February 1, 2017

Andy Puzder and the Fallacies of a National “Right to Work”

The masters, being fewer in number, can combine much more easily; and the law, besides, authorises, or at least does not prohibit their combinations, while it prohibits those of the workmen. We have no acts of parliament against combining to lower the price of work; but many against combining to raise it.

Adam Smith, The Wealth of Nations, Book I, Chapter VIII

Department of Labor nominee Andrew Puzder, if confirmed, will be a stark departure from his predecessor, Tom Perez. Perez pursued aggressive rule changes that often pushed the boundaries of constitutionality, and betrayed a lack of trust in employers and employees to bargain for things like overtime pay and sick leave on a voluntary basis.

Puzder, on the other hand, appears to be a staunch defender of freedom of contract. And economic freedom, whether it’s the freedom to work as contractor or to work at a freely negotiated wage, is a principle worth defending. But it remains to be seen whether Puzder will stand up for freedom of contract even when it goes against conventional Republican ideology. If not, he risks merely becoming the conservative version of Tom Perez: a top-down regulator, pushing the boundaries of constitutionality, but playing for a different team.

A Nationwide “Right to Work”?

Nationwide “Right to Work” legislation is likely to be the biggest and most important test of whether Puzder genuinely stands on principle for freedom of contract, or is a social engineer in a de-regulator’s clothing. It is difficult to find a statement by Puzder on the issue of Right to Work. However, it is not hard to infer his antipathy towards unions more generally from his opposition to past National Labor Relations Board decisions that would have made unionization easier, for example, within franchises.

A key clarifying question during his hearing should be whether he supports national Right to Work legislation, and why. A bill to that effect was introduced by Senator Rand Paul in the 114th congress, attracting 29 co-sponsors. With Republican majorities in the House and Senate, it is sure to make another appearance. Update: National Right to Work legislation was introduced today by Reps. Joe Wilson of South Carolina and Steve King of Iowa. 

Contrary to its rhetoric, Right to Work legislation has relatively little to do with liberty or promoting economic freedom. Today, 27 states have some form of right to work legislation, with proponents contrasting them to states with “forced unionism.” Yet there is no force or coercion entailed by a private sector union requiring that new employees join and pay dues. These are known as “union security agreements” and are made with the employer. Corporations, which also represent collective interests, impose similar contractual obligations on their workers all the time, on a take-it-or-leave-it basis. If freedom of association and contract are truly sacrosanct they include the freedom of labor to organize and collectively bargain for whatever contractual conditions on employment they want.

States with Right to Work legislation as of January 8th, 2017, according to the National Right to Work Committee.

States with Right to Work legislation as of January 8th, 2017 are in blue. Source: the National Right to Work Committee.

Critics of union security agreements nonetheless point to the National Labor Relations Act which requires employers to bargain with a representative selected by a majority of union members, a principle known as “exclusive representation.” This also means a union boss is required to represent non-union employees, as well as those union members that do not comprise the majority.

This complicates the freedom of contract defense of union security agreements, but it is by no means conclusive. On the one hand, exclusive representation is itself a compromise to freedom of contract since it requires, by statute, that employers negotiate with a union representative who, by statute, represents the whole unit. Some thus argue for Right to Work legislation as a kind of corrective, including our beloved F.A. Hayek. This argument echoes the Theory of the Second Best in economics, which shows that a welfare-reducing market distortion created by one government intervention may be partially corrected by additional interventions. While a tempting argument, there is, empathetically, no analogous theorem for undoing freedom-reducing distortions.

Others argue that exclusive representation weakens the case for Right to Work laws, since when the two laws are in combination, it creates a situation where non-union members get the fruits of collective bargaining without having to contribute. There is something to this, and it points towards amending the NLRA to allow “members only unionism” where a plurality of employees may collectively bargain for exclusive benefits. Indeed, as long as national legislation is on the table, nationalizing Right to Work — a second best policy crafted at the state-level in lieu of a national effort to amend the NLRA — seems like a basic lack of imagination. Suffice it to say that, if Puzder takes issue with exclusive representation, he ought to say so directly, and not evince support for legislation that would correct one curtailment of freedom with another.

The Myth of National Competitiveness

Of course, Right to Work legislation could also be supported on purely social-welfare grounds. Yet at the level of economics, the chief effect of Right to Work legislation is to shift the relative costs of employing labor over capital in favor of labor. Right to Work states thus tend to attract more labor intensive industries. The usual statistics cited by advocates show an increase in manufacturing employment following legislation, yet the same statistics can be construed as the manufacturing base simply shifting into more labor-intensive industries, or even as a decline in manufacturing productivity — explaining why Right to Work states also tend to have depressed wages. Either way, more comprehensive study shows that Right to Work legislation produces a wide variance of effects on manufacturing employment, some up and some down, making positive stories easy to cherry pick. Once any transitory effects shake out, it is tough to detect any aggregate employment advantage at all.

Paul Krugman — the good, neoliberal Paul Krugman of the 1990s — was right to argue that it’s not possible to have a comparative advantage in everything, and that “national competitiveness” is a myth. Firms compete, not states or nations. And yet this sometimes seems to be the tacit presupposition of traditional conservative labor market policy, conflating “competitiveness” with wage restraint. Right to Work supporters, too, blur the line between being pro-market versus pro-business. One hopes that Puzder is different.

The main worry one should have with a Department of Labor nominee like Andrew Puzder is not that he will be “anti-labor,” per se. But rather that, as someone whose thinking has been shaped by one of America’s most labor-intensive industries, his policy prescriptions will be unduly biased against capital-intensive industries. In that sense, the bigger worry is that Puzder will be too pro-labor, insofar as a nation-wide initiative to weaken worker’s freedom of association and contract would systematically disadvantage those industries which employ the least labor per unit of output.