New Study Finds Right to Work Laws Don’t Reduce Wages

Righ to Work posterWorkers might not like being forced to pay dues to a union, but they should be grateful anyway because they see more on their paychecks – so goes a common justification offered by union officials for such coercion. Yet a new Heritage Foundation Issue Brief makes a convincing case that this view leaves out at least as much as it includes. The author, Heritage fellow and labor issues analyst James Sherk, concludes that after fully taking into account the cost of living, private-sector wages in states with Right to Work laws (i.e., laws barring forced dues payments) are not significantly different from those in states without such laws. Moreover, while Right to Work laws do slightly reduce public employee pay, they also save taxpayers money. The study is at once a sequel and a rebuke to one published in April by the Left-leaning Economic Policy Institute.

The National Labor Relations Act of 1935, Section 8(a)(3), effectively gives unions a form of monopoly power over the supply of labor at worksites where a collective bargaining agreement (CBA) is in force. It does this by authorizing a union to insert into a CBA a “security clause” compelling the employer to fire any worker who refuses to join the union or pay partial dues (also known as “agency fees”) in lieu of joining. While this power is formidable, however, it is not unlimited. Section 14(b) of the Taft-Hartley Act of 1947 authorizes individual states to override this forced-dues clause via ‘Right to Work’ laws. Thus far, 25 states have passed such legislation. True, most of these states did so decades ago. And those were states where union membership and influence never have been all that great. Yet in fits and starts, the Right to Work cause has continued to gain ground. By the start of the current decade, 22 states had Right to Work (RTW) laws. Significantly, the three states joining the fold – Michigan, Indiana and Wisconsin – are in the union-strong, industrialized Great Lakes Midwest. And very recently Missouri nearly went Right to Work as well. State lawmakers this year passed such a measure, but Democratic Governor Jay Nixon vetoed it in June. Last Wednesday, the Republican-controlled General Assembly voted 96-63 to override the veto – a majority, but short of the needed two-thirds majority. A number of GOP lawmakers crossed the aisle to vote against the ostensibly “veto-proof” bill.

Labor leaders, not used to being defeated on their turf, have stepped up their efforts to discredit the Right to Work principle. And a major element the campaign is to highlight the argument that union membership means higher wages. Non-joining “free riders,” they argue, hurt themselves as well as voluntary joiners; forcing non-joiners to pay dues not only is good for the union, it’s also good for dissenters. To bolster this argument, labor officials have been pointing to a study, “‘Right to Work’ States Still Have Lower Wages,” published in April by a Washington, D.C. think tank, the Economic Policy Institute (EPI). Founded nearly three decades ago, EPI is heavily driven by union interests. In fact, AFL-CIO President Richard Trumka currently chairs the group’s board of directors; nine other union presidents are board members. Using 2010-13 data from the Census Bureau’s Current Population Survey, researchers Elise Gould and Will Kimball concluded that even after controlling for cost-of-living and other differences, employees in Right to Work states earned nearly 3 percent less than employees in non-Right to Work states.

The Heritage Foundation’s James Sherk, skeptical of this finding, early this month published a paper, “Right-to-Work Laws Don’t Lower Private-Sector Pay.” The study ran the same numbers with the same econometric model and control variables as the EPI paper.  But he also made a key adjustment. He explains:

The model adjusts wages based on the cost of living in each state. But it only partially adjusts for these differences. Researchers have found that wages generally move one-for-one with living costs. New Yorkers pay about 15 percent above-average wages. The model to which unions point ignores about a quarter of this effect.

This artificially makes workers in RTW states – with below-average living costs – look like they have below-average real wages. The researchers claimed they accounted for cost-of-living differences, but their model does not fully do so.

To compensate, the author injected state-by-state purchasing power into the model.  This one change, he found, eliminated most of the apparent wage boost of Right to Work laws. Instead of lowering wages by 2.8 percent, as the EPI study had concluded, Right to Work laws now lowered them by only 0.7 percent. The latter figure, Shark noted, was statistically insignificant.

Two additional findings in the Heritage study also undercut the EPI report. First, the Right to Work vs. non-Right to Work private-sector gap further disappears when including overtime, tips and commissions. In fact, the gap not only disappears, it reverses itself. Right to Work laws were associated with a 0.5 percent gain. While admitting the RTW vs. non-RTW difference was not significant, Sherk argues that this finding calls into question assertions that unionization delivers bigger paychecks. Second, state and local government workers in Right to Work states earned about 5 percent less. State government employees in all but five states made more than similarly-skilled private-sector workers. The author argues such findings strengthen the case for the Right to Work. “Private-sector workers,” he writes, “should not pay excessive taxes so that government employees can enjoy higher living standards than they do.”

While the list of Right to Work states grows, American unions still wield a lot of clout in the labor market. As gatekeepers of the supply of labor, they have established cartels in a wide range of industries. And more than ever, they use member dues to fund election campaigns, political parties and lobbying. Giving individual workers a Hobson’s choice of having to subsidize a union or lose their job is a powerful, and unjust, tool of persuasion. Right to Work laws are a countervailing force. That’s why unions pull out the stops to oppose such laws in whatever states they are proposed. Half of all states so far have enacted such laws. The new Heritage Foundation report might sway any number of lawmakers in the remaining half to go that route as well.


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