By Timothy J. Bartik/W.E. Upjohn Institute for Employment Research
Will “Right to Work” boost Michigan’s economic development? What does research say?
Research suggests that the economic development effects of RTW are uncertain, with downside risks. Some studies find RTW boosts job growth, while other studies do not. Some studies find RTW reduces wages, while other studies do not. Precise predictions of RTW’s effects on per-capita earnings, which should be a primary goal for state policy, are not available.
The challenge to estimating RTW’s effects is that the states with Right to Work have not varied much over time. For the last 50 years, RTW has mostly been in the same Southern (and some Western) states. Southern states have had faster job and wage growth than the North. But is this due to RTW, or other Southern characteristics? That is hard to say. Southern states also have lower wages than the North. But whether this is due to RTW is also hard to say.
Most regional economists think that the South’s rise is due less to Right to Work than to economic “fundamentals.” For example, the development of air conditioning made the South a more attractive place to live and work.
To control for the many factors other than Right to Work which affect economic development, some studies have compared border counties in RTW states with adjacent counties in non-RTW states. Presumably adjacent counties are similar in other location factors. These “border” studies have tended to find some association of RTW laws with a greater share of county employment in manufacturing, particularly manufacturing that uses more labor relative to capital equipment (more “labor-intensive” manufacturing). But while one border study found that RTW counties have faster overall manufacturing growth, another border study could not find any overall manufacturing growth effect. Furthermore, because labor-intensive industries, such as apparel manufacturing, tend to pay lower wages, a greater mix of such industries would be expected to lower wages.
Other studies have focused on Idaho and Oklahoma. Prior to Indiana and Michigan adopting Right to Work in 2012, Idaho and Oklahoma were the most recent states to adopt it -- Idaho in 1985 and Oklahoma in 2001. It is possible to do some “before” and “after” analysis with these two states, which we can’t do (at least with recent data) for most other RTW states. One study finds that RTW was associated with an increased manufacturing share of employment in Idaho, but not in Oklahoma. However, some studies also find that Right to Work in Idaho and Oklahoma was associated with lower wages for non-union workers. Because Right to Work makes it harder to unionize a firm, non-union firms don’t face as much pressure to increase wages in order to avoid being unionized.
Even if we knew the effects of Right to Work in Idaho or Oklahoma, it is unclear whether such findings could be generalized to Michigan. Michigan has a quite different industrial structure from Idaho and Oklahoma.
If RTW laws have uncertain or detrimental effects on economic development, what alternative economic development policies are backed by stronger evidence?
Better economic development policies address a state’s economic fundamentals that affect the climate for high-wage job growth. For example, studies suggest that increased skills of a state’s labor force will increase both job growth and wages. Lower tax costs and other costs for growth of high-wage businesses also can increase both job growth and wages.
Both job growth and higher wages should be addressed by economic development policies.