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“Right to Work” vs. The Rights of Workers
November 28, 2011
“Right to Work”
vs.
The Rights of
Workers
A report from the Higgins Labor Studies Program
University of Notre Dame
March 2011
“RIGHT TO WORK” VS. THE RIGHTS OF WORKERS
ABSTRACT
The long-running battle over “right-to-work” (RTW) legislation reappeared recently in
Indiana. The Indiana Chamber of Commerce, in a recent report, contends that the growth of real
personal income in RTW states has been higher than in non-RTW states. Their argument is that
RTW laws lead to lower wages in RTW states, which attracts businesses to locate in those states.
The increased business presence leads to higher income growth, which in turn leads – in the long
run – to higher productivity and higher wages in the state.
We find the Chamber’s arguments unpersuasive. Obviously there are businesses that are
attracted to low-wage areas, but in our current global economy it is a risky strategy for a state to
think it can compete with workers in developing countries who are paid much less. Moreover,
many companies reject the “low-road” approach of low wages and make location decisions on
other criteria, like the quality of the work force, infrastructure, and quality of life.
Could low wages bring about high wages? The Chamber’s argument is that increased
business investment will lead to higher productivity and eventually higher wages. But
businesses that use large numbers of low-wage, unskilled workers are unlikely to see an increase
in productivity. And even if productivity did increase, what is to say that those productivity
gains would be shared with workers? Wages and compensation of workers have consistently
lagged the growth of productivity since the 1970s.
The Chamber’s arguments are weak, and so is its data analysis. To prove its link between
RTW states and higher income growth, it inexplicably uses data from only two years, 1977 and
2008. An examination of income growth data for all years between 1947 and 2009 finds that the
growth rates of income for RTW states in the years after passage of RTW legislation is nearly
identical to the growth rates before passage. So RTW laws seem unlikely to have led to a
significant increase in income.
The Chamber also lumps all RTW states together, avoiding mention of the vast discrepancies
in economic performance among RTW states. It also relies exclusively on growth rates, which
show only change, not current levels of economic welfare. It focuses on average income, which
obscures the effects of how the total income pie is distributed. An analysis for individual states
of median household income in 2009, which avoids all three of these problems, shows that only
4 of the 22 RTW states are above average, while 18 are below average.
The battle over RTW legislation is a continuation of the campaign against workers and
unions that has been waged in this country for the past thirty years. That campaign has led to
stagnating wage levels and deteriorating conditions for workers.
The Higgins Labor Studies Program at the University of Notre Dame thinks that is it possible
to find a better way. In this endeavor we look to the wisdom of the man for whom the Higgins
Program is named, Monsignor George G. Higgins. His view was that denying the right to
organize is tantamount to attacking human dignity itself.
“RIGHT TO WORK” VS. THE RIGHTS OF WORKERS
A Report From The Higgins Labor Studies Program
at the University of Notre Dame1
Introduction
The long-running battle over “right-to-work” legislation reappeared recently in
Indiana. To people unfamiliar with the term, it might seem that “right to work” means
the right to a job that enables a worker to support himself or herself in dignity. After all,
Article 23 of the United Nations’ Declaration of Human Rights says that “Everyone has
the right to work, to free choice of employment, to just and favorable conditions of work
and to protection against unemployment,” and “Everyone who works has the right to just
and favorable remuneration ensuring for himself and his family an existence worthy of
human dignity” (United Nations, 1948). Religious and moral leaders have also raised
their voices in support of such a right. As the Catholic Bishops said in Economic Justice
for All, “people have a right to employment. In return for their labor, workers have a right
to wages and other benefits sufficient to sustain life in dignity” (U.S. Catholic Bishops,
1986, paragraph 103).
However, the right to work has a different meaning in the “right-to-work” laws that
exist in twenty-two states and in the bills recently introduced in the Indiana legislature.
In these bills, the “right to work” means that employers cannot require workers to pay
any fees or other charges to cover the costs of unions that represent employees in
collective bargaining, grievance procedures, and other matters.
“Right-to-work” legislation creates a situation analogous to citizens driving on public
roads or calling the public fire department to save burning houses, yet refusing to pay the
taxes necessary for these public services. It reduces financial resources for unions and
the ability of unions to effectively represent workers and bargain for higher wages and
benefits.
