Union Decline Drives Wage Inequality, Not Clear It Drives Wage Decline

Moneybox
A blog about business and economics.
Jan. 23 2013 2:03 PM

Union Decline Drives Wage Inequality, Not Clear It Drives Wage Decline

Private sector unionization has fallen to a new low of 6.6 percent of the nongovernment workforce, down from 6.9 percent. Kevin Drum illustrates this with a chart of the "union wage premium" showing how much higher average wages are for unionized workers of a given age and gender than for non-union workers. But that's obviously a pretty simplistic way of trying to understand the counterfactual.

After all, this isn't a uniform phenomenon. The union share of airline pilots and Hollywood screenwriters is much higher than 6.6 percent, while in other industries it's much lower. Bruce Western and Jake Rosenfeld published a much more rigorous study of union wage effects in March 2011 (PDF), and what they found was a huge impact on the growing inequality of the wage distribution. In a political democracy, the income of the median voter will be below the mean income in the population (because nobody makes less than $0), so the tendency will be for democratic politics to be redistributive. The collective decision-making process of a labor union unleashes a similar dynamic among the covered population—serving the interests of the typical member rather than the most outstanding one, it compresses the wage distribution. It also tends to redistribute wages away from non-unionized managers and toward unionized line workers, further compressing the compensation scale.

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But the overall labor share of compensation showed cyclical fluctuations around a steady trend for about 50 years, until suddenly entering what may be a period of structural decline over the past decade. That doesn't at all fit the pattern of steady decline in private sector unionization levels.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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