Commentary: Right-to-Work Will Keep Michigan Competitive

(Editor's Note: This article first appeared in the Detroit Free Press on Jan. 22, 2012.)

Indiana may soon become America's 23rd right-to-work state: Legislation is under consideration in both chambers of the Indiana Legislature, and Gov. Mitch Daniels said he will sign such a bill. Michigan may need to adopt such a law to better compete for jobs and talent.

Perhaps the best information on the influence of right-to-work laws comes from a 1998 study authored by economist Thomas Holmes of the Federal Reserve Bank of Minneapolis. Holmes examined manufacturing employment in border counties of neighboring states where one state had right-to-work protections and the other did not.

He found manufacturing employment as a percentage of county population increased by a third in the counties within the right-to-work states compared with those in the non-right-to-work states.

This study has two vital implications. First, it shows the impact that state-level public policies can have on economic development. Second, it neutralizes claims by right-to-work critics that some other impossible-to-measure variable -- such as attitudes toward unions -- is unduly influencing economic performance in right-to-work states.

This is not to say that passage of a right-to-work law in Indiana will result in an increase in border-county manufacturing employment by a third. As Holmes points out, right-to-work states are typically pro-business to begin with. Indiana's adoption of a right-to-work law would formalize its status while implicitly magnifying Michigan's reputation for being more hostile to business.

A 2012 study from Michael Hicks, an adjunct scholar with the Mackinac Center writing for Ball State University's Center for Business and Economic Research, found that from 1929 through 2005, the presence of a right-to-work law did not play a role in state industrial composition or income from manufacturing.

Hicks did find a significant influence of right-to-work laws on the total growth of incomes for manufacturing workers. He also found that during the decade following passage of a right-to-work law, the yearly changes in the share of manufacturing increased in the 10 most recent states to adopt such a measure. According to Hicks, seven of the 10 saw manufacturing incomes increase -- after adjusting for inflation -- between 15% and 40%.

Economist Richard Vedder's 2010 study "Right-to-Work Laws: Liberty, Prosperity, and Quality of Life" in the Cato Journal addresses these laws from a migration angle. For many researchers, migration reflects an investment in oneself, and as such helps aggregate "quality of life" issues into a single variable. Vedder notes that 40% of Americans lived in right-to-work states in 2007, up from 28.5% in 1970. Moreover, Census data indicate that from April 2000 to July 2008, more than 4.7 million people moved from non-right-to-work states to right-to-work states.

These changes are probably more than just coincidence. Vedder's conclusion was that "without exception ... a statistically significant positive relationship was observed between the presence of RTW laws and net migration."

Most seem to move because greater opportunities are provided in states with more labor market freedom. His research underscores the argument that people "vote with their feet to move to freer labor market environments."

This has important implications for Michigan, because Indiana is a border state. Moving there for work is less costly financially and psychologically than, say, Texas. Economic theory and evidence show that lowering the price of something encourages more of it, so a right-to-work law in Indiana could mean greater population loss here.

Michigan should consider its own right-to-work law. Neglecting to do so allows Indiana to cement its reputation as a friendlier climate in which to live and do business, to the detriment of the Great Lakes State.

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.