• The Pope gets married.Five-Dollar-Bills-iStock_000004738273XSmall-327-300x199
  • Saudi Arabia opens pork shops.
  • The Cubs win the World Series.
  • And Michigan is now a right-to-work state.

Let me repeat, Michigan is now a right-to-work state.

The governor of Michigan signed two laws yesterday making Michigan a right-to-work state. Translation: Workers in a unionized shop can opt out of having dues deducted from their paycheck, in effect, giving them the choice of leaving the union. When similar legislation impacting public employees was enacted in Wisconsin, more than 70% of employees did not bother to voluntarily mail a check to their union.

Michigan is the birthplace of large industrial unions in the U.S., notably the United Auto Workers. Unions vow to get the laws repealed by referendum or other political means – getting rid of the governor and so on. The symbolism is powerful, regardless of how long the laws last, and reflect something that should be of interest to investors.

Let me step back a bit. I grew up with two parents who were pro-union – although they were never actually in one. My wife was a union shop steward at National Public Radio early in her career and then involuntarily forced to join another one later in her career. I managed to inadvertently prompt a union walkout in a rather large AT&T building – at the time the company’s National Sales School in Colorado – by opening a computer. How did I to this? Even though I was the product marketing manager for that computer, I broke some rule when I went to replace a memory board in preparation for a class I was teaching. I am no lover of the movement from that experience.

That being said, fast-forward to 2012 when I was touring the GM pickup truck assembly plant in Flint, Michigan as part of my research for Made in America, a book I am authoring and due out in the first quarter of next year. New hires doing very low-skilled work made roughly $17 an hour plus some benefits – one-third of the older timers, but still a living wage, double what they would get paid anywhere else around Flint for the work they were doing. In this country it is not possible to have any kind of life working hard at minimum wage without benefits. I recognize unions do have a role to play inn bettering the lives of some component of the workforce.

Renaissance in the heartland

OK, I have made the case I am trying to be fair. Let’s get back to Michigan. This really is a big deal and reflective of the changes going on in the industrial heartland of the U.S. – Michigan, Wisconsin, Indiana, Ohio, Illinois, Pennsylvania. A manufacturing renaissance is underway due to low labor costs and falling energy prices due to hydraulic fracking. States want more of these jobs. Yesterday as unions demonstrated in Michigan, back in DC I interviewed Cal Dooley, head of the American Chemistry Council, the fancy name for the trade association representing the chemical industry – petrochemical makers, plastics guys and so on. More than 100 new facilities are in the planning or permitting stage. He told me these very same states are working as hard as they can to get those new plants to locate in their state. The fight for new manufacturing jobs – good ones at that – is intensifying.

The Michigan right-to-work legislation is part of that fight. It will intensify and spread to other states. Many workers worried about paying monthly bills are going to skip paying dues – they know, for example, that employees at non-union auto plants in the southern states get paid pretty much the same as they do.

Sectors to watch

Back to investing. This new legislation has no immediate impact on anyone’s earnings. But keep an eye on manufacturing outfits – from refineries to shoe makers, yes, we still make shoes in the U.S. – will, over time, have an easier time managing labor costs on top of enjoying lower energy costs due to fracking. The first sector to watch are the auto-parts makers, many with plants in Michigan. The big name in the group is Delphi (DLPH). The industry went through brutal restructurings over the past decade that cost their unionized members a lot of their accrued benefits – so why bother with the union and the dues, right? And if any sector of industry is going to see a falloff in the payment of dues and union membership, it will be these outfits. I don’t think this will improve margins all that much but a component of the trading community will see this as a benefit and move these stocks.

For more information, go to Netflix and rent the movies Norma Rae and Hoffa.





Share This