Want to Jump-Start the Economy? Bring Back Labor Unions

Want to Jump-Start the Economy? Bring Back Labor Unions

In its annual poll, national pulse-taker Gallup reported that a little over half of Americans -- 54% -- approved of labor unions, while 39% disapprove. The approval rate is higher than the 48% recorded in 2009, but the percentage of respondents who disapprove is the highest since Gallup started its survey, way back in 1936.

It's interesting that the subject of unions can still evoke strong emotion, particularly since the U.S. union membership rate has fallen to a paltry 11.3% since the 20.1% reported in 1983. Recently, however, unions have become a hot-button topic of discussion. Low-wage workers in the fast-food and retail industries have been making headlines, forming picket lines, and walking off the job as they demand higher wages and the right to form unions.

Politicians, too, are beginning to add their voices in support. U.S. Senator Elizabeth Warren, D-Massachusetts, recently addressed the annual AFL-CIO convention in California, allying herself with union principles. Meanwhile, New York City Mayoral candidate Bill de Blasio has publicly stated his desire to help "strengthen the labor movement" if he attains the mayor's office.

Income inequality has exploded since the financial crisis
A study by Emmanuel Saez, UC Berkeley, paints a stark picture of income inequality since the end of the Great Recession. Everyone suffered income losses during the 2007 to 2009 downturn, with the richest 1% losing 36.3% of income growth, and everyone else saw their income dip by 11.6%.

Between 2009 and 2012, however, the top 1% has seen its income grow by 31.4%, compared to the 99%, who have attained a measly 0.4% income gain during the same time period. That means that a whopping 95% of the total 6% income growth experienced by all Americans during the economic recovery was nabbed by the highest 1% of wage earners. Saez notes that wage inequality has been rising over the past 30 years, possibly accelerated by the demise of factors such as progressive tax policies -- and labor unions.

High rates of unionization doesn't mean slow growth
Interestingly, the highest approval rating for labor unions registered by Gallup was during the 1950s, when it reached 75%. The percentage of workers who were unionized was also highest during that decade, when over a third claimed union membership.

This state of affairs did not hobble economic growth, however: The economy grew more than 3% per year during that decade, according to Robert Reich, Secretary of Labor during the Clinton years. Incidentally, the corporate tax rate was somewhere between 50% and 60% during the 1950s, as well -- compared to approximately 30% today.

Unions put more spending money in workers' pockets
One of the biggest benefits of union membership is that union members make higher wages than non-union workers for comparable work. More money earned means more cash to spend -- a real advantage in an economy that is 70% consumer-driven.

The difference in pay is sizable. Data from the Bureau of Labor Statistics show that the median weekly wages of full-time workers who are members of unions are $200 higher than their non-union counterparts.

The difference is most profound in the lower-paid occupations, where the pay of service-sector union members is $300 more per week than that of non-union employees. For professional occupations, the difference in pay is negligible -- for architects and engineers, for example, union workers make about $30 more each week than those that are non-unionized. Those workers, however, make a median income of over $1,300 per week, while unionization for a service worker can mean the difference between a weekly paycheck of $458 or $754.

It's time to spread the wealth around
The inability of workers to stimulate the economy through spending affects corporate growth, too. If you're wondering whether companies can afford to pay higher wages with the economy still in the doghouse, consider that U.S. corporations are currently hoarding $1.79 trillion in cash, according to a recent study by Stanford University. Many of these entities are publicly held, and stockholders have been becoming more vocal about the fact that these firms should be sharing the wealth with their investors in the form of dividends.

Similarly, some of the kitty could be shared with employees, too -- in the form of higher wages. After all, stimulating the economy will help boost corporate profits, which will, in turn, create more wealth for stockholders.

Of course, not all companies have a gigantic stash of money, just as not all workers would join unions, even if they had the opportunity to do so. Encouraging unionization may not bring back the high union membership rates of the 1950s, or that decade's wildly expansive economic growth -- but, it's a good place to start.

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