How the Decline of American Unions Has Boosted Corporate Profits and Reduced Worker Compensation

Most research on rising economic inequality focuses on growing wage gaps between different groups of workers. But of course that is only part of the story. Just as important is the division of the national economic pie between profits going to capitalists and the “labor share” that includes all of the wages and benefits earned by workers. It’s a zero-sum game: the portion of the total national income that is not going to the workers goes to profits for capitalists.

 

In recent times, U.S. corporate profits have been going up at the expense of workers’ wages and fringe benefits. From 1979 through 2007, labor’s share of national income in the U.S. private sector decreased by six percentage points. What does that mean? Back in 1979, American workers claimed about 64% of national income, and if labor’s share had stayed at this level, the 120 million American workers employed in the private sector in 2007 would have received as a group an additional $600 billion in compensation. That is more than $5,000 extra per worker!

 

Where did that huge amount of money go instead of into workers’ wallets? It went to corporate profits, mostly benefiting very wealthy individuals. And things did not change with the recent economic recession. Although the big economic downturn of 2009 reduced corporate profits as a share of national income, the effect was short-lived. Since 2010, the golden age of swelling 

corporate profits has resumed.

 

Scholars debate the factors that may have spurred rising corporate profits at the expense of workers’ compensation. Some argue that market forces have been primarily responsible. Pointing to technological changes, they maintain that the widespread introduction of computers into firms left workers less productive than machines and other equipment, which in turn prompted firms to reduce their hiring of additional workers or to curb wages and fringe benefits for their employees. On the other side of the argument are analysts who stress the role of political forces especially the weakening of labor unions, which has left workers with less collective power to fight for their own interests.

 

Until now, there has been no statistical analysis that directly compares these approaches to explain labor’s falling economic fortunes. My research does this, with two innovative moves.