Today’s wealth inequality is, in a sense, a return to the Gilded Age. In 1928, the economic divide was large: The bottom 90 percent of Americans earned 50.7 percent of all pretax income, while the top 1 percent earned 23.9 percent, according to research by Berkeley economist Emmanuel Saez. The Great Depression and World War II acted as equalizers, and by 1944, the bottom 90 percent earned 67.5 percent of income, while the top 1 percent earned just 11.3 percent.
But that relative equality started to morph again in the 1970s and by 2012, the bottom 90 percent accounted for just 49.6 percent of all pretax income, while the top 1 percent held 22.5 percent.
There are plenty of theories about what caused this reversal: It could be that globalization made it easier for companies to offshore the type of jobs that once paid a good wage in America. Or maybe technology is to blame, as machines replaced physically demanding and repetitive jobs that once employed blue-collar workers. A third theory, supported by Saez himself, argues that declining top tax rates for the very rich allow them to earn more and save more money, creating a vast and growing income gap. But there’s another factor that isn’t often addressed by the above theories, which is the role that rules and regulations governing the minimum wage and unionization have played in eroding the middle class.
Indeed, since 1979, the percentage of U.S. private-sector workers that are unionized has fallen to 10 percent, from 34 percent. Unionization among men without a college degree has fallen to 11 percent from 38 percent in 1979. And that, in turn, has led to some pretty compelling changes in the way workers are compensated, and the power they have to influence their earnings. “Policies regarding unions and the minimum wage are going to affect the wage structure, such as how much of the value of the company makes have to be given to workers, especially low and middle pay workers,” Saez told me in a phone call earlier this month.
The idea that union decline has led to greater income inequality is supported by two new papers from Washington-area think tanks, the left-leaning Economic Policy Institute and the Center for Economic and Policy Research, a think tank founded by Dean Baker. The EPI paper by Jake Rosenfeld of Washington University, and Patrick Denice and Jennifer Laird, of the University of Washington, looks at how the decline of unions has impacted the earnings of workers who don’t belong to unions. The authors find that the presence of unions significantly affects the wages of non-union workers, especially those without a college degree. Non-union men without a high school diploma would be experiencing weekly wages that were 9 percent higher if union density had remained at 1979 levels, the authors estimate. That translates to $3,172 a year. Non-union men without a bachelor’s degree would have seen weekly wages that were 8 percent higher with union density at 1979 levels; weekly wages for all private-sector men would have been 5 percent high with that union density.
The authors calculate how high wages would have been by using current wages as a benchmark and employing standard regressing wage equations to estimate what wages would have been had they remained on their trajectory before union density fell. They accounted for job loss and automation in an area by also calculating demand—or the lack of it—in certain industries. They found decline in non-union wages even in industries such as construction and trucking—which saw unionization decline—even though those jobs can’t be outsourced.
In the past, non-union employers would often be forced to keep wages on par with wages at unionized plants. If they didn’t, they’d lose workers to unionized jobs. Employers also feared that if they didn’t keep wages and benefits high, workers would decide to unionize, which would give companies less control in setting pay and benefits.
When unions are strong, they can advocate for rules and regulations that help all workers. European countries also experienced waves of globalization and increased reliance on technology, but their workforce hasn’t seen the same declines in union membership or non-union wages, the report found.“It’s not inevitable that you see staggering wage losses and jobs decline” in the 21st century, Rosenfeld said.
The presence of unions can help bridge other persistent economic gaps too. In a paper published by the Center for Economic and Policy Research, Cherrie Bucknor looks at the wages of black workers, who are more likely to be unionized than white workers. Today 14.2 percent of black workers are represented by a union, down from 31.7 percent in 1983. But that’s still higher than the share of all workers who are unionized; that number is just 12.3 percent, down from 23.3 percent in 1983.
Unionization has raised the pay of black workers, Bucknor finds. Black union workers earned $24.24 an hour, compared to $17.78 for their non-union counterparts. Black women earned 37 percent more than non-union workers and males earned 35 percent more than black males not in a union. Black union workers were also more likely to have health insurance and employer-sponsored retirement plans, Bucknor found. “When talking about growing wage inequality, you can’t exclude unions and the role they play in that discussion,” Bucknor said.
Still, despite data showing that unionization can help raise wages and decrease income inequality, there are few signs that any return to widespread unionization is probable. Though the anti-union legislation that cropped up after 2010 seems to have subsided, there are only a few sectors in which unions are growing—namely healthcare and the service industry. As Jonathan Timm wrote last week in The Atlantic, so-called “alt-labor” groups—typically organizations that advocate on behalf of workers but are not actual unions—are growing, and there’s a chance that their advocacy on behalf of workers could be an important substitute for labor in an anti-union climate. But their gains are modest compared to what unions could do in their heyday. That means that it could be hard to return to substantial wage growth, and greater income equality, without organized labor.