Personal Debt Burden and Union Jobs: Evidence from the United States

This paper investigates the causal effect of household indebtedness on unionization in the United States, drawing on longitudinal data from the Panel Study of Income Dynamics (1994–2021). We exploit exogenous variation from the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which restricted access to Chapter 7 bankruptcy and redirected many filers into Chapter 13 repayment plans. Treated households, .i.e., those with high initial debt, experienced a relative decline in their debt-to-income ratios following the reform. Using this policy-induced variation as an instrument, we find that higher household debt significantly lowers the likelihood of unionized employment, with the effect concentrated in states without right-to-work (RTW) laws. We interpret this finding through the lens of institutional labor market frictions: in non-RTW states, where union membership is effectively compulsory in unionized workplaces, financially constrained workers may be deterred by the perceived risks of union jobs, such as the higher risk of outsourcing as a means of cost-cutting. Our findings highlight the intersection of household financial vulnerability and institutional constraints in shaping labor market behavior.