How a growing trend in labour legislation in the U.S. could impact auto manufacturing here at home
Unless you have been living under a rock, you have probably heard of Psy’s “Gangnam — style” YouTube video. You may have even watched it if for no other reason than to see what all of the fuss is about. It turns out that just recently, the “Gangnam style” video topped one billion views on YouTube leaving Justin Bieber’s “Baby” video — previously the most viewed YouTube video — solidly in the dust with only some 800 odd million views. This demonstrates how quickly a phenomenon can spread, with Psy achieving this claim to fame in about six months whereas it had taken Bieber roughly two years for his video to become the most watched video.
In the same vein, unless you have been living under a rock, you will be aware that in mid-December, Michigan became the 24th state to pass “right to work” legislation which could come into place as early as April of this year. While the evolution of “right to work” states has not been on quite the same trajectory as the growth in viewers of the “Gangnam style” video, it is evident that there has been renewed interest in “right to work” since Indiana passed its legislation in February of 2012. This, in no doubt put additional pressure on Michigan to become the most recent member of the “right to work” club.
THE RIGHT TO JOIN
But what does being a “right to work” state mean at the end of the day? It actually harkens back to an act passed in 1947 called the Labor Management Relations Act, which is better known as the Taft-Hartley Act. This act amended the National Labor Relations Act, effectively giving individual states the right to pass legislation prohibiting so-called union security agreements in labour contracts. A union security agreement is an agreement in which all workers covered under contract must pay dues to the labour group that negotiated the contract. Therefore, right to work legislation effectively gives the individual the right to join a company that is unionized without having to join the union, and without having to pay union dues as a condition of employment.
According to a Congressional Research Service (CRS) report authored by Benjamin Collins entitled “Right to Work Laws: Legislative Background and Empirical Research” published about a week before Michigan introduced its legislation, about the only thing that can be said with any certainty regarding right to work laws is that they appear to have a negative impact on unionization rates. Collins notes in his report that the union membership in right to work states is about a third (5.7 per cent) of that of union security states (15.8 per cent) and that the proportion of workers covered by a union contract but who are not members of the union is higher (18 per cent) in right to work states than in union security states (7 per cent). However, Collins also notes that there has been decreasing rates of union membership in both right to work states and union security states since 1983, suggesting that even the apparent negative impact of right to work legislation on union membership may well be caused — at least to some degree — by other externalities.
FAVOURABLE BUSINESS ENVIRONMENT?
The CRS report also underscores the two opposing views with respect to right to work laws which is evident in a review of any of the research work that has been undertaken to try and assess the impact of right to work legislation. The view of those supportive of such laws suggests that they “create a favourable business environment in which employers have increased flexibility in hiring, discharge and wage-setting. Businesses are attracted to this environment and employment in these areas increases.” The alternative view is that “location decisions are driven by issues such as the local labor supply and investment incentives. Under this view RTW laws are a relatively insignificant factor in the location of a business.” Regardless of whatever view people hold, all agree that assessing the impact of right to work legislation is extremely complex amidst all of the other factors that one would need to try and control or normalize. That said, the statistics presented in the report suggest that from 2001-2006, employment in right to work states increased 6.3 per cent compared to 1.4 per cent in union security states.
The same figures from 2001-2011 reveal employment growth of 3.6 per cent and a decrease of 2.5 per cent respectively. The wage figures cited in the CRS report suggest that wages in union security states are 16.6 per cent higher than proponents of the alternative view who suggest that tax exemptions, financial incentives, subsidized training, a skilled workforce, plus proximity to core infrastructure — such as highways, rail links and a major airport are far more important factors when companies consider where they are going to make investments.
CHALLENGES FOR ONTARIO
For the automotive industry, the fact that Michigan has become a right to work state means that an additional 14 vehicle assembly facilities are under the right to work rubric on top of the 26 assembly plants already located in right to work states. While, as noted above, the statistics are far from definitive, if right to work states do actually result in downward pressure on wages it would seem to be a problematic situation for Ontario. Canada’s most southerly province is already struggling with an eroded competitive position resulting from a dollar at par, the elimination of some of the comparative advantages that Ontario had traditionally enjoyed and a more competitive U.S. cost structure for auto assembly arising from the restructuring of the Detroit three automakers arising from the recession.
Therefore it will be interesting to see how much pressure is mounted within Ontario to move in a similar direction to that of Michigan, especially in the context of work being undertaken under the ambit of the Regulatory Cooperation Council that has been established to align or harmonize many of the regulations and standards within the automotive industry between the two countries.
