How to Raise All Worker Wages

With Labor Day approaching, it is a suitable time to examine which public policies promote economic growth that leads to job creation and wage increases.

Union bosses and their allies view increasing the minimum wage as necessary to grow the economy and ensure every worker is afforded a “living wage.”

One problem with their assertion is that most economists posit the opposite would occur with an increase to the minimum wage.

For example, a poll found that about 80 percent of economists surveyed recognize that a minimum wage increases unemployment of low-skilled and young workers. In addition, “economists from the Federal Reserve Board and the University of California-Irvine took the time to read all of the most credible research on the minimum wage from the past 20 years, and found an overwhelming 85 percent of it pointed to a decline in employment.”

Further, as I’ve brought up before, union support for minimum and living wage laws are based on self-interest.

Well, my organization, the Competitive Enterprise Institute, has released two new reports, in our High Cost of Big Labor series, that find the presence of right-to-work laws, which prohibit the coercive collection of union dues from workers that do not want to join a union, can go a long way in producing the results union activists claim they want to achieve by raising the minimum wage.

Ohio University economics professor Richard Vedder authored the report, “An Interstate Analysis of Right to Work Laws,” which presents the results of an economic analysis of the impact of right-to-work laws on “state economies, and ranks states’ per capita income loss from not having an RTW law,” while controlling for variables like population growth, manufacturing, and education level.

The study finds a statistically significant and positive relationship between economic growth in a state and the presence of a right-to-work law. Below, my colleague Aloysious Hogan summarizes some of the study’s major findings:

  1. Wages. The income loss per person from forced unionism is a median of $3,278, or over $13,100 for a family of four. Total annual estimated income loss nationally was $647.8 billion in 2012.
  2. Population. Forced unionism causes workers to migrate out of state. Over the last decade (2000-2009), 5 million people moved to right-to-work states from forced-unionism states.
  3. Jobs. Forced unionism contributes to a negative business climate which discourages investment in states without right-to-work laws. Over the study period, employment grew 71% nationwide, grew only 50% in non-RTW states, and grew fully 105% in RTW states.

The study also points out that real person income in right-to-work states grew by 165 percent from 1977 to 2012, and only by 99 percent in state with laws that allow compulsory union fee payments. Another indicator that right-to-work laws promote economic growth.

Overall, the study indicates that states without right-to-work laws suffer slower economic growth. As a result, states without right-to-work laws saw greater per capita income loss over the time period the study analyzed (1977-2012).

For instance, two non-right-to-work states over the time-period analyzed, Alaska and Connecticut, experienced the largest amount of per capita income loss with $5,238 and $3,752, respectively. See the per capita income loss from not having right-to-work in your state here (H/T Manhattan Institute).

The second study, “The Unintended Consequences of Collective Bargaining,” by Lowell Galloway, also determines that right-to-work laws, by mitigating the harmful effects of unionization, are good for the economy.

Specifically, the study finds that, for every additional percentage point in the average unionization variable from 1964-2011, real per capita income was reduced by 1.73 percent.

As my colleague Alex Bolt notes in his examination of the Galloway study, “The cost of heavy unionization is best seen when examining a 50-year period in which the average Michigan worker lost $11,000 real per capita income compared to a $1,239 loss for the average South Carolina worker.”

From the economic analysis presented in CEI’s High Cost of Big Labor series gives hard evidence that unionization hurts workers’ pocketbooks. And one clear way to lessen the harmful impact of unionization is to pass right-to-work laws.

Even better, right-to-work laws have never been more popular with the public. A new Gallup poll released yesterday finds that 71 percent of Americans say they would vote for a right-to-work law. So, if elected officials want to honor workers on Labor Day then they should consider enacting right-to-work in their state.