Frank Manzo IV is the Policy Director of the Illinois Economic Policy Institute (ILEPI). Visit ILEPI at www.illinoisepi.org or follow ILEPI on Twitter @illinoisEPI.
Right-to-work has not worked in Indiana.
Nationwide, the unemployment rate has steadily ticked down and is nearing 7 percent. Last year, over 40,000 more business establishments opened than closed across America. The total number of Americans with a job is up almost 2 percent since February 2012. Employers are starting to hire again and consumer demand is slowly rising.
And with the passage of a right-to-work law on February 1, 2012 (which proponents claimed would attract businesses and create jobs), the Indiana economy has been spearheading the economic recovery, right?
An October 16, 2013 study (LINK) by the Illinois Economic Policy Institute (ILEPI), a new research and policy nonprofit, assessed right-to-work’s economic track record in Indiana thus far. Since the law went into effect, 779 more businesses have closed than have opened in Indiana, the unemployment rate has not fallen, and the total number of Indiana residents with a job has declined by 0.4 percent.
The verdict? So far the promises made by right-to-work’s supporters in Indiana have nearly all been broken.
The problem: Right-to-work is a nonfactor as an economic development incentive.
Despite claims that right-to-work entices new businesses to open up in a particular state, survey after survey of corporate executives reports that the policy is not a prevailing factor in whether a firm will locate to a state. Additionally, by limiting collective bargaining units, right-to-work laws act to take away an effective front-end solution for small businesses to hire, train, drug-test, and provide health insurance to workers. Unions have long provided these services to businesses and absorbed the costs through dues and fees. Under right-to-work, these costs shift to small businesses. Finally, right-to-work has been found to lower worker wages by around 3 percent annually. With lower incomes, workers have less money to spend. Why would a private business want to relocate to a state where consumer demand for its product or service is diminished?
A drop in consumer demand is reflected in the data. Since Indiana adopted the law, average wage growth in the state has not statistically surpassed that of Illinois, Indiana’s non-right-to-work neighbor to the west. Additionally, employment in the construction industry has plummeted by 7.7 percent while total manufacturing labor-hours have declined by 2.3 percent.
These figures demonstrate that productive output has fallen in the industries that build homes, roads, new plants, new offices, materials, and products for both consumers and businesses – industries that should be thriving if right-to-work’s impact on demand was actually positive. So is it a surprise that Indiana actually lost 779 more businesses than it gained after right-to-work was passed?
It is important to note that all of this data is very short-term. Many collective bargaining agreements remain valid today, so the effect of right-to-work on Indiana may not yet be fully realized. Nevertheless, the data does not support the notion that right-to-work has had any positive effect on Indiana to this point.
Illinois would do well to learn from Indiana’s experience and avoid succumbing to the weak, unjustified claims made by proponents of right-to-work laws.
With an unemployment rate of 9.2 percent (and a 16.8 percent unemployment rate among construction workers), Illinois’ workers need sensible, “high-road” policy solutions that spur the state economy and stimulate demand. Clearly, right-to-work is not one of those policies – especially compared to policies which invest in infrastructure, education, and new technology. Instead, a right-to-work law is simply a recipe for continued underperformance.
While the legal and political battles continue over right-to-work in Indiana, it’s time that the policy’s proponents own up to its poor economic track record. And the discussion in Illinois, and in Indiana, needs to address all of right-to-work’s broken promises.
In the end, repealing right-to-work in Indiana and avoiding right-to-work in Illinois are the right things to do. These actions keep money in the pockets of workers who need it most. Under right-to-work, this money is removed from the economy, slowing business growth during this sluggish recovery.
I recommend that you contact your state representative, state senator, and governor’s office to notify your elected officials about the poor track record of right-to-work in Indiana. You elected them to help raise your purchasing power, to protect your rights, and to grow your state’s economy. You expect them to act in your interest. Now you should make sure that they are informed on this important issue.
Tell them: Right-to-work has not worked in Indiana.