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Effects of Right to Work Laws onEmployees, Unions and Businessesby John W. Cooper
Available online at: http://www.johnwcooper.com © 2004 John W. Cooper Acknowledgements First
I would like to thank my parents for being there for me while I was writing
this paper. Father, your involvement with
the legal profession sparked my interest in the law. You are an inspiration to me and inspired me
to take on this legal topic. Mother,
thank you for supporting me while I wrote this paper. Without your support and guidance I would not
be where I am today. I would also like
to thank those who have contributed so much to the study of Right to Work laws,
including Baird, Dinlersoz, Ellwood, Fine, Greer,
Holmes, Mishel, Abstract Should a state adopt a Right to Work law? This question has been and continues to be hotly contested. In brief, Right to Work laws prohibit unions from including certain types of union security clauses in their contracts with companies that effectively force the company to make their employees either join the union or at least pay a proportion of their union dues as a condition of employment. Proponents of Right to Work laws point to research that says Right to Work laws have a positive effect on states that adopt them while opponents of Right to Work laws do just the opposite. The purpose of this paper is to sift through the great deal of research currently available to decide whether a state should adopt a Right to Work law. To make this decision, this paper primarily focuses on how Right to Work laws affect a state’s people: their wages, their employment levels, their morality, their unions, and their wealth. In examining the moral issues associated with Right to Work laws, this paper looks at both the “forced union dues” problem and the “free rider” problem. After weighing the pros and cons of Right to Work laws this paper finally concludes that Right to Work laws are a net benefit to a state and should be adopted because the benefits to a state’s people outweigh the costs: Right to Work laws create jobs and spur economic activity. CONTENTS Introduction Foreword 01 Introduction 02 Background 04 Employees and Right to Work Laws: Wages 09 Employment Levels 19 Union Dues 26 Unions and Right to Work Laws: Union Membership 33 Free Rider
Problem 36 Companies and Right to Work Laws:
Stockholder
Wealth 40
Conclusion 42 Works Cited 44 Figures and Case Examples Figures Figure 1: Right to Work Law Adoption Timeline 6 Figure 2: Right to
Figure 3: Full Text of Actual Right
to Case Examples Case
1: Case
2: Case
3:
Case
4: FOREWORD: Many brilliant studies have been done on the topic of Right to Work laws. This paper’s goal is not to provide new groundbreaking research, but to provide someone unfamiliar with the Right to Work issue with all of the most current information in an accessible and easy to read format. As
a resident of In
order to make it easier for the reader to understand the important concepts a
key points learning box found at the end of each section summarizes the main
points of that particular section.
Additionally, case examples of Right to Work law implementation are
included sporadically throughout to provide real world examples of Right to
Work laws in action. ·
Congressperson: This paper will provide
you with the background necessary to understand Right to Work legislation. It will objectively examine the mounds of
evidence provided by both proponents and opponents of Right to Work laws, and
will conclude with some recommendations and suggestions for your state’s
future. · Union
Member: This paper will inform you of the rights you have in both Right to Work
and non-Right to Work states. · Business Owner: This paper will provide you with all the information you need to better understand how your relationship with a union and the relationship of your employees with a union changes when your business is in a Right to Work state. INTRODUCTION: Right to Work
laws, sometimes referred to as Right to Work for less laws, are a hot topic (Clay and Larson).
Congress is even considering a national Right to Work bill. The bill, H.R. 391, has over a hundred co-sponsors as of
December 2003 (“The Welch”). Congress
considered another national Right to Work law in 1996, which was defeated by a
filibuster in the senate (Baird, Right to Work Before). The purpose of this
paper is to examine whether a state level Right to Work law, is right for your
state: “A Right to Work law guarantees that no person
can be compelled, as a condition of employment, to join or… to pay dues to a
labor union” (“The Right to Work Principle”). Proponents of Right to Work laws contend that these laws lead to higher wages, create jobs by attracting businesses, improve union accountability, and are morally right because they stop people from having to support a cause in which they do not believe. Opponents of Right to Work laws contend the laws lead to lower wages, hurt unions, lower people’s standards of living, and are morally wrong, because they allow people to receive union representation without paying for it. Proponents
of Right to Work laws quote Organization of Paper: · Background Section: To fully understand this issue one needs to understand the historical context in which Right to Work laws originated. This section also shows what they look like and how union’s power for exclusive bargaining relates to these laws. · Employee Section: This section focuses on how Right to Work laws affect workers. First this section examines the effect that Right to Work laws have on worker’s wages. Then it focuses on whether these laws attract businesses and create jobs. After that it will shift its attention to the issue of union dues being used for political purposes. · Union Section: Here we will look at how Right to Work laws affect unions. We will scrutinize the free rider problem for unions, and will consequently pay particular attention to any changes in union membership and union representation that these laws cause. We will also look at how these laws affect unions’ bargaining power with employers. ·
