By Deepa Seetharaman
DETROIT, Dec 11 (Reuters) - Michigan, a symbol of U.S. industrial rise and decline, is about to get a second look from corporate America.
The heavily unionized state took a big step toward encouraging business investment on Tuesday with “right to work” legislation that prohibits union membership as a condition of employment.
While Michigan must still address other problems such as its outdated infrastructure and high taxes, the legislation puts the Wolverine state in the company of 23 other states that have passed “right to work” laws to attract investment.
“We’re going to see some major investments in Michigan over the next two to three years,” said Neil De Koker, the head of Troy, Michigan-based trade group the Original Equipment Suppliers Association, which represents auto component makers.
Supporters of right-to-work said it tempers industry fears of dealing with the United Auto Workers union and makes Michigan more competitive against neighboring industrial states such as Ohio, which does not have such a law.
“Maybe this is a game-changer for Michigan,” said Steve Bernstein, a labor lawyer with Fisher & Phillips. “If we’re going to compete with states like Ohio, maybe they’re saying, well, this is an ace in the hole for us.”
But experts cautioned against expecting a flood of new investments or immediate improvements in the state economy. The two bills passed on Tuesday do not affect existing labor agreements, including the UAW’s deals with the big three U.S. automakers that expire in 2015.
General Motors Co, Ford Motor Co and Chrysler Group LLC run 13 plants in Michigan, out of a total 30 factories nationwide, according to Morgan Stanley.
The UAW remains a strong force in Michigan, where 17.5 percent of workers are unionized, the fifth-highest level in the country.
“It’s still the headquarters of the UAW,” said Arthur Schwartz, president of Labor and Economics Associates and a former labor negotiator for GM. “You think the UAW will not try to organize an auto-related business? That’s not going happen.”
In 2007, the UAW agreed to a two-tier wage structure and last year agreed to implement more flexible work rules and eliminate the jobs bank program that gave laid-off workers nearly their full salary and benefits.
But those changes have not been enough to change the UAW’s reputation. Many auto investors were worried the UAW will push to recover benefits when the current contract expires in 2015, Morgan Stanley analyst Adam Jonas said on Monday.
Investors feared that “all the good work since the crisis could be chipped away over time,” Jonas said during a call with investors. “Moving to right-to-work in Michigan would go some distance towards calming those fears.”
Companies also look for a talented labor pool - one advantage for Michigan, which has skilled trades people and engineers who are now unemployed or under-employed in the wake of the auto sector’s restructuring.
Labor laws are also an important consideration for companies when they search for sites to build factories, but local and state tax rates weigh heavily on decisions.
Eliminating Michigan’s tax on industrial personal property (a tax on manufacturing equipment) would go a long way to improving the state’s competitiveness, said Rick Baker, the head of the Grand Rapids Chamber of Commerce.
Nearly all of Michigan’s neighboring states have eliminated the tax, but now the question is how do communities offset that loss in funding to pay for public services.
“It’s not just a one-issue competitive thing,” said Bob Clark, a labor relations consultant in Brighton, Mich., and Ford’s former labor economist.
Ford pays 80 percent of its North American property taxes in Michigan, even though only half its property is in the state. This spring, Ford Chairman Bill Ford has called for the repeal of the tax.