What Unions Did: Labor Policy and American Inequality
Union decline is a—for a number of reasons--a pretty good marker for the broader dismantling of the New Deal and the political roots of American inequality. Union losses, as we shall see, account for a large chunk of rising inequality, especially for men and especially in the 1970s and 1980s. These losses, in turn, have shaped the political environment: representing a third of the private workforce, midcentury unions fought and won battles over trade, workplace safety, social policy, and civil rights; with union membership at 6.6 percent of the private labor force (2012) and falling, those battles are no longer even taking place.
And union decline has fed broader inequality because, in the American context, so much is at stake at the bargaining table. In settings where workers (and employers) can count on a decent minimum wage, universal health care, and expansive public retirement accounts, the stakes of private employment (and collective bargaining) are not that high. In the US, economic security remains shackled to private job-based benefits which are increasingly elusive (or expensive), and public policies are crafted and calibrated as supplements—or as reluctant and lean alternatives.
The arrival of the Great Depression (and with it unemployment rates pushing 25 percent) not only made things dramatically worse, but also brought dramatic change. Workers, with left little to lose, launched a series of dramatic organizing drives—in response first to economic conditions, and then to the legal protections for collective bargaining introduced by the New Deal.2 As importantly, New Dealers and progressive business interests came to view the economic crisis (and its persistence) as a consequence of weak aggregate demand in an economy organized around low wages.3
The new labor relations compact, in this respect, was essentially a recovery strategy; a way of using union power (after the Supreme Court had thrown out a brief flirtation with industrial policy) to put money in the pockets of workers/consumers.4 This was the culmination of Henry Ford’s effort (floated to much fanfare in 1914 but abandoned soon after) of solving the gap between mass production and mass consumption by “making 20,000 men prosperous and contented rather than following the plan of making a few slave-drivers in our establishment multi-millionaires.”5 The combination of democratic workplace institutions, a legal framework for collective bargaining, and dramatic organizing gains was—in this sense—not a new problem for employers, but a way of solving the problems they already faced.
There were stark limits to union power—which was concentrated in some sectors and in some regions, and slow (or reluctant) to extend its benefits to women and African-Americans.6 And the democratic promise of the new labor movement was eroded by the deals struck during World War II and immediately after.7 But the basic logic of the postwar accord was clear. Membership pushed to near 40 percent of the labor force, a threshold which positioned the labor movement as a “countervailing power”—not just at the bargaining table but in local, state, and national politics as well.
A Short History of American Labor Policy
The American labor movement began the 20th century claiming coverage of about 10 percent of the labor force, almost all of it (under the mantle of the American Federation of Labor) confined to skilled crafts and trades. An acute labor shortage during World War I pushed that near 20 percent by the war’s end, but then employers took the gloves off. The anti-union drives of the 1920s rolled back most of those gains, retreating to a pattern of insecurity and low-wages cushioned (but not much) by employer paternalism.1The arrival of the Great Depression (and with it unemployment rates pushing 25 percent) not only made things dramatically worse, but also brought dramatic change. Workers, with left little to lose, launched a series of dramatic organizing drives—in response first to economic conditions, and then to the legal protections for collective bargaining introduced by the New Deal.2 As importantly, New Dealers and progressive business interests came to view the economic crisis (and its persistence) as a consequence of weak aggregate demand in an economy organized around low wages.3
The new labor relations compact, in this respect, was essentially a recovery strategy; a way of using union power (after the Supreme Court had thrown out a brief flirtation with industrial policy) to put money in the pockets of workers/consumers.4 This was the culmination of Henry Ford’s effort (floated to much fanfare in 1914 but abandoned soon after) of solving the gap between mass production and mass consumption by “making 20,000 men prosperous and contented rather than following the plan of making a few slave-drivers in our establishment multi-millionaires.”5 The combination of democratic workplace institutions, a legal framework for collective bargaining, and dramatic organizing gains was—in this sense—not a new problem for employers, but a way of solving the problems they already faced.
