Income inequality in the United States has been moving steadily upward for decades. By contrast, during the post-war era, the distribution of income was fairly stable and relatively egalitarian. The Gini coefficient of income inequality, changed very little between 1947 and 1968, when it hit a historic low. However, since this time, it has moved steadily upward, reaching an all-time high in 2015.
What has caused this pronounced shift in the US income distribution?
In a recent study, I argue that the decline of organized labor has contributed more significantly to rising income inequality in the United States than prior research realizes.
The importance of unions
Sociologists studying the economy typically emphasize the importance of organized labor for generating outcomes favorable to workers. Indeed, empirical studies routinely find that unions not only help workers to earn higher wages, but also accelerate real wage growth, boost labor’s share of national income, and reduce general levels of income inequality.
Despite these well-documented benefits for workers, the American labor movement has been losing strength for decades. Now, only a paltry 10 percent of the US workforce is unionized, and the figure is even lower among private-sector workers. For many sociologists, this is the key driver of rising income inequality.
Deindustrialization and offshoring
Credible explanations for rising income inequality must account for structural changes to the economy. Here deindustrialization and the offshoring of routine production jobs to low-wage countries are particularly relevant.
During the post-war era, a thriving industrial economy provided relatively high-paying jobs for less-skilled Americans. This was made possible due to the US industrial sector’s high productivity levels, heavily unionized workforce, and dominant position within international markets.
However, over recent decades, job opportunities for these workers have shifted from unionized jobs in the industrial sector (high-wage, secure employment) toward non-unionized jobs in the service sector (low-wage, insecure employment). Clearly, this has widened inequality, but the overall effect may be larger than realized.
This is the case because deindustrialization and offshoring not only eliminate good unionized jobs, but they weaken the power of organized labor more generally.
Combined effect of union decline, deindustrialization, and offshoring
In a recent study, I find that deindustrialization and offshoring magnify the effect of union decline on income inequality. This results from several factors.
First, deindustrialization upended the structural conditions upon which successful unionism developed. Historically, the American labor movement predominated in the Northeast and Midwest, where leading industrial firms employed sizeable workforces in large factory settings. These conditions proved conducive to labor organizing.
But as deindustrialization gained pace, and domestic manufacturing firms substituted advanced equipment for less-skilled labor, American industry not only shrank in size but changed qualitatively.
Especially in manufacturing, worksites became smaller, production techniques more flexible, and workforces more skilled. Manufacturing firms also gravitated toward the South and West, where unions typically enjoy less political and public support. Under these conditions, unions struggle to organize new workplaces.
Second, deindustrialization and offshoring left unions with much less bargaining power. If industrial workers are plentiful but industrial jobs are scarce, and if manufacturing firms can relocate their production activities to low-wage countries, unionized industrial workers will have much less leverage.
Consequently, unions increasingly struggle to secure basic wage increases, and sometimes find themselves acquiescing to wage concessions in an effort to retain existing jobs. In this way, industrial restructuring and related processes weaken the bargaining power of unions and lessen their ability to lower inequality.
Third, these negative trends are reinforced by the inability of unions to gain a meaningful foothold in the service sector, which is by far the largest part of the economy. In the service sector, worksites are typically small and geographically dispersed, and workforces are fragmented by high turnover rates and non-standard employment practices like part-time or temporary work. Under such conditions, unions struggle to build solidarity, unite workers, and engage in collective action.
Importantly, weak unions give employers the upper hand in setting wages not just in unionized workplaces, but across large swaths of the economy.
In my study, I gather annual data from US government agencies. The data span from 1947 to 2015 — a time frame that encompasses periods in which unionization and industrialization were trending upward (post-war decades) and trending downward (1970s onward).
My results show that, when union decline occurs alongside deindustrialization and offshoring, income inequality rises substantially across society (as measured by the Gini coefficient). It also increases between affluent and working-class families and between affluent and median-income families.
Interestingly, the combination of deunionization, deindustrialization, and offshoring seems to reduce inequality between median-earning families and those lower down the income distribution. Sadly, this convergence likely reflects the rapidly declining fortunes of median earners, not the rising incomes of low-wage workers.
Unions in other affluent democracies
Some readers may wonder how this situation plays out in other affluent democracies. While I do not address this directly in my study, comparative data suggest that American unions are struggling the most.
While deindustrialization, greater capital mobility, and service-sector expansion complicate matters for unions everywhere, unions in Europe are better equipped to navigate the resulting post-industrial economy. This is partially because European unions benefit from structural features absent from the US political economy — for example, centralized wage bargaining, policy concertation, labor parties, and codetermination (i.e. union representatives sitting on corporate boards).
The bottom line is that until the American labor movement finds ways to flourish in a post-industrial economy, high levels of income inequality are likely to persist.
Christopher Kollmeyer is Senior Lecturer of Sociology at the University of Aberdeen.
This article summarizes findings from “Trade Union Decline, Deindustrialization, and Rising Income Inequality in the United States, 1947 to 2015” in Research in Social Stratification and Mobility 2018. For a free, pre-publication version of the article, click here.
Image: U.S. National Archives via Flickr (CC BY 2.0)