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July 2004

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Locked in on Labor

Right-to-work laws turn the Southeast U.S. into a factory for the world.

      and JOHN McCURRY
Florida biotechnology research at work
Florida biotechnology research at work


ne reason you don't find many labor lockouts in the Southeast U.S. is because global manufacturers are locked in on the region's right-to-work status.
      Even as governors in the Northeast and Midwest bemoan the loss of manufacturing jobs to overseas locations, the American South reaps a whirlwind of factory activity. Experts who study these trends say that the impact of labor legislation in the South -- while not usually credited with swaying a corporate decision to locate there -- is often the driving site selection factor.
      "Right-to-work is vitally important," says Mark Vitner, vice president and senior economist for Wachovia. "Companies are having to restructure the nature of work. They are having to redefine the entire work process. Right-to-work status enables the companies to have equal leverage [with] the unions."
      Vitner cites a case in point.
      "A tool company relocated to Charlotte (N.C.) because it had 139 work rules for 119 jobs in Utica, N.Y.," the economist says. "The union filed a grievance for a worker who carried in his own box of personal items like pictures. If unions are getting in the way of allowing companies to be productive, they are writing their own pink slip."
      A right-to-work law secures the right of employees to decide for themselves whether or not to join or financially support a union. Such laws do not apply to railway and airline jobs, and in certain cases the rules may not apply to federal workers.
      One look at the map shows the difference between North and South. Every state below the Mason-Dixon line has enacted right-to-work legislation. In the Midwest and Northeast, only one state has made it law: Iowa. Vitner calls it a productivity issue, not just a matter of wages and hours.
      "If companies cannot find ways to increase productivity, they are going to shut down and relocate, particularly in a time when they are facing increasing competition from China and India," Vitner says. "In the Southeast, businesses, workers and government all seem to be working together, while in other areas they pull apart."
      One expert who has spent decades studying labor trends throughout the South concurs. David Brandon, president of The Pathfinders, a Dallas-based consulting firm, says there is a clear reason why the South is the predominant choice for factory locations.
      "Number one is productivity," Brandon says. "Without exception, the productivity you find in manufacturing and export sectors is very, very high. It is six-to-seven percent on average higher than what you experience in the Northeast and certain Midwest states, in terms of worker output per hour and wage dollar. You can expect better labor performance and presumably higher profitability in that region."
      Brandon says that right-to-work status has become increasingly important for the manufacturing employers for whom he conducts location research.
      "About 35-to-40 percent of manufacturing enterprises in the automotive industry insist on operating in a right-to-work state. Another 20-to-25 percent say it is a very important factor and will be used as a second- or third-tier factor in site selection. More than half of our companies either make it a threshold or a very important factor in making a decision on where to locate a factory and other operations," he says.
      "In the financial services industries, shared-services centers and document centers, where they utilize high numbers of highly trained individuals, roughly half of these companies have included right-to-work as a primary site selection factor," Brandon continues. "You will probably look at 22 other states before you look at a non-right-to-work state. It is more important than it was a decade ago."


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