Monday, March 09, 2015

The Cost of a Decline in Unions

Speaking of Kristof, while I'm sure that many people on this email list will vehemently disagree, I also think he's exactly right that "At least in the private sector, we should strengthen unions, not try to eviscerate them." The decline in private-sector unionization in this country from over 30% as recently as the early 1970s to a barely-detectable 7% today has been a disaster for this country. (I have much more mixed feelings about public sector unions, as I've articulated in many previous emails.)

Many Americans think unions drag down the economy over all, but scholars disagree. American auto unions are often mentioned, but Germany's car workers have a strong union, and so do Toyota's in Japan and Kia's in South Korea.

In Germany, the average autoworker earns about $67 per hour in salary and benefits, compared with $34 in the United States. Yet Germany's car companies in 2010 produced more than twice as many vehicles as American companies did, and they were highly profitable. It's too glib to say that the problem in the American sector was just unions.

Or look at American history. The peak years for unions were the 1940s and '50s, which were also some of the fastest-growing years for the United States ever — and with broadly shared prosperity. Historically, the periods when union membership were highest were those when inequality was least.

Richard B. Freeman, a Harvard labor expert, notes that unions sometimes bring important benefits to industry: They can improve morale, reduce turnover and provide a channel to suggest productivity improvements.

Experts disagree about how this all balances out, but it's clear that it's not a major drag. "If you're looking for big negatives, everybody knows they don't exist," Professor Freeman said.

Joseph Stiglitz notes in his book "The Price of Inequality" that when unions were strong in America, productivity and real hourly compensation moved together in manufacturing. But after 1980 (and especially after 2000) the link seemed to break and real wages stagnated.

It may be that as unions weakened, executives sometimes grabbed the gains from productivity. Perhaps that helps explain why chief executives at big companies earned, on average, 20 times as much as the typical worker in 1965, and 296 times as much in 2013, according to the Economic Policy Institute.

Lawrence F. Katz, a Harvard labor economist, raises concerns about some aspects of public-sector unions, but he says that in the private sector (where only 7 percent of workers are now unionized): "I think we've gone too far in de-unionization."

He's right. This isn't something you often hear a columnist say, but I'll say it again: I was wrong. At least in the private sector, we should strengthen unions, not try to eviscerate them.

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