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Income Inequality Tied to Decline in Unions

A 2011 study by two Harvard economists found that the steep drop off in unionization in the United States is one of the primary causes of the decline of the middle class.

“Deunionization explains a fifth of the inequality increase for women, and a third for men. The decline of organized labor among men contributes as much to rising wage inequality as the growing stratification of pay by education.

“For generations, unions were the core institution advocating for more equitable wage distribution. Today, when unions—at least in the private sector—have largely disappeared, that means that this voice for equity has faded dramatically. People now have very different ideas about what’s acceptable in terms of pay distribution.

“In the early 1970s when one in three workers were organized, unions were often prominent voices for equity, not just for their members, but for all workers. Union decline marks an erosion of the moral economy and its underlying distributional norms. Wage inequality in the nonunion sector increased as a result.”

The study is “Union Decline Accounts for Much of the Rise in Wage Inequality.”

 

Restore the Basic Bargain

By Robert Reich

For most of the last century, the basic bargain at the heart of the American economy was that employers paid their workers enough to buy what American employers were selling.

That basic bargain created a virtuous cycle of higher living standards, more jobs, and better wages.

Back in 1914, Henry Ford announced he was paying workers on his Model T assembly line $5 a day — three times what the typical factory employee earned at the time. The Wall Street Journal termed his action “an economic crime.”

But Ford knew it was a cunning business move. The higher wage turned Ford’s auto workers into customers who could afford to buy Model T’s. In two years Ford’s profits more than doubled.

That was then. Now, Ford Motor Company is paying its new hires half what it paid new employees a few years ago.The basic bargain is over – not only at Ford but all over the American economy.

New data from the Commerce Department shows employee pay is now down to the smallest share of the economy since the government began collecting wage and salary data in 1929. Meanwhile, corporate profits now constitute the largest share of the economy since 1929.

1929, by the way, was the year of the Great Crash that ushered in the Great Depression.

The latest data on corporate profits and wages show we haven’t learned the essential lesson: When the economy becomes too lopsided — disproportionately benefitting corporate owners and top executives rather than average workers — it tips over.

Incredibly, some politicians think the best way to restart the nation’s job engine is to make corporations even more profitable and the rich even richer. These same politicians think average workers should have even less money in their pockets. They don’t want to extend the payroll tax cut or unemployment benefits. And they want to make it harder for workers to form unions.

These politicians have reality upside down.

Corporations don’t need more money. They have so much money right now they don’t even know what to do with all of it. They’re even buying back their own shares of stock. This is a bonanza for CEOs whose pay is tied to stock prices and it increases the wealth of other shareholders. But it doesn’t create a single new job and it doesn’t raise the wages of a single employee.

Nor do the wealthiest Americans need more money. The top 1 percent is already taking in more than 20 percent of total income — the highest since the 1920s.

Former Labor Secretary Robert Reich teaches public policy at the University of California, Berkeley.