What we know about income inequality: Unions on the decline

March 7, 2014

There are a lot of things that “explain” inequality. Technology, finance, societal, and cultural changes have all played their part. In this series, Counterparties takes a look at the various things that correlate with rising income inequality in order to ascertain how we got to this economy and where we might go from here. For story tips/comments/complaints email us at Counterparties.Reuters@gmail.com.

In February, the United Auto Workers lost a fight to unionize workers at a Volkswagen plant in Tennessee. The vote was taken as a symbol for all organized labor in the South — particularly because Volkswagen was tacitly supportive of the unionization movement.

Shortly after that, Evan Soltas set off a debate by questioning the long-term viability of organized labor in the US, and what that means for inequality.

Union membership in the US was at 11.3% in 2013 — and only 6.7% for private sector workers. That 11.3% figure has tumbled from 20.1% in 1983, when BLS started putting out official data. Going further back, union membership is at its lowest since the Great Depression.

The idea that declining union participation is a factor in increasing inequality has been around for a while. Harvard economist Richard Freeman has been writing about it since the 1970s. In 2003, David Card, at Berkeley, along with Thomas Lemieux and W. Craig Riddell at the University of British Columbia, wrote a paper testing unions’ effects on inequality in the US, the UK, and Canada.

Card lays out the problem from an economics perspective: while unions lead to higher wages for unionized workers (typically about 5-15%), they may also depress the wages for non-unionized workers. Even when taking that into account, the researchers found that unions do make wages more equal for men (though not for women*). It then follows that the decline of unionization has led to increased inequality in the US.

It’s hard to tell just how much, but Card has a guess. I reached out to Card this week, who said that his analysis in an interview with the Minneapolis Fed, while several years old, still holds:

My results suggest that the decline in unionization is a small but noticeable part of the overall increase in inequality for men over the past 30 years—maybe 10 to 20 percent of the total. It was most important for workers at the middle of the wage distribution … As unionization has gone away, there has been some downward drift in the level of wages (relative to the top skill groups) and an opening up of wage inequality in sectors like trucking and manufacturing. Both effects are important, but they’re only a small part of the overall trend.

When I asked Card how the Great Recession had affected this phenomenon, he chuckled. “There are no unions,” he said (I assume only slightly hyperbolically). The manufacturing industry in the US has fallen continuously in the 2000s, he noted, and “the Great Recession put a stake through the heart of it.”

In his argument, Soltas assumes this conclusion to be true. The question for him, then, is can anything replace them? “Since the decline of unions,” he says, ”the U.S. political system has done a poor job of sharing prosperity with workers — and since unions aren’t a real option going forward, we have to look for other ways to build employee bargaining power.”

Not everyone is in agreement that unions are dead, though. Michael Wasser, at Jobs With Justice, argues it is broken labor law that stands in the way of union growth, and, further, that unions play an important political role on the left that Soltas doesn’t account for. Therefore they can, and should, grow again. Michael Hiltzik asks where labor reforms are supposed to come from, if not unions. Daniel Altman suggests that “to stop the erosion of labor’s bargaining power, action at home would not be enough; workers would have to act at the global level.”

Kevin Drum, however, agrees with Soltas that unions are dead — and he’s pessimistic about the options to replace them: “no one on the left seems to have any serious ideas about what this countervailing power might be now that labor is a shadow of its former self.”

The demise of organized labor in the US isn’t a new idea. But it remains an important one for understanding the changes our economy is undergoing. Unions have historically been an equalizing force that bolstered the middle class, both economically and politically. The demise of them leaves a hole in the American political economy that, if not filled by unions or something else, will likely lead to an even more unequal society.

* This is a little outside of the scope of this piece, but the other part of the paper’s finding is that unionization doesn’t have an effect on the equality of wages for women. The authors posit that’s because of the nature of the different kinds of unionized work that men and women tend to do: traditionally unionized male occupations like truckers and auto workers get a lot of income benefits from unions above what they would make doing the same thing as a non-unionized worker. The salaries of traditionally unionized female occupations, like teachers and nurses, tend to be, first, higher because they generally require a bachelor’s degree, and more institutionalized. The unions are therefore less necessary for equalizing pay.

Previously in this series:

What we know about income inequality: Better marriages may mean more inequality
What we know about income inequality: America’s disappearing ‘middle-skill’ jobs and falling wages

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