The Building Tradesman Newspaper

Monday, November 21, 2011

‘Michissippi’ the wrong model for Michigan

By The Building Tradesman

(With Michigan on the front lines of the right-to-work debate, the Economic Policy Institute issued a study titled “Right to work – The wrong answer for Michigan’s economy. Following is our final excerpt).

While it is notoriously difficult to isolate the economic impact of a single state policy, increasingly sophisticated and more comprehensive analyses holding “all other things” equal have shown that right-to-work laws not only have no positive impact on job growth but also have a modest negative impact on both wages and benefits, for both union and nonunion employees.

In a recent Economic Policy Institute study, a pair of economists conducted a rigorous statistical analysis to measure the impact of right-to-work laws on wages

and benefits (Gould and Shierholz 2011). This analysis controlled for more than 40 different factors, including the age, race, ethnicity, gender, education, industry, occupation, urbanization, full-time status, and cost of living of workers in different states.

Thus, the EPI analysis comes as close as possible to holding “all other things equal” in measuring the impact of right-to-work laws. The authors reached the following conclusions after controlling for variables:

  • Wages in right-to-work states are 3.2 percent lower than those in non-RTW states. Using the average wage in non-RTW states as the base ($22.11), the average full-time, full-year worker in an RTW state makes about $1,500 less annually than a similar worker in a non-RTW state.
  • The rate of employer-sponsored health insurance is 2.6 percentage points lower in RTW states compared with non-RTW states, after controlling for individual, job, and state-level characteristics. If workers in non-RTW states were to receive employer-sponsored insurance at this lower rate, 2 million fewer workers nationally would be covered.
  • The rate of employer-sponsored pensions is 4.8 percentage points lower in RTW states. If workers in non-RTW states were to receive pensions at this lower rate, 3.8 million fewer workers nationally would have pensions.

Our results suggest that proposals to advance RTW laws likely come at the expense of workers’ wages and benefits, both within and outside of unions.

Thus, it is clear that if Michigan adopted a right-to-work law – all else being equal – Michigan workers could expect to find their wages lowered and their ability to secure job-based health insurance or pension benefits weakened. The fact that right-to-work lowers wages and benefits is not surprising, given that it is, in fact, the central purpose of such laws.

Federal data show that employees who have a union earn 15 percent more in wages, and have a 19 percent better chance of getting health insurance and a 24 percent better chance of getting pensions through their job, than nonunion employees in the same industry, with the same levels of education.

The core right-to-work strategy is to prevent unionization in an effort to lower wages and benefits and thereby make a state more attractive to outside manufacturers.

Should Michigan imitate Mississippi?

Some right-to-work advocates point to Southern auto plants as evidence that the policy is the key to prosperity, pointing to Mississippi as a model of economic growth.

The U.S. Chamber of Commerce points to Mississippi’s right-to-work law as a key factor making it a model for “strong pro-employment policies.” The Chamber suggests that if Michigan were more like Mississippi, it would see increased job creation and lower unemployment.

But Michigan policymakers may want to think twice about emulating Mississippi. Even with its myriad challenges, the performance of free-bargaining Michigan is superior to that of right-to-work Mississippi. Mississippi ranks 50th – dead last – in median household income, and first in poverty, with a poverty rate 50 percent higher than Michigan’s (U.S. Census Bureau 2011).

Less than 20 percent of the state’s 8th graders read at or above grade level. Mississippi also ranks first in the country in infant mortality, and 48th in doctors, with one physician for every 561 residents, compared with one for every 400 people in Michigan. Whatever right-to-work advocates may promise, it’s clear that the policy has not enabled Mississippians to escape desperate conditions. It’s possible that some employers might find such a poor state attractive; but that doesn’t make it a model for Michigan.

Right-to-work laws emerged decades ago. One of the problems of basing policy on what happened in the 1970s or 1980s is that we live in a fundamentally different economy due to the globalization of trade and production.

In the 1970s, low wages may have lured manufacturers from the Northeast and upper Midwest to the South. But in 2011, companies looking for cheap labor are more likely to go to China or Mexico than to South Carolina. As discussed earlier, this has been the experience of Oklahoma, the one state to adopt right-to-work (in 2001) in the post-NAFTA, post-WTO era.

Since the adoption of the North American Free Trade Agreement in 1994, the United States has lost almost 5 million jobs, many of which were well-paying  manufacturing jobs that were the backbone of the middle class The awarding of Permanent Normal Trade Relations to China, and that country’s entry into the World Trade Organization in 2001, marked an even more dramatic downturn for American manufacturing, as industry after industry shipped its production overseas.

The loss of manufacturing jobs since NAFTA has been felt in every state in the country, regardless of its labor laws, and Michigan is not the hardest-hit state in the country. In the years since NAFTA went into effect, the right-to-work states of North Carolina and Mississippi each lost a higher percentage of their manufacturing job base than did Michigan, with each seeing about 45 percent of their manufacturing employment wiped out.

The decline of the U.S. auto industry is part of a global trend that has seen auto manufacturing moved out of more developed, higher-wage countries to Second- and Third-World locales. From 2000-2010, auto production shrank not only in the United States but also in Japan, Australia, and virtually every country in Western Europe.

Most notably, within the auto industry itself, some of the most important growth has focused on the development of new technologies to produce more efficient and more climate-friendly vehicles. Such work is extremely promising as a growth area within the industry that provides well-paying jobs and is less easily outsourced to low-wage countries. The vast majority of investment in this “auto industry of the future” has been in free-bargaining states.

In keeping with this trend, Michigan has seen a growing wave of technology companies coming into the state, even luring technology workers from Silicon Valley to Detroit.

As the technological standards of cars and trucks has increased, Michigan has found increasing success in growing these leading-edge industries at home.  These steps toward diversification of Michigan’s economy – particularly into auto-related technology fields – point to an alternative path forward, one that does not rely on lowering wages and benefits in hopes of competing with China or Thailand.

There is no easy panacea in the current economy, but this path lays out a strategy that is not a race to the bottom but a considered focus on developing family-wage jobs that will not be susceptible to outsourcing.