Local 701 labor strike reminds us why unions matter for the economy

By: Christopher Ryan Crisanti

Automobile Mechanics Union Local 701 earlier this month went on strike after contract talks with New Car Dealer Committee stalled. For those of use who live in Southwest burbs, the signs held by individuals occupied outside car dealerships made it apparent.

The fight for a better contract reminds us of why the process of collective bargaining between corporate management and labor, even at the local level, matters for the overall economy.

On the micro-economic side, greater benefits, such as wages, insurance, and retirement plans, yields stronger security and well-being for the worker. As for management, conceding benefits to workers that the company would otherwise hold, such as potentially higher profits, often results in greater worker productivity, less turnover, and future profits. Of course, a compromise between the two parties is essential to ensure the gains of the agreement are broad-based.

If workers concede too little, wages may not keep pace with inflation, management may decide to cut benefits, or labor conditions may not be adequate. If the company concedes too much, the revenue lost could cut into the company’s bottom line or operating costs, which could then risk layoff of workers. Moreover, if the collective bargaining involves a public entity and civil servants, taxpayer money is at risk if the benefits given to workers are overly generous.

Taken as a whole, data indicates that unionism is a good thing and yields large macroeconomic benefits. But first, a quick narrative on the labor movement.

Prior to about the 1930s, unions were rare if that. Bargaining power over wages and other benefits was tilted overwhelmingly in favor of corporate management. If you were an employee, you had little to no say in wages, benefits, or creating a healthy work environment. You also most likely worked more than 40 hours a week and only had Sunday off.

Upon the Great Crash of 1929, the Roosevelt Administration made it a priority to give more power to workers through Presidential executive orders and legislation. Further, this momentum helped propel the labor movement, with many fueled by skepticism of unregulated corporations and the failure of laissez-faire economic polices from the experience of the Crash.

These initiatives were regarded by corporate elites as socialist and a threat to the economy. In fact, labor friendly legislation at the federal level, such as the Wagner Act of 1935, was anything but socialist. It was a variable that helped create the greatest economic compression the U.S. has ever experienced.

In their landmark academic paper titled the “Great Compression,” economists Claudia Goldin and Robert Margo analyzed the era of post-war middle-class prosperity where incomes rose, families bought houses, and GDP increased. This occurred all while the distribution of income among top earners and the middle class was more equal compared to previous generations. The authors found this equal level of wage distribution was partially explained by an increased level of unionism.

From 1934 towards the end of World War II, union membership increased dramatically. At the labor movement’s height in the 1950s, nearly one-third of the nonargicuaultal workforce was unionized. During the postwar boom, a period economists label from 1947 to 1973, unions by and large were prevalent and major players in the structuring of the economy.

Real family income grew at an average rate of 2.8 percent per year, compared to less then one percent per year since then. Labor productivity also increased by roughly the same amount. Real GDP increased by about 3.8 percent per year compared to roughly 2.8 percent since then.  Even into 1970, roughly 27 percent of workers were unionized.

Since this period, unionism has not only been on the decline, but under siege. As Goldin and Margo point out, as collective bargaining power for workers declined due to political influences, wage structures began to contract in the 1980s and returned to pre-war levels.  Further, labor productivity of a typical middle-income worker increased 74 percent from 1973 to 2013, yet their hourly compensation rose just 9 percent. The U.S. has not been able to recoup pre-1970 membership levels as only about 10.5 percent belong to a union today.

Which brings us to the connection between wage stagnation and bargaining power. While there are many economic factors that could help explain growing wage stagnation and economic disparity, such as the rise of globalization and automation, there is a wide consensus among most economists that the decline of bargaining power played at least some role.

So the next time you see union members picking on strike, remember that the collective bargaining process is important not just for workers, but our own broad-based economic well-being.

This column was also published in the DesPlaines Valley News

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