Cronyism

Right-to-Work Would Have Put Michigan in Top 10 in Rich States, Poor States

Economic growth has been at the top of legislative agenda in Michigan in recent years. The state has repealed the Michigan Business Tax, initiated the phase-out of the personal property tax, and reformed labor policy through the passage of Right-to-Work. These, in addition to many other notable pro-growth reforms, have had a major positive effect in the state that ranks dead last in economic performance over the last decade in the 6th Edition of Rich States, Poor States. Looking forward to the future economic potential of the state, Michigan ranked 20th in the 2013 Economic Outlook Index. But, had the state’s new Right-to-Work been implemented by the January 1st, 2013 cut-off-date to be considered in the outlook index (the law became active in March 28, 2013), the state would have ranked 10th overall, a testament to the implementation of a pro-growth agenda.

Right-To-Work laws offer the employees in a state the fundamental workplace freedom to choose whether or not to be a member of a labor union. If a worker feels that a union is competitively serving his or her economic interest, that worker is free to vote his conscience by paying union dues. Moreover, if that same worker feels a labor union is not in his or her interest, Right-to-Work gives the worker the right to keep those dollars in his pocket and the opportunity to represent his own interests with his employer. This is in stark contrast to states that have rejected free association and chosen compulsory unionism irrespective of the preferences, dispositions, and conscience of individual workers.

Not only is Right-to-Work an element of fundamental individual freedom, it is a major component of a pro-growth agenda. As Table 7 from Chapter 3 of the 6th Edition of Rich States, Poor States demonstrates, Right-to-Work states are outpacing forced union states in growth of gross state product, population, employment, and personal income.

MIRTW

The human impact of these disparities in economic growth is notable. States that have chosen labor freedom are putting more money in their citizens pockets, creating jobs for the unemployed or young citizens newly entering the workforce, creating great mobility for the currently employed to advance in their career, and opening the door for entrepreneurship to thrive.

It’s no surprise that academic economists studying Right-to-Work have largely concluded that states that embrace labor freedom see major economic benefits. Drs. Eric Fruits and Randall Pozdena note in their recent analysis of Right-to-Work laws that 8 out of 11 credible studies find those laws to have a positive economic impact in states once implemented. Drs. Pozdena and Fruits then go on to raise that figure to 9 of 12 credible studies, as they demonstrate in their own analysis the virtues of Right-to-Work, focusing on the economic effect in Oregon, but which can also be generalized to the other 25 compulsory union states after adjusting specific economic condition in each other those states:

Looking backward, the analysis finds if the state had enacted right-to-work legislation in 1985:

  •  Oregon’s employment in 2010 would have been approximately 14 percent higher (233,000 more jobs).
  •  Oregon’s 2010 personal income would have been 10 percent higher ($14.6 billion).
  • Oregon’s wage and salary income would have been 13 percent higher ($9.7 billion). Looking forward, if Oregon enacts right-to-work legislation in 2012, the empirical results indicate that the state would see a permanent boost in employment and income growth.
  • After five years, in 2016, Oregon would have 50,000 more people working as a right-to-work state. By 2021, 110,000 more people would be working in Oregon.
  • By 2016, the state’s personal income would be $4.1 billion higher and wage and salary income would be $2.7 billion higher.
  • By 2021, the state’s personal income would be $10.8 billion higher and wage and salary income would be $7.0 billion higher.

A right-to-work law can be viewed as part of a pro-business package that encourages firms to locate and expand in the state. In turn, the improved opportunities would have the effect of increasing migration into the state and slowing migration out of the state. This study’s statistical analysis of IRS data on taxpayer mobility finds that:

  • Having a right-to-work policy in Oregon would increase household net in-migration from non-right-to-work states by 14.0 percent from what it otherwise would be, everything else being equal.
  • Having a right-to-work policy in Oregon would increase net in-migration of household incomes from non-right-to-work states by 17.9 percent from what it otherwise would be, everything else being equal.

Rich States, Poor States sets out with the goal of ranking state economic competitiveness based on pro-growth principles and as such, includes Right-to-Work laws as 1 of 15 factors states are ranked on. The index uses January 1st as the relevant cut-off date for policy: policy passed or becoming effective after is January 1st is not ranked, and instead is considered in the following year’s economic outlook index. Because of this, Michigan’s recent Right-to-Work law was not ranked in the most recent edition of Rich States, Poor States, which officially became effective as of March 28, 2013. Thus, the law will be reflected in Michigan’s ranking in the 7th Edition of Rich States, Poor States, out next spring.

This said, it’s possible to retrospectively assume that Right-to-Work was passed and enacted into law as of January 1st, 2013. This re-ranking of course ignores the possibility of other states that passed and enacted pro-growth laws early in the year that would have also boosted their relative ranking. Thus, this is a static analysis of the nation’s state political climate, assuming one difference: Michigan with a fully implemented Right-to-Work law.

With Right-to-Work, Michigan would be the 10th ranked state in the 6th Edition of Rich States, Poor States. Michigan’s actual ranking in the 6th Edition is 20th. Given Michigan’s poor economic track record over the past decade (50th out of 50 states), the state needs to put growth and prosperity ahead of politics. Michigan’s potential 10th place ranking is a testament to a changing business climate in the state and the hard work of politicians and the voters that elected them having seen too many of their brothers, sisters, sons, and daughters struggle to make ends meet in the Mitten State, or be forced to leave their home entirely for better opportunity.


In Depth: Cronyism

Cronyism in tax policy stifles innovation, hinders competition and introduces a deep temptation for corruption. The 2014 ALEC Center for State Fiscal Reform study, The Unseen Costs of Tax Cronyism: Favoritism and Foregone Growth, found that in the most recent year in which states published their respective tax expenditure …

+ Cronyism In Depth