Bohanon: The Ethical Case for Right-to-Work

October 8, 2012

by Cecil Bohanon, Ph.D.

How many different restaurants do you patronize? In my household the number is in double digits ranging from fast foods to fine dining.Now suppose a bare majority of the eateries in your town forces all the others into a dues-imposing “restaurant association” that fixes prices, hours and terms of service for all of them.

In this example, it is illegal for customers to negotiate with a restaurant without first going through the association. Moreover, all new restaurants must join the association, pay its dues and abide by its rules. Economists call such an arrangement a cartel. The industry is monopolized by its trade association. Some members and the organizers are better off; customers and those members who do not wish to be subject to the cartel’s control are worse off.

Substitute workers for restaurants, employers for customers, and labor unions for the restaurant association and the framework outlined above describes U.S. labor policy since the Wagner Act. Despite soaring rhetoric to the contrary, industrial labor unions are simply labor cartels. (Craft unions can be somewhat different.)

Continue the narrative by allowing the restaurant association to roam from town to town trying to set up local restaurant associations. In some places they garner the necessary 50 percent plus and in other they don’t. But now let’s add the following rule: a 50-percent majority can force the minority into the cartel but it can’t force the minority to pay dues for representation they do not want.

This proviso is right-to-work legislation. Right-to-work does two things: It partially offsets the injustice of forced association and makes the gains to the cartel organizers less than what they would otherwise be.

If State No. 1 had no right-to-work law we expect to see a higher proportion of its labor force cartelized (unionized) than in State No. 2 where a right-to-work law was in place. However, all other things equal, we would expect to see better deals for businesses in State No. 2, which would of course attract more businesses.

The impact for laborers as a group is not clear. Worker who are willing members of the cartel are likely better off with no right-to-work. But as cartels restrict output to raise price we would expect to see fewer job openings in non-right-to-work states. Add to this that new and growing firms are locating in right-to-work states and some laborers clearly do better under right-to work.

So how will this all play out now that Indiana is a right-to-work state?

The scholarly literature is not definitive as to the impact of right-to-work. Contemporary anecdotal information is interesting. “Heartbeats,” a newsletter of Energize ECI, indicates that “The Indiana Economic Development Corporation advises, that as of August, 74 companies had communicated that Indiana’s enactment of right-to-work will factor into their decision-making process of where to locate current projects. Fifty-seven of these projects have progressed to the pipeline stage and account for the potential of 7,500 new jobs and more than $1.6 billion in investment.”

In addition, the Pollina Corporation, a major site-selector for expanding business firms, ranks Indiana fifth among the nation in best-business environments. This is an improvement of 18 positions in the last three years. Adopting right-to-work is clearly a component in Indiana’s rise.

Will right-to-work help Indiana grow? I think so, but even if its effect is minor I support it. It is a simple matter of justice.

Cecil Bohanon, Ph.D., an adjunct scholar of the Indiana Policy Review Foundation, is a professor of economics at Ball State University.


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