Right-to-Work and pandemic jobs recovery

Summary:  The Allegheny Institute has been a long- time advocate for the adoption of Right-to-Work in Pennsylvania. Our research has demonstrated that the presence of Right-to-Work is associated with stronger economic growth in those states compared to the commonwealth. And while the pandemic has wreaked havoc on state economies across the nation, Right-to-Work states have fared better during the pandemic and are recovering faster than states without Right-to-Work. 

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Background

For two decades the Allegheny Institute has reported on the employment growth differences between Right-to-Work (RTW) states and non-Right-to-Work (NRTW) states. Indeed, the presence of RTW has long been a generally strong proxy for the degree to which free market economic policies are in place.

Several states that had for decades resisted RTW provisions as provided in the Taft Hartley Act have in recent years adopted RTW. The impact in those states has not yet had time to be felt fully as many other changes in the regulatory environment must be enacted to complement the RTW. And, predictably, much resistance to RTW still exists in the states that recently adopted it.

Unfortunately, there is a move in Congress sponsored by the Office of the President to remove the Right-to-Work provision completely. That would be a disaster for the nation’s economic future. 

States with RTW typically have a friendlier business climate overall, with far less unionization of their public-sector employees and they generally have faster growth.  Of course, there are exceptions for both RTW and NRTW states as special growth-enhancing or-constraining factors can, to some degree, offset the RTW effect.  For example, the high-tech sector in Silicon Valley and around Seattle. But the engineering and research jobs typically are not unionized and the manufacturing of many of the final products (Apple for example) are frequently offshored.

In recent years, many firms have begun relocating facilities and operations to Texas and other RTW states because of taxes and regulatory impediments.

Data sets

This Policy Brief looks at the jobs lost and then regained in 10 states during the worst of the COVID pandemic and the opening up that has been underway since the second half of 2020, to varying degrees across the country.  Five of the states are RTW with conservative-leaning governors and five are NRTW with more liberal governors. The states selected, both the RTW and NRTW, include a variety of sizes and are from very small to very large states spread geographically across the country.

The RTW states are South Carolina, Florida, Tennessee, Utah and Idaho. The NRTW states include Connecticut, New York, Pennsylvania, Illinois and New Mexico. Obviously, there is a great variety in each sample in terms of makeup of state economies and population size. Recent RTW-adopting states such as Michigan and Wisconsin were not selected. All employment data are taken from the U.S. Bureau of Labor Statistics.

Analysis

The analysis looks at: (1) the jobs lost from 2019 to 2020, (2) jobs lost for the worst month comparing April 2019 to April 2020 and (3) the job change from April 2019 to April 2021 as a more accurate measure of the degree of recovery from the worst of the pandemic. Employment growth from to 2011 to 2019 is included as an indication of the robustness of the states’ economies over a longer period following the severe 2008-2010 downturn. Jobs used for the comparisons are total private jobs since public jobs were much less affected by the pandemic closures. All comparative gauges are the unweighted percentage changes for the five states in each group.  

First, it is important to note the very large difference in the eight-year employment growth (2011 to 2019) for the RTW and NRTW states.  The RTW states averaged 26 percent growth for the period. NRTW employment climbed 9.8 percent. Thus, the RTW states grew jobs 2.65 times faster than the NRTW pace.

Over the eight years Pennsylvania’s private employment level rose just 8.6 percent, slower than the average of the NRTW states and only a third as fast as the average of the five RTW states.  And this period included the tremendous surge in shale gas drilling and production.  Connecticut was the weakest of the group with only a meager 5.3 percent gain over the eight-year period.  

Second, how did the states fare for the worst COVID impact year, 2020, compared to the 2019 level?  Here again there is a large difference in jobs performance.  RTW states in 2020 for the year as a whole averaged a loss of 3.5 percent of employment from the 2019 12-month average.  On the other hand, the NRTW states suffered an average 8.6 percent drop in employment in 2020 as a whole compared to 2019, or a 2.5 times bigger loss than the RTW states.

