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Testimony by Mike Nichols on right-to-work

Testimony of WPRI President Mike Nichols
for Wisconsin State Senate Committee on Labor and Government Reform
Feb. 24, 2015

Senator Nass, Members of the Committee,

Thank you for the opportunity to speak this morning. I am Mike Nichols, president of the Wisconsin Policy Research Institute. Joining me at the table here is Joe Hartge, who just flew in from Ohio this morning and worked closely with Dr. Richard Vedder on some of the research we’d like to present to you today.

Many of you are familiar with us. For almost 30 years, WPRI has provided nonpartisan, objective research on issues of interest and importance to Wisconsin’s citizens and legislators.

Today, clearly, there is no issue of greater interest or importance than right-to-work. I’d imagine, with all the voices weighing in today, you’re all looking for some simple facts on this issue. For several months now, that has been our focus and goal as well.

In an effort to determine whether Wisconsin should consider right-to-work legislation, WPRI decided last fall to undertake two different lines of research: a poll of public opinion and an analysis of potential economic impacts.

We released the 2015 WPRI Poll of Public Opinion in January, and it included numerous questions regarding right-to-work. The survey of 600 Wisconsinites determined that approximately twice as many citizens of this state would vote in favor of right-to-work legislation as would vote against it (62% to 32%). Over three-quarters of respondents (77%), meanwhile, said they think no American should be required to join any private organization, such as a labor union, against his or her will.

In addition, a plurality of the 600 respondents, said they believe a right-to-work law will be economically beneficial for the state. Four in 10 (40%) said such laws will “improve economic growth in Wisconsin,” 29% said they believe the laws “will not affect economic growth” and 27% said such laws will “reduce economic growth.”

Our second line of inquiry – the paper in front of you titled “The Economic Impact of a Right-to-work Law on Wisconsin” – concludes that what a plurality of state residents intuitively believes is backed up by statistical analysis. Right-to-work laws are economically beneficial.

WPRI commissioned this paper by one of America’s foremost experts on right-to-work, Ohio University economist Richard Vedder, months ago. Dr. Vedder and his colleagues, Joe Hartge and Christopher Denhart, happened to be finishing it up just when legislative leaders decided to bring a right-to-work bill to the floor this week. While they did not see the bill prior to conducting this analysis, right-to-work is a straightforward concept that varies little from state to state. As a result, we believe this paper – by comparing economic growth in states that have had right-to-work to those that have not and calculating the potential impact in Wisconsin – provides the best, most nuanced, most objective and most accurate analysis that has been done in the Badger State.

The essential finding is clear:

Over the last 30 years, states with right-to-work (RTW) legislation have experienced greater per capita personal income growth than other states. And that positive correlation between right-to-work and higher incomes remains true even after controlling for other important variables (such as tax rates in various states) that might have had a simultaneous impact.

The statistical results suggest that, in fact, the presence of a RTW law added about six percentage points to the growth rate of RTW states from 1983 to 2013. With such a law, Wisconsin’s per capita personal income growth of 53% over those years would have been, instead, about 59%. Wisconsin would have gone from having economic growth below the national average over those three decades to having slightly above average growth – enough above average that it would have erased the current per capita income deficit between Wisconsin and the nation as a whole.

We think this is extremely significant because, as the report points out, Wisconsin truly has fallen behind economically in recent decades.  

In 1950, well over $22 of every $1,000 in personal income generated in the United States was earned by Wisconsin residents. That figure has steadily fallen to only $17.55 in 2013 – a decline of well over 20%. Most of this reflects relatively slow population growth. But income growth for residents over the 1950-2013 period was below the national average. In 1950, per capita income was 1.63% below the national average; in 2013, the income deficit was more than double that.

Wisconsin’s per capita personal income received from all sources in 2013 was $43,244, according to the Bureau of Economic Analysis – $1,521 less than the national average of $44,765. 

The regression analysis suggests that had Wisconsin adopted a RTW law in 1983, per capita income would have been $1,683 higher in 2013 than it actually was – and would have brought the state slightly over the national per capita personal income average.

There are some caveats that apply to all such analysis. Although the results are strong, the authors – as all good economists would – urge some caution in using the precise estimation. Comparing states with right-to-work to those without is a complex undertaking. Some possible determinants of economic growth are very difficult or impossible to measure, such as the extent of statewide environmental regulations, and there may be a significant “omitted variable bias” in this simple regression model. At the same time, it is unlikely the inclusion of other variables would materially alter the estimations with respect to RTW.

In addition, it is important to note that this is an analysis of the past – the 1980s through 2013. Labor unions today have a smaller presence than they used to, so the effects of a RTW law might reasonably be expected to have a somewhat smaller impact in the future – especially in Wisconsin where Act 10 is already having an economic impact.

That said, it is a fact that Wisconsin has fallen behind. As this study indicates, Wisconsin’s role in the national economy has shrunk with the passage of time. The analysis suggests that passage of a RTW law likely would slow and possibly reverse this trend. Right-to-work laws in sum are economically beneficial and would help Wisconsin catch up to other states with which it competes economically.

As importantly, we at WPRI see this as a fundamental issue of individual freedom – and it is clear that Wisconsinites of all political persuasions agree. A majority of self-identified Republicans, independents and Democrats say they would vote in favor of right-to-work legislation.

Given the economic needs of our state, the evidence that right-to-work would be economically beneficial and the support of your constituents, I ask you to do the same.

Thank you.

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