Per-Capita Disposable Income

A common argument against right-to-work is that by weakening unions, right-to-work laws drive down compensation. In 2002, Wilson observed that right-to-work opponents "have often acknowledged the faster employment growth in right-to-work states, but counter that it comes at the expense of much lower wages and incomes. Organized labor’s mantra, the ‘right-to-work for less’ or the ‘right-to-starve’ has resonated strongly both inside and outside union circles."[23] This rhetorical flourish had some basis in fact: Wilson found that per-capita disposable income, essentially income after taxes, was approximately $2,850 lower in states without right-to-work laws.[24]

Wilson argued that other factors related to compensation swung the advantage back to right-to-work supporters on the question of compensation. Several studies had found that non-right-to-work states tended to have higher costs of living, and that after accounting for this, compensation was actually higher in right-to-work states. Wilson also found that per-capita disposable income was growing a bit more quickly in right-to-work states; between 1970 and 2001 the average annual per-capita income growth in right-to-work states was 6.8 percent, compared with 6.6 percent in non-right-to-work states. (Michigan also averaged 6.6 percent.)

Graphic 6 - click to enlarge

Further research by University of Oklahoma economist W. Robert Reed has suggested that much of the gap in income favoring non-right-to-work states was due to the fact that many right-to-work states had been relatively poor prior to enacting right-to-work legislation. After accounting for economic conditions prior to enactment, Reed found that a significant, positive impact was associated with right-to-work.[25]

Since Wilson’s paper was released, the difference in wage growth appears to have widened slightly: Per-capita disposable income increased by an average of 4.3 percent per year in right-to-work states, compared to 3.9 percent per year in non-right-to-work states between 2001 and 2006, a difference of 0.4 percentage points. Per-capital disposable income grew more slowly in Michigan, averaging 3.0 percent per year. Only one right-to-work state, Georgia, had slower per-capita disposable income growth than Michigan during this period.

These seemingly small changes have potentially dramatic ramifications: if the trend of the last five years continues, it is simply a matter of time before right-to-work states offer not only more jobs, but better paying jobs, than Michigan. The per-capita disposable income gap between Michigan and the average right-to-work state has already declined considerably, from $2,300 in 2001 to less than $1,000 in 2006.

As far back as 2001, three right-to work states, Nevada, Virginia and Wyoming, already had higher per-capita disposable income than Michigan.[26] Between 2001 and 2006, five more right-to-work states(Florida, Kansas, Nebraska, South Dakota and Texas) overtook Michigan. Assuming current trends hold, six more right-to-work states are poised to feature higher disposable income by 2010: Alabama, Iowa, Louisiana, North Dakota, Oklahoma and Tennessee. At this point, a majority of "right-to-work for less" states will exceed Michigan in per-capita disposable income.[27]

Looking further into the future, every right-to-work state except Georgia will overtake Michigan by 2036 if the trend of the last five years holds. This projection should be taken with a grain of salt; much can and will change between now and 2036. But the exercise does illustrate one final, important point about the gap in wages between right-to-work and non-right-to-work states: the gap is real but it is not so large that it cannot be overcome, in the lifetime of many working Michiganians, by states with the sort of advantage in economic development that right-to-work appears to offer.