Bruce Western and Jake Rosenfeld have a really excellent working paper that revisits the debate about the effect of declining unionization since the 1970s on wage inequality. Unions were a staple in many “smokestack” industries in the 1950s and 1960s, but they began to fall off in the 1980s due to a combination of political and economic transformations in American society: Among men, the unionization rate plummeted from more than 35 percent in 1975 to less than 10 percent by 2007, and among women it went from 16 percent to less than 4 percent by 2007.
Prior work in this area has concluded that the effect of union dropoff on wage inequality has been modest compared to market forces, and secondary to other institutions like the minimum wage. But these analyses did not fully address the question of how unions might have impacted the wages in non-union sectors – plausibly, if union membership is high, that creates a threat to non-union employers, preventing them from slashing wages. Western and Rosenfeld revisit this question and also control for the changing distribution of educational attainment.
The authors employ a variance decomposition (details can be found in the paper) to summarize how much change over time in income inequality can be attributed to changes in union participation (comparing variance in scenarios that do and do not hold fixed the 1973 rate of unionization), and they also investigate the role of unions on non-union wages by holding the union density constant across regions and industries over time. Their main finding is that: “Accounting for the effect of unions on union and nonunion wages suggests that the decline of organized labor explains a fifth to a third of the growth in inequality—an effect comparable to the growing stratification of wages by education.”
This larger effect is consistent with what the authors call a “moral economy” story. The central idea:
“The moral economy consists of norms prescribing fair distribution that are institutionalized in the formal rules and customs of the market. In a robust moral economy, violation of distributional norms inspires condemnation and charges of injustice…Unions are pillars of the moral economy in modern labor markets.
Across countries and over time, unions widely promoted norms of equity that claimed the fairness of a standard rate for low-pay workers and the injustice of unchecked earnings of managers and owners.”
There is something fairly plausible about this description of unions, even though it no doubt simplifies the complex motivations and politics of labor unions. One counter-example that comes to mind is universal health care in the United States. Until fairly recently (the 1990s) labor unions were ambivalent about a national health care scheme that would deprive them of a powerful bargaining chip with employers, and in fact, unions felt that they might be able to get a better deal with employers than with a national scheme in the 1950s. The history here is complex, but arguably, even though unions have always wanted to expand benefits, the coalitions they have entered into and the strategy they have pursued have led to outsiders. My sense is that similar arguments might be made about other socially divisive topics, including civil rights, but I will suspend comment until I have read more about this.