Pennsylvania had a loss of 8.2 percent for 2020, about the average for the five NRTW states. New York was hardest hit with a drop of 11.6 percent.  Owing to a very sharp bounce back after April and May, Idaho saw a loss of only 0.4 percent for the year compared to 2019.

Third, how did the two groups compare for job declines from April 2019 to April 2020, the hardest hit month for most states? Here the difference in losses is not as stark as the first two comparisons.  But it remains substantial.  For the NRTW group of states, the April-to-April drop average was 18 percent and for the RTW group 11.8 percent. Both groups were heavily impacted by federal guidelines and the initial frightening nature of the potential health problems posed by the virus.

Pennsylvania suffered a very large 20 percent decline in private jobs from April 2019 to April 2020, the first lockdown month. Of the 10 states reviewed in this analysis, only New York posted a worse figure, with a drop of 22.6 percent.

Fourth, a comparison is made of how well the groups have moved toward recovering job losses incurred during the pandemic. This is done by looking at the April 2019 data and the April 2021 numbers, the most recent currently available.  Here the comparative performance is truly startling:  The five RTW states’ average employment change is a very small loss of 0.3 percent. Granted, some states were better than others but all were significantly better than any state in the NRTW group where the average loss in April 2021 compared to April 2019 was 7.6 percent.

Pennsylvania’s private jobs had recovered in April 2021 to a loss of 6.9 percent from April 2019. This is slightly better than the NRTW group as a whole and significantly better than New York where jobs were 10.3 percent below April 2019.

Conclusion

What are the reasons for the group average performances being so different?  For one, gubernatorial actions and restrictions were far less draconian in the RTW states. This reflects the fundamental mind set differences between RTW red states and NRTW blue states.

For one thing, NRTW blue states are far more likely to have very large and powerful public sector unions whose jobs were largely protected so closing down the private economy would not have much effect on public sector employees continuing to collect paychecks and benefits. Second, governors in the red RTW states eased restrictions much sooner and allowed business activity to resume more quickly.

This all reflects the importance of the differences in the fundamentals of attitudes toward business and personal freedom and responsibility and setting limits to government power. There can be little doubt that RTW is a key component of the success in those states in bouncing back from the COVID pandemic.

Right to Work and the Recent Election

At the time of the presidential election in November there were 26 states with a right to work (RTW) law in place.  Three states had recently joined the RTW ranks in the years since the 2012 presidential election: Michigan in 2013, Wisconsin in 2015 and West Virginia in February of 2016. Prior to Michigan’s entry into the list of RTW states, the most recent to join was Indiana in February 2012.  When Oklahoma signed on back in 2001, 16 years had passed since Idaho voted to become RTW in 1985. Amazingly, over the last four years since 2012 more states enacted RTW than in the previous 49 years dating back to 1963.

How is this related to the election?  Twenty four of the twenty six RTW states voted for Trump.  Only two RTW states, Nevada and Virginia, voted for Clinton.  Trump carried 30 states by picking up six non RTW states, Pennsylvania, Ohio, Kentucky, Missouri, Alaska and Montana.

Now there are news reports that Kentucky and Missouri, having voted for Republican majorities in both legislative chambers as well as the governorship, will be moving quickly to pass RTW in those states and bring the total RTW states to 28.

Something is definitely happening across the middle of the country.  Ohio, Illinois and Minnesota will be the only three Midwestern states that do not have RTW protection for employees. All states having a Pacific shore line are non RTW along with all Northeastern states including Maryland, Delaware and Pennsylvania.

One wonders if Ohio with its Republican legislature and Governor will follow its neighbors to the South and West and enact RTW bringing the total to 29.  Then too, New Hampshire’s government is now under Republican control. Local news accounts suggest Republican legislators in New Hampshire will push again in 2017 to enact RTW. Several attempts have failed in the past because of vetoes or lack of adequate legislative support. Thirty RTW states would be a nice number.

