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News from EPI As collective bargaining has declined in Michigan, middle-class incomes have fallen

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For Immediate Release: Tuesday, September 25, 2012
Contact: Phoebe Silag or Donte Donald, news@epi.org 202-775-8810

As collective bargaining has declined in Michigan, middle-class incomes have fallen

The erosion of collective bargaining was a major factor contributing to the failure of middle-class incomes in Michigan to grow between 1979 and 2007, a new Economic Policy Institute study finds. Michigan’s economy, like the U.S. economy as a whole, grew, but this growth did not translate into higher living standards for the typical worker. This divergence between compensation and the growth of productivity in both Michigan and the United States as a whole was strongly related to the erosion of collective bargaining. In fact, over the past three decades, Michigan’s middle-class workers did worse than middle-class U.S. workers in general because collective bargaining eroded more in Michigan than in the nation overall.

The decline of collective bargaining and the erosion of middle-class incomes in Michigan by EPI President Lawrence Mishel finds that while the income of the typical household in the U.S. rose 7.3 percent from 1979 to 2010, the income of the typical household in Michigan fell 11.2 percent. In 1979, Michigan’s middle class had incomes 13 percent above the U.S. average; in 2010, Michigan’s middle-class incomes were 6 percent below the U.S. average. In comparison, the highest-income families in Michigan saw income growth that was better than that of the highest-income families in the U.S. overall. From 1979 to 2010, income for Michigan’s top five percent grew by 60.5 percent, while income for the nation’s top five percent grew by 55.8 percent. The report also documents that between 1979 and 2011, productivity grew by 34.9 percent and real hourly compensation of the median worker fell by roughly 10 percent in Michigan.

In Michigan, the share of the workforce covered by a collective bargaining agreement fell from 32.8 percent in 1983 to 18.3 percent in 2011, a drop of 14.5 percentage points. It fell particularly sharply in manufacturing, dropping from 48.8 percent to 20.4 percent from 1983 to 2011. In the U.S. as a whole, the share fell 10 percentage points, from 23.3 percent to 13.0 percent.

The study documents how collective bargaining leads to higher wages and benefits for middle-class workers, whether they are directly covered by collective bargaining agreements or not.  First, collective bargaining establishes standard rates for comparable work, which results in less differentiation of wages across workers (and less wage discrimination against female and minority workers). Second, wage gaps between occupations tend to be lower where there is collective bargaining, raising the wages and benefits of those in the lowest- and middle-paid occupations the most. Third, collective bargaining has been most prevalent among middle-class workers and has resulted in reducing wage gaps between middle and high earners.

Finally, collective bargaining also benefits workers who are not covered by collective-bargaining agreements. In occupations and industries where collective bargaining is strong, employers will frequently meet standards set by agreements and improve their compensation and labor practices. Furthermore, collective bargaining institutes norms and established practices that become more generalized throughout the economy—in the past, these norms have included pensions, health insurance and grievance procedures that provide employees with due process in the workplace.

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