Economic Snapshot | Wages, Incomes, and Wealth

Collective Bargaining’s Erosion Expanded the Productivity–Pay Gap

Over the last few decades, productivity has grown substantially, but the hourly compensation of the typical worker has grown much less, especially in the last 10 years or so. One key factor in the divergence between pay and productivity is the widespread erosion of collective bargaining that has diminished the wages of both union and nonunion workers. When unions are able to set strong pay standards in particular occupations or industries through collective bargaining, the employers in those settings also raise the wages and benefits of nonunion workers toward the standards set through collective bargaining. Thus, the weakening of the collective bargaining system has had an adverse impact on the compensation of both union and nonunion workers.

The figure shows that inflation-adjusted median hourly compensation—a measure of the wages and benefits of a middle-wage worker—grew less in the states where collective bargaining coverage fell the most. Specifically, the 10 states that had the least erosion of collective bargaining saw their inflation-adjusted median hourly compensation grow by 23.1 percent from 1979 to 2012, far faster than the 5.2 percent growth of the 10 states suffering the largest erosion of collective bargaining—a gap of 17.9 percentage points in compensation growth.

Generating real wage growth for working Americans is the most critical economic issue we face. A series of new EPI reports bring the challenge we face into sharp focus, and lend clarity to the steps we must take to meet it. They explain that to grow real wages for working Americans, we need to strengthen collective bargaining, raise the minimum wage, expand overtime protection, and extend labor protections to undocumented immigrant workers.

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See more work by David Cooper and Lawrence Mishel