This study was originally published on June 22, 2015. CHICAGO- Illinois can no longer afford to be a “donor state,” according to a study by the Illinois Economic Policy Institute (ILEPI). A “donor state” contributes significantly more money in federal … Continue reading Illinois Can No Longer Afford to Be a Donor State
Today, the Illinois Economic Policy Institute and the University of Illinois jointly released Free-Rider States: How Low-Wage Employment in “Right-to-Work” States is Subsidized by the Economic Benefits of Collective Bargaining [PDF]. The report has three main findings:
- Right-to-work laws have negative impacts on the public budget;
- Workers in collective-bargaining states are subsidizing the low-wage model used by employers in right-to-work states; and
- Illinois would have been worse off if it was a right-to-work state in 2013.
A “right-to-work” law reduces worker earnings by 3.2 percent, reduces union membership by 9.6 percentage points, reduces the share of workers covered by a health insurance plan (3.5 percentage points) and by a pension plan (3.0 percentage points), and increases the poverty rate among workers by 0.9 percentage points.
All of this has negative impacts on the public budget. Lower worker earnings decrease income tax contributions: a right-to-work law lowers the after-credit federal income tax liability of workers by 11.1 percent. Lower worker earnings also increase the chances of a worker needing to rely on government assistance programs: workers in collective-bargaining states receive 18.9 percent less in tax relief from the Earned Income Tax Credit and 14.1 percent less in food stamp value than their counterparts in right-to-work states.
Additionally, right-to-work laws have inconclusive impacts on employment. While the report finds that they are associated with a small increase in hours and weeks worked by employees, this is likely because they are forced to work more time to earn anything close to their annual income in a collective-bargaining state. Furthermore, two case-studies using data from the Bureau of Labor Statistics illustrate how right-to-work states have negligible impacts on total employment:
- In March 2012, Indiana enacted right-to-work. From March 2012 through July 2014, the Indiana unemployment rate fell from 8.0 percent to 5.9 percent– a 2.1 percentage point drop. At the same time, the unemployment rate of collective-bargaining Illinois fell by 2.0 percentage points. This difference is statistically insignificant.
- In January 2013, Michigan enacted right-to-work. From January 2013 through July 2014, the Michigan unemployment rate fell from 8.9 percent to 7.7 percent– a 1.2 percentage point drop. At the same time, the unemployment rate of collective-bargaining Illinois fell by 2.4 percentage points. This difference is significant, and shows how a right-to-work law does not lead to improved employment outcomes.