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PORTSIDE  September 2012, Week 4

PORTSIDE September 2012, Week 4

Subject:

Impact of the Decline of Collective Bargaining

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Sun, 23 Sep 2012 22:07:06 -0400

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The Decline of Collective Bargaining and the Erosion of 
Middle Class Incomes in Michigan

	"If we want the fruits of economic growth to
	benefit the vast majority, we will have to adopt
	a different set of guideposts for setting
	economic policy, as the ones in place over the
	last several decades have served those with the
	most income, wealth, and political power.
	Strengthening collective bargaining and its
	important role in setting standards for all
	workers is a good place to start."

By Lawrence Mishel
Economic Policy Institute
September 23, 2012
http://www.epi.org/publication/bp347-collective-bargaining/

[moderator: to view charts, graphs and notes please
use the link above]

In Michigan between 1979 and 2007, the last year before
the Great Recession, the state's economy experienced
substantial growth and incomes rose for high-income
households. But middle-class incomes did not grow. The
Michigan experience is slightly worse than but parallels
that of the United States as a whole, where middle-class
income gains were modest but still far less than the
income gains at the top. What the experience of
Michiganders and other Americans makes clear is that
income inequality is rising, and it has prevented
middle-class incomes from growing adequately in either
Michigan or the nation.

The key dynamic driving this income disparity has been
the divergence between the growth of productivity-the
improvement in the output of goods and services produced
per hour worked-and the growth of wages and benefits
(compensation) for the typical worker. It has been amply
documented that productivity and hourly compensation
grew in tandem between the late 1940s and the late
1970s, but split apart radically after 1979.
Productivity grew by 69.1 percent between 1979 and 2011,
but the hourly compensation of the median worker (who
makes more than half the workforce but less than the
other half) grew by just 9.6 percent (Mishel and Gee
2012; Mishel et al. 2012)1. In other words, since 1979
the typical worker has hardly benefited from
improvements in the economy's ability to raise living
standards and, consequently, middle-class families'
living standards have barely budged since then. This
phenomenon has occurred across the nation, including in
Michigan.

This divergence between pay and productivity and the
corresponding failure of middle-class incomes to grow is
strongly related to the erosion of collective
bargaining. And collective bargaining has eroded more in
Michigan than in the rest of the nation, helping to
explain Michigan's more disappointing outcomes.

Research three decades ago by economist Richard Freeman
(1980) showed that collective bargaining reduces wage
inequality, and all the research since then (see Freeman
2005) has confirmed his finding. Collective bargaining
reduces wage inequality for three reasons. The first is
that wage setting in collective bargaining focuses on
establishing "standard rates" for comparable work across
business establishments and for particular occupations
within establishments. The outcome is less
differentiation of wages among workers and,
correspondingly, less discrimination against women and
minorities. A second reason is that wage gaps between
occupations tend to be lower where there is collective
bargaining, and so the wages in occupations that are
typically low paid tend to be higher under collective
bargaining. A third reason is that collective bargaining
has been most prevalent among middle-class workers, so
it reduces the wage gaps between middle-class workers
and high earners (who have tended not to benefit from
collective bargaining).

Collective bargaining also reduces wage inequality in a
less-direct way. Wage and benefit standards set by
collective bargaining are often followed in workplaces
not covered by collective bargaining, at least where
there is extensive coverage by collective bargaining in
particular occupations and industries. This spillover
effect means that the impact of collective bargaining on
the wages and benefits of middle-class workers extends
far beyond those workers directly covered by an
agreement.

The main findings of this report on the role of
collective bargaining, in Michigan and the United
States, are the following:

   The typical household's income rose cumulatively just
   7.3 percent from 1979 to 2010 in the United States,
   while in Michigan it fell 11.2 percent.
   Correspondingly, Michigan's middle class had incomes
   13 percent above the nation in 1979 but 6 percent
   below in 2010.
   
   Overall income growth in both Michigan and the nation
   was sufficient for low- and middle-income families to
   do far better, but an increasing share of economic
   growth has been captured by those with the most
   income. For instance, the nation's top 5 percent saw
   their incomes expand by roughly 56 percent from 1979
   to 2010; in Michigan the top 5 percent had an even
   greater income growth of 60.5 percent. That is,
   income inequality grew more in Michigan than in the
   rest of the nation.
   
   At the heart of the matter is that hourly wages and
   benefits have not improved much for a typical worker
   in spite of the fact that the output of goods and
   services produced (i.e., productivity) has increased
   greatly. The 9.6 percent growth in median hourly
   compensation among U.S. workers from 1979 to 2011
   contrasts sharply with productivity growth of 69.1
   percent during the same period. In Michigan,
   productivity grew by 34.9 percent, and real hourly
   compensation of the median worker fell by roughly 10
   percent. In both the nation and in Michigan a
   substantial gap has emerged between the ability of
   the economy to provide higher wages and its actual
   propensity to do so.
   
