[A-List] The Great Divergence and the Death of Organized Labor

[c b]

The Great Divergence and the Death of Organized Labor

By Timothy Noah
September 12, 2010
Slate
http://www.slate.com/id/2266025/entry/2266031/

Previously, Timothy Noah looked at whether race,
gender, or the breakdown of the nuclear family affected
income inequality, and then he examined immigration,
thetechnology boom, federal government policy, the
decline of labor unions,international trade, whether
the ultra wealthy are to blame, and what role the
decline of K-12 education has played. In conclusion,
Noah explains why we can't ignore income inequality.

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The Great Divergence coincided with a dramatic decline
in the power of organized labor. Union members now
account for about 12 percent of the workforce, down
from about 20 percent in 1983. When you exclude public-
employee unions (whose membership has been growing),
union membership has dropped to a mere 7.5 percent of
the private-sector workforce. Did the decline of labor
create the income-inequality binge?

The chief purpose of a union is to maximize the income
of its members. Since union workers usually earn more
than nonunion workers, and since union members in
higher-paying occupations tend to exercise more clout
than union members in lower-paying ones, you might
think higher union membership would increase income
inequality. That was, in fact, the consensus among
economists before the Great Divergence. But the Harvard
economist Richard Freeman demonstrated in a 1980 paper
that at the national level, unions' ability to reduce
income disparities among members outweighed other
factors, and therefore their net effect was to reduce
income inequality. That remains true, though perhaps
not as true as it was 30 years ago, because union
membership has been declining more precipitously for
workers at lower incomes. Berkeley economist David Card
calculated in a 2001 paper that the decline in union
membership among men explained about 15 percent to 20
percent of the Great Divergence among men. (Among
women-whose incomes, as noted in an earlier
installment, were largely unaffected by the Great
Divergence-union membership remained relatively stable
during the past three decades.)

It's possible, however, that labor's decline had a
larger impact on the Great Divergence than Card's
estimate suggests. To consider how, let's return to the
"institutions and norms" framework introduced by MIT's
Frank Levy and Peter Temin* and further elaborated by
Princeton's Paul Krugman and Larry Bartels.

In their influential 2007 paper, "Inequality and
Institutions in 20th Century America," Levy and Temin
regard unions not merely as organizations that struck
wage bargains for a specific number of workers but
rather as institutions that, before the Great
Divergence, played a significant role in the workings
of government. "If our interpretation is correct," they
wrote, "no rebalancing of the labor force can restore a
more equal distribution of productivity gains without
government intervention and changes in private sector
behavior."

According to Levy and Temin, labor's influential role
in the egalitarian and booming post-World War II
economy was epitomized by a November 1945 summit
convened in Detroit by President Harry Truman. The war
had ended a mere three months earlier, and Truman knew
the labor peace that had prevailed during the war was
about to come to an abrupt end. To minimize the
inevitable disruptions, Truman promised labor continued
government support. Truman even coaxed Chamber of
Commerce President Eric Johnson into making the
following statement: "Labor unions are woven into our
economic pattern of American life, and collective
bargaining is part of the democratic process. I say
recognize this fact not only with our lips but with our
hearts."

An eventual result of Truman's 1945 summit was a five-
year contract between United Auto Workers President
Walter Reuther and the big three automakers that
included cost-of-living adjustments, productivity-based
wage increases, health insurance, and guaranteed-
benefit pensions. Daniel Bell (then a writer for
Fortune magazine) named the agreement, versions of
which would be adopted by Big Steel and other
industries, theTreaty of Detroit. Even non-union
companies mimicked the Reuther pact. The federal
government's ongoing collaborative role in the process
was demonstrated in April 1962 when President John F.
Kennedy, having talked the United Steel Workers into
accepting a moderate wage increase, publicly attacked
U.S. Steel over a price hike he deemed excessive ("a
wholly unjustifiable and irresponsible defiance of the
public interest"), forcing the steel giant to back
down. According to Levy and Temin, this display of
muscle "helps to explain why the reduced top tax rate"
enacted two years later (it dropped to 70 percent)
"produced no surge in either executive compensation or
high incomes per se." Fear of attracting comparable
attention from President Lyndon Johnson kept
corporations from showering the bosses with obscene pay
hikes.

The Treaty of Detroit didn't last. One reason was that,
even as Truman was romancing Big Labor, the Republican
Party won majorities in the House and Senate and passed
theTaft-Hartley Act over Truman's veto in 1947. Levy
and Temin don't dwell on this, but in his 1991 book
Which Side Are You On?: Trying To Be For Labor When
It's Flat On Its Back,Thomas Geoghegan, a Chicago-based
labor lawyer, argues that Taft-Hartley was the
principal cause of the American labor movement's
eventual steep decline:

First, it ended organizing on the grand, 1930s scale.
It outlawed mass picketing, secondary strikes of
neutral employers, sit downs: in short, everything
[Congress of Industrial Organizations founder John L.]
Lewis did in the 1930s.

[.]

