As a RTW province, would Ontarians face higher unemployment and lower wages?

With rising inequality challenging economies in developed countries, it is hard to understand why Ontario’s Tories would pursue a labour agenda that would only serve to further widen levels of inequality.

PC leader Tim Hudak’s promise to scrap the Rand Formula and wage war on labour is based on the badly misnamed “right to work” (RTW) movement in the United States. Hudak ignores the fact that Scandinavian Countries, with much higher rates of unionization than Canada or the United States, have far surpassed North America in raising living standards for its citizens over the last 30 years. Yet even in today’s difficult economic environment Sweden is second only to Germany among European countries in attracting new business investment.

Yesterday we discussed the lack of evidence to suggest RTW States had any economic advantage over their free-bargaining counterparts. In the case of Oklahoma, it appears to have had the reverse effect.

When Michigan debated whether to adopt similar RTW laws, the State of Mississippi was offered up as a RTW model of economic growth. The U.S. Chamber of Commerce suggested that if Michigan were more like Mississippi, it would gain more jobs and experience lower unemployment.

The U.S. Economic Policy Institute points out that citizens of formerly free-bargaining Michigan were already far better off than their Mississippi counterparts despite the downturn in the auto industry. Mississippi’s constitution entrenched RTW and the State has among the lowest rates of unionization in the U.S. Mississippi is also dead last in median household income and is first in poverty – a rate that is a shocking 50 per cent higher than Michigan’s. It is also first in infant mortality and 48th out of 50 States in the number of doctors per capita.

If Michigan thought RTW would be some kind of panacea to retain and attract manufacturing jobs, they overlooked the fact that the RTW states of Carolina and Mississippi lost an even higher percentage of their manufacturing job base since the introduction of free trade in 1994.

Being a RTW State did not help Tennessee with the downturn in the auto industry either – it lost 8,000 auto industry jobs between 2003-2008.

The Economic Policy Institute notes that new advanced technology auto industry jobs are primarily locating in free-bargaining States. Of $2.5 billion in new investments, 85 per cent went to free bargaining States in the U.S.

RTW States appear to reduce incomes and access to benefits – an openly acknowledged goal by many of its proponents. Controlling for a vast number of factors – including age, race, ethnicity, gender, education, industry, occupation, urbanization, full-time status and cost of living – the Economic Policy Institute’s comparisons conclude that wages in RTW States are 3.2 per cent lower than those in free bargaining States – the average full-time worker earning about $1500 a year less. Further, the rate of employer-sponsored health insurance is 2.6 per cent lower and the rate of employer-sponsored pensions is 4.8 per cent lower in RTW States. If non-union workers thought they were exempt, they should think again. The wage penalty for non-union workers in RTW States is even worse  at 3 per cent. The penalty is a further 2.8 per cent and 5.8 per cent for health and pension benefits.

If we look at growth in per capita personal income from 1977-2008, four out of the five top performing States are free bargaining jurisdictions – District of Columbia, Massachusetts, Connecticut, and Vermont. North Dakota is the only RTW State in the top five. The presence of shale oil has had a big impact on North Dakota’s economy, not necessarily low wages.

If Michigan thought RTW laws would reduce its status as the State with the 6th highest rate of unemployment in the U.S., State legislators should have recognized that seven of the 10 highest unemployment States are RTW jurisdictions. RTW Nevada leads the pack with 12.4 per cent unemployment (as of June 2011).

It is always difficult to measure the impact of RTW laws between States given there are so many other economic factors involved, from access to education to transportation infrastructure and proximity to large markets. RTW States have been primarily located in the South, where they benefit from years of southern migration within the U.S., many retirees seeking to finish their years in sunshine and warm temperatures. Texas has also had a considerable advantage with its large energy reserves.

RTW Michigan and RTW Wisconsin will be interesting to watch and as they gamble on their futures. Will it help, hinder or make no difference at all? Or will it only contribute to a further widening gap between rich and poor, as the Economic Policy Institute data suggests?

For more on the impact of RTW on Wisconsin, click here.

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