Right-to-Work Laws as Economic Freedom: Their Role in Influencing the Geographic Pattern of Manufacturing Jobs, Incomes, and Finances

Abstract

A large empirical literature has found positive effects from economic freedom on economic outcomes, such as output and per capita economic growth. This study seeks to explain empirically the disparate timing of state manufacturing earnings and employment decline, as well as the shift among states in both manufacturing earnings and manufacturing employment resulting from right-to-work laws, which can be viewed as reflecting labor market freedom and thereby acting as a de facto economic policy. The results of the empirical estimations suggest a marked geographic shift of manufacturing employment and compensation in the U.S. during the 1970 to 2012 time period. The empirical estimations indicate that the regions of the country that have historically represented the manufacturing base have suffered the greatest relative losses in both employment and compensation during this period. In addition to regional location, it appears that right-to-work laws have had the effect of leveling manufacturing employment and compensation levels across the states since 1970. The data analysis suggests that, at least in part due to right-to-work laws, the manufacturing sectors of the states and regions are becoming increasingly similar over time, i.e., manufacturing activity that was once highly concentrated in the Great Lakes, Northeast, and Mideast has now converged significantly, with the outcome that there is little geographic difference in concentration among the eight BEA regions.