Dispelling myths: that worker choice "leads to lower wages”
In a recent Fraser Institute report, we noted that one way to dramatically improve Canada’s private sector labour relations laws—which govern the interactions between workers, unions, and employers—is to ensure workers have a choice about union membership and dues payment. In Canada, workers can be forced to join a union and pay union dues as a condition of employment, potentially putting workers in the difficult position of having to choose between joining and financially supporting a union and leaving their job. We pointed out that doing away with mandatory union membership and dues would empower workers, encourage union accountability, and contribute to a stronger labour market and economy.
Despite the potential for increased worker choice to benefit workers, opponents often raise three objections as reason not to pursue such reform. These objections are largely based on myths or misunderstanding about labour relations laws in general and worker choice legislation in particular. The three main objections are:
1. Increasing worker choice leads to lower wages.
2. Increasing worker choice causes widespread “free-riding” whereby workers can benefit from union representation without paying the cost.
3. Increasing worker choice isn’t needed since workers can always decertify a union.
In a series of three blog posts, we will address each of these. This first post discusses the claim that increasing worker choice would lead to lower wages.
This claim originates from the experience in the U.S. and is based on an incomplete analysis. Unlike Canada, every worker in the U.S. is guaranteed the right to refuse to join a union and keep their job. In addition, the minimum standard in every U.S. state requires workers to pay only partial dues covering the cost of union representation (all workers can opt out of paying dues that support political causes or other activities unrelated to representation). Twenty five states, including traditional union strongholds like Michigan, have expanded on federal law to provide even greater worker choice, allowing workers to opt-out of full union dues (these are so-called Right-to-Work states). By contrast, the standard in Canada is mandatory dues for all union activities even those unrelated to representation.
Opponents of increasing worker choice often argue that Right-to-Work laws lead to lower average wages. But this is a misleading claim. Wages can differ across jurisdictions due to a host of economic factors unrelated to Right-to-Work. Simply comparing the average wage among Right-to-Work states to the average wage in non-Right-to-Work states tells us nothing about the relationship between Right-to-Work legislation and wages. For example, Right-to-Work states tend to be states with lower costs of living and wages could be lower to reflect that (think: Alabama vs. New York).
Research that controls for economic factors such as the cost of living generally finds that Right-to-Work laws have no statistically significant impact on wages. One well cited academic study published in the Journal of Labor Research found that Right-to-Work laws are actually associated with higher wages, after controlling for economic conditions at the time that Right-to-Work laws are adopted.
Put simply, the evidence does not support the claim that worker choice results in lower wages and there is some evidence that Right-to-Work laws could actually lead to higher wages. One thing is clear: research shows that Right-to-Work is associated with higher employment and faster economic growth—things that ultimately benefit workers and society in general. Tellingly, Right-to-Work states have higher population growth and net in-migration, suggesting that workers are indirectly voting with their feet by moving to states that offer more job opportunities, partly driven by a higher degree of worker choice.
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