In U.S. states with anti-union labor environments, employees are up to 53% more likely to try working for themselves, a study in Strategic Entrepreneurship Journal has found.
The study examined how labor environments changed in states after the implementation of “right-to-work” (RTW) laws compared with those in neighboring states who maintained 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, PhD, an associate professor at the Graduate School of Information at Yonsei University in Seoul, Korea.
RTW laws prohibit union security agreements, allowing employees to opt out of joining unions or paying union fees. These laws have historically reduced union membership, diminishing 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 64 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.
“In our study, we treated the adoption of RTW laws as a sudden political shock, not as something driven by workers or would-be entrepreneurs,” Dr. Kim said. “Because Michigan and Indiana adopted these laws while neighboring states like Ohio and Kentucky did not, we could track workers in these states over time and see how their chances of starting a business changed.”
The comparison works much like a “natural experiment and helped the team to separate the impact of the law from that of other economic trends, Dr. Kim explained.
Anti-labor laws that weaken unions do more than change paychecks and benefits—they also push more people into self-employment, the team discovered. After RTW laws passed, workers in affected states were about 50 percent 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.
The law didn’t affect all workers in the same way. Self-employment rates for higher-wage employees or specialized professionals didn’t significantly change. The increase in entrepreneurship was concentrated among workers who had historically gained the most from union protection, especially blue-collar and low-wage employees.
The motivation behind entrepreneurship can be categorized as opportunity-driven (when workers are pulled by market opportunities) or as necessity-driven (when they’re pushed by a lack of employment options). While prior studies have largely focused on opportunity-driven entrepreneurship among knowledge-intensive workers—such as those in science and technology fields—this study took a closer look at blue-collar and low-wage workers, who have historically relied on union protections.
“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.”
Deteriorating conditions for blue-collar and low-wage workers were likely their motivation for seeking self-employment, suggesting that their entrepreneurship is mainly necessity-driven rather than opportunity-driven. Nearly all of the increase in entrepreneurship came from unincorporated businesses—typically small ventures that could be started quickly with limited capital.
“These kinds of businesses could be usually set up to stabilize household income rather than to build large, fast-growing companies,” Dr. Kim explained. “They are closer to solo service or repair work than to high-tech startups.”
The team’s findings illustrate that it’s not just unemployment that can drive necessity-based entrepreneurship. 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.”
