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Study: Right-to-Work Laws Lead To More People, More Jobs and Higher Pay

Report looks at RTW states and data from 1947 through 2011

States that have passed right-to-work laws have seen increased employment, higher pay and expanding population, according to a new study.

The report, released today, analyzes data from a 64-year period, 1947-2011. The year 1947 is when federal legislation first allowed states to give workers the choice of whether to financially support unions as a condition of employment. The study is co-authored by Michael Hicks, an economics professor and director of the Center for Business and Economic Research at Ball State University, and Michael D. LaFaive, director of the Morey Fiscal Policy Initiative at the Mackinac Center for Public Policy.

"It is impossible to totally disentangle right-to-work from every other business friendly policy," Hicks said. "That being said, the best studies in this area acknowledge that right-to-work laws are really the king of business friendly policies."

LaFaive agreed.

"There was and remains a lot of debate over whether or not right-to-work laws are economically beneficial," he said. "We believe our study confirms that right-to-work laws have a measurable and positive impact on the economic well-being of a state and its citizens."

The study looks at annual employment growth rates, inflation-adjusted personal income, and population figures to measure economic progress. Each of these areas improved significantly more in right-to-work states and the report concludes that right-to-work laws "have a positive and sometimes very positive impact on the economic well-being of states and their residents."

The authors said there are three main challenges for researchers when analyzing the effects of right-to-work laws.

First, is the timing — the amount of time it takes for the impact of legislation to take place varies. To solve this issue, the study covered a 64-year time period; from the beginning of right-to-work legislation, and three shorter periods as well.

Second, the evolution of the economy — national, state and local economies are rapidly changing. The report looked at how much of an effect right-to-work laws had during three different time periods. The data show that from 1947 to 1970, there was no statistically significant impact of these laws in states that had them. From 1971 to 1990, however, right-to-work laws increased average annual employment and personal income growth by almost 1 whole percentage point and population growth by 1.3 percentage points in these states. From 1991 through 2011, the effect of worker freedom laws was less than the previous period, but still positive and statistically significant.

The third challenge is that right-to-work laws may be correlated with the other factors that affect the areas being studied (for example, favorable tax policies). The study uses a methodology that considers certain factors and tries to create a "natural experiment."

Hicks said that the study is unique in breaking information into time periods and being able to separate a business friendly environment and right-to-work laws.

"All the studies either say that they cannot measure the impact of right-to-work in the data or that they find it, but only in a very narrow area of the economy, like just in manufacturing," Hicks said. "This study is novel in that we've really tried to answer the questions related to the Old South issues. Most of the early right-to-work states passed it for reasons other than to create jobs. They saw unions as a challenge to a segregationist environment. By distinguishing states that were and were not a part of the Old South, by looking at those that had big manufacturing employment prior to Taft-Hartley, I think we've controlled for that problem."

Michigan's right-to-work law went into effect in late March. The Mackinac Center for Public Policy has set up an informational website at Teachers in the state can only opt-out of their union in the month of August, provided their school's contract is expired or was signed after March 28, 2013. 

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.