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The economic and political truth about right-to-work legislation

David Schultz
David Schultz

The debate over the merits of a constitutional amendment making Minnesota a right-to-work (RTW) state is heating up. Proponents of RTW contend that it will make Minnesota more business competitive and produce jobs. Opponents respond that it will lower family incomes. Because the debate has taken on partisan implications – with Republicans and Chamber of Commerce constituencies favoring RTW and Democrats and unions opposing it – it is difficult to separate fact from fiction. 

Is RTW about economics, or is it about politics, directed at busting unions that have historically supported Democratic candidates and causes? The simple answer is that it is about both. RTW does not produce the economic benefits that its advocates claim, and instead the real justification has to rest upon its political aims.

What do we know about the economic impact of RTW? Legislative debates on the issue are generally badly informed or woefully devoid of fact-based impartial evidence. Often studies are cited by organizations with clear political agendas. Groups such as the Cato Institute, the Mackinac Center, and the Chamber of Commerce argue that RTW laws produce lower unemployment rates for states. Conversely, the generally liberal Economic Policy Institute finds the opposite, and also asserts that RTW adversely impacts unionization and family incomes. More nuanced and independent research yields a better picture.

Assessing the claims

In "Right-to-Work Laws and Economic Development in Oklahoma" Lawrence Mishel finds no evidence that RTW laws increase employment. Conversely he finds evidence that they decrease wages. Lonnie Stevans of Hofstra University in a paper entitled "The Effect of Endogenous Right-to-Work Laws on Business and Economic Conditions in the United States: A Multivariate Approach" reached the same conclusion on both points, while also noting that the rate of self-employment was higher and bankruptcies lower in RTW states.

Conversely do RTW laws hurt unionization? H. Craig Petersen and Keith Lumsden, in  "The Effect of Right-to-Work Laws on Unionization in the United States," find little evidence for this claim. States, for example, such as Nevada, which is RTW, have one of the higher unionization rates in the country at 16.6 percent in 2011. The same conclusion is reached in the article "The Effects of Right-to-Work Laws: a Review of the Literature," by William J. Moore and Robert J. Newman.

But in addition to the above research, one can also do the math to look at the impact of RTW. Data is available for 22 states with RTW and 29 plus the District of Columbia without. (Last month, Indiana became the 23rd RTW state.) The Bureau of Labor Statistics (BLS) provides data on unionization rates, unemployment, and median family income. What do we learn from crunching some numbers?

right to work statesCC/Wikimedia Commons/Scott5114Data is available for 22 states that have enacted right-to-work legislation. Indiana adopted a right-to-work law in February.

Fox's Bill O'Reilly asserts that RTW states have a much lower level of unemployment than the union states do. Using BLS December, 2010 data, the unemployment rate for RTW states was 9.2 percent, for non RTW it was 9.7 percent. Now look at the December 2011, BLS numbers. Supporters can point to the fact that seven of the top 10 states with the lowest unemployment rates are RTW. Conversely, five of the 10 states with the highest unemployment rates are RTW.

Second, the average unemployment rate for RTW states in December 2011 was 7.6 percent, compared to 7.9 percent for non-RTW. Using the most recent January 2012 numbers, the unemployment rate for RTW states was 7.3 percent, and 7.8 percent for non-RTW states. Overall, not much differences here in terms of economic performance.

Stastistical correlation analysis

Another way to examine the issue is by doing statistical correlation analysis. Statistically, if being RTW decreases unemployment the correction with it is 1. If RTW increases unemployment the relationship is -1, and if the laws have no impact the relationship is 0. Is there any statistical correlation between a state being RTW and unemployment rates? The correlation is 0.09, essentially no relationship. Essentially, O'Reilly is wrong in his statement.

Become a sustaining member today

But the classification of states as O'Reilly does into those which are RTW versus union is too crude. Many RTW states do have unionization levels comparable to those lacking such legislation. Is there any statistical correlation between the percentage of the work force in a state that is unionized and unemployment rates? With a correlation of 0.1 the connection is almost nonexistent.

