Left Side of the Aisle #63 - Part 4

Unions and the economy

I'm going to tell you something about the economy and while you may not know the figures, you will know the experience, the feel of it. And then I'm going to connect it to something which I bet a lot of you have not thought about.

Start with the fact that according to the Federal Reserve, Americans saw their median net worth plummet nearly 40% from 2007 to 2010. Median net worth was smashed down to the level of 1992. That is, all of the economic gain of the past two decades was destroyed by the banking meltdown. Who was hurt the most? The middle class, of course. The poor had little left to lose - and the median net worth of the rich, here's a shocker, rose slightly even as everyone else was falling off a cliff.

And it happened because the Federal Reserve, with strong bipartisan support in the White House and Congress, used hundreds of billions of dollars of public monies to save the banks and the corporations while ignoring their victims.

The inevitable and obvious result? The rich got richer and the poor got poorer - without the fun in the meantime.

Just one example: Now that 2011 proxy statements have been filed, the extent of executive pay last year has become clear. Median pay of the nation's 200 top-paid CEOs was $14.5 million, including a median pay raise of 5 percent. Did your pay go up 5% last year?

At the same time, corporate profits are rising and rising and rising again. The first graph posted here shows overall corporate profits from the mid-1940s through 2011. (A larger version of each image, with more readable text, can be had by clicking on it.) The vertical gray bars are times of recession. Notice a couple of things: One, notice how dramatically corporate profits had been rising since about 2000. Second, note how in this recession, when the meltdown hit, corporate profits plummeted to the level of several years before - and then rebounded so quickly that the down and up are essentially a single line.

And third how they are now the highest ever. The Fortune 500 generated a total of $824.5 billion in earnings last year, up 16.4% over 2010. Did your earnings go up 16.4% between 2010 and last year?

The next graph is another way of expressing the same idea. It shows corporate profits as a percentage of Gross Domestic Product, or GDP - that is, as a percentage of the total economy. Again, notice the dramatic rise after 2000, the plunge and immediate recovery in the recession, and the fact that they are now higher than ever. So no matter which way you measure it, whether in dollars or as a portion of the total economy, corporate profits are now the highest that have ever been recorded.

So now for comparison look at the next graph. This one shows wages as a percentage of GDP, that is, how much a part of the total economy was in wages paid to workers. In this case, notice how the line drops after 2000 and there was no recovery from the latest recession, in fact the line keeps dropping and now is at its lowest point ever.

So, bluntly, the corporations are making more and more and we are making less and less. The corporations (and their CEOs and assorted cronies) are getting a bigger and bigger bite of the apple while we are increasingly left with little more than the stem.

Oh, but we've been told far more than once, it's all about productivity! That's the problem! You've got to be more productive! Well, that's a crock. Check out the next graph.

Here, the blue line shows the change in GDP per capita - that is, per person - while the red line shows the change in median household income. Both lines start in 1989 and both assume 100 as a starting point. Remember, these lines do not display particular values but rather how those values have changed over time.

The point is, the blue line, GDP per capita, is a pretty good measure of productivity. Productivity is actually measured in worker output per hour, but GDP per capita does provide a reasonable approximation. And you can see how productivity has been rising - but median income has not. We have been increasingly productive as workers but have not received the benefit of that increased productivity. Where has that benefit gone? Look back at that first graph. That's where it has gone.

So that's where we stand. The question is why. I'm going to give you a reason why, one I bet most of you have not thought about.

Today's depressed (and depressing) wages can be blamed on a variety of factors, especially when the blaming is being done by people who want to avoid addressing one very important factor - a variety of factors from globalization and offshoring to new technologies that replace workers. But there remains the elephant in the room, one the corporations try to ignore out of existence but which economists and scholars know is important: the dramatic decline in union membership in the US over the past 60 years, which has left ordinary workers without a powerful public advocate or a voice in the workplace or a say in their wages and benefits.

In the 1950s, a time people now look back to with nostalgia for its secure and strong economy, labor unions were a dominant force in the economy. More than a third of American workers were unionized. Today, unionized workers represent about 12 percent of the workforce, and only seven percent of private workers.

What does this mean to you? This is what it means to you: The red line on the graph at the left shows the rate of union membership as a portion of total workforce; the blue line shows the share of total national income going to the middle class. For over 40 years now, the two have declined in tandem. As union membership shrinks, so does the middle class. That's what it means to you.

And think about this: Last week I was talking about the attacks on the pension plans of public workers and how the reason those pensions often enough really are better than those in private industry is that those in private industry used to be as good - and the gap has developed because the benefits of public workers have not shrunk as much as those in the private sector. One reason for that is that public service is one of the most unionized sectors of the economy: 37% of public workers are in a union, which gives them an ability to protect their gains that too many others have now lost.

How good are unions for workers? Studies say that in terms of wages, being a union member is roughly equal to having a college degree. Union membership in the private sector increases a workers' compensation by ten to twenty percent.

And the benefits of collective bargaining go well beyond unionized plants to include non-unionized workplaces and even industries. As unions raised wages and improved benefits and working conditions in unionized workplaces, that fact pulled up the wages and the rest for non-unionized workers because their employers had to go at least some distance toward matching what unions had obtained in order to keep employees. But as labor unions have declined, their power to affect not only their own wages but those across the economy has also declined, so an increasing share of income has gone to the richest among us, which has led to the largest income gap in more than a century.

Just consider: One of my favorite bumper stickers read "Unions: the people who brought you the weekend." More than that: overtime, sick leave, workplace safety laws, child labor laws, social security, workers' comp, the minimum wage, unemployment - it's hard to find a progressive advance of the past century that touches on economics in which organized labor did not have a hand.

Oh but now we're told, oh, unions are passe, they're corrupt, they're unnecessary, they're "outsiders," maybe they were necessary some other time but not now, blah blah and more blah. Just remember who is telling you that: It's those people represented in the first graph. It's those people. And if you can look at that and then look at the graph about wages and think there is nothing more to do, I can only despair for our future.

Sources:
http://www.nationofchange.org/see-you-club-fed-fat-cats-dip-till-1339766272
http://www.nytimes.com/2012/06/17/business/executive-pay-still-climbing-despite-a-shareholder-din.html
http://thinkprogress.org/economy/2012/05/07/479130/record-corporate-profits/
http://www.dailyfinance.com/2012/05/07/the-2011-fortune-500-the-big-boys-rack-up-record-setting-profit/
http://www.washingtontimes.com/news/2012/jun/7/declining-number-of-union-members-affects-all-work/
http://www.huffingtonpost.com/2012/06/11/americans-suffered-record_n_1587387.html