Public Sector Unions and Government Financing

Unions play a significant role in the U.S. public sector. We use a difference-in-differences design and the exogenous shock induced by the Supreme Court’s Janus ruling to investigate how public sector unions affect government financing costs, as this ruling diminished the power of public sector unions. We find that the decrease in public sector union power following the Janus ruling reduces the cost of government financing, as indicated by lower municipal bond yields. The effect is more pronounced in states with high unionization rates or high heavy pension liabilities, suggesting that stronger unions are more likely to increase governments’ credit risks. We confirm the robustness of our results using a matching-based design and a staggered law initiation.