Right-to-Work Law Wrong for Michigan’s Economy

This material was published by the Economic Policy Institute.

Michigan should not adopt a right-to-work law in an attempt to address its economic challenges, a new Economic Policy Institute paper finds.  In ‘Right to work’: The wrong answer for Michigan’s economy, political economist Gordon Lafer explains that right-to-work laws do not boost job growth in states that adopt them, and that they lower wages and reduce benefits for both union and non-union workers.  Furthermore, by reducing people’s income, a right-to-work law could have a significantly negative effect on Michigan’s economy.

Right-to-work (RTW) laws make it illegal for employees and employers to negotiate a union contract that requires all employees who benefit from the contract to pay their fair share of the costs of negotiating it.  RTW laws are designed to undermine unions’ bargaining strength, and their primary focus is the manufacturing industry.  Currently, 22 states have RTW laws.

RTW laws have no impact on the performance of state economies.  Seven of the 10 highest-unemployment states are states with RTW laws, including Nevada and Florida, which have unemployment rates higher than Michigan’s unemployment rate of 10.5%, and South Carolina, which also has an unemployment rate of 10.5%.  Factors other than RTW laws, such as major industries and climate, shape states’ economies.

RTW laws lower wages for union and non-union workers by an average of $1,500 a year and decrease the likelihood employees will get health insurance or pensions through their jobs.  By lowering compensation, they have the indirect effect of undermining consumer spending, which threatens economic growth.  For every $1 million in wage cuts to workers, $850,000 less is spent in the economy, which translates into a loss of six jobs.

The contraction of Michigan’s auto industry has resulted in hardship for many of Michigan’s workers.  This contraction is primarily the cause of national and international economic trends, such as free trade agreements, not state labor law.  Furthermore, Michigan’s economy has recently shown improvements, in part due to the auto industry’s expansion into new technologies.

“These steps toward diversification of Michigan’s economy—particularly into auto-related technology fields—point to an alternative path forward, other than using a ‘right to work’ law to lower wages and benefits in hopes of competing with China or Thailand,” said Dr. Lafer.