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Critical Site Selection Factor #7: Right-To-Work State Often the First Factor in the Location Decision

Manufacturers often will not consider a state that’s non–right-to-work, but today that rules out about half the country.

Q4 2015
This series examines the top-10 location factors from Area Development’s Q1/2015 Corporate Survey that determine where our readers will locate and/or expand their facilities. Highway access is their primary concern, followed by occupancy and construction costs. Our readers are also looking for available land and available buildings. Find out what else companies like yours should consider when making your next location/expansion decision.

Half of U.S. states are now “right to work,” which means they have laws in place ensuring that workers are not required to join a union or pay dues or fees to a union, even if there’s a union operating at their workplace. It’s a hot-button issue in politics, and is also on the minds of executives making location decisions.

That comes as no surprise to Richard H. Thompson, who leads the Global Supply Chain & Logistics Solutions Team for JLL. “From a manufacturing perspective, that’s the first lens on the decision. They don’t want to be in a union environment, and that’s why most of the auto manufacturers have gone to the Southeast.”

Mark Sweeney, senior principal with McCallum Sweeney Consulting, sees the same sentiment among a variety of manufacturing clients. “Most prefer to [locate] in a right-to-work state, and some will make it a requirement.”

Indeed, there have always been some companies that flat-out refuse to consider locations that are not in right-to-work states. Location consultants often advise against drawing quite such a firm line in the sand. “We try to talk them out of it,” Sweeney says, for the simple reason that turning right-to-work into a make-or-break issue can instantly rule out half the country.

Indeed, there have always been some companies that flat-out refuse to consider locations that are not in right-to-work states. Location consultants often advise against drawing quite such a firm line in the sand. We try to talk them out of it, for the simple reason that turning right-to-work into a make-or-break issue can instantly rule out half the country. Mark Sweeney, senior principal with McCallum Sweeney Consulting “You can eliminate some good locations that have a low unionization risk,” he points out. Indeed, one of the more recently added right-to-work states was Indiana, but even before that law was passed in 2012, Indiana was not considered to be place where unionization was that big a risk.

Law Said to Increase Manufacturing Activity
Be that as it may, some believe the change has opened the door to increased location consideration, both in Indiana and its neighbor to the north, Michigan, which added its own right-to-work law in 2013. “The state of Indiana and the state of Michigan can already point to increased activity in the manufacturing sector,” Sweeney says. “If you’re a right-to-work state, you get more manufacturing opportunities than if you’re not.”

Wisconsin joined the list in early 2015, when Gov. Scott Walker signed legislation making it the 25th right-to-work state. The Governor then took his ideas on the road as a GOP presidential hopeful, proposing to enact federal right-to-work legislation that would force states to actively opt out of right-to-work status, rather than opt in.

Even in some places where right-to-work is not presently the law, there may be locations pleasing to companies eager for right-to-work status, observes Bob Hess, executive managing director and head of Global Consulting for Newmark Grubb Knight Frank. “Kentucky is creating right to work zones,” he points out. A number of Kentucky counties have decided not to wait for state action, and have passed local right-to-work laws of their own. Though some have questioned whether county-level right-to-work rules are permissible under federal labor laws, the idea has already been proposed in other states, including Illinois.

In the meantime, while right-to-work is a significant deal for manufacturing, it’s less so with other kinds of location decisions, Thompson points out. Distribution, for example, is driven so much by proximity to markets that companies simply can’t afford to cross half the country off the location list by insisting on right-to-work status.

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