Unions And The Middle Class Decline

A great piece in today’s New York Times by Joe Nocera, who admits that liberals—many of whom made their way in the world thanks to unionized parents—made a “terrible mistake” by turning their backs on labor unions.

Relying on Timothy Noah’s latest book on income inequality, “The Great Divergence,” Nocera writes:

Noah places the high-water mark for unionism in the mid-1950s, when nearly 40 percent of American workers were either union members or “nonunion members who were nonetheless covered by union contracts.” In the early postwar years, even the Chamber of Commerce believed that “collective bargaining is a part of the democratic process,” as its then-president noted in a statement.

But, in the late-1970s, union membership began falling off a cliff, brought on by a variety of factors, including jobs moving offshore and big labor’s unsavory reputation. Government didn’t help either: Ronald Reagan’s firing of the air traffic controllers in 1981 sent an unmistakable signal that companies could run roughshod over federal laws intended to protect unions — which they’ve done ever since.

The result is that today unions represent 12 percent of the work force. “Draw one line on a graph charting the decline in union membership, then superimpose a second line charting the decline in middle-class income share,” writes Noah, “and you will find that the two lines are nearly identical.” Richard Freeman, a Harvard economist, has estimated that the decline of unions explains about 20 percent of the income gap.

Nocera ends his piece where Noah ends his book on income inequality:

…if liberals really want to reverse income inequality, they should think seriously about rejoining labor’s side.

A fitting thought on this recall election day in Wisconsin, where the Republican governor decided to start a war with unions and union workers.

I posted this graph last September and it seems appropriate today:

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12 Comments

  1. Jane Reaction

     /  June 5, 2012

    Randy:
    There is certainly a correlation. Charts don’t lie. Why is it so hard to communicate the importance of everybody making a decent salary/wage? My cousin, a school teacher making north of 40 grand, thinks it is obscene for autoworkers to make more than she does. The truth is that most people are jealous of anybody doing better than they are. And the corpo/politicos use it for a battering ram.

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    • You are absolutely right. As the newly-elected governor of Wisconsin would say, it’s a “divide and conquer” strategy. Many people voted to reinstate the governor on Tuesday because they believe unions have managed to get more pay and benefits for state workers than they “deserve.” Governor Walker was rather open about exploiting what you term as jealousy, which if anyone gave it a moment’s thought would realize that if unions go away, so will the pressure to keep wages for everyone relatively higher.

      RDG

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    • Doc

       /  December 28, 2012

      Are you people really that stupid? There is no correlation! Look at the scale on the left and the scale on the right. The union side drops 5 points for every 2 on the middle class. Union jobs have decreased by 60% of the years while the middle class as dropped only 7%.

      Now consider the fact that the middle class has shrunk by 7 % and the poverty rate has stayed the same then where did they go? THEY GOT RICHER!! And you people have a problem with that? Dumb Asses!!

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  2. Careful, JR, let us not lose objectivity here. Charts can lie, or more likely, dissemble. The chart is dramatic, but it compares two variables in an inappropriate way. The unit for both is percentage, but not percentage of the same thing, and more importantly, the scales even differ. The chart can be summed up by this statement:

    “Over a span of 42 years union membership steadily declined from 28% of the work force to 16% of the work force, a 12% drop. In the same period, the middle class share of aggregate income steadily declined from 52% to 46%, a 6% drop. Therefore it is logical to conclude that the two variables are related as to trend, but not quantitatively. The almost identical slope of the two curves is a function of manipulating the scale of the two ordinates and is therefore misleading.”

    In search of more information I found it in a Wiki article, Income inequality in the United States, and it had the below speculation on causes for it. Indeed the crushing of unions is considered a factor, but only one of many. (Personally, I blame technology, the global economy, and the power of the computer more than the loss of unions, but Paul Krugman seems more amenable to the union effect.)

