Who watches out for workers?

Considering that job growth has been positive since 2010 and the unemployment rate has been below 5 percent since the fall of 2016, it might seem that U.S. workers are in an excellent labor market position. Yet many American workers are still quite economically vulnerable. For example:

• 10 percent of workers are burdened with irregular or on-call work shifts;
• Almost 4 million workers are working part-time despite wanting to work full time;
• 7.8 percent of working-age labor force nonparticipants would like a job;
• Over 50 percent of private sector, non-union workers are subject to mandatory arbitration; and
• Nearly 20 percent of workers have a non-compete contract.

The economic security of typical workers is no less troubling. Since 1979, the median worker’s hourly wages have only increased 13 percent after adjusting for inflation, while wages at the 20th percentile have only increased 8 percent. Using different inflation measures or different methods of calculating hourly wages can make these estimates somewhat different, but regardless of the procedures one uses, the meager gains at the bottom stand in sharp contrast to the rapid growth in high incomes: the 90th percent grew 41 percent from 1979 to 2018.

There is no single explanation for the vulnerability of workers today. Researchers have noted a host of causes including weakened demand for non-college-educated labor, a lower inflation-adjusted federal minimum wage, concentrated labor markets, and globalization, among many others.

But one crucial trend that receives too little notice is the erosion of private sector union membership. In 1973, 24 percent of American private sector workers were union members. Today, that number is just above 6 percent. While at most one-third of this decline is associated with employment shifts from more-unionized industries (e.g., manufacturing) to less-unionized industries (e.g., services), the sharp fall in union membership has been driven by declines within nearly every industry and across every state, as shown in this new Hamilton Project analysis. Furthermore, while union rates are down in most advanced economies, the decline has been particularly steep in the United States, where fewer workers are represented in collective bargaining than in all but 2 of 36 OECD countries.

In the United States, employer resistance to unions—abetted by weak enforcement of laws protecting the right to collective bargaining—is an important cause of the decline in union membership. Research shows employers have become more active in resisting unions, their tactics are often effective, and penalties for violations of labor law are not large enough to deter misconduct. In addition, there have been legal changes in many states weakening unions.

The decline in union coverage matters in part because of the essential role unions play in helping to reduce wage inequality. Among the most fundamental purposes of unions is to bargain on workers’ behalf for stronger wages, benefits, and other protections which often benefit low and middle-earning workers the most. In the absence of union representation, workers have less information about fair wages and less power to negotiate than most firms; they are also more likely to be pressured into signing away valuable labor protections. After adjusting for differences in observable worker characteristics, the typical union worker earns roughly 20 percent more per hour than the typical non-union worker. Research shows unions substantially increase wages—especially at the bottom of the income distribution—benefiting workers and lowering income inequality.

It is also important to acknowledge that unions can come with costs: unionized establishments can be less competitive with respect to nonunion (and international) competition, depending on how high pay is relative to productivity. In the event that work stoppages occur, they often entail diminished output. And depending on how responsive unions are to changing economic conditions, unionized establishments may have less flexibility to innovate and reorganize work tasks.

Yet these costs are often worth incurring—and attempting to minimize—for all the reasons stated above. Moreover, nonunion labor markets frequently fall well short of the competitive ideal: for example, non-compete contracts and other instruments of employer market power are an inefficient drag on employment and wages for which unions can be a valuable corrective.

Given the precarious position of many workers and the ways in which unions can help, what options should policymakers consider as they bolster worker protection? First and foremost, they should reinforce existing rules and enforcement that protect the right to collective bargaining. Too often, employers are able to retaliate against employees who engage in union activities or otherwise interfere with a fair process for union certification.

It is also worth identifying opportunities that can enhance or complement the current rules and framework governing collective bargaining. Options include shifting to a card check system for union certifications as well as reforms to labor law ranging from changes in the timing of elections to stronger remedies for illegal employer behavior to increasing the NLRB enforcement budget. In addition, policymakers could explore minority unionism, increased use of union-provided benefits, and sectoral bargaining.

The case for restoring worker-friendly institutions is as strong as it has ever been. Middle and low-wage workers have faced slow wage growth over decades and there has been a proliferation of worker-hostile arrangements such as franchise no-poach agreements and non-compete contracts. In order to boost wage growth and reduce economic inequality, workers need enhanced bargaining power. Strengthening union membership and representation would be an important step toward achieving this goal.