To fully understand the effort to make Indiana a “right-to-work” state, one must
appreciate the broader historical context of the past half century. Beginning in 1947,
when Congress overrode President Harry Truman’s vehement veto to pass the Taft-
Hartley Act, individual states were permitted under federal labor law to prohibit
collective bargaining agreements requiring all workers to contribute to the cost of
representation by a union, regardless of membership status. Because American labor law
required (and still does) that a union representing a bargaining unit must represent all
workers whether they are union members or not (that is, everyone gets the same benefits
1 This report was written by Higgins Labor Studies Program Director Marty Wolfson, with important
contributions from Associate Director Dan Graff and Valerie Sayers. All three are faculty members at the
University of Notre Dame and teach economics, history, and English, respectively. For additional helpful
input to the report, we thank (without implicating) Higgins Labor Studies Program Coordinator Karen
Manier and Higgins faculty members Robert Fishman (sociology), David Hachen (sociology), Ben Radcliff
(political science), and David Ruccio (economics).
2
of employment under the contract, from health care coverage to due process to prevent
arbitrary individual mistreatment), unions negotiated for contracts whereby every worker
would contribute to the cost of representation (these are often called “fair share”
arrangements).
Immediately in the wake of the Taft-Hartley Act (and in some cases even before),
eleven southern states promptly passed what became called “right-to-work” laws, so
named not because they gave any American a right to employment, but because they
gave individuals the right to work at a job with the benefits of a collective bargaining
agreement without having to contribute to the cost of those benefits. The result was the
creation of two competing labor law regimes within the United States, one (primarily in
the Northeast, the Midwest, and on the West Coast) that permitted “fair share”
representation clauses in contracts and thus encouraged stable unions, higher wages, and
better benefits for workers, and another (largely in the South and the Great Plains) that
outlawed “fair share” agreements and thus inhibited the growth of unions and their
positive effects for workers (Dixon, 2007).
The Chamber of Commerce Study on “Right to Work”
In January of 2011, the Indiana Chamber of Commerce released a study on “right to
work” (Vedder, Denhart, and Robe, 2011). In that study, the authors argue that “right-towork”
(RTW) states have experienced higher growth of personal income and personal
income per capita than non-RTW states. The authors argue that, because Indiana does
not have a RTW law, its economic performance has suffered: “over two-thirds of the
difference between the Indiana and national rates of economic growth in modern times is
explainable by Indiana’s lack of a RTW law” (Vedder, Denhart, and Robe, 2011, p. 14,
emphasis in original).
How would a RTW law improve Indiana’s economic growth and income so
dramatically? There are four steps in the Chamber’s reasoning:
1) A RTW law would undermine unions and lower workers’ wages
2) Businesses would locate in Indiana because of the lower wages
3) The businesses attracted by RTW would raise total income for Hoosiers
4) In the long run, workers’ wages would also increase
We will examine each of these ideas in the next sections of this report.
Should Indiana Pass a “Right-to-Work” Law in Order to Lower Workers’ Wages?
The first major problem – and glaring inconsistency – is the argument that Indiana
will be better off if the wages of its workers are reduced. The Chamber’s report says
“Historically, there is some evidence that the short run effect of unionization is to raise
wages, perhaps 10 percent or more from what would otherwise exist. To the extent that
unionization increases labor costs, it makes a given location a less attractive place to
invest new capital resources” (Vedder, Denhart, and Robe, 2011, p.6).
3
The Chamber then links the existence of a RTW law with the possibility of
unionization. It considers a firm trying to decide whether to locate its business in
southern Indiana, which does not have a RTW law, or in nearby Tennessee, which does.
It says, “Suppose, however, the firm considers the possibility of unionization to be high
in Indiana, but low in Tennessee, and that unionization will add at least 10 percent to
labor costs . . . encouraging the firm to locate in Tennessee rather than Indiana” (Vedder,
Denhart, and Robe, 2011, p.6).
The idea that the residents of Indiana would be better off if workers in Indiana
received lower wages is seemingly so contradictory that it is surprising that it is even
taken seriously. Are not workers residents of Indiana? How are they better off if they are
receiving lower wages and benefits?
Of course the idea is rationalized by theories of economic development that say that
the lower wages will bring more jobs and economic growth, and that the benefits of that
growth will eventually trickle down to workers. We will examine these theories later in
this report.
Right now it is important to note two points. First, the Chamber thinks of a RTW law
as a direct attack on the very existence of unions. The most obvious direct result of a
RTW law is that unions have fewer financial resources with which to negotiate on behalf
of workers in the bargaining unit. This would be a reason for why workers’ wages would
decline. But the Chamber report ignores this point and makes its argument directly on
the very existence of unions: it says that the possibility of unionization is high in non-
RTW Indiana but low in RTW Tennessee. So perhaps it is not surprising that the
campaign for RTW laws we are currently seeing has been accompanied by a coordinated
and vigorous attack on collective bargaining and the ability of unions to even survive.
