The Role of Labor Unions in Why Middle Class Wages Aren’t Increasing

Economists can debate how much unions have helped boost wages historically. But unions’ decline does seem related to our wage stagnation.

A Politically Charged Issue

Whether and to what extent labor unions have increased wages in the U.S. economy is a matter of hot debate. It’s downright partisan, with very different answers coming from pundits and politicians of our two major political parties.

Start with Some Facts

From 1973 to 2011 the percentage of U.S. workers represented by unions was cut in half—going from 26.7% to 13.0%.

The change was even more dramatic among high school-educated workers. During that same 1973 to 2011 period, the percentage of these less-educated workers represented by unions fell from 37.9% to 14.9%. During that same period among blue-collar men union representation fell similarly from 43.1% to 17.8%.

The Union Wage Premium

Employees covered by a collective bargaining contract are on average paid a higher hourly wage than those who are not. Arguments can be made about the broader impact of those higher wages on the labor force (such as a potential reduction in the number of employees hired) and on the economy in general (such as the productivity of union vs. nonunion employees). But it’s worth looking at this wage differential.

Let’s look simply at hourly wages of those covered by collective bargaining contracts and those not covered. Comparing employees who are comparable in experience, education, region, industry and occupation, those covered by collective bargaining contracts overall earn 13.6% more that those who are not.

The difference is more pronounced for Black and Hispanics, 17.3% and 23.1% higher wages, respectively, for those covered by collective bargaining.

The Union Benefits Premium

As for the major non-wage forms of compensation—health insurance, retirement, and paid vacation—a higher percentage of union workers receive these benefits than do nonunion ones.

The comparisons are: 1) for health insurance, 83.5% for union workers vs. 62.0% for nonunion, 2) for retirement benefits, 71.9% vs.43.8%, and 3) paid vacation, 2.98 weeks vs. 2.35 weeks.  

The Impact of Unions

According to the Economic Policy Institute’s current edition of The State of Working America (pp. 268-279, also the source for the data above):

[the] 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. 

… . 

     There are several ways that unionization’s impact on wages goes beyond the workers covered by collective bargaining agreements and extends to nonunion wages and labor practices. For examples, in industries, occupations, and regions in which a strong core of workplaces are unionized, nonunion employers will frequently meet union standards or at least improve their compensation and labor practices beyond what they would have provided in the absence of a union presence.  …  .

     A more general mechanism… through which unions affect nonunion pay and practices is the institution of norms and practices that have become more widespread throughout the economy, thereby improving pay and working conditions for the entire workforce. …  .  Many fringe benefits, such as pensions and health insurance, were first provided in the union sector and then became more commonplace. … .  As unions have weakened, especially in the manufacturing sector, their ability to set broader patterns has diminished.

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