When blue-collar workers lose union protection, they try self-employment

(Press-News.org) In U.S. states with anti-union labor environments, workers are up to 53% more likely to start their own businesses—and blue-collar workers are more likely to do it out of necessity.

A study in Strategic Entrepreneurship Journal examines how the labor environment in states with “right-to-work” (RTW) laws compared with that in neighboring states with stronger union bargaining power.

“We found that the enactment of stringent anti-union laws reduces employees’ incentives to stay in their workplaces and increases the attractiveness of becoming self-employed,” said study coauthor Namil Kim, from the Graduate School of Information at Yonsei University in Seoul, Korea.

RTW laws prohibit union security agreements between employers and labor unions, allowing employees to opt out of joining unions or paying union fees. These laws have historically reduced union membership. They have also diminished the power unions wield to negotiate for better worker wages, benefits, and job security.

The research team compared work environments in Michigan and Indiana, states that have adopted RTW laws, with those of neighboring states—Ohio and Kentucky—that did not. They tracked workers aged 20 to 34 who transitioned to self-employment, defined as dedicating 15 or more hours weekly to a new business. RTW laws were the main independent variable, while control variables included individual demographics, job tenure, occupation, industry and state-level socioeconomic factors.

They discovered that anti-union environments do more than change paychecks and benefits: they also push more people into self-employment. After RTW laws passed, workers in affected states were about 50% more likely to start working for themselves, mainly by opening small, unincorporated businesses, said Dr. Kim.

“This pattern is especially strong for blue-collar and low-wage workers, who often feel they have little choice but to start a business because their regular jobs have become less secure, not because they discovered a promising new opportunity.”

RTW law adoption was associated with a 1.96 percentage point decrease in union membership, a marginal increase in weekly working hours, and no significant change in weekly wages, suggesting that conditions post-RTW got worse.

“For blue-collar and low-wage workers, the weakening of unions tends to mean longer hours, less security, and fewer benefits on the job,” Dr. Kim said.  “Under these conditions, many of them turn to self-employment as a way to protect or replace their income. In our data, these workers are much more likely to start unincorporated, one-person or very small businesses, which fits the pattern of necessity-driven entrepreneurship.”

Twenty-six U.S. states have adopted right-to-work laws. Although some employers might prefer anti-labor, pro-business environments because it allows them to operate with less union influence, the authors warn that their workers may leave these environments to pursue their own businesses, especially if those workers have enjoyed benefits from unions in the past.

“Workers are a firm’s most important long-term resource because their experience, skills and relationships cannot be easily copied by competitors,” said Dr. Kim. “In anti-labor environments should think carefully about how to keep these employees. If they leave to start their own businesses, firms not only lose trained talent but may also face new competitors created by their former staff.”

To read the full context of the study and its methods, access the full paper available in the Strategic Entrepreneurship Journal.

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