Second, it is correct that RTW laws have led to lower wages and benefits, for both
union workers and non-union workers. A thorough and extensive examination of this
question was recently released, on February 17, 2011: “The Compensation Penalty of
‘Right-to-Work’ Laws” (Gould and Shierholz, 2011). After controlling for a large
number of demographic and economic variables, the researchers concluded that workers
in RTW states receive wages that are 3.2% less than those in non-RTW states. This wage
penalty translates into $1,500 less on an annual basis. Furthermore, workers in RTW
states receive lower levels of health insurance and pension benefits than workers in non-
RTW states.
Would Businesses Locate in Indiana Because of Lower Wages?
The Chamber here takes sides in a long-ranging and contentious debate about
economic development. The argument in the Chamber’s report is that economic
development in a state is best promoted by attracting new businesses to the state, and that
the best way to attract new businesses is to give the businesses a bigger boost to
profitability than they could get in other states.
4
The Low-Road Approach to Attracting Business Investment
This means, then, keeping workers’ wages low and discouraging unions. It means
giving businesses tax subsidies for locating in the state. It means more lenient worker
safety and environmental laws and enforcement. And, of course, it means passing RTW
legislation. It means filling in the blank in the following sentence with any one – or all –
of the above policies: “Unless our state does [blank], site location consultants will cross
our state off their lists and businesses will not locate in our state.” This all adds up to
what many have termed the “low-road” approach to attracting business investment.
Ironically, the Chamber study justifies this approach by an appeal to “economic
theory.” The authors say that a step that Indiana could take to foster and sustain
economic growth would be to “adopt a right to work (RTW) law that protects workers
from compulsory union membership as a requirement of employment” because
“economic theory suggests that any restriction on individuals’ ability to engage in market
transactions will likely result in below optimal economic outcomes” (Vedder, Denhart
and Robe, 2011, p.1).
This is ironic in two respects. First, the very act of passing a RTW law is a restriction
on the market transactions that unions and employers arrive at as a result of collective
bargaining negotiations. Likewise, the tax subsidy deals and other inducements that a
state undertakes to lure businesses are interventions in the market process to tip the scales
in its direction. Indeed, they are interventions that change the relative bargaining power
between corporations and workers in the direction of the corporations.
Second, similar interventions in the market changed the rules for financial institutions
in the US in the 1990s and 2000s. Although justified by a “free-market” ideology, these
interventions, like RTW laws and tax subsidies, tilted the playing field in the market in
the direction of large banks and other financial institutions like hedge funds. The
interventions enabled the financial institutions to use predatory lending and complicated
financial products to take advantage of subprime and other borrowers. It led to a
fattening of the banks’ bottom line, but unfortunately also to a crash of the financial
system and a deep and painful recession. So it is certainly questionable to use the same
“economic theory” to justify RTW laws that led to such disastrous results in the financial
system.
Issues in the Location Decision of Business Firms
Clearly some businesses are attracted to low-wage areas. However, there are other
considerations that are important to businesses in the location decision. Summarizing the
results of “hundreds of studies that have examined why firms locate where they do,”
economics professor Robert G. Lynch listed a number of key issues that are central to the
business location decision:
· “the cost and quality of labor;
· proximity to markets for their products (particularly for service industries);
· access to the raw materials and supplies that firms need;
5
· access to quality transportation networks and infrastructure (specifically, good roads,
highways, airports, railroad system, and sewage systems);
· quality of life characteristics (e.g., good schools, health services, recreational
facilities, low crime rates, quality housing, and weather);
· the cost and reliability of utilities.”
(Statement by Robert G. Lynch, in Mishel, 2001, p. 6.)
Robert Ady was a longtime executive of Deloitte & Touche / Fantus Consulting, a
leading site location firm. He is said to have assisted more site locations than any living
person. He concludes that it is the quality of the work force, not low wages, that is
decisive in the site location decision: “The single most important factor in site selection
today is the quality of the available work force. Companies locate and expand in
communities that can demonstrate that the indigenous work force has the necessary skills
required by the company or that have the training facilities to develop those skills for
the company” (Ady, 1997, p. 81).
The High-Road Approach to Attracting Business Investment
An alternative approach, referred to as the “high-road” approach, builds upon the
observations of Lynch and Ady. This approach seeks to build up the workforce rather
than tearing it down. It recognizes that companies can compete on the basis of a quality
product and that productivity can increase based upon an experienced and knowledgeable
workforce. It recognizes that tax money given away to lure companies to a state is
money that isn’t used to expand worker training programs, libraries, and the quality of
life in a community. It recognizes that workers with reduced wages reduce their
spending in the local community and hurt the prospects of other businesses dependent on
that demand. It recognizes that it is better to treat workers as assets that can help the
company than as expenses whose wages need to be minimized.
