There are many factors a business chooses when deciding where to locate or to relocate: tax rates, quality of life, quality of education system, government regulatory burden, and now for manufacturing businesses, whether a state has a Right to Work (RTW) law or not.
Proving that RTW is a significant contributor to a state’s economy is not entirely easy, because of the above factors. However, I have been studying the data extensively and believe there is a positive correlation between a state which has a RTW law and states which don’t have one.
Delaware would benefit from having a RTW law. Since 1990, total manufacturing jobs in Delaware have declined from 46,000 to 26,000. The largest drop was in chemicals, followed by automobile production due to plant closings. Large losses also occurred in labor-intensive manufacturing industries such as textiles, apparel and plastics. At the same time, manufacturers have rushed to introduce new technology that replaces labor with machinery, especially for the performance of routine tasks. Recently, small and medium-size manufacturers have been reducing full-time positions in favor of part-time ones in order to avoid additional healthcare costs added on by the Affordable Care Act.
During the “Great Recession”, General Motors and Chrysler shuttered their operations, leaving two plants empty and thousands of workers unemployed. Those jobs have not been refilled and the GM plant is still empty, even as the state continues to pay the electric bill for the plant.
Unfortunately, political decisions are being made to oppose RTW by some in the legislature. A Blue Collar Task Force, appointed by the Legislature to recommend ways to help provide jobs to those lacking a college degree, didn’t point out the elephant in the room, that Delaware doesn’t guarantee employee freedom, leaving union bosses able to harass business owners and employees who don’t want a labor union in their workplace. The Task Force instead recommended easing government regulations and spending more on public projects. These are important, but do not displace the need for a RTW law.
Opponents of employee freedom insist RTW laws lower wages. Economist Robert Reed, then a professor at the University of Oklahoma, decided to study this issue in light of Oklahoma’s passing into law a RTW bill back in 2001. Using control variables in his econometric models and data by state, Reed showed that RTW laws result in wages increases, though to be fair, other variables impact how much RTW laws are responsible for those increases (for example, Oklahoma has a booming energy sector which is profitable whether employees are unionized or not).
For our own experiment we used the Quarterly Census of Economic and Wages (QCEW) provided by the BLS for individual states, so all our data is reviewable. While not a perfect instrument, using BLS data lets us see employment and wages down to the individual level. We eliminated Wisconsin from our study because data was incomplete and put in a control for Oklahoma and Texas, whose energy economies are not impacted by RTW. We discovered that overall, states do benefit in terms of the number of jobs created after a RTW law was passed. New and expanding business activity was seen in great numbers in RTW states versus non-RTW states. In terms of wages, there is some evidence RTW does increase wage but again, this is inconclusive.
Indiana adopted RTW in 2012. By 2014, according to the U.S. Bureau of Labor Statistics, the state added 120,000 jobs (a 4.5% gain), including 50,000 new union members. The growth in union membership came because there were more total job opportunities, and manufacturing, where private sector unionization is most prevalent, returned to Indiana. The unions also helped their case by doing what we think Delaware’s unions should do, which is demonstrate to their own members the positive benefits of having union membership.
Overall, unionization has declined in America. But states with a RTW law are holding steady at just under 15% of jobs being union jobs, while non-RTW states have just over 15% of their jobs unionized.
We acknowledge that a RTW law is not by itself going to fix any state’s economy. But it does provide that “check box” employers look for when choosing where to build a plant or relocate to. The bottom line is, no one should be forced to pay dues for services they don’t want or don’t need. If the unions believe their services are worth the dues money, they should work to persuade employees of the value of unionization, and not oppose an employee’s right to choose to pay, or not pay, for representation.
Omar J. Borla
Director, Center for Economic Policy and Analysis