Fels Research and Consulting: "Michigan's Choice: The Data Behind Right-to-Work"

Fri, 2012-12-21 11:47

By Alan Sable, Associate Consultant

Michigan is poised to become the 24th state to pass “Right-to-Work” (RTW) legislation in the United States. This legislation takes away union members ability to negotiate paying union dues as a condition of employment into a union contract.  In non-RTW states there are some union workplaces where paying dues is optional because union members have not negotiated mandatory dues into their contracts. In order for union dues to be mandatory in a non-RTW state, management must agree to include it in the contract and workers most vote to approve it. In RTW states, negotiating for this type of contract clause is illegal. Opponents of the bill refer to it as “Right-to-Work-for-Less” legislation because they say that it erodes the resources and bargaining power of union members. As this fight heats up both sides increasingly cite the positive or negative effects RTW legislation has on individual states’ economies. With almost 50 years of data since the passage of the first RTW legislation, one would think there would be a consensus on its impact. A closer look at the research behind the seemingly contradictory statistics reveals the heart of the disagreement.

Frequently pundits cherry pick data comparing RTW states with non-RTW states suggesting that correlation indicates causality. For example, back in 2011 Mitt Romney stated that, “Right-to-work states, those 22, have created 3 million jobs over the last 10 years. The union states have lost about half a million jobs. So right to work is the way to go if you want good jobs.” As Gordon Lafer, associate professor at the University of Oregon Labor Education and Research Center points out, “It’s the same as saying that states with names that start with the letters ‘n’ through ‘z’ grew faster over the past decade. That’s actually true, but it’s not meaningful in policy terms.” With so many factors contributing to a state’s economy, a more sophisticated statistical analysis is clearly warranted.

The most frequently cited statistical analyses of the effects of RTW legislation are by the Economic Policy Institute (EPI) and Richard Vedder of the American Enterprise Institute (AEI). Both groups use regression analyses that seek to account for demographic, geographic and other differences among states to isolate the impact of RTW laws. With Dick Cheney and Peter Coors on the board of the AEI it will come as no surprise that Vedder’s work demonstrates the positive economic effects of RTW legislation. Nor, with the Presidents of the AFL-CIO, the Service Employees International Union, and the American Federation of Teachers on the board of EPI is it surprising that their research consistently shows the negative impact of RTW laws. But let’s assume that both groups are engaging in intellectually honest and dispassionate statistical analysis. How they choose to measure economic impact is very revealing. Vedder’s research shows the positive impact of RTW laws by demonstrating that per-capita income growth is higher in RTW states. EPI, on the other hand, shows that median income is significantly lower in RTW states.  Is it possible that they are both correct? Yes.

If the income benefits from RTW legislation skew disproportionately to upper income earners and redistribute income from the typical worker to the highest paid then these findings are consistent. If they are both right, then “Right-to-Work” legislation does contribute to overall income growth, but it lowers wages for typical workers and contributes to greater income inequality.

The one thing both sides agree on is that RTW legislation lowers union membership. And while the debate rages over RTW legislation, there is an academic consensus that declines in union membership contribute significantly to rising income inequality (See Richard Freeman; David Card et al.; and Bruce Western and Jake Rosenfeld among others). Thus the real debate is over what type of economic growth we value. According to the EPI and the AEI, if Michigan politicians choose “right-to-Work” legislation then they are choosing overall income growth at the expense of a typical workers paycheck.