The second effect of Taft-Hartley was subtler and
slower-working. It was to hold up any new organizing at
all, even on a quiet, low-key scale. For example, Taft-
Hartley ended "card checks." . Taft-Hartley required
hearings, campaign periods, secret-ballot elections,
and sometimes more hearings, before a union could be
officially recognized.

It also allowed and even encouraged employers to
threaten workers who want to organize. Employers could
hold "captive meetings," bring workers into the office
and chew them out for thinking about the Union.

And Taft-Hartley led to the "union-busting" that
started in the late 1960s and continues today. It
started when a new "profession" of labor consultants
began to convince employers that they could violate the
[pro-labor 1935] Wagner Act, fire workers at will, fire
them deliberately for exercising their legal rights,
andnothing would happen. The Wagner Act had never had
any real sanctions.

[.]

So why hadn't employers been violating the Wagner Act
all along? Well, at first, in the 1930s and 1940s, they
tried, and they got riots in the streets: mass
picketing, secondary strikes, etc. But after Taft-
Hartley, unions couldn't retaliate like this, or they
would end up with penalty fines and jail sentences.

To summarize: Taft-Hartley slowed and then halted
labor's growth and then, over many decades, enabled
management to roll back its previous gains. Big
manufacturing's desire to do so grew more urgent in the
1970s as inflation spun out of control, productivity
fell, and the steel and auto industries faced stiffer
competition from abroad. Even before Ronald Reagan's
election, Levin and Temin write, the Senate signaled
the federal government was rapidly losing interest in
enforcing Truman's 1945 pact when it killed off, by
filibuster, a pro-labor reform bill aimed at easing
union organizing in the South.

President Reagan's 1981 decision to break the air-
traffic controllers' union and to slash top income-tax
rates killed off Truman's 1945 pact entirely. Although
Reagan was a onetime union president, he showed little
concern when the 1982 recession rapidly eliminated so
many Rust Belt manufacturing jobs that the proportion
of private-sector workers who belonged to unions
dropped to 16 percent in 1985, down from 23 percent as
recently as 1979. Reagan's hostility to unions was
further reflected in his choice ofDonald Dotson to
chair the National Labor Relations Board. Dotson had
previously worked as a management-side labor adversary
for Wheeling-Pittsburgh Steel, and (presumably with
both lips and heart) believed collective bargaining led
to "the destruction of individual freedom." Under
Reagan's two terms, the federal minimum wage, which
previously had been adjusted upward every year or two,
would remain stuck at $3.35 an hour for close to a full
decade. Similarly, President George W. Bush, another
two-term Republican, later let the minimum wage remain
at $5.15 (to which it had risen during the presidencies
of his father and Bill Clinton) for two months shy of
10 years, by which time its buying power had reached a
51-year low.

Academics may argue about the significance of any one
of these decisions. Raising the minimum wage, for
instance, reduces income inequality to a degree that
some experts judge negligible and others judge
substantial.  Where Levy and Temin (who lean toward the
"negligible" characterization) and Princeton's Bartels
(who leans toward the "substantial" one) agree is that
policies like setting the minimum wage don't occur in a
vacuum; they are linked to a host of other government
policies likely to have similar effects. Bartels
emphasizes partisan differences and Levy and Temin
emphasize ideological ones that occur over time, but
both constitute changes in the way Washington governs.
Levy and Temin concede that the ideological shift was
influenced by changing circumstance (inflation did
rise; productivity did fall; Rust Belt manufacturers
did face increased foreign competition). But they argue
that the policies embraced, and the increased income
inequality that resulted, were not inevitable. The
proof, they argue, lies in the fact that other
industrialized nations faced similar pressures but
often embraced different policies, resulting in far
less income inequality.

Geoghegan's latest book, Were You Born On The Wrong
Continent?, makes this point largely by looking at
Germany. German firms, Geoghegan writes,

don't have the illusion that they can bust the unions,
in the U.S. manner, as the prime way of competing with
China and other countries. It's no accident that the
social democracies, Sweden, France, and Germany, which
kept on paying high wages, now have more industry than
the U.S. or the UK. . [T]hat's what the U.S. and the UK
did: they smashed the unions, in the belief that they
had to compete on cost. The result? They quickly ended
up wrecking their industrial base.

Geoghegan's book went to press too soon to report that
Germany is now experiencing a recovery that's leaving
the United States in the dust. New York Times columnist
David Brooks takes away the lesson that the Germans
succeeded by spending less government money than the
United States to stimulate its economy (a conclusion
that Krugman, his fellow Times columnist, had already
labeled "foolish"). Brooks mentions only in passing
(and somewhat elliptically) that government policy in
Germany is much more supportive of labor; for example,
during the recession it paid businesses to keep workers
employed (something the United States was willing to do
only for state government workers). The idea that pro-
labor policies can produce an economy that's both more
egalitarian andmore robust-as occurred under the Treaty
of Detroit-has, regrettably, become unfashionable.

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Correction, Sept. 13, 2010: An earlier version of this
column misidentified MIT's Peter Temin as "Peter
Temlin." The error resulted from a typo on the cover of
Levy and Temin's paper as it appears on an MIT Web
site. (Return to the corrected sentence.)

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