But now take a look at the differences from another angle. There is a significant difference in median family incomes in states that are RTW versus those that are not. Using a three-years-average median family income for 2009 to 2009, RTW states have a median family income of $46,919, non RTW it is $53,418, a difference of $6,499 or 13.9 percent per year. Testing for the impact of RTW on median family incomes, the relationship is -0.4. This means there is statistical evidence that RTW is associated with lower incomes: RTW depresses wages. Finally, the percentage of the state's work force unionized demonstrates a positive 0.47 correlation with incomes: Unions increase household incomes.

So it's fair to say ...

RTW laws are only one variable affecting the economic climate of a state. But it is fair to say that these laws have no real impact on unemployment and instead states with them have lower median incomes. Similarly, unionization does not depress employment and instead increases wages. Presumably more wages for workers means more consumption and a better economy in the state.

So if economics is not really the issue (unless one wants lower wages), then what is it is about?

It is about politics. Generally advocates for RTW are Republicans who see labor unions as primary supporters of Democrats. RTW laws, along with voter identification laws, are tools aimed at weakening the political support for the Democratic Party by making it more difficult for some to vote, organize and amass political resources. Simply put, it is an effort to rig the rules of politics to favor one side by demobilizing the other.

David Schultz is a professor at Hamline University School of Business, where he teaches classes on privatization and public, private and nonprofit partnerships. He is the editor of the Journal of Public Affairs Education (JPAE). Schultz blogs at Schultz's Take.

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Comments (27)

What companies want is to be

What companies want is to be able to gradually compete wages and benefits down.
The question is, why doesn't it work in management? Why can't a group of managers approach the Board of Directors with a business plan and an offer to replace the current executive team for less money with higher dividends? How about a law that requires open bidding each year?

RTW Legislation

Excellent article! Well written and well supported, hopefully the "Boo-birds" understand the significance of the term correlation.

The simple answer?

"Is RTW about economics, or is it about politics, directed at busting unions that have historically supported Democratic candidates and causes? The simple answer is that it is about both."

Nonsense. The simple answer is it's about freedom. People should not be forced to join a labor union if they don't want to. Why is it so hard for collectivists to understand that?

Putting a cost/benefit analysis on the right to work is like putting a cost/benefit analysis on free speech.

Wrong

It's about controlling how businesses interact with their employees and limiting the freedom of both parties to reach an agreement that's mutually beneficial. No business is truly forced to be a "union shop." If an agreement with workers results in a unionized shop, then it must necessarily mean that the business found a benefit to having a unionized shop over a non-unionized shop.

Assuming you're correct,

then it's time for RTW proponents to abandon all of the economic arguments made in support of the law and focus on freedom. From my perspective, union laws which provide for majority rule after a universal vote and which permit decertification of a union by majoirty vote are perfectly consistent with freedom as it is seen here in the U.S. If my workplace is unionized and I choose not to belong to or support the union, I have the right to seek employment in a non-union setting.

This is not collectivism; it's representative democracy in the workplace.

It is about freedom

Employers just want the freedom to not pay a living wage.

Workers want the freedom from employers who don't want to pay a living wage.

Since we don't want the government to do that, the workers have to form unions.

Its free enterprise.

double standard

"The simple answer is it's about freedom. People should not be forced to join a labor union if they don't want to."

Change that to "people shouldn't be forced to be exposed to second-hand smoke if they don't want to." The Republican response to that, in opposition to mandatory smoke-free workplaces, was "just don't apply for a job where people can smoke." So if you don't want to belong to a union, just don't apply for a job at a union workplace.

Despite the misleading name of this type of legislation, I don't think Republicans *really* believe people have a "right" to any kind of job they want. If you don't like the conditions of employment, don't work there. Simple, eh?

