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Research & Commentary: Do Right-to-Work Laws Cause Income Inequality?

March 30, 2016

West Virginia recently became the 27th right-to-work (RTW) state, and several other states are now considering becoming the 28th.

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West Virginia recently became the 27th right-to-work (RTW) state, and several other states are now considering becoming the 28th. Right-to-work laws prohibit employers from requiring an employee to join or refuse to join a union, pay fees or other charges to a union, or pay any third party or charity instead of paying a union.

Right-to-work laws have also consistently demonstrated a positive effect on jobs and economic growth. Watchdog.org found “from January 1995 through August 2015 six of the 10 states with the worst private-sector job growth were states without right-to-work laws.” Two of the remaining ten states with low private-sector job growth, Indiana and Michigan, passed right-to-work laws in 2012. Conversely, over the same period, seven of the top 10 job-producing states had right-to-work laws, according to the U.S. Department of Labor.

Opponents of right-to-work legislation contend the reforms force wages down, disadvantage unions, and lower people’s standard of living, but research shows right-to-work states have experienced positive economic growth across the board.

One of the most commonly used attacks against right-to-work laws is the claim they increase economic inequality. A new study by American Enterprise Institute (AEI) researchers Jeffrey Jordan, Aparna Mathur, Abdul Manasib, and Devesh Roy shows this claim is likely untrue. In the comparative case study, the authors examined a “comprehensive set of measures of inequality” in four states: Idaho, Louisiana, Oklahoma, and Texas. The authors found right-to-work laws have no impact on economic inequality. The four states examined were the only ones that have enacted right-to-work legislation between the 1960s and the 2000s.

“Inequality in the U.S. started to exacerbate in the mid-1980s,” wrote the AEI researchers. “If RTW had an impact on inequality, it would have to be that RTW started to have a causal effect on inequality in the states that enacted the law in the 1940s and the 1950s with a lag of more than 30 years.”

States enacting right-to-work policies have experienced positive economic progress across the board. In another study, the Mackinac Center for Public Policy found, “According to the Bureau of Economic Analysis, right-to-work states showed a 42.6 percent gain in total employment from 1990 to 2011, while non-right-to-work states showed gains of only 18.8 percent.” The study also reveals inflation-adjusted gross personal income in right-to-work states increased 86.5 percent between 1990 and 2013, compared to just 51.3 percent for non-RTW states.

Right-to-work states have enjoyed greater success attracting new and existing businesses. The Heritage Foundation cites one report in Site Selection Magazine by Ron Starner, Mark Arend, and John McCurry as evidence of the positive effects of RTW laws on a state’s business climate. Starner, Arend, and McCurry found, “[R]oughly half of all major businesses refuse to consider locating in jurisdictions with compulsory dues.”

Right-to-work laws create new jobs and foster economic and population growth. State lawmakers should consider implementing right-to-work legislation, a decision that is sure to reap significant economic benefits.

The following documents examine right-to-work laws in greater detail.

Did Right-to-Work Laws Impact Income Inequality? Evidence from U.S. States Using the Synthetic Control Method
https://www.heartland.org/policy-documents/did-right-work-laws-impact-income-inequality-evidence-us-states-using-synthetic-con
Jeffrey Jordan, Aparna Mathur, Abdul Manasib, and Devesh Roy of the American Enterprise Institute examine right-to-work laws in four states, Idaho, Louisiana, Oklahoma, and Texas, and they found right-to-work laws have no impact on economic inequality.

Right-to-Work Laws Don’t Lower Private-Sector Pay
http://www.heritage.org/research/reports/2015/09/right-to-work-laws-dont-lower-private-sector-pay
James Sherk of The Heritage Foundation argues right-to-work laws have no negative impact on private-sector wages. “RTW laws do appear to slightly reduce the pay of government employees, easing constraints on hard-pressed state budgets,” he writes. 

Unions Charge Higher Dues and Pay Their Officers Larger Salaries in Non–Right-to-Work States
https://www.heartland.org/policy-documents/unions-charge-higher-dues-and-pay-their-officers-larger-salaries-non-right-work-sta
This Heritage Foundation research paper, written by Senior Policy Analyst James Sherk, examines the correlation between union fees, union officials’ pay, and a state’s right-to-work status. According to Sherk’s research, union officials’ median pay in states without right-to-work laws is $20,000 more than pay levels in states with right-to-work laws.

Research & Commentary: Right-to-Work Policies
http://heartland.org/policy-documents/research-commentary-right-work-policies
Alex Monahan, a former government relations coordinator for The Heartland Institute, says states lacking right-to-work laws should consider implementing them. The evidence shows right-to-work reform has positive effects on states’ economies, workers, and population growth. 

Unions Hinder Economic Growth and the Free Market
http://www.aei.org/article/society-and-culture/free-enterprise/unions-hinder-economic-growth-and-the-free-market/
American Enterprise Institute President Arthur Brooks explains how unions hamper economic growth by limiting freedom in the marketplace. Brooks concludes, “States should seek to pass right-to-work laws as part of reforms to strengthen their economies and enhance economic growth.” 

Ten Principles for Improved Business Climates
http://heartland.org/policy-documents/ten-principles-improved-business-climates
Maintaining a good business climate has never been more important. Thanks to the Internet, the collapse of communism around the world, and advances in shipping and logistics, capital and labor are much more mobile than in the past. Businesses must bid for customers and workers, not only from local competitors but also from businesses in other communities, in other states, and even in other countries. Small changes in taxes, regulations, and other cost-drivers may lead to businesses losing customers and possibly failing or relocating. 

Economic Growth and Right-to-Work Laws
http://heartland.org/policy-documents/economic-growth-and-right-work-laws
This study by the Mackinac Center measures the impact of right-to-work laws on states’ economic performance. It uses average annual growth rates in employment, real (inflation-adjusted) personal income, and population to measure the economic well-being of right-to-work states. The results show right-to-work laws have a statistically significant and economically meaningful positive impact, though results vary.

Right-to-Work Laws: Liberty, Prosperity, and Quality of Life
http://heartland.org/policy-documents/right-work-laws-liberty-prosperity-and-quality-life
Economist Richard Vedder documents the positive impact of right-to-work laws. He concludes, “Americans generally prefer freedom to coercion, high incomes to low ones, and individual decision making to collective resolution of issues. For these reasons, they generally do not like laws that constrain their labor market behavior and force them to join collectives of other workers to negotiate their wages and working conditions.” 

Rich States, Poor States 2015
http://www.alec.org/publications/rich-states-poor-states/
Released in April 2014, the American Legislative Exchange Council’s annual Rich States, Poor States report presents a forward-looking measure of how each state can expect to perform economically based on 15 policy areas which have proven to be the best determinants of economic success.

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Budget & Tax News at http://news.heartland.org/fiscal, The Heartland Institute’s website at http://heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org

The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact John Nothdurft, Heartland’s director of government relations, at jnothdurft@heartland.org or 312/377-4000.

Author
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance. In 2012, Glans was named senior policy analyst.
mglans@heartland.org @HeartlandGR