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.

By Vitor Melo of Mercatus. Excerpt:

"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."