Labor Unions and Social Insurance

The United States has experienced a significant decline in labor unions over the past half-century. We examine the aggregate labor market impact of labor unions, the causes of their decline, and their welfare and distributional consequences, accounting for unions’ effects on wages and employers’ insurance provisions. We first provide descriptive evidence that social insurance expansions contribute to the union’s decline. We then develop and estimate an equilibrium labor search model where unionization, wages, employers’ insurance provisions, and job security are endogenously determined. We find that, while skill-biased technological changes and Right-to-Work laws respectively explain 32% and 7% of the union decline from 1955 to 2019, social insurance expansions account for 15%. Our analysis also indicates that social insurance expansion can affect inequality through (de)unionization, and inequality may increase or decrease depending on how social insurance is targeted. Subsidizing unions lowers overall social welfare but increases the welfare of low-skilled workers.