “The PRO Act is nothing more than an attempt to strip workers of their privacy, freedom and choice,” said Kristen Swearingen, ABC vice president of legislative & political affairs. “Congress must reject this legislation and protect the rights of workers and employers across the country. Democrats in Congress are attempting to increase union membership at the expense of employees’ rights to privacy, employers’ constitutional right to free speech and opportunities for small businesses. “Reintroduction of the PRO Act means some lawmakers are catering to union demands for legislation that clearly threatens the livelihoods of small business owners, their employees and independent contractors,” said Swearingen. “This is an open attack on the franchise and self-employment business models that have fueled innovation, entrepreneurship and job creation.” The PRO Act’s harmful provisions would have a devastating impact on the U.S. construction industry and cause significant harm to the nation’s economy. Further, the bill’s provisions would produce significant economic costs for the nation’s 27 right-to-work states, in an effort to increase union power at the expense of worker freedoms and small businesses. ABC and the ABC-led Coalition for a Democratic Workplace are leading the fight against the PRO Act, engaging with key audiences to stop this attempt to implement radical labor policies. Visit freeenterprisealliance.org/proact to learn more and take action.

Imagine you’re the hardest worker on your team, the most efficient, and the most successful. But instead of being rewarded for your hard work, another employee reaps your benefits because he is part of a union. Sadly, this is an all too common occurrence in today’s workforce. Labor unions are known for leaning to the left, monopolizing the labor force, reducing competition, and collectively bargaining for steep wage increases. Supporters argue that unions provide members with benefits like higher pay and better healthcare. But the truth is that as a member you are forced to pay into a union, cannot negotiate your own salary, and your funds can be donated to a political candidate or party that you do not support. Unions not only reduce market competition, but hurt businesses especially when a labor union goes on strike. Most recently, 48,000 members of the United Auto Workers Union working for General Motors decided to hold a days-long strike demanding more benefits. According to analysts, the strike has cost GM approximately $100 million per day. Here's the bottom line: Job security, pay, and healthcare are important for all workers. However, liberal-leaning, big labor unions hurt competition in the workforce and negatively impact our economy as a whole.

Unions benefit their members but hurt consumers generally, and especially workers who are denied job opportunities. Unions decrease the number of jobs available in the economy. The vast majority of manufacturing jobs lost over the past three decades have been among union members. Congress should remember that union cartels retard economic growth and delay recovery when considering legislation that would force workers to join unions. What do unions do? The AFL-CIO argues that unions offer a pathway to higher wages and prosperity for the middle class. Critics point to the collapse of many highly unionized domestic industries and argue that unions harm the economy. To whom should policymakers listen? What unions do has been studied extensively by economists, and a broad survey of academic studies shows that while unions can sometimes achieve benefits for their members, they harm the overall economy. Unions function as labor cartels. A labor cartel restricts the number of workers in a company or industry to drive up the remaining workers' wages, just as the Organization of Petroleum Exporting Countries (OPEC) attempts to cut the supply of oil to raise its price. Companies pass on those higher wages to consumers through higher prices, and often they also earn lower profits. Economic research finds that unions benefit their members but hurt consumers generally, and especially workers who are denied job opportunities. The average union member earns more than the average non-union worker. However, that does not mean that expanding union membership will raise wages: Few workers who join a union today get a pay raise. What explains these apparently contradictory findings? The economy has become more competitive over the past generation. Companies have less power to pass price increases on to consumers without going out of business. Consequently, unions do not negotiate higher wages for many newly organized workers. These days, unions win higher wages for employees only at companies with competitive advantages that allow them to pay higher wages, such as successful research and development (R&D) projects or capital investments. Unions effectively tax these investments by negotiating higher wages for their members, thus lowering profits. Unionized companies respond to this union tax by reducing investment. Less investment makes unionized companies less competitive. This, along with the fact that unions function as labor cartels that seek to reduce job opportunities, causes unionized companies to lose jobs. Economists consistently find that unions decrease the number of jobs available in the economy. The vast majority of manufacturing jobs lost over the past three decades have been among union members--non-union manufacturing employment has risen. Research also shows that widespread unionization delays recovery from economic downturns. Some unions win higher wages for their members, though many do not. But with these higher wages, unions bring less investment, fewer jobs, higher prices, and smaller 401(k) plans for everyone else. On balance, labor cartels harm the economy, and enacting policies designed to force workers into unions will only prolong the recession.