Of course, there are companies that are attracted by the prospect of lower wages
(Cowie, 1999). Many of these companies may have been attracted by the lower wages of
RTW states. However, much migration from non-RTW to RTW states has already taken
place. To think that Indiana, by converting to a RTW state, would see an influx of
companies chasing after low-wage workers is probably illusory. Companies looking for
low-wage workers are much more likely to locate in China or other low-wage countries
than in Indiana. In fact, states that have attracted companies in the past on the basis of
low wages now find these same companies leaving their states for the prospects of even
lower wages abroad.
Can “Right-to-Work” Laws Increase Income in Indiana?
Much of the Chamber study is devoted to attempting to prove the proposition that
RTW states have seen stronger growth in income than have non-RTW states. However,
there are major problems in the way that the study goes about trying to prove this
proposition.
6
Problems of Data Analysis in the Chamber Study
The Chamber study’s central conclusion is that, comparing the years 1977 and 2008,
RTW states had stronger growth in real (inflation-adjusted) personal income (and real
personal income per capita) than did non-RTW states. A chart in the study asserts that
real personal income grew in RTW states by 164.4%, whereas it grew in non-RTW states
by only 92.8%.
There are a number of problems with this approach. First, the two dates, 1977 and
2008, are asked to shoulder the main results of the study. Why were these dates selected?
The authors do not say. Why was the data from all other years ignored? The authors do
not say.2
Using this approach groups Oklahoma with the current RTW states, even though
Oklahoma was not a RTW state before 2003. A more accurate approach would treat
Oklahoma’s results as a RTW state after 2003, but group Oklahoma with the non-RTW
states before 2003. Indeed, data before 1977 should be used and all states should be
treated this way.
We created our own data set, which calculated rates of change of real personal
income for every state for every year, going back to 1947, the date of the Taft-Hartley
Act, and continuing through the most recent data point, 2009.3 We attributed a state’s
performance to either the RTW states’ group or the non-RTW states’ group, depending
on whether or not the state was actually a RTW state in that year.4
Taking the average of yearly growth rates for RTW states and non-RTW states – and
separating the performance of RTW states for those years before and after they became
RTW states – provides a more accurate measure of the growth of real personal income
between the two groups. The results are shown in Chart 1.
2 The authors also do not say how they calculated the “growth” in real personal income. There are different
ways to calculate a growth rate. We assume that they used a simple rate of change, which takes the
difference between two numbers, divides by the first number, and expresses the result as a percentage.
Also, the authors do not give the source of their data, aside from the generic phrase, “Bureau of Economic
Analysis.”
3 The personal income data are from the Bureau of Economic Analysis Regional Economic Accounts,
Series SA1-3, State Annual Personal Income. The nominal data are deflated by the Personal Consumption
Expenditures deflator in Table 1.1.9, Implicit Price Deflators for Gross Domestic Product, National Income
and Product Accounts, Bureau of Economic Analysis. The rate of change is calculated as described in the
previous footnote.
4 After passage of the Taft-Hartley Act in 1947, ten states passed RTW laws in that year: Arizona,
Arkansas, Georgia, Iowa, Nebraska, North Carolina, North Dakota, Tennessee, Texas, and Virginia. Other
states that passed RTW laws (and dates of enactment) were Florida (1943), South Dakota (1945), Nevada
(1951), Alabama (1953), Mississippi (1954), South Carolina (1954), Louisiana (1954), Utah (1955),
Wyoming (1963), Kansas (1975), Idaho (1985), and Oklahoma (2003).
7
Chart 1: Growth of Real Personal Income
Non-Right-to-Work States and Right-to-Work States
Before and After RTW Status
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Non-RTW States RTW States Before Law RTW States After Law
With this more detailed analysis, it turns out that the RTW states did have a higher
average rate of growth of real personal income than did the non-RTW states. However,
the more accurate calibration of the performance of RTW states before and after they
became RTW provides an interesting conclusion: the growth rate for these states differed
only minutely between the years before they became RTW states and the years after they
became RTW states (3.9% before becoming a RTW state, 4.0% afterwards).
So, for a variety of reasons, the RTW states had higher rates of growth of real
personal income than did the non-RTW states. However, apparently status as a RTW
state had very little to do with these growth rates.
Growth rates can provide useful information, but by themselves they are an
incomplete measure of economic performance. The Chamber’s complete reliance on
growth rates is a second source of problems with its analysis.
As an example of the incomplete story that growth rates provide, consider growth
rates of per capita personal income in 2006, the last year of strong economic growth
before the beginning of the recent recession in 2007. The state of Louisiana, a RTW
state, had a growth rate of 12.3%. This was an impressive performance, which translated
into an increase in per capita personal income of $3,690. On the other hand, Connecticut,
a non-RTW state, had a growth rate of only 8.8%. But its increase in per capita personal
income was $4,266.
8
As illustrated by this example, states with higher incomes can add more to their
incomes than can states with lower incomes, even though the states with lower incomes
are growing more quickly. In the example, the absolute income advantage of non-RTW
state Connecticut over RTW state Louisiana continued to grow, even though Louisiana
had a higher growth rate.
