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Right to Work: A Formula for Shrinking Paychecks

Amy Traub

Is the problem in America today that workers are too powerful in comparison with the corporations that employ them? Are our wages too high? Do too many of us have health coverage and retirement plans?

If so, then the bill just passed by the Indiana House of Representatives offers a solution: undermine the ability of working people to organize for better pay and benefits. De-fund their unions. Over time, research suggests, so-called Right to Work (RTW) laws like the one in Indiana will result in declining wages and leave workers less likely to get health insurance or pensions through their jobs. While the experience of other states that enacted RTW laws indicates that the deterioration of pay and benefits won’t succeed in luring jobs, as its proponents assert, it will yield a cheaper (and likely more docile) workforce.

The average full-time, full-year worker in a RTW state earns about $1,500 less each year than a similar worker in a non-right to work state, according to a study by economists Elise Gould and Heidi Shierholz.

Here’s how the paycheck shrinking formula works. When a union is recognized by law, it’s legally required to represent all workers in a defined bargaining unit: to negotiate contracts on their behalf and handle their workplace grievances, for example. Workers are not required to become members of the union, but, in most states, they are obligated to pay a fee in exchange for the service they get from the union. Indiana, however, is poised to bar workers and their bosses from agreeing to any contract that includes these fees. Unions would instead have to provide representation services free of charge to anyone at a unionized workplace who chooses not to pay.

The result is a massive free-rider problem: if people can get a union’s services without having to pay for them, many will take the deal. This drains the unions of money and strength. Their ability to bargain declines. Over time, wages at unionized workplaces fall, unions lack the resources to organize new workers, and non-union employers in the area and industry also pay less because they no longer have to compete for workers with higher-wage union companies. The dynamic is similar for health care and pension benefits.

At the same time, the political angle is impossible to overlook. Unions are a powerful political constituency for the Democratic Party. It’s no surprise that Indiana’s Republican governor and Republican-dominated state legislature see political benefits in undermining organized labor. But rank-and-file Indiana voters, also predominantly registered Republicans, aren’t so sure. A recent poll reveals that only a third of the state’s electorate supports the RTW law, while another 30 percent feel they don’t know enough to form an opinion. Most voters would like the chance to decide the issue themselves via referendum, or at least to get the legislature to slow down and provide more time for debate.

What happens in Indiana will have ripple effects throughout the nation. If we believe that American workers earn too much and should have less bargaining power in the labor market, RTW is the formula for us.