Freedom in the 50 States

Right-to-work laws make up nearly one-half of the labor regulation category and more than 2 percent of the entire freedom index. They are valued at over $10 billion a year.¹ Right-to-work laws are controversial among libertarians and classical liberals because they override collective bargaining contracts reached between employers and employee unions, allowing employers to hire workers who do not pay agency fees to a union. Then again, right-to-work laws can be justified as a means of employer and employee self-defense against the mechanisms of the National Labor Relations Act, which essentially allows an “agency shop”—where workers have to pay union dues as a condition of employment—to form if a majority of workers vote in favor of this action.

The National Labor Relations Act violates the fundamental freedom of association and basic property rights, and right-to-work laws somewhat restore those freedoms, because few employers would voluntarily agree to an agency shop in the absence of the act. Although right-to-work laws violate the rights of some workers and employers, they restore freedom of association to a far greater number. In an ideal world, both the National Labor Relations Act and right-to-work laws would be repealed, and employees and employers would be free to negotiate as they saw fit, collectively or individually.

For those who disagree with our logic, we have produced alternative indexes to the freedom index that exclude right-to-work laws (see Appendix A in the PDF).

Other policy variables in this category, in descending order of importance, are (a) short-term disability insurance requirements (the costs of which being lower labor productivity² and administrative expenses for businesses³), the legalization and enforcement of worker noncompete agreements (costs being the transfer of income from stockholders to top executives and firms’ underinvestment in worker productivity⁴), state minimum-wage laws (Kaitz index adjusted for median wages), policies dealing with workers’ compensation (funding mechanisms and mandated coverages), requirements for employer verification of legal resident status, stricter-than-federal private employment discrimination laws (smoker status, marital status, age, and others), and mandated paid family leave. A limitation of our minimum-wage measure is that we include only state-level minimum wages, not local minimum wages, in part because data on median wages aren’t available at the local level.

Southern and Midwestern states occupy the top 11 spots on labor-market freedom, and they are particularly likely to have right-to-work laws and lack a minimum wage. Most of these states are seeing significant net in-migration and income growth. Left-of-center coastal states occupy the bottom six spots. The bottom five are also marked by stagnant populations and net out-migration.