After the 2016 elections Republicans will take control of both governorships and legislatures in 25 states in January.  This count is up from only ten states under Republican control prior to the 2010 elections. Five states that are RTW have mixed party control, 21 are Republican controlled.  Only six states now have Democrat control of the legislature and the governorship, down from 17 in the period before the 2010 elections. This is a massive shift in the political divide that has been accompanied by more conservative approaches to governance in a large number of states.

The recent additions and prospective pickup of two more RTW states suggest significant change in attitudes toward free market operations in the interior of the country.  The ramifications for a stronger pace of investment and startups in areas of the nation long beset by downsizing and factory closings are quite dramatic.

The fact that 24 of 26 RTW states voted for Trump is important. After all with the help of Missouri, Kentucky, Pennsylvania, and Ohio, the Electoral College vote count was well over the 270 needed. The RTW bloc, if you will, was definitely looking for some policy approaches far different from the last eight years.  RTW and conservative economic prescriptions would seem to go hand in hand.

The recent wave of new RTW laws is a very positive sign that voters have become weary of public sector unions driving government costs and taxes higher than they need to be and usurping management prerogatives.  RTW will also act as a check on private union boss greed if Trump’s plan to bring back jobs from other countries begins to take hold.  There are now so many states all over the country with RTW that geographic opportunities for investors will be greatly enhanced.

We have argued for years that Pennsylvania should enact RTW legislation.  As the number of states with RTW grows and if per chance Ohio joins the group, Pennsylvania would be under great pressure to do so as well.  It is not likely to happen in the next couple of years. But it is time for renewing the effort to get the topic moving as a major strengthening of free market economics in the Commonwealth. Industries and companies in New York and New Jersey could be ripe for the picking. No need for them to go to the Carolinas, Tennessee, Georgia or Indiana.

Preventing Tax Rate Increases in Pennsylvania

In a growing economy with taxes levied on sales, income, and the value of real property, not to mention special levies such as business privilege taxes and fees for government services, tax revenues will normally rise with the tax rates that are in place.  Of course, confiscatory rates, evasion, loop holes and inability to pay might offset some of the expected revenue gains.  Indeed, lowering some tax rates such as capital gains tax rates can boost revenue by creating more realization of gains through selling. Or lowering U.S. corporate net income rates could lead to repatriation of overseas profits. Granted, those two are mostly national level considerations. Then too, regulatory costs and restraints can impact business and economic growth.

 

Pennsylvania has been shown to rank poorly in several areas of taxation on business by the Tax Foundation and that undoubtedly exerts a drag on the Commonwealth compared to lower tax rate states.  Certainly, the state should not be looking to make doing business and earning after tax profits more difficult through regulations and higher taxes.  But that seems to be the Governor’s office’s preferred way of going after more revenue.

 

The problem in Harrisburg, as in many state capitals, is the refusal of some to understand the need to curb and even reduce spending.  In Pennsylvania and in many other states,  public sector pensions, especially the school retirement and the state employees retirement that are heavily funded by state tax dollars, are gobbling up tax revenues at a horrendous pace and taking money that could be used for other state functions, including education expenses other than pensions.  As a result of making overly generous promises to future retirees over fifteen years ago through an increase in the payout formula and failing to adequately fund them for several years, the state is in a crisis. A crisis the Governor and his allies refuse to address in any meaningful way thereby allowing the devouring of revenue growth by the pension system’s insatiable appetite.  There will be no significant progress on the state’s budget dilemma until the pension issue is dealt with seriously.

 

Nor is there any significant effort in Harrisburg to address some other underlying drivers of exorbitant and unnecessary expenditures.  The state and other levels of government could save hundreds of millions if not billions of dollars each year by getting rid of the prevailing wage law that artificially drives up the cost of public construction in Pennsylvania. And it is grossly anticompetitive by preventing non-union contractors from bringing their cost advantages to bear.  Why not implement a staged phase out of the prevailing wage requirement over the next three or four years, lowering the gap between the prevailing  wage and market wage each year, eliminating the prevailing wage altogether in year four?

