Cutting Wages and Benefits Only Harms the Economy

About Gordon Lafer:

Gordon Lafer is an associate professor at University of Oregon and served as senior labor policy adviser for the U.S. House of Representatives' Committee on Education and Labor in 2009-10.

In the last two years, national corporate lobbyists have urged state legislators across the country to adopt so-called "right to work" laws. Contrary to what one might assume, these laws do not guarantee anyone a job. Rather, it makes it illegal for unions to require that each employee who benefits from the terms of a contract pay his or her fair share of the costs of administering it.

The aim of right-to-work—according to its backers—is to cut wages and benefits on the gamble that this will bring more jobs into a state. As the Indiana Chamber of Commerce explained, "unionization increases labor costs," and therefore "makes a given location a less attractive place to invest new capital." By giving up unions and lowering wages, workers are supposed to increase their desirability in the eyes of manufacturers.

The research shows that right-to-work succeeds in cutting wages and benefits—but fails utterly in promoting job growth. According to multiple independent academic studies, the impact of these laws is to lower average incomes by about $1,500 a year and to decrease the odds of getting health insurance or a pension through your job—for both union and nonunion workers. But right-to-work has no impact whatsoever on boosting job growth.

[See a collection of political cartoons on the economy.]

Its failure is especially true in the globalized economy. Thirty years ago, companies might have moved from union to non-union states in search of lower wages. But today, companies looking for cheap labor are looking to China or Mexico, not South Carolina.

This was made clear in Oklahoma, the first state to pass a right-to-work law in the post-NAFTA era.

A series of corporate consultants announced that Oklahoma state was being "redlined" by companies that "won't even consider" locating in a non-right-to-work location. If Oklahoma adopted these rules, legislators were promised, the state would see "eight to 10 times as many prospects."

In fact, however, the number of new companies coming into the state has fallen by one-third in the 10 years since right-to-work was adopted. The state's manufacturing employment has also decreased by 30 percent. Every promise made by the law's boosters proved false.

The uselessness of right-to-work laws is confirmed by employers. Surveys of manufacturers confirm that they are not a significant draw; in 2010 manufacturers ranked it 16th among factors affecting location decisions. For higher-tech, higher-wage employers, 9 of the 10 most-favored states are non-right-to-work.

These laws have always been aimed at attracting manufacturers to a state. But manufacturing is only 15 percent of most state's jobs. The rest of the economy—healthcare, retail, construction, small business—depends on people having disposable income in their pockets. Cutting people's wages and benefits not only creates direct harm, it also undermines the biggest sectors of the economy, which depend on local consumer spending.

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Tags:

economy,

unions

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