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Declining Unionization Membership vs. Income Inequality

Tommy Mottur & Mac Pitts

The Great Depression and two world wars in the beginning of the 20th century served as stabilizers for the United States economy.  In the early 1900's, the bottom 90% of earners only received 50% of total income, whereas the top 1% earned almost 25% (Emmanuel Saez, UC Berkeley).  This inequality was rapidly diminished through the 1930's and 40's, leading to a middle of the century period of relative economic equality.  However, today the top 1% of earners in the US economy again earn >20% of total income, with the bottom 90% only receiving 49%.  So what happened?

This was brought on by a variety of factors.  Increased globalization and technological advancement has given large corporations an alternative to simply hiring high-wage demanding Americans.  Additionally, tax rates for the top income recipients have declined since the 40's, allowing them to accumulate more wealth.  However, another factor that shapes this trend is the decreased unionization membership since this time of relative equality.

Here is a graph showing the share of the labor force that are members of a workers union as well as the share of income going to the top 10%.  We can see a sharp increase in unionization followed by a slow decline that is mirrored in opposite by the share of income received by the top 10%.

Then conversely, we have this graph:

This could be presented as a converse point, seeing as if our point (That the decrease in unionization is an underrepresented trend that is hurting American workers) holds true, then we should see other negative effects brought on by the decrease in unionization.  However, here we have a negative correlation, with the decreased unionization occurring simultaneously with increased minimum wage rates.  Is this caused by economic factors, or is it brought on by social and ideological progress?

  • Why were the lines so similar in the 1940’s? What caused them to diverge?
  • How has the minimum wage graph affected Union Membership over the years?
  • What are some economic policies that can be implemented to close the gap between the union membership and share of income going to the top 10%?

The correlation here is clear, and with income inequality being a heated and well debated topic, why is this trend not getting more attention?

20 thoughts on “Declining Unionization Membership vs. Income Inequality

  1. yuy20

    The minimum wage is dependent on the calculations for cost of living, and since those costs have gone up, it makes sense that the wage has also increased. However, different groups and political leaders have argued that this wage is far too low for many workers, and debates have ensued over raising it to $15. We may see the wage increasing due to social pressure. Looking at the graphs, there was a large increase in the minimum wage around 1978, and union membership started a steady decrease around then. People may have felt less obligated to join a union; also, changes in types of jobs also influenced the decline of unions. Today, there are fewer manufacturing jobs, environments where unions thrived. The lines in the share of income/union membership graph diverged possibly due to the transition in types of jobs and changes in the economy due to WWII.

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    1. liur20

      I agree. One of the most important function of union is the bargaining power to helps the union members, as the minimum wages kept going up, people felt less needy to join the union. Also I think another reason for the raising minimum wage and the lowering rate of union member is also due to the shift of the structure of the economy : the shift from manufacturing and production economy to service economy.

      Reply
  2. gutierrezcuadras20

    The lines representing union membership and share of income were so similar in the 1940s because the economy was still holding the effects of World War II. During this time, I imagine unionization was on the low given the loss of workers in the labor force. The share of income going to the top 10% also was low during this time because more people (women) entered the labor force thereby impacting the distribution in the share of income. The return of soldiers consequently meant that more people returned to the labor force thereby causing the lines to diverge. Over the years, as minimum wage increases, unionization has decreased, because workers have less incentives to join. It would have been interesting to see the correlation in the context of real minimum wage, taking into account inflation.

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  3. johnsonj20

    The close lines in 1940 can also be attributed to the great bargaining power of unions at that time, which enabled them to raise minimum wage and the share of national income distributed to wage-earners (Levinson 138). Levinson also attributes the post-WW2 income equality to the destruction of capital used to make the rich richer (138). The divergence of the lines is attributable to a shifting global economy (away from manufacturing and toward service). Levinson also mentions the decline in the labor share (the share of national income distributed to workers) that began in the late 1970s and coincided with less unionization (141). In that sense, the decline in union membership can be traced to lower real wages. The government could implement tax hikes on the wealthy and benefit programs for the poor to redistribute wealth, but it can't bring the old economy (with more unionization) back.

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  4. lentza20

    I think a crucial aspect of this question is, "How does being a member of a union influence a consumer/workers income?" It seems to me that there isn't as much necessity for being in a union, thus not offering the same reward for joining one. You no longer need to be in a workers union to ensure your wage; the rising minimum wage in the US forces employers to provide for their workers. Additionally, outside of the rising minimum wage, there are fewer people flocking to jobs where workers unions were ideal to protect employment. Unions are no longer necessary in today's working society, being a member of one can be expensive, and the reward of "job security" they offer is insignificant in today's world considering outsourcing and minimum wage requirements.

