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Declining Union Membership Emerges as Major Cause of Widening Wealth Gap

3/24/2017

As the AFL-CIO Housing Investment Trust (HIT) aims to pump $2.1 billion into the industrial Midwest through its new Midwest@Work strategy, an independent economic study documents the link between the long-term decline in labor union membership and the rising rates of income inequality in the Midwest.

The study, “Union Decline and Economic Redistribution: A Report on Twelve Midwest States,” surveys economic data from Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota and Wisconsin, to conclude declining unionization has been a “major” cause of higher inequality.

Moreover, other research demonstrates the extent that the income gap and shortage of quality jobs is impacting working families not only in the Midwest, but across the country. A 2015 National Employment Law Project report determined that between 2009 and 2014, real wages for the bottom 20% of the U.S. workforce fell by 5.7%. Even more alarming, the Economic Policy Institute found that from 1979 to 2013, the real hourly wages of low-income workers fell 5%, while the real hourly wages of high-wage workers increased 41%.

The new study is significant because it explains the role that declining unionization plays in the widening of the income gap, specifically in Midwest cities. In fact, two years ago the International Monetary Fund released a report, “Power from the People,” concluding, “The decline in unionization in recent decades has fed the rise in income at the top.”

Stephen Coyle, HIT’s CEO, said that the “new report confirms what many of us have suspected for years now. Our unions ensure that our families have enough money to put bread on the table, reside in stable communities, pay for their children’s education and help families realize their dreams. We need to continue expanding union jobs. The AFL-CIO Housing Investment Trust is committed to union solutions. Our MidWest@Work strategy is part of the solution.”

The study, which was published in mid-March by the Midwest Economic Policy Institute and the University of Illinois at Urbana-Champaign, reveals that, with decreasing unionization, smaller shares of economic value go to “labor,” or workers’ earnings, and higher shares flow to “capital,” or corporate profits, owners’ earnings, capital gains and machinery.”

“By far, the most important labor market change that has caused worsening inequality in America has been the long-term decline in labor union membership,” concludes the study.

Coauthored by Frank Manzo IV, policy director of the Illinois Economic Policy Institute, and Robert Bruno, director of the Labor Education Program at the University of Illinois-Champaign School of Labor and Employment Relations and a professor at the university, the report underscores the need to support unions as America attempts to reverse trends in rising income inequality.

“Inequality has risen to historically high levels in the United States,” the authors said in the study. “While there are many causes, the most important labor market change has been the long-term decline in labor union membership. Unions raise wages, particularly for lower-income and middle-class workers. Union decline explains between one-fifth and one-third of the overall increase in inequality in the United States.”

Rising inequality has real economic consequences to local economies and the country as a whole. As the authors note, “Redistribution of wealth to the rich can reduce overall consumer demand because poor and middle-class Americans spend a larger share of their incomes on the economy.”

The study notes that union membership, which it calls “the union coverage rate,” in the Midwest has fallen by more than the national trend, with the largest union declines in Michigan and Wisconsin, where the states have passed laws giving workers the “right to work” without joining a union.

The authors note that unions have been found to raise worker wages by between 10% and 17%, and union decline accounted for 42% of the overall drop in labor’s share of the “economic value” in 12 states in the Midwest from 1997 to 2014.

The states with the highest percentage of change in “labor share,” associated with a reduction in union membership, were Illinois and Minnesota, followed by Michigan and Wisconsin, the two states that recently passed new laws giving workers the “right to work” without union membership.

In the wake of poverty, unemployment, and housing distress in the industrial Midwest, the HIT launched a bold new initiative – the MidWest@Work Investment Strategy – last fall to spur economic development, build and renovate housing and increase union jobs across the industrial Midwest, bringing new life and hope to America’s urban communities.

The investment strategy is focusing on nine cities: including Minneapolis, Saint Paul, Milwaukee, St. Louis, Detroit, Columbus, Cleveland, Pittsburgh, and Buffalo,

In the new initiative, the HIT, a labor-friendly, fixed-income investment company, plans to invest more than $1.1 billion in 90 projects over the next seven years, resulting in total estimated economic impacts of $3.8 billion. Other sources and partners could add $900 million in capital, bringing the total investment to over $2.0 billion.

The HIT’s MidWest@Work strategy is projected to result in up to 25,150 total new jobs, of which 9,720 would be union construction jobs. In a further benefit to communities, the projects would provide an estimated $1.4 billion in income paid to local residents in the nine cities, and the total local, state and federal tax revenue generated would be $393 million.

The HIT is creating the types of jobs that the economic study concludes are needed to boost working families. For instance, the study states that “the consistent takeaway” from its regional analysis is that “unions help workers take home a larger share of the economic value they create.”

In the wake of these trends, the HIT is committed to protecting and enriching America’s working families by investing union dollars in the revitalization of America’s Midwest.


*Job and economic benefit figures are provided by Pinnacle Economics, Inc. and the HIT. Estimates are calculated using an IMPLAN input-output model based on HIT projects, project data and secondary source materials and are reported in 2015 dollars.