False

Federal labor laws passed in the 40s made it illegal to force people to join a union. Everyone in the US has had the freedom to join or not join a union for the last 75 years. This is about the freedom to pay or not pay for services rendered. There are also federal labor laws that require unions to represent employees working under the same contract whether they are union members or not union members. This amendment is akin to saying that lawyers must represent anyone who asks but their clients have the freedom to not pay the lawyers for their services.

New Name

So, we should call it Right To Freeload?

Unions arise because of

Unions arise because of disputes between management and labor. The individual worker is eminently replaceable. The entire workforce is not. The gains of hard-fought issues that lead to the formation of the union should not be jeopardized by the ignorant new-comer.

It is typical of the most repressive states that the true union movements are suppressed in the interest of the state and corporations. Read a little history instead of listening to Fox.

Rather than being an instrument of oppression, unions are a bulwark against oppression.

Check That!

Entire workforces aren't replaceable? Ask the locked out folks at Crystal Sugar. Or the mechanics that worked at NWA. PATCO anyone?

Generally speaking

I think the analysis is interesting, but it seems possibly flawed. I think the better analysis isn't comparing RTW states to non-RTW states, but RTW states before and after enacting legislation resulting in RTW. Many of the RTW states have significantly different economies than the ones that are non-RTW. Including historically lower income, so the disparity in income may be inherent in the location, not the RTW. However, if there's evidence that wages went down or stayed stagnant under RTW in the same state, then there's a pretty good argument that RTW depresses wages.

That being said, the claims that RTW results in a better economy than in non-RTW states is clearly false.

From a social and standard of living standpoint, I'd rather be in most of the non-RTW states than any of the RTW states. But then, maybe the reason we're not a RTW state (at least not yet) is because there's enough of us happy to live here than the states that have RTW.

Great Point

I'm surprised more people haven't taken this into account is their analysis. The South has been economically depressed since the before unions were even an issue in the United States.

Its been done, do a little research on Oklahoma..

...you have to wade through a lot of propaganda but in the end. It didn't create more jobs and average income fell.

Mr. Tester: This comment, as

Mr. Tester: This comment, as others you have made, express the same position: That individuals should have to conform only to those laws to which they have consented. Your concept of "freedom" is anarchy, or has meaning only within a tiny community in which all binding commitments originate by consensus. It is utterly useless and inapplicable in the context of a nation, city or village of any size. The central task of self-governance in a society is making judgments on constraining certain freedoms in order to provide for the greater overall freedom. You seem convinced that only you are interested in freedom, and the rest of us are disciples of the Khmer Rouge. To the contrary, we are committed to the actual, complicated work of advancing freedom. You are content with simplistic and sterile ideology.

Right To Work

Great article! Everyone has a right to work without being a member of a union. The question is whether they should pay an amount called a Fair Share contribution which is less than the union dues. Unions negotiate benefits for all employees. Is it fair for non-union employees to receive benefits negotiated by unions but without contributing? NO! RTW states don't create more jobs than unionized states and it lowers wages. Be free and work where you want. Work somewhere else if you don't like contributing to the organization that negotiates your benefits.

Oh really?

"That being said, the claims that RTW results in a better economy than in non-RTW states is clearly false."

See Texas.

I see it.

What's your point?
Texas is RTW. Texas is the largest state in the continental US, yet ranks second behind CA (a non-RTW state) in GDP, and ranks 24th in the nation in GDP per capita (after 15 non-RTW states, which dominate the top of the list), household income was 25th in the nation, and its unemployment rate is 2 percentage points higher than Minnesota. Nothing worth bragging about.

bad correlation

Mr. Schultze did not correct his household income data for the cost of living in each state. I did a quick correction by dividing the U.S. Census Bureau, 2007-2009 American Community Survey three-years-average median family income by the MERIC fourth quarter 2011 cost of living index for each state. The average corrected household incomes for the RTW states is $60,759 and the average for the non-RTW states is $59,606. Contrary to Mr. Schultze’s claim, unions do not increase a household’s buying power and, more importantly, RTW laws do not decrease a household’s buying power.

