Please ensure Javascript is enabled for purposes of website accessibility

How the Decline of Labor Unions Led to Stagnant Wages

By Amanda Alix - Aug 3, 2014 at 10:42AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Wages have flatlined even as productivity has gained. Could lower union membership be to blame?

Wage stagnation has been an ongoing problem for some time now, even for those who obtain college degrees. From the years 2000 to 2012, college graduates saw a rise in pay of only 1%. For those with a high school diploma or only a smattering of college, wages actually fell during that time span.

Pay levels for most working folks have been treading water since the late 1970s, even as more wealth has migrated to the top 1% of the population. High earners increased their take of all income from 7.9% in 1979 to 12.9% in 2010, and recovered wages lost during the recent recession much more quickly during the economic recovery of 2009 to 2012.

What happened?
Even as wages stubbornly refused to rise, productivity soared. The Economic Policy Institute noted recently that productivity rose by nearly 65% between 1979 and 2013, while pay rose by only 8.2%. Why have workers been working harder, it seems, while receiving no commensurate wage gains?

There are many theories for why this state of affairs exists. Technological innovations are often cited as reasons for the lack of job growth, as mid-wage jobs disappear, causing a larger gap between low-wage and highly compensated work. 

But something else happened over the last 35 years, as well: labor unions have become less prevalent. From a unionization rate of 35% in the 1950s, union membership fell to around 25% in the 1970s. Now, private-sector unionization is only 6.6%. Might the loss of those champions of the working class have had something to do with the severe lethargy being seen in pay growth? 

A correlation certainly seems likely. The EPI estimates that the erosion of unions accounts for one-fifth to one-third of wage and income inequality since the 1970s. The lack of an inflation-indexed minimum wage explains the rest of the problem.

The lack of union influence has been felt in many ways. For one thing, union members make more money – 13.6% more. In addition to the union wage premium, workers covered by a union contract usually have more employer-based benefits, such as health care. But other, non-unionized workers benefit, too, since collective bargaining has historically been responsible for setting the wage scale in a particular industry, regardless of the presence of a union.

Without unions to enforce the sharing of corporate profits, those at the top have made the most gains, while all others see little or no improvement in their compensation levels. In 2012, the manufacturing sector took in record profits of nearly $290 billion, even as it wrested more concessions from unions. General Electric, for example, now pays new union workers $14 per hour, compared to the hourly rate of $22 it was paying prior to 2005.

Though the unemployment rate has fallen quite a lot in 2014, the median weekly salary hasn't budged since this time last year – while the Consumer Price Index rose by 2.1%. Even as the economy appears to be making a permanent recovery, working Americans continue to see their own economic profiles erode. And, without wage gain pressure from labor unions, this situation is very likely to persist. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
322%
 
S&P 500 Returns
116%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.