The effect of unions on labor markets and economic growth: An analysis of state data

Despite voluminous research on unions, there still is no consensus on how unions affect a state's economy. Using a panel of 48 U.S. states for the 1978-1994 period we estimate a series of simultaneous equations to analyze how unions affect various economic barometers. This provides measures for the partial correlations between unions and performance. The model is then re-estimated using regional dummies to capture fixed effects and to highlight regional differences in the slope of the Phillips curve. We find that unions adversely affect unemployment rates and the growth rates of gross state product (GSP), productivity: and population, while increasing the rate of wage inflation. The impact on the employment growth rate is negative but not significant. A test for fixed effects reveals regional differences in GSP growth. Regional differences in population grow th are not significant. Also, the slope of the phillips curve is significantly different across regions.