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Right-To-Work and the Business Location Decision

Although wages tend to be lower in right-to-work states, it's not a magic bullet; these states still need to be competitive on all the other major site selection factors.

Steve Stackhouse-Kaelble (Summer 2012)
It was the topic of fierce debate this past winter in Indiana - so hot that even the NFL Players Association weighed in as the Super Bowl in Indianapolis approached. Protests, speeches, and letters to the editor all took up the topic of right-to-work. Are right-to-work laws fair or unfair to workers? Do they enhance business' profitability or do they make little difference? Do the laws encourage greater manufacturing growth? Do they have an impact on location considerations?

A short answer to that last question: yes and no. If a company is choosing between a site in a right-to-work state and another in a state without such laws, that factor may influence the decision or be deemed less important than other factors. On the other hand, some companies won't even consider a location unless it's in a right-to-work state.

Background
"Right-to-work" refers to a law that prohibits unions and companies from negotiating contracts requiring all workers to either join the union or pay a fee for union-provided services. These laws are so named because they establish a "right" for a worker to land or keep a job without regard to union status - even if the job is at a workplace covered by a union contract. There are now 23 states with right-to-work laws, including Indiana, which joined the club this year. Most of those states are in the South and the West.

Unions, of course, oppose such laws because they tend to weaken union membership. If a workplace is unionized, the contract applies to all workers and the union must provide representation and services to all workers. In a right-to-work state, any worker choosing not to join the union or pay for the services still gets the benefits. Unions often refer to those workers as "free riders," and because wages tend to be lower in right-to-work states, unions famously refer to the concept as "right-to-work for less."

The business community tends to support right-to-work because it makes unionization less likely. That, in turn, often means lower labor costs, both because of potentially lower wage rates and greater flexibility in terms of work rules, job descriptions, and the ability to move workers around in ways that unions might oppose. The benefits to business are most pronounced in the manufacturing sector.

Asking for Right-to-Work
"Almost all of our manufacturing clients have expressed an interest in operating in a nonunion manner, and more than a quarter have expressed an initial interest in limiting their search to only right-to-work states," says Mark M. Sweeney, senior principal at McCallum Sweeney Consulting in Greenville, S. C. For those whose job it is to promote sites in non-right-to-work states, "The challenge is that you don't even know how many projects didn't even contact you."

Setting such a limit - essentially crossing 27 states off the list right at the start of a site search - is not generally a good idea, Sweeney adds. Indeed, plenty of companies are able to avoid unionization in non-right-to-work states and operate quite profitably. He advises that companies avoid making right-to-work status a "pass-fail" measure, and instead put it on the list of weighted criteria to consider. "It becomes part of the decision," he says.

Still, not all companies follow that kind of advice. "There are a lot of companies that won't make an investment in a state that isn't right-to-work," says Barry Broome, president and CEO of the Greater Phoenix Economic Council. He should know - he works now in a right-to-work state, but has spent much of his economic development career in the non-right-to-work states of Ohio and Michigan.

Bill Cronin - who practiced economic development in right-to-work states such as South Carolina and Florida before recently moving to another state to become vice president for economic development at Invest Atlanta - has seen the same thing on many occasions. "Sometimes companies will come out and tell you that they're looking specifically for a right-to-work location," he says.

It's not just heavy industry and manufacturing that are smiling on right-to-work locations, Broome adds. There's a lot more interest among tech companies as well, he says, from computer manufacturers to software and Internet firms. His area was on a consideration list a while back when a computer company was considering an expansion. The company ended up deciding against pursuing the expansion, but while the potential deal was on the table, "they did an absolute deep dive into state labor laws," he recalls.

It's not always easy to find companies willing to state their preference publicly, as proponents of the Indiana law have found. Before the new law passed, they pointed to such examples as the closing of the Colgate-Palmolive plant in Clarksville, Ind., which pulled up stakes and moved to a right-to-work state. But soon after the bill passed, proponents claimed one recent economic development victory as a vote in favor of right-to-work, only to have the business owner in question publicly deny that right-to-work had anything to do with his decision.
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