On the Fallacious Argument of One Right-to-Work Advocate

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.

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.”

2 thoughts on “On the Fallacious Argument of One Right-to-Work Advocate

  1. FULL TEXT OF THE ARTICLE

    Big Labor ‘Think Tank’ Ignores Large Negative Correlation Between Forced Unionism and Construction Employee Compensation Growth
    On February 10, 2014, in News Clips, by Stan Greer
    In a 2010 article for the International Journal of Epidemiology, Donna Spiegelman of the Harvard School of Public Health observed:

    The adage ‘correlation is not causation’ has been repeated so often that another salient feature of the relationship of correlation to causation seems virtually to have been forgotten: that correlation is a necessary (but not sufficient) condition for causation.

    As Spiegelman went on to acknowledge, there are theoretical exceptions to the rule that a causal relationship between two phenomena cannot be established without first demonstrating they are correlated, but as a practical matter the rule is iron-clad. It applies, of course, not just to epidemiology but to all kinds of scientific research.

    In a recent paper touting the purported benefits of compulsory unionism to employees, Robert Bruno of the University of Illinois and Frank Manzo of the Illinois Economic Policy Institute ignore the rule cited by Spiegelman a few years ago. (See below for a link to a Big Labor commentary touting the Bruno-Manzo study.)

    Their paper purports to demonstrate a positive causal relationship between the federal labor policy authorizing the extraction of forced union dues and fees from private-sector employees and worker compensation. By definition, if the Bruno-Manzo claim were correct, then there would be some kind of positive correlation between the permissibility of compulsory unionism in a state and its relative rate of employee compensation growth.

    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.

    But the fact of the matter is, Bruno and Manzo did not even investigate relative growth rates in employee compensation in forced-unionism and states with Right to Work statutes protecting employees from the forced-dues provisions in federal law. Without conducting such an investigation, it is completely impossible to prove what they purport to prove.

    Why would Bruno and Manzo ignore actual compensation growth in a study effectively claiming Right to Work laws lead to lower compensation growth? A quick look at the actual data suggests that they may well have dodged them because they were not at all helpful to the point they were trying to make.

    U.S. Commerce Department data show that, in a wide range of sectors, forced unionism is actually associated with lower compensation growth. Since Bruno and Manzo focused primarily on the construction industry, I will cite construction industry data as an example here.

    Over the most recent 10-year period for which Commerce data are now available (2002-2012), construction industry output and employment have been shrinking nationwide. However, the declines have on average been far more severe in states that lack Right to Work laws.

    From 2002 to 2012, in the 27 states that lacked Right to Work laws for the whole time, construction employee compensation fell by an average of 15.8%, after adjusting for inflation using the CPI-U. Over the same period, real construction employee compensation in Right to Work states fell by just 5.6%, or barely more than a third as much. (Because Indiana switched from forced-unionism to Right to Work in 2012, it is excluded. Michigan, whose Right to Work law didn’t take effect until March 2013, is counted as compulsory unionism.)

    The strong positive correlation between Right to Work status and compensation growth in a wide range of sectors (not just construction) does not in itself prove that Right to Work laws cause wages, salaries and benefits to rise more rapidly, but it is evidence indicating that they may well do that. 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.

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