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  5. Juliana Kerper

    Unions, when they were in their prime, seem to have had positive impacts on wages. The collective bargaining power of union members caused employers to be more competitive and make better offers. Unions pushed for higher minimum wages among other demands, contributing to the trend of increasing minimum wages in the US. It seems in the past that unions have had not only a positive impact on wages, but have helped bring bargaining power to many low wage earners. With the shift from a manufacturing economy to a service one, the need for unions has decreased around 1940, around the end of WWII. The push to increase minimum wages has continued to come from social pressures, but also from rising levels of inflation and an increase in aggregate price levels. The decrease in union membership that began then took bargaining power out of the hands of low wage earners, and contributed to increased income inequality after 1940.

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  6. liur20

    I think the reason as to why the two lines closed up during the 1940s is because the raising member of the union. If we took political background into account, we would easily realize the world war two had an impact on the union. As the demand for machinery and weapons spiked in the U.S. more and more workers joined the union and this action gave the union incredible power to bargain of minimum wages. This bargaining power led to the decrease of the shares of the incomes the wealthiest Americans earn and drive up the union participation rate. Also I do not think the raise in minimum wages completely depend on the increasing size of the union, rather it is a reflect of many things like the change in living standards, inflation, and government policy.

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  7. hermana20

    As previously mentioned, minimum wage increases have likely increased at the pace of increasing living costs and in that sense have just kept up with inflation. It is also important to note the discrepancy in minimum wage rates across states. Although this may seem trivial, it is not. The minimum wage in the city of San Francisco is $13 while the minimum wage in Wyoming is $5.15, the minimum wage in D.C. is $12.50 and the minimum wage in Georgia is $5.50. It makes sense that minimum wages in cities should be higher since living costs are higher in cities, however, only this summer will the minimum wage in Atlanta, Georgia be raised to $13 an hour. One of the downsides of not having unions is that they are not able to bargain for higher wages, and less hours. Compared to other wealthy nations, U.S. workers work longer and have less vacation time. According to the Atlantic, unions tend "to raise productivity" because of employers of unionized workers tend to spend more updating machines and computers and training their workers.

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  8. Chris Vogel

    According to the CPI one dollar in 1940 has the purchasing power of $16.50 in 2017 dollars. After adjusting the 1940 minimum wage rate of $.25, the minimum wage in todays terms would be just over $4 dollars. But this is not representative of the current US (non farming) minimum wage rate, which is $7.25. So in real terms, the wage has only increased about 75% over the last 77 years. As the graph notes, the proportion of income going to the top 10% started to drastically increase in early/mid 1980's. This is also when US interest rates skyrocketed. I would argue that the change in union membership and proportional income was a result of the changing economy not a cause. When interest rates increased to over 10% people with disposable income could invest in bonds, and, subsequently, take their money out of the "economy". This allowed the rich to get richer without investing directly into capital growth and rather investing in government bonds. The high interest rates also allowed the economy to replace low-wage jobs as the purchasing power of the dollar increased abroad. Thus, many unions were replaced or forced to succumb to the likes of the employer as they had the options to import goods or higher workers outside the US at a cheaper price. So, I think that these two issues were not necessarily dependent on the rising real costs of wages, but more dependent on the shifts in the economy. In order to combat this issue of income disparity, certain taxes could be applied to the wealthier in order to relocate wealth to the lower portions of the economic brackets or use the revenue for social services such as medicare/medicade/food stamps/other subsidies.

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  9. hartigank20

    According to the graphs, a decrease in union membership correlates to an increase in the share of income going to the top 10%. An article I found describes how the largest factor hurting wage growth and union membership has been the erosion of collective bargaining. Collective bargaining is the main form of negotiation in an union and is vital for them to raise wages/benefits.
    The other graph displayed shows how the nominal minimum wage, which is unadjusted for inflation, is increasing. The real minimum wage over time may not be such a sharp increase and could be a flat line where the increase in minimum wage is just about keeping up with inflation. Also as other bloggers above said, the minimum wage is related to the cost of living, which has increased greatly over time. The increase in minimum wage correlates to increase in cost of living.

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  10. Nate Abercrombie

    The first graph gives off a very strong sense that union membership and income of the top percent of earners could be a relationship of causation. However, I would argue that many other factors have played into this and that the two factors are probably correlated to each other than anything else. Income tax on the top 1% of earners from the early 1930s to the early 1960s never dipped below 80%, which is well over double what the current tax is. This time frame fits well within the stretch of time where income of the top 10% and union participation are their closest on the above graph. In addition to this, the decline in union membership could be because they are no longer needed to ensure your wage will rise and that you will not be mistreated at the workplace. Additionally, manufacturing jobs (the central industry for union participation) has seen radical declines in America due to globalization and advanced technology, probably being a large reason participation has decreased. The lack of ability for people to collectively bargain has certainly had an impact on wage growth, but whether or not that is the direct reason for the increase in wealth of the top 10% may be hard to definitively prove.

