A new report published by the Center of the American Experiment argues that Minnesota has missed growth opportunities because of our free-bargaining policy. But the report's own data, covering 1970 to 2010, show that Minnesotans' average personal incomes grew faster than the U.S. average. We started below average and are now well ahead.
Though this evidence seems to recommend Minnesota as a model, the report stretches to draw a different conclusion: "Had Minnesota grown as much in the first decade of the twenty-first century as it did in the last decade of the twentieth, per capita incomes would have ended the decade an extraordinary $8,972 higher per person. ... Minnesota's recent sluggish growth almost certainly reflects rather meager rates of accumulation of human and physical capital... [and] below-average adaptation of the state to innovations and technological changes."
The report says RTW will get us back on top because reducing wages in the short run will attract globe-trotting capital to Minnesota and raise earnings over time.
In truth, Minnesota's decline in income growth last decade was due to the severe recession set off by the 2007 financial crisis. Growth rates fell everywhere. Minnesota labor law didn't cause the problem, and changing the law won't solve it.
Two independent economists recently reported on how wages changed after Oklahoma adopted RTW in 2001, compared with similar states that did not adopt RTW. After the adoption of RTW, wages for nonunion workers in Oklahoma fell behind. After 10 years, Oklahoma employees are still waiting for the promised "long run" wage boost to kick in.
I wouldn't hold my breath. I'd move to Minnesota.
It's true that adapting to new economic realities and building human capital are central challenges facing Minnesota. But we should not emulate the policies of RTW states. They are meeting those challenges badly and losing ground.
In 2010, the Kauffman Foundation ranked states on how well "the structure of state economies match the ideal structure of the New Economy." Minnesota ranked 13th out of 50 -- good, but not great. However, 20 of the 22 states that had RTW at the time ranked below Minnesota. Nine of the top 10 states were free-bargaining states like Minnesota, while 8 of the bottom 10 states were RTW states.
It is also informative to look at changes in this ranking for states that most recently switched from free-bargaining to RTW. They believed the promises of RTW advocates. How is that working out?
In the 35 years prior to 2012, only Oklahoma and Idaho adopted RTW. Today they are failing to adapt to the new economy. Oklahoma experienced the single biggest drop in Kauffman's New Economy rankings, falling from 33rd in 2002 to 42nd in 2010. The best that can be said about Idaho is that it did not fall as far as Oklahoma, though it did fall from 20th to 27th.
How has Minnesota fared over the same years with our free-bargaining policy? We climbed one spot, from 14th to 13th. While we have more work to do, the evidence does not suggest that free-bargaining hampers innovation.
On the challenge of building human capital, free-bargaining Minnesota is again outperforming RTW states. Our median personal income is higher than 21 of the 22 states that had RTW before this year, as is our per capita economic output, our share of adults in the labor force, our share of population with a high school diploma and our share with a bachelor's degree. We have a lower poverty rate and a higher share of residents with health insurance than all of those 22 states. Minnesota also beats them all on eighth-grade math scores and ties for the top on reading.
We don't just beat the RTW average -- we beat the whole group again and again on measure after measure of human-capital accumulation.
The RTW low-wage strategy would be a retreat from what differentiates Minnesota and gives us our competitive advantage. Employers value Minnesotans' work ethic, our well-educated and creative workforce, and the high quality of life Minnesota communities provide. Going into competition for low-wage jobs against southern states, China and Bangladesh is a losing strategy. That's why state economic development officials now focus on attracting higher-tech, higher-wage companies providing jobs that can support local families and that are less likely to be shipped abroad.
Another argument for RTW is that free-bargaining policies violate employees' economic liberty. However, federal labor law guarantees every employee at any workplace the choice to belong to a union or not and to contribute to union political activities or to opt out. State RTW laws add nothing to this but hot air.
Minnesota and the 26 other free-bargaining states allow employees and employers to negotiate and sign a private, voluntary contract that determines the condition of employment in a work group. Conditions of employment usually include wages, benefits and payment of "fair-share" fees to cover the costs of employees' working together to advocate for themselves at work. Wherever fair-share fees are required, both the employer and the majority of employees have agreed to it. RTW laws bar these private, voluntary agreements.
RTW is designed to make it difficult for employees to join together by ensuring that every single employee is tempted to shirk.
Should condo owners be forced to pay association fees just to live where they want? Should we pass a "right to squat" law that frees condo owners from compulsory association dues approved by majority vote? It is irresponsible to demand the benefits of a group arrangement while refusing to bear the costs. But this is exactly the "liberty" RTW demands.
Minnesota's past and future successes depend on our capacity to produce and support a high-productivity, high-skill workforce. We have many ways to do this, and choosing among them should be the central focus of our economic policy debates.
RTW is a false promise that risks dividing us from one another and distracting us from seizing the opportunities ahead.
Aaron Sojourner is an economist at the University of Minnesota's Carlson School of Management.