Manufacturing & Technology

ECONOMIC ANALYSIS: Why the nation's union movement is in decline

October 8, 2007

The recent United Auto Workers strike against General Motors Corp. provides a good backdrop for considering the collapse of the union movement, and its causes.

Back in the early 1970s, about one in four workers belonged to a union. Unions and union interests were powerful.

Then, as now, unions came in two flavors-trade and industrial. Trade unions serve a critical role in the functioning of markets. Employers of carpenters, welders, masons, plumbers and a host of others rely upon unions to set standards and find willing workers. Trade unions are the labor "market-makers" for many skilled occupations.

Industrial unions like the UAW serve a very different role from trade unions. Many firms operate effectively without the influence of these unions, and the role of the unions has traditionally been to represent workers through collective bargaining.

Both types of unions dabble in broader political arenas, and often are aligned. While trade unions are necessary for the smooth operations of many businesses, industrial unions are largely unnecessary for commerce.

Union membership has plummeted since the early '70s, both in absolute numbers and share of workers. Interestingly, the decline has been highest in manufacturing. From 1973 through 2006, the share of manufacturing workers belonging to a union dropped from about 39 percent to 12 percent.

Indiana's experience mirrored the national trends. In manufacturing, the union share has dropped from 50 percent to 21 percent since the early 1980s (the earliest state data available). The state's total private sector union rate dropped from 26 percent to 10 percent.

At this rate unions are a generation away from the political clout of the Independent Order of the Odd Fellows. Why?

Advocates of unions blame shifting economic conditions that favor corporations. But the labor market today is highly competitive and the national unemployment rate hovers near historic lows. This should be a prime time for unions.

Union critics argue that the activist role of unions has subordinated worker concerns, and thus unions are less important to workers. But unions today are far less activist than even their recent past suggests.

I imagine the real truth lies in the economics of labor markets. The work that's done today requires more specific skills and training than even two generations ago, so skilled workers will be compensated better than their less-skilled compatriots. Thus, a union that treats workers as homogeneous units won't be attractive to the better-skilled half of the labor force-a collective bargaining agreement would depress their wages. This argument means that as workers become more important to businesses, unions become less important to workers.

The best evidence that this is the reason behind the collapse of unions is that the only growth in unionization rates has occurred among the public sector-the one place where labor market forces matter least.



Hicks is director of the Bureau of Business Research at Ball State University. His column appears weekly. He can be reached at bbr@bsu.edu.
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