Just wondering

Did you get your statistics from the Heritage Foundation or the Cato Institute?

You are claiming employers went to the lowest cost location then

Because the employer would include the cost-of-living as a relevant factor--right? Thus, unions create a total lower cost for business and all states should then be union (applying your argument to your numbers).

Responses to critics

Interesting comments on my op-ed. Let me offer three responses.

To Nick Moody: Your argument is an apples and oranges one. I said that statistical evidence shows states with higher concentrations of union membership are correlated with higher incomes. You did not refute that but instead changed the debate by twisting the argument into purchasing power and asserting that “RTW laws do not decrease a household’s buying power.” No one said they did. You argument about correcting my data for purchasing power is completely besides the point and not germane to the argument I was making.

To Rachel Kahler: Great observation and it would be nice to do a before/after for RTW. One problem of course would be controlling for a ton a variables that could also occur in one state that occur at the same time RTW is passed. It may be nearly impossible to do that. However, case studies are the weakest of all forms of empirical data and is difficult to generalize from one case study. One of the strongest forms of evidence is statistical analysis of an entire population and that is one I did here. The fact that no real pattern can be shown statistically among all 50 states regarding RTW legislation and unemployment provides farm better and richer information than one case study of before and after.

Moreover, yes, some states were poorer even before RTW is true. But again, a 50 state statistical analysis accounts for part of this by simply asking is there any relationship between income and RTW. The correlation suggests something approaching a moderate inverse relationship.

To Dennis Tester et al: Fascinating response. I remember a few years ago advocates of privatization arguing it saves money until the empirical evidence began to show that it did not. The advocates shifted to issues of quality until studies contradicted that claim. Then advocates turned to flexibility for their claims for it and there are debates regarding that too. My point is that advocates for RTW are doing the same. They begin with economics and then shift to the freedom issue. Freedom for what? Freedom to work for less wages or income? Freedom from whom? As someone pointed out, there is no federal or state law requiring union membership but unions are often required to bargain at a workplace for those who do not join union. Unions face a free rider problem because of that. What RTW does is to exacerbate the free rider problem. Face it, this is the problem that American society faces in general. We all want free services from the government without paying our fair share. That is why taxes exist–to solve the collective action or free rider problem.

If we are really worried about freedom let’s talk about shareholders of corporations not given a vote on whether corporate money should be expended for political purposes. Go take a look at my blog on this issue: http://schultzstake.blogspot.com/2012/02/protecting-shareholder-rights-c...

Questions

I just read your article on The economic and political truth about right-to-work legislation. Some good points which are countered by other studies and articles. My questions after reading the artical and comments is how do your tie Right to Work to Voter Identification and Shareholder rights?

Statistics on the economic impact of RTW will certainly continue to be debated, time will tell. However, is it too much to ask that you identify yourself when you vote. As for Shareholders rights related to politcal contributions, investing is a voluntary act of owership, if you don't ageee to the terms don't invest.

Regards,

Kevin

Freedom?

Dennis, you live in a free country. If you want to go out and make $7,000 less a year than union workers you're perfectly free to do that.

unions vs right to work

nice article however how much of union wages goes to a package?
I left the union and took a $5000 drop in wages yet my take home pay went up.
also right of work states have lower cost of living, minesota is 35th highest in the nation more
expensive then any of the right to work states

What'd you lose...

...Health Insurance? Pension? Vacation Pay? Your take home may have increased but you lost benefits that you will miss later. My father was a Union Carpenter. He recently told me that at each stage of the game he voted against things like Vacation, Pension and Health Insurance, because he wanted every cent of his pay. He now survives because of that Pension. He thanks god that his Union brothers out voted him.

stats 100

Causation and correlation are not the same thing. The author's conclusion from his analysis that "RTW depresses wages" either shows a lack of understanding for statistics, or an attempt to fool readers into adopting the author's views. In either case, it's not quality journalism.

Ice cream sales go up as crime goes up. Does ice cream cause crime? Or maybe crime causes ice cream sales?