If American workers claimed the same share of national income that they did in 1979, by the middle 2000s, 120 million American private sector workers would have received an additional $600 billion in compensation, amounting to more than $5,000 extra per worker.
Most current research on economic inequality focuses on growing wage gaps between different groups of workers. It’s important work, but it misses a big part of the story. That story is that over the past few decades, the share of U.S. profits going to shareholders, owners and corporate coffers has been going up at the expense of the “labor share” that includes all workers’ wages and benefits. From 1979 through 2007, labor’s share of national income in the private sector decreased by six percent.
About $600 billion went to corporate profits during that period, which mostly benefited the very wealthy. Things didn’t change with the recent economic recession. Although the economic downturn 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.
Some scholars argue that one explanation for this gap is technological changes, including the widespread introduction of computers into the workplace, which over the past few decades left workers less productive than machines and other equipment. This in turn, the argument goes, encouraged firms to reduce their hiring and curb wages and benefits for their employees. Other analysts disagree with this blame-the-robots angle and stress the role of political forces – especially the weakening of labor unions, which has left workers with less power to fight for their own interests.
Until now, there has been no statistical analysis that directly compares these two opposing approaches to explain workers’ falling economic fortunes. I designed my research to address this debate head on. Using decades-long data, I found that broad economic trends masked big differences in various industrial sectors.
The largest declines in the share of income going to workers happened in industries like manufacturing and transportation where unions were once powerful. In other industries like finance, trade and private services, where there was never much of a union presence, the share of economic gains going to workers either remained steady or slightly increased.
In other words, I found a large decline in labor’s compensation and a hefty increase in corporate profits only in sectors that once had high rates of union membership. This suggests that a decline in union membership – which led to disempowerment of workers when bargaining with employers – was the main factor allowing the executives and owners in those sectors to grab the lion’s share of the fruits of economic growth.
The blame-the-robots theory also hits against another striking fact: computer technologies have been adopted in all industries in the past few decades, but it was only in industries where unions significantly declined that investment in computer technology boosted corporate profits and shrank workers’ compensation. Technological change cannot, in and of itself, be the cause of shrinking worker compensation. Much of the negative impact on wages and benefits happens when innovation accompanies or spurs union decline.
Since the late 1970s, technological changes and the decline of labor unions have, in combination with each other and with other factors, helped to reduce the share of the national economic pie claimed by U.S. workers – and my research pins down that the decline of labor unions has been the main factor at work.
Union decline has not only increased wage disparities among workers; it has also allowed those sitting at the top of the economic pile to grab a growing slice of economic gains at the expense of all of their employees. Employers were able to do this, not because of the inexorable impact of abstract market forces or impersonal technologies, but because they have been able to deploy new technologies in ways that spurred the decline of unions and reduced the collective capacity of workers to negotiate for wages and benefits.
Tali Kristal is a lecturer in the Department of Sociology and Anthropology at the University of Haifa and a member of the Scholars Strategy Network.