It’s "not merely a coincidence” that the height of unionization coincided with the lowest point of wage inequality, a new working paper suggests. But will that solution work today?
Cities have become simmering cauldrons of economic inequality, especially after the Great Recession. In his new book, Richard Florida writes that this condition is at the heart of what he calls the “New Urban Crisis,” and suggests fixes in the form of equitable housing, tax, infrastructure, and anti-poverty policies.
But there’s another solution, now largely overlooked, that has helped reduce gross inequality in the past: collective bargaining. In a new working paper, economists Brantly Callaway at Temple University and William J. Collins at Vanderbilt University examine the decades after the Great Depression, when economic inequality declined dramatically—and then stayed low for several decades after. They conclude that the simultaneous rise of unionization during this time “was not merely a coincidence.”
The analysis, published by the National Bureau of Economic Research, is based on a novel dataset—a comprehensive multi-city survey conducted in 1951, which collected information about wages, union status, levels of educational, work history, and family background. In five cities—Philadelphia, New Haven, St. Paul, San Francisco, and Los Angeles—the researchers compared the wages of men who were members of unions to those who weren’t, controlling for differences in education, foreign-born status, and geography, among other factors.
In the middle of the income distribution, the wage premium—the difference between the median earnings for union and non-union workers—just 3 percent. But at the lower end, the difference between otherwise-similar members of the two groups ballooned. A union worker in the bottom 10th percentile would likely have earned 20 percent more than his non-union counterpart. Per the paper:
...focusing on the middle of the distribution misses much of the story. The largest union wage gaps appear at the bottom of the wage distribution, and they were larger for African Americans and for less-educated men.
To test exactly what role this difference played in overall inequality levels, the researchers designed a counterfactual scenario: What would have happened if the wage premium didn’t exist—if the union guys had made as little as the non-union ones? The answer is that inequality would have risen almost 20 percent more, largely because the floor of the wages dropped. “The union wage distribution is pretty compressed,” Collins says. “When you undo that compression, the whole income distribution widens out.”
When the researchers repeated the above steps using the Census data from 1973—the first time union status was recorded in the Current Population Survey (CPS)—they found a similar pattern: large wage bumps for union workers toward the bottom of the distribution and higher inequality when the bumps didn’t exist. But overall, these effects were less drastic than in the 1950s sample, perhaps because union membership had started declining by this time.
The paper notes important caveats to these findings. For one, the dataset, although pretty rich, isn’t perfect. It’s only representative of trends in the Northern cities. And it doesn’t include anything about non-wage benefits, such as paid leave, pensions, and health insurance, of the workers in question. The experiment is not randomized, which means that other explanations for these trends might be at play.
The conclusions of the paper are nevertheless consistent with a body of previous research. Labor economist Richard Freeman has written extensively about the pros and cons of unions over the last few decades. His more recent work, published at the left-leaning Center for American Progress, finds that the decline of union membership in America has contributed significantly to the shrinking middle class and stilted economic mobility. Over at Berkeley, economist Emmanuel Saez recently added to the body of research that shows that stronger unions actually raised wages for all workers. Meanwhile, others have largely criticized unions on other fronts, arguing that they jeopardize productivity and competitiveness, and that in that they’re no longer relevant in today’s globalized, service economy—especially as it moves full speed ahead toward automation.
Are the naysayers right? Can unions really make a comeback in this era? The NBER paper doesn’t address that question per se, but from other discussions on the topic, one answer is: yes, they could, but probably not in the same form.
For one, a majority of Americans are still pro-union—so it’s not like the public will for collective bargaining has dissipated. (If anything, it may have been reinvigorated after the election.) The decline of union membership, which has been more drastic in the U.S. than in the rest of the world, has happened for technological, political, and economic reasons. Rich Yeselson of Talking Points Memo explains:
Broadly, unionization diminished in the US for some of the same structural, macro-economic reasons it has declined in almost every advanced country in the world. But the decline also occurred for reasons intrinsic to the American political economy—in other words because of the vastly unequal power relationships between corporations and their political allies, and unions and their less reliable political allies. As the influence that labor had on the Democratic Party frayed with its shrinking size, the first order economic effects of inequality were compounded by the second order disappearance of a political alternative to business elites and their advocates in the Republican Party.
In a 1991 Harvard Business Review article, business journalist John Hoerr wrote that unions have to be dynamic—they need to find new points of leverage and new strategies to make sure they’re protecting workers in today’s economy and preparing them for the impending changes. That’s perhaps truer than ever today. After the decline of traditional union membership, small women-only unions and advocacy organizations are increasingly taking up the mantle. But it’s going to take a bigger, more powerful push toward collective bargaining in some form to lift low wages and help dismantle urban inequality.