Indeed, the advantage of the non-RTW states over the RTW states holds up across
states. Chart 2 shows average personal income per capita for 2009 (the most recent year
for which data are available), averaged for RTW states and non-RTW states. It is clear
that average per capita income in the non-RTW states is higher than that in the non-RTW
states.
Chart 2: Average Personal Income Per Capita, 2009
$34,000
$36,000
$38,000
$40,000
$42,000
RTW States United States Non-RTW States
Thus far we have been following the Chamber’s procedure of grouping RTW states
together and grouping non-RTW states together. The impression one gets is that the
performance of all states in these groups is the same: if RTW states have a higher growth
rate, then all RTW states must have a higher growth rate than all non-RTW states. But
this is not the case, as pointed out in a recent report by Gordon Lafer, who shows growth
in per capita personal income by state between the years 1977-2008 (those analyzed in
the Chamber study). As he notes, “Ten non-‘right-to-work’ jurisdictions (nine states plus
the District of Columbia) all enjoyed income growth over this period that was greater
than 17 of the 22 ‘right-to-work’ states” (Lafer, 2011, p. 3).
This obscuring of individual differences among RTW and non-RTW states is a third
problem with the Chamber’s data analysis. A fourth is its exclusive use of averages of
9
income data. Use of simple averages obscures issues in the distribution of income. For
example, suppose we had a group of seven people. Two people have an annual income
of $10,000, two have an income of $20,000, two have an income of $30,000, and the
seventh is a Wall Street hedge fund manager with an income of $5 billion. To arrive at
the average income of this group of seven people, we would add up their total incomes
and divide by seven. Thus the average would be $5,000,120,000 divided by 7, or
$714,302,857.
It seems like this group of people, with more than 700 million dollars in average
income, is doing quite well. However, in reality, only one person is doing well; all the
rest are struggling.
A better way to understand the fortunes of this group is to use the median instead of
the average (or mean). The median is the middle number. If we arranged the seven
people in order of income, the median would be the fourth person. In this case, the
median income for this group is $20,000. It seems that $20,000 is a more realistic
estimate of the fortunes of this group of people than is $714,302,857.
Table 1 shows real median income by states for 2009.5 It shows the diversity among
states. Interestingly, only 4 of the 22 RTW states are above the average median income
for the United States as a whole; 18 of the 22 RTW states are below average. Table 1
provides a much different understanding of the economic outcomes of RTW states than
do the average growth rates for RTW states as a group used in the Chamber study.
Trying to Prove a Link between Right to Work and Economic Outcomes
As Gordon Lafer points out, correlation is not causality. Even if there were an
association between RTW states and better economic outcomes – which the Chamber
study does not prove -- this would not demonstrate that the better economic outcomes
were due to the status of the states as RTW states. Lafer (2011, p. 4) provides the
following example: average job growth during 2000-2009 was nine times higher in states
whose names start with the letters N-Z than in states whose names start with the letters AM.
But changing Indiana’s name to Tindiana would not improve its job growth.
Only a detailed institutional and historical analysis, or a careful econometric study
that controlled for other possible causal variables, could suggest a causal relationship
between the right-to-work status of a state and its economic performance. The Chamber
study attempts an econometric analysis, but it is plagued by all the data problems
discussed above. It continues to use only two years of data (1977 and 2008), to use
averages instead of median values, and to rely exclusively on rates of growth.
5 The data are from table B19013, Median Household Income in the Past 12 Months (In 2009 Inflation-
Adjusted Dollars), from the 2009 American Community Survey 1-Year Estimates, U.S. Census Bureau.
