“The United States of Inequality – Entry VI” by Timothy Noah

Reference: Slate

To read the full text of the article, please visit the Slate website at: http://www.slate.com/articles/news_and_politics/the_great_divergence/features/2010/the_united_states_of_inequality/the_great_divergence_and_the_death_of_organized_labor.html

The Great Divergence coincided with a dramatic decline in the power of organized labor. Union members now account for about 12 percent of the workforce, down from about 20 percent in 1983. When you exclude public-employee unions (whose membership has been growing), union membership has dropped to a mere 7.5 percent of the private-sector workforce. Did the decline of labor create the income-inequality binge?

The chief purpose of a union is to maximize the income of its members. Since union workers usually earn more than nonunion workers, and since union members in higher-paying occupations tend to exercise more clout than union members in lower-paying ones, you might think higher union membership would increase income inequality. That was, in fact, the consensus among economists before the Great Divergence. But the Harvard economist Richard Freeman demonstrated in a 1980 paper that at the national level, unions’ ability to reduce income disparities among members outweighed other factors, and therefore their net effect was to reduce income inequality. That remains true, though perhaps not as true as it was 30 years ago, because union membership has been declining more precipitously for workers at lower incomes. Berkeley economist David Card calculated in a 2001 paper that the decline in union membership among men explained about 15 percent to 20 percent of the Great Divergence among men. (Among women—whose incomes, as noted in an earlier installment, were largely unaffected by the Great Divergence—union membership remained relatively stable during the past three decades.)

It’s possible, however, that labor’s decline had a larger impact on the Great Divergence than Card’s estimate suggests. To consider how, let’s return to the “institutions and norms” framework introduced by MIT’s Frank Levy and Peter Temin * and further elaborated by Princeton’s Paul Krugman and Larry Bartels.

In their influential 2007 paper, “Inequality and Institutions in 20th Century America,” Levy and Temin regard unions not merely as organizations that struck wage bargains for a specific number of workers but rather as institutions that, before the Great Divergence, played a significant role in the workings of government. “If our interpretation is correct,” they wrote, “no rebalancing of the labor force can restore a more equal distribution of productivity gains without government intervention and changes in private sector behavior.”

According to Levy and Temin, labor’s influential role in the egalitarian and booming post-World War II economy was epitomized by a November 1945 summit convened in Detroit by President Harry Truman. The war had ended a mere three months earlier, and Truman knew the labor peace that had prevailed during the war was about to come to an abrupt end. To minimize the inevitable disruptions, Truman promised labor continued government support. Truman even coaxed Chamber of Commerce President Eric Johnson into making the following statement: “Labor unions are woven into our economic pattern of American life, and collective bargaining is part of the democratic process. I say recognize this fact not only with our lips but with our hearts.”

To read the full text of the article, please visit the Slate website at: http://www.slate.com/articles/news_and_politics/the_great_divergence/features/2010/the_united_states_of_inequality/the_great_divergence_and_the_death_of_organized_labor.html