Michigan’s new right-to-work law has reignited several debates about whether or not such policies are beneficial to states that adopt them. Casual observers, journalists and policy pundits have tried to weigh in on the impact that right-to-work laws have on everything from the ability of unions to organize to state-to-state migration to changes in economic growth rates. Academic scholars, too, have examined such laws in great detail and from seemingly innumerable angles.
This study aims to measure the impact of right-to-work laws on states’ economic performance. It uses average annual growth rates in employment, real (inflation-adjusted) personal income and population to measure the economic well-being of right-to-work states. On the whole, the results of this analysis show that right-to-work laws have a statistically significant and economically meaningful positive impact, although the results vary.
There are research challenges to studying the impact of right-to-work laws. One such problem is timing. For instance, it may take a significant period of time, perhaps more than a decade, for the impact of certain policies like right-to-work laws to generate any demonstrable impact on a complex state economy. For these reasons, this study analyzes data from a 64-year period — from 1947, when federal law changed to allow for right-to-work laws, through 2011, the most recent year for which data are available.
Another challenge related to timing is that the effect of right-to-work laws may change as economies and government policies evolve over time. For instance, most would agree that the economy of the 1991-2011 era is different in many ways than that of the 1971-1990 era. For this reason, this study analyzes the effect of right-to-work laws over the entire aforementioned 64-year period, but also in three distinct periods: 1947-1970, 1971-1990 and 1991-2011.
Lastly, there is the research challenge of reverse causation, also known as “endogeneity” — an issue that makes it difficult to test the effects of right-to-work laws experimentally. There may be factors intrinsic to a state that influence the adoption of right-to-work laws and that may be correlated with economic growth. This study attempts to control for this issue and uses a methodology that tries to mimic a natural experiment.
The results of this study show that from 1947 through 2011, right-to-work laws increased average real personal income growth by 0.8 percentage points and average annual population growth by 0.5 percentage points in right-to-work states. From 1970 through 2011, these laws also boosted average annual employment growth by 0.8 percentage points. All of these findings are statistically significant.
The results vary by period. From 1947 through 1970, there was no measured statistically significant effect of right-to-work laws for states with such laws. From 1971 through 1990, however, right-to-work laws increased average annual employment and real personal income growth by about 0.9 percentage points and increased average annual population growth by 1.3 percentage points. Further, from 1991 through 2011, the effect in each category was slightly smaller than in the previous period, but each was still statistically significant.
These results suggest that right-to-work laws have a positive and sometimes very positive impact on the economic well-being of states and their residents. Indeed, the study’s findings show that right-to-work laws, on average, cause a one-time, permanent increase in the rate of economic growth in states. Since this study deploys a new econometric model to measure the impact of right-to-work laws, it should be an important contribution to the growing research on this issue. Policymakers interested in improving their state’s economic performance should take note of the study’s findings.
*Citations are provided in the main text.