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July 29, 2014

The Clear Winner: Right-to-Work Compared to Minimum Wage

Right-to-work coincides with increased wages in Michigan, while minimum wage kills jobs.

The U.S. Department of Commerce’s Bureau of Economic Analysis released data this week that is sure to further stir the debate over how to improve wages in America. It turns out that Michigan, which became a right-to-work state in 2012, saw its per-capita personal income rise from $38,291 in 2012 to $39,215 a year later. This was the ninth highest income increase in the country.

Right-to-work laws essentially give workers the opportunity to pursue employment without having to pay dues to unions, who frequently use that money to secure political power at the expense of worker protections. Michigan, a state where unions have held sway for decades, shocked the country when the state’s Republican lawmakers passed a right-to-work law. Union-backed Democrats predicted an employment catastrophe, expecting the state to plunge into some sort of feudal system. That didn’t happen, and although the one-year gain is modest, it certainly offers encouragement for other states looking to find ways to boost incomes.

Richard Vedder, an economics professor at Ohio University, noted in an extensive study released this week, “Incomes rise following the passage of RTW [right-to-work] laws, even after adjusting for substantial population growth that those laws also induce.”

It’s certainly a better way to go than increasing the minimum wage. The White House and Democrats in Congress still cling to the backwards idea that raising the minimum wage will actually reduce unemployment. But it’s hard to see how making workers more expensive to hire will be more attractive to companies looking for help. Then again, liberals aren’t known for their skills in economics.

The minimum wage applies to only one in 20 workers, most of whom are under 24 or unskilled. A Heritage Foundation analysis of Bureau of Labor Statistics data from all 50 states between 1990 and 2013 found that teenage unemployment rates are higher and labor participation is lower in states with minimum wages greater than the federal minimum. In 2007 and 2008, the federal minimum wage was raised three times, and, as a result, the national teen unemployment nearly doubled.

The economy has improved to some degree, but unemployment and underemployment remain stubbornly high for a large portion of the working population. Teenagers, who stand to earn substantially more as adults if they work during their school-age years, have been priced out of the labor market. Raising the minimum wage again will further hurt their situation. Employers are simply not going to hire young workers with no job experience at $10 an hour. One solution is to create a teen wage of $5 or $6 an hour. Another option would be to let the market determine what a job is worth rather than leave the decision to social engineers in Washington.

In essence, the difference in these two approaches is this: Right-to-work allows for greater access to jobs, while a government mandated minimum wage prices some prospective workers out of those jobs. Which one makes more sense if creating jobs is the objective?

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