Reducing inequality: are unions the answer?

Unionization in the United States has been declining since the 1950s, and at a particularly rapid clip since the 1970s. Many analysts who have studied the growth of income inequality in America over the past several decades agree that union decline has played a role, and some see it as the single most important factor. The Employee Free Choice Act (EFCA), which would make it easier for employees to unionize, stands a chance of becoming law in the next year or two. Would that help to reverse the rise in inequality?

I’m not optimistic. An increase in unionization would very likely help middle and low-end households to capture a larger share of economic growth. But even if EFCA is passed by Congress, I don’t expect a dramatic surge in union membership.

Yes, survey evidence suggests that many American workers who aren’t currently a union member would like some sort of organized representation. And yes, American labor law and its weak enforcement have been a key culprit in union decline. Yet other rich countries have labor law that’s much more favorable to unions, and unionization has been declining in most of them too. Consider the following figures, from the best available comparative data source. Only a few countries have avoided a sharp fall in unionization, and they’re mainly ones in which eligibility for unemployment insurance is tied to union membership.

Why the widespread decline in unionization? The causes are multiple: greater competition and profit pressure on employers, the shift from manufacturing to services, increases in part-time and temporary employment, shrinking public sectors, and attitudinal shifts across generations, among others.

How then are unions in other countries able to secure greater wage gains, and thus less inequality, than their American counterparts? The key is “extension” practices: by agreement between union and employer confederations (most nations) or due to government mandate (France), union-management wage settlements apply to many firms and workers that aren’t unionized. The following chart shows that in a number of countries the share of the workforce whose wages are determined by collective bargaining is much larger than the share of workers who are union members.

I would like to see EFCA become law. The ability of workers to bargain with management collectively rather than individually is, in my view, an important element of a just society, and these days the playing field is too heavily tilted in management’s favor. But I doubt EFCA will get us very far in reducing income inequality. Extension of union-management wage settlements would likely have a bigger impact, but at the moment that isn’t even part of the discussion.

4 thoughts on “Reducing inequality: are unions the answer?

  1. It’s not clear just how unions are effective in reducing equality. Places such as Sweden and Germany have similar gini coefficients for market income as do Canada and the US. Where they are different is after tax and (especially) transfers.

  2. Great post. I don’t think that many labor folks view the EFCA as a panacea for income inequality, or even as a sure-fire way to restore unionization rates to where they were in the 50s. But one thing missing in the list of factors contributing to decline is the refinement and rationalization of employer strategies for winning union votes (e.g., appealing decisions, hiring consultants, firing pro-union workers). As a human-rights issue, EFCA should be supported, even if its effects on inequality is as of yet unknown.

  3. The state should be the main bargaining chip for wage workers. Even Karl Marx saw this as the answer to the growing inequality due to capitalism. I’m not saying that Unions do not have an effect…but they are limited compared to what the government can do.

    But if the government is controlled and are puppets of big business instead of the citizens…you do not see many changes in income inequality or laws that’ll help wage workers.

  4. Thanks for the great post (and blog). I ran a correlation between GINI and collective bargaining coverage for 20 OECD countries a couple weeks ago, and r = -.659.

    You can see the graph here, if you are interested, although I apologize that my graph isn’t as friendly as yours (my blog is primarily to keep track of things I find interesting, not public consumption).

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