Michigan became the 24th "Right to work" state in the nation on Dec. 11, 2012, hoping that it will bring growth and prosperity to the state. RTW allows a worker the choice to work at a unionized workplace without joining the union and paying union dues. Republican party-dominated states have enacted RTW laws, using the rationale that forcing workers to join the union and pay its dues is contrary to free market principles.
However, these proponents of RTW are not aware that most workers prefer to join unions or some other form of collective workers' representation at workplaces; see the evidence provided in Economic Policy Institute paper, Feb. 22, 2007, by Professor Richard Freeman of Harvard University (www.EPI.org).
The proponents of RTW argue that it is a good economic growth policy for states because it reduces employer's cost, increases workers' productivity and employment, and therefore business profits. Increased productivity, they claim, would benefit workers, because higher productivity would increase their wages and benefits. However, RTW laws in only some states represent government-created unfair competition among states for businesses.
The share of labor compensation in national income has declined 4.1 percent, while the share of corporate profits has increased 5.1 percent from 2001 to 2011. Even in the Great Recession of 2007-08, corporations were enjoying very high profits. Clevelandfed economists Margret Jacobson and Filippo Occhino argue in Economic Commentary, September 2012, that the income gap between labor and capital would increase income inequality, because capital income is more unevenly distributed than labor income. They also report that from 1967 to 1980 " the average real income of the bottom 20 percent of households grew by 1.34 percent, faster than the 1.09 percent growth rate of the top 20 percent and the 0.67 percent of the top 5 percent." But after 1980 this pattern reversed itself; real income grew by 0.05 percent for the bottom 20 percent, 1.24 percent for the top 20 percent and 1.67 percent for the top 5 percent. Hence, income inequality has seriously worsened since late 1980s.
The question is what role do RTW laws play in the increase in income gap and inequality? Elise Gould and Heidi Shierhols, EPI paper, February 2011, have statistically isolated the effect of RTW on wages by controlling for workers' related demographic factors, socioeconomic factors, and macroeconomic indicators. Their analysis reveals that RTW states have 3.2 percent lower wages, employer-sponsored 2.6 percent lower health insurance coverage and 4.8 percent lower pension coverage. These findings include both union and non-union workers, indicating that non-union and non-dues paying workers are free riders, as they benefit from unions in non-RTW states. In addition, the wage penalty in RTW states is across all educational groups and is even higher for women, blacks and hispanics.
It is no wonder that businesses, the U.S. Chamber of Commerce and their conservative beneficiaries in politics heavily support RTW. This evidence on the effect of RTW on wages fits the overall evidence of declining share of labor income in the gross national income and household income, and increasing income inequality. In addition, more benefits' burden is falling on workers, thus creating more hardship on a typical household in RTW states, which are already facing lower real wages than non-RTW states.
RTW laws put unionized businesses in non-RTW states at a disadvantage in the competitive market place, and therefore as more states adopt RTW laws, the future of unions becomes bleaker. But such laws also further dilute the power of labor to negotiate wages commensurate with their productivity. Barry Lyn and Phillip Longman convincingly argue in an online discussion paper, "Who Broke America's Job Machine", Washington Monthly, March 4, 2010, (www.washintonmonthly.com), that American businesses are becoming more monopolistic. Therefore, control over prices and employment due to monopoly power, and on labor cost due to state governments' assistance in passing RTW laws, would tend to increase profits without the threat of sharing those profits with labor, even with increasing labor productivity.
The argument against unions, in general, tends to assume that businesses are powerless in negotiating compensation for labor. In any bargaining situation, compensation settlement requires that both sides minimize cost and maximize benefits of a settlement. RTW laws assume that businesses have less power than the unions in collective bargaining even though the evidence shows that U.S. labor markets are very flexible. RTW laws have created an imbalance in workers' collective representation in negotiations with powerful and deep-pocketed corporations.
Given the evidence of monopoly power, RTW laws turn states into accomplices in tilting the balance of collective bargaining power in favor of businesses, a policy contrary to free market principles. The demise of collective bargaining and declining share of labor income and increasing inequalty, as opposed to capital income, does not bode well for the future of the middle class. The middle class is the foundation for entrepreneurs, economic growth, and a prosperous overall economy.
Mathur is former chair and professor of economics and now professor emeritus, Department of Economics, Cleveland State University, Cleveland, Ohio. He also writes blogs for the Standard-Examiner at http://blogs.standard.net/economics,etc. His articles also appear at vijaymathur.blogpost.com.