How Right-to-Work Laws Make Inequality Worse

It's time to bring back labor unions.

Once America was proud of its labor-union movement. In the late 19th Century, workers literally fought and died at the hands of mercenary detectives trying to establish their right to organize for better wages and working conditions. As a social and industrial movement, at its high point unionization made workers' rights so important to American identity that the country created a national holiday and a government agency dedicated to the project.

Yet for the past 30 years and more, the history of labor has been one of steady decline. Membership in private unions has dropped by more than half since the early 1980's, and it's still sliding to this day. Even in manufacturing, construction and transportation, once the biggest powerhouses of organized labor, unions have steadily lost members year after year.

Meanwhile, wages and working conditions have deteriorated, while income inequality has soared.

Wage stagnation in the United States has been well documented in both statistics and lived experience. Gains to the Dow Jones Average and GDP have enriched those who make their money from investment income, but have translated poorly into more dollars-per-hour for people who make their money off of wages.

This is not a coincidence. In fact, it's the precise problem that unions were invented to solve.

"Some huge amount of the productivity gains over the last 30 years in the United States have gone to executives and stockholders, and not to workers," said Professor Robert Korstad with Duke University's Sanford School of Public Policy. "That's because workers in major industries where automation has taken place didn't have strong unions that could bargain for them and demand a certain percentage of the productivity gains that have been realized by the employers."

"All of the studies that economists and labor people have been doing over the last decade or so [that] have looked at the relationship between wage stagnation, income inequality and the decline of unionization in the United States have been able to track pretty closely how the reduction in unionization of particularly the private sector has contributed to what's been basically a static wage rate for workers," he continued.

"I think this relationship between unions and greater wage inequality is pretty clear, at least on the downside."

Here's why.

Under free market conditions, the only force that drives wages higher is scarcity. Employers hire workers as cheaply as possible, raising that price only when competing firms start to outbid them. But just waiting for unemployment to plummet is a pretty lousy way of getting a raise.

So unions create a secondary form of upward pressure based on bargaining power. They work to ensure that as an employer gets richer, it shares some of that wealth with its workers. If scarcity raises wages based on what an employer has to pay, labor bargaining is best understood as a way of raising wages based on what an employer can afford to pay.

As union membership has declined, so too have the pay and benefits for which they once advocated. Today the limited wage movement that workers enjoy largely tracks the unemployment index, as pay once again returns to supply and demand based on scarcity.

It is important not to overstate a cause-and-effect relationship in any complex system, and labor economics is no different. The past several decades have seen massive changes to the landscape for millions of American workers. Automation, in particular, has disrupted many industries once thought a bedrock of safe, middle class lifestyles, and artificial intelligence will extend that process into fields ranging from construction and transportation to journalism and even law.

Yet in the search for complicated answers we shouldn't overlook the simple ones either.

The decline of labor unions is a critical part of soaring income inequality in the United States. A heat map of states by Gini coefficient tracks almost exactly with the states that have the lowest level of union participation nationwide. (With again the important reminder that economics is a messy business: California and New York are extreme outliers, having both some of the highest rates of unionization and inequality in the country.) The same is true of states with the lowest per capita incomes. The decline of unionization may not be the entire story but, in economics, when it walks like a duck and quacks like a duck it probably has something to do with soaring inequality.

Right-to-work laws are a particularly ugly part of this story and, ironically, do more to prove this point than almost any other modern development.

A cornerstone of the right wing's anti-labor movement, right-to-work laws have decimated union membership in states across the south and Midwest. This is a feature, not a bug. Advocates of these laws argue that they make labor cheaper and draw in new jobs. They are sort of right, which is also the point.

Right-to-work laws kill unions by creating a deliberate free-rider problem. The federal government requires unions to bargain for all employees, regardless of membership, so historically unions have been allowed to collect dues from those nonmembers the government requires them to represent. Under right to work, the state prevents a union from collecting nonmember dues while still requiring it to bargain on those workers' behalf.

Eligible for the benefits of union membership but freed from the costs, workers drop out en masse and starve unions of resources. This leads directly to declining wages, "cheaper labor" in the sanitized speech of right-to-work advocates.

Right-to-work advocates specifically say that by killing unions they reduce local wages. In doing so they implicitly acknowledge the role unions play in raising standards of living for people who have jobs. They argue, perhaps entirely in good faith, that their focus is on people who need jobs; more employers means more employment. It's a position that amounts, essentially, to "better low pay than no pay."

But their laws don't create new jobs. At best, right to work starts a race to the bottom. While some jobs may appear in Georgia, they've vanished from New York, and the ones created almost always pay less than the ones destroyed. The net effect is to make workers overall a little bit poorer and a little worse off than they were before, and to further erode take-home pay as a share of national profits.

This is the story behind declining unionization in general.

For nearly 100 years, the labor movement served all Americans. Union members collected a larger share of economic growth by directly bargaining for higher wages and better working conditions. Average pay among and across industries rose as union shops influenced the price of labor market-wide. Even in non-union shops, employers had to pay more to compete with what a unionized workplace could offer the same workers.

Even where the effects were tangential, collective bargaining exerted a consistent upward pressure on wages and workplace conditions. The more money a company made, the more that pressure grew. It was not the only counterbalance to inequality, but it was an important one.

In the past several decades, that upward pressure has eroded to the point of near-irrelevance.

Is it any wonder that at the same time take-home pay has gotten worse?

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