There were stark limits to union power—which was concentrated in some sectors and in some regions, and slow (or reluctant) to extend its benefits to women and African-Americans.6 And the democratic promise of the new labor movement was eroded by the deals struck during World War II and immediately after.7 But the basic logic of the postwar accord was clear. Membership pushed to near 40 percent of the labor force, a threshold which positioned the labor movement as a “countervailing power”—not just at the bargaining table but in local, state, and national politics as well.
And it paid off. For the first 30 years after World War II, into the early 1970s, both median compensation and labor productivity roughly doubled. Labor unions not only sustained prosperity, but they ensured that it was shared. And they offered workers not just bargaining power but a collective voice in corporate politics and policy.8
Over the next 30 years, however, labor’s bargaining power collapsed. This began with the passage of the Taft-Hartley Act in 1947, which outlawed secondary labor actions (such as boycotts, or the picketing by workers not involved in the dispute) and undermined union security in so-called “right to work” states—especially in the South, the rural Midwest, and the mountain west [see video below]. The Landrum-Griffith Act (1959) further constrained secondary labor actions and permitted non-members to vote in certification (or decertification) elections—essentially inviting employers to hire scabs, and then count scab votes against the fate of the unions.9
These legal and political blows hit labor hard, especially as the manufacturing base of the labor movement began to erode. And labor’s foothold continued to slip through the concessionary bargaining of the 1970s and 1980s—an era highlighted by the filibuster of labor law reform in 1978, the Reagan administration’s crushing of the PATCO strike, the Chrysler bailout (which set the template for “too big to fail” corporate rescues built around deep concessions by workers), and the passage of anti-worker trade deals with Mexico and China.10 Employers intensified and refined their union-busting tactics, and the National Labor Relations Board—either by winking at employer tactics or turning a blind eye—did little to stand in the way.11
The wage effect alone underestimates the union contribution to shared prosperity. Unions not only raised the wage floor but also lowered the ceiling: union bargaining power has been shown to moderate the compensation of executives at unionized firms.14 Unions at midcentury also exerted considerable political clout, sustaining other political and economic choices (minimum wage, job-based health benefits, social security, high marginal tax rates) that dampened inequality. Union wages sustained stable demand for goods and services—understood as the linchpin for economic growth since the 1930s. Quite simply, unions made and sustained the middle class.
The net result is telling [see FIG below]: Early in the century, the share of the American workforce which belonged to a union was meager, barely 10 percent of the labor force. At the same time, inequality was stark--the share of national income going to the richest 10 percent of Americans stood at nearly 40 percent. This gap widened in the 1920s. But in 1935 the New Deal granted workers basic collective bargaining rights; over the next decade union membership grew dramatically, followed by an equally dramatic decline in income inequality. This yielded an era of broadly shared prosperity, running from the 1940s into the 1970s. After that, however, unions came under attack—in the workplace, in the courts, and in public policy. As a result, union membership has fallen and income inequality has worsened—reaching levels not seen the 1920s.
As union membership began to erode, so too did its ability to dampen wage and income inequality. By most estimates, declining unionization accounted for about a third of the increase in inequality in the 1980s and 1990s. But it played a lesser role after that, an era in which the decline in union density slowed and inequality grew more markedly at the top of the income scale.15
Across the OECD, there is a clear and compelling relationship between falling union density and rising inequality—in which the character and timing of that inequality (in the US and elsewhere) maps closely to the role of collective bargaining in setting wages. In 1980, collective bargaining coverage in the US, at 26 percent, was near the bottom of the OECD; between 1980 and 2000, this fell by almost half.20 In both eras covered by the Figure below (mide-1980s and mid-2000s), the United States is an outlier on both inequality (measured here as the ratio between the 90th percentile wage and the 10th percentile wage) and union coverage.
