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deunionization and growth in inequality

Bruce Western and Jake Rosenfeld published an important paper in the American Sociological Review that shows that deunionization has significantly contributed to increases in economic inequality. They make the case that the effect of deunionization on inequality growth is partly the result of a change in norms surrounding equity. Unions “contribute to a moral economy that institutionalizes norms for fair pay, even for nonunion workers.” When unions are less powerful and as those norms fade, even the the wages of nonunion workers decline.

A variance decomposition analysis estimated the effect of union membership decline and the effect of declining industry-region unionization rates. When individual union membership is considered, union decline accounts for a fifth of the growth in men’s earnings inequality. Adding normative and threat effects of unions on nonunion pay increases the effect of union decline on wage inequality from a fifth to a third. By this measure, the decline of the U.S. labor movement has added as much to men’s wage inequality as has the relative increase in pay for college graduates. Among women, union decline and inequality are only related through the link between industry- region unionization and nonunion wage dispersion. Union decline contributes just half as much as education to the overall rise in women’s wage inequality. These results suggest unions are a normative presence that help sustain the labor market as a social institution, in which norms of equity shape the allocation of wages outside the union sector (532-33).

An interesting comparison is the paper by DiPrete et al. (2010), who showed that increases in CEO pay are the result of firms “leapfrogging” their compensation benchmarks. Firms first identify peer groups, and they then try to match or exceed what their peers pay their executives. Continual leapfrogging of peers leads to an escalation in CEO compensation. The same kind of benchmarking was happening with union wages, but the pattern was moving in the opposite direction. Nonunion firms essentially pegged their wages to those of union firms. As unions lost negotiating power, they no longer had the ability to set wage targets, and nonunion firms were not forced to raise their employees’ wages at the same pace they had in prior years.  This lack of normative pressure to keep up with the Joneses gradually eroded notions of fair pay.

Written by brayden king

August 5, 2011 at 5:47 am

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  1. […] Deunionization and growth in inequality: Bruce Western and Jake Rosenfeld published an important paper in the American Sociological Review that shows that deunionization has significantly contributed to increases in economic inequality. They make the case that the effect of deunionization on inequality growth is partly the result of a change in norms surrounding equity. Unions “contribute to a moral economy that institutionalizes norms for fair pay, even for nonunion workers.” When unions are less powerful and as those norms fade, even the the wages of nonunion workers decline. […]

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