The issue: Since the Occupy Wall Street movement took over New York’s Zuccotti Park in 2011, income inequality has become a major political issue in the United States. Less often discussed is the role labor unions play in protecting workers’ wages.
In America, according to an estimate from Nobel Prize-winning economist Joseph Stiglitz, the top 1 percent of earners take home 25 percent of the nation’s income and control 40 percent of the wealth. Meanwhile, working-class wages have fallen over the past 40 years.
Membership in labor unions peaked in 1954 with 34.8 percent of workers, according to the Congressional Research Service, and has fallen since. In 2015, 11.1 percent of American workers were members of a union, according to U.S. Department of Labor statistics. And that year median wages for union members were about 26 percent higher.
Why has union membership fallen so dramatically?
One reason is that America’s workforce has largely shifted from low-skill manufacturing jobs — which are largely homogenous and easy to organize — to jobs involving high-skilled tasks that require a college education, and which are often more individualized.
Moreover, with globalization and the outsourcing of jobs, American workers and the U.S. economy have been forced to compete against other countries where labor is often cheaper. Unions, by offering members higher wages, push up the cost of production and make it harder for American firms to compete.
Add factory automation and the “demand for unskilled labor fell relative to the demand for skilled labor,” researchers at the Center for Economic Studies of the Census Bureau explained in a 2012 report. The Bureau defines unskilled workers “as clerical workers, laborers, operatives, and sales personnel, while skilled ones are taken to be craftsmen, managers, and professionals” (see chart to the left).
An academic study worth reading: “Unions and Income Inequality: A Panel Cointegration and Causality Analysis for the United States,” published in Economic Development Quarterly, July 2016.
Study summary: Unions have been shown to increase members’ wages. As a result, firms with large union membership among their workers have less money available to hire new workers, possibly increasing unemployment. Thus, many economists believe the net effect of unions on the distribution of income is unclear. But as unions recede, other trends are becoming apparent.
Dierk Herzer of Helmut-Schmidt-University in Hamburg, Germany examined the relationship between union membership and income inequality. He looks at two figures: The income share of the top 10 percent of earners in each U.S. state over the years 1964-2012, to measure inequality, and the rate of union membership in each state. He controlled for state income trends and education levels.
- In every state, the top 10 percent of earners gained control over a larger share of the wealth at the same time union membership declined. (See figure.)
- There is a causal relationship between the density of union membership and income inequality over the long run. A 1 percent increase in union membership reduces the income share to the top 10 percent by 0.000514 percentage points. Given the average annual decline in union membership, that translates into the wealthiest 10 percent receiving an increase in income share of 0.00016 percent per year.
- The overall decline in union membership is responsible for about 5 percent of the increase in the income share of the top 10 percent.
- There is no evidence that income inequality led workers to leave unions. Moreover, a decrease in inequality does not boost union membership (even if it does hurt the wealth of the top 10 percent).