It may not be the silver bullet for every financial challenge facing states at the present, but those states adopting right-to-work (RTW) legislation are becoming more competitive. In your writer’s native Michigan, for example, RTW was signed by Gov. Rick Snyder in December 2012, and the results have been impressive. The American Legislative Exchange Council’s recently released 2014 “Rich States, Poor States” report places the Great Lakes State 12th out of 50. ALEC’s 2013 report placed Michigan at 25 between 1999 and 2009, and 17 in 2012. Michigan was ranked 50th in ALEC’s Economic Performance Ranking, which measures states’ economic performance between 2002 and 2009. Although RTW only accounts for one of the 15 variables ALEC considers, it places RTW and taxes at the top of the list:
[T]he two policy decisions that have the biggest impact on growth among the states are 1) the highest income tax rate faced by business and individuals, and 2) whether a state has forced-union policies or right-to-work statutes allowing workers to opt out of unions. If states are right-to-work and keep their corporate and personal income taxes low, and all other factors are held constant, this should go a long way to making those states a place where jobs, people, and capital move. Sure enough, our latest analysis covering 2002-2012 confirms this conclusion once again….
A survey of the literature on the economic effects of right-to-work laws confirms what the data above shows. Literature reviews done by two separate teams of researchers—Dr. Randall Pozdena and Dr. Eric Fruits, as well as Dr. Michael Hicks and Michael LaFaive—find significant support for the theory that right-to-work policies boost economic performance.In addition, both research teams’ own personal economic analyses come to similar conclusions that conform with the academic consensus.
Workers are apparently starting to understand the negative effects of unions on jobs and overall economic improvement. In early 2014, the workers at a Volkswagen plant in right-to-work Chattanooga, TN famously voted down a United Auto Workers bid to unionize the plant. Many workers at the plant said they worried that a union would bankrupt the plant, sending their jobs elsewhere, and turn Chattanooga into bankrupt Detroit.
Yet, Vice President Joe Biden was in Detroit this past Labor Day, telling a crowd of union supporters: “Folks, there is something wrong with this picture…. We have got to restore the bargain established by unions…. If we don’t, America is in real trouble.”
The Mackinac Center for Public Policy – a free-market, Michigan-based think tank – championed RTW. In 2013, the Center’s Economic Policy Director Michael LaFaive (full disclosure: your writer is a former Mackinac Center employee and has retained a personal friendship with LaFaive) and Michael Hicks authored the study “Economic Growth and Right-to-Work Laws.” In their Executive Summary, they explain:
From 1971 through 1990, however, right-to-work laws increased average annual employment and real personal income growth by about 0.9 percentage points and increased average annual population growth by 1.3 percentage points. Further, from 1991 through 2011, the effect in each category was slightly smaller than in the previous period, but each was still statistically significant.
These results suggest that right-to-work laws have a positive and sometimes very positive impact on the economic well-being of states and their residents. Indeed, the study’s findings show that right-to-work laws, on average, cause a one-time, permanent increase in the rate of economic growth in states. Since this study deploys a new econometric model to measure the impact of right-to-work laws, it should be an important contribution to the growing research on this issue. Policymakers interested in improving their state’s economic performance should take note of the study’s findings.
And this from the study’s conclusion:
This study examines the impact of right-to-work laws on three measures of state-level aggregate economic activity (employment, real personal income and population) from 1947 through 2011. It deploys a careful temporal analysis of these effects and attempts to isolate the specific effect right-to-work laws had on individual states.
This research suggests that from 1947 through 1970 (the period immediately following the Taft-Hartley Act), right-to-work laws had very little meaningful statistical impact on overall economic performance in right-to-work states. However, from 1971 through1990, when manufacturing employment in the United States began to languish, right-to-work laws demonstrated a statistically significant effect on these measures. Finally, over the course of roughly the last two decades, from 1991through 2011, right-to-work laws’ impact on state economic well-being has moderately slowed, but remains considerable.
These findings suggest that right-to-work laws may have a positive — at times very positive — impact on the economic well-being of a state and its residents.
“Right-to-work simply means that a union cannot get a worker fired for not paying them. It does not affect collective bargaining in any other way,” Vincent F. Vernuccio, Mackinac Center’s director of Labor Policy, told me. “Workers in Michigan and in all right-to-work states can still bargain over wages, hours, working conditions and anything they could bargain for before right-to-work. “
Vernuccio continued: “Besides higher wage growth, higher population growth, and when cost of living is factored in workers earning more, right-to-work also makes unions stronger. Right-to-work means that unions must prove their worth to their members and put their members’ needs above the special interests. It is for this reason and the fact that there are more jobs are going to right-to-work states that unions in those states are growing.”
RTW states enjoy increased real personal income growth, population growth and employment growth, according to a Competitive Enterprise Institute study, which concluded “the overall effect of a RTW law is to increase economic growth rates by 11.5 percentage points” and calculated loss of potential income in non-RTW states between 1977 and 2012 at a median $3,278 per capita, or nearly $13,000 annually per family of four.
According to the Mackinac Center’s analysis of the CEI study:
The study highlights some additional statistics that suggest RTW laws have a positive impact on economic growth. For instance, real personal income in RTW states grew by 165 percent from 1977 to 2012, but only by 99 percent in states without such laws. Measured by per-capita income, states with RTW laws grew by 65 percent, whereas non-RTW states grew by only 50 percent.
Generalizing about the millions of interactions and factors that impact a state’s economy is tricky, and one should always use caution. But a growing amount of evidence suggests that states with RTW laws, by lowering the actual, perceived or future cost of doing business, attract more capital, firms and workers. Eventually these factors add up and contribute to a growing state economy, just as general economic theory would predict.
The benefits won for workers from their respective unions in the past and from RTW legislation in the present are indisputable. As noted by Acton’s Jordan Ballor:
The key here is to understand that where union membership is compulsory and the unions themselves are supported by government subsidy, the rightful purpose of labor unions as recognized in Christian social thought (to protect the welfare of the workers and in so doing promote the common good) is undermined. Voluntary associations, including voluntary and free labor unions, have a critical role to play in a flourishing society. But under a mandatory system, where labor unions are free from competition and loss of potential members, it becomes too easy to subsume the promotion of worker welfare under the promotion of the welfare of the union itself. And in turn labor unions are free to promote partisan causes to an effectively captive audience and underwrite explicitly partisan political advertising. This kind of crony unionism, in which the government sanctions and promotes a compulsory union monopoly in exchange for political support, perverts both the government and the unions. Each institution has a positive role in promoting the common good, but when such economic and political interests are so intimately aligned, self-interest is substituted for the common good.