10
Table 1: Real Median Household Income, 2009, by State
Right-to-Work States in Capital Letters
Rank State
Median
Household
Income
(Dollars)
Rank State
Median
Household
Income
(Dollars)
Above-Average States Below-Average States
1 Maryland 69,272 22 Wisconsin 49,993
2 New Jersey 68,342 23 Pennsylvania 49,520
3 Connecticut 67,034 24 ARIZONA 48,745
4 Alaska 66,953 25 Oregon 48,457
5 Hawaii 64,098 26 TEXAS 48,259
6 Massachusetts 64,081 27 IOWA 48,044
7 New Hampshire 60,567 28 NORTH DAKOTA 47,827
8 VIRGINIA 59,330 29 KANSAS 47,817
9 District of Columbia 59,290 30 GEORGIA 47,590
10 California 58,931 31 NEBRASKA 47,357
11 Delaware 56,860 32 Maine 45,734
12 Washington 56,548 33 Indiana 45,424
13 Minnesota 55,616 34 Ohio 45,395
14 Colorado 55,430 35 Michigan 45,255
15 UTAH 55,117 36 Missouri 45,229
16 New York 54,659 37 SOUTH DAKOTA 45,043
17 Rhode Island 54,119 38 IDAHO 44,926
18 Illinois 53,966 39 FLORIDA 44,736
19 NEVADA 53,341 40 NORTH CAROLINA 43,674
20 WYOMING 52,664 41 New Mexico 43,028
21 Vermont 51,618 42 LOUISIANA 42,492
United States 50,221 43 SOUTH CAROLINA 42,442
44 Montana 42,322
45 TENNESSEE 41,725
46 OKLAHOMA 41,664
47 ALABAMA 40,489
48 Kentucky 40,072
49 ARKANSAS 37,823
50 West Virginia 37,435
51 MISSISSIPPI 36,646
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Moreover, its five control variables – the ones that are designed to capture other
influences on the dependent variable (growth in real per capita income) so as to isolate
the effects of the RTW variable, are too few and too far afield to demonstrate a causal
connection. One of the control variables is “Age of State,” the date at which the state
joined the Union. Of course, the first states joined the Union in the 18th century. What is
the relationship of this variable to “right to work” and what is the reason it is included as
a control variable? The Chamber study does not say. A recent econometric investigation
(Stevans, 2009), which uses a broader set of control variables, concludes that there is no
significant difference in capital formation or employment rates between RTW and non-
RTW states, but that per capita personal income and wages are both lower in RTW states.
Can Lower Wages Lead to Higher Wages?
Perhaps the reason the Chamber study uses only average income rather than median
income, and growth rates of income rather than income levels, is to shift attention away
from the basic causal relationships in its analysis: “right-to-work” laws lead to lower
wages, and it is lower wages that are said to attract businesses to a state. The reliance on
per capita income growth rates obscures how the income pie is divided amongst a state’s
residents.
Trickle-Down Economics Once Again
Perhaps the authors of the Chamber study recognize that they have placed themselves
in an uncomfortable box: how can a policy that lowers wages be said to benefit the
economic fortunes of state residents? What good does it do to attract businesses to a state
if the businesses are not paying their workers enough to live on?
The authors try to escape from this uncomfortable situation by arguing that low
wages will, in the long run, lead to higher wages. Their theoretical argument is that
lower wages, by attracting businesses to a state, will increase the ratio of capital to labor
in RTW states. “Since labor productivity is closely tied to the capital resources
(machines and tools) that workers have available, labor productivity will tend to grow
more in the RTW states, stimulating economic growth, including growth in wages and
employment” (Vedder, Denhart, and Robe, 2011, p. 7).
This theoretical argument is questionable. First of all, as discussed above, it is not
necessarily true that low wages will lead to greater business investment in a state that
adopts a RTW law, especially in the global economy of 2011. Second, it is not
necessarily true that greater business investment will lead to an increase in the ratio of
capital to labor in a RTW state. A higher rate of investment by companies using large
numbers of low-wage, unskilled workers could actually lower the capital-labor ratio and
lower productivity in the state.
Finally, it is not necessarily true that higher productivity leads to higher wages. This
has not been the experience in the United States since the 1970s. Chart 3 plots average
hourly wages and average hourly compensation for production/non-supervisory workers
12
Chart 3: The Divergence of Wages from Productivity
Wages and compensation stagnating:
Hourly wage and compensation growth for
production/non-supervisory workers and productivity, 1947-2009
50
100
150
200
250
300
350
400
450
1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007
Index (1947 = 100)
Average hourly compensation
Average hourly wage
Source: EPI analysis of Bureau of Economic Analysis and Bureau of Labor Statistics
data.
Productivity
and productivity from 1947 to 2009 (Economic Policy Institute, 2011a). It shows that,
since about 1973, wages and compensation have not kept pace with productivity.
So none of the theoretical arguments holds up. Empirically, the argument that RTW
laws will, in the long run, lead to higher wages is not accurate either. Since the Taft-
Hartley Act was passed in 1947, and since 18 of the 22 RTW states had passed RTW
laws by 1955, the long run should have already arrived. But the evidence indicates, as
noted above (Gould and Shierholz, 2011), that wages and benefits today are lower for
union and non-union workers in RTW states than in non-RTW states.
If the Chamber’s argument seems familiar, it is because it is the same “trickle-down”
approach that has been used repeatedly in the past thirty years. We have been told that, if
we give large tax cuts to the wealthy, they will save and invest so that the non-wealthy
will eventually benefit. We have been told that, if we bail out large banks while asking
for little in return, the banks will eventually lead us to prosperity.
But it hasn’t worked. The wealthy and the banks have benefitted from the taxpayers’
largesse, but the benefits have not trickled down to the rest of society. Income and
wealth inequality have increased dramatically in the United States in the past thirty years.
