Unions and the Economy

By Kosters, Marvin | The World and I, April 2004 | Go to article overview

Unions and the Economy


Kosters, Marvin, The World and I


Marvin Kosters is a resident scholar at the American Enterprise Institute. He has written extensively on labor market issues and on the effects of federal government policies.

In America, not too long ago, large, powerful unions could shut down entire industries as they bargained for seemingly unprecedented increases in wages and benefits. The era that many view as unionism's golden age emerged in the 1940s and '50s as civilian production in American industry expanded after the Great Depression and World War II.

This lusty zenith came on the heels of a long history of construction craft unions, going back to colonial times. Industrial unions, with workers' membership extending across whole industries, are a much more recent phenomenon. The latter achieved great momentum when the modern framework for union organization and collective bargaining was established by federal law in the 1930s.

UNIONS' SHRINKAGE

The decline in the extent of unionism since the 1950s has been pronounced. For the economy as a whole, the proportion of wage and salary workers who are union members has declined to 13.2 percent in 2002, down from about 35 percent in the 1950s and 20 percent in the early 1980s. Union membership rates are the most easily measurable indicators of the importance of unions in the United States, and by this indicator, union influence has been declining for the past half-century.

For the private sector alone, the decline in the rate of unionization was much steeper. Only 8.5 percent of private-sector workers were union members in 2002, about half the rate of 20 years earlier. For government workers, on the other hand, the extent of unionism remained quite stable--in the 35--40 percent range during the past two decades. Taken at face value, these data suggest a decline in the importance of unions for the private sector but not for the public sector.

The extent of unionization, however, is not always a definitive indicator of unions' impact. Also decisive in this regard are unions' political influence, the legal framework for union organization and bargaining, and economic regulatory arrangements in major industries. The extent of unionization in France, for example, is similar to that in the United States, but it is generally recognized that unions are much more influential in France and other European countries than in America.

LAWS, REGULATIONS, AND UNION INFLUENCE

The economic role and effects of unions are shaped by legislation and regulations. In the United States, for example, bargaining is quite fragmented, with individual agreements between specific firms and unions most common. This is in contrast to European countries, where the terms of a bargaining agreement are often applied to most or all of the firms in an industry. Laws that constrain the flexibility of firms to remove employees from their payrolls are much more prevalent in Europe than in America, where such conditions are usually the outcome of bargaining.

Price and rate regulation is also more pervasive in European countries, and regulatory formulas for passing along costs to customers provide a convenient framework for implementing industry wage patterns negotiated by unions. Although it is difficult to judge in the abstract whether unions have more political influence in Europe than in the United States, more political influence is strongly suggested by the legal and regulatory framework within which unions operate in Europe.

In view of the critical importance of legal and regulatory institutions for the economic role of unions, it should not be surprising that unions and their members are politically active. Union members are more likely to vote than typical citizens are. According to the American Enterprise Institute's Karlyn Bowman, who specializes in analysis of public attitudes and political behavior, "The percentage who report that they voted is usually at least 5 to 10 percentage points higher for union than for nonunion households, their party preferences differ by a similar margin for presidential elections, and differences in party preferences are substantially larger for congressional votes. …

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