New evidence shows that unions played a major role in reducing income inequality in the United States in the decades when organized labor was strong. But it also demonstrates that the decline in union power since the 1960s — which may be exacerbated as a result of a recent Supreme Court decision— has contributed to the widening gap between rich and poor.
Income inequality began its steep rise in the 1970s. Economists have been arguing about the origins of this trend since, with the primary explanations falling into two camps. The dominant narrative is that scientific progress has given the most educated workers the upper hand through “skill-biased technological change.” The theory goes that companies have bid up wages for workers who are best able to adopt new technologies, while demand for other workers has stagnated. Another explanation centers on the erosion of the minimum wage and the decline of unions. Economists in this camp emphasize changing norms, institutions, and politics — not just market forces — as important drivers of the widening gulf between rich and poor.
Union workers now earn about 20 percent more than nonunion workers in similar jobs. Remarkably, this union premium has held steady since the 1930s. Researchers found that, going back to the 1930s, more unions meant more income equality. During years and in states where workers were more likely to be unionized, income inequality was lower. Thanks to the new research, evidence going back nearly a century now shows that unions have formed a critical counterweight to the power of companies. They increase the earnings of the lowest skilled and sharply reduce inequality.
Incomes in the United States are now as unequal as they were in the 1920s. The gulf between rich and poor will widen if unions are weakened further.