Does Unionization Matter?

Ever since economics became a "scientific" discipline in the 18th Century economists and political philosophers have been inventing theories to explain social organization, commerce and industry. These thinkers all have one thing in common, the wish to deduce some global principal or truth from the evidence before them. They then use the newly discovered principal to make recommendations on how society should be modified to conform to their ideals.

To take some notable examples, Malthus decided that population would grow exponentially and food only arithmetically leading to starvation. Increasing the size of the work force would only mean that a fixed size pie would get continually sliced into smaller pieces. He neglected the effects of mechanization and general human inventiveness to create wealth.

Spencer and his followers twisted Darwin into Social Darwinism. They then used this theory to justify all sorts of predatory business practices. There isn't even an attempt to demonstrate the validity of this by using economic data, it is just put forward that competitiveness is an innate characteristic of humans. The fact that whole civilizations have existed which were based upon other principals is conveniently ignored. No matter how many times this train of thought is debunked, it re-emerges when a ruling oligarchy needs to justify its amassed wealth.

The plight of the factory worker for much of the 19th and early 20th Centuries inspired Marx and Henry George (among others) to develop theories which blamed the conditions are capitalists and landlords, respectively. Marx proposed eliminating private ownership as a solution, while George proposed taxing away all the speculative gains of land ownership. In the 100+ years since they put their ideas forward, they have never been successfully applied to a real society, nevertheless the conditions of factory workers improved markedly.

I now (modestly) take my place with all the other political philosophers and propose my universal solution to the economic problems of the working classes. I take as my guiding principal the simple aphorism "might makes right". Let's see how this could explain the problems that these other economists studied. During the heyday of the industrial revolution in Great Britain there emerged a new class of "industrialists". Unlike the prior ruling class, the landed gentry, there was no limit to how much wealth they could accumulated. The landed gentry's income depends upon rents from land used for agricultural purposes. Since the land could only yield a certain amount this put an upper limit on the revenue. From this needed to be subtracted the cost of the labor, seeds and other inputs. Raising the rent higher than costs would just cause tenants to abandon their farms. Industrialists didn't fact this limitation. If the demand for woolen fabric went up they could just add new looms to meet demand. As a result the industrialist soon become a politically powerful faction in the country and influenced the laws which were put into place to control markets and labor.

A similar situation arose in the US when the textile industry was created as a model on the English pattern. The shortage of labor in the US was compensated for by changes in immigration policy which allowed for a continual labor surplus during the period of maximum industrial growth. As in the UK, the industrialists rapidly gained economic and political power, and, unlike the UK, they did not need to displace an existing power structure, there were no landed gentry or hereditary aristocracy. What was common in both countries, and increasingly in other places that followed, was the rise in overall wealth as measured by GDP. At the same time the wealth disparity become much more exaggerated. The industrialists became richer than most of the existing aristocracy and the factory workers became poorer than the tenant farmers that their fathers had been. Marx and George blamed it on the concentration of power in the hands of the capitalists or landowners. But in the 20th Century the conditions of the working class greatly improved. Not only did their pay levels increase, but working conditions improved as well. Safety regulations were put in place, child labor was abolished, the work day and work week were shortened, and non-wage benefits like pensions and health insurance were added. Capitalists didn't stop being greedy, landlords still demanded high rents and ran up land prices speculatively, so what changed?

The answer is the rise of organized labor. Although there had been worker organization almost as soon as there were factories, the efforts had been local and uncoordinated, hence the gains had been modest. At the turn of the 20th Century this changed as unions became true organizations which spanned more than a single firm, or district, or industry. Groups like the AFL and the IWW were able to inspire workers to collective action, even when this meant violent confrontations, imprisonment, and in some cases death. The broadening of the electoral base as the limitations on voting were removed also gave the workers the ability to elect people who represented their interests. This led to a long string of laws which were beneficial to labor or restricted the power of the commercial enterprises. The combined might of the working class won them their rights.

So, while Marx and Henry George may have had great insights into the defects of their society, their theoretical solutions turned out to be unnecessary. There are still capitalists and landlords, but their power has been constrained by the countervailing power of organized labor.

