Top States for Business

An American workplace war that's reached a tipping point

The great trade debate: How to help the middle class
The great trade debate: How to help the middle class

The debate has America split—literally.

With Wisconsin's adoption of so-called right-to-work legislation earlier this year, 25 states now prohibit mandatory union dues, and with legislation being pushed in several more states, the right-to-work movement is talking about a national "tipping point."

Under right-to-work legislation, no person can be compelled, as a condition of employment, to join or not to join a labor union or pay dues.

Republican legislators in Missouri passed a right-to-work measure this month, but Democratic Gov. Jay Nixon has said he will veto the bill. A bill almost passed in New Mexico, and backers are pushing similar legislation in Illinois, Kentucky, West Virginia, Maine, Pennsylvania and Ohio.

There are even growing calls, at least in Republican circles, for a national right-to-work law. While backers claim the laws attract business and create jobs, opponents, led by organized labor, don't intend to let the balance tip without a fight.

The 25 Right-to-Work States (shaded in red)

(Source: AFL-CIO)

Many right-to-work states are proudly brandishing their laws as part of the battle to attract businesses.

A good place to start is Iowa.

If you're thinking of locating or expanding a business in Iowa, it's one of the first things you'll see in the "Why Iowa" section of the state Economic Development Authority's website, right after a couple lines about agriculture: "Iowa is a right-to-work state."

Iowa—or at least its economic development community—is proud of the state law barring compulsory union dues. It is one of the oldest right-to-work statutes in the country, passed in 1947 at a time when mostly just southern states were adopting the policies.

It may benefit employers not to negotiate with employees and to pay less, but that's different from saying this is going to help a state's economic development.
Gordon Lafer
University of Oregon economist
Ranking the top states for business in 2015
Ranking the top states for business in 2015

For some in Iowa, the state's long right-to-work heritage was not enough. Legislation introduced in 2011 would have required the state Economic Development Authority to include the phrase "Iowa is a right-to-work state" in "bold letters on all business recruitment, tourism, and promotional literature."

"Let's give Iowa the most competitive business climate in the nation," said House Republican Leader Linda Upmeyer in a floor speech on the opening day of the 2011 session. "We can start right away by proudly advertising that here in Iowa we are a right-to-work state."

Read MoreGood news for American workers: You matter again

Former State Representative Lance Horbach, who introduced the legislation, recalls that he knew it probably wouldn't go anywhere, and he was right. But he tells CNBC he was concerned about a movement by state officials at the time to de-emphasize the law.

"It's a proven statistical fact that businesses were looking for right-to-work states," he said.

Today, Iowa advertises its right-to work-status anyway, even though there is no law requiring it to.

University of Oregon economist Gordon Lafer said that "proven statistical fact" is anything but.

"There is no evidence whatsoever that right-to-work is a significant draw," he said.

Wisconsin laborers chant 'Union Strong' during a rally inside the Wisconsin State Capitol as the State Assembly debates the right-to-work bill in Madison, on March 5, 2015.
Amber Arnold | Wisconsin State Journal | AP

Proponents say right-to-work laws guarantee freedom for employees by making it illegal to force them to pay union dues in order to get or keep a job. Opponents say the laws are primarily meant to weaken unions—which the proponents don't exactly deny—and workers who benefit from union representation should pay their fair share.

Lafer, who is also a research associate at the left-leaning Economic Policy Institute, said while right-to-work states do tend to offer lower wages than states without the laws—around 3 percent lower, on average—the difference is not nearly enough to prevent employers from chasing even lower wage costs overseas.

He points to North Carolina, a proud right-to-work state that was once the heart of the U.S. textile industry. Since the North American Free Trade Agreement (NAFTA) took effect in 1994, the state has lost more than half its non-durable goods manufacturing jobs, nearly all going offshore.

Read MoreTop States for Business 2015: Coming soon

Lafer considers Oklahoma the prime example of a state where right-to-work legislation failed to live up to the promises. The state adopted right-to-work legislation in 2001, making it the only state that adopted a right-to-work law post-NAFTA where enough time has passed to provide ample data. The predicted flow of new jobs to the state never happened. Indeed, U.S. Bureau of Labor Statistics figures show the state lost jobs for three years after the law passed.

"They lost a lot of auto jobs," Lafer said, "but they lost them to Mexico."

Working for a living standard

Referencing the 3 percent decline in wages, Lafer said right-to-work laws tend to backfire on states by lowering living standards—and in addition to lower wages, people in right-to-work states are less likely to have employer-provided health care. That is a particular problem for small-business owners, who tend to be rooted in their communities. In a right-to-work state, their customer base has less disposable income. "When you do anything that lowers wages, that's a problem for these companies," Lafer said.

Lafer and other right-to-work opponents argue that states that adopt the laws in hopes of boosting their economy are being shortsighted. "It may benefit employers not to negotiate with employees and to pay less, but that's different from saying this is going to help a state's economic development," he said.

Businesses, of course, are more concerned with their own development than with public policy, which may help explain why roughly two-thirds of the members of CNBC's Global CFO Council responding to a recent survey said right-to-work laws were "important" or "very important" in their firms' decisions about where to locate or expand.

Before Wisconsin, the last two states to adopt right-to-work laws were Indiana and Michigan, in 2012 and 2013. Previous to that was Oklahoma, in 2001.

The National Right to Work Committee and AFL-CIO agree on one thing: The workplace war has escalated and will continue—they just don't agree on which way it will tip.

"There's no question that passage of the Wisconsin right-to-work law is putting pressure on the 25 other states to ensure that no worker can be fired for refusing to pay union dues," said a spokesman for the National Right to Work Committee in a statement.

Peggy Shorey, an AFL-CIO director and its state government affairs and deputy director of government relations, said, "Since 2011, there has been a concerted and growing legislative effort by extreme politicians, financed by corporate billionaires, to attack workers. Deceptive right-to-work legislation is wrong for America's working families—and over the past few years, workers have successfully fended off many of these attacks on our freedoms, wages and safety."