Unions, Norms, and the Rise in American Wage Inequality

From 1973 to 2007, private sector union membership in the United States declined from 34 to 8 percent for men and from 16 to 6 percent among women. Inequality in hourly wages increased by over 40 percent in this period. We report a decomposition, relating rising inequality to the shrinking weight of the union wage distribution. We also argue that unions helped institutionalize norms of equity reducing the dispersion of nonunion wages in highly unionized regions and industries. Accounting for the effect of unions on union and nonunion wages suggests that the decline of organized labor explains a fifth to a third of the growth in inequality—an effect comparable to the growing stratification of wages by education. The decline of organized labor in the United States coincided with a large increase in wage inequality. From 1973 to 2007 union membership in the private sector declined from 34 to 8 percent for men and from 16 to 6 percent for women. During this time, wage inequality in the private sector increased by over 40 percent. Union decline forms part of an institutional account of rising inequality that is often contrasted with a market explanation. In the market explanation, technological change, immigration, and foreign trade increased demand for highly-skilled workers, raising the premium paid to college graduates (for reviews, see Gottschalk and Danziger 2005; Autor, Katz, and Kearney 2008; Lemieux 2008). Compared to market forces, union decline is often seen as a modest source of rising inequality (Autor, Katz, and Kearney 2008, 311). The effects of unions were viewed as indirect, mediating the influence of technological change (Acemoglu 2002), secondary, to other institutions like the minimum wage (Card and DiNardo 2002; DiNardo, Fortin, and Lemieux 1996), and limited, accounting for only a small fraction of rising inequality and only among men (Card, Lemieux, and Riddell 2004). We revisit the effects of union decline on inequality offering two extensions to earlier research. First, we study the effects of union decline while controlling for education and other factors. Analyzing education alongside unions allows a comparison of market and institutional effects on rising inequality. Second, we examine union effects on nonunion wages, considering whether wage inequality is lower among nonunion workers in regions and industries that are highly unionized. Union effects on unions on nonunion workers can be motivated in several ways. Nonunion employers may raise wages to avert the threat of union organization (Leicht 1989). We argue that unions also contribute 1 to a moral economy that institutionalizes norms for fair pay, even for nonunion workers. In the early 1970s, when 1 in 3 male workers were organized, unions were often prominent voices for equity, not just for their members, but for all workers. Union decline marks an erosion of the moral economy and its underlying distributional norms. Wage inequality in the nonunion sector increased as a result. Our analysis estimates union effects on wage inequality by decomposing the growth in hourly wage inequality for full-time workers in the private sector. Analysis of the Current Population Survey (CPS) shows that union decline explains a fifth of the increase in inequality among men and none of the increase among women if only union wages are considered. The effect of union decline grows when we account for the link between unionization and nonunion wages. In this case, deunionization explains a fifth of the inequality increase for women, and a third for men. The decline of organized labor among men contributes as much to rising wage inequality as the growing stratification of pay by education. Trends in Wage Inequality and Unionization We analyze trends in the private sector—about 85 percent of nonfarm employment (US Census Bureau 2007, 403)—where the growth in inequality and the decline in union density was largest. Using data from the May and Merged Outgoing Rotation Group files of the CPS, inequality is measured by the variance in log hourly wages for men and women working full-time in private sector jobs. From 1973 to 2007, men’s wage inequality increased by 40 percent, from .25 to .35, with most of the rise unfolding from 1978 to 2000 (Figure 1). Women’s wage inequality increased by more, rising from .20 in 1973 to .30 in 2007. Overall trends were driven by movements 2 at the top and the bottom of the wage distribution. Increasing inequality in the late 1970s and 1980s reflected falling wages at the bottom and rising wages at the top of the distribution. Since the late 1980s, the growth in wage inequality was propelled by wage increases for the highest-paid workers (Lemieux 2008, 26). Figure 1 divides the total variance in log wages into between-group and within-group components. These components were obtained from a regression on log wages with age, race, ethnicity, education, region, union membership and industry-region unionization rates as predictors. Between-group inequality, measured by the variance of predicted wages, describes the dispersion of average wages across the groups defined by the predictors. Within-group inequality, measured by the residual variance, describes the spread of wages among workers in each of these groups. Rising inequality between and within groups increased total wage inequality in the 1980s. Since the 1990s, rising inequality was mostly due to increased within-group inequality. Falling unionization accompanied rising wage inequality. CPS tabulations indicate union decline was especially large among men, falling from 35 percent in 1973 to under 10 percent by 2007. Employer surveys show that CPS survey respondents mistakenly report their union status 2 to 3 percent of the time (Card 1996). When unionization is very low, a relatively large number of nonunion respondents incorrectly report being union members. Figure 2 reports the observed proportion of unionized workers and an adjusted series that corrects for error in reported union status in the CPS. Adjusting for the reporting error, only 8 percent of private sector men and less than 4 percent of private sector women were union members by 2007. 3 ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● 1975 198