Dear Commons Community,
New evidence shows that unions played a major role in reducing income inequality in the United States in the decades when organized labor was strong. But it also demonstrates that the decline in union power since the 1960s — which may be exacerbated as a result of a recent Supreme Court decision — has contributed to the widening gap between rich and poor.
The new insights come from a working paper, “Unions and Inequality Over the Twentieth Century: New Evidence from Survey Data,” by four economists: Henry Farber, Daniel Herbst and Ilyana Kuziemko of Princeton, and Suresh Naidu of Columbia. They establish that unions have constrained income inequality far beyond their own membership ranks. As reported in the New York Times in an article written by Susan Dynarski, a professor of education, public policy and economics at the University of Michigan.
“While the scholars can’t pinpoint the precise mechanism at work, they speculate that unions have indirectly increased pay at firms nervous that their own employees might organize. Unions have also lobbied for higher minimum wages and pushed to hold down executive salaries. They have also advocated for broader access to health care, countering a key channel through which income inequality can harm all of society. The findings are particularly relevant in light of the Supreme Court’s June 27 decision in the case of Janus v. American Federation of State, County and Municipal Employees. The court ruled that states can no longer require public employees who are represented by a union — but have chosen not to formally become members — to contribute to the costs of collective bargaining. That will certainly hurt unions financially, and it may lessen their already diminished power. Income inequality began its steep rise in the 1970s. Economists have been arguing about the origins of this trend since…
In the new study, the four scholars have mined newly available Gallup Organization data going back to the 1930s, based on surveys of American households that include questions about political beliefs as well as union membership, education, and income. A rich trove of these older surveys is now publicly available at the Roper Center at Cornell University.
The four economists painstakingly cleaned and coded hundreds of these surveys spanning nearly 90 years. The data encompass the growth of unions during the 1930s and ’40s, their heyday in the ’50s and ’60s, and their slow decline to the present.
Union workers now earn about 20 percent more than nonunion workers in similar jobs. Remarkably, this union premium has held steady since the 1930s.
Throughout this period, the biggest boost from union membership has gone to the least educated workers, who have, in turn, driven the rise and fall of union membership. The decades following World War II, when unskilled workers formed the union movement’s backbone, marked the most rapid decreases in income inequality. Wages for nonwhite workers were particularly strong then.
But increasing wages for low-skilled union members is just one channel through which unions can reduce income inequality. Unions can also affect the earnings of nonunion workers.
To capture such effects, the researchers broadened their lens to include the entire distribution of workers and their wages beyond those who are in typically unionized jobs and industries. They found that, going back to the 1930s, more unions meant more income equality. During years and in states where workers were more likely to be unionized, income inequality was lower…
…Thanks to the new research, evidence going back nearly a century now shows that unions have formed a critical counterweight to the power of companies. They increase the earnings of the lowest skilled and sharply reduce inequality.
But the Supreme Court’s decision will curtail the capacity of unions to organize and represent workers. The court ruled that unions can no longer collect “agency fees” from those government workers whom they represent but who have chosen not to join. These fees have helped pay for contract negotiations as well as prevent the free-rider problem that arises when only some pay for benefits enjoyed by everyone.
Incomes in the United States are now as unequal as they were in the 1920s. The gulf between rich and poor will widen if unions are weakened further.”
The gulf between rich and poor is already widening for our children and grandchildren!