Inequality and trade unions: lessons from the US
US President Obama made a speech before Christmas in which he described tackling inequality as “the defining challenge of our time.” New York’s newly elected Democrat Mayor Bill de Blasio (the first Democrat Mayor of the city for 20 years) said the same in his inaugural speech on New Year’s Day, describing the challenge as “the inequality crisis.”
Of course, unions and academics have been drawing attention to inequality for years, but the fact that political leaders are now saying the same is significant. Obama’s speech in particular will have a familiar ring, echoing the AFLCIO argument that inequality has been growing in the US since the 1970s. But what is really new is that the President of the US repeats the union argument that legal constraints on collective bargaining are a key reason for growing inequality, and need to be reversed:
“The third part of this middle-class economics is empowering our workers. It’s time to ensure our collective bargaining laws function as they’re supposed to – so unions have a level playing field to organize for a better deal for workers and better wages for the middle class.”
That focus on the role free trade unions and collective bargaining can play in redressing growing inequality – and tackling wider economic problems too – is new, and needs to be imported from US political discourse to the UK.
Unions have been arguing for a long time that we need more collective bargaining to reduce inequality, and restore demand to the economy. We’ve pointed out more recently that the current living standards crisis isn’t the result of inflation, but of low wages. And there’s lots of evidence – on both sides of the Atlantic – that inequality causes huge economic and social problems, such as ill-health. The IMF and OECD have said similar things, although without necessarily advocating the measures needed to solve the problems caused.
All too often, politicians on the left have only advocated statist solutions to the problems of inequality, such as minimum wages, tax credits and other transfer payments, as well as social provision such as better pre-school provision and skills training. These are all key elements of the solution, but the evidence is mounting that it is collective bargaining that really impacts on equality. US unions have always maintained that collective bargaining after WW2 created the American middle class, and this graph shows how reductions in union membership rates since the 1970s map clearly on the reduced middle class share of national income.
President Obama’s speech is worth quoting at some length – here are the bits that most clearly show the influence of union ideas:
“starting in the late ‘70s, this social compact began to unravel. Technology made it easier for companies to do more with less, eliminating certain job occupations. A more competitive world lets companies ship jobs anywhere. And as good manufacturing jobs automated or headed offshore, workers lost their leverage, jobs paid less and offered fewer benefits.
“As values of community broke down, and competitive pressure increased, businesses lobbied Washington to weaken unions and the value of the minimum wage. As a trickle-down ideology became more prominent, taxes were slashed for the wealthiest, while investments in things that make us all richer, like schools and infrastructure, were allowed to wither. And for a certain period of time, we could ignore this weakening economic foundation, in part because more families were relying on two earners as women entered the workforce. We took on more debt financed by a juiced-up housing market. But when the music stopped, and the crisis hit, millions of families were stripped of whatever cushion they had left.
“And the result is an economy that’s become profoundly unequal, and families that are more insecure. I’ll just give you a few statistics. Since 1979, when I graduated from high school, our productivity is up by more than 90 percent, but the income of the typical family has increased by less than eight percent. Since 1979, our economy has more than doubled in size, but most of that growth has flowed to a fortunate few.
“The top 10 percent no longer takes in one-third of our income — it now takes half. Whereas in the past, the average CEO made about 20 to 30 times the income of the average worker, today’s CEO now makes 273 times more. And meanwhile, a family in the top 1 percent has a net worth 288 times higher than the typical family, which is a record for this country.”
US politicians have so far proved more adept – like their European counterparts – at implementing the statist responses to rising inequality than handing power to unions, with 13 US states raising their local minimum wages this month. But at least they are now talking about the role unions and collective bargaining can play, and it would be good to see UK and European politicians doing the same.