‘Winning’ Economic Policies Combine for States’ Success

‘Winning’ Economic Policies Combine for States’ Success
August 29, 2014

Scholars with the Mackinac Center for Public Policy, as well as other institutions, have often used descriptive statistics in conjunction with empirical evidence to tell stories — sometimes, profound ones.

For many reasons, Americans pick up and move. Often such moves involve economic motivations. Determing the causes of Americans’ migration from non-right-to-work states to states with such legal protections, is an interesting policy puzzle which lends itself well to descriptive statistics.

Is it just a coincidence, or is there a causal link between economic factors and migration patterns? The evidence seems to be clear: a right-to-work law makes a state more economically attractive, and tends to attract migrants.

Opportunity Ohio, a non-profit group based in Ohio, released a chart titled “Two Winning Policies for Job Growth” in which it highlights states mantaining “winning policies” for job growth, such as low personal income tax rates and right-to-work laws, as correlated with employment rates.

Of the 9 states with the greatest population growth from 2000 to 2009, 6 were right-to-work states and a seventh — Colorado — has a quasi-RTW law, its “Labor Peace Act.”

‘Statistically Significant’

Economist Richard Vedder, a member of the Mackinac Center’s Board of Scholars, examined population changes and other possible explanations including climate, taxes, population and other variables and found “without exception, in all the estimations, a statistically significant positive relationship … was observed between the presence of right-to-work laws and net migration.”

Seven of the 15 highest growth states since 1990 had no income tax. Six others maintained rates below the national average unemployment rate of 5.6 percent. Generally speaking, right-to-work states outperform forced-unionization states, as 9 of the nation’s best state economies are also right-to-work states.

One-Two Punch

The Mackinac Center’s own empirical research confirms that the presence of a right-to-work law is a powerful economic development factor.

We found that between 1970 and 2011, right-to-work status meant an average employment growth rate 0.8 percentage points higher than the rate would otherwise be. If a state would have had a 2.0 percent growth rate, right-to-work status made it 2.8 percentage points — a huge 40 percent difference.

As seen across the nation, the combination of low personal income tax rates and right-to-work laws is a particularly effective combination which encourages economic growth.

Michael D. LaFaive (lafaive@mackinac.org) is Director of the Morey Fiscal Policy Initiative, for the Mackinac Center for Public Policy. Used with permission of The MC: http://www.mackinac.org/20444