The Building Tradesman Newspaper

Friday, November 04, 2011

Right to work wrong for Oklahoma; Michigan too

By The Building Tradesman

With Michigan on the front lines of the right-to-work debate, the Economic Policy Institute is helping organized labor in our state fight back with information. Following is our third excerpt of an EPI study titled “Right to Work – The wrong answer for Michigan’s economy.” The full 20-page report can be accessed

When scholars are rigorous about separating out the impact of right-to-work laws from other factors, the evidence suggests that right-to-work has no effect on a state’s employment.

One of the most recent and ambitious studies estimated the impact of right-to-work laws while controlling for a wide range of variables, including general economic

features of the state economy such as:

  • The share of gross state product concentrated in manufacturing.
  • The average wages and educational level of the workforce.
  • State policies such as personal and corporate tax rates.
  • And a range of labor-specific policies including state minimum wage, workers’ compensation, and unemployment insurance rates.

When these variables are accounted for “right to work laws…seem to have no effect on economic activity,” the study noted (Belman, Block, and Roberts 2009).

Another recent study compared states with and without right-to-work laws, while controlling for a broad array of economic variables (Stevans 2009). According to the study, right-to-work laws, in and of themselves, have no statistically significant impact on either the rate of job growth or the number of new businesses opened in a state.

“Right-to-work has no influence on employment, is associated with a decrease in per-capita personal income and wages/salaries, is associated with an increase in proprietors’ income, and has no effect on economic growth,” the study found (Stevans 2009, 610).

Thus, the history of right-to-work studies has a clear trajectory. The more scholars are able to hold “all other things” equal, the more it becomes clear that these laws have little or no positive impact on a state’s job growth.  The most recent and most methodologically rigorous studies concluded that the policy has no statistically significant impact.

Oklahoma: A laboratory of right to work in action.

The failure of right-to-work to increase job growth is particularly evident in the case of Oklahoma, the only state that has adopted a right-to-work law in the past 25 years. Oklahoma passed its right-to-work law in 2001, after 1994 enactment of the North American Free Trade Agreement (NAFTA) and China’s 2001 entry into the World Trade Organization (WTO).

In the aftermath of these trade agreements, manufacturers became increasingly likely to seek low-wage laborers in Mexico or China rather than the Southern United States.

Thus Oklahoma’s experience is a particularly useful guide to those states now debating such policies. Unfortunately, Oklahoma saw no improvement in its unemployment rate after right to work was enacted. The state’s manufacturing sector shrank dramatically and the number of new companies coming into the state fell by one-third in the decade following adoption of the labor statute.

And multiple statistically scientific analyses have concluded that right-to-work has utterly failed to enhance job growth in the state.

There is no evidence that right-to-work laws affect siting decisions.Oklahoma’s negative experience with company relocation sheds light on the claim that a right-to-work law in Michigan would draw new employers to the state by lowering

labor costs. The Michigan Freedom to Work Coalition, for instance, asserts that by passing a right-to-work law, “new businesses, manufacturing plants, and other skilled labor-intensive jobs will flow … into Michigan” (Michigan Freedom to Work Coalition 2011).

When the Oklahoma right-to-work law was being debated in 2001, right-to-work advocates asserted that a large percentage of companies refused to consider locating in Oklahoma because it lacked a right-to-work law. In much-reported testimony, Texas-based consultant Elizabeth Morris told Oklahoma legislators that if their state adopted right to work, they would see a 90 percent increase in the number of firms considering locating in the state. Morris didn’t present any survey data to back up her assertion, and evidence shows that it had no basis in fact.

As stated earlier, the number of new firms coming into the state actually decreasedfollowing the adoption of right to work. In the 10 years that the state has operated under its right-to-work law… the average number of firms and jobs coming into the state has been one-third lower than when Oklahoma was a free-bargaining state (Oklahoma Department of Commerce 2011).

Ours is a very big economy, and it’s always possible to find anecdotes on any side of an issue – including business owners who state that they prefer a unionized workforce. But there is no reason for legislators to make policy based on anecdotal stories when there is actual survey data available.

A Brookings Institution study of large corporations’ location decisions, based in part on interviews with prominent corporate location consultants, found that right-to-work laws did not figure anywhere in the typical decision process of big businesses (Cohen 2000).

Even small manufacturers – those thought most likely to base location decisions on low wages and the absence of unions – don’t identify right-to-work as an important criterion

in deciding where to locate plants. Area Development magazine conducts an annual survey, asking primarily small manufacturers to rank the factors that most influence their decisions about where to locate facilities.

In 2009, right-to-work was ranked 14th in importance, below such factors as highway accessibility, available land, and construction costs. Indeed, in the years for which Area Development reports data, right-to-work has never made it into the top 10 most important factors shaping location decisions (Gambale 2009, 2008).

In fact, Site Selection magazine reports that the best locations for the type of high-tech industries that are now a priority of most states’ recruitment efforts are predominantly

found in free-bargaining states (Burns 2011). The Information Technology and Innovation Foundation’s 2010 State New Economy Index – measuring each state’s economic dynamism, technological innovation, digital transformation, knowledge jobs, and integration into global trade – ranked free-bargaining Massachusetts, Washington, Maryland, New Jersey, and Connecticut as the most desirable and best positioned locations for the globally competitive industries of the 21st century.

Indeed, nine of the top 10 ranked states are free-bargaining states – states with strong education systems, world-class universities, robust digital infrastructure, and a skilled and stable workforce. Michigan ranked 17th, ahead of all but two of the 22 right-to-work states (Atkinson and Andes 2010).

With regard to an industry of major importance to Michigan – the automotive industry – there is no evidence that right-to-work status is a precondition for auto industry investors. Toyota, for instance, has chosen to locate its North American manufacturing headquarters in the free-bargaining state of Kentucky, where it also runs a large plant. Ford has recently expanded two plants in Louisville, Kentucky, and GM announced plans for a

$100 million expansion of its Bowling Green Corvette plant (Sloan 2011).

Looking ahead, Michigan is slated to benefit from increased investment in auto manufacturing. Between 2009-2015, the state is expected to add 60,000 manufacturing jobs, including significant expansion in the auto industry. GM is planning to increase production of the Chevrolet Volt in Detroit, Bay City, Saginaw and Flint, supporting 2,600 jobs. Ford expects to add 7,000 workers over the next two years, many of them in Michigan.

Even for those auto plants located in states with right-to-work laws, companies point to reasons other than labor law as the deciding factor in their location decisions.

Toyota built a truck plant in San Antonio because Texas is the single largest market for pickups; it chose a site in Tupelo, Mississippi largely because the area boasted a large number of unemployed furniture workers whose former jobs had been shipped to China. In other cases, the “shovel-readiness” of a particular site was the determining factor (Sloan 2011).

Corporate lobbyists who contend that right-to-work laws determine where plants locate do not necessarily speak for auto executives. Dennis Cuneo, the Toyota executive charged with North American site selection for more than a decade, reports that he chose to locate a plant in Texas and another in Mississippi for a variety of reasons, but was not influenced by state labor laws, which he characterized as neither “a positive or a negative” (Sloan 2011).