Anti‐labor environments and employee entrepreneurship: Evidence from right‐to‐work laws

Abstract

Research SummaryWe explore how changes in labor unions and related labor environments affect employees' likelihood of starting a new business. We suggest that the enactment of stringent anti‐union laws reduces incentives for employees to stay with their respective workplaces and increases the attractiveness of becoming self‐employed. Using the adoption of right‐to‐work (RTW) laws in Michigan and Indiana as a quasi‐natural experiment, we find that the likelihood of employees becoming self‐employed increased by 53% compared with that of states without RTW laws. Moreover, this tendency is more pronounced for blue‐collar and low‐wage workers who start unincorporated businesses. These findings offer novel insights on the relationship between anti‐labor environments and necessity‐driven entrepreneurship by focusing on individual‐level incentives in non‐knowledge‐intensive sectors.Managerial SummaryChanges in employment conditions influence employees to consider starting their own businesses, yet our understanding of how these changes drive individuals toward entrepreneurship remains limited. This study explores how weakened labor union power affects workers' engagement in entrepreneurial activities, with a focus on the types of employees impacted and the businesses that they start. By examining the adoption of RTW laws in Michigan and Indiana, we find that weakened labor union power disproportionately affects blue‐collar and low‐wage workers, increasing their likelihood of starting unincorporated businesses. These results suggest that managers and policymakers should consider the challenges faced by these workers and how changes in employment conditions may shape their career choices.