NCPA - National Center for Policy Analysis

Union Decline and Increasing Income Inequality

August 16, 2001

Union power declined in the past decade, and the trend shows every indication of continuing in the near future. During that same period of time, income inequality rose. Some researchers suggest the two trends are related.

Income inequality rose and unionization fell in both the United States and the United Kingdom in recent years:

  • From 1980 to 1990, the ratio of the 10 percent highest to the 10 percent lowest paid men rose from 2.7 to 3.5 in the U.S. and from 2.4 to 3.1 in the U.K.
  • Between 1980 and 1990, the unionization rate went from 30 percent to 20 percent in the U.S. and from 51 percent to 39 percent in the U.K.

Researchers argue union weakness is due to the spread of skill-based technology jobs. Unions have the greatest appeal when workers are equally skilled; technology skills destroy that equality. Consequently, it becomes less profitable to join a union. Also, increased political and managerial opposition to unions has played a role.

Due to the declining power of unions, the increasing productivity of skilled workers has not raised the incomes of their less skilled counterparts, as it once did through labor contracts.

Moreover, newly educated potential employees seemingly do not prefer unions. Deunionization is pronounced among young workers, and the proportion of the workforce in unions declined just as college enrollments started to rise. Today, new plants and workers generally do not form unions.

Source: "Deunionization," Economic Intuition, Spring 2001; based on Daron Acemoglu, Philippe Aghion and Giovanni L. Violante, "Deunionization, Technical Change, and Inequality," Discussion Paper No. 2764, Center for Economic Policy Research.

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