   The divergence between the growth of productivity and
   the wages of the typical worker simply reflects
   collapsed wage standards and workers' inability to
   obtain their fair share of a growing economic pie.
   The erosion of collective bargaining is a major
   driver of this phenomenon, as it leads to weaker
   labor standards for all workers. Weaker wage growth
   and the greater increase in income inequality in
   Michigan reflect the greater erosion of collective
   bargaining there than in the nation. In Michigan the
   share of the workforce covered by a collective
   bargaining agreement fell from roughly a third in
   1983 to 18 percent in 2011, while in the nation the
   erosion was from 23 percent to 13 percent. Collective
   bargaining coverage fell more in Michigan within the
   private sector, including in construction and in
   manufacturing, than overall, but it fell in public
   employment as well.
  
   The erosion of collective bargaining has had a
   particular adverse impact on the wages of Michigan
   blue-collar workers, whether covered by a collective
   bargaining agreement or not, as wage stagnation has
   prevailed among those covered and those not covered
   by collective bargaining.
    
   Income inequality rose far faster in Michigan than it
   did on average in the nation. In fact, Michigan's
   growth in income inequality was faster than in all
   but seven states from 1979 to 2009 (latest data). The
   states with the largest erosion of collective
   bargaining (Michigan, Ohio, and Pennsylvania) are all
   in the top tier of states for growth of income
   inequality, along with the states where some high-
   income households have benefited from the large
   income increases generated in the financial sector
   (New York, Connecticut, and New Jersey). This
   apparent correlation between eroded collective
   bargaining and growing income inequality is due to
   the real world impact of collective bargaining on the
   wages of all workers, not just those directly covered
   by collective bargaining.
   
   Collective bargaining affects the wages and benefits
   of those not directly covered by an agreement when
   employers meet standards set by collective agreements
   or at least improve their compensation and labor
   practices beyond what they would have provided in the
   absence of collective bargaining. A more general
   mechanism through which collective bargaining has
   broadly affected pay and practices is the institution
   of norms and established practices that become more
   generalized throughout the economy, thereby improving
   pay and working conditions for the entire workforce.
       
       A recent study found that the erosion of
       collective bargaining accounted for a third (33.9
       percent) of the growth of male wage inequality
       from 1973 to 2007, most of which (20.2 percent)
       was the result of fewer workers being covered
       while the rest (13.7 percent) was due to the
       erosion of collective bargaining's impact on
       workers not directly covered by an agreement and
       the associated lower standards. Among women the
       decline in collective bargaining coverage had a
       smaller direct impact (9.2 percent), but the
       diminished ability of collective bargaining to
       set labor standards generated about a fifth (20.4
       percent) of the growth of wage inequality among
       women overall.
       
       Collective bargaining provides higher wages for
       those directly affected, and the boost to wages
       is greatest for workers in the middle of the wage
       distribution and, generally, for non-college-
       educated workers. This pattern means that
       collective bargaining lessens wage inequities,
       helping the most those with the least power in
       the job market. Accordingly, collective
       bargaining has boosted wages more for minority
       workers and lessened the wage gaps between
       minorities and other workers.

Middle income stagnation: a story of wages lagging
productivity

The 2000s has been a challenging time for the middle
class. First, the business cycle from 2000 until 2007
was the first one where the income of the typical
(median) working-age household was lower at the end of
the recovery in 2007 ($61,355 in 2011 dollars) than
before the downturn in 2000 ($63,535). Then, the Great
Recession knocked incomes down even further (to
$55,640). For this reason the 2000s has been labeled the
"lost decade."2

The decade was "lost" primarily for two reasons. The
first is that the high unemployment in the current
recession meant that fewer household members were
working and many of those who were working did so with
fewer hours and at lower wages. The weak recovery from
2002 through 2007 also prevented the income gains one
would expect in a recovery to materialize. The second
problem is that for the last 10 years there has been no
improvement in the inflation-adjusted wages and benefits
for the typical worker or for workers with either a high
school or a college degree. That is, even in the last
recovery, from 2002 to 2007, as well as during the
recession the inflation-adjusted wages and benefits grew
not at all for nearly all workers. Given that
productivity improved since 2000 (up roughly 22 percent
nationally, 11 percent in Michigan), it was economically
feasible and reasonable to expect that workers would see
wage and benefit improvements. Corresponding to this
divergence between wages and productivity growth has
been the continued growth of income inequality such that
higher income groups received the lion's share of income
growth. This story played out in Michigan as well as in
the nation as a whole and not just in the 2000s but also
in the preceding two decades.

