Saturday, December 10, 2011

More Evidence that Compelled Support for Unions Thwarts Job Creation

Not so friendly to job creation and wages

Mr. Republican. Fought Trade Union Excesses and Bolstered Competitive Federalism

A recent study by the National Institute for Labor Research concludes that Right-to-Work states experience higher employment growth, enhanced economic growth and enhanced wages compared to those states that allow unionized firms to require all their employees to pay union dues, even if the employee declines to join a union. As previously explained on this blog, the Taft-Hartley Act of 1947 empowers states to become Right-to-Work states, thereby opting out of provisions in the 1935 National Labor Relations Act that originally allowed firms to compel employees, under threat of termination, to pay such dues against their wishes. Thus, the Act helps facilitate competitive federalism, whereby states offer different menus of background regulatory and tax policy in their efforts to woo industry that is free to locate in any of 50 states and numerous foreign countries. Co-authored by Ohio Senator Robert Taft (also known as "Mr. Republican"), pictured above, the statute followed a Republican landslide in 1948. Strangely, many of the Law's opponents referred to it as the "slave labor law," a bizarre appellation given the Act's effort to enhance the autonomy of individual employees and protect all employees against union excesses.   Maybe "Johnny Friendly," the fictional leader of a corrupt union, portrayed in "On the Waterfront" by Lee Cobb (pictured above) would have characterized the law in this way!

In particular, the study finds that:

1) Between 2000 and 2010, private sector employmnt in Right-to-Work states rose .3 percent, while it fell by over 5 percent in other states.

2) During the same period, real manufacturing GDP grew over 18 percent in Right-to-Work states but just over 8 percent in other states.

3) During the same period, the compensation of employees in the private sector rose 11.3 percent in Right-to-Work states, while compensation of employees in other states rose only 0.7 percent.

Of course, the study does not by itself establish that a state's embrace of Right-to-Work status will thereby, other things being equal, enhance economic growth and job creation. For one thing, right to work status may correlate with other variables that encourage economic growth, such as a political culture within a state hostile to over-regulation and burdensome taxation. (Indeed, the study finds that the average "tax freedom day" in Right-to-Work states is April 6, compared to April 14 in other states.) If so, then superior economic growth may be the result of an overall regulatory and tax environment conducive to economic growth, of which Right-to-Work status is merely one element. Moreover, large economic events unrelated to labor regulation and trade unionism that affect a few states who happen to fall into one category or the other could produce employment effects that coincidentally correlate with Right-to-Work status. The results are nonetheless interesting and reflect the sort of empirical work necessary to test competing hypotheses about the impact of Right-to-Work status.