After gaining control of both the state House and Senate, Michigan Democrats are already announcing what to expect from the first Democratic trifecta in just under 38 years. One major policy priority: repealing the state’s right-to-work law. They should reconsider, as right-to-work laws are better for workers, for unions, and for the economy. Right-to-work laws are simple: private employees can't be fired for refusing to pay a union. Without a right-to-work law, employees are forced to make a choice between whether to support a union or lose their jobs. Employees still have the option to join the union if they want, but those who don't can't be forced to pay dues to the union. Even in a right-to-work state, unions still act as exclusive bargaining representatives for all employees within a specified subset of a workplace called a bargaining unit. In non-right-to-work states, employees who don't agree with the union's positions or believe the union is doing a bad job are still forced to pay dues. Take, for instance, the UAW scandal. The investigation into the United Auto Workers revealed officials spending tens of thousands of dollars of dues money on cigars, meals, luxury villas, and golf equipment. In 2020-2021, the UAW lost 6 percent of its membership, likely in part due to the scandal. In states without a right-to-work law, workers would continue to be forced to financially support a union they've seen abuse their dues. The same is true for employees who take issue with a union's political spending or its political activity. In 2022, the National Education Association spent 98.54 percent of its political spending in support of Democratic candidates or progressive causes. Its counterpart, the American Federation of Teachers, spent 99.94 percent of their political spending in the same way. A teacher opposed to these candidates or causes, if trapped in a union, would be forced to essentially subsidize this speech, even if they found it antithetical to their values. Or at least they would be, if not for the Supreme Court's 2018 Janus v. AFSCME decision, which extended right-to-work protections to all public sector employees. Enabling workers not to support positions and organizations they disagree with should be reason enough to support right-to-work laws. But right-to-work laws also benefit workers who want to be part of a union. In right-to-work states, unions have to effectively represent their members or risk having members opt out of union membership. This challenges them to offer better, more responsive services to their members, since membership dues directly affect the union's bottom line. In forced unionization states, by contrast, unions have a guaranteed source of revenue. They have no incentive to provide the best services possible. Some unions have even expressed support for right-to-work laws. Gary Casteel, a former regional director for the UAW, is on record supporting right-to-work laws. His reasoning is straightforward: "This is something I've never understood, that people think right-to-work hurts unions," Casteel said in February. "To me, it helps them. You don't have to belong if you don't want to. So if I go to an organizing drive, I can tell these workers, 'If you don't like this arrangement, you don't have to belong.' Versus, "If we get 50 percent of you, then all of you have to belong, whether you like it or not. I don't even like the way that sounds, because it's a voluntary system, and if you don't think the system's earning its keep, then you don't have to pay." That's not even considering the more generalized economic benefits. From 2011 to 2020, right-to-work states had almost eight percent higher employment growth, almost ten percent higher growth in manufacturing payroll employment, over eight percent higher non-farm employment, and higher disposable income once cost of living is factored in. Given these economic benefits, it's not surprising that right-to-work states have higher in-state migration. It's also easy to see why employers increase investments in states after a right-to-work law is adopted. Recent job trends show the difference is obvious. According to the Bureau of Labor Statistics, right-to-work states have more than fully recovered the jobs they lost during the pandemic, adding 1.6 million jobs. This represents an increase of 2.1 percent. States that force private sector unionization, on the other hand, have lost 809,000 jobs or a 1.1 percent decrease. A 2022 Mackinac Center study about right-to-work laws found that a jobs realignment is taking place, away from non-right-to-work states like Ohio and toward Michigan and Indiana. It's troubling to see Michigan's lawmakers now promoting the repeal of right-to-work. At a time when the public's consumer sentiment is at some of the lowest levels in a decade, Michigan legislators should be focused on passing sound policy that encourages economic stability and growth. If Gov. Gretchen Whitmer wants to fulfill her promise of restoring jobs and helping small businesses, she should start by preserving right-to-work.