 

Next, the government should put an end to the right of teachers and transit workers to strike and then revise the law governing arbitration in police and fire labor contracts to be more in line with what other states use and along the lines spelled out in the legislation that created the Intergovernmental Cooperation Authority in Pittsburgh.  Teacher strikes are allowed in very few states and Pennsylvania has for decades led the nation in the number of strikes. The strikes disrupt education and create hardships for parents.  Worst of all they are used to ratchet up compensation and benefits as well as more favorable work rules. A union in one district gets a very generous contract by striking or threatening to strike and that contract is then used by unions in other districts as bargaining leverage.

 

Well-off districts with large tax bases that can comfortably afford rich compensation packages in labor contracts at relatively low tax rates become the standard that unions in less well-off districts can hold up as what fair pay should be.  This also leads to cries of unfairness by the education lobbies and groups who continually point to disparities in per student spending across the state.  The use of these disparities generates needless pressure for more state spending that can never eliminate the disparities as long as wealthy districts have enormous tax bases—or until the state eliminates local taxing authority for schools and funds all expenditures out of Harrisburg, an unlikely event to say the least.

 

Transit strikes allow unions to use threats to the economy as well as to public welfare to browbeat transit managers into capitulating to demands, or getting the state to toss in more money—a pattern used successfully over and over again by PAT workers.

 

Or perhaps Pennsylvania might follow the lead of Michigan and enact a right-to-work law.  Michigan enacted right-to-work for all employees other than police and fire in December 2012.  After years of languishing, private employment growth in Michigan since the bill was signed into law has more than doubled the rate in Pennsylvania. For example, from August 2012 to August 2015, Michigan jobs grew 7.6 percent, in Pennsylvania during the same period the employment count rose 3.3 percent. From August 2013 to August 2015 jobs were up 4.9 percent in Michigan compared to 2.5 percent in Pennsylvania.

 

Granted, factors other than right-to-work might be at play contributing to Michigan’s employment gains but bear in mind too that Pennsylvania’s economy was benefitting from the Marcellus Shale boom over the last three years: Michigan had no such natural resource driven economic boost. It is certainly time for Pennsylvania to begin moving toward right-to-work.

 

In sum, there are many alternatives to looking for tax rate increases and new items to tax to improve the state’s fiscal situation and its growth prospects—alternatives that are used in many other states. All it takes is a willingness to refocus the government toward cost effectiveness and respect for the taxpayers and businesses that make an economy prosper so that government can be funded. Of course, this will require reining in the power of special interest groups, especially the outsized influence of employees of government and government entities exercised on policy makers—the long running and seemingly intractable problem the Commonwealth faces.

 

Barring the enactment of the major cost savings and free market enhancements mentioned above it is incumbent on those who want a more prosperous Pennsylvania to fight any increase in taxes or new taxes unless there are; (1) true offsetting tax reductions that are broad based, (2) there is substantial pension reform and, (3) the state gets serious about working out a solution to the angst created by a school funding system that allows and/or requires local taxes in some districts to provide the lion’s share of school funds.

Has Business Executive Optimism Faded?

In the Lincoln Institute’s Spring 2012 Keystone Business Climate Survey, executives/managers were asked about the current business conditions facing firms in the Commonwealth.  They were also asked to compare the current climate to six months ago as well as about their expectations for the next six months.  Survey responses reveal a distinct lack of enthusiasm about the current state of the economy or the prospects for the near future. 

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Pennsylvania Policies Increasingly out of Touch

Notwithstanding its incredibly good fortune in being the home of vast natural gas deposits that are propelling much of the economic growth being experienced currently, the Commonwealth of Pennsylvania is losing its ability to compete for capital and jobs. The state has antiquated and seriously inadequate laws regarding property assessments, it faces enormous future government spending to keep its pension promises to teachers and state employees, it is a perennial leader among the states in teacher strikes, it is one of two states that still owns liquor stores, one of the state’s two largest transit agencies is in undeclared bankruptcy, and its bridges and roads are ranked among the worst in the nation.

