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.

This post is a response to an article written by Stan Greer of the National Institute for Labor Relations Research on February 10, 2014. The article “reported” (for lack of a better term) on a recent study conducted jointly by ILEPI and the University of Illinois.  For reference, our study, Which Labor Market Institutions Reduce Income Inequality? Labor Unions, Prevailing Wage Laws, and Right-to-Work Laws in the Construction Industry can be found here [PDF] and an accompanying Illinois Insights Blog post can be found here.

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I first would like to note that the views which follow are solely those of the author, and do not represent Professor Robert Bruno or the University of Illinois at Urbana-Champaign.

Mr. Greer,

I find your review of our report quite troubling. Not only have you misrepresented our analysis, but you have completely misunderstood our methodological approach. You first write the following:

“The correlation wouldn’t necessarily be on the surface. It could be that another variable (or variables) caused the measured level of compensation growth to be lower in forced-unionism states, but once this variable (variables) was/were factored out, the positive correlation between forced unionism and compensation growth would be revealed.”

In fact, our report controls for a multitude of other variables which may raise or lower the total incomes of those employed in the construction industry. We “factored out” 30 variables, including presence of a prevailing wage law (a “wage floor”), union membership, demographic factors such as age and race/ethnicity, educational attainment, public or private sector status, hours worked, and annual effects. Additionally, in our complete model, we controlled for the 24 unique occupations (as defined by the American Community Survey) in the construction industry. Your claim above is false. I do, however, apologize if our controls were unclear. Full regression analyses can be found in our Appendix.

I would concede your point that we did not address compensation growth in right-to-work (RTW) vs. collective bargaining (CB) states. We simply wanted to provide a snapshot in time of the construction industry from 2009 to 2011, from a dataset with 247,469 observations of employed construction workers.

However, since you’ve brought it up, I’ve gone back and re-run the models to include rtw*year and rtw*year_squared interaction terms. Here are the findings:

• In the full model, RTW is found to lower the total incomes of a construction worker by 12.89 percent on average, a finding which is statistically significant. RTW*year (the growth rate due to RTW) is actually found to have lowered the construction employee’s total income by 2.29 percent on average in 2010 and 2011, a finding that is statistically significant. The rtw*year_squared term, which would indicate whether the negative earnings growth effect diminishes over time, is not statistically different from 0. Together, these findings mean that RTW lowers worker earnings, reduces income growth compared to CB states, and continues to hamper growth over time.
• If we do not include occupations, there is no statistically significant evidence that a RTW law impacts income growth. That said, there is suggestive evidence that the policy reduces income growth by 2.04 percent per year. In either case, the effect is not positive.

I would be more than happy to email you or your readers a .txt file of these regression outputs. Please contact me at fmanzo@illinoisepi.org for the findings.

Additionally, previous studies on wage growth in RTW states are quite mixed. I’d urge your readers to consider studies by Moore (1980), Stevans (2009), Eren and Ozbeklik (2011), Gould and Shierholz (2011), and Hogler (2011). Below, I’ve cited the full information on these studies. I would also point out that any compensation growth attributable to RTW is very likely to be biased by conflating the impact with growth that would have existed in the absence of the law. Under the Solow growth model first established in 1957, economics predicts that incomes in poorer states would grow faster over time and eventually converge with richer states, especially if they operate within an integrated economy and share relatively similar characteristics. This is because the lower-earnings starting point provides an inherently higher marginal rate of return to investors. One should thus be careful to attribute growth in RTW states solely to the presence of the law.

Finally, regarding this final statement: “This is evidence that Bruno and Manzo should have carefully considered before making unsubstantiated and highly implausible statements about the economic impact of Right to Work laws.”

Mr. Greer, the evidence you cite is precisely the type of analytics that you purport to oppose in your opening paragraphs.

Your claim that construction compensation fell by 5.6% in RTW states and further (by 15.8%) in CB states may well be true, but the simple averages tell you absolutely nothing about the impact of RTW. You’ve suggested that they do, but you even noted yourself that other factors could be influencing the incomes of workers in the construction industry. Your simple research has not controlled for anything at all. I’d be curious what the results are once you account for race, gender, age, education, union membership or coverage, hours worked, veteran status, public and private sector, and occupation.

Indeed, I too urge all researchers to consider that correlation is not equivalent to causation. But I similarly urge everyone to consider that preaching is not equivalent to practicing.

-Frank Manzo IV
Illinois Economic Policy Institute
fmanzo@illinoisepi.org

References for your audience:

• Eren, Ozkan and Serkan Ozbeklik. (2011). “Right-to-Work Laws and State-Level Economic Outcomes: Evidence from the Case Studies of Idaho and Oklahoma Using Synthetic Control Method,” Department of Economics, College of Business, University of Nevada, Las Vegas.
• Gould, Elise and Heidi Shierholz. (2011). “The Compensation Penalty of ‘Right-to-Work’ Laws,” Economic Policy Institute, Briefing Paper 299.
• Hogler, Raymond. (2011). “How Right to Work Is Destroying the American Labor Movement,” Employee Responsibilities and Rights Journal 23, 295-304.
• Moore, William (1980). “Membership and Wage Impact of Right-to-Work Laws,” Journal of Labor Research 1:2, 349-368.
• Solow, Robert. (1957). “Technical Change and the Aggregate Production Function.” Review of Economics and Statistics 39:3, 312-320.
• Stevans, Lonnie. (2009). “The Effect of Endogenous Right-to Work Laws on Business and Economic Conditions in the United States: A Multivariate Approach,” Review of Law and Economics 5:1, 595-614.”