The Taft-Hartley Act of 1947 allows U.S. states to enact the highly controversial Right-to-Work (RTW hereafter) laws, which permit employees to enjoy the benefits defined in the collective-bargaining agreements negotiated by labor unions without having to join unions or pay union dues. Despite the controversy over the RTW laws and the strong resistance from unions,1 27 states have adopted the RTW so far. The RTW recognition is shown to significantly weaken labor unions' bargaining power and their activities (Chava et al., 2020; Ellwood and Fine, 1987; Hirsch, 1980; Warren Jr and Strauss, 1979), and enhance employment, but have mixed effects on wages (Chava et al., 2020; Kalenkoski and Lacombe, 2006; Reed, 2003). The RTW laws are also shown to decrease corporate financial leverage while increase tangible investment and profitability (Chava et al., 2020). In this paper, we show that the RTW exerts a significant and positive effect on corporate innovation—the enactment of state RTW laws strongly encourages firms to generate innovation outputs with higher quantity and quality and, as a result, gain stronger competitiveness over product market rivals. Corporate innovation activities can bring significant benefits not only to shareholders in terms of shareholder wealth creation, but also to corporate managers themselves in terms of personal reputation, social status, and private benefits of control (see, e.g., Balkin et al., 2000; Lerner and Wulf, 2007; Makri et al., 2006). However, when an innovating firm falls into financial distress, in addition to shareholder value loss due to the low liquidation value of intangible assets, managers will lose their personal reputation and private benefits of control. Thus, we conjecture that an increase (a decrease) in financial distress risk discourages (encourages) corporate innovation activities.2 Unionization increases a firm's operating leverage since it is more difficult to lay off unionized workers than non-unionized ones. For example, Chen et al. (2011) show that unionization is positively related to various measures of operating leverage and the constraints on firms' operations imposed by labor unions significantly increase firms' costs of equity. The RTW weakens the bargaining power of labor unions and thus decreases treated firms' operating leverage through increasing their flexibility on wages and employment, and also leads to a drop in treated firms' financial leverage because the need to use high financial leverage as a strategic tool to bargain with unions subsides after the RTW adoption (Chava et al., 2020). Against this backdrop, we conjecture that as operating and financial leverages decrease following the state RTW adoption, financial distress risk also decreases and thus treated firms can now more freely conduct innovation activities—that is, the RTW may encourage treated firms' innovation activities. We investigate this conjecture using a comprehensive sample of patenting firms covering a sample period of over six decades from 1950 to 2017 and a difference-in-differences (DiD) regression framework. Consistent with our expectation, the empirical evidence strongly suggests that the state adoption of the RTW results in significantly greater future patent grants and patent citations for firms headquartered in that state.3 Three years after the state RTW adoption, an average treated firm increases its patent count by 1.66 per 10-million-dollars sales, and increases its patent citation count by 19.78 per 10-million-dollars sales, which equal 0.28 and 0.21 sample standard deviation, respectively. These findings are robust to controlling for various time-varying firm characteristics and state economic conditions, as well as industry-year fixed effects (which capture the impact of potential industry-wide economic shocks) and firm fixed effects (which capture any time-invariant firm heterogeneity). We also document a robust treatment effect of the RTW on corporate innovation in different subperiods. Results from our dynamic DiD tests further reveal that the positive effects of the RTW on both the quantity and quality of treated firms' innovation outputs only show up from the third year following the adoption of the RTW and become stronger in subsequent years. These findings suggest that the trends in innovation between the control and treatment firms are parallel before the onset of the treatment and thus the documented effects of the RTW laws on corporate innovation activities are most likely causal. Although we control for time-varying state economic conditions in our baseline DiD regressions, unobserved local economic conditions may still confound our results. For example, some unobserved local economic conditions such as the evolution of regional innovation ecosystem can both lead to an increase in future innovation outputs of local firms and lead local governments to adopt the RTW laws. To address this potential concern, we further restrict control firms to those located in neighboring non-RTW states, since neighboring states have arguably similar local market dynamics as the treated firm's headquarter state. Our DiD estimation using neighboring-state control firms shows qualitatively similar (or even stronger) results. Thus, we conclude that our findings are most likely driven by the state RTW adoption rather than by unobservable local economic conditions. Moreover, consistent with the notion that the RTW encourages corporate innovations through weakening labor unions' bargaining power, we find that the economic impact of the RTW on innovation activities shows up mainly among highly unionized firms. As we conjecture that the RTW encourages corporate innovations through reducing financial distress risk, we next investigate the impact of the RTW on treated firms' ex-post changes in distress risk. Following the literature (e.g., Bharath and Shumway, 2008; Brogaard et al., 2017; Farre-Mensa and Ljungqvist, 2016), we use Merton's (1974) Distance-to-Default metric, which measures the firm's default probability, to capture distress risk. We find that following the state RTW adoption, treated firms on average experience a significant reduction in distress risk by about 2 percentage points relative to control firms. Moreover, consistent with the RTW encouraging corporate innovations through weakening labor unions and thus reducing financial distress risk for treated firms, we find that the treatment effect of the RTW on innovation outcomes is significantly stronger for those treated firms that have higher default probability ex ante. In addition, we further document that the positive treatment effect of the RTW on patent grants and patent citation count is significantly stronger for treated firms that are ex ante more likely