Where labor unions still pack a punch

What's the source of rising income inequality in the U.S. since the 1970s? Many causes have been suggested such as globalization, the rise of digital technology and robots, winner-takes-all markets (i.e. global markets with huge winners rather than fractured markets with lots of smaller winners) and changes in the bargaining power of labor relative to management arising from declines in unionization.

No clear consensus exists regarding why inequality has widened so much in recent decades, but the evidence has convinced me that the declining bargaining power of workers is an important part of the story. But that doesn't necessarily mean a resurgence of strong unions would restore the wage-bargaining power workers had in the past.

That's partly because the other causes listed above aren't necessarily independent. For example, increased globalization and the threat of being replaced by a robot have also changed the bargaining positions of workers and management.

Even if unions were to return in the same form as existed in the 1970s, globalization and changes in technology make the threat of a strike much less worrisome to management than in the past. The firm can threaten to move to another country or an area within the U.S. where legislative changes have diminished union power, and it can threaten to replace workers with machines.

If unions are going to be successful today, they'll have to find a way to adapt to these changes, e.g. by organizing internationally, which presents its own difficulties.

However, all this doesn't mean traditional unions have lost all relevance in the present-day economy. Their role goes beyond simply providing a source of bargaining power for workers. Unions are also an important source of political power.

When workers are organized and have a single voice on issues that affect them, they're much more likely to prevail against wealthy management interests in the political process. Workers' ability to get legislators' attention is much easier when unions are present.

A recent report from the Center for American Progress, highlighted by Noam Scheiber in The New York Times, lends credence to this point of view. This work finds that "a strong relationship between union membership and intergenerational mobility. More specifically: Areas with higher union membership demonstrate more mobility for low-income children."

In addition, "children who grow up in union households have better outcomes." This isn't limited to children in union families: "Areas with higher union membership have more mobility as measured by all children's incomes."

What's the reason for this? It could be that some unobserved factor is causing both better outcomes for children and higher union membership. However, as the authors note, many reasons can account for higher union membership leading to increased opportunity for children.

They cite several. For example, union members tend to have higher incomes, more stable employment and higher health insurance enrollment, all of which can be beneficial for children. And because the presence of unions tends to increase all wages, not just those of union members, the benefits of higher union membership extend to the children of nonunion members.

That helps explain why all children tend to do better when union membership in the area is higher.

Finally, on political power of unions, the authors say:

"...unions generally advocate for policies that benefit all working people -- such as minimum wage increases and increased expenditures on schools and public services -- that may especially benefit low-income parents and their children. A recent study on interest groups and political influence found that most of the national groups that supported middle-class priorities were unions. Another study found that states with higher union density also have higher minimum wages."

Unions no longer play the role they once did in providing workers with countervailing power in wage negotiations, but that doesn't mean unions have no role to play. Their power as a political force shouldn' be overlooked as we search for ways to improve worker incomes and overcome rising inequality.