The Indiana Model

Posted by on January 27, 2012

Indiana is well on its way to becoming a ‘right-to-work’ state this week, with the state’s Republican-controlled House of Representatives approving new legislation and the Senate poised to follow suit. The legislation weakens union protections and enables individual workers to refuse to pay their share of union representation costs, even if a majority of their coworkers have voted for union representation and the union is legally obligated to pay to bargain for and protect their rights on the job. It is the first Midwestern manufacturing state to pass such a bill, though other Republican-dominated state legislatures are considering similar legislation.

One of the most interesting things about this move is just how unpopular it is. According to the AFL-CIO, only one-third of Indiana voters favor the legislation and more than 70 percent of them want the question submitted to a vote, via a state referendum. So why, in an election year, have Republican politicians decided to push forward?

The ostensible purpose is to attract new jobs to the state, by reassuring employers who might be put off by the prospect of union wages and decent working conditions. Research on business practices, however, has shown that the firm belief by many managers – and politicians – in the harmful economic effects of unions is not based on actual evidence. To the contrary, according to one seminal book on research-based human capital management, “absolutely no evidence exists that unions adversely affect productivity, the rate of technical innovation, the competiveness of companies or industries on a worldwide basis, or, except under conditions of high economic concentration, firm profitability.”

So it should come as no surprise, then, that, in a 2009 paper on the economic impact of state differences in labor standards, Michigan State University scholars found that “The effects of labor standards are far smaller than the generally positive effects of relatively high wage rates.” In fact, higher wages tend to increase consumption and demand, leading to increased economic activity. So right-to-work laws and taxes were found to be of no discernible effect on economic activity. Similarly, unionization was found to have little effect on economic activity, leading the MSU researchers to hypothesize that, “in the developed U.S economy, unionized firms are able to use productivity enhancements to offset any higher costs associated with collective bargaining.”

Or, I guess, for a less academic “proof,” one could simply note that seven of the ten poorest states in the nation have longstanding right-to-work laws, while eight of the top ten states with the highest per-capita GDP do not. You do the math.

- Randall Garton


2 Comments posted so far

  • Also, the state’s own economists and academics found that Right-to-Work legislation would have no impact on the economic activity in the state. This report was released last week, right before the vote.

    http://www.bsu.edu/news/article/0,1370,7273-850-65536,00.html

    Comment by DBlumen
    January 27, 2012 at 5:08 PM
  • Randall, here’s one view from Indiana: RTW has nothing to do with jobs and almost nothing to do with wages or labor conditions. It’s all about financially crippling unions, which are the main campaign supporters of Democratic political candidates. Republicans control the governor’s office, House and Senate: They saw an opportunity to tilt the political playing field, and they took it.

    Comment by Steve Hinnefeld
    February 2, 2012 at 10:22 PM

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