September 07, 2016

Union decline creates wage stagnation, report finds

A recent report by the Economic Policy Institute has found that a fall in union membership is responsible for declining wages for private-sector workers in the US.

For over three decades wages have barely increased for private-sector workers, the report says. In fact, for men in the private-sector without a college degree and not a member of a union, real wages are substantially lower today than they were in the 1970s. The wage decline for women is not as substantial because women were not as unionized as men in the 1970s.

Unions, especially in industries and regions where they are strong, establish pay and benefit standards which many non-union firms adopt. Higher pay in unionized firms increases competition for labor as non-union firms increase their wages to prevent their employees leaving for higher, union wages. 

The boost which unions provide has weakened as the share of the private-sector workers in a union has fallen from 1 in 3 in the 1950s to about 1 in 20 today. For non-union men working in the private-sector, weekly wages would be an estimated 5% higher in 2013 if union density had remained the same as in 1979. This translates as an annual wage loss of $2,704 for a full-time employee.

The minimum wage has remained the same at $7.25 an hour since July 2009, making it a contentious issue in November's upcoming Presidential election.

Alex Bryson, writing for the IZA World of Labor on Union wage effects says, “Where unions challenge employers who pay below employees’ true value, they may in fact perform a good by tackling discrimination or low pay increasing workers’ purchasing power.” Although it may be unsustainable to pay above-market wages, unions can benefit workers and firms alike if the wage premium reflects union-induced increases in productivity.

Read the full report here.

Find out more about trade unions, collective bargaining, and the labor market.

Relate articles
The consequences of trade union power erosion by John T. Addison
Union wage effects by Alex Bryson