Reprinted from Common Dreams
A new study from the International Monetary Fund concludes that unions reduce inequality and foster a healthier economy for everyone, mainly by preventing the wealthiest among us from keeping the fruits of a collaboratively created prosperity for themselves.
The IMF study shows that a reinvigorated labor movement is essential to both a just economy and a well-functioning democracy. It deserves widespread attention -- and should inspire concerted action.
The IMF is not considered a hotbed of leftism, yet the conclusion reached by research economists Florence Jaumotte and Carolina Osorio Buitron is clear. As they explained in a summary of their work, they found that "the decline in union density has been strongly associated with the rise of top income inequality" and that "unionization matters for income distribution."
Jaumotte and Osorio Buitron examined the relationship between unionization and income inequality indicators in 20 advanced economies between 1980 and 2010. They found "a strong negative relationship between unionization and top earners' income shares," and concluded that this relationship "appears to be largely causal."
In other words, the IMF authors found that the very wealthy capture a larger share of an economy's overall income when fewer people belong to unions. They found this to be true even after controlling for other forces that can affect inequality, including technology, globalization, and financial deregulation.
Cause and Effect
Their findings are consistent with this country's experience. Hourly wages kept pace with productivity gains in the United States for roughly a quarter-century after World War II, as the Economic Policy Institute observes.
As the EPI notes, "If the hourly pay of typical American workers had kept pace with productivity growth since the 1970s, then there would have been no rise in income inequality during that period."
Union membership began declining in this country at roughly the same time as wages began to lag behind productivity. EPI noted the relationship between union membership and inequality back in 2012. The IMF study provides further insight into the forces behind that relationship.
But why does inequality even matter? There are those, mostly on the right, who argue it doesn't. They claim that inequality is irrelevant as long as the economy is growing, perhaps because they assume that growing economies more effectively meet people's basic needs.
But that's not what's happening. Stock markets may be booming, but wage stagnation in the United States is choking off the middle class. Basic needs like higher education are becoming increasingly unaffordable.
An economy can only grow in an equitable, well-distributed way when there is a large base of consumers to purchase goods and services. When all the wealth is concentrated among a very few people at the top, the majority is deprived of spending income. The wealthy few will have difficulty spending all their money -- or even investing all of it -- while millions of others are unable to make the purchases they want and need.
Despite right-wing mythology, the wealthy are not "job creators." As economist J. Bradford DeLong says, "save for those in the top 0.01 percent who are going to use their money for useful purposes" -- that is, by leaving it to charity -- "the contribution they make to any reasonable utilitarian measure of societal welfare is zero."
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