to experience financial distress due to the frictions in three distinct markets: (i) firms facing more intense competition in product market (Valta, 2012; Zhdanov, 2007), (ii) firms depending more heavily on skilled workers in labor market (Belo et al., 2017; Ghaly et al., 2017), and (iii) firms having greater financial constraints in financial market (Livdan et al., 2009; He and Ren, 2017). Thus, our evidence is consistent with greater employer's bargaining power over labor unions significantly decreasing firm distress risk and hence encouraging innovation activities. Consistent with the findings on innovation outputs, we also find that following the headquarter-state RTW adoption, treated firms invest significantly more in R&D expenditures as an input to their improved innovation activities. Relative to control firms located in non-RTW states, treated firms on average increase their R&D expenses as a share of sales by 25.8% following the RTW adoption. We further explore a potential innovation-productivity-improvement channel behind the positive RTW treatment effect on corporate innovation outputs. As suggested by Bradley et al. (2017), unionizing the workforce can decrease wage inequality (i.e., hard work is not rewarded) and encourage shirking. Since the RTW laws weaken the unions, we expect that hard work is more likely to be rewarded with higher wages and the shirking behavior among innovative employees will decrease, leading to greater innovation productivity. Consistent with this innovation-productivity-improvement explanation, we find that the adoption of the RTW signficantly improves innovation productivity (as reflected in higher future innovation outputs per million R&D dollar input), and we observe a larger increase in innovation outputs for those firms with lower-than-median ex-ante innovation productivity (since such firms have larger room for improvement). Finally, likely due to the increased innovation activities of treated firms, we also document a significantly positive treatment effect of the RTW on these firms' competitiveness as evidenced by their gains in sales growth and market share growth from product market rivals. Our empirical evidence suggests that following the RTW adoption, treated firms on average seize 3.8% sales growth rate from industry rivals located in the non-RTW states. Our paper contributes to the finance and innovation literature (e.g., Atanassov, 2016; Brav et al., 2018; Chemmanur et al., 2014; Cornaggia et al., 2015; Moshirian et al., 2021; Tian and Wang, 2014). For example, Chemmanur et al. (2014) find that corporate venture capital differs from independent venture capital in nurturing innovation in entrepreneurial firms. Tian and Wang (2014) show that initial public offering (IPO) firms backed by more failure-tolerant venture capital (VC) investors are significantly more innovative. Cornaggia et al. (2015) find that banking competition reduces the innovation outputs of public firms but increase the innovation outputs of private firms that are dependent on external bank finance. Atanassov (2016) shows that firms that rely more on arm's length financing are more innovative than firms that use relationship-based bank financing. Brav et al. (2018) document that hedge fund activism improves targeted firms' corporate innovation. Moshirian et al. (2021) show that stock market liberalization encourages technological innovation. We add to this literature by showing that the reduction in financial distress risk because of the RTW enactment allows treated firms to conduct innovation activities more freely, leading to an increase in innovation outputs. Moreover, our paper is related to the broad labor laws and finance literature (e.g., Agrawal and Matsa, 2013; Klasa et al., 2018; Matsa, 2010; Qiu and Wang, 2018; Serfling, 2016; Simintzi et al., 2015) and, in particular, to the literature on the economic impacts of the RTW laws (e.g., Chava et al., 2020; Ellwood and Fine, 1987; Makridis, 2019). Chava et al. (2020) find that the RTW leads to lower wage growth at the state level and leads treated firms to decrease leverage and increase employment, capital expenditure and profitability. Ellwood and Fine (1987) document a significant and permanent post-RTW reduction in unionization. Makridis (2019) shows that the RTW leads to more competition among unions, resulting in an improvement in life satisfaction and economic sentiment of union workers. We contribute to this literature by providing novel evidence that the enactment of the RTW laws strongly motivate corporate managers to engage in innovation activities and enhance their firms' competitiveness. Finally, our study also contributes to the literature on labor and innovation (e.g., Acemoglu, 2010; Acharya et al., 2013, Acharya et al., 2014; Bradley et al., 2017). Acemoglu (2010) shows that labor scarcity encourages technology innovations if technology is strongly labor saving. Exploiting country-level changes in dismissal laws, Acharya et al. (2013) find that more stringent dismissal laws foster innovation particularly in innovation-intensive industries, while Acharya et al. (2014) show that the staggered adoption of wrongful discharge laws across U.S. states spurs innovation and new firm creation by limiting employers' ability to hold up innovating employees after the innovation is successful. Our paper is closely related to Bradley et al. (2017), who examine the effect of unionization on firm innovation. Using a regression discontinuity design that relies on “locally” exogenous variation in unionization generated by elections that pass or fail by a small margin of votes, the authors show that passing a union election results in an 8.7% (12.5%) decline in patent quantity (quality) three years after the election. Our findings on the impact of RTW laws on innovation are consistent with their findings, albeit we use a longer sample period and examine the impact of state-level legal changes that affect the negotiation and formation power of labor unions. Besides documenting a significant effect of the RTW laws on corporate innovations, we further document significant treatment effects on firm distress risk and product market outcomes. In sum, our evidence points toward the bright side of the RTW recognition and contributes to the debate around the real effects of these controversial laws on corporate behavior. The remainder of the paper is organized as follows. Section 2 develops the hypothesis that helps guide our empirical analysis. Section 3 describes the data and variable constructions. Section 4 presents the empirical results. Section 5 concludes. The Appendix provides the definitions of all variables used in the study and their data sources as well as additional empirical results.