• Free for qualified executives and consultants to industry

  • Receive quarterly issues of Area Development Magazine and special market report and directory issues


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.

Summer 2012
(page 2 of 2)
Business-Friendly Environments
Right-to-work typically plays out as a business vs. union story, but Broome says that's missing the bigger picture. "People automatically see it as an anti-union stance. It's really just a pro-entrepreneur stance - you're a state where entrepreneurs are prized and management rights are parallel to other rights," he says.

"It's not that anyone is anti-union," agrees Cronin. "They're just anti-cost. Where can a company generate the most profits?"

"It's more of an affirming statement," Broome continues. "It signals an attitude toward regulation of business. If you're right-to-work, you tend to also have an anti-regulatory attitude in general. It's a symbol of how a company is going to be treated."

Broome cites his own state, Arizona, as an example. "We're a right-to-work state, and in the last two years the Arizona legislature has also cut corporate income taxes, cut property taxes, and has moved the elective sales factor to 100 percent. You can see the pattern."

Researcher Thomas J. Holmes has documented growing manufacturing employment in right-to-work areas compared with neighboring jurisdictions that are not. But in a journal article back in 2000, he also cited the pattern Broome describes. "Right-to-work states historically have pursued a number of other smokestack-chasing policies, such as low taxes, aggressive subsidies, and even, in some cases, lax environmental regulations. Thus, my results do not say that it is right-to-work laws that matter, but rather that the `pro-business package' offered by right-to-work states seems to matter."

"It is notoriously difficult to separate the impact of a single government policy from myriad competing economic factors, statutes, and regulations that help shape a state's economy," agree researchers Gordon Lafer and Sylvia Allegretto, writing in a 2011 briefing paper from the Economic Policy Institute.

Lafer and Allegretto take issue with the conclusion that right-to-work laws clearly lead to an increase in manufacturing employment. "The fact that states that share a common attribute have stronger average growth rates cannot be taken as evidence that the attribute in question is the cause of that growth," they write. In fact, they determined that the statistics showing overall growth in right-to-work states are skewed by particularly high growth in just a handful of those states, and that many right-to-work states actually have growth rates lagging their non-right-to-work neighbors.

On the other hand, it's hard to argue with the cost differences. According to U.S. Department of Labor statistics from 2010, the average wage for all occupations in right-to-work states was nearly $4 an hour lower than in the remaining states. Though many factors might play into those regional cost variations, there's little debate that operating in nonunion states tends to translate into lower costs, Sweeney observes. Not only are wages often lower, but also companies may be able to get by with fewer workers if they're not restricted by union rules. In auto manufacturing, for example, operating nonunion reduces the labor cost per car, often substantially. "All of that adds to a company's competitiveness," Sweeney points out.

Even so, it's quite possible to achieve such benefits and thrive in a non-right-to-work state, Sweeney adds. "One of those places that we used to use as an example was Indiana," he points out. For example, long before the state joined the right-to-work roster, it competed for and landed huge auto assembly plants that today make Toyotas, Hondas, and Subarus. In fact, even as a non-right-to-work state, Indiana boasted one of the nation's most manufacturing-intensive economies.

Conversely, a location in a right-to-work state is not a guarantee against unionization. It makes it less likely, Sweeney says, and reduces the avoidance cost, but "the number one thing is how you manage your work force. You still have to manage your people well."

The bottom line is that right-to-work isn't a magic bullet, and right-to-work states still need to be competitive on all of the other factors that go into a site location decision. But, says Sweeney, the fact remains that right-to-work states still tend to get more lookers.
Article Discussion

Follow Area Development