What right-to-work laws really mean

January 31, 2012: 12:19 PM ET

Indiana could become the first state to embrace a right-to-work law in more than a decade, alarming organized labor proponents who fear a shift in public support for workers' rights.

By Elizabeth G. Olson, contributor

FORTUNE -- As the economy continues to wobble, the American divide on labor rights is playing out in some unexpected locales. Indiana is in the spotlight now, as it prepares to adopt a law that unions say will weaken their ranks.

If passed, the "right-to-work" law would allow workers to skip paying union dues but still receive the benefits of union-negotiated contracts. Advocates say such employees have been forced into unions, but organized labor calls them "free riders."

Like the minimum wage, right-to-work battles have flared repeatedly for more than a half-century after workers toiling in onerous circumstances -- not unlike what some in Asian factories face today -- won the right to unite and bargain for wages and workplace conditions. But the nation never completely embraced a uniform view of worker rights.

In a peculiarly American way of adopting names that can be contrary to what they can mean, proponents called their effort "right to work." At first glance, this "seems to be a declaration that there is a right to have a job," notes Dan Graff, a professor with the Higgins Labor Studies Program at the University of Notre Dame, who has studied the impact of such a law in Indiana.

"This country has a different definition of this phrase than everyone else in the world," he says. "The phrase is deliberately meant to confuse. A Texas newspaper columnist started calling it that decades ago, and it was picked up to mean working without having to be a member of a union."

Almost half of all states already have such laws, with a concentration in in the Sun Belt, a region that has a less than friendly history with unions. It's been more than a decade since the last state adopted such a law (Oklahama, in 2001), but the unexpected success of curbing collective bargaining rights in Wisconsin has fueled voices to give corporations a free, or, at least freer, hand in the workplace.

Indiana's move has alarmed organized labor proponents who fear a shift in public support for workers' rights and a rolling back of gains workers have made since before World War II.

"If more states pass right to work, unions would lose more members," says Douglas McCabe, professor of management at Georgetown's McDonough School of Business. "It would discourage people from signing authorization cards to be able to hold a vote on unionizing."

A war of words and statistics

The Indiana Chamber of Commerce argues that more employers would move to Indiana if they had more flexibility to set worker pay, and, at the same time, incomes for residents would rise. The organization asserts that compensation for private sector employees was more than$1,000 a year higher in right-to-work states in 2011 than the salaries of workers in states without such a law, citing figures from the National Institute of Labor Relations Research, a nonprofit group that describes itself as "analyzing and exposing the inequities of compulsory unionism."

But Graff and Notre Dame economist Marty Wolfson conclude in a separate report that right-to-work laws would deliver low-wage and low-skill jobs to Indiana.

The Indiana Chamber maintains that employment grew 100% in right-to-work states over the 30-year period between 1977 and 2008, and increased only 57% in other states. But the Hoosier state suffered a significant loss of manufacturing jobs during that time while right-to-work states had different economic experiences, such as large population increases, that affected job growth.

Each side of the right-to work argument cites studies to back their views, but a uniform economic prescription is hard to find because individual states have their own, unique economic circumstances, such as availability of skilled workers and access to markets and infrastructure.

Indiana's action comes as the nation's overall union membership rate continues to slide. Last year, only 11.8 %, or 7.2 million, of the private and public workforce belonged to unions, according to the latest figures from the Bureau of Labor Statistics. This compares to union membership of 20.1%, or 17.7 million workers, in 1983, the first year for which comparable union data are available, the BLS said in announcing the figures last week.

Non-government employees' participation has fallen precipitously. Last year, it was only 6.9%, compared to 37% of public sector union membership.

The public sector figures fell, in part, because tight budgets forced states and municipalities to lop off jobs, many of which were unionized.

Those arguing against unions say private company employees do not want to oppose management and, if they do, they do not make meaningful wage or other gains.

"Deregulation and free trade have made the economy more competitive," argues James Sherk, an economics policy analyst at the conservative Heritage Foundation, in a recent blog post. "Consequently, unionized companies cannot pass higher labor costs on to consumers. If they raise their prices, consumers will take their business elsewhere."

In contrast, the Economic Policy Institute, a Washington, D.C.-based think tank, claims that wages are lower in right-to-work states, noting that employees in those states earn $1,500 less yearly than those in states without the law. Wages are 3.2% lower for everyone, not just union members, in right-to-work states than in other states, they argue, contradicting the Indiana Chamber's conclusions.

To be sure, the erosion of unions was already well underway throughout the U.S. Unionization of private company workers is only 20% of what it was in the 1950s, when more than 35% of workers were union members, according to the latest federal labor statistics. North Carolina has the lowest rate of unionization, at 2.9 %, and South Carolina the second lowest, at 3.4 % while Indiana has a rate of 8.9%, down from 12.1%, as factory jobs have disappeared over the last decade.

Even if Indiana enacts a right-to-work law, McCabe, of Georgetown's business school, says, "I don't think it will set off a tidal wave. But if more states pass this, unions will loose even more members."

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