Should Right-to-Work Come to Canada?

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Appeared in the Financial Post

Prior to 2012, the momentum and even interest in so-called Right-to-Work (RTW) laws, or what are more accurately referred to as Worker Choice laws was non-existent. Very little reform had happened for over a decade despite the positive economic effects of such laws. Things changed in 2012 when Indiana and more shockingly the bedrock of unionism in the U.S., Michigan, decided to implement RTW laws. These tectonic shifts in labour laws south of the border have reinvigorated interest in labour law reform in Canada.

Rather than debate, these laws have tended to be caricatured, particularly in Canada. To reasonably discuss or even consider the merits of such laws, one needs to understand some basics. First, in the U.S., federal law prohibits workers from being forced to join a union and workers are allowed to opt-out of union dues that are not related to representation regardless of state law.

Starting in 1943 (Florida) through to 2012 (Indiana and Michigan), 24 U.S. states decided to expand on the federal legislation to allow workers in their states to fully opt-out of union dues. These extensions of federal law became known as Right-to-Work (RTW) laws. Note that they do not prohibit unionization nor do they limit union organizing. What these laws do is provide workers with more choice with respect to dues payment.

Labour laws in Canada are markedly different. Mandatory union membership and full dues payments are permitted as a condition of employment in all Canadian provinces as well as firms covered by federal legislation. This means that workers at a unionized firm are required to become union members and financially support the union.

Academic research has confirmed that such laws result in different rates of unionization. Canada’s private sector union rate in 2012 was 17.7 per cent compared to 10.0 per cent in non-RTW states and just 3.9 per cent in RTW states.

Unionization rates have consistently been shown to negatively affect rates of economic growth, business investment, and employment. Our recent analysis of RTW laws, U.S. Worker Choice Laws and Implications for British Columbia and Ontario, confirms these previous results. Specifically, our results indicate that on average, RTW laws increase economic growth by about 1.8 per cent and employment by about 1 per cent.

For those who might interpret such results as small, consider the following application of these results to Ontario and British Columbia. Specifically, if either of these provinces implemented such laws, the U.S. experience suggests that GDP would increase by $11.8 billion in Ontario ($874 per person) and $3.9 billion in British Columbia ($844 per person). Additionally, employment would be expected to increase by almost 57,000 jobs in Ontario and 19,000 in B.C.

Given the state of Ontario’s economy, its finances, and its ongoing struggle to regain its competitiveness, these results should at the very least stimulate a serious discussion of labour reform. Consider, for example, that Ontario and Ohio (many expect the Buckeye State to adopt RTW laws in 2015) are now the only non-RTW states in the heavy manufacturing region around the I-75 corridor.

It’s also worth noting an analysis of manufacturing in Ontario based on the experience of Oklahoma. Like Ontario, the Sooner State is surrounded by both RTW and non-RTW states. Oklahoma implemented RTW laws in 2001 and its manufacturing sector has benefited greatly. For example, the rate of growth in the manufacturing sector in Oklahoma was 17.6 per cent higher after the implementation of RTW laws compared to before their introduction.

Applying the experience of Oklahoma to Ontario and considering the switch of Indiana and Michigan to RTW states, a conservative estimate of the benefits to Ontario’s manufacturing sector include a 9 per cent increase in manufacturing output, which represents roughly $4 billion in added manufacturing in 2012. (Similar results were found for B.C.).

Capital and labour are highly mobile and jurisdictions are aggressively competing to attract skilled, entrepreneurial, and industrious labour, as well as business investment. Labour laws alone are not the sole solution to becoming competitive but they are an integral part of a policy environment conducive to entrepreneurism and investment. Canadian provinces from coast to coast would be well served to seriously consider labour law reforms based on the experiences of US states like Oklahoma.

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