Usually, when people think of a right-to-work law, they think of it in terms of worker rights. And understandably so, because right-to-work laws — which exist in 23 states — enable workers to decide for themselves whether or not to join or financially support a union. Less often do policy-makers think of such a law in terms of the economic advantages. But they should.
Trends in Michigan’s economy call for such an examination. Unemployment remains stubbornly high in spite of an economic recovery that is gathering momentum. Three years ago, in November of 2000, Michigan’s unemployment rate matched the nation’s at 4 percent. Since then, however, Michigan workers have lost 292,000 jobs, more than 160,000 in manufacturing. Unemployment is now at 7.4 percent in Michigan, compared to 6.1 for the nation as a whole.
Economists such as David Littmann, chief economist for Comerica Bank, believe that although Michigan suffered disproportionately during the recent recession, and although the national economy grew by 7.2 percent last quarter, our state will not make up lost ground as the economy recovers. Littmann points to the Big Three unionized automakers, arguing that even if auto sales pick up, profit margins are so thin that they are unlikely to hire new workers. In fact, one of the key features of new collective bargaining agreements signed earlier this fall is that the automakers will be permitted to shut down unprofitable facilities.
In short, the old Michigan economy is declining. If the state is to prosper, it will need to find new industries and employers to create new jobs. Political leaders of both parties seem to understand this, but they are tinkering at the margins. Last August, Gov. Jennifer Granholm appointed herself "saleswoman in chief" in the effort to keep manufacturing jobs in the state. State House Speaker Rick Johnson, pledging to "fight for every Michigan job," has proposed a nine-point legislative plan.
But attracting employers to Michigan will require more than schmoozing and salesmanship. The Republican plan is a mixed bag with much that is of dubious value. Of particular concern is the faith politicians have in central planning initiatives, such as the Michigan Economic Development Corporation (MEDC), which cannot create jobs in net terms because the resources it employs must be first taken away from productive citizens. A recent report by the Senate Fiscal Agency has shown that Michigan lost 23.3 percent of all jobs lost in America since 2001. This at least suggests that the MEDC has failed in its mission of "keeping good jobs in Michigan and attracting more of them."
The main obstacle to attracting new employers is a poor labor climate. Employers looking at Michigan see a state with high labor costs. Our state has the second highest per-unit labor costs in the nation. These costs in turn increase the cost of goods made in Michigan, putting employers here at a disadvantage and discouraging new employers from setting up shop in our state. As global trade brings more and more competitors into every industry, that burden becomes more and more difficult to bear.
This is further aggravated by Michigan’s de facto policy of subsidizing labor unions. In Michigan, nearly 900,000 workers are forced to pay dues to a union without regard to whether or not they support its political agenda or collective bargaining demands. Tens of thousands of Michigan workers are union members, not because they want to be, but because if they aren’t they will lose their jobs. This legally mandated subsidy in the form of dues adds millions of dollars to union bank accounts.
A state right-to-work law would end that practice. Right-to-work laws have tremendous appeal to employers, who can set up shop knowing that unions funded by voluntary dues payments are more likely to represent the real interests of the workers they represent. Under right-to-work laws, union strength mirrors actual union support, and is not inflated by forced dues extracted from workers who are indifferent or opposed to the union.
Right-to-work laws do wonders for job creation, especially in manufacturing. Between 1970 and 2000 non-right-to-work states lost 2.3 million manufacturing jobs. Michigan alone shedded 100,000 jobs. But right-to-work states over the same period gained 1.4 million manufacturing jobs.
Part of the reason for this is the fact that right-to-work states have lower labor costs — the average right-to-work state has nearly 5 percent lower per-unit labor costs than the average state without a right-to-work law. But this doesn’t mean such laws penalize workers in order to benefit employers.
In fact, workers themselves benefit from right-to-work laws. New jobs mean more demand for labor, which nudges wages higher. And when the cost of living in right-to-work states vs. non-right-to-work states is taken into account, workers in right-to-work states are the winners.
In fact, George Mason University economist James Bennett found in 1994 that after adjusting for the cost of living and taxes, workers in right-to-work states took home over $2,800 more each year than workers in non-right-to-work states. In 2001 David Kendrick of the National Institute for Labor Relations Research did similar calculations for nine Midwestern states and found that take-home pay was higher under right-to-work laws.
In the midst of a persistent downward trend in Michigan’s employment prospects, what is needed is not further tweaks of a failing model of economic growth, based on forced unionism, state-directed economic development, and clever salesmanship. What is needed is a bold new policy that shows that Michigan is serious about competing in a global economy. A major component of such a policy would be a right-to-work law.
Note: Paul Kersey is labor policy research associate at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich.