Labor Law, Unions & Workers' Paychecks

For years, the labor movement has labeled right-to-work policies "the right to work for less." A new public policy brief from the Jerome Levy Economics Institute supports that label. The report uses state-level data to examine the impact of legal and political institutions – particularly the minimum wage, state right-to-work laws, and the strength of the labor movement – on the wage structure. The most dramatic finding is also the most relevant to trade unionists. Specifically, the report finds that hourly workers in right-to-work states are much more likely to be paid close to the minimum wage than workers in states with high union density.

Right-to-work and low-wage jobs
The report defines "around the minimum wage" as earnings of up to 150 percent of the federal minimum. Today, that works out to $7.72 an hour. In 1990 – the year of the last census, and consequently the last year covered in the report – the earnings cut-off would have been $5.70, based on the then-current minimum wage of $3.80. At $5.70 an hour, an individual who worked 2,000 hours over the course of the year would have had an annual income of $11,400. That would have been just above the official poverty threshold for a family of three, and below poverty for a family of four.

So what exactly does the report show? In the 21 states with right-to-work laws, 16.8 percent of employed heads of household earned around the minimum wage in 1990. In non-right-to-work states where more than 15 percent of the workforce were union members (what the report labels "high union density" states), the proportion of near-minimum-wage earners was just 12.4 percent. In other words, a head of household employed in an hourly job was 35.5 percent more likely to be earning close to the minimum wage in a right-to-work state than in a state with high union density! The remaining states – those without right-to-work laws, but with relatively low levels of union membership – averaged somewhere in between these two extremes. (For state-by-state figures on union density, check out the map on the back cover of this Bulletin.)

The proportion of near-minimum wage workers ranged widely, from fewer than one in eleven heads of household in Connecticut (a high union density state) to more than one in five in Arkansas, Mississippi, and the Dakotas (right-to-work states all).

In politically-charged discussions of the minimum wage, it’s a safe bet that someone is going to downplay the hardships faced by minimum wage workers by arguing that most such jobs aren’t held by workers supporting themselves and their families, but by teenagers earning extra spending money. The Levy Institute report sidesteps this argument by limiting its analysis to employed heads of households. The fact that all of the figures presented in the report are for heads of households — not teenagers earning spending money, or even the second earner in a married couple – makes its findings even more compelling.

It could, of course, be argued that there are other differences between right-to-work states (most of which are located in the South and West) and high union density states (most of which are in the East and industrial Midwest) that account for the differences in their wage structure. Educational levels are the most likely alternative explanation. If workers’ educational levels are lower in right-to-work states than in high union density states, that could account for higher levels of low-wage employment. As it happens, factoring educational levels into the analysis doesn’t change the result; the difference between right-to-work states and high union density states remains. The same is true when the data are adjusted for differences in the industrial make-up of the various states.

The author’s conclusion? Legal and political institutions make a real difference in the wage structure. Institutions that weaken unions, like right-to-work laws, contribute to higher levels of near-minimum-wage employment.

Trends over time
Nationally, the percentage of workers earning around the minimum wage has been declining over time, though not as quickly or as steadily as one would hope. (That’s particularly true when the falling value of the minimum wage is kept in mind – an issue not addressed in the report.) From 1950 to 1960, there was a big drop in the percentage of heads of households earning around the minimum wage, even though the value of the minimum wage increased faster than the rate of inflation. The 1960s brought a modest additional decline, and the 1970s a modest increase. Between 1980 and 1990, the percentage of near-minimum wage earners fell to a new low – an accomplishment tarnished by the fact that the purchasing power of the minimum wage shrank more than 20 percent between those two years. It could be argued that with the value of the minimum wage so eroded over the 1980s, it simply became less relevant to the wage structure.

Policy implications
The report concludes that an increase in the minimum wage would contribute to greater fairness in the U.S. economy. That's particularly true in regions where unions are relatively weak, since in the absence of a strong labor movement, the federal minimum wage provides an institutional "floor" for the wage structure. Raise it, and you help the nation’s most vulnerable workers.

There is a second policy implication to be drawn from the report’s findings, of course. That is that right-to-work laws are bad news, and strong unions are good news — not just for unions, but for all working families.

Source: Oren Levin-Waldman, Do Institutions Affect the Wage Structure? Right-to-Work Laws, Unionization, and the Minimum Wage (Jerome Levy Economics Institute of Bard College Public Policy Brief, No. 57, 1999)

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