For job seekers looking to relocate to a state with good employment prospects, New Hampshire would be a pretty good choice. The state’s 5.5% unemployment rate is one of the lowest in the United States, its per capita income is among the highest, and in recent years New Hampshire has enjoyed comparatively strong wage growth.
But you wouldn’t know that judging from much of the rhetoric surrounding “right to work” laws, which suggests that workers in states like New Hampshire that do not have such laws in place are suffering as a result.
A Wall Street Journal editorial recently described a major economic “fault line” in the United States that divided the 22 “right-to-work” states from the other 28. The editorial claimed that “right-to-work states outperform forced-union states in almost every measureable category of worker well-being.”
This is a popular argument in favor of this speciously-named law, which actually does not guarantee work for anyone. But a look at wage and employment data in the state of New Hampshire, where lawmakers are currently considering a right-to-work bill, shows that the argument does not hold up.
Right-to–work proponents often cite research by economist Richard Vedder, who studied trends in the 1977-to-2008 timeframe as a basis for concluding that states with right-to-work laws are better off economically. In fact, Vedder’s own research shows that this is not the case for New Hampshire. Vedder’s data show that per capita personal income in New Hampshire grew by 78.8% between 1977 to 2008. That was the fifth-fastest growth rate of all states, and faster than 21 of the 22 right-to-work states (only incomes in North Dakota grew faster).
In other words, if per capita personal income in New Hampshire were to increase at the pace Vedder has calculated for right-to-work states, its income growth would actually slow down by more than 20%.
The same is true for job growth. Data from the Bureau of Economic Analysis (BEA) show that the number of jobs in New Hampshire grew by 101.8% between 1977 and 2008, faster than 15 of the 22 right-to-work states, and slightly faster than the average growth rate for all 22 right-to-work states.
Just as states that have right-to-work laws do not guarantee work for anyone (Nevada, a so-called right-to-work state, has a 14.5% unemployment rate, the highest in the nation), the states the Wall Street Journal calls “forced-union” states do not force anyone to join a union. Rather, employers and unions in such states are allowed to agree to contracts that require everyone covered to pay a fair share of the cost of bargaining and enforcing the wages and other benefits they enjoy. No one, anywhere in the United States, can be forced to join a union. The misnamed “right-to-work” laws have one fundamental purpose – to weaken union bargaining power.
By weakening unions, right to work laws make it harder for unionized employers to compete for business since nonunion businesses can gain a competitive advantage by paying their workers lower wages and offering fewer benefits.
A new report, The Compensation Penalty of Right to Work laws, by EPI economists Elise Gould and Heidi Shierholz calculates the depressing effect of these laws on both union and nonunion workers and finds that they significantly reduce both wages and benefit coverage.
Right-to-work laws are often promoted as a means to attract employers looking for cheap wages, but when employers compete chiefly on the basis of low wages and benefits, this race to the bottom does a state’s workers no good. Consumer spending and tax revenues erode, and ultimately the employers seeking to reduce costs move jobs to even lower wage markets overseas.
Another forthcoming paper from EPI will go into even greater depth in an examination on the recent experience of Oklahoma, the last state to enact a right-to-work law. The author, University of Oregon Associate Professor Gordon Lafer, finds no job creation benefits, and he cites another recent study that finds no positive effect on per capita GDP, job creation, or manufacturing employment. For additional reading, see EPI’s 2001 report Right to Work Laws and Economic Development in Oklahoma, which quotes a number of economic development experts discussing the impact of right to work laws.