The Large economic benefits of worker choice

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Appeared in the Financial Post

Tim Hudak, Ontario’s Progressive Conservatives leader, boldly started a conversation about fundamental reform of labour regulations governing unionization in 2012. He recently, and nearly as boldly, walked back from such commitments, largely out of political necessity. However, such necessity does not negate the importance of such laws for Ontario’s competitiveness.

An important economic policy reform---worker choice---is a growing necessity for Ontario, particularly in light of the recent adoption of worker choice laws by U.S. states competing directly with Ontario. The most recent of those were Indiana and Michigan in 2012.

A worker choice reform would eliminate mandatory union membership, allowing workers to choose whether or not to join a union. A worker not joining would pay dues only for the narrow costs of collective bargaining activities, and not for general “representation,” a catch-all that usually includes a range of activities that may or may not yield benefits viewed by different workers as worth the extra costs.

The scholarly literature examining the effects of worker choice laws finds they generally reduce the percentage of workers covered by union contracts, and increase economic and employment growth. Because they increase the demand for labour, worker choice must have the effect of increasing worker compensation in a competitive labour market.

Recent econometric analysis of all U.S. states except Alaska, among which 24 have adopted worker choice reforms, found that worker choice laws increase economic growth by about 1.8 per cent and employment by about one per cent in the states enacting such laws. Manufacturing output is of particular interest in many policy contexts, and the scholarly literature finds in general that worker choice laws have the effect of increasing manufacturing employment and output.

Oklahoma is a particularly interesting case, in that it became a worker choice state in 2001, and shares a border with seven states, four of which adopted such laws earlier; the others have not done so. The data suggest that the faster manufacturing growth observed in Oklahoma from 2001-2012---an additional 0.3 per cent per year---was due to some substantial degree to the adoption of its worker choice reform.

A conservative application of the experience among the U.S. states, combined with the data on the Oklahoma experience, suggest that a worker choice reform would increase manufacturing output in Ontario by about $4 billion (0.5 per cent). Over a 25-year period, manufacturing output would be higher by more than 13 per cent.

In terms of aggregate economic performance, a conservative estimate is that a worker choice policy would increase total economic output in Ontario by $11.8 billion (about $874 per Ontarian) and increase total employment by almost 57,000 jobs. This increased output reflects improved worker productivity.

Geographic entities and regions must compete for individual and business location choices and favourable investment decisions. Public policies affect this geographic competition in important ways that can be summarized as the creation of an environment---that is, an overall set of economic incentives---either strengthening or weakening local competitiveness relative to the environments characterizing other geographic entities.

Accordingly, policy reform is an important tool for enhancing competitiveness but political incentives to focus only on the next election are powerful, particularly when given reforms can be predicted to elicit intense and loud opposition. This myopia can obscure the larger truth that such reforms as worker choice have effects that last far beyond so short a horizon, and reforms pursued now can yield large political benefits for policymakers and economic benefits for the citizenry as a whole. One such effect in a large province such as Ontario would be increased competitive pressures on other provinces to adopt similar reforms, perhaps resulting in a larger Canada-wide competition for economic reforms across a wider spectrum of policy issues.

These historical and predicted effects of worker choice are not trivial, and the prospective benefits should engender a debate at the Canadian federal level and in the provinces about several policy reforms needed to maintain and enhance competitive positions. A worker choice law should be prominent among them.

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