The following chart shows the trend of US unionization as a fraction of the workforce for much of the 20th Century. Also shown is the median wage for a factory worker during the same period. Notice that unionization reached a peak in the mid 1950's and has declined ever since. The wage of factory workers stopped growing in the 1970's and has little changed since then. According to my theory, the decline in unionization led to a decline in political power, which ultimately led to an ability for workers to improve their economic status. The delay was caused by institutional inertia, existing contracts, and the remaining political strength of the unions even as their percentage in the active workforce declined. Their strength was maintained for a period by the large number of retired union workers and the tendency of others in a union family to vote for the union's positions and candidates.

Chart

Now the social Darwinists and their modern equivalents such as the Libertarians have revived a variety of theories to prove that their preferred policies are the best ideas. Most have the effect of enhancing or preserving the wealth of the super rich. Here is another chart to show how looking at almost the same data can give a different impression. Instead of plotting weekly wages for factory workers, we use family income. Notice how there seems to be no correlation between the level on unionization and the rise in income.

Chart

Why the difference? Well the principal reason is that women have entered the workforce in unprecedented numbers. So at the height of union participation in the 1950's it was generally the case that the man of the family could earn enough to support the family decently. The American image was the "Leave it to Beaver" model. A nice house on a quiet street, mom at home and two kids playing in the yard. Today over 70% of women work outside the home. So what has happened, in effect, is that the earnings capacity of men has declined by almost half. The rise in family income has gone up about 25% over the past 30 years, but the number of family hours required to earn has gone up as well. With no real power organized labor has not been able to counter the forces of the industrial sector and has suffered a loss of economic standards as a result. Lack of might makes for a lack of rights.
(For a scholarly view of the same issues: Elizabeth Warren)

Another instructive way to look at data is to compare the US to other industrialized countries. The chart below shows on the left the ratio of the wealth of the top 10% to that of the bottom 10%. The numbers understate the effect of the truly super rich since the basis for comparison is the value of the bottom of the top bracket rather than the median or average. For the bottom bracket it represents the top of the bracket rather than the median or average as well. The important thing to notice is the general correlation. The line measured on the right shows the percentage of workers not in the workforce. This ranges from 10% in Sweden to about 86% in the US. Using this measure inverts the usual presentation which makes the lines track together. What the chart shows is that there is some reason why there is less wealth inequality in those countries with higher worker unionization. My simple explanation of "might makes right" would lead to this. When workers have more say in the political process they don't permit the extremes of economic gain by a small minority.

chart

There are many other examples of selective data being used to "prove" whatever economic nostrum is being touted. With my theory, we can dispense with all this irrelevant theorizing and go to the heart of the matter. If the present policies are producing an outcoming which is detrimental to the bulk of the population, it is the wrong policy. If it leads to an increase in poverty, or a general lowering of the standard of living as has been happening in the US for the past 30 years, then it is the wrong policy. It is time to switch to an outcomes based measure, not a series of unprovable theoretical economic policies put forward by what I call "intellectual whores".

Unions face an uphill battle these days as their traditional sector of factory employment has been eliminated. They are making modest advances in the service sector. This may help the poorest workers and those least able to negotiate on their own behalf, but what is really needed is a massive education effort aimed at the information workers. These white collar employees have been led to believe that they have enough economic clout of their own that they can fend for themselves. This is just false pride, some of the highest paid professionals have unions looking out for their interests: professional athletes and film and TV actors. What do they know that the average lawyer or accountant doesn't? Just because a lawyer may be earning a six figure salary doesn't mean they should be putting in 80 hour weeks. As a first step in organizing white collar workers who disdain "unions" I have proposed an alternative organization: a worker's affinity group model on AARP. You can read the proposal here.

Moral: Might Makes Right - organized workers lead better lives.


Click here to see all my essays in context.

If you have any comments or for further discussions email me at robert.feinman@gmail.com
Copyright © 2006 Robert D Feinman
Feel free to use the ideas, but the words are mine.