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Union Busting Stalls Wage Growth

October 20, 2014

This graph from the Economic Policy Institute shows how wages began stalling in the 1970s, while productivity continued to grow.

This month, the unemployment rate dipped below 6 percent for the first time since the 2008 Great Recession, with 2014 looking to be the strongest year of job growth since Bill Clinton was in the White House.

But ask the average American how the economy is doing and they’d likely answer: ‘Lousy.’

A big reason for this disconnect is that while jobs and profits are back, wage growth continues to lag.

As Josh Mitchell at the Wall Street Journal reports:

Among private-sector workers, average hourly earnings actually fell a penny last month, to $24.53. They have risen 2 percent over the past year. This is the second expansion in a row including the recovery after the 2001 recession, where economic growth hasn’t translated into rising incomes for most Americans.

While wages in some areas are increasing due to labor shortages, wages remains stuck in most of the country.

In fact except for a brief period in the late 1990s, pay has lagged behind productivity growth for more than 20 years, with productivity growing eight times faster than the average worker’s compensation.

Economists have given many reasons for this, from a mismatch of skill level to the pressures of a globalized economy. But critics say that these analysts are missing a more fundamental factor responsible for the decades of wage stagnation.

As Harold Meyerson wrote in the Washington Post:

The distribution of income is a function not just of global forces but also of social and institutional power. And over the past four decades, U.S. workers have suffered a loss of power that may exceed even their loss of income.

As he points out, Americans nearly doubled their incomes during the three decades following World War II. At the same time the U.S. saw the biggest growth of the labor movement in its history, with more than 30 percent of all workers represented by a union by 1964.

Open union-busting, a more hostile attitude toward workers’ rights by corporate America and elected officials, and ineffective labor law helped drive the share of the workforce that belongs to a union to less than 10 percent today.

The result is less bargaining power for workers, which translates into stalled wage growth.

As the Economic Policy Institute reports:

This falling rate of unionization has lowered wages, not only because some workers no longer receive the higher union wage but also because there is less pressure on nonunion employers to raise wages; the spillover or threat effect of unionism and the ability of unions to set labor standards have both declined.

Even in industries where the labor market is beginning to tighten, like construction, a union contract makes the difference when it comes to getting a raise. The median earnings of construction workers represented by a union (one of the few private-sector industries that still has a relatively strong union presence) increased by more than $500 a year in 2013.

At the same time however, the yearly wage of a nonunion worker dropped by nearly the same amount.

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Homepage photo credit: Images Money