News Story

Debate: Could Union Costs Be Pricing Michigan Out of Auto Jobs?

In his study “Right To Work, The wrong answer for Michigan’s economy,” University of Oregon Associate Professor Gordon Lafer cites several companies that chose Michigan over right-to-work states.

Lafer wrote, “Indeed, a series of recent corporate announcements make clear that many auto industry companies continue to prefer Michigan over right-to-work competitors …”

But Lafer never mentioned that some of those businesses cited in his report received deals for millions of dollars in tax incentives to locate in Michigan, while the competing states offered no incentives, according to research done by Michigan Capitol Confidential.

In fact, even the Michigan Economic Development Corp. says those companies wouldn’t have picked this state had it not been for the MEDC’s handouts.

MEDC memos received through a Freedom of Information Act request involving the businesses stated in Lafer’s report paint a picture of a state that has difficulty competing with right-to-work states without offering tax breaks. The memos refer to lower taxes and personnel costs in right-to-work states as a reason Michigan has to offer millions in incentives to attract the businesses.

“He (Lafer) is listing successes that are actually evidence of failure,” said James Hohman, assistant director of fiscal policy at the Mackinac Center for Public Policy.

Hohman said Michigan’s failure was its inability to provide “an attractive business environment where these businesses would set up in lieu of special favors.”

In an email, Lafer defended his decision not to mention that Michigan was the only state offering subsides to those businesses among the states they were considering.

"Whether some of these individual examples were swayed by state incentives or not, this doesn't change the big picture of economic reality. The list of auto industry companies choosing to locate in Michigan and other free-bargaining states is extremely large, both smallish and very big projects. In general, every state provides some kind of economic development incentives for companies considering locating into their states, for projects of any significant size. This is certainly true of the auto companies locating in the states with ‘right to work’ laws -- I believe Mississippi provided over $300 million in benefits for one Toyota plant.  But there are many reasons for the companies, both auto and elsewhere, to choose to locate in Michigan, Ohio, Indiana, California, Delaware, and other free bargaining states other than economic incentives provided by the state.  These are detailed in my report and you can find them elsewhere, including in the surveys of actual corporate location decision-makers."

A "free-bargaining" state refers to states like Michigan that force all employees, as a condition of employment, to financially support unions.

But the MEDC’s own briefing memos on four businesses cited in Lafer’s report highlight Michigan’s difficulties competing with right-to-work states on a level playing field.

For example, a July 20, 2010, MEDC memo made its case for Cascade Engineering of Grand Rapids, which was also looking at a site in the right-to-work state North Carolina. The memo states the company cited North Carolina’s “lower wage structure” as one reason MEDC’s tax incentives were needed.  

Another July 20, 2010, MEDC memo made its case for Clyde Union Inc. of Battle Creek, which was also looking at sites in right-to-work states Texas and Louisiana. The memo stated that Clyde Union said Texas and Louisiana had “lower cost building and personal resources.” The tax credit, the MEDC said, would offset those disadvantages.

A June 14, 2011, MEDC memo about Magna Exteriors and Interiors of Troy stated the company said right-to-work state South Carolina had “lower property taxes and lower wages” at its competing cites.

A June 16, 2009, memo about Ralco Industries Inc. of Auburn Hills stated the company was also considering Tennessee. The memo indicated, “The company would pay lower wages and taxes in Shelbyville (Tenn.) than in Michigan.”

Clyde Union received a $1.2 million, five-year state tax credit from Michigan. State officials from Louisiana and Texas said their states offered no tax deals to Clyde Union.

Cascade Engineering received a state tax credit worth $1.8 million over seven years from the MEDC. State officials from North Carolina, Texas and Ohio all confired that their states didn’t offer economic deals to Cascade Engineering.

Some of the states involved with Magna Exteriors and Interiors and Ralco Industries said they don’t release information about negotiations with companies on tax deals.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.