The banks are still taking outsized risks, but now they are larger and more powerful.
13
The “Race to the Bottom”
As we have seen, the Chamber’s trickle-down agenda, to reduce wages so as to boost
corporate profitability and lure businesses to a state, does not work. In fact, all it leads to
is what many have called a “race to the bottom.” As states and localities find themselves
in competition with each other to attract business investment, corporations know that they
can play one locality off against another to get the best deal. Each locality is forced to
bid lower to get the business. What happens is that wages and living standards are
pushed down further and further; it is only the locality that can bid the lowest that will get
the business.
As wages fall, workers’ demand for other goods and services in the locality fall as
well. As tax revenues are depleted with corporate tax subsidies, the ability of the locality
to spend on worker training, education, infrastructure, etc. – all the things that can
improve a locality and provide a welcoming environment for business growth as well – is
reduced. The health and wealth of the locality become depleted.
And, finally, the whole exercise is self-defeating. Corporations that locate to one
locality to get a good deal will often have no hesitation about relocating to the next
locality that will give them a better deal. In the context of today’s global economy,
localities in the U.S. find that they can’t compete on the basis of low wages when a
corporation can relocate to a developing economy to pay a fraction of the wages it was
paying in the U.S.
The Meaning of Economic Development
We need to rethink this whole approach. The Chamber’s implicit assumption is that
economic development is simply the process of attracting businesses. If localities can use
low wages and tax subsidies to successfully attract business, then they have succeeded at
economic development.
But this is not economic development. A company building a new facility is an
example of business investment. Investment, in turn, is a component of economic
growth. But even economic growth is not economic development.
Economic growth is simply a measure of the growth of total income produced by a
locality or society. It says nothing about how that income is distributed. But economic
development is different: economic development is the process of increasing
opportunities and living standards for all residents of an area.
This means that successful economic development is not compatible with falling
wages and benefits for workers. It means that we need to put in place policies that
support workers’ wages and, yes, policies that support the organizations that workers
have formed – unions – to successfully bargain collectively for better wages and benefits.
14
The History of Declining Wage Standards and the Campaign Against Unions
Unfortunately, that is not what has happened in the United States in the past thirty
years. Corporations have increasingly adopted the “low-road” approach of competing on
the basis of low wages. Public policy has, for the most part, been supportive of this
approach.
This approach contrasts sharply with the dominant approach to labor relations and
public policy in the post-World War II period (mid-1940s through late-1970s). During
that time, the union-friendly states of the Northeast, the Midwest, and the West Coast led
the nation in the construction of a modern middle-class society, one marked by rising
standards of living, increasing home ownership and educational opportunities, and
generational upward mobility (although the RTW states of the South and the Plains
lagged behind in all these indicators (Zieger and Gall, 2002, 182-213; Dubofsky, 1994,
197-232)).6
In the late 1970s and early 1980s, though, corporations increasingly adopted the lowroad
approach in order to boost declining profitability (Gordon, 1995). They pushed for
an increasingly open, “free-market” global economy and for trade deals like NAFTA that
would give them access to low-cost labor in developing countries. They closed down
manufacturing facilities in the U.S. and moved them abroad. They asked for “givebacks”
from workers and took an increasingly hostile attitude towards unions and
collective bargaining. The attack on collective bargaining that we are experiencing today
has been building for more than thirty years.
The attacks by corporations and the increasingly globalized nature of the economy
have put serious pressure on the high-wage, union-built middle-class states facilitating
“fair share” collective bargaining agreements, especially because globalization has hit
hardest the manufacturing-centered economies of states like Pennsylvania, Ohio,
Wisconsin, and Indiana.
But while there is no doubt that corporate policies and global competition have
produced real challenges for American workers and their communities, just as important
has been the failure of US policymakers to protect and sustain those middle-class
communities. The decision by President Reagan to fire the striking members of the
Professional Air Traffic Controllers Organization (PATCO) and put in their place
permanent replacement workers undermined workers’ ability to strike and signaled to
corporations that the government supported an attack on unions.
Increasingly influenced by the rising political power of big business-dominated
advocacy groups pushing deregulation and regressive taxation as the solution to all policy
questions, the federal government since the 1980s has virtually abandoned its sponsorship
of a regulated capitalism that once promoted high wages, secure jobs, and widely shared
6 There is even evidence that unions increase the life satisfaction of citizens, including both union and nonunion
members (Flavin, Pacek, and Radcliff, 2010).
15
economic growth. Beginning in the late 1970s, we have seen a series of policy decisions
that have undercut the ability of workers to organize and demand better wages, working
conditions, and benefits: the deregulation of the trucking and airline industries with the
consequent lowering of wage and work standards, the dismantling of the social safety net,
and the evisceration of the National Labor Relations Board as a resource for workers
wanting to unionize, to name just a few (Lichtenstein, 2002, 212-45).
