Commentary | Unions and Labor Standards

Corporate group tries, fails to discredit economic argument

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To: Concerned parties
From: Larry Mishel, EPI
Re: Response to HR Policy Association claims on the Employee Free Choice Act

On February 25, a copy of a statement signed by 39 prominent economists (now 40) was published in the Washington Post in support of the Employee Free Choice Act, which would help to restore the ability of workers to form or join unions. It began with this analysis:

“Although its collapse has dominated recent media coverage, the financial sector is not the only segment of the U.S. economy running into serious trouble. The institutions that govern the labor market have also failed, producing the unusual and unhealthy situation in which hourly compensation for American workers has stagnated even as their productivity soared.
Indeed, from 2000 to 2007, the income of the median working-age household fell by $2,000- an unprecedented decline. In that time, virtually all of the nation’s economic growth went to a small number of wealthy Americans. An important reason for the shift from broadly-shared prosperity to growing inequality is the erosion of workers’ ability to form unions and bargain collectively.”

In response, the HR Policy Association, a trade group that represents large corporations and is opposed to the Free Choice Act, is attempting to cast doubt on our reasoning by, remarkably, arguing that working families have actually done well in recent years.

The group uses alternative measures in an attempt to show a slight increase in household income during the 2000-07 period — a case of damning the period with faint praise. Ultimately, the response fails to show that working families have done well since 2000. In fact, working families have seen only modest income gains through the past thirty years, and much of that was due to more family members (particularly women) joining the workforce or working more, plus a few brief years of widely-shared growth during the high employment period at the end of the 1990s.

By any measure of household income, the 2000-07 period stands out as a dismal seven years, during which incomes fell or grew more slowly than in earlier times. More to the point, this poor income growth occurred despite the fact that overall growth in productivity — which measures the output of goods and services per hour worked — was higher in the 2000s than at any time since the early 1970s. Clearly, workers did not share in the gains of a booming economy.

Income growth

A closer look at one of the association’s claims on income inequality exposes the weakness of its argument. Its document says:
“The real median income for households with one worker actually increased by $232 (during the seven years), and rose a substantial $2,841 for households with two workers – while the private-sector unionization rate declined from 9.8 percent to 8.2 percent. (Source: Census Bureau, Table H-12)”

Even if true, this is pitifully little income growth, amounting to $39 per year, far less than in earlier periods and far below the pace of productivity growth. But in fact, it’s not a fair or accurate representation.

During the previous business cycle, from 1989 to 2000, income for households with one earner — the association’s chosen measure — grew $185 per year (about six times faster!). This happened despite slower productivity growth at the time, which would suggest just the opposite result. (Productivity grew by 2.0% in the earlier period, and 2.5% more recently). This provides further evidence of an increasing divergence between what workers are producing and what they and their families are gaining. And the divergence is accelerating: Between 2002-07, productivity grew by 11%, but the hourly compensation of a typical (median) college graduate and high school graduate did not grow at all. Here is a breakdown for the median worker.

We economists chose to highlight the decline of income for working-age households, because that is the measure most directly tied to labor markets, wage growth, and so on. And here, the evidence is indisputable. Such households lost $2,176 from 2000 to 2007 or $311 each year. By another measure — all households including the elderly — the total lost was $324. No matter how you cut it, America’s population has not fared well in recent years and has definitely not gained in proportion to the growth of productivity for a very long time.

Income Inequality

The association also claims that the middle class increased its share of income since 2000. That’s quite a stretch. In fact, the evidence is clear that inequality has increased markedly since the late 1970s to near-historic levels. US income inequality is significantly higher than that of other advanced nations. There’s no room for quibbling on this.

The extraordinary imbalance of income growth has been well-documented by EPI over the years in its signature reference book, The State of Working America, issued every two years since 1988. The introduction of the latest version provides a basic summary.

Another way to measure inequality is to look at the share of total income growth going to different segments of the population. Between 1989 and 2006, the top 10% of income earners captured 90.9% of all income growth. Even within that top 10%, the distribution was skewed: The top 1% of Americans took 59%. The top 0.1% (148,000 households) grabbed more than a third of all the income growth through those 17 years.

We recognize that the erosion of unionization is not the sole reason for this increased inequality, but many studies have shown it to be an important contributing factor. These are the facts, plain and simple.

For more information on labor policy and the economy, please visit our issue page.

See more work by Lawrence Mishel