Saturday, January 3, 2015

The Truth about Right-to-Work Laws

With Republicans in control of so many state governments and legislative chambers across the country one can expect that they will move their agenda.  Among items on their wish list will be right-to-work (RTW) legislation.  The argument will be that RTW laws will cut unemployment and grow the economy.  Ostensibly the argument conversely is that unions increase unemployment and hurt the  economy.
What do we really know about RTW laws?
 There are 24 RTW states and 26 plus the District of Columbia without such laws.  The Bureau of Labor Statistics (BLS) provides data on unionization rates, unemployment, and median family income.  Look at the October 2014 state unemployment rates as computed by the BLS.  Six of the states with the highest unemployment rates were RTW.  Among the ten with the lowest rates, five were RTW.  The average unemployment rate for RTW states was 5.5%, for non-RTW, it was 5.8%.  Since the 2008 recession, the difference in unemployment rates between RTW and non-RTW states has been minimal, revealing no clear pattern that the former has produced more jobs than the latter.
            Another way to examine the issue is by doing a statistical test called correlation analysis. Statistically, if being RTW decreases unemployment the correction is 1. If RTW increases unemployment the relationship is -1, and if the laws have no impact the relationship is 0. Is there any statistical correlation between a state being RTW and unemployment rates?  The correlation is 0.1 using 2014 data or 0.09 using 2012 data.  There is essentially no statistical relationship between states being right-to-work and unemployment rates. 
But now take a look at the differences from another angle.  There is a significant difference in median family incomes in states that are RTW versus those that are not.  Using a three year average of median family income from 2011 to 2013, RTW states have a median family income of $49,276, for non-RTW it is $55,725Ba difference of $6,449 or 13.1% per year.  Testing for the impact of RTW on median family incomes, the correlation relationship is -0.4. This means there is statistical evidence that RTW laws are associated with significantly lower incomes.  RTW appears to depress incomes.
           Now is there any statistical correlation between the percentage of the workforce in a state that is unionized and unemployment rates? Again using BLS data, one finds a correlation of 0.1  The connection is almost non-existent.  However, the percentage of the state’s workforce unionized demonstrates a positive 0.47 correlation with incomes.  Unions appear to increase family income while having no impact on unemployment rates.
Overall RTW laws have no real impact on unemployment and instead states with them have lower median incomes.  Similarly, unionization does not depress employment and instead increases wages.  Presumably more wages for workers means more consumption and a better economy in the state.  Thus, from an economic point of view, RTW laws do not appear to be a good economic deal for a state and in fact one might be able to argue that they bad policy that should be avoided.

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