NCPA - National Center for Policy Analysis

Unions Can't Raise Wage But High Productivity Can

March 25, 2015

Many theories have been advanced for why unions, and median wages, are not growing very fast. Some say it is because of fewer union protections. However, this cannot explain the fate of the United Automobile Workers employees at General Motors. Theirs was a very powerful union; it was able to mobilize politicians to get them a much better deal out of GM's bankruptcy than they probably would have gotten otherwise. However, they were not able to save the old wage structure. New workers make substantially less. Also, in the 1970s, GM employed nearly a half million auto workers. Today, the number is closer to one-tenth of that.

Competition from machines and competition from abroad lead to decreasing U.S.workforce numbers. When dealing with a cartel, it is easy to make big wage demands, because the companies can just pass those demands on to consumers, by either raising the price or taking some quality out of the product.

According to Bloomberg terminal:

  • GM's U.S. operations, with around 50,000 hourly employees, generate $85 billion in revenue.
  • Walmart's U.S. operations, with around a million hourly employees, generate about $330 billion. Much more revenue — but to make four times as much money, Wal-Mart needs 20 times as many front-line employees.

That is why wages at Wal-Mart are rising and why median incomes look floppy. Wages could rise across every sector, but if the available jobs are shifting out of high-productivity sectors and into lower-productivity industries, wage growth will continue suffering.

Source: Megan McArdle, "Where Have All Our Wages Gone?" Bloomberg, March 24, 2015.

 

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