August 13, 2021
State-Level Costs of the Protecting the Right to Organize Act
- Three major Protecting the Right to Organize (PRO) Act provisions – repealing right-to-work legislation (RTW), reclassifying independent workers as full employees, and broadening the joint-employer standard – would bring significant economic costs in an effort to increase union power at the expense of worker freedom and small businesses.
- Between 2000 and 2015, RTW states saw a 13.3 percent increase in the number of businesses while non-RTW states only saw 4.1 percent growth in businesses.
- The PRO Act’s independent worker reclassification provision alone could cost as much as $57 billion nationwide.
- The PRO Act’s joint-employer changes would cost franchises up to $33.3 billion a year, lead to over 350,000 job losses, and increase lawsuits by 93 percent.
- State-by-state analysis of these provisions indicate that the right-to-work states that would be most negatively affected by the PRO Act are Arizona, Florida, Georgia, Indiana, Louisiana, Nevada, North Carolina, South Carolina, Texas, Tennessee, and Virginia.
The Protecting Right to Organize (PRO) Act is sweeping legislation at the center of the Biden Administration’s labor policy. Previous American Action Forum (AAF) research has examined the potential consequences of this legislation on the nation as a whole. Some provisions of the PRO Act, however, would have strikingly different impacts across the states. In particular, the PRO Act would repeal right-to-work (RTW) legislation currently in effect in 27 states. Those workers would no longer have the choice of whether or not to join unions and could be forced to pay union dues. In addition, independent worker reclassification and a broad joint-employer standard would also have differential impacts across the states. This analysis examines the impact of these three provisions, with an emphasis on quantifying the impact on each state.
Right to Work and the PRO Act
RTW laws, now found in 27 states nationwide, dictate that union membership cannot be made a condition of employment and makes compulsory union dues illegal. The empirical evidence suggests that affording workers the choice to participate in unions results in increased employment, greater regional investment, and enhanced productivity. Thus, pre-empting RTW laws would carry a significant economic price tag. RTW laws also guarantee workers’ freedom of association and keep unions accountable for the workers they represent, unquantifiable benefits that would be lost if the PRO Act were enacted.
Right to Work and Employment
The benefits of RTW laws on employment reverberate levels beyond typically unionized industries to benefit entire state economies. According to a 2017 report from NERA Economic Consulting, states with RTW laws witnessed 26.7 percent employment growth from 2001-2016, compared to only 15.4 percent growth in non-RTW states. The Competitive Enterprise Institute examined this effect over an even longer period, 1973- 2012, finding that employment growth in RTW states more than doubled that of non-RTW states.
More recently, looking at year-to-year changes in employment from 2016-2019, RTW states outpaced non-RTW states in employment growth. In 2017 and 2018, for example, states with RTW laws averaged between 1.5 percent and 2 percent employment growth, whereas non-RTW states hovered around 1 percent growth.
Unemployment rates are consistently lower in states with RTW laws, too. Since the end of the Great Recession, average unemployment has never been higher in RTW states than non-RTW states, with an average difference of almost 0.5 percent. Given the benefits that come with RTW legislation, it is likely that these states have an advantage in the current economic recovery.
Right to Work and Investment
The increased employment in RTW states is in part due to increased investment, often in the form of relocations of major businesses. Though there is a host of anecdotal evidence suggesting that businesses often choose to relocate to RTW states, the data support the claim that RTW states have preferable business environments. Specifically, from 2000 to 2015 states without RTW laws saw only a 4.1 percent increase in the number of businesses, while RTW states had a pronounced 13.3 percent increase.
Businesses also openly testify to the importance of RTW status for determining their location. According to a poll conducted by Site Selection Magazine, about 50 percent of survey respondents said that RTW is a “box that must be checked” when deciding where to invest. In a more recent survey of 500 CEOs, over half indicated a preference for locating in states with RTW laws.
In short, RTW laws play an integral role in state-level investment and location decisions and contribute to a more productive, pro-business environment.
Beyond the economic benefits of RTW laws are the intangible values of upholding freedom of association protected by the First Amendment. The Supreme Court has already recognized the inextricable relationship between voluntary union membership and freedom of association, finding that an Illinois law permitting unions to extract fees from nonunion members was unconstitutional in Janus v. American Federation of State, County, and Municipal Employees, Council 31.
As surveys consistently indicate, workers value free choice. Thus, economist Christos Makridis finds RTW laws have a statistically significant impact on individual well-being and economic sentiment. The paper concludes that “the adoption of right-to-work laws has increased individual well-being and economic optimism, even after controlling for a wide array of time-varying state and individual factors and time-invariant differences across location and time.” Survey data find that worker sentiment is also in favor of the protections that RTW legislation provides, with 70 percent of voters concerned that the PRO Act would abolish RTW and force workers to pay union dues. In sum, RTW laws have a positive impact on employment, investment, and attitudes, while also upholding workers’ constitutional protections. If passed, the PRO Act would reverse these positive effects, especially in the 27 states with RTW laws.
Independent Workers and the PRO Act
The PRO Act would impose a mass reclassification of independent workers as full employees. Among the 27 states that would be affected by the repeal of RTW laws, states with high concentrations of independent workers would be disproportionately affected The independent workforce is a rapidly growing segment of the labor force. It features higher wages and greater flexibility for workers, and more rapid economic growth overall. Reclassifying independent workers as full employees erases these benefits and would put upward cost pressure on employers, especially in Arizona, Florida, Georgia, Nevada, North Carolina, Texas, and Virginia (see appendix for all states).
