Corporate profits have soared in recent decades, while wages for the average worker have not fared nearly as well. A new study sheds some light on why that is happening: declining unionization.
While some economists have posited that this trend is thanks to a rise in computerization, which boosted productivity and reduced the need for actual workers, researcher Tali Kristal contends that it is more closely related to falling union membership. She found that from 1979 to 2007, workers’ share of national income decreased by six percentage points. The money not spent on wages went to corporate profits instead.
But this trend didn’t occur evenly across the economy. The areas that saw the largest decline in labor’s share of income were in those that at one point were highly unionized: construction, manufacturing, and transportation. “By contrast,” she said, “in the lightly unionized industries of trade, finance, and services, workers’ share stayed relatively constant for even increased.” This suggests that falling levels of unionization, which she says “led to the erosion of rank-and-file workers’ bargaining power,” are to blame.
Corporate profits have rebounded particularly well after the recession. They have grown at an annualized rate of about 20 percent since the end of 2008 and hit record highs in the second half of 2012, reaching 14.2 percent of national income, the largest share since 1950.
Yet incomes have not kept up. Wages as a percentage of the economy hit have hit an all-time low. Disposable income only grew by 1.4 percent since the end of 2008. Those at the bottom of the economic ladder have suffered the most: income for the bottom 90 percent of Americans rose just $59 from 1966 to 2011, adjusted for inflation.
Unionization levels have long been on a serious downward trajectory. Membership dropped to the lowest level since the Great Depression last year. This decline also closely tracks the rise in income inequality and the middle class’s falling share of national income.