Wednesday, April 7, 2010

Labor, Losing Influence?

Copyright, The New York Times Company

Labor unions are among President Obama’s political allies, and were actors in the story of the demise of General Motors. But I do not yet see much evidence that their influence on private-sector outcomes has become more significant.

Labor unions promise better pay, benefits and working conditions for workers. Critics say that, among other things, unions reduce productivity and introduce unnecessary hurdles to technical change.

Determining which of these characterizations is generally correct is a complicated task, and well beyond the scope of a short non-technical blog post. Moreover, the measurement of output and productivity in the public sector — where somewhat more union members are employed — is difficult. But we can more easily address the question of whether the private-sector influence of labor unions has changed over the past couple of years.

If unions’ newfound political success was associated with additional influence in the private sector, then they might have succeeded in obtaining additional wage gains for their members, or at least in preventing wage reductions that would have occurred without a union.

Economists debate whether unions obtain wage gains solely by restricting employment and work hours, or whether unions have some success at maintaining employment at the same time that they obtain better pay and benefits for their members. European economies offer some evidence for the latter, because employee incomes increased faster than gross domestic product during the decades that unions were gaining influence there.

Thus, if private-sector unions recently wielded more influence, we would expect the employee share of national income to rise, at least in the short run.

The chart below shows the ratio of employee income, including cash compensation and the value of fringe benefits, to total income in the private sector, on a quarterly basis since 2005 as measured by the Bureau of Economic Analysis. The self-employed are excluded from the calculation because such people serve as both owner and employee.

The Bureau of Economic Analysis data show that the employee share has fallen in four consecutive quarters, and is lower than it has been for years. While it is nice to acquire an ally in the Oval Office, private-sector unions probably lost influence during this recession.


Tino said...

Internationally there is no correlation between the share of the workforce covered by collective bargaining agreements and the labor share of national income.

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