Independent Workers and Wages
Independent work allows individuals to supplement existing sources of income or to accumulate as a cushion against economic instability. During the pandemic, for example, 12 percent of the workforce reported turning to some form of freelancing. Of those, 75 percent reported doing so for financial stability during a time of economic unrest. Out of the workers who left the traditional work model, 65 percent report an increase in earnings. Of those workers, 57 percent saw this increase in 6 months or less, and in 2020, wages and participation in the independent workforce rose 33 percent. In total around 59 million workers report participating in the independent workforce over the last year.
Independent Worker Flexibility
Another crucial element of independent work is the ability for workers to set their own schedules. The PRO Act would make definitional changes to the National Labor Relations Act (NLRA) in an effort to forcibly reclassify many independent contractors as employees. This reclassification would be contrary to the wishes of most independent contractors; data from the Bureau of Labor Statistics’ (BLS) 2018 Contingent Worker Survey show that, if given the opportunity, less than 1 out of every 10 independent contractors (ICs) would prefer a traditional employment relationship. ICs enjoy valuable flexibility, entrepreneurial opportunity, and a level of autonomy not typically found in hourly employment.
Independent workers often voluntarily choose to enter this segment of the labor force because of their other responsibilities. Survey data find that 48 percent of independent workers are caregivers (to parent or child) and 33 percent have a disability or have someone in their household with one. Caregiving continues to be a challenge when it comes to labor force participation, particularly for women. The system of independent work allows caregivers to enter the labor force who may otherwise not be able to obtain the flexibility they need in the traditional work environment. It is therefore not surprising that research finds women self-select into jobs with greater temporal flexibility, which explains why participation in independent work has grown significantly more among women than men.
Independent Workers and Economic Growth
Independent workers contribute over $1.21 trillion, roughly 6 percent, to U.S. gross domestic product (GDP). AAF estimates found similar results, that the independent labor force implicates 8.5 percent of GDP. The proportion of individuals reporting themselves as full-time independent workers continues to grow. In the last year alone, 36 percent of workers reported engaging in independent work in a full-time capacity, compared to 17 percent in 2014. Future projections (to 2025) estimate a 3.6 percent annual growth rate in number of independent workers. This rate is two and a half times the overall employment rate growth projected by the U.S. Bureau of Labor Statistics and 50 percent faster than the rate at which the independent workforce has grown in the past 5 years.
Large-scale reclassification mandated by the PRO Act would deprive workers of the aforementioned wages, choice, and flexibility. It would also bring significant costs to employers. To calculate the costs of reclassification, data from the Chamber of Commerce was used to estimate the number of independent workers by state. The latest regional Employer Costs for Employee Compensation data for legally required benefits of full employees were used to identify the upward cost pressure that employers would face due to reclassification. This analysis does not estimate the effects of alternative cost saving measures that employers could take, such as laying off workers or passing on increased costs to consumers. Not only would reclassification affect the 59 million workers (30 percent of the labor force) who reported being part of the independent workforce, but it would significantly interrupt small business operations in addition to the traditional worker. This analysis indicates that RTW states facing the greatest costs from reclassification are Arizona, Florida, Georgia, Nevada, North Carolina, Texas and Virginia (see table below). Nationally the total cost amounts to $17 billion at the 15 percent reclassification level and $57 billion at the 50 percent reclassification level.
State-level Reclassification Costs
|RTW States||Number of Independent Workers||Percent of Independent Workers||Cost of Reclassification ($) – 15 percent of workers||Cost of Reclassification ($) – 50 percent of workers|
Joint-Employer and the PRO Act
The PRO Act would also significantly affect how business is conducted by broadening the joint-employer standard to situations in which a firm has direct or indirect control over an employee, rather than just direct control. Being deemed a joint employer comes with various obligations including being liable for any NLRA violations and being responsible for bargaining with any unions that represent the joint employees. There is also an incentive to bring more work in-house, ultimately hurting small local businesses and vendors.
A broadened joint-employer standard would significantly affect franchising, a unique business model that allows individuals to start and run small businesses. Franchisees operate their business independently, but with the foundation of the established brand of the franchisor, often leading to greater job growth than non-franchises. A broadened joint-employer standard could completely upend this model that provides employment for millions. Research surrounding a broadened standard finds that it would cost franchises $33.3 billion a year, lead to over 350,000 job losses, and increase lawsuits by 93 percent.
The potential change to a broader joint-employer standard would affect states differently depending on the prevalence of franchise agreements and franchise employment. RTW states that could experience significant consequences as a result of a broadened standard include Wyoming, North Carolina, South Carolina, North Dakota, Nevada, and Tennessee. (See Table.) Among all RTW states, franchise employment represents at least 4.5 percent of total employment and nearly 5 million workers.
State-level Franchise Employment
|State||Franchise Employment||Percent Franchise Employees|
The PRO Act would significantly shift power into the hands of unions at the expense of workers and small businesses. The state-level effects would vary significantly, but the costs surrounding three major provisions in the Act – repealing RTW legislation, independent worker reclassification, and broadening the joint-employer standard – provide an indication of those states that would face higher costs and challenges should the legislation pass.
|State||RTW||Number of Independent Workers||Cost of Reclassification ($) – 50 percent of workers||Franchise Employment|