Unions: The Cause of Michigan's Malaise

The Great Lakes state's burgeoning right-to-work movement is a backlash against aggressive union demands.

The Detroit Free Press' front page a week ago was a rich display of irony. It featured two stories, one celebrating the quadrennial contract deal that GM and the United Auto Workers had reached, declaring that the "Deal Is a Victory for All." And the other reported: "Right-to-Work Debate Fires Up in State." That about sums up the state of the labor movement nationwide: Still a player, but no longer sacrosanct.

A right-to-work law, which would allow workers to join unionized companies without having to pay mandatory union dues, is far from a done deal in Michigan. But 22 states already have such laws, and that it is even on the table in the union capital of the country shows the new political reality confronting unions.

Union membership has dropped from 36 percent of the work force in 1945 to 11.9 percent now. To reverse this slump, unions pumped $400 million into President Obama's campaign, hoping he would pass the so-called card check bill. This would allow labor bosses to avoid secret elections and unionize companies by getting a majority of workers to sign a card.

But Obama has proved a union dud, not a union dude: Far from pushing grand initiatives, his labor agenda has consisted of—in the words of AFL-CIO president Richard Trumka—"little, nibbly things."

This is not surprising. Aggressively pursuing a pro-union agenda with unemployment stubbornly stuck at 9.1 percent would work if Obama wanted to be a kamikaze president, hell-bent on self-destructing. Unions protect wages at the cost of jobs—the main reason they are in trouble in Michigan.

Michigan's unemployment rate, consistently higher than the national average, soared above 15 percent between 2009 and 2010. No state, not even Katrina-stricken Louisiana, had seen this kind of unemployment in 25 years.

Not all of this is Big Labor's fault—but much of it is.

Grand Valley State University economist Hari Singh found that if Michigan had been a right-to-work state, the auto industry would have seen a 25 percent gain in jobs since 1965. Instead, it lost 56.6 percent just between 2002 and 2009, shrinking its work force by 165,777. In a functioning market, high unemployment would lead to lower wages. But in Michigan's auto industry, Singh found, wages actually rose 18.1 percent during that time.

Unions congratulate themselves for protecting workers' wages, but they have imposed a heavy price on everyone else. Not a single foreign automaker has ever taken advantage of Michigan's legions of out-of-work but highly trained employees, preferring to train novices in right-to-work states.

The upshot is that the economies of these states grew on average 18.1 percent between 2001 and 2006, according to Paul Kersey of the Mackinac Center for Public Policy. Michigan's? It grew too—a grand total of 3.4 percent over the same five years.

Since jobs can't come to Michigan, Michigan residents have followed the jobs. Michigan lost 11.7 percent of its 25-34 age group between 1993 and 2003—while right-to-work states gained 3.8 percent. Indeed, the 2009 Census revealed that Michigan had experienced the third-highest emigration in the country. Otherwise, Michigan's unemployment situation would be even grimmer.

But the hidden costs of labor unions have become impossible to ignore, partly because Michigan's collapsing real estate market has made it hard for homeowners to sell and relocate. There is a new desperation to do something to jumpstart job growth, which is why unions are in the cross hairs.

Various polls have found that 50 to 60 percent of likely Michigan voters support a right-to-work law. Several Republican gubernatorial candidates in the last election openly discussed making Michigan a right-to-work state, something previously unimaginable. Tea party rallies increasingly tout right-to-work among the top items on their agenda. The Michigan Senate and House, both of which are under Republican control along with the Supreme Court and the governorship, have sponsored right-to-work bills.

The only weak link is Gov. Rick Snyder, who has declared that he won't push such a divisive bill, but will sign it if it comes to his desk. But even Snyder, emboldened by Indiana and Wisconsin, wants a right-to-work bill for teachers unions (whose demands have made it difficult for him to balance the state budget). If this goes through, however, it will become hard to force private companies to operate under different labor rules than the public sector, opening the floodgates to wider reform.

Either way, Michigan's efforts will encourage other Rust Belt states, all of which are grappling with moribund economies and high unemployment. Unions could stop the trend by radically scaling back their wages to spur job growth. But the new auto contract, which pretends to be all about creating "jobs, jobs, jobs," doesn't hold much hope for that. The UAW gave up mandatory raises and cost-of-living adjustments, but got hefty bonuses. More to the point, the compensation packages of older workers—95 percent of the work force—remain higher than competitors and almost certainly too high for another economic dip.

The Great Depression launched the labor movement, which promised prosperity and jobs. But the Great Recession might spell its end because it can't deliver, the jubilation about the new contract notwithstanding.

Reason Foundation Senior Analyst Shikha Dalmia is a columnist at The Daily, where this column originally appeared.