SARVIS THE HIGH COST OF BIG LABOR An Interstate Analysis of Right AN INTERSTATE ANALYSIS OF RIGHT TO WORK LAWS WORK OF RIGHT TO ANALYSIS AN INTERSTATE to Work Laws The Competitive Enterprise Institute promotes the institutions of liberty and works to remove government-created barriers to economic freedom, innovation, and prosperity through timely analysis, effective advocacy, inclusive coalition- building, and strategic litigation. COMPETITIVE ENTERPRISE INSTITUTE 1899 L Street NW, 12th Floor Washington, DC 20036 202-331-1010 cei.org RICHARD VEDDER & JONATHAN ROBE CEI THE HIGH COST OF BIG LABOR An Interstate Analysis of Right to Work Laws by Richard Vedder and Jonathan Robe 58402.1_CEI_RighttoWork.indd 1 7/23/14 10:25 AM The Competitive Enterprise Institute’s The High Cost of Big Labor series analyzes and compares the economic impact of labor policies on the states, including right to work and public sector collective bargaining laws. 2 An Interstate Analysis of Right to Work Laws 58402.1_CEI_RighttoWork.indd 2 7/23/14 10:25 AM Executive Summary HE COMPELLING PREPONDERANCE sources available for workers, lowers produc- of evidence suggests there is a substantial, tivity growth and wealth creation, and makes Tsignificant, and positive relationship be- people less well off than they would be in a tween economic growth in a state and the pres- fully free labor market. ence of a right to work (RTW) law. Incomes rise following the passage of RTW This paper presents a labor economics anal- laws, even after adjusting for the substan- ysis of the effect of right to work laws on state tial population growth that those laws also economies, and ranks states’ per capita income induce. RTW states tend to be vibrant and loss from not having an RTW law. People have growing; non-RTW states tend to be stagnant been migrating in large numbers from non- and aging. RTW states to RTW ones. The evidence sug- To be sure, there are exceptions to every rule, gests that economic growth is greater in RTW and many other factors affect economic growth. states. Thus, much of New England is relatively pros- Currently, 24 states have RTW laws, which perous despite the absence of RTW laws— give workers the right to not join unions as a though much of that growth is in industries condition of employment and which prohibit where unions never gained a foothold, such as the coercive collection of dues from workers high technology. Nonetheless, even those areas who choose not to join. likely would have benefited from RTW legis- RTW laws tend to lower union presence, re- lation. The evidence suggests that if non-RTW duce the adversarial relationship between work- states had adopted RTW laws 35 years ago ers and employers, and make investment more or so, income levels would be on the order of attractive. One would expect this scenario to $3,000 per person higher today, with the overall have a positive effect on measures of economic effect varying somewhat from state to state. performance such as job creation and, ulti- The top 10 states most negatively affected mately, on the population’s standard of living. by failure to adopt an RTW law are Alaska, Conversely, without an RTW law, the lack Connecticut, California, New Jersey, Illinois, of complete worker freedom to contract in- Hawaii, Maryland, Wisconsin, New York, and dividually may be a factor in the out-migra- Michigan. tion of labor from a state. More importantly, For all states, the median income loss per legislation favoring labor unions raises labor capita is $3,278, or more than $13,000 for a costs and makes employers less likely to invest. family of four. The total estimated income loss This perception, in turn, reduces the capital re- in 2012 from the lack of RTW laws in a major- Competitive Enterprise Institute 3 58402.1_CEI_RighttoWork.indd 3 7/23/14 10:25 AM ity of U.S. states was an extraordinary $647.8 The application of right to work laws in all billion—more than $2,000 for every American, states would greatly benefit America. including those in RTW states. —Aloysius Hogan 4 An Interstate Analysis of Right to Work Laws 58402.1_CEI_RighttoWork.indd 4 7/23/14 10:25 AM Introduction CONOMIC GROWTH ARISES FROM tivity growth and wealth creation, and makes the accumulation of resources—human people less well off than they would be in a fully Eand physical capital—and through in- free labor market. creased productivity, as new technologies allow Currently, 24 states have RTW laws, which for more outputs for any given amount of those give workers the right to not join unions as a resources. Many public policies affect growth, condition of employment and prohibit the co- importantly including labor and employment ercive collection of dues from workers who policies that involve unionization and right to choose not to join. RTW laws tend to lower work laws. union presence, reduce the adversarial relation- A current total of 26 states allow labor ship between workers and employers, and make unions to sign collective bargaining agreements investment more attractive. One would expect