Economists look at right-to-work states for links to job growth
Now that right-to-work legislation has been signed by Gov. Rick Snyder, can Michigan residents really expect to see a quicker economic rebound and the “more and better” jobs that Snyder and other supporters said the legislation would bring the state?
More jobs, maybe. But better? Maybe not. And while businesses in states with RTW may report higher profit margins, that doesn’t necessarily equate to a better economy overall in those states, either.
“Basically, it’s very hard to estimate the effects of right to work, because, essentially, for most of its history, its mainly been a policy of mostly southern and a few western states, and it’s difficult to separate out what right to work is doing versus other attributes of those states,” said Timothy Bartik, senior economist at the W.E. Upjohn Institute. “Those states tend to have had faster growth than northern states; they also tend to have lower wages. How much of that is due to right to work is uncertain. Most people think the growth of the South is more driven by economic fundamentals like the development of air conditioning, the interstate highway system and things like that. So you have estimates all over the map.
“You find some estimates that say right to work might raise employment growth, and other estimates don’t find that. You find some estimates that suggest right to work might lower wages, and other estimates don’t find that. So we are not really in a position to give precise answers.”
Grand Valley State University economics professor Paul Sicilian agrees that studies have not produced clear-cut evidence of RTW’s effectiveness in a state’s economic development.
“This is a very hard thing to get definitive answers on as to what the impact is, because it’s complicated,” Sicilian said. “The states differ too much in what they have and what they don’t. The research is a little mixed.
“I think, for the most part, research tends to find two things — one good and one bad for the economy. There does seem to be evidence for employment growth from right-to-work laws. I think the people pushing for the laws overstate the positive impacts from them, . . . but there is also evidence that states with right to work have a negative impact on wages.”
There is no denying that RTW laws lessen the power of unions.
Sicilian points out that it’s more than just potentially lower wages that might appeal to a business owner; it’s also a question of control.
“Being a non-union employer gives them a lot of freedom that they wouldn’t have in a unionized plant, not just over wages, but over working conditions. . . . I think, in some cases, just having more say in what happens in your plant is something people would want to have.”
Birgit Klohs, president and CEO of The Right Place Inc., agrees that RTW states appeal to companies that are trying to avoid unionization, and said that has been a fact of economic development for the past 30 years.
“What I look at is what makes Michigan more competitive and where have been the impediments to that competitiveness?” Klohs said. “It used to be the single business tax, the regulatory environment, etc. We don’t even know how many deals we never get to look at for all these various reasons.”
She said that 90 percent of companies looking to expand into Michigan ask about RTW in their first interaction with The Right Place.
“Here’s the reason why: When you are a firm searching for an expansion location you may get 30 proposals,” Klohs said. “You cannot possibly be in 30 locations, so you have to start eliminating communities.”
RTW laws are one of about 10 to 20 questions companies include as they are weeding out states in their search. Other questions include: Do you have a site or building that meets our requirements? Do you have a labor force with the skills needed for the jobs? Does the state and local community give incentives, and, if so, what are they? What infrastructure do you have in terms of airport service, rail access, etc.?
While Klohs said that she has no way of knowing the interest that Indiana has received since becoming a RTW state, she does believe it gives the state a competitive advantage over Michigan.
“Indiana has been one of Michigan’s biggest competitors for 30 years,” she said. “They have always been extraordinarily good competitors in economic development. This is giving them an additional advantage. And what right to work does is eliminates another hurdle for Michigan, just like when we reformed our tax system. That’s all it is.”
While this may help Michigan compete with Indiana and the other 23 RTW states on a national level, Sicilian said it’s simply shifting people around in lower-wage areas and that isn’t necessarily a good thing for the country overall.
Sicilian and Bartik both said there are other economic development factors that have more proven results and impact.
“If you are looking for policies that we know from numerous research studies that they positively affect the state’s economic development, right to work is not in that category,” Bartik said. “There are other policies for which you have far more evidence of success in boosting earnings per capita. For right to work, it’s not even clear that it does increase earnings per capita, and the estimates are all over the map.”
Bartik believes that large-scale investment in high-quality early childhood education programs is an essential component in economic development.
“The basic idea is that if we invest in high-quality early childhood programs, such as preschool, for enough kids, we know from research that such programs will raise former participants' skills as adults,” Bartik said. “And enough will stick around in Michigan to increase the skills of the Michigan labor force significantly. And we know that higher skills will drive better economic development.”
Bartik also stated that customized job training, manufacturing extension services, summer school, career academies, adult job training and well-targeted tax incentives would also work to increase a state’s per-capita earnings, which he considers the appropriate bottom-line goal of economic development policies.
“I think you’d have to say, based on the research, that the economic development effects (of RTW) are uncertain, and there is some downside risk,” Bartik said.