Public Sector Unions and Government Financing

Abstract

Unions play a significant role in the U.S. public sector. In this paper, we use a Supreme Court’s ruling that diminished the power of public sector unions exogenously in certain states to examine the effect on government financing costs. We find that the decrease in public sector union power reduces the financing cost of government, as indicated by lower municipal bond yields. The effect is more pronounced in states with high unionization rates or heavy pension liabilities. We confirm the robustness of our results over a longer window using the staggered adoption of “right-to-work” law across states as well.

Keywords: Government financing, public sector, labor unions, Supreme Court decision

JEL Classification: G12, H74, J51