Meanwhile, Wisconsin and Indiana have passed legislation that dramatically curtails the power of unions and their ability to drive jobs away and raise the cost of government. Neither state allows teacher strikes and in the case of Indiana has greatly expanded a voucher program to allow students choices other than failing public schools. Two things Pennsylvania has notably been unable to get done or in the case of banning teacher strikes has not come close to doing.

So, while we can congratulate ourselves for Marcellus related jobs and incomes gains and laud the powerful growth in education and health employment, it must be remembered that the extent of the state’s dependence on education and health for jobs cannot be the basis for sustained, long term economic health.

Pennsylvania must address the pension crisis, the teacher and transit worker right to strike, the state of transportation infrastructure and continue its recent efforts to contain the spending that grew so profusely under the previous administration. And if it really wants to get bold, it could eliminate the dues withholding for public sector employees and begin to talk seriously about doing with prevailing wage requirements on public construction projects. But in a state that cannot even get itself out of the liquor selling business, the much desired reforms enumerated here are probably best regarded as fantasies.

Right to Work Enters Rust Belt

A few days before the "Big Game" the state of Indiana is poised to become the first rust belt state to enact a Right to Work law. Both houses of the state legislature have passed the bill and it now goes to the Governor for his action. Indiana would be the 23rd state in the union to be a Right to Work state.

It has been over a decade since the last state to join the ranks of the Right to Work fraternity, Oklahoma, did so. The New Hampshire legislature passed a Right to work bill in 2011 but it was vetoed by the Governor

As we pointed out last summer, private sector union membership in PA fell from 15% to 9% yet the issue of Right to Work cannot make it to the floor of the General Assembly. And the ever-present listings of "best places to do business" like Forbes shows that Right to Work states are consistently better performing than their non Right to Work counterparts. But will the change in Indiana put pressure on Pennsylvania to act?

Will Horsehead Get the NLRB’s Boeing Treatment?

Horsehead Corporation has announced plans to move a big part of its operations from Beaver County to Rutherford County North Carolina. That move will involve building a $350 million dollar facility in Carolina and the possible loss of as many as 500 jobs in Beaver County.

The company, in explaining the decision, mentioned utility costs, logistics and development incentives. It did not mention the fact that North Carolina is a Right to Work state. Probably for good reason. In all likelihood, the union in Beaver County is already in the process of asking the NLRB to file a stop order (a la Boeing in Charleston) to prevent the plant from moving. Surely, as imaginative as the NLRB is-as it is currently constituted-will have no problem coming up with an unfair labor practice charge of some kind to justify issuing such an order.

Pennsylvania needs to make company moves of this type less attractive by enacting a Right to Work law. The state cannot depend on a new discovery of a valuable natural resource every time it needs an economic boost. Marcellus Shale might be godsend but it should be viewed as an opportunity to remove obstacles to growth in the state, not an excuse to delay doing what is right.

Job Creation Silliness

It must be the time of year for some to engage in the kind of intellectual vacuity that represents total abandonment of reason. The Keystone Research Center just released a study purportedly showing Pennsylvania’s employment situation to be worse than the 7.4 percent current unemployment rate depicts. Fair enough. Everyone who follows the labor market knows there are lots of folks who are underemployed or have dropped out of the work force because they have become discouraged. That is not news.

But come on. Pennsylvania’s unemployment rate is well below the national average-for several reasons. First, because the state has been such a slow performer for many years prior to the recession and did not have a housing boom as did many states, the housing induced downturn was not as dramatic in Pennsylvania. Second, the industry mix of jobs in Pennsylvania has changed substantially over the decades away from goods producing jobs that are subject to recessions toward industries that are more recession resistant. Third, the state is in the midst of a booming growth in the natural gas business thanks to Marcellus Shale that is greatly improving the labor situation.