Stockholder Section: This part will
examine how Wall Street reacts to Right to Work legislation, which in turn
affects people’s net wealth. ·
Conclusion Section: In this section we draw upon the analysis
from the previous three sections to make a final recommendation about whether
or not a state should adopt a Right to Work law. BACKGROUND Most of the 22 states that have Right to Work laws adopted them in the 1940’s and 1950’s after the passage of the Taft-Hartley Act of 1947. The Taft-Hartley Act, which allows states to make Right to Work laws, was enacted in response to the belief that the pro-union Wagner Act of 1935 gave unions too much power (“Taft-Hartley Act”). The Wagner Act gave and still gives unions the power of exclusive representation, which allows them to act as the voice of all of a company’s employees if the union can get more than fifty percent of the employees to vote for a union: “Thus, if 100 employees are in the collective bargaining unit and only ten decide to vote, then the union only needs to get six votes in order to represent all 100 employees” (Court and Hunter). After a union gains the power of exclusive representation they will often persuade employers to include union security clauses in their collective bargaining agreements. Prior to the Taft-Hartley Act union security clauses could come in three different forms. Each form would make the employer one of the following types of shops (Court and Hunter): · Agency Shop: The union’s contract does not mandate that all employees join the union, but it does mandate that the employees pay union dues. · Union Shop: The union’s contract requires that all employees join the union within a specified amount of time of becoming employed. · Closed Shop: The union’s contract mandates that the employer only hire union members. The Taft-Hartley Act of 1947 outlawed the closed shop arrangement. Moreover, section 14(b) of this Act made Right to Work laws legal and gave states the power to pass laws to outlaw both agency and union shops: “Nothing in this Act shall be construed as authorizing the execution… of agreements requiring membership in a labor organization as a condition of employment in any State…in which such execution or application is prohibited by State or Territorial law” (Court and Hunter). If one lives in a state without Right to Work laws and one’s employer is unionized as an agency or union shop, one would be required to join the union or at least pay union dues. The employee would also be represented by the union, and bound by the union’s contract. On the other hand, if one lives in a Right to Work state, and one’s workplace is unionized, one would generally still be represented by the union and bound by the union contract, but would not be required to join the union or pay union dues. Key Points – Introduction
Figure 1: Right to Work Law Adoption
Timeline:
Note: Delaware
(1947), New Hampshire (1949), and Indiana (1965) all enacted Right to Work laws
in the years within the parentheses, but are not listed above, because they
have since repealed these laws. Figure 2: Right to
Source: http://www.nrtw.org/rtws.htm Figure 3
Employees and
Right to Work Laws: Wages
Theoretical
Effect on Wages: The effect of
Right to Work laws on wage levels is ambiguous from an economic point of view ( Unions have an effect on the wages paid to both the union employees and the non-union employees in an economy, but their net effect is unclear, because while they increase the wages of the union workers, they decrease the wages of the non-union workers, because it is not known which effect dominates: “In the usual equilibrium models of the supply and demand for union services, increases in the union wage reduce employment in the union sector causing spillover increases in employment and decreases in wages in the nonunion sector” (Moore). Nominal
Wages evidence: Opponents of Right to Work like to point out that the average wage in Right to Work states is lower than the average wage in non-RTW states. For example, on the issue section of AFL-CIO’s website, they cite the Bureau of Labor Statistics, 2001: “The average worker in a ‘right to work’ state earns about $5,333 less a year than workers in other states” (“RTW States Are”). Proponents of Right to Work do not dispute the above statistic, but suggest that the statistic is overly simplistic, manipulative and misleading. On a nominal basis, wages are lower in Right to Work states, but proponents argue, and this paper confirms, that once the above statistic is adjusted for cost of living, real spending power is at least the same and perhaps higher in Right to Work states. For example, when the National Institute for Labor Relations Research used The Economist Magazine’s data to adjust the poverty rate in 2001 for cost of living they found that this adjusted rate was 10.8% in states with Right to Work laws as compared to 12.9% for non-RTW states (“Independent Study”). Now we will turn out attention to other studies of the 1970’s, 1980’s and 1990’s which look at the wage issue and adjust for differences in cost of living. REVIEW
OF PAST STUDIES: Professor
Jefferson Moore, chaired economics professor from
He does critique the methodology of Carroll and Malhotra studies, which used simultaneous equation models, as being extremely complicated models which make it “impossible to compare their results with the other studies” and he particularly critiqued Wessel’s study as being very “sensitive to model specification” (Moore). After his
exhaustive review of Right to Work literature (his paper cites over 90 sources)
he concludes: “The empirical evidence accumulated in the 1970s and 1980s
indicates that Right to Work laws do not have strong lasting effects on wages.
