Enacting a worker-choice law would give a province a competitive advantage
By Niels Veldhuis and Amela Karabegovic
Over the past two decades, Canadianpoliticians, bureaucrats and others have become increasingly aware ofthe importance of business investment to the overall health of oureconomy. Business investment in plants, machinery, and equipment driveseconomic growth, creates jobs and increases productivity. When workershave more capital (machines, equipment, and technology) at theirdisposal, they can produce more and/or higher-valued goods and servicesper hour and they can, therefore, demand higher wages.
To attract business investment many provinces have focused onimplementing policies to improve their investment climates. These haveincluded more prudent management of government finances (pre-recession,of course), lower personal and corporate income taxes, the eliminationof corporate capital taxes, investments in infrastructure, andreductions in the burden of regulation.
Unfortunately, one policy area that has seen no significant reform is labour law.
New research from the United Statesshows that if provinces are interested in attracting more businessinvestment, a fundamental shift in labour law is in order.Specifically, provinces would do well to adopt worker-choice laws(called right-to-work laws in the United States), which would allowworkers to choose whether they want to join and financially support aunion.
Current labour relations laws in all Canadian provinces (and at thefederal level) allow the inclusion of mandatory union membership anddues payment clauses in collective agreements. This means that workerswho are joining unionized firms can be forced to become union membersand financially support the representative union as a condition ofemployment.
In the United States, federal legislation makes it illegal torequire union membership as a condition of employment. Workers are alsoable to opt out of union dues that are not related to representation.In other words, if unions want to pursue social or political goals,workers are permitted to have their union dues reduced proportionatelyif they do not want their dues supporting such activities.
Twenty-two U.S. states have also expanded on federal legislation inorder to allow workers in these states to fully opt out of union duesthrough the adoption of worker-choice laws (these states are oftencalled right-to-work states).
The economic impact of worker-choice laws comes primarily through areduction in unionization rates. That is, when workers are given choicewith respect to union membership and dues payment, they choose unionsless often. In Canada, the unionization rate was 31.4% in 2009, whereasin states without worker-choice laws it was 16.5% and 8.0% in stateswith worker-choice laws. This means the unionization rate in stateswith worker-choice laws was half of that in states without such lawsand almost one quarter of that in Canada.
In a recently published Fraser Institute article, Richard Vedder, aprofessor of economics at Ohio University, summarized his research onthe effects of worker-choice laws in the United States. He found anenormous migration into states with worker-choice laws from stateswithout such laws. Specifically, from 2000 to 2009, approximately fivemillion Americans moved from the 28 states without worker-choice lawsto the 22 states with worker-choice laws. Prof. Vedder concludes thatworkers “flatly prefer a legal environment where the sale of theirlabour services is not constrained by laws requiring union duespayment.”
More importantly, Prof. Vedder finds that worker-choice states havehigher rates of labour participation, lower unemployment rates, higherrates of economic growth and greater investment, even after controllingfor a number of other factors such as tax burden, the level ofeducation, the amount of land area, and population growth.
His research also estimates the impact of worker-choice laws onliving standards, and finds that implementing a worker-choice law wouldincrease a jurisdiction’s per person income by $2,800.
Several other studies buttress Prof. Vedder’s recent research. Forexample, Paul Kersey, in a study entitled “The Economic Effects ofRight-to-Work Laws: 2007,” found that between 2001 and 2006, theeconomies of states that enacted worker-choice laws grew by 3.4% onaverage, compared to 2.6% in non-worker-choice states. Moreover, jobsgrew by 1.2% annually in worker-choice states, while jobs in non-workerchoice states grew by only 0.6% over the same period.
While the evidence on worker-choice laws is clear, there has yet tobe a Canadian province willing to implement such a law. This is likelybecause of the massive misunderstanding regarding such laws, largelythe result of misinformation distributed by union officials.
One only needs to recognize the massive power shift from unions toordinary workers that would occur upon the implementation of such lawsto understand why union leaders have resorted to venomous attacks andmisinformation campaigns against worker-choice laws. Worker-choice lawsare entirely designed to benefit workers by providing them with morerepresentation choice and simultaneously forcing union leaders to bemore accountable and responsive to their membership.
Implementing a worker-choice law would do wonders for a provincelooking to gain a competitive advantage over other provinces.Jurisdictions that adopt these laws not only benefit from strongereconomies, more investment and increased productivity; they alsoprovide workers with greater freedoms.
Niels Veldhuis and Amela Karabegovicare economists with the Fraser Institute. “Right-to work Laws andEconomic Growth” by Richard Vedder is available atwww.fraserinstitute.org.