Why is Right to Work (RTW) a bad idea for Indiana?

Despite the claims made by “right to work” proponents and the biased findings of the Indiana General Assembly's interim study committee, there is a preponderance of independent evidence that such laws not only leave promises unfulfilled, they actually can do great economic harm to the states that pass them. Below are some stark realities of “right to work” (RTW) in real practice.

There is no clear relationship between RTW and economic growth: Looking at growth in per-capita personal income over the last 30 years, four of the five fastest growing states were non-RTW.i Ten non-RTW jurisdictions (nine states plus DC) all grew faster than of the RTW states.

Indiana creates more jobs than Midwest RTW states: The National Right to Work Committee recently published a pamphlet claiming that Indiana grew less than the five "Midwest" RTW states – Iowa, Kansas, Nebraska, and North and South Dakota. This is highly misleading. In small-population states like the Dakotas, a handful of new jobs can appear as a big percentage increase. But if we look at actual job numbers, over the last two years (2009-2011) Indiana has added more manufacturing jobs than all five Midwestern RTW states combined.

• Unemployment rates also show no clear correlation: At the end of 2010, both the highest and the lowest state unemployment rates were found in "right to work" jurisdictions.ii

o In fact an 8/1/2011 report from the Times of Northwest Indiana titled "Indiana unemployment lower than in many right-to-work states" stated that "Proponents of an Indiana right-to-work law claim it will lure new businesses to the state, bringing thousands of jobs to be filled by currently unemployed Hoosiers. But a review of state unemployment data finds nearly half of right-to-work states have a higher unemployment rate than Indiana, and the most recent state to adopt right-to-work -- Oklahoma in 2001 -- since has lost many of its manufacturing jobs to Mexico and China."

• Globalization makes RTW irrelevant: The goal of RTW is to cut wages in order to attract out-of-state business. But while companies in the 1970s may have been lured from the upper Midwest to lower wages in the South or Southwest, companies looking for cheap labor in 2011 are going to China or Mexico.v Mexican autoworkers' wages, for instance, are one tenth of even non-union autoworkers in the US. The RTW "advantage" is meaningless in the face of this. That's why GM closed its plant in RTW Oklahoma in 2006, shifting production to Mexico. In the ten years since RTW, 100 Oklahoma employers closed their doors due to foreign trade.iii

Oklahoma is the most important and relevant case: It's the only state to adopt RTW in the globalized economy (in 2001 – next-earliest RTW law was Idaho 1986). All serious statistical analyses – that hold "all other things equal" – find RTW had no statistical impact on employment or unemployment.

RTW supporters were wrong in Oklahoma: A Republican state representative said RTW "will lay the foundation for Oklahoma's golden age".iv House Republican Leader Rep. Fred Morgan promised that "right to work will bring prosperity and promise to our state."v Most important was claim that 80%-90% of employers wouldn't consider locating in OK because it was not RTW. Supporters told the legislature that OK would see "eight to ten times as many prospects if right to work passes." What really happened?

o Manufacturing employment in Oklahoma fell by one-quarter after RTW. Manufacturing grew from 155,000 jobs in 1990 to nearly 177,000 in 2000. In the decade following RTW, the state lost almost 50,000 manufacturing jobs, a loss of more than 25%.vi

o The number of companies coming into the state fell by one-third after RTW. The Oklahoma Department of Commerce reports that, in the decade preceding RTW, Oklahoma saw an average of 48 new firms per year, creating a total of nearly 6,500 new jobs each year during the 1990s. In the ten years since RTW, the average number of firms and jobs brought into the state has been one-third lower.

Employers themselves say RTW is not an important factor in their location decisions: Area Development magazine conducts an annual survey, asking manufacturers to rank the factors that most influence their decisions about where to locate facilities. In 2009, RTW was ranked 14th in importance, below such factors as highway accessibility, available land, and construction costs. In past five years, RTW has never been in the top ten factors.vii

High-tech, higher-wage firms particularly prefer non-RTW states: Site Selection Magazine reports that the best locations for the type of high-tech industry that are now a priority of most states' recruitment efforts are uniformly found in non-"right to work" states. The 2010 State New Economy Index ranked Massachusetts, Washington, Maryland, New Jersey and Connecticut as the top five most desirable locations for the globally competitive industries of the 21s century.viii

Education matters much more than RTW: In 2008 professors at the University of Kentucky did an in-depth study comparing Kentucky to four neighboring states whose economies were more successful – Alabama, Georgia, North Carolina and Tennessee, all "right to work" states.ix When they talked to economic development officials in those states, none of them said RTW was the cause of their success. Rather, "every economic development official in the competing states with whom we spoke indicated the single most important reason for their economic growth over the previous three to four decades was an emphasis on education and workforce development."

