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May 25, 2013

No Union is an Island, Entire to Itself . . .

By Seymour Patterson

This piece deals with the potential consequences of the assault on unionism, and the resulting decline in union membership and wages. This was followed by a rise in profits. The rift between the profit recipients and wage earners has the potential of causing the emergence of political instability, which could split the country apart.


To paraphrase John Dunne, "No [union] is an island, entire to itself . . . Any [union's] death diminishes me, because I am involved in [unionism]." When Gov. Rich Snyder signed "right-to-work" legislation in Michigan, he was participating in the ongoing assaults on  unions--which putatively began after the passage of the Wagner Act of 1935 and have not abated. Similar assaults in Wisconsin and Ohio were unsuccessful. But maybe this hiccup has given the governors just a pause to regroup before the next anti-unionism blitz. Yet, by any measure the anti-unionism effort arrayed against labor has been largely successful, as the main players have pealed away union membership and depressed wages. Other states will model Michigan and replicate their strategy to undermine unions with the financial support of the rich, i.e. the makers, and by copying the script--methodology and language--produced by The American Legislative Exchange Council, ALEC . This is stark evidence that the anti-unionism cabal in this country is nothing if not dedicated, persistent, patient, and possessed of a long view.

The Wagner Act of 1935, Sec. 7, reads, "Employees shall have the right of self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in concerted activities, for the purpose of collective bargaining or other mutual aid or protection." The upside of the Wagner Act is that when labor laws are enforced workers become de facto "shareholders" in the workplace. This makes them happy, and happy workers tend to be more productive. The downside of the Wagner Act is the negative passions it cultivates, the tensions between workers and employers, who fear the loss of autonomy to run their businesses as they see fit. These tensions can lead to bifurcating ideological alliances in the political arena--workers throw their support behind democrats and management behind republicans.

Before President Reagan took on the Air Traffic Controllers, it was a generally accepted truism that unions contributed to improving the working conditions for its members through the collective-bargaining process. Collective bargaining did this in many ways: higher wages, improved safety, old-age benefits, vacations, etc. Workers pay for representation at the bargaining table with their union dues. Anti-union factions, however, have demonized unions for decades, calling the union bosses "thugs" and blaming unions for the lack of manufacturing competitiveness vis-a-vis the rest of the world. Workers are seen as greedy and lazing. And in the last presidential campaign, at best workers were seen less favorably, and at worst they were assigned the sinister label of takers by the rich, with some politicians telling us that the rich merit tax breaks because they are makers--the job creators.

Percent of Labor Force Unionized Historically

Again, the trend in workers who are union members is downward. This is because the anti-union cohort has been successful at the macro level. This is also because workers have endorsed policies that go contrary to their best interest. And right-to work-states pass laws that create free riders (workers who don't pay dues but still benefit from union-bargaining successes) that ultimately pit dues-union-paying members against non-paying dues workers.

Figure 1 below comes from State of Working American data and covers the period 1973 to 2011. In any case, the figure shows that union membership was higher in 1973 than it was in 2011, and of course last year. And that downward trend will continue because anti-union governors in republican-held states around the country are not going to let up on their efforts to cripple unions. They may lose a few skirmishes along the way, but long term, their efforts--in collaboration with business--will win the war.

Trend in Union Membership by Seymour Patterson

More concerning than just the loss of union relevance in the labor market is the weakness in the wage data. Wages have been flat relatively (profits have grown stratospherically). Some people blame globalization, including NAFTA, and U.S. trade policies with respect to the rest of the world. There is hardly ever the case that only one thing explains everything else or vice versa. But it can be shown without making any assertions about causality that union weakness and the softness in wages are related. And this view goes beyond the dint of sheer reasoning, as figure 2 shows.

Trend in Wages from '73-2009 by Seymour Patterson

Figure 2 shows hourly wages being relatively flat until 1996 and rising thereafter modestly. Of course, the modest gains in wages are in sharp contrast to the steadily declining trend in union membership. Education and productivity (including technological advances) might explain the modest gains in nominal wages. But what has been happening is that productivity increases in the labor force is reflected in, or indeed diverted to, higher profits.

Labor Laws and Labor Legislations Results in Happier, More Productive Workers

Rich countries have strong and enforceable labor laws and labor legislations, but poor countries may have such laws and legislations in place, too, but enforcement might not be at the top of the list of government activities. Of course, solely this does not inform causality, but this fact suggests a road poor countries may choose to travel. It is also a basis for caveat to our own country and governors bent on weakening unions and National Labor Relations Board (NLRB).

Labor laws and labor legislations that protect workers' rights at their place of employment make workers happy, and happy workers are more productive, so in such countries output is greater than in countries were labor laws are constrained. For poor countries, productivity increases might benefit from leave policies, lunch breaks, unemployment compensation, pension plans, etc. And economic growth might follow.

But money and demagoguery have been very effective. There is foreboding throughout this country of the consequences of the race to bottom of wages. The idea that we should depress American wages to third-world levels for American business to be competitive globally is ludicrous. Hence, while the bell tolls for unions in America, wages remain flat, but profits soar. Add to this that taxes are skewed in favor of unearned income, where the tax rates are between 15 percent and 20 percent. However, workers are taxed 28 percent and 39.6 percent. And we wonder why the middle class is shrinking.

Now look at Figure 3, which I constructed with data from the U.S. Government Printing Office (GPO). Note the upward trend in profits from 1973 to 2010, with the exception of the trough that bottomed out in the 2008 Great Recession, and rebounded to the 2006 level in 2010. Refer back to Figure 2 for wages, conceding that the magnitudes are dissimilar, and focus on the movement of the lines. What is striking is wages appear to have flat-lined, but profits--well, profits have a mind of their own--they go up sometimes seemingly exponentially.

Upward Trend in Profits by Seymour Patterson

The profile of profits depicted in Figure 3 is perhaps the culmination of the rise in labor productivity, and the systematic and successful undermining of union membership, which depresses wages. In the long term, these trends are untenable, because to sustain a middle-class standard of living, increasingly, households must have two wage earners where before one would have sufficed. To add insult to injury, the tax bite is biased against wages--the top marginal wage earner pays 39.6 percent, while profits recipients are taxed 20 percent tops. This, of course, exacerbates the income gap between the top 1 percent of the population and everybody else. Other things are also cause to worry--student debt is one trillion dollars, and nonprofit hospitals have gone the way of the Dodo bird. Perhaps the US is immune, but historically elsewhere income disparities and eroding living standards have led to political instability, strikes, and coups. It might be the better part of wisdom for the country's leaders to tone down their ideologically driven political squabbles and address the forces that can rip the country apart such as the widening income chasm between the haves and the have nots.  

Submitters Bio:

Seymour Patterson received a Ph.D. in economics from the University of Oklahoma in 1980. He has taught courses and done research in international economics and economic development. He has been the recipient of two Fulbright awards--the first in Botswana in 1991 and the most recent in Ethiopia in 2009. He was on the Truman State University faculty until 2008.