The practice of negotiating labor contracts that keep unnecessary workers on a company’s payroll

Econ Chapter 9 – Notes, Terms, and Definitions

Study Guide

Labor Force : All nonmilitary people who are employed or unemployed.

Outsourcing : The practice of contracting with another company to do a specific job that

would otherwise be done by a company's own workers.

Offshoring : The movement of some of a company's operations to another country.

Learning Effect : The theory that education increases efficiency of production and thus result

in higher wages.

Screening Effect : The theory that the completion of college indicates to employees that a job

applicant is intelligent and hard-working.

Contingent Employment : A temporary and part-time job.

Guest Workers : Members of the labor force from another country who are allowed to live

and work in the United States only temporarily.

Derived Demand : A type of demand that is set by the demand for another good service.

Productivity Of Labor : The quantity of output produced by a unit of labor.

Equilibrium Wage : The wage rate, or price of labor services, that is set when the supply of

workers meet the demand for workers in the labor market.

Unskilled Labor : Work that requires no specialized skills, education, or training.

A right-to-work (RTW) law gives workers the freedom to choose whether or not to join a labor union in the workplace. This law also makes it optional for employees in unionized workplaces to pay for union dues or other membership fees required for union representation, whether they are in the union or not.

Right-to-work is also known as workplace freedom or workplace choice. While the name of the law implies that it provides freedom to workers, critics argue that it weakens unions and empowers corporations instead.

• A right-to-work (RTW) law gives workers the choice of whether or not to join a union.
• States without right-to-work laws often require employees to pay union dues and fees as a term for employment.
• Proponents of right-to-work laws maintain that workers shouldn’t be obliged to join a union.
• Critics also argue that right-to-work laws weaken union power and benefit corporations.
• Research shows that states with RTW laws see higher employment but lower wages for workers (but higher executive pay). Studies also point to lower unionization rates.

Currently, 27 states have passed right-to-work laws, giving employees the choice of whether or not to join a union. Right-to-work laws in these states prohibit contracts that require workers to join a labor union in order to get or keep a job.

States without right-to-work laws require employees to pay union dues and fees as a term for employment. While labor unions are still fully operative in right-to-work states, the law protects these states’ employees by making payment of union fees an elective decision not bound to the employees’ employment contracts.

As of early 2021, there is no federal right-to-work law. The law only applies in states that choose to enact it.

In 1935, the National Labor Relations Act (NLRA), or the Wagner Act, was signed into law by President Franklin Roosevelt. The Act protected the rights of employees to create a self-organized organization and mandated employers to engage in collective bargaining and employment negotiations with these self-organized organizations, called labor unions. Employees were also compelled to pay the union for representing and protecting their interests. The NLRA required union membership as a condition for employment, thereby restricting employment to union members only.

In 1947, President Harry Truman amended parts of the NLRA when the Taft-Hartley Act was passed during his presidency. Truman initially vetoed the bill when it arrived on his desk, stating that the Act would be "unfair to the working people of this country," understanding that it would serve to weaken union membership and collective bargaining power. In the end, Congress overturned Truman's veto.

The Taft-Hartley Act effectively created current right-to-work laws, which allow states to prohibit compulsory membership in a union as a condition for employment in the public and private sectors of the country.

In February 2021, Congress re-introduced the National Right to Work Act. It would give employees nationwide a choice to opt-out of joining or paying dues to unions. The Act was also introduced in 2019 and 2017 but stalled.

In March 2021, the United States House of Representatives passed the Protecting the Right to Organize Act (PRO Act). The pro-union legislation overrides right-to-work laws and would make it easier to form unions. The PRO Act faces an uphill battle in the Senate, as most Republicans oppose it.

The following states have right-to-work laws: Alabama, Arizona, Arkansas, Kansas, Florida, Georgia, Idaho, Indiana, Iowa, Kentucky, Louisiana, Michigan, Mississippi, Nebraska, Nevada, North Carolina, North Dakota, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, Wisconsin, and Wyoming.

Proponents of right-to-work laws agree that workers shouldn’t be obliged to join a union if they are not interested. These supporters believe that states with a right-to-work law attract more businesses than states without it. This is because companies would rather function in an environment where workplace disputes or threats of labor strikes would not interrupt their daily business operations.

Advocates of these laws also agree that right-to-work states have a higher employment rate, after-tax income for employees, and a lower cost of living than states that have not implemented this law.

Critics maintain that workers in right-to-work states earn lower wages compared to those in the states that don't have the law. Opponents also argue that since federal law requires unions to represent all workers, regardless of whether they pay union dues, free riders are encouraged to benefit from union services at no cost to them. This increases the cost of operating and maintaining a union organization.

In addition, critics claim that if businesses are given a choice to do without unions, they are likely to lower the safety standards set in place for their employees. And by making it harder for unions to operate and represent workers, economic inequality will be exacerbated, and corporate power over employees will increase significantly.

Economists have looked at employment growth in regions with and without right-to-work (RTW) laws over the past decades. On net, they find that states with RTW laws have shown an increase in the manufacturing share of employment and increased labor participation. However, while employment levels are higher, average wages among workers also tend to be lower. Meanwhile, dividends to shareholders and executive compensation has increased post-RTW.

Studies show that states with right-to-work laws have seen a dramatic decrease in union membership and unionization rates. Other research suggests that RTW laws impact corporate policies by decreasing that bargaining power.

As of 2022, 28 out of the 50 states in the U.S. have right-to-work laws in place.

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