The net effect is clear. For a generation after World War II, the economy and the wages of working Americans grew together—a clear and direct reflection of the bargaining power wielded by workers and their unions. From the early 1970s on, however, union strength fell—and with it the shared prosperity that it had helped to sustain. Labor productivity has almost doubled, but the median wage has grown only 4 percent.21 The share of national income going to wages and salaries has slipped, while the share going to corporate profits has risen. Inequality has widened, most dramatically for those who—at an earlier point in our history, or in any other democratic and industrialized setting—would benefit the most from collective bargaining.
And, of course, union decline contributes to inequality beyond the bargaining table or the paystub. Because the US relies so heavily on job-based social benefits, for example, union losses also undermine health coverage, health security, and health outcomes.22 Because public and private sector unions have been such a potent political force across the last century; their decline also undermines support for a wide range of public policies that might sustain working families or check corporate power.
Over the next 30 years, however, labor’s bargaining power collapsed. This began with the passage of the Taft-Hartley Act in 1947, which outlawed secondary labor actions (such as boycotts, or the picketing by workers not involved in the dispute) and undermined union security in so-called “right to work” states—especially in the South, the rural Midwest, and the mountain west [see video below]. The Landrum-Griffith Act (1959) further constrained secondary labor actions and permitted non-members to vote in certification (or decertification) elections—essentially inviting employers to hire scabs, and then count scab votes against the fate of the unions.9
These legal and political blows hit labor hard, especially as the manufacturing base of the labor movement began to erode. And labor’s foothold continued to slip through the concessionary bargaining of the 1970s and 1980s—an era highlighted by the filibuster of labor law reform in 1978, the Reagan administration’s crushing of the PATCO strike, the Chrysler bailout (which set the template for “too big to fail” corporate rescues built around deep concessions by workers), and the passage of anti-worker trade deals with Mexico and China.10 Employers intensified and refined their union-busting tactics, and the National Labor Relations Board—either by winking at employer tactics or turning a blind eye—did little to stand in the way.11
American Labor and American Inequality
The last 40 years have seen a steady decline in union membership and density—and in union bargaining power, within and across economic sectors. The impact of all of this on wage inequality is a complex question (shaped by skill, occupation, education, and demographics) but the bottom line is clear: there is a demonstrable wage premium for union workers, more pronounced for lesser skilled, and spilling over to the benefit of non-union workers as well.12 This is true across the economy, and dramatically in particular settings and in particular sectors: real wages in meatpacking, for example, fell by almost half from 1960 to 2000 (an era in which union power in the sector largely evaporated); in 1970 packinghouse wages were about 20 percent higher than the average manufacturing wage, but 2002 they were 20 percent lower.13Sidebar: The Lost City of Solidarity
The wage effect alone underestimates the union contribution to shared prosperity. Unions not only raised the wage floor but also lowered the ceiling: union bargaining power has been shown to moderate the compensation of executives at unionized firms.14 Unions at midcentury also exerted considerable political clout, sustaining other political and economic choices (minimum wage, job-based health benefits, social security, high marginal tax rates) that dampened inequality. Union wages sustained stable demand for goods and services—understood as the linchpin for economic growth since the 1930s. Quite simply, unions made and sustained the middle class.
The net result is telling [see FIG below]: Early in the century, the share of the American workforce which belonged to a union was meager, barely 10 percent of the labor force. At the same time, inequality was stark--the share of national income going to the richest 10 percent of Americans stood at nearly 40 percent. This gap widened in the 1920s. But in 1935 the New Deal granted workers basic collective bargaining rights; over the next decade union membership grew dramatically, followed by an equally dramatic decline in income inequality. This yielded an era of broadly shared prosperity, running from the 1940s into the 1970s. After that, however, unions came under attack—in the workplace, in the courts, and in public policy. As a result, union membership has fallen and income inequality has worsened—reaching levels not seen the 1920s.
