The Right to Work and Economic Dynamism

Do state Right to Work (RTW) laws unleash economic dynamism? Although the specific goals of RTW laws to loosen union security agreements appear to narrowly target unionized firms, proponents and opponents alike argue that RTW laws have broad labor market consequences. Union monopoly and institutionalist theories suggest divergent hypotheses for the likely impacts of RTW on economic dynamism. Tom VanHeuvelen and I provide a novel test of these hypotheses using 3/4 of a century of County Business Patterns data and county-border pair fixed effects regression models to address unobserved heterogeneity. We fail to find strong evidence that RTW passage is associated with meaningful changes in employment or establishments. We develop an alternative competitive labor policy mitigation perspective that highlights how policymakers respond to policies in neighboring states to help explain this null result. Consistent with our theoretical arguments, we find that non-RTW states made tax and incentive policy more attractive for employers during this period, and that tax and incentive policies have a meaningful association with local economic dynamism. This highlights tax incentives as an alternative policy lever that non-RTW states used to mitigate competitive advantages of RTW states.