NCPA - National Center for Policy Analysis

Economic Optimists Cite Evolution of U.S. Labor Market

February 19, 2002

A number of factors will determine whether this recession will be short and shallow or prolonged and deep. One of those factors concerns structural changes in the labor market -- which have given employers much more flexibility in hiring and firing workers. That means employers will be more likely to begin rehiring as soon as demand picks up.

This new flexibility is in large part the result of the declining power of labor unions.

  • Union membership has fallen from over 20 percent of the work force in 1980 to less than 14 percent today -- and in the private sector, the unionization rate is less than 9 percent.
  • The decline of unions had helped keep a lid on wages, permitted greater advances in productivity and reduced the potential "back-end" costs of new hires -- particularly in areas of pensions, health care and layoffs.
  • Combined with the flexibility of increased outsourcing, these changes help dampen recessions and accelerate recoveries.
  • The Bush administration's resistance not only to new workplace regulations -- such as ergonomic engineering - but also to further increases in the minimum wage are additional factors in this increased flexibility.

Economists suggest that the brief and shallow recession of 1990-91 is a far more appropriate model for the current economy than the deeper and longer 1981-82 recession.

Source: Bradley R. Schiller (American University), "Weak Unions Create a Strong Economy," Wall Street Journal, February 19, 2002.


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