Labor Unions and the Moral Economy

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.

About Brendan Saloner

I am a postdoctoral fellow at the University of Pennsylvania in the Robert Wood Johnson Health and Society Scholars Program. I completed a PhD in health policy at Harvard in 2012. My current research focuses on children's health, public programs, racial/ethnic disparities, and mental health. I am also interested in justice and health care.
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2 Responses to Labor Unions and the Moral Economy

  1. Charlotte Cavaille says:

    Thanks Brandon for this post, I was not aware of this working paper. My thoughts (following a quick read!) :
    I am not sure exactly how they deal with the fact that changes in the coefficient for education might be itself a function of unionization rates. Wouldn’t this result in an even larger share of the variance being explained by de-unionization ? (am I thinking about this right?)
    I really like the way they try to account for the influence of unions on non-unionized workers breaking down the labor force by industry/regions. That’s well done. However, what exactly are they capturing, is it really about a “moral economy”? (which they describe as “norms prescribing fair distribution that are institutionalized in the formal rules and customs of the market”). The most important channels through which the ME impacts wages is, according to them, 1)political influence, 2) labor market regulation. That seems more like basic power relations to me more than shared norms! I understand the concept of a moral economy as follow: actors have an idea of what is “just” that is different from what the market think is “just”. Workers might still have these beliefs today but what is missing is their capacity to embed such norms in policy and regulation.
    However, what the concept of ME allows for is that what is happening in the unionized real might influence people outside wage bargaining deals. According to the authors, the ME has an impact on non-unionized workers thanks to a “threat” effect (threat of unionization, threat of exit by the worker). Is this again really about norms? This threat is credible when demand for workers is higher than the supply of workers. Thus one might expect the threat effect to vary with unemployment rates in industry-region (or at least with job growth rates in industry regions). Do they examine that?
    They do tackle the issue of a third omitted variable such as structural changes in the economy (p 35) and argue that such changes in the relative power of labor is “unlikely to be purely exogenous”. I agree and do believe that it is the job of politics, for instance, to compensate for the effects on labor bargaining power of the effects of economic restructuring, but it seems a bit artificial to me to build a counterfactual using coefficients that result from data generated under an antiquated Fordist model of industrial production….

  2. Pingback: Connecting employment conditions and health inequalities « Wellesley Institute

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