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How the death of the American union made economic inequality worse

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  • Labor unions once made up a key part of the American workplace, but they’ve absorbed repeated blows over the last three decades from employers and lawmakers.
  • In 2018, the union membership rate stood at 10.5%, a historic low as it continues a steady decline.
  • Experts say that the decreased sway of unions has contributed to accelerating inequality within the United States.
  • “As unions have declined, its been an important contributor to the rise of inequality and wage stagnation to those but the highest paid workers,” said Heidi Shierholz, the policy director of the left-leaning Economic Policy Institute.
  • Visit Business Insider’s homepage for more stories.

Labor unions formed the backbone of the American workforce throughout the 20th century, and they helped usher in some of the sharpest drops in income inequality for many years after World War II.

But that’s no longer the case in the 21st century. Instead, unions have absorbed blow after blow from employers and lawmakers alike for decades.

Last year, the union membership rate among wage workers stood at 10.5%, amounting to 16 million people, according to the Labor Department. It’s a historic low and only half the rate in 1983, the first year that comparable data was available. 

Experts say the trend has accelerated widening inequality in the United States.

“As unions have declined, its been an important contributor to the rise of inequality and wage stagnation to those but the highest paid workers,” said Heidi Shierholz, the policy director of the left-leaning Economic Policy Institute and former chief economist at the Labor Department during the Obama administration.

Unions became part of the economic landscape during the Great Depression after Franklin Roosevelt signed the National Labor Relations Act in 1935 recognizing the right of employees to organize. Workers in the bottom 90% experienced significant gains in their share of income, shown in the graph below.

unuin membership declines, income inequality increases


Ruobing Su/Business Insider


 

The erosion of unions started in earnest during the 1980s. As the rate of union membership decreased, it correlated with a larger share of wealth streaming up towards the top 10% of Americans — though it was also partly the result of Reagan-era Republican tax cuts that slashed rates for the highest earners and deregulation in the financial industry.

In 2017, the richest 10% captured nearly 48% of new income.

Schierholz noted that unionized workers earn 13% more compared to those who are not covered by a union contract with similar education and experience, which aligns with previous federal studies on the subject.

They also help set standards through collective bargaining that benefit non-union employees such as good health insurance, paid vacation and sick leave, and better working conditions. Research has shown a spillover effect that bolsters the prospects union members’ children in the form of stronger earnings and higher educational attainment.

“Unions are a way to transfer economic levers to workers,” Shierholz told Business Insider. “When you’re just one worker going up against a corporation, you don’t have the leverage you do if you’re part of a unionized workforce.”

She added: “Unions have had such an important mechanism to ensure growth in the economy aren’t captured by those who already have the most.”

Critics and Republicans have argued that organized labor makes a company less competitive and they wield excessive power in politics. Yet that  

Another study from the Economic Policy Institute found that compensation for CEOs skyrocketed 940% since 1978. It only bumped up 12% for workers in the same stretch of time as companies channeled more profits to executives and shareholders.

Explaining the decline of union power

Unions have been throttled in recent years, as employers step up their anti-unionization efforts and lawmakers pass legislation eroding their ability to negotiate with management.

Republican Gov. Scott Walker of Wisconsin famously embarked on a crackdown of teachers unions in 2011, ushering in a fight that had long been confined to the courts that other GOP lawmakers across the country also took up. 

Now 28 states — mainly in the South and Midwest — have passed “right-to-work” laws that don’t compel workers to pay membership dues if they choose not to. Six states have passed similar legislation since 2012.

But detractors say those laws essentially guts unions.

The trend has reached the high courts as well. In 2018, the Supreme Court ruled that public-sector employees don’t have to pay up to be part of a union negotiating on their behalf.

Despite weathering political losses, workers have found other ways to demand higher wages, most noticeably in the “Fight for $15” movement to raise the minimum wage to $15 an hour — once a fringe position that most Democrats running for president now support. 

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