By Dean Barber, Principal, Barber Business Advisors, LLC
In the decision to invest capital at some place and at some time, the human factor, the human resources needed, will almost always plays a key role regardless of the industry. As you might imagine, this is incredibly important in the site selection process, to which I advise companies.
Despite the trend toward needing fewer people to do appointed tasks, particularly in manufacturing, we cannot all be replaced by robots. Somebody has got to design the robots. Somebody has got to keep the robots running. Somebody has got to lubricate the system and make the machine of business run.
In the drive to remain competitive and to free themselves from the encumbrances of labor unions, US manufacturers have been shifting resources to right to work states, where they believe the machine can run better. In right to work states, it is illegal to require that employees join a union or pay union dues to get or keep a job.
And while employees can still form unions, engage in collective bargaining and go on strike in right to work states, the power and the purse strings of unions are most certainly deflated. In those states, most of them in the South and the West, union membership stood at 6.48 percent in 2011, according to the U.S. Bureau of Labor Statistics. In states without right-to-work laws, 10.8 percent of the workforce belonged to unions.
A Tectonic Shift
The shocker came when Michigan, the cradle of the US labor movement, recently became the 24th state to adopt right to work laws. One poll showed that Michigan voters favored the right to work bills by 51 percent to 41 percent. (Even 40 percent of union households supported the law as did 63 percent of young voters.)
The question is whether what happened in Michigan—the home state of the UAW and the Big 3 automakers—could be a harbinger of things to come. In other words, if Michigan of all places can become a right to work state, why not Ohio, Pennsylvania, Wisconsin or Illinois? I suspect that we just might be witnessing the movement of huge tectonic plates in the labor history of our country.
You may want to mark the date—December 11, 2012. It was the day that Michigan Gov. Rick Snyder signed the right to work bill into law. It may not go down in history as the day the unions died. That would be an overstatement as more established unions will remain intact. But December 11 may nonetheless become an historic date when the floodgates were opened for what may come to follow. We shall see.
But keep in mind that this has been a long time in coming, even if the bill signing came as an unexpected surprise. About 17 percent of Michigan workers belong to unions, according to the US Department of Labor. In the early 1960s, about 40 percent did.
If 40 percent of union households in Michigan favored right to work status, then you have to wonder if there are not at least some undercurrents within the rank and file as to whether unions have deviated from their original purpose. If given the choice, some union members may not have chosen to join the union, because they may not like what they see—a stifling of labor competition to the detriment of their employer.
Yes, Lower Wages
Union proponents contend, and there is some evidence to suggest that they are correct, that right to work states have lower wages on average than pro-union states. A study by Hofstra’s Lonnie Stevans in 2007 found that right to work laws help boosts the number of businesses in a state—but the gains mostly went to owners, while average wages went down. Another study by Thomas J. Holmes in 1998 found that companies in heavily unionized states often relocated just across state borders to right-to-work states.
I have had more than a few companies tell me during the site selection process that they wanted to restrict their search to only right to work states. No doubt, economic developers in Michigan and Indiana, which earlier broke the mold in the industrial Midwest by becoming a right to work state in February, believe they are now on a better competitive standing to win industrial projects. And so they probably are if for no other reason than perception of a more pro-business environment.
I am not in the habit of arguing with clients. If it is right to work they want, it is right to work they will get.
No Coincidence Indeed
It’s no coincidence that a wave of German, Japanese and Korean automotive manufacturers have built assembly plants in the Southeast, all right to work states where the UAW holds little sway. And while I do not put a lot of stock in the various magazine rankings of states in terms of their business climate, I do take note of CNBC’s annual list of the best states for business, in which nine of the top 10 states are right to work states. That’s something that I file away in the back of my mind.
Likewise, I file away that Indiana and now Michigan are right to work states, where client companies may suggest that they will now consider for future investment. While there are a slew of factors to be considered in the site selection process, workforce is usually always high on the list. Allaying fears and doubts of management regarding workforce is a big part of that process.
In short, I am suggesting that some fears and doubts have been diminished in Indiana and Michigan, once bastions of organized labor, as was the intent with the change of status. The critics are probably right in that it may do nothing to boost wages in those states. I will grant them that.
But if right to work status serves as a better incubator for capital investment, a concept that even some union members would apparently agree, then the historic changes we have witnessed in these two states will spread. I don’t think this can be contained. The wave will spread.
Dean Barber is the principal of Barber Business Advisors, LLC., a site selection and economic development consulting firm based in Plano, Texas.