that force workers to join the union shortly af- this scenario to have a positive effect on mea- ter becoming employed or, at a minimum, pay sures of economic performance, such as job cre- dues. The lack of complete worker freedom to ation and, ultimately, on the population’s stan- contract individually may be a factor in the dard of living. Although many factors besides out-migration of labor from a state. More im- labor laws affect economic change, the evidence portantly, legislation favoring labor unions suggests that there is a positive relationship be- raises labor costs and makes employers less tween economic growth and the presence of an likely to invest. This, in turn, reduces the capital RTW law and that the magnitude of the legisla- resources available for workers, lowers produc- tion’s effects may be substantial. Competitive Enterprise Institute 5 58402.1_CEI_RighttoWork.indd 5 7/23/14 10:25 AM Historical Background N THE UNITED STATES, RIGHT TO 1920s Railroad Regulation work laws are, historically, a relatively re- cent phenomenon, having been around only The first major movements undermining I America’s common law tradition with respect a little more than half a century. Prior to the growth of organized labor during the New Deal to labor relations began in the railroad indus- era, such laws were not considered necessary try in 1920, when Congress passed the Trans- because labor unions did not have the strong portation Act establishing the Railroad Labor legal authority to coerce worker support as they Board (RLB).2 The RLB soon granted railroad do today. The rationale for RTW laws is large- unions the power of exclusive representation in ly expressed in terms of providing a mechanism labor disputes. This change departed abruptly for mitigating problems in the labor law—prob- from the common law tradition, as individual lems caused by a more coercive form of labor employees working for unionized railroad com- unionism that dates from the New Deal era. panies were no longer permitted to negotiate on their own behalf. Although the exclusive representation pro- Common Law Tradition visions were ruled unconstitutional by the Su- preme Court in 1923, railroad unions saw a Prior to the federal legislation passed during victory in 1926 with the passage of the Rail- the 1930s, labor unions were largely governed way Labor Act (RLA), which did not reinstate under the same common law principles that ap- exclusive representation provisions, but granted ply to ordinary citizens in all other legal cases. workers the right to organize.3 Furthermore, it Under this tradition, there was no need for spe- replaced a freedom of contract for employers cial labor laws because the Constitution guar- with a legal duty to bargain. In 1951, Congress antees property and contract rights. Disputes amended the RLA to empower unions to force between labor and management were handled compulsory unionization on workers in the rail- through private negotiations or, if necessary, in road and airline industries.4 To this day, the RLA court. If employees thought they could be better represented by a union, they were free to join one, but unions were not permitted to make membership or payment of dues a requirement The Railway Labor Act replaced a for employment. Similarly, employers were also freedom of contract for employers free to decide whether they desired to enter into with a legal duty to bargain. contractual agreements with unions.1 6 An Interstate Analysis of Right to Work Laws 58402.1_CEI_RighttoWork.indd 6 7/23/14 10:25 AM allows compulsory unionization in the railroad Act by passing the Labor Management Rela- and airline industries, including in RTW states. tions Act, better known as the Taft-Hartley Act. President Harry S. Truman vetoed the bill, but a Republican-controlled Congress mustered Norris-LaGuardia Act the necessary two-thirds vote in both houses to override Truman’s veto and make the bill law. In 1932, President Herbert Hoover signed the Taft-Hartley outlawed the closed shop, but still Norris-LaGuardia Act, which further extended permitted union and agency shop arrangements. union power in America. In addition to banning Section 14(b) of Taft-Hartley is especially worker agreements not to unionize, the Act also important. It allows individual states to go fur- exempted unions from antitrust laws and freed ther in protecting workers’ freedom of associa- unions from private damage suits or injunctions tion. Specifically, it declares that the Wagner Act arising from their strikes. Unsurprisingly, inci- “shall not be construed as authorizing the ex- dents of union violence spiked in the year follow- ecution or application of agreements requiring ing the passage of the Norris-LaGuardia Act.5 membership in a labor organization as a con- dition of employment in any State or Territory National Labor Relations Act in which such execution or application is pro- hibited by State or Territorial law.” This clause In 1935, Congress passed and President provides the legal foundation for states to enact Franklin D.