A new study from the International Monetary Fund concludes that unions reduce inequality and foster a healthier economy for everyone, mainly by preventing the wealthiest among us from keeping the fruits of a collaboratively created prosperity for themselves.
The IMF study shows that a reinvigorated labor movement is essential to both a just economy and a well-functioning democracy. It deserves widespread attention – and should inspire concerted action.
The IMF is not considered a hotbed of leftism, yet the conclusion reached by research economists Florence Jaumotte and Carolina Osorio Buitron is clear. As they explained in a summary of their work, they found that “the decline in union density has been strongly associated with the rise of top income inequality” and that “unionization matters for income distribution.”
Jaumotte and Osorio Buitron examined the relationship between unionization and income inequality indicators in 20 advanced economies between 1980 and 2010. They found “a strong negative relationship between unionization and top earners’ income shares,” and concluded that this relationship “appears to be largely causal.”
In other words, the IMF authors found that the very wealthy capture a larger share of an economy’s overall income when fewer people belong to unions. They found this to be true even after controlling for other forces that can affect inequality, including technology, globalization, and financial deregulation.
Cause and Effect
Their findings are consistent with this country's experience. Hourly wages kept pace with productivity gains in the United States for roughly a quarter-century after World War II, as the Economic Policy Institute observes.
As the EPI notes, “If the hourly pay of typical American workers had kept pace with productivity growth since the 1970s, then there would have been no rise in income inequality during that period.”
Union membership began declining in this country at roughly the same time as wages began to lag behind productivity. EPI noted the relationship between union membership and inequality back in 2012. The IMF study provides further insight into the forces behind that relationship.
But why does inequality even matter? There are those, mostly on the right, who argue it doesn’t. They claim that inequality is irrelevant as long as the economy is growing, perhaps because they assume that growing economies more effectively meet people’s basic needs.
But that’s not what’s happening. Stock markets may be booming, but wage stagnation in the United States is choking off the middle class. Basic needs like higher education are becoming increasingly unaffordable.
An economy can only grow in an equitable, well-distributed way when there is a large base of consumers to purchase goods and services. When all the wealth is concentrated among a very few people at the top, the majority is deprived of spending income. The wealthy few will have difficulty spending all their money – or even investing all of it – while millions of others are unable to make the purchases they want and need.
Despite right-wing mythology, the wealthy are not “job creators.” As economist J. Bradford DeLong says, “save for those in the top 0.01 percent who are going to use their money for useful purposes” – that is, by leaving it to charity – “the contribution they make to any reasonable utilitarian measure of societal welfare is zero.”
In other words, an economy for the rich is an economy where society as a whole suffers.
The Democracy Effect
Inequality is not the only adverse outcome of a weakened union movement. The IMF authors also conclude (reasonably enough) that decline in union membership has led to unions having less influence on public policy. That has led to a lower real minimum wage, weaker unemployment benefits, and weaker employment protection laws.
The IMF’s Jaumotte and Osorio Buitron cite Nobel Prize-winner Joseph Stiglitz’s work, which shows that highly concentrated wealth allows top earners to (in their words) “manipulate the economic and political system in their favor.”
To put it more plainly: The rules are rigged.
The evidence for that is all around us. The very wealthiest among us have captured a much larger share of the U.S. national income in recent decades. They have also, as a Princeton study shows, been able to dictate our national political agenda with little or no regard for what the majority wants.
Unrigging the Rules
How do we restore balance to our economy and our democracy? Tax policy clearly needs to be changed so that millionaires, billionaires, and corporations once again pay their fair share of taxes. Actual tax rates for all three groups have fallen dramatically in the last 50 years. And campaign financing needs to be reformed so that the wealthy can no longer "buy" candidates or single-handedly sponsor presidential campaigns.
We need to break up the too-big-to-fail banks, resist the financialization of our economy (where more and more of our national income goes to banking institutions), and regulate Wall Street more effectively.
And now, thanks to these IMF researchers, we also know that we need a stronger union movement, too.
Looking to Labor
American unions introduced many of the reforms we take for granted today. They gave us weekends off, workplace safety laws, the 40-hour work week, and dozens of other innovations. But these reforms are endangered, while others are needed – including guaranteed sick leave, vacation time, and caregiver leave.
What do we do now? The union movement has been politically demonized for decades. Union membership has plummeted, for a number of reasons. The labor movement needs to be revitalized and renewed, and that effort needs to be one of the major undertakings of our time.
Pro-corporate forces would have us believe that our economic woes are irreversible, that we are the victims of unstoppable, God-like forces like globalization and technology. But, while these forces are powerful, we now know that much of our destiny remains within our control.
The union movement is one of our democracy’s most potent economic tools. Its benefits flow not only to its members, but to society as a whole. The IMF paper is a research study, but it can also be taken as a call to arms.