Economic Snapshot | Unions and Labor Standards

“Right-to-work” hurts private-sector pension coverage

Retirement insecurity is one of the scariest problems confronting working families, as Social Security replaces less and less of pre-retirement income, pension coverage declines, and personal savings in IRA and 401(k) accounts prove inadequate. Thus, one might expect politicians to avoid any policy that further reduces pension coverage. Yet Indiana lawmakers and Gov. Mitch Daniels are debating legislation – a so-called “right-to-work” law – that would do precisely that.

EPI economists Heidi Shierholz and Elise Gould report that RTW is associated with a significant reduction in private-sector pension coverage. In a study published last year, Gould and Shierholz analyzed the relationship between RTW status and wages and benefits after controlling for the demographic and job characteristics of workers, in addition to state-level economic conditions and cost-of-living differences. They found that the rate of employer-sponsored pensions is 4.8 percentage points lower in RTW states. If workers in non-RTW states were to receive pensions at this lower rate, 3.8 million fewer workers nationally would have pensions.

The simple state-by-state coverage figures are also dramatic. Private pension coverage in Indiana is greater than in 21 of 22 RTW states. It’s likely that if RTW passes in Indiana, pension coverage will drop, and Hoosier families will be worse off.

With research assistance from Natalie Sabadish

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