Oklahoma’s Improved Economic Performance Suggests Right to Work Is Working
October 4, 2011
On September 25, 2001, Oklahoma voters went to the polls and passed a constitutional amendment—Right to Work (RTW)—which gave workers the choice to join or financially support a union. This made Oklahoma the 22nd state in the union to join the ranks of RTW states.
However, RTW was soon challenged in court, and the matter rose all the way to the Oklahoma Supreme Court. It took two years of legal wrangling before all the challenges were settled. When the dust settled in 2003, RTW remained in place—along with the promise of greater economic performance.
Fast forward to today, and opponents of the law are still at work trying to discredit it. A recent study by the Economic Policy Institute (EPI), for example, claimed that RTW in Oklahoma has been a dismal failure.1 One of EPI’s most important pieces of evidence is that manufacturing employment is lower today than it was before RTW.
But EPI’s view on the economic impact of RTW is simply too narrow. RTW is about giving businesses and their employees the flexibility to create a better economic future. There are two ways to accomplish this: the company can hire additional employees to boost output, or the company can invest in new capital to boost output through higher productivity.
Just because manufacturing employment fell does not mean that Oklahoma’s manufacturing sector is in a death spiral. In fact, the opposite is true. It is widely known that America’s manufacturing industry has been shedding jobs thanks in large part to technological advancement. Today’s American manufacturing worker is one of the most productive, if not the most productive, in the world.
Keep in mind that RTW is about more than just negotiating over wages and benefits. Many other items often went into collective bargaining agreements, such as workplace conditions and even specific job posts. For example, one of the reasons America’s railroads were nearly crippled a few decades ago was that union contracts mandated needless laborers—such as having firemen on new diesel-electric locomotives—thereby reducing productivity gains.
But the EPI study did not consider whether Oklahoma’s manufacturing industry may have chosen to boost productivity instead of hiring more workers. Chart 1 shows the growth in Gross Domestic Product (GDP) of the manufacturing industry from 2003 to 2010 using a growth index.2 Oklahoma’s manufacturing GDP has grown 45 percent in that time period, outstripping that of the average manufacturing growth in RTW states (31 percent) and in non-RTW states (22 percent).
This growth in Oklahoma’s manufacturing GDP is a direct result of an increasingly productive workforce. Chart 2 shows the amount of manufacturing GDP per job from 2003 to 2010. In only a few short years, Oklahoma’s productivity growth (67 percent) soon outgrew non-RTW states (55 percent) and in the last few years has even outgrown RTW states (62 percent).
Over the long run, productivity growth is the best way to improve economic performance, for two reasons. First, the higher productivity boosts the spending capacity of businesses and their workers, which filters out to other parts of the economy via “multiplier effects.”3 Second, increased productivity frees scarce labor to pursue other economic activities. After all, the economy is better off today because Bill Gates is running Microsoft and not toiling away in an old-fashioned steel mill.
More broadly, there is other evidence that RTW has been good to Oklahoma’s economy. Simply look at how people are “voting with their feet.” Using data from the Internal Revenue Service, Chart 3 shows the net migration in Oklahoma of households (as proxied by taxpayers), people (as proxied by exemptions), and income (as proxied by Adjusted Gross Income, or AGI) between 1995 and 2008.
Chart 3 shows that, prior to RTW, Oklahoma struggled to attract residents from other states. In fact, between 1995 and 2002, Oklahoma lost 10,681 households, 3,461 people, and more than $1 billion in income. From 2003 to 2008, however, Oklahoma has gained 13,215 households, 40,693 people, and $99 million in income. More impressively, the trend line is on the way up, suggesting this in-migration will continue into the foreseeable future.
Another illustrative way to look at these data is to see from where these net in-migrants are coming. Table 1 breaks down the net in-migration between RTW states and non-RTW states since 2003. In relation to RTW states, Oklahoma is experiencing some gains in households (1,567) and people (9,326) but is losing income ($285 million). However, in relation to non-RTW states, Oklahoma is booming with 11,648 new households, 31,367 new people, and $385 million in new income.
In summary, we have presented new evidence that RTW has been a boon for Oklahoma.4 Manufacturing output and productivity have outpaced the competition, and people from non-RTW states are voting with their feet by moving to Oklahoma in increasing numbers. This evidence from Oklahoma should help convince policymakers in other non-RTW states that RTW is good economic policy.
Economists J. Scott Moody (M.A., George Mason University) and Wendy P. Warcholik (Ph.D., George Mason University) are OCPA research fellows.
1 Allegretto, Sylvia, and Lafer, Gordon, “Does ‘Right-To-Work’ Create Jobs? Answers from Oklahoma,” Economic Policy Institute, EPI Briefing Paper #300, March 16, 2011. http://www.epi.org/page/-/BriefingPaper300.pdf
2 The comparative growth indices were created by setting the base year (2003) equal to one and then multiplying each successive year by the growth rate. This makes it easier to visualize the relative growth differentials without worrying about the differences in starting values.
3 A multiplier effect occurs when money earned in one sector of the economy is spent in another. A manufacturing worker may use part of his raise to dine out more often, which in turn boosts the income of the restaurant.
4 Of course, no one would suggest all of this improvement in Oklahoma’s economy can be attributed to Right to Work. For instance, since 2003, there has been a tremendous increase in oil and gas prices that has boosted Oklahoma’s oil and gas industry.