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The economics of right-to-work legislation

Four years ago when Republicans took over the Minnesota State Legislature, they advocated right-to-work legislation to cut the power of unions and invigorate the state economy. DFL victories ended that debate 2012. Yet no doubt in some GOP or chamber of commerce circles dreams of right-to-work are part of a 2015 business-friendly agenda for the state.

For proof that such a policy is part of Republican Koch brothers’ wish list, one need only look to the east of Minnesota. In Wisconsin, Republicans covet making it right-to-work state. Supporters of right-to-work legislation contend that it will make Wisconsin more business-competitive and produce jobs, perhaps yielding the 250,000 new jobs that Scott Walker promised but failed to produce in his first term with his tax cuts and gutting of union rights. Opponents respond that it will lower family incomes and hurt unions. Because the debate has taken on partisan implications — with Republicans and chambers of commerce favoring right-to-work legislation and Democrats and unions opposing it — it is difficult to separate fact from fiction.

What do we know about the economic impact of right-to-work laws? Legislative debates on the issue are generally badly informed, partisan-driven, or woefully devoid of fact-based impartial evidence. Often studies are cited by organizations with clear political agendas. Groups such as the Cato Institute, the Mackinac Center, and the U.S. Chamber of Commerce argue that right-to-work laws produce lower unemployment rates for states. Conversely, the generally liberal Electronic Policy Institute finds the opposite, and also asserts that right-to-work adversely affects unionization and family incomes. More nuanced and independent research yields a better picture.

What do we learn from crunching some numbers? There are 24 right-to-work states and 26 plus the District of Columbia without such laws. The Bureau of Labor Statistics provides data on unionization rates, unemployment, and median family income. Look at the October 2014 state unemployment rates as computed by the bureau. Six of the states with the highest unemployment rates were right-to-work states. Among the 10 with the lowest rates, five were right-to-work states. The average unemployment rate for right-to-work states was 5.5 percent, for non-right-to-work, it was 5.8%. Over the last three years comparing right-to-work to non-right-to-work states, the former average out to about a 0.3% lower unemployment rate. Not much of a difference. In fact, since the 2008 recession, the difference in unemployment rates between right-to-work and non-right-to-work states has been minimal, revealing no clear pattern that the former has produced more jobs than the latter.

Another way to examine the issue is by doing a statistical test called correlation analysis. Statistically, if being right-to-work decreases unemployment the correction is 1. If right-to-work increases unemployment the relationship is -1, and if the laws have no impact the relationship is 0. Is there any statistical correlation between a state being right-to-work and unemployment rates? The correlation is 0.1 using 2014 data or 0.09 using 2012 data. There is essentially no statistical relationship between states being right-to-work and unemployment rates.

But now take a look at the differences from another angle. There is a significant difference in median family incomes in states that are right-to-work versus those that are not. Using a three-year average of median family income from 2011 to 2013, right-to-work states have a median family income of $49,276, for non-right-to-work it is $55,725 — a difference of $6,449, or 13.1 percent, per year. Testing for the impact of right-to-work on median family incomes, the correlation relationship is -0.4. This means there is statistical evidence that right-to-work laws are associated with significantly lower incomes. Right-to-work laws appear to depress incomes.

Now is there any statistical correlation between the percentage of the workforce in a state that is unionized and unemployment rates? Again using Bureau of Labor Statistics data, one finds a correlation of 0.1. The connection is almost nonexistent. However, the percentage of the state’s workforce unionized demonstrates a positive 0.47 correlation with incomes. Unions appear to increase family income.

Just for comparison, using a three years for 2009 to 2011, right-to-work states had a median family income of $46,919, non-right-to-work it was $53,418 — a difference of $6,499 or 13.9 percent per year. Testing for the impact of right-to-work laws on median family incomes, the relationship was -0.4. There is no real evidence that right-to-work states in terms of incomes have recovered from the 2008 recession any better than non-right-to-work states. Testing of unemployment rates produces similar results.

Right-to-work laws are only one variable affecting the economic climate of a state. But it is fair to say that these laws have no real impact on unemployment and instead states with them have lower median incomes. Similarly, unionization does not depress employment and instead increases wages. Presumably more wages for workers means more consumption and a better economy in the state. Thus, from an economic point of view, right-to-work laws do not appear to be a good economic deal for a state and in fact one might be able to argue that they bad policy that should be avoided.

David Schultz is a professor of political science at Hamline University in St. Paul.

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