Right to Work States Attract Job-Creating Investments From Abroad   

From 2007 to 2013, Total Employment at Majority-Owned U.S. Affiliates of Foreign Firms Grew by 14.4% in Right to Work States as Group, More Than Triple the Average Increase in Compulsory-Unionism States

Economic analysts and elected officials across the ideological spectrum agree that the elimination of artificial political barriers to foreign direct investments across the U.S. is an important goal for lawmakers in Washington, D.C., and in state capitals.

A foreign direct investment, or FDI, is a controlling ownership in a business enterprise in one country by an entity based in another country. An FDI occurs when an entity buys a company in the target country, or when it expands operations of an existing business in that country.^[1]

According to an estimate made early this year by the Organization for International Investment (OFII), a nonprofit business association, “U.S. subsidiaries of global companies, known as insourcing companies, employ†roughly 5% of total private-sector jobholders.

‘Insourcing Companies . . . Compensate Their Employees at Levels’ 33% Higher Than the National Average

The OIFF also reported that “insourcing companies†had a combined payroll of $455 billion in 2013, and “compensate their employees at levels†33% higher “than the economy-wide average.â€^[2]

Since it is all but universally accepted that foreign business investments are an important sign of economic health, it makes sense to investigate which states are experiencing the greatest increases in FDI-generated employment, and which states are experiencing relatively slow growth or even declines. 

Fortunately, the U.S. Commerce Department’s Bureau of Economic Analysis (BEA) has for several years tracked the total employment of U.S. “majority owned affiliates.â€Â  According to the BEA, these are U.S. business enterprises “in which a foreign entity . . . has a direct or indirect voting interest†greater than 50%.^[3]

Such jobs data are available for all 50 states going back to 2007 up through 2013.  Overall, they show a 9.2% employment increase in majority-owned U.S. affiliates of foreign companies from 2007 (5.588 million) to 2013 (6.102 million).^[4]  That compares to an aggregate 2007-2013 increase of just 1.8% in all private-sector employment as reported by the BEA.^[5]

Eleven of the 13 Bottom-Ranking States For Job Growth at Foreign-Owned Firms Lack Right to Work Laws

While majority-owned affiliates of foreign firms have obviously provided a disproportionately large share of job opportunities for American workers in recent years, not all states have benefited equally.

And the top-ranking states for job growth at foreign-owned firms overwhelmingly have one thing in common: a Right to Work law on the books prohibiting the termination of employees for refusal to join or pay dues to an unwanted union.

Six of the eight states with the greatest percentage gains in U.S. employment at foreign-owned firms from 2007-2013 are Right to Work states.  But of the 13 bottom-ranking states for percentage gains, just two have Right to Work laws.  (Indiana and Michigan, whose Right to Work laws took effect in 2012 and 2013, respectively, are excluded from these calculations and those that follow.  Since Wisconsin did not adopt is Right to Work law until this year, it is counted as a forced-unionism state here.)

As a group, the 22 states that protected employees’ Right to Work for the entire period from 2007 to 2013 experienced a 14.4% increase in employment at foreign-owned firms, more than triple the 4.5% aggregate increase for the 26 states in which compulsory union dues and fees were still permitted as of the end of 2013.

Right to Work Advantage Also Wide in States With the Most Foreign Investment

Employment growth in Right to Work states was far more rapid, regardless of how much foreign investment they had as of 2007.  For example, consider the seven Right to Work states and the nine forced-unionism states that already had at least 100,000 jobs in majority-owned affiliates of foreign companies as of 2007.

Employment at foreign-owned firms in the seven Right to Work states grew by 11.7% from 2007 to 2013, more than quadruple the 2.8% overall gain for the nine forced-unionism states.

Right to Work laws protect the freedom of both private- and public-sector employees to keep and hold a job without forking over dues or fees to a union that is recognized as their “exclusive†(actually, monopoly) bargaining agent.

Unless they are protected by a state Right to Work law, independent-minded employees have no power to fight back against a greedy and tyrannical union boss by withholding their financial support.  And when employees have no personal freedom of choice, union bosses have little incentive to tone down their class warfare.  Employees are consequently far less likely to reach their full productive potential and reap the accompanying benefits.

That’s a key reason why not only employment at foreign-owned businesses, but almost every economic indicator, shows that forced union dues inhibit growth.

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Stan Greer is the National Institute for Labor Relations Research’s senior research associate.  He may reached by e-mail at stg@nrtw.org or by phone at 703-321-9606.   Nothing here is to be construed as an attempt to aid or hinder the passage of any bill before Congress or any state legislature.

[1] See the Wikipedia entry on “foreign direct investment.â€

[2] Open letter from OFII President and CEO Nancy McLernon, dated January 27, 2015,  to U.S. Reps. Paul Ryan and Sander Levin, at that time, respectively, the chairman and the ranking minority member of the House Ways and Means Committee.  (Ryan is now House speaker.)

[3] See Table 1307 in the 2015 edition of the Commerce Department’s Statistical Abstract of the United States, published in December 2014.

[4] See “Employment by State and Country 2007-2013†in the “Majority-Owned U.S. Affiliates (Including Banks)†section of the “Foreign Direct Investment in the United States†page on www.bea.gov – the web site of the BEA.

[5] See “Total Full-Time and Part-Time Employment by Industry†in the “Annual State Personal Income and Employment†section of the “Regional Data†page on www.bea.gov.