Why do foreign companies investing in the USA continue to gravitate to right-to-work states?

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pohnpei397 eNotes educator| Certified Educator

The reason why foreign companies seeking to locate in the United States tend to locate in right to work states is the same reason that many domestic companies that are able to move to such states do move.  The reason is that right to work states typically offer lower wages than states in which unions are allowed to enforce closed shop rules.

In economic terms, labor unions typically reduce the supply of labor.  They require companies to buy labor only from people who are in the union.  They try to negotiate work rules that will result in the highest possible number of jobs.  They do this because they want the highest possible wages and best possible conditions for their members.  The problem is that a reduction in the supply of labor, economically speaking, inevitably pushes the price of that labor up.  This means that a unionized work force is going to, all other things being equal, cost more than a non-unionized work force.

In today’s hyper-competitive and globalized market, companies can typically not afford to incur costs above the minimum.  Therefore, they naturally gravitate to states where labor costs are lower so that they can be more competitive with all the other companies in their industry.