Since opening its doors in the late 1980s, the Mackinac Center for Public Policy has worked to advance liberty and opportunity for people in Michigan and elsewhere. Committed to the human flourishing that results when people are permitted wide latitude to associate voluntarily and peacefully for personal gain, Mackinac Center scholars have studied broad questions related to economic and labor policies. After all, research shows that Americans spend about one-third of their lives at work. Their experience is shaped by many federal, state and local regulations, as well as private work rules that affect their economic opportunities and well-being.
The debate over how to achieve economic growth and development is centuries old. The father of modern economics, Adam Smith, made the most significant contribution to this debate with his 1776 book “An Inquiry Into the Nature and Causes of the Wealth of Nations.” The ideas and examples from his book are relevant even today.
Scholarly research into the causes of economic growth and its consequences is much more sophisticated today. It continues to demonstrate, though, how markets and private solutions are usually preferable to mandates from politicians and other government officials. The findings of this research also explain why the Mackinac Center has donated time and treasure to research and educational efforts into economic growth: By doing so, we enhance the quality of life in Michigan.
This paper represents an updated look at the old question of the relationship between economic liberty and well-being, using the perspective of local markets. It draws on work that previous scholars have done to examine economic liberty by country and by subnational units of government across Canada, Mexico and the United States. This study examines levels of economic freedom in metropolitan areas in the U.S. and Michigan — specifically, labor market freedom.
There are a number of reasons the Mackinac Center chose to zero in on labor market freedom and its related impacts. The first is Michigan’s labor history. For better or worse, organized labor heavily influenced Michigan economically for many decades, impacting everything from worker salaries to the price of manufactured products, and ultimately, the larger economy. Even today, the international headquarters of the UAW calls Michigan home.
In addition, there have been recent changes to public policies involving labor relations in the Great Lake State. The biggest and most obvious include the adoption of a right-to-work law.
This law prohibits forcing workers to join or financially support a union at their place of employment. There are now 28 states with right-to-work protections. Michigan became a right-to-work state in 2013. Union membership rates have fallen since workers were given a choice of joining a union, from 17.5% of the state workforce in 2012 to 15.2% in 2020. Since 2012, Michigan’s union membership decline has been far steeper than that found in the rest of the nation. This fall happened despite a growing economy in most of these years.
Another important policy change impacting Michigan’s labor markets is the repeal of Michigan’s prevailing wage law. Prevailing wage mandates union-scale wages be paid on publicly funded projects — wages which are often higher than those determined by markets.
Lastly, labor market freedom appears to exhibit a strong influence on economic well-being in the academic literature, driving the results of many studies involving economic freedom (or a lack thereof). More will be said about this topic in the section below titled “Literature Review.”
The links between economic liberty and human well-being are more than simple observations made by champions of a cause. They are supported by decades of modern scholarship both here and abroad. What follows is a description of that evidence, on whom we based our own methodology. We begin with a short history of scholars’ attempts to measure economic freedom around the globe and its consequences, followed by similar research performed for North America and its states and provinces, as well as a previous attempt to measure economic liberty in local areas of the United States. This is followed by a rich review of existing academic literature on economic liberty and various associated outcomes. We then provide a deep statistical analysis of the relationship between economic freedom and unemployment rates, employment growth and population growth for U.S. Metropolitan Statistical Areas, with particular focus on the 14 MSAs in Michigan.