    According to the CBO and others, “the precise reasons for the [recent] rapid growth in income at the top are not well understood”, but “in all likelihood,” an “interaction of multiple factors” was involved. “Researchers have offered several potential rationales.” Some of these rationales conflict, some overlap. They include:

    @ the globalization hypothesis—low skilled American workers have been losing ground in the face of competition from low-wage workers in Asia and other “emerging” economies[139];
    @ skill-biased technological change — the rapid pace of progress in information technology has increased the demand for the highly skilled and educated so that income distribution favored brains rather than brawn;
    @ the superstar hypothesis—modern technologies of communication often turn competition into a tournament in which the winner is richly rewarded, while the runners-up get far less than in the past;
    @ immigration of less-educated workers — relatively high levels of immigration of low skilled workers since 1965 may have reduced wages for American-born high school dropouts;
    @ policy and politics — soaring executive compensation, stagnating middle income pay and more regressive taxation resulting from political decisions, not market forces. Decision such as not intervening to stop executive capture of corporate boards, the crushing of labor unions, etc.

    Analyzing the top three hypotheses, economist Paul Krugman found them to be “increasingly inadequate” as more evidence accumulated.

    Globalization can explain part of the relative decline in blue-collar wages, but it can’t explain the 2,500 percent rise in C.E.O. incomes. Technology may explain why the salary premium associated with a college education has risen, but it’s hard to match up with the huge increase in inequality among the college-educated, with little progress for many but gigantic gains at the top. The superstar theory works for Jay Leno, but not for the thousands of people who have become awesomely rich without going on TV.

    Immigration was also found wanting as an explanation.

    Other scholars questioning the explanation of educational attainment and workplace skills point out that other countries with similar education levels and economies have not gone the way of the US, and that concentration of income in the US hasn’t followed a pattern of “the 29% of Americans with college degrees pulling away” from those who have less education.

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    • Thanks for that information, Jim. Krugman makes important points, in my opinion.

      I will push back just a tiny bit regarding your response to JR. He didn’t suggest direct causation, only correlation. And as for Noah’s original thesis, he does include other factors for the increasing income disparity, not just union decline. The point of the original NYT article was to get liberals, who abandoned unionism (which partially led to its steep decline), to think about what is lost when unions wane.

      Regardless of how the chart is scaled, two facts remain: union membership, and thus its power to negotiate benefits and wages, has declined over the last fifty years or so; and the middle class share of aggregate income has also declined. I don’t see it as crucial to the point being made that the quantitative relationship between these two variables may be just a function of scaling.

      Finally, I couldn’t agree with you more that other reasons exist to explain what is going on (we’ve talked about all of them at one time or another). Together they are making the perfect storm for middle class decline, but my focus, as a union advocate, is to address one factor that we can change, that we can do something about immediately. Globalization is apparently unstoppable, training a workforce with the skills needed in this technology-driven environment will take time, and so on. Preserving unionism and increasing union membership is doable at this very moment, if, say, Democrats would make the case for it. But as Mr. Obama proved by sitting out the Wisconsin election, some Democrats aren’t willing to fight the trend of scapegoating unions for some of our economic ills.

      Duane

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  3. ansonburlingame

     /  June 5, 2012

    First of all, I agree with the statement that “even the Chamber of Commerce believed that “collective bargaining is a part of the democratic process,” ”

    But it is the democratic process between whom is the question. What role does government have to play in such a process that In my view should be between labor and management, up to and including lockouts and strikes, at least in private industries where real public safety is not involved with Fire, Police and yes, education.

    I will gladly sit back and watch the fur fly between labor and management in ANY labor dispute. And unless real violence comes to pass from either side, government should stay out of it, period in my view. Ultimately both sides are greedy, in that they want to make more money, so let them negoitate their greed to a standstill and see who blinks first is fine with me. BUT no violence for either side. When that happens violence should be prosecuted in accordance with law on the books for a long time to control and stop violence, period. A union club or a “skaggs” club being no difference. Even a “police club” wielded at the behest of “management”. Prosecute such folks to the full extent of the law in my view, impartially.

