Economists Supporting the Employee Free Choice Act

Through the Economic Policy Institute a number of excellent economists have signed an open letter supporting the Employee Free Choice Act ("Noted economists: The Employee Free Choice Act is needed to restore balance in the labor market," Economic Policy Institute). All of the economists whose names I recognize have international reputations and several are Nobel Laureates. A key portion of their statement reads,

..from 2000 to 2007, the income of the median working-age household fell by $2,000- an unprecedented decline. In that time, virtually all of the nation’s economic growth went to a small number of wealthy Americans. An important reason for the shift from broadly-shared prosperity to growing inequality is the erosion of workers’ ability to form unions and bargain collectively.

A natural response of workers unable to improve their economic situation is to form unions to negotiate a fair share of the economy, and that desire is borne out by recent surveys.

Only a wool-headed fool would disagree with a large number of prominent figures in his field, each more successful than himself, so here I go. I do not like the selection of 2000-2007 as a measurement period. It ends with a recession and more importantly, it does not cover the period of union decline.

A second problem is that households are smaller than in the past. A possible explanation is that individuals are wealthier than in the past, and able to form smaller household units. As an example, take a household earning $120,000 annually that has three workers, the youngest being a twenty something child of the two other workers. If the child moves out average household income has fallen to $60,000. Thomas Sowell addresses the trend toward smaller households on EconTalk with Russ Roberts in "Sowell on Economic Facts and Fallacies." The podcast highlights for the first five minutes read,

Over about 30 years, average household income rose only by 6%, but over that same period, per capita income rose by 51%. More meaningful figure. Failure to compare apples to apples in many statistical analyses. Today, not only fewer children per household but also more divorces. Top 20% of the household distribution has twice as many people as the bottom 20%, seems impossible. 39 million people in bottom 20% of households vs. 64 million in the top 20% of households, so household size is very different.

Gary Becker does not like the card-check provision and does not believe that the decline in union membership that began in 1954 will be reversed with the passage of the act ("Will the Decline in Union Membership be Reversed? Becker," The Becker-Posner Blog, January 25, 2009.)

This act would provide, among some other things discussed by Posner, public voting by employees on whether they want to form a union. I do not like public voting since workers might then be intimidated into voting in favor (or against) a union. Secret voting gives a truer picture of worker attitudes toward unions. While public voting and other pro-union legislation would tend to increase the number of union members, the economic and social forces are aligned against any major comeback by unions.

Union membership has been declining ever since 1954 when it peaked at 28% of total employment -unions' share of nonagricultural employment was then 35 %. During the subsequent half century the union share declined more or less continuously, and now is only about 11%. A mere 7% of private sector employees are unionized. The one bright spot in the union picture is the growth in their share of government employees to about 37%.

Union activity increases unemployment. Lawrence Summers writing for the Concise Encyclopedia of Economics in "Unemployment" observes,

Another cause of long-term unemployment is unionization. High union wages that exceed the competitive market rate are likely to cause job losses in the unionized sector of the economy. Also, those who lose high-wage union jobs are often reluctant to accept alternative low-wage employment. Between 1970 and 1985, for example, a state with a 20 percent unionization rate, approximately the average for the fifty states and the District of Columbia, experienced an unemployment rate that was 1.2 percentage points higher than that of a hypothetical state that had no unions. To put this in perspective, 1.2 percentage points is about 60 percent of the increase in normal unemployment between 1970 and 1985.