Most researchers find that Right to Work laws have no impact on union wages,
nonunion wages, or average wages” ( Review
of Recent Studies: Most Recent Study Unfavorable to Right to Work Laws: Mishel 2001 Lawrence Mishel, president of the Economic Policy Institute, completed a study in 2001 which found that the mean nominal “effect of working in a right-to-work state results in a 6% to 8% reduction in wages” with the average reduction being 6.5%, and that even after controlling for cost of living differences, there is still a 3.8% wage penalty for living in a Right to Work state (Mishel). (Note: The Economic Policy Institute receives their funding from unions, mainly the AFL-CIO.) Mishel’s study was based on a sample of approximately 150,000 salaried workers between the ages of 18-64, with average hourly wages of $15.54 and median hourly wages of $12.25 (Mishel). What made this analysis unique is that it used a regression model to pair and then compare the wages earned by similarly situated workers in Right to Work and non-RTW states. The study used the workers’ industry, occupation, and demographic information to group workers into comparable groups. Problems with Mishel’s Study: Firstly, the author of the study conceded that his adjustments for cost of living were at best questionable: “Estimates from this… regression model [controlling for cost of living] are suspect given the lack of an established series for controlling for regional, interstate, or intra-state costs of living” (Mishel). If the adjustments for cost of living were biased one way or another, it could drastically skew the results of his study. Additionally,
trying to match workers based on their professions may inherently bias the
results of the study when trying to ascertain the effect that Right to Work laws
have on wages. Doing this ignores the fact that becoming a Right to Work state
may in and of itself have an effect on the composition of the jobs in a state (Greer, Senior Research). It is easier to understand this point if we imagine
two towns, Town Right to Work and Town Non-RTW.
We will assume for the sake of analysis that at Time 0 both towns have
only four residents, and that neither town has Right to Work laws. In each town one person is unemployed, two
people are machine workers (“machine worker new” has two years experience,
“machine worker experienced” has ten years experience), and one person is a
manager. The unemployed person makes no
money, machine worker new makes $3, machine worker experienced makes $6, and
the manager makes $8. The results at
time 0 are summarized below: Town Right to Work @ Time 0
Town Non-RTW @ Time 0
Now
at Time 1, Town Right to Work decides to pass a Right to Work law. Passing the Right to Work law affects the
composition of the job market in Town RTW. The Right to Work law convinces a
company to come into town RTW, and 1 new Machine Worker New job is created in Town
RTW. Everything else remains unchanged. Town Right to Work @ Time 1 (Passed Right to Work law)
Town Non-RTW @ Time 1
Note, at time 1, Town non-RTW did not decide to
implement a Right to Work law so their employment remains unchanged. Look at the table above. Town RTW’s law changed the composition of the
jobs in its economy, increased the total wages earned in its town, got one new
person a job, and did not decrease anyone’s wages. Town non-RTW has not increased the wages
earned by its town or created any new jobs.
However, if you compare the average wages earned by machine workers
between towns—as does Mishel’s study—it appears that town Non-RTW is doing
better than town RTW: Town RTW’s average machine wages are $4.0 whereas Town
non-RTW’s average machine wages are $4.5. This example is simplistic, but it reveals a
fundamental problem with trying to match workers based on their industry. In doing so, one misses the effects that
Right to Work laws can have on the composition of jobs within a particular
state. Next this paper will examine
recent studies which are favorable towards Right to Work laws. (Note: no other recent studies characterize
Right to Work laws effect on wages as negative.) Recent Study Favorable to Right to Work Laws:
Kendrick 2001 One recent 2001
study by David Kendrick
compared the after-tax wages people earn in Midwestern Right to Work states
(IA, KS, NE, ND) to the after-tax wages people earn in Midwestern non-RTW
states (IL, IN, MN, MO, WI), and found after-tax wages “to be $1,145 higher in
Right to Work states” (Wilson). There
are two problems, however, with this study.
Firstly, one could contend that the studies choice of non-RTW states
could be suspect. It is probably not
just a coincidence that the study does not include the state of Note that this
paper ignores the fact that Right to Work states have, on average, lower
personal state tax rates, and the fact that non-RTW states, on average, have
better government provided social services because these differences are a
result of tax rate differences and not Right to Work laws (Greer, Senior Research). Recent Study Favorable to Right to Work Laws:
Wilson 2001 William Wilson, PhD
from the Recent Study Favorable to Right to Work Laws:
Greer 2004 A recent study by Stan Greer, Senior Research Associate of the National Institute for Labor Relations Research, is of particular interest because of the credibility and apparently unbiased nature of the sources the study used. The study took the Bureau of National Affairs’ full-time wage employees earnings for all 50 states and adjusted this wage data for cost of living with Dr. Nelson’s Interstate 2001 Cost-of-Living Index. The study concluded that “when the 2001 mean weekly earnings for full-time wage and salary employees… are adjusted for differences in living costs… employees in Right to Work states earned a mean of $675 a week… compared to $660 in non-Right to Work states” (Greer, Real Earnings). What makes this study so interesting is that Dr. Nelson’s
Interstate 2001 Cost-of-Living Index is created by top researchers for the
American Federation of Teachers (AFT), allies of the AFL-CIO (Greer, Real
Earnings). The AFT would, if anything,
be biased towards unions and against Right to Work laws. Similarly, the Bureau
of National Affairs is an unbiased, objective government agency so its data
would also seem to be beyond reproach.
Nevertheless, this study finds only a relatively small, 2% advantage for
Right to Work states in terms of weekly-adjusted real earnings.
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