Figures A and B chart the cumulative growth of household
income for the top 5 percent of households by income and
for the median household (the household in the "middle,"
which has income greater than half the other households
but also less than the other half) for the United States
and for Michigan.3 Household income includes all of a
household's "money income" as defined by the Census
Bureau: the wages earned by all the employed household
members plus any interest, dividend, and rent income
plus any government cash transfers such as Social
Security or unemployment insurance. These figures chart
the income growth between what are called "cyclical
peaks," the years of low unemployment (i.e., the peaks
of business cycles) such as 1979, 1989, 2000, 2007 and
the latest year for which there are data, 2010.

The results in Figure A show that since 1979 the best-
off 5 percent of households in the United States saw
their incomes grow by 55.8 percent while the median
household gained far less, just 7.3 percent. For
Michigan (Figure B) the data show that the top 5 percent
gained 60.5 percent in income while the median household
lost ground, falling 11.2 percent since 1979. Clearly
the period since 2000 has been a rough one in Michigan.
But even in the period from 1979 to 2000 the income gain
for the median household was slight, just 9.5 percent,
while the income gain for the top 5 percent was nearly
10 times as much, at 93.2 percent. Michigan's middle
class had incomes 13 percent above the nation in 1979
but 6 percent below in 2010.

The same data used in Figures A and B can also
demonstrate the rise in income inequality by examining
the ratio of the incomes of the top 5 percent to the
median household's income. In 1979, this ratio was far
greater in the nation as a whole, when the top
households had 4.01 times as much income as the median
household. In Michigan, the gap was remarkably smaller,
with the top households enjoying 3.08 times as much
income. By 2010, however, the income gap had grown
significantly, but especially in Michigan: the income
ratio in Michigan was 5.57 in 2010, close to the United
States income ratio of 5.82. A more comprehensive
measure of income inequality, the Gini coefficient
(discussed below), confirms this finding.

One of the key dynamics generating income inequality is
that the wages and benefits of the typical worker have
not grown along with improvements in overall
productivity (the growth of the output of goods and
services produced per hour worked) since 1979.4 This
dynamic stands in stark contrast to that of the
preceding decades, when productivity and the wages and
benefits of a typical worker grew in tandem.5 As shown
below, one of the important developments that led to
this change was the sharp erosion of collective
bargaining.

In Michigan, as in the nation as a whole, the
disappointing growth of median hourly compensation
reflects disappointing wage growth but also an erosion
of employer-provided health and pension coverage. Table
1 presents data on the share of private-sector workers
with these benefits between 1979 and 2010. To obtain a
sufficient sample size for state-level data, the data
cover three years at a time: the years selected include
the earliest data available, 1979-1981; the years at the
end of the last recovery, 2005-2007; and the most recent
data, 2008-2010. The share of workers in the United
States receiving health insurance coverage through their
employers has eroded sharply, from 69.9 percent in
1979-1981 to just 54.0 percent in 2008-2010. Michigan
started out with greater health coverage than the rest
of the nation in 1979-1981, at 75.4 percent, but in
2008-2010 its share was comparable to that of the rest
of the nation, at 54.8 percent.

Figure E shows the evolution of income inequality in the
United States and each state, including Michigan, along
with the erosion of collective bargaining coverage over
the 1979-2009 period. On the vertical axis is income
inequality (measured by the Gini coefficient), such that
a higher value indicates greater income inequality.7 The
horizontal axis represents coverage under a collective
bargaining agreement. Each state's location on the chart
is indicated by a lighter-shaded circle for 1979 and a
darker-shaded circle for 2009 values. The chart
highlights Michigan, whose values are represented by a
larger circle, lighter shaded for 1979 and darker shaded
for 2009. The chart also highlights the national
average, which is represented by the squares.

The story illustrated by Figure E is simple. The darker
circles representing the states in 2009 are higher up
and to the left, capturing values with high income
inequality and low collective bargaining coverage. The
lighter circles representing the states in 1979 are all
lower and further to the right, representing values with
lower levels of income inequality and greater collective
bargaining coverage. The progression from the lighter-
to darker-shaded circles indicates that as states lost
collective bargaining coverage they experienced much
higher levels of income inequality. Michigan in 1979 had
the most extensive collective bargaining coverage and
relatively low income inequality, but by 2009 (the
darker-shaded square), collective bargaining coverage in
Michigan was severely reduced (cut in half, actually)
and income inequality had grown considerably.