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  11. thaia19

    The percentage of the population who hold union membership (u) and the share of income going to the top 10% (i) seem to have a relationship of u + i = k where k is a constant. As a result, their graphs seem to mirror one another. In the 1940s, the economy was doing very poorly, so that could be one of the reasons why a significantly smaller percentage of the share of income went to the top 10%. This was also a time when union membership peaked, likely in response to FDR's New Deal policies that benefited unions, and thus made it more desirable to be a member of one. These two trends affected both variables during the 1940s, and caused the convergence of their graphs. In 1970, Nixon signed the OSHA bill into law, which made union membership less necessary to obtain sufficiently safe working conditions, which may have caused the decline in membership.

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  12. Lukas Campbell

    Union membership and income going to the top 10% seems to have an inverse relationship. The period of time when the two graphs had virtually no gap was at the peak of FDR's New Deal policies, which heavily incentivized labor union membership. However, as union membership started having less of an impact on working conditions and wage, their popularity declined. This explains the trend of the union membership graph, but it is difficult to attribute the inverse trend of income for the top 10% with union membership as anything more than a correlation. However, one could argue that the cost of labor unions decreases for business as their popularity decreases, but this would not affect the top 10%'s income as much as the graph suggests.

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  13. wilkinsonw20

    I think the minimum wage graph has affected union membership negatively. People no longer seem to feel the need to join a union in today's technological world of accountability. The purpose of a union in the past was to form a collective group that could fight against unjust actions by the employer/company. These days people no longer feel the need to rely on them to ensure good work places or just pay. However, the discrepancy between the top 10% and the other 90% of the population is growing and people are beginning to take notice of this. I do think this may affect union membership as people are already beginning to demand higher minimum wages of $15. Raising the minimum wage could be one policy that could close the gap between union membership and share of income going to the top 10%. As workers grouped together to demand higher pay, union membership would increase, and the minimum wage increase would decrease income for the top 10 percent.

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  14. perelk20

    To see declining union membership following the 1940s', we know that World War II disturbed the norm for the average American worker. Since then we have seen a decrease in the number of union workers, an increase in the minimum wage, and and increase in the wealth towards the top 1%. Perhaps increasing wages would motivate higher unionization for workers. Consequently increasing wages would in theory move to even out income inequality. However, wage increases cannot be implemented if there is no room for growth. Something to consider when making monetary policy changes.

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  15. patelp20

    I think that it is very interesting that money going to the top 10% of earners in the economy has an inverse relationship with unionization. However that makes sense when considering that increasing unionization causes wages for workers and other intangibles for said workers to increase. Also, your graph of nominal wages increasing makes sense because you don't take into account inflation. I am sure that if we looked at real wages for workers they would not have changed by too much, which means that the inverse relationship between unionization and share of income for the top 10% holds true. Also it makes sense to see increases in unionization in the 1940's because the United States was rapidly shifting towards being even more reliant on manufacturing. These early factories were notorious for bad worker conditions and when with the effects of WWII it only makes sense that these workers unionized.

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  16. grims20

    There is clear inverse correlation between the decrease of unionization and increase in the % of money going to the top 10% of earners in the nation. The main impact of labor unions other than the possibility of improving working conditions is their possibility to raise the wages for work. Adjusting for inflation, the minimum wage has actually not increased a substantial amount from 1938 to today. I believe that decreased unionization and increased % of money in the top 10% is simply a correlation, and that decreased unionization is not the cause for an increase in the % of money in the top 10%. There must have been other factors in America around the 1980's (Where the graph shows the beginning of drastic divergence between unionization and % of money in the top 10%), that caused both a decrease in unionization and an increase in the % of money going to the top 10% of earners in the nation.

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  17. Robert Griffin

    Unions have been a controversial method of leveling the playing field between employee and employer for over a century. In theory, they provide low wage workers with more bargaining power against their employers in terms of their wages and their hours. Hours have obviously been fixed largely at 9-5 at least in the US for a while, which means the decreasing prevalence and power of unions in the US only really affects wages. It absolutely makes sense that the top 10% would begin to gain so much more of the wealth as unions began to decrease in popularity. This stat directly relates to the wage gap, which unions were put in place as an effort to lessen the wage gap. Prevalence of unions and the size of the wage gap have a perfectly inversely proportional relationship.

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  18. williamse19

    As your graph is nominal minimum wage rather than real (taking into account inflation) minimum wage does not present a counter point to your unionization theory. In real terms, minimum wage has not risen significantly since when unions were more prevalent. It also makes since that since the unemployment rate was very, very low during WW2 that expectations of better treatment would have made post-war workers form groups to gain leverage. Once standards are higher, it's more difficult to take them away again. Unions became less prevalent during a recession time when employees were easy to come by because unemployment was so high and if a union tried to leverage power, more workers could simply be hired.

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