The following is the testimony of Elise Gould, EPI senior economist, in a hearing before the U.S. House Committee on Education and the Workforce at 10:00 a.m. on Wednesday, June 3, 2015.
Chairman Kline, Ranking Member Scott, and Members of the Committee, thank you for the invitation to speak here today on the important issue of the economics of unionization. My name is Elise Gould, and I am a senior economist at the Economic Policy Institute. I have three important points to share with you today.
First, wage growth for typical workers has been sluggish for a generation despite sizable increases in overall productivity, incomes, and wealth. Second, a 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. Third, because right-to-work laws weaken unions, it is no surprise that wages are lower and benefits are less common in right-to-work states compared to states without such laws.
Productivity is our nation’s output of goods and services per hour worked. In the three decades following World War II, the hourly compensation of a typical worker grew in tandem with productivity. Since the 1970s, however, pay and productivity were driven apart. Between 1979 and 2013, productivity grew 64 percent, while hourly compensation only grew 8 percent. 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. In fact, the erosion of collective bargaining has been a key factor undermining pay growth for middle-wage workers over the last few decades.
Disconnect between productivity and typical worker's compensation, 1948–2013
Note: Data are for compensation of production/nonsupervisory workers in the private sector and net productivity (growth of output of goods and services less depreciation per hour worked) of the total economy.
Source: EPI analysis of data from BLS Labor Productivity and Costs program, Bureau of Labor Statistics Current Employment Statistics public data series, and Bureau of Economic Analysis National Income and Product Accounts (Tables 2.3.4, 6.2, 6.3, 6.9, 6.10, and 6.11)
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 decline of collective bargaining through its impact on union and nonunion workers can explain one-third of the rise of wage inequality among men since 1979, and one-fifth among women.1
Furthermore, the states where collective bargaining eroded the most since 1979 had the lowest growth in middle-class wages.2 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 in compensation growth of 17.9 percentage points. This same dynamic played out in the ability of the typical worker to share in productivity growth; the divergence between the growth of median hourly compensation and productivity was greater in the states that suffered the largest erosion of collective bargaining. The greater the decline in collective bargaining coverage, the lower was the return on productivity obtained by the typical worker.
This takes me to my third point and the subject of my most recent research in the area: the relationship between wages and right-to-work status.
At their core, right-to-work laws hamstring unions’ ability to help employees bargain with their employers for better wages, benefits, and working conditions. Given that unionization raises wages both for individual union members as well as for nonunion workers in unionized sectors, it is not surprising that research shows that both union and nonunion workers in right-to-work states have lower wages and fewer benefits, on average, than comparable workers in other states.
Wages in right-to-work states are 3.1 percent lower than those in non-right-to-work states, after controlling for a full complement of individual demographic and socioeconomic factors as well as state macroeconomic indicators.3 This translates into right-to-work status being associated with $1,558 lower annual wages for a typical full-time, full-year worker.
Related research also finds that workers in right-to-work states are less likely to have employer-sponsored health insurance and pension coverage.4 And, these results do not just apply to union members, but to all employees in a state. Where unions are strong, compensation increases even for workers not covered by any union contract, as nonunion employers face competitive pressure to match union standards. Likewise, when unions are weakened by right-to-work laws, all of a state’s workers feel the impact.
As unions are weakened, workers’ diminished bargaining power means lower compensation and the continued divergence between pay and productivity.
Thank you for the opportunity to speak with you about this important issue.
1. Unions, Norms, and the Rise in American Wage Inequality, by Bruce Western and Jake Rosenfeld, Harvard University Department of Sociology, 2011
2. The Erosion of Collective Bargaining Has Widened the Gap Between Productivity and Pay, by David Cooper and Lawrence Mishel, Economic Policy Institute, 2015