The changes in corporate and public policies over the post-World War II period have
taken their toll. As Chart 3 indicates, workers’ wages and compensation have stagnated
since the 1970s. And as Chart 4 shows, income inequality has worsened (Economic
Policy Institute, 2011b). In comparison to the 1947-1979 period, when income grew
strongly among all sectors of the population, since 1979 overall growth has slowed, and
most of the income gains have gone to those at the top of the income distribution.
Chart 4: Increasing Income Inequality
Family income growth in two eras
Real annual family income growth by quintile, 1947-79 and 1979-2009
2.5%
2.2%
2.4% 2.4%
2.2%
-0.3%
0.1%
0.4%
0.7%
1.3%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
Lowest fifth Second fifth Third fifth Fourth fifth Highest fifth
Annualized real family income growth
1947-1979 1979-2009
Source: EPI analysis of U.S. Census Bureau data.
A Vision of Labor Relations that Upholds Human Dignity
Does it have to be this way? Is it possible to re-create labor relations that uphold
human dignity? We at the Higgins Labor Studies Program believe that it is possible. In
16
this endeavor we take our lead from the man for whom the Higgins Program is named,
Monsignor George G. Higgins.
Monsignor Higgins (1916-2002) was the former director of the Social Action
Department of the National Catholic Welfare Conference and longtime advisor to the
U.S. Catholic Bishops on labor and civil rights, poverty, and religious tolerance. In 2001,
Monsignor Higgins was awarded the University of Notre Dame's prestigious Laetare
Medal for exemplary Catholic public service. In 2001, Monsignor Higgins pointed out
that the “pressure for [right-to-work] legislation does not arise from workers seeking their
‘rights.’ Proponents are uniformly employers’ organizations and related groups.” He
argued that right-to-work laws “do not provide jobs for workers; they merely prevent
workers from building strong, stable unions” (Higgins, 2001).
As Monsignor Higgins frequently noted, Catholic social teaching has consistently
affirmed the rights of workers to organize and bargain collectively. In one of the
Church’s most recent statements (February 16, 2011), Archbishop Jerome Listecki of
Milwaukee, speaking on behalf of the bishops of Wisconsin, called on state legislators to
act responsibly toward public employees and reminded them that “hard times do not
nullify the moral obligation each of us has to respect the legitimate rights of workers.”
The statement said that it was “a mistake to marginalize or dismiss unions as
impediments to economic growth” (Catholic News Service, 2011).
The Catholic Church’s support for labor unions is longstanding and unequivocal.
Indeed, Pope Leo XIII, in his 1891 encyclical Rerum Novarum, actively encouraged
workers to form unions (Pope Leo XIII. 1891), and papal support for labor unions has
been repeatedly affirmed through the twentieth and twenty-first centuries. In his
apostolic letter preparing for the Jubilee Year 2000, Pope John Paul II reminded
Catholics that the Church is committed to “the safeguarding of human dignity and rights
in the sphere of a just relationship between labour and capital” (Pope John Paul II, 1994).
In 2009, Pope Benedict’s encyclical Cartias in Veritate reminded employers and
legislators that unions must be “honored today even more than in the past” as an
important component of trade at both the local and international levels (Pope Benedict
XVI, 2009).
In their 1986 pastoral letter, Economic Justice for All, the United States Conference
of Catholic Bishops reminded Catholics that the Church “fully supports the right of
workers to form unions or other associations to secure their rights to fair wages and
working conditions.” Furthermore, the bishops argued that fair wages, rest, health care,
retirement benefits, and reasonable job security “are all essential if workers are to be
treated as persons rather than simply as ‘a factor of production’” (U.S. Catholic Bishops,
1986).
Catholic Scholars for Worker Justice, a national organization of academics, has
recently issued a statement in “strong opposition to the attacks that are being made on
labor unions and collective bargaining today.” The statement reminds Catholics of the
basic tenets of Catholic teaching on labor:
17
- Labor unions are “based on the inalienable right of free association” and “defend
the vital interests of workers and their families.”
- Workers have the right to bargain collectively for fair wages and benefits.
- Employers who refuse to pay a fair wage have committed a “grave injustice.”
- Governments must not “limit the negotiating capacity of unions” (Catholic
Scholars for Worker Justice, 2011).
So-called “right-to-work” laws are a clear attempt to limit the capacity of unions to
negotiate and even to survive, and are therefore in clear conflict with Catholic teaching
on the dignity of workers. As the U.S. Catholics bishops wrote in Economic Justice for
All, “No one may deny the right to organize without attacking human dignity itself” (U.S.
Catholic Bishops, 1986).
18
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