A new study from the Economic Policy Institute uses the state of Michigan to connect the dots between the decline of collective bargaining and the decline of middle class incomes. This three decade old theory is viewed through the lens of income inequality, which has had a staggering effect in limiting economic growth for middle class and low wage workers.
Collective bargaining helps achieve higher wage levels not just for any given group of workers negotiating together but for their peers in any given industry as well. As collective bargaining rights have been dismantled, wages have stagnated. The report gives three main reasons why collective bargaining reduces wage inequality:
Collective bargaining reduces wage inequality for three reasons. The first is that wage setting in collective bargaining focuses on establishing “standard rates” for comparable work across business establishments and for particular occupations within establishments. The outcome is less differentiation of wages among workers and, correspondingly, less discrimination against women and minorities.
A second reason is that wage gaps between occupations tend to be lower where there is collective bargaining, and so the wages in occupations that are typically low-paid tend to be higher under collective bargaining.
A third reason is that collective bargaining has been most prevalent among middle-class workers, so it reduces the wage gaps between middle-class workers and high earners (who have tended not to benefit from collective bargaining).
The report focuses on Michigan because of the drastic drop in wages the state witnessed as collective bargaining rights were stripped. While income inequality is a national problem, Michigan has been hit especially hard. Some of the main findings of the EPI report include:
–The typical household’s income rose cumulatively just 7.3 percent from 1979 to 2010 in the United States, while in Michigan it fell 11.2 percent. Correspondingly, Michigan’s middle class had incomes 13 percent above the nation in 1979 but 6 percent below in 2010.
–At the heart of the matter is that hourly wages and benefits have not improved much for a typical worker in spite of the fact that the output of goods and services produced (i.e., productivity) has increased greatly. The 9.6 percent growth in median hourly compensation among U.S. workers from 1979 to 2011 contrasts sharply with productivity growth of 69.1 percent during the same period. In Michigan, productivity grew by 34.9 percent, and real hourly compensation of the median worker fell by roughly 10 percent. In both the nation and in Michigan a substantial gap has emerged between the ability of the economy to provide higher wages and its actual propensity to do so.
–. In Michigan the share of the workforce covered by a collective bargaining agreement fell from roughly a third in 1983 to about 18 percent in 2011, while in the nation the erosion was from about 23 percent to 13 percent. Collective bargaining coverage fell more in Michigan within the private sector, including in construction and in manufacturing, than overall, but it fell in public employment as well.
–Collective bargaining affects the wages and benefits of those not directly covered by an agreement when employers meet standards set by collective agreements or at least improve their compensation and labor practices beyond what they would have provided in the absence of collective bargaining. A more general mechanism through which collective bargaining has broadly affected pay and practices is the institution of norms and established practices that become more generalized throughout the economy, thereby improving pay and working conditions for the entire workforce.
The period between 2000 and 2007 experienced stagnation of workers wages despite higher productivity than the previous decade. This ’00-’07 period, often referred to as “the lost decade,” saw median income continually drop from start to end. Perhaps the most interesting charts from this report are those that show the relationship between productivity and median hourly compensation growth. Logic would suggest rising wages with rising productivity. However, over the past decade this has not materialized (see above and below):
Figures C and D chart the growth of productivity and hourly compensation (wages and benefits) for the median, or typical, worker for the United States and Michigan. Between 1979 and 2011 productivity rose 69.1 percent in the United States (Figure C) while median hourly compensation grew far less, by just 9.6 percent. Productivity in Michigan grew 34.9 percent from 1979 to 2011, less than in the nation, and the hourly compensation of the median worker fell by 9.5 percent. The more rapid decline of manufacturing in Michigan than in the nation probably explains the lower productivity growth: The loss of a high-productivity sector lowers overall productivity. Higher productivity provides the economic potential for raising wages and benefits as more goods and services are available and the economy expands. The U.S. experience shows, however, that this potential for higher living standards does not necessarily translate into improved living standards for the typical worker and his or her family if contrary forces intervene.
This EPI data all points to a disturbing trend we are hearing more and more about: a widening gap between middle class and elite wage earners. The decline of collective bargaining has been a major factor in this inequality. Many states, under GOP leadership, continue to push for cuts to collective bargaining going forward, but studies like this paint a clear picture of the prospective result: swelling the bank accounts of the wealthy — who are frequently donors — in lieu of solid governance that will protect the dwindling middle class.