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Minnesota Households Could Have Been $6,000 Richer

Article by Matthew Denhart February 13, 2012 //   5 minute read

Minnesota households could have had an additional $6,000 in income if the state had adopted less restrictive labor legislation back in the late 1970s. At least that’s what I conclude in a study recently published by Minnesota’s Center of the American Experiment. In 28 states, workers for unionized employers can be forced to pay union dues even if they do not belong to the union. However, the other 22 states have passed laws forbidding this practice. The variation in state policies creates a natural experiment, allowing for interesting comparisons about how contrasting labor laws affect economic performance. Studies have found that these 22 so-called “right-to-work” states, on average, have experienced higher rates of economic growth. Between 1977 and 2008, Bureau of Economic Analysis (BEA) data show that inflation-adjusted per capita income grew 63.2 % in those states. The economies of the 28 non-right-to-work states grew only 54.2%, the equivalent of nine percentage points less. To be sure, other variables besides just right-to-work laws helped bring about these varying rates of economic growth. For starters, right-to-work states are largely centered in Southern states, which historically have lower tax rates and warm weather, both of which are good for the economy. Yet other data suggest right-to-work states have performed better on other economic indicators as well. For example, BEA data show that total employment grew 141% in right-to-work states between 1969 and 2010, compared to only 68% in the other states. Furthermore, the Census Bureau reports that from 2000-2009, 4.97 million more Americans migrated to right-to-work states than moved in the opposite direction. People often vote with their feet, and these data suggest Americans prefer states with freer labor laws. An interesting exercise is to analyze how much more the economies of the 28 states that allow compulsory union dues would have grown if they had passed right-to-work legislation in the past. Along with my co-authors Dr. Richard Vedder and Jonathan Robe, we took up this counterfactual for the state of Minnesota in our study for the Center of the American Experiment. Using regression analysis, we find that Minnesota’s economy would have grown nearly nine percentage points more (71.3% instead of 62.5%) from 1977-2008 if the state had passed a right-to-work law in 1977. Personal income would have been $2,360-$3,072 greater per Minnesotan in 2008 than was actually the case, meaning that income for the average-size Minnesota household would have been at least $6,000 greater. Last year we completed this same analysis for the state of Indiana, and had similar results. We estimate that if Indiana had adopted a right-to-work law in 1977, by 2008 real per capita income would have been $2,925 higher. Stated differently, Indiana’s personal income in 2008 would have been $241.9 billion, an amount 8.4% greater than the actual personal income of $223.2 billion. Nearly $19 billion in wealth was lost because of Indiana’s lack of a right-to-work law. In a third study, yet to be published, we examined the same questions for Ohio. We find that the effect of a right-to-work law would have been to increase economic growth by 11.5% between 1977 and 2008. This means the annual incomes of Ohioans would have been approximately $3,060 higher. From 1977 to 2008, per capita income in Ohio fell from slightly over 1% above the national average to around 11% below the average. Our research suggests that had Ohio adopted more worker-friendly legislation in the late 1970s, the state’s economy would not be languishing below the national average today. These hypothetical examples are worth looking at because many Americans, including leading economists, believe our country’s economy will not continue to grow at high rates, even at a rate of 4%, as it has in the past. The problem with this dim outlook is that alternative scenarios highlighting the positive effect of right-to-work laws give us many reasons to be optimistic. After all, many states continue to post impressive economic growth figures. We can learn from them, and as a country it’s worthwhile to raise our sights.