    As for the graph, well Wheeler got it right in my view. A couple of lines on a curve are not ground truth. It is the reality behind those numbers that make up a graph, the “real numbers” if you will, not just those assumed to construct a graph, a “cherry picked” set of numbers if you will.

    I go back to Duane’s recent graph “showing” that Obama’s spending has stabalized. Maybe it has and has not increased at the rate he would like to go up, thanks to a GOP House. But then look at deficits and debt.

    Why is Obama creating such deficits. Of course it is Bush’s fault because inherent government “non-discrestionary: spending is going through the roof, is it not. Well what is Obama doing to control THOSE costs now and later. NOTHING, yet, it seems to me.

    Now I go out on a limb that Duane and others weill be happy to try to saw off. WHY is middle class income going down, really?

    It is not because union wages are on a downward trend. It is because the middle class has yet to figure out that “labor”, rather simple and uncomplicated labor is NOT the way to a middle class life in a flat world. Today one must do more the just punch a time clock. A middle class aspirant must PRODUCE something that really will sell. No they do not have to invent the computer, but they damn well must be ready to IMPROVE the computer that they make.

    Otherwise, just go punch a time clock and see what happens to your wages over time.

    Anson

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    • I’m only going to address your comments about the middle class, which, to put it kindly, are utterly ridiculous.

      Forgetting that folks who “just” punched a time clock (man, that really galls me that you have such a low opinion of people who made America the economic powerhouse it still it is today) saw their wages rise considerably after WWII, I want to say that whether right-wingers like you acknowledge it or not, folks who teach school, put out fires, make cars on an assembly line, deliver the mail, etc., are producing something. They are producers and there is inherent value in what they do.

      But what is the value of their labor? That is partially determined by the dynamic between workers and management (and this part is my focus). If workers utilize the power of collectivizing their labor, of forming unions to bargain on their behalf, it changes that dynamic in a positive way for the workers. The result is higher wages than would have been if individuals bargained on their own (of course, most workers don’t bother to bargain at all).

      Altering the dynamic between labor and management is what has been happening in, of all places, China (even apart from the Communist Party-controlled ACFTU).  Guess what the business response was (and is) to the spontaneous strikes and demands for higher wages and working conditions in China? They have threatened to leave there and go elsewhere. Typical.

      Finally, to claim that “a middle class aspirant must PRODUCE something that really will sell” is to guarantee that there will never be a strong and prosperous and inclusive middle class. There just aren’t that many folks out there who can create new or improve existing products sufficient to meet your criterion.

      In fact, I can’t for a moment imagine the world you describe. What it would look like? Would the middle class comprise only folks who own small businesses? Huh? Would the middle class comprise only inventors? Huh? Would the middle class comprise only people who have to constantly tinker around in their garages to keep up with the Joneses?

      You are condemning most of the people who exist in a nation’s real economy—teachers, cops, firefighters, auto workers, construction workers, postal workers, soldiers, etc., to a substandard existence as Americans. Your view is not only full of absurdities, it is pessimistic beyond words.

      The people who teach our kids, police our streets, build our cars, deliver our mail, are not only producers, they are the spine of a nation.

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  4. Duane,

    You are right that the middle class is the engine that drives the economy. And contrary to what the right wing nuts would have you believe, the rich – the capitalists – DO NOT create jobs. It’s the middle class. We are a consumer-driven economy. A growing population with growing wages creates demand for goods and services. That demand is met by increasing the production of goods and services. And that increase in production is mostly caused by an increase in employment. So everybody then gets and big hug and a high-five. At least that’s the way it’s supposed to work.

