Thursday, February 20, 2014

Why Unions Can't Be Saved

I'm grateful to Michael Wasser of "Jobs With Justice," a labor-rights organization, for writing a reply to my Bloomberg post this week on the death of American labor unions.

Wasser's argument is straightforward: Unions aren't dead yet, and they are the only way to get public policies that advance labor and reduce inequality.

So there are two ideas here, the potential and the uniqueness of unions. Wasser says unions still have potential and that labor's gains from unionization are unique. I disagree on both. I think unions are far more likely to grow weaker over, say, the next ten years than they are to grow stronger. And I think that there are many other ways to advance labor -- ways that are, to my taste, preferable to re-unionization.

First, potential. In the Bloomberg piece, I linked to (but did not discuss) some research that shows pretty clearly that union decline has been driven by economic competition. Let me just pull one abstract from from Henry S. Farber* and Bruce Western:
...We then present an accounting framework that decomposes the sharp decline in the private-sector union membership rate into components due to 1) differential growth rates in employment between the union and nonunion sectors, and 2) changes in the union new organization rate (through NLRB-supervised representation elections). We find that most of the decline in the union membership rate is due to differential employment growth rates and that changes in union organizing activity had relatively little effect. Given that the differential employment growth rates are due largely to broader market and regulatory forces, we conclude that the prospects are dim for a reversal of the downward spiral of labor unions based on increased organizing activity.
So the heart of the matter, it seems to me, is whether union decline is basically irreversible. For what it's worth, the rest of the literature is also pretty clear that U.S. labor law had limited impact. If the decline is permanent, furthermore, Wasser's claim about uniqueness has no independent policy implications -- it's merely a statement of pessimism.

Yet I still find that pessimism implausible if one considers this graph (via Jared Bernstein) showing the broad increase in wages in the 1990s. Why? Unionization was also low then. How did wages rise so quickly, then, for the bottom half of the wage distribution? You can thank full employment.

The chart Wasser puts at the top of his post -- the strong negative relationship between unionization and inequality -- is the reason he thinks unions are needed. As for me, it's the reason I think unions are doomed. In his view, that relationship is causal: the decline in the union causes the rise in inequality. In my view, the relationship is driven by a third variable, the global economy, which both raised inequality and punished unions.

* Full disclosure: Farber is currently my professor in an econometrics course.


  1. Don't unions have an electoral function, as well?

    1. Yes, and looking outside the US their electoral function has historically been far more potent in moulding institutions to advance their members' longrun interests than their workplace actions.

      The UK, Israeli and Australian Labo(u)r parties have all been in government and even when they haven't have generally been strong enough to constrain the oligarchs from shifting the Overton window in the way they have in the US. Each was founded as the political arm of unionism.

      But that's history. The response of Labour Parties in Australia and the UK (dunno about Israel) to the decline of unionism has been to free themselves from union ownership rather than to try and halt that decline, because the decline is pretty terminal there too for the same reasons as in the US.

  2. I think you are mostly correct but I think the key element both you and Wasser are missing is that in the 1950s, the economy was dominated by oligopolies like the steelmakers and auto makers. Unionization can be a perfectly efficient organizational structure when the buyer of labor is an oligopsony/monopsony. If the unions demanded "too much" in terms of wage hikes, companies had pricing power and the result was cast-push inflation.

    Nowadays, its true that unions are not viable because of globalization, but more importantly, the labor market is far more competitive. To get me to accept that unionization is appropriate you have to show me a labor market that is not competitive, where employment terms are dominated by one large buyer with market power, and where employees have no close substitutes (I think that such markets do exists still, but not to the extent they used to).

    But, a market where the *union* (supplier) has power to set wages while the employer has no pricing power is inherently unstable. Corporates and entities with large market power engage in rent-seeking behavior. A company that is hostage to a rent-seeking supplier with no ability to pass on costs and no cash to invest in technology that reduces inputs is doomed. How long it survives is a function of the barriers to entry.

    And by the way, the focus on US inequality is far too narrow. Sometime in the mid-80s when the cold war ended we started to prefer to address global inequality. Sending jobs to Asia and having them make our stuff is far better than having them make military equipment. Poor countries are unstable and make war. The cost of lower trade barriers is more inequality in the US but less inequality in the world, still a good thing. At least until China converges.

    1. Thanks, DWB. That was probably the most enlightening comment I've ever read (that wasn't written by me, natch).

  3. Of course, in 1995 the federal minimum wage was increased from $4.25 to $5.15, an increase of over 20%, phased in over two years.

    That, as well as full employment, may have something to do with the spike in wages during the late 1990s.

  4. I suppose that hiring in the public sector, besides the thrust toward full employment implicit in eco-adequate fielding of buses, dense planting of modular affordable housing, ESL for immigrants, math and piano tutoring, mural painting etc, creates its own constituency of workers grateful and eager to reproduce their jobs thru electoral wins.

    Also, thanks to the embodiment of anti-woman religion and racism in the Republican party and the coincidence of black and brown people and single moms with low-income living, there's some long-term prospects for liberalism.