Study: Forced Unionization Harms Economy

Right to work laws boost income, competitiveness

Assembly line worker at the Sterling Heights Assembly Plant in Sterling Heights, Mich. / AP
July 18, 2014

Forced unionization cost the economy nearly $650 billion in 2012, according to a new study.

A state-by-state comparison of growth and employment rates found that right to work laws, which free workers from coercive unionization, boost competitiveness for local economies, as well as wages. Per capita income increases more than $13,000 per year for a family of four, according to the Competitive Enterprise Institute, a libertarian think tank.

The reason for the disparate growth rates, according to CEI senior fellow Aloysius Hogan, is that investment capital generally migrates to business climates that are amenable to growth. Entrepreneurs and other small businesses—the primary drivers of employment—have a higher chance of profitability and survival when they are free to control costs and negotiate with workers directly. Their success increases employment opportunities in the region.

"Right to work laws attract businesses and create more jobs and ultimately create more prosperity and wealth for individuals," Hogan said in a phone interview with the Washington Free Beacon.

About half of states currently have right-to-work laws on the books. Even traditional union strongholds are beginning to embrace such policies to drive growth. Indiana and Michigan became the 23rd and 24th right to work states in 2012, despite strenuous union opposition.

However, the business community has celebrated the new policies. Michigan jumped 21 places in the American Economic Development Institute’s annual ranking of business-friendly states, making it the most-improved state of 2014. Nine out of the top 10 states are right to work.

"A handful of states have shown exemplary leadership in growing their economies and employment base while countering these trends by improving their business environment, adding new companies and growing existing companies," corporate relocation expert Dr. Ron Pollina said in a release. "These states have broken the bonds that hold others back and positioned themselves for success today, tomorrow and the remainder of the decade, which is a remarkable achievement in the aftermath of the Great Recession."

Workers, as well as businesses, prosper under friendly business climates, according to Hogan. While labor groups contend that higher union presence can create higher wages, the CEI study found that it also limits job creation, ultimately undermining competitiveness and job opportunities.

"The shortsighted view says unionization will raise wages, but the consequences of those increased costs means businesses are less drawn to that state and that state will have less growth," Hogan said. "Increases in productivity encourage capital resource investment and creates long-term positive effects."

A prime example of the ill effects of unionization has been the migration of automobile manufacturing away from traditionally union-friendly states to southern right-to-work states such as Tennessee, despite the increased costs of building new infrastructure. Right to work states effectively lured carmakers to build new factories in the states, leading to a proliferation of union-free workplaces and job growth in the south, while Detroit experienced a population exodus.

"Over the 31-year period, nationwide total employment grew by 71 percent. RTW states significantly outpaced this average, with employment growing by 105.3 percent. Non-RTW states lagged behind both, with an employment growth of only 50.0 percent," the study says. "More jobs were created in the RTW states, despite their having much smaller initial populations and labor force."

Right to work advocates said that worker rights are also crucial to economic advances.
"While right to work is about employee freedom in the workplace, this analysis also shows that rolling back coercive union power has undeniable economic benefits as well," National Right to Work Foundation spokesman Anthony Riedel said.

Workers have followed job opportunities. States without right to work laws saw their populations decrease by about five percent in the first decade of the 21st century, while right to work states have grown by about five percent. Hogan predicts that this disparity will only grow over time as employers continue to expand in right to work states, but policymakers are capable of reversing the trend.

"There’s a distinct labor migration to right to work states because there’s more opportunity. People are voting with their feet," Hogan said. "The south and right to work states writ large have been the beneficiaries of unionization in the north, but you will see a different trajectory in Michigan and Indiana going forward."

Published under: Right to Work , Unions