There is no mention in the report of the reasons Pennsylvania has been a perennial slow growth state. That list would include punitive anti-business labor laws, lawsuit abuse, environmental regulations, business taxes, prevailing wage requirements and a generally unfriendly business climate.

But the report does have recommendations on how to grow jobs. More government spending, especially on infrastructure, extending jobless benefits and job training.

How predictable. Government spending of money the state does not have to create prevailing wage jobs to support union workers. Job training to do what? To learn how to work on roads that are in endless need of repair?

Not a word about addressing the obstacles to growth in the state. There is no talk of Right to Work, ending teacher strikes, eliminating prevailing wage and getting environmental regulations under control. In short, this is nothing more than the failed policies that have crippled Pennsylvania’s economy for decades. It is stunning to see how resistant to facts and reason some people can be.

Pennsylvania Players Can’t Call the “Right-to-Work” Play

As the National Football League moves closer toward the end of its lockout and the adoption of a new collective bargaining agreement between the league and the players’ association, the latter needs to decide whether to recertify as a union. The head of the union stated "Here in America, every time an employee makes that decision about whether he wants to be a part of a union, it’s something that is serious, significant and should be done in a very sober way".

Interestingly enough about one-third of the NFL’s teams are located in Right-to-Work states where workers are not compelled to join a union or pay union dues as a condition of employment. Don’t count the members of the Steelers or the Eagles among them as Pennsylvania has been unable to enact a Right-to-Work law. Since the players are part of the private sector headcount, they are a part of the trend in union membership that we documented in a Brief this past May. To wit: private sector union membership in Pennsylvania fell from 15.6% in 1990 to 9.3% last year. Yet the enormous power wielded by unions and their supporters in the Legislature trumps the broad interest of the citizenry to bring the issue to the floor of the General Assembly.

So yes, deciding to joining a union should be done in a serious and sober way. But that right is curtailed for Pennsylvanians. Wonder what the NFLPA would think about card check? And what a union it is. The members have guaranteed collective bargaining rights and have substantial protections from the teams and the league. At the same time the players negotiate individual contracts with the teams they play for rather than having wage scales set for the various positions that all teams must pay and all same position players receive with no premium pay for big stars. Would it not be interesting to require teachers and bus drivers to negotiate individual contracts?

Labor Head Decries Slow Job Creation

In a statement about Governor Corbett, Richard Trumka (head of the AFL-CIO) proves that even union bosses have a sense of humor. Trumka accuses the Governor of not spending enough to create jobs in Pennsylvania and upbraided the Governor for his unwillingness to raise taxes. What makes this so funny? Simple. The union movement which Mr. Trumka now heads has done more to destroy jobs in Pennsylvania and it continues to press for policies that will worsen the business climate further.

By pushing for card check, ever higher minimum wages, opposing the elimination of prevailing wage laws, opposing the greatest freedom enhancer of all, making Pennsylvania a right to work state, and supporting nationalized health care, the union leader wittingly or unwittingly is creating a reluctance of companies to invest and grow their businesses.

Unions live in world where economics is about using power to subvert the laws of the free market and competition. But even worse perhaps, in union economic thoughts there is no recognized role for, or respect for, the entrepreneurs who create the products that create the jobs union members feel entitled to. Indeed, much of what unions do-with the help of their handmaidens in government-is to strip away the rights and privileges of property owners and entrepreneurs necessary to carrying out the critical role of generating dynamism and growth in the economy.

In short, the union mentality is one of unbridled selfishness that cares not a whit about its effect on the general welfare as long as the senior members of the union are taken care of. What’s worse is that the laws of the United States and many individual states take a strong position in favor of the unions and against the people who hire the workers. So, reading that Mr. Trumka is offering economic advice to the Governor evokes some hilarity.