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Inward Investment Guides

Is "Right-to-Work" Relevant When Considering Relocation and Expansion Projects?

Declining levels of unionization may have been responsible for the right-to work factor receiving a middling ranking from the respondents to Area Development's 2007 Corporate Survey.

Dave Claborn , Director of Development and Community Relations, Ohio State University, Marion (Jun/Jul 08)
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RTW's Effect on Wages
There is disagreement over the effect on wages in RTW states versus non-RTW states. In an article for the labor-backed Economic Policy Institute, Lawrence Mishel argues that there is an average wage reduction of 6.5 percent for employees in RTW states versus those in non-RTW states. But others see both an increase in unionization in RTW states and a trend toward higher wages in those states as well. Why? As more advanced technology industries have moved to Southern right-to-work states in particular, more training and higher skill sets have been required. This has put pressure on the pool of qualified workers, which, in turn, puts pressure on wage scales in order to attract and keep those qualified employees.

Some non-RTW states (Ohio and Kentucky among them) have argued that RTW status may trigger the unintended consequence of more companies being organized. They reason that an employee may be more likely to vote for union representation, knowing that he or she won't be required to actually join the union or pay dues, but might still benefit from the union's bargaining on wages and other issues. Actual evidence for or against this hypothesis is scant.

Corporate Survey 2007
Combined Ratings* of 2007 F actors
Site Selection Factors                   2007
1. Highway accessibility 96.9
2. Labor costs 92.3
3. Energy availability and costs 89.0
4. Availability of skilled labor 88.7
5. Occupancy or construction costs 88.2
6. Available land 85.4
7. Corporate tax rate 83.8
8. State and local incentives 83.4
9. Environmental regulations 83.2
10. Tax Exemptions 82.8
10T. Proximity to major markets 82.8
11. Availability of advanced ICT services 82.2
12. Low union profile 80.6
13. Availability of buildings 79.3
14. Right-to-work state 72.1
15. Proximity to suppliers 71.8
16. Expedited or "fast-track" permitting 71.51
*All figures are percentages and are the total of "very important" and "important" ratings of the Area Development Corporate Survey and are rounded to the nearest tenth of a percent.
An examination of the State Union Density Database, compiled by Barry Hirsch of Georgia State University and David Macpherson of Florida State University from the U.S. Census Bureau's Current Population Survey, reveals that non-RTW states, on average, had about twice the level of union membership as RTW states in 2007 (16 percent vs. 8.1 percent). But there are some notable exceptions. For example, Nevada, a RTW state, has a 17.7 percent union density, which is higher than all but seven of the non-RTW states. Iowa at 13.2 percent and Alabama at 10.7 percent also have relatively high union densities among the RTW states.

Declining Unionization
Union density for all states has been declining steadily for at least the last three to four decades. In 1977, the average for all states was 26.9 percent union density. Last year (2007), it had been cut in half to 13.4 percent. Which begs the question, does right-to-work matter anymore? Glenn MacDonald, the John M. Olin Distinguished Professor of Economics and Strategy at Washington University in St. Louis, thinks RTW status is of diminishing importance. "It was more important when unions were more important. Now they're practically gone, so I think it's doesn't have nearly the influence it used to have."

A look at the map of RTW and non-RTW states finds non-RTW states clustered in the Northeast, Upper Midwest, and West Coast regions. RTW states are in the South and West. Professor MacDonald and the site consultants say that geographic arrangement is no accident. In the more heavily industrialized states of the Northeast and Midwest, says Professor MacDonald, unions have a longer history and have supported political candidates backing their agendas over the years. John Warden with The Walker Companies notes the South was slow to industrialize, and thus to unionize. It was the South's long rural tradition, he surmises, that produced an independent, self-sufficient work force "living by their own wits and just not interested in having a third party introduced" into the relationship between workers and employers, he explains.

Right-to-work efforts continue in a number of states that have not yet adopted the concept; among them are Michigan, Ohio, Kentucky, and Missouri. However, if the present trend of declining unionization continues, the debate over right-to-work will likely become less relevant to companies examining sites for relocation and expansion projects. More relevant, perhaps, will be whether workers are well-educated, trained, affordable, and available.

Dave Claborn was recently named vice president of marketing and communications for The Missouri Partnership, a new statewide-Missouri economic development organization based in St. Louis. Prior to that, he was president of Marion CAN DO, the economic development agency for the city and county of Marion, Ohio. He spent three years with the Ohio Department of Development following a 20-year career in radio news, primarily with WTVN Radio, Columbus, where he was news director. He can be reached at 314-954-0560.
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