As union membership began to erode, so too did its ability to dampen wage and income inequality. By most estimates, declining unionization accounted for about a third of the increase in inequality in the 1980s and 1990s. But it played a lesser role after that, an era in which the decline in union density slowed and inequality grew more markedly at the top of the income scale.15
The losses, and the resulting inequality, have been much more acute for particular sectors and segments of the workforce—especially those which relied on collective bargaining to secure decent wages, or in which union decline was particularly stark. Union decline, for example, accounts for virtually all of the growing gap between blue collar workers and white collar workers from 1978 to 1988, and for more than three quarters of that gap over the last generation (1978-2011).16
Rates of union coverage and decline vary widely by state [see FIG above], a pattern rooted in different trajectories of economic development and differences in state labor law (for private and public sector workers).17 In turn, the relationship between union coverage and inequality varies widely by state [see FIG below]: in 1979, union stalwarts in the northeast and rustbelt combine high rates of union coverage and relatively low rates of inequality; while just the opposite holds true for the southern “right to work” states. A large swath of states—including the upper midwest, the mountain west, and the less urban industrialized states of the northeast, show lower-than-national rates of inequality at union coverage rates a bit above or a bit below that of the nation. More importantly, as we plot the same relationship in 1989, 1999, and 2009, those states move as a group towards less-union coverage, and steeper-inequality.
Rates of union coverage and decline vary widely by state [see FIG above], a pattern rooted in different trajectories of economic development and differences in state labor law (for private and public sector workers).17 In turn, the relationship between union coverage and inequality varies widely by state [see FIG below]: in 1979, union stalwarts in the northeast and rustbelt combine high rates of union coverage and relatively low rates of inequality; while just the opposite holds true for the southern “right to work” states. A large swath of states—including the upper midwest, the mountain west, and the less urban industrialized states of the northeast, show lower-than-national rates of inequality at union coverage rates a bit above or a bit below that of the nation. More importantly, as we plot the same relationship in 1989, 1999, and 2009, those states move as a group towards less-union coverage, and steeper-inequality.
American Labor in International Perspective
It is hard to offer clean comparison with our OECD peers because union density and collective bargaining means different things in different national contexts. Unionism has a peculiar trajectory in the United States [see FIG below], a setting in which density peaked much lower and much earlier than in any of its peers18, in which union organization was (and remains) sectorally and regionally uneven, and in which the stakes of collective bargaining (in the absence of universal social benefits like national health insurance) have been much higher.19Sidebar: Labor Relations in the US and Canada
Across the OECD, there is a clear and compelling relationship between falling union density and rising inequality—in which the character and timing of that inequality (in the US and elsewhere) maps closely to the role of collective bargaining in setting wages. In 1980, collective bargaining coverage in the US, at 26 percent, was near the bottom of the OECD; between 1980 and 2000, this fell by almost half.20 In both eras covered by the Figure below (mide-1980s and mid-2000s), the United States is an outlier on both inequality (measured here as the ratio between the 90th percentile wage and the 10th percentile wage) and union coverage.
The net effect is clear. For a generation after World War II, the economy and the wages of working Americans grew together—a clear and direct reflection of the bargaining power wielded by workers and their unions. From the early 1970s on, however, union strength fell—and with it the shared prosperity that it had helped to sustain. Labor productivity has almost doubled, but the median wage has grown only 4 percent.21 The share of national income going to wages and salaries has slipped, while the share going to corporate profits has risen. Inequality has widened, most dramatically for those who—at an earlier point in our history, or in any other democratic and industrialized setting—would benefit the most from collective bargaining.
And, of course, union decline contributes to inequality beyond the bargaining table or the paystub. Because the US relies so heavily on job-based social benefits, for example, union losses also undermine health coverage, health security, and health outcomes.22 Because public and private sector unions have been such a potent political force across the last century; their decline also undermines support for a wide range of public policies that might sustain working families or check corporate power.
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