    We are seeing the consequences of a declining middle class today as unemployment rises and GDP growth slows to a crawl. From 2007, which is when the Recession began, through 2011, total GDP for those 5 years was $71,888 billion with an average growth rate of 1.88%. However the average growth rate of the GDP over the past 50 years, from 1961 through 2011, was 6.90%. Ergo, if the GDP had grown at its historical average rate, it would total $74,733 billion for the last 5 years. In other words, the loss due to the recession so far is $2,853 billion, or just over $2.8 trillion. And that’s just to 2011! The future doesn’t look any better.

    There are many reasons why the GDP is falling from its historical growth rate, but surely higher than average unemployment is a substantial part of it. And that is the heart of the middle class – the consumers who keep the economy humming along. One could conclude, therefore, that the private sector’s efforts to lower wages, trim employees, and expatriate jobs overseas are only making things worse. In short, we are staring Pogo’s enemy right in the face.

    Herb

    p.s., I was going to do a comparative analysis with China for the same 5 year period, but I got so depressed I had to quit.

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  5. Correction to Previous Post:

    I miscalculated the five year total GDP using its historical average of 6.9%. I didn’t compound it. So, the corrected total should be $80,515 billion rather than the $74,733 billion shown in the previous calculation. The difference from the five year actual total GDP is now $8,635 billion (80,515 – 71,888 = 8,635), or $8.6 trillion. That’s more than pocket change. (Incidently, all these statistics were derived from the GDP data at http://www.BEA.gov)

    By the way, corporate profits have been increasing steadily since 2008. And they, corporations, are reportedly sitting on $2.233 trillion in cash (See FRB’s “Flow of Funds” report for 4Q, 2011, “Nonfarm Nonfinancial Corporate Business,” Table L. 102, Line 41,p. 67, “total liquid assets.”) That amount is somewhat overstated because companies need cash for payrolls, supplies, dividends, etc. Nonetheless, there is still a substantial cash surplus available. But American workers can’t compete with, say, a worker in China who can put in 12 hour days, 6 days per week, for a measly $3.50 per hour. (See http://developtradelaw.net/?tag=made-in-china)

    The point of all this is that when corporations relocate jobs and factories in countries with relatively low wages, the middle class here in the U.S. suffer. And it’s we the taxpayers who have to clean up the mess through higer taxes for unemployment, welfare, etc., and to pay for the debt (maybe one day) that keeps accumulating due to a lower tax base. How’s that for “free” enterprise?

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  6. ansonburlingame

     /  June 7, 2012

    Yuk, more statistics and “numbers”.

    Before I saw this comment, I was thinking about a blog on “growth” of the economic sort and did some online looking, not academic type research. I found a web site showing GDP each ear and the annual increase or decrease in GDP for each year from 1990 to 2011.

    I then simply added all the growth percentages in the web site and divided by the number of years. The web site also listed simialr statistics for other countries and I used China’a numbers as well to do the same thing. Results:

    Average American growth in GDP since 1990 was 2.4%. Average Chinese growth was 10.1% Now tell me the winner if growth in GDP is the measure, average growth over time. When one country is growing at 4-5 times the rate of another country, somone should be paying attention and asking why.

    But American voters don’t care about such long term trends, not at all. They just want theirs now, not later. And thus our last 50 years of politicians striving hard to provide the “now” and not worrying about later.

    Well we are in the midst of “later”, now. Europe is maybe ten years ahead of us in the looming cliff but who in America cares about Europe!! It is what we can get from government NOW that politicians pander to and it is a siren song leading to cliffs of disaster, in my view.

    Twist whatever numbers you can find Herb to make your point, which I assume is America over the years is doing just fine and we should just keep on doing what we have been doing, right?

    Hell even Obama said we needed to change. The problem is he changed in the wrong direction, a direction that he criticized as a Senator for too much spending for Christ’s sake. Remember his debt limit vote of long ago!!! And then the promise of cutting the deficit in half. Is breaking a campaign promise a LIE? I call it spin but so what?

    Anson

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