RTW lowers wages for both union and non-union workers: A recent Economic Policy Institute study finds that RTW lowers both wages and benefits by about 3%, for both unionized and non-union employees.x In a competitive labor market, stronger wages and benefits for union members creates pressure on employers to improve compensation for non-union workers as well. When RTW lowers union wages, it also results in reduced compensation for non-union workers.

o Because RTW lowers wages without increasing job growth, it harms state economies.

o By cutting wages, RTW threatens to undermine consumer demand at the time we need it most. As Business Roundtable Chairman Terry McGraw explained about the current recession, "behind all these diverse and depressing numbers is one central driving fact: demand has collapsed… To find a path out of today's economic quagmire, [we] must jump start that demand."xi RTW's wage-cutting strategy threatens this. For every $1 million in wage cuts to workers, there is $850,000 less spent in the economy.xii A loss of $850,000 in local spending translates, on average, into a loss of six jobs in the local community.

RTW is divisive and other states are rejecting it: Similar legislation was recently rejected in both Ohio and New Hampshire, and according to at 12/12/11 Associated Press report Michigan's Republican Governor Rick Snyder "maintains he doesn't want Michigan to become a right to work state" and said "Michigan has taken steps to encourage job growth that will be more useful than a right to work law, such as significantly cutting business taxes effective Jan. 1."

Hoosiers are opposed to RTW: As Governor Daniels has said in the past, no state legislator campaigned on this issue, and from recent polling conducted by the Indiana AFL-CIO, it has been found that Hoosiers clearly oppose this partisan overreach. In addition several newspaper editorial boards and columnists have written in opposition to RTW or have urged the members of the Indiana General Assembly to put aside this issue, including the Indianapolis Star, Times of Northwest Indiana, Post Tribune of Northwest Indiana, South Bend Tribune, Fort Wayne Journal Gazette, Terre Haute Tribune Star, Indianapolis Recorder, Kokomo Tribune, Anderson Herald Bulletin, Elkhart Truth and the Bedford Times-Mail.

i Bureau of Economic Analysis, Per Capita Personal Income, by State, 1977-2008.
ii In November 2010, the highest state unemployment rate was Nevada's, at 14.3%, while the lowest was North Dakota's, at 3.8%. Reported in Oklahoma Economic Indicators, December 2010, Oklahoma Employment Security Commission, http://osec.ok.gov, accessed 1/21/11.
iii Mass layoffs are reported in notices issued pursuant to the WARN (Worker Adjustment and Retraining Notification) Act, which covers workplaces that have 100 or more employees. Facilities closed due to offshoring or foreign trade are reported by the US Department of Labor under the Trade Adjustment Assistance Act.
iv Marie Price, "House passes right to work; Special election call fails, The Journal Record (Oklahoma City), April 19, 2001. Accessed 1/21/11 at http://findarticles.com/p/articles/mi_qn4182/is_20010419/ai_n10145597.
v Marie Price, "GOP platform missing right-to-work plank," The Journal Record, January 4, 2001. Accessed 1/21/11 at www.highbeam.com.
vi Oklahoma manufacturing employment, seasonally adjusted. U.S. Bureau of Labor Statistics.
vii Geraldine Gambale, editor, The 24th Annual Corporate Survey, 2009; and The 23rd Annual Corporate Survey, 2008; accessed 1/21/11 at www.areadevelopment-digital.com/CorporateConsultsSurvey/24thAnnualCorporateSurvey#pg1 and http://www.areadevelopment-digital.com/CorporateConsultsSurvey/23rdAnnualCorporateSurvey#pg1. While both labor quality and cost are included in the top 10, these are treated as separate issues from right-to-work per se.
viii Adam Bruns, "State of the States," Site Selection magazine, January 2011, accessed 1/19/11 at http://www.siteselection.com/portal; Robert D. Atkinson and Scott Andes, The 2010 State New Economy Index, Information Technology and Innovation Foundation, November 2010, accessed 1/27/11 at http://www.kauffman.org/uploadedfiles/snei_2010_report.pdf.
ix Christopher Jepsen, Kenneth Roth and Kenneth Troske, Economic Growth in Kentucky: Why Does Kentucky Lag Behind the Rest of the South?, Center for Business and Economic Research, University of Kentucky, 2008. Accessed 1/21/11 at http://www.docstoc.com/docs/53467586/Economic-Growth-in-Kentucky-Why-Does-Kentucky-Lag-Behind.
x Elise Gould and Heidi Shierholz, Economic Policy Institute, forthcoming 2011.
xi "Harold McGraw III's Remarks at the National Press Club Newsmaker Event," Business Roundtable, February 11, 2009. Accessed 1/27/11 at http://businessroundtable.org/news-center/harold-mcgraw-iiis-remarks-at-the-national-press-club-newsmaker-event.
xii Calculation by EPI staff economists based on standard multiplier ratios.
$850,000 less spent in the economy.xii A loss of $850,000 in local spending translates, on average, into a loss of six jobs in the local community.