How will this affect Michigan?
News reports indicate that Indiana Gov. Mitch Daniels and a majority of the Legislature are likely to act quickly on a right-to-work bill that could be introduced this week. Such a move would have significant economic consequences for Michigan.
Right-to-work laws prohibit employers and unions from entering into contracts that make workers’ financial support of the union a condition of employment. There currently are 22 states with RTW laws on the books, and research indicates they outperform neighboring non-RTW states in jobs and state economic growth. No state with a right-to-work law currently borders Michigan.
Perhaps the most important study for assessing the potential impact here of an Indiana RTW law was written by a member of the board of the Federal Reserve Bank of Minneapolis and released in 1998. It looked at border counties between states with and without RTW laws, and found that manufacturing employment as a percent of county population was one-third higher in the counties in RTW states.
The author, Thomas Holmes of the University of Minnesota, classified whether a state was “pro-business” or not based on its RTW status and concluded, “[O]n average, there is a large abrupt increase in manufacturing activity when crossing a state border from an anti-business state into a pro-business state.”
Holmes explained that identifying the impact of state policies is challenging because it requires teasing out unrelated factors. For example, southern states tend to have better weather and at least the perception of hostility to unionization that may lead to greater manufacturing employment in those states. These effects are minimized by focusing on border counties, where no great difference in union attitudes or climate is likely.
Should RTW become law in Indiana, the implications for its neighbor to the north are stark. It is impossible to predict how many current and potential new manufacturers Michigan might lose to a RTW Indiana, but the Holmes paper and other sources suggest that over time the number is likely to be significant.
Indiana already outperforms Michigan in business tax climate and overall state-and-local tax burdens as measured by the Tax Foundation of Washington, D.C. (These rankings do not reflect a major business tax reform enacted by the Michigan Legislature in 2011; the latest Tax Foundation index will be released soon.)
A RTW debate has been simmering for years in Michigan. Republican lawmakers from Gov. Rick Snyder on down have made favorable noises about the policy, but have been less than eager take on the unions by acting. In the past year there has been a surge of grass roots activity promoting RTW here. Watching Indiana drain off Michigan manufacturers may finally force the politicians’ hands.