Laffer: Right-to-Work a Beneficial Economic Tool for States


A few Chamber staffers joined hundreds in attendance at today’s Economic Club of Indiana luncheon featuring Arthur B. Laffer, an economist, author and former member of President Reagan’s Economic Advisory Policy Board (though he also asserted that Bill Clinton was "a great president"). When asked about right-to-work legislation, he lauded Indiana’s efforts to become the 23rd right-to-work state. Back in May, he co-wrote an editorial on the issue in the The Wall Street Journal. An excerpt:

The Obama administration’s National Labor Relations Board filed a complaint last month against Boeing to block production of the company’s 787 Dreamliner at a new assembly plant in South Carolina—a "right to-work" state with a law against compulsory union membership. If the NLRB has its way, Dreamliner assembly will return to Washington, a union-shop state, along with more than 1,000 jobs.

The NLRB’s action, which Boeing will challenge at a hearing next month, is a big deal. It’s the first time a federal agency has intervened to tell an American company where it can and cannot operate a plant within the U.S. It lays the foundation of a regulatory wall with one express purpose: to prevent the direct competition of right-to-work states with union-shop states. Why, as South Carolina Gov. Nikki Haley recently asked on these pages, should Washington have any more right to these jobs than South Carolina?

A recent New York Times editorial justified the NLRB decision by arguing that unions are suffering from "the flight of companies to ‘Right-to-Work’ states where workers cannot be required to join a union." That’s for sure, and quite an admission. We’ve been observing that migration pattern for years, but liberals have denied it’s actually happening—until now.

Every year we rank the states on their economic competitiveness in a report called "Rich States, Poor States" for the American Legislative Exchange Council. This ranking uses 15 fiscal, tax and regulatory variables to determine which states have policies that are most conducive to prosperity. Two of these 15 policies have consistently stood out as the most important in predicting where jobs will be created and incomes will rise. First, states with no income tax generally outperform high income tax states. Second, states that have right-to-work laws grow faster than states with forced unionism.

As of today there are 22 right-to-work states and 28 union-shop states. Over the past decade (2000-09) the right-to-work states grew faster in nearly every respect than their union-shop counterparts: 54.6% versus 41.1% in gross state product, 53.3% versus 40.6% in personal income, 11.9% versus 6.1% in population, and 4.1% versus -0.6% in payrolls.

For years, unions argued that right-to-work laws were bad for workers and for the states that passed them. But with the NLRB complaint, they’ve essentially thrown in the towel. If forced unionism is better for the economy of a state, why would the NLRB need to intervene to keep Boeing from leaving Washington? Why aren’t businesses and workers moving operations to heavily unionized places like Michigan, New York, Ohio and Pennsylvania and fleeing states like Georgia, Tennessee, South Carolina and Texas?

In reality, the stampede of businesses from forced-union states like Washington has accelerated in recent years. A 2010 study in the Cato Journal by economist Richard Vedder of Ohio University found that between 2000 and 2008 4.8 million Americans moved from forced-union states to right-to-work states. That’s one person every minute of every day.

Right-to-work states are also getting richer over time. Prof. Vedder found a 23% higher per capita income growth rate in right-to-work states than in forced-union states, which over the period 1977-2007 amounted to a $2,760 larger increase in per-person income in those states. That’s a giant differential.

So now the unions concede that this migration is indeed happening, but they say that it is unhealthy and undesirable because workers in right-to-work states are paid less and get worse benefits than the workers in union states. Actually, when adjusting for the cost of living in each state and the fact that right-to-work states were poorer to begin with, a 2003 study in the Journal of Labor Research by University of Oklahoma economist Robert Reed found that wages rose faster in states that don’t require union membership.

Employers that move away from forced-union states mainly do so not to scale back wages and salaries—although sometimes that happens—but to avoid having to deal with intrusive union rules, the threat of costly work stoppages, lawsuits, worker paychecks going to union fat cats, and so on.
 

5 thoughts on “Laffer: Right-to-Work a Beneficial Economic Tool for States

  1. Great analysis from Laffer. In answering a question at today’s luncheon, his straightforward response included: “No matter how you slice it or dice it, state prosperity and forced unionism don’t go together.”

  2. What were the results of the Chamber’s poll on the question of RTW that ran through yesterday? Last time I looked it was 80% against RTW and 20% for it.

  3. Why do you people hate the middle class so much? Do you not realize that the middle class exsists because of the Unions? When you are through busting up all the unions and the corporations no longer have to fear the voice of the working man, the middle class will disappear. The only people that benefit from right to work (for less)are the big companies.

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