A great natural experiment has been going on in labor markets in the United States, over the last two-thirds of a century. Under the 1947 Taft-Hartley amendment to the National Labor Relations Act, state governments can elect to override a provision of the federal law regarding employee collective bargaining.
Some 24 states have passed right-to-work laws, which allow workers free choice with respect to being represented by a labor union. The other 26 states permit union shop labor agreements that require employees to join the labor union representing workers where one exists, or at least pay dues to that union.
The right-to-work states have had substantially more economic success than the others that restrict individual rights with respect to employment. Perhaps the ultimate test of the quality of life of an area is whether people move into or away from it.
A net movement into a state is a strong indication that people perceive that life will be better there than that in the area from which they came. Over time, there has been a dramatic movement from the states without right to work laws to ones where the laws exist.
Consider the first decade of this century: from 2000 to 2009, nearly five million native-born Americans moved from the non-right-to- work states into the 22 states with right-to-work laws. On average, over 50 Americans moved to states with those perceived better employment opportunities every hour — night and day, seven days a week.
Not surprisingly, income growth has been dramatically higher in the right to work states. And, despite the increasing number of mouths to feed in those states, income per person also rose faster.
In some detailed analysis of several Midwestern states, my colleagues and I found that per capita income in those states would have been about $3,000 higher today, had they adopted right-to-work laws in the late 1970s.
Small Laws, Great Effects
Why does something, seemingly as modest in importance as a single law, have such significant effects? Employers gain enormous amount of labor market certainty with such legislation, and believe that they are protected from large increases in labor costs imposed by collective bargaining agreements, leading to investment increases and with that job formation.
This, in turn, entices people to move in from other states, energizing the economy. Ironically, even union membership has risen more in recent years in right-to-work states than in states without those laws, since greater economic growth improves job opportunities for all.
For years, labor unions had enough political clout to prevent the spread of right-to-work states, despite the economic advantages. In recent years, however, the political balance has turned in favor of this form of legislation, as witnessed by the Indiana and Michigan adoptions.
Richard K. Vedder, Ph.D. ([email protected]) is a professor of economics at Ohio University. He is s a policy advisor on economics to The Heartland Institute.