The Impact of the Employee Free Choice Act on the U.S. Economy

The Employee Free Choice Act (EFCA) is one of the most significant proposed changes to labor law of the last half century. If passed, EFCA, at least in its current form, will change how a union is recognized and significantly amend bargaining between a union and employer if an initial agreement cannot be reached. This report analyzes the economic implications of EFCA on the U.S. economy. The report focuses on the current version of the bill, though some in Congress have suggested a revision that eliminates the “card check” component of the EFCA, in which a union would be recognized if 50 percent of workers signed a card requesting representation from a specific union. Whether it is revised or not, the EFCA’s broader goal of making it easier to organize firms and increase unionization rates will remain.

Gauging the impact of higher unionization on the economy, however, depends on how many more workers are unionized, how much their wages rise as a consequence of unionization and how this additional unionization indirectly impacts other aspects of the economy. To address these issues, I consider different assumptions regarding the number of new union members resulting from the passage of EFCA and different assumptions regarding how much their average wages would rise. I estimate that the impact of EFCA could reduce both the number of jobs and our gross domestic product by close to 4 percent under the assumption that unionization rates return to their levels in the 1970s, and these losses would persist for as long as unionization rates remained high.

Moreover, I find that job loss resulting from EFCA will fall disproportionately on workers with relatively low levels of education and skills. Ironically, it is these individuals that EFCA is specifically intended to help whom I find would be most negatively impacted by the proposed legislation. There are alternative policies that can promote wage growth for lower-skilled workers that are more efficient than unionization, including subsidies for education and job training. For example, each year, 10 million workers could receive $5,000 per year in training and education subsidies, which is only 1/10 of the possible cost of EFCA under the assumption that unionization rates return to their 1970s levels.

Section 2 of this report provides some background, and Section 3 offers a benchmark for broadly evaluating EFCA by summarizing the importance of competition in a market economy and describing how unionization creates monopoly. Section 4 summarizes the decline in unionization in the United States, which is one of the main factors cited by proponents of EFCA, and describes how higher levels of competition in the economy have contributed to this decline. Section 5 covers the cost of unionization, including evidence on union wage premia and the impact of unionization on productivity. Section 6 describes the potential impact of EFCA on small businesses. Section 7 analyzes the quantitative impact of EFCA on the U.S. economy in terms of changes in output, employment and investment. Section 8 concludes and offers alternative policies.

Click here to read the full paper as an Adobe Acrobat PDF.

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Policy implications of the new US labor market normal

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