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Title: Workers, Wages, and Economic Mobility: The Long-Run Effects of Right-to-Work Laws

Citation Type: Miscellaneous

Publication Year: 2023

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Abstract: Right-to-work (RTW) laws are one of the most prominent and politically contentious economic policy issues in the U.S. today. RTW laws are enacted by state governments to prohibit what are called “union security clauses” in collective bargaining agreements. These union-supported clauses can require workers at unionized firms to join the union or pay agency fees to the union as a condition of employment. In practice, when a state has RTW protections, workers at unionized firms cannot be required to pay fees to the union in order to retain their job. Both sides of the political divide make emphatic claims about the impacts of RTW laws, and about unions more broadly. Despite many historical studies, there is little consensus on the impact of RTW laws on local economies. RTW proponents, such as business lobbies, argue that RTW laws make states more attractive for investment, and they typically point to faster growth in income and total employment in RTW states over recent decades as supporting evidence. For example, states that were RTW in 1977 experienced aggregate employment and population growth during 1978–2017 of 105% and 90%, respectively, compared with 49% and 35% among non-RTW states.1 Conversely, RTW opponents, including unions and union-supported think tanks, argue that stronger unions benefit both unionized and nonunion workers and that RTW laws weaken unions and thus undermine their ability to produce these benefits. They highlight that wages and nonwage compensation levels in RTW states are lower than in non-RTW states.2 Who is right? Alas, interpreting the statistics behind these competing claims is a fraught task. We cannot merely compare average economic outcomes between RTW and non-RTW states because such comparisons gloss over a crucial fact: RTW and non-RTW states are fundamentally different in numerous ways, some observable and measurable, others not. These differences include variations in climate; population demographics, culture, and cost of living; historical differences in economic development and wage levels; and different exposure to technological change and changes in transportation costs. Because of these fundamental differences, there is no good reason to expect that, except for right-to-work laws, RTW and non-RTW states would have equal economic outcomes or experience economic growth at the same rate. My academic research with Benjamin Austin addresses this issue and serves as the basis of this Manhattan Institute brief.3 We use modern econometric techniques to study a narrow geographic sample where RTW and non-RTW areas are plausibly otherwise similar. In this case, we compare counties that are in different states (one state is RTW, the other is not) but border each other. Then, we estimate the long-term impact of RTW laws, and whether those laws cause the observable economic differences between RTW and non-RTW areas. Our method allows us to measure the impacts of RTW laws on a wide range of economic outcomes. In addition to revisiting debates about the impact of RTW laws on manufacturing employment, overall employment, and wage outcomes for workers, we study how RTW affects migration and where people choose to live. We leverage more recently available data to study the impact of RTW laws on downstream socioeconomic outcomes, including poverty rates and intergenerational mobility. We present evidence about which workers are affected. In this issue brief, I provide a nontechnical overview of this academic work and discuss its policy implications. Our results suggest that RTW laws produce substantial economic benefits, which accrue to workers through stronger local labor markets, and more generally through improved socioeconomic outcomes, especially for children and families that are more economically at risk. Specifically (and consistent with previous research), we find that RTW laws sharply raise a state’s manufacturing share of employment by approximately 28%, or 3.23 percentage points. This increase in manufacturing is not from crowding out other industries; rather, it results in stronger local labor markets in general. Residents of the RTW border counties have a 1.58-percentage-point higher employment rate and a 0.39-percentage-point lower unemployment rate than non-RTW border counties, and more people commute into (than out of) RTW counties for work. Contrary to claims by unions and their advocates, we fail to find any evidence that RTW laws reduce wages—in fact, our results suggest that RTW laws slightly increase per-hour wages, especially for low-income workers. Consistent with this pattern of stronger labor-market outcomes for individual workers, we observe that the RTW sample experienced 19.1 percentage points extra population growth between 1940 and 2010, indicative of stronger labor markets driving greater net in-migration. We find that RTW laws lead to improved social outcomes: childhood poverty rates are lower by 2.29 percentage points in RTW border counties, and there is substantially higher upward income mobility for people who grew up in the bottom half of the socioeconomic distribution.

Url: https://manhattan.institute/article/long-run-effects-of-right-to-work-laws

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Authors: Lilley, Matthew

Publisher: Manhattan Institute

Data Collections: IPUMS NHGIS

Topics: Labor Force and Occupational Structure

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