The phenomenon of eroded collective bargaining and
growing income inequality is illustrated in Figure E for
the United States overall as well as Michigan. The
states where income inequality grew the most are a mix
of those where residents benefited from the expansion of
financial sector incomes, such as Connecticut, New
Jersey, and New York, and the states where the erosion
of collective bargaining was greatest, such as
Pennsylvania, Ohio, and Michigan.

The evidence that eroding collective bargaining leads to
higher income inequality is not just based on the
correlation portrayed in Figure E. A long history of
research demonstrates this relationship, and we turn to
that now. The impact of collective bargaining

The percentage of the workforce covered by collective
bargaining was stable in the 1970s but fell rapidly in
the 1980s and continued to fall in the 1990s and the
early 2000s, as shown in Figure F. The erosion was more
rapid in Michigan and more rapid than the overall rate
in each major sector, such as manufacturing,
construction, and the public sector, as shown in Table
2. For instance, in Michigan the share of the workforce
covered by a collective bargaining agreement fell from
roughly a third in 1983 to 18.3 percent in 2011, while
in the nation the erosion was from 23.3 percent to 13.0
percent. In manufacturing, coverage under collective
bargaining in Michigan fell from 48.8 percent to 20.4
percent from 1983 to 2011, a shrinkage of 28.4
percentage points compared to the national drop of 19.3
percentage points. The share of Michigan blue-collar
workers covered by collective bargaining has fallen
steeply, from 54.5 percent in 1984 to just 26.3 percent
in 2011, a drop of 28 percentage points (Figure G).
Blue-collar collective bargaining declined more in
Michigan than in the nation as a whole, where it fell
about 25 percentage points (measured, because of data
availability, over a longer period from 1978 to 2011).

This falling rate of collective bargaining has lowered
wages, not only because some workers no longer receive
the higher wage set in bargaining but also because there
is less pressure on other employers to raise wages (the
spillover effect of collective bargaining setting labor
standards). The possibility that the power of collective
bargaining to lift wages has weakened adds a qualitative
shift to the quantitative decline. This erosion of
bargaining power is partially related to a harsher
economic context because of trade pressures, the shift
to services, and ongoing technological change. However,
analysts have also pointed to other factors, such as
employer militancy and changes in the application and
administration of labor law that have combined to weaken
collective bargaining's impact.

As explained at the outset, the erosion of collective
bargaining can be expected to have generated greater
wage inequality, for three reasons: There is less wage
inequality among workers directly covered by collective
bargaining; the benefits of collective bargaining close
the wage gap between middle-class workers and higher
earners; and collective bargaining raises the wages and
benefits of middle-class workers broadly in industries
and occupations where collective bargaining is
strongest.

There are several ways that collective bargaining's
impact on wages goes beyond the workers covered by
collective bargaining agreements and extends to wages
and labor practices more broadly. For example, in
industries, occupations, and regions in which a strong
core of workplaces are covered by collective bargaining,
employers will frequently meet collective bargaining
standards or at least improve their compensation and
labor practices beyond what they would have provided in
the absence of a strong presence of collective
bargaining.

A more general mechanism through which collective
bargaining has affected pay and compensation practices
beyond the workers directly affected is the institution
of norms and established practices that become more
generalized throughout the economy, thereby improving
pay and working conditions for the entire workforce.
These norms and practices have particularly benefited
the 70 percent of workers who are not college educated.
Many fringe benefits, such as pensions and health
insurance, were first provided in collective bargaining
settings and then became more generalized. Grievance
procedures, which provide due process in the workplace,
have been adapted to many workplaces beyond those where
collective bargaining takes place. Wage setting under
collective bargaining, which has gained exposure through
media coverage, has frequently established standards for
what workers expect from their employers. Until the
mid-1980s, in fact, many sectors of the economy followed
the patterns set in collective bargaining agreements. As
collective bargaining has weakened, especially in the
manufacturing sector, the ability to set broader
patterns has diminished. However, collective agreements
remain a source of innovation in work practices (e.g.,
training, worker participation) and in benefits (e.g.,
child care, work-time flexibility, sick leave).

A recent study has focused attention on the direct and
indirect (spillover) impact on wages and wage inequality
of declining collective bargaining in industries in
particular regions. Table 3 presents the results of this
study, which examined the direct impact of less coverage
under collective bargaining, as well as the indirect
impact of falling coverage by collective bargaining
agreements in an industry within particular regions
(using 18 industries and four regions) on the wages of
other workers similarly located. The impact of these
factors is assessed on both between-group wage
inequality (this is the wage difference between workers
with different education levels and experience) and
within-group wage inequality (inequality of wages among
workers of similar education and experience, for
instance). Among men, wage inequality (measured by the
variance of log wages which reflects the dispersion of
wages in a year) grew 0.102 between 1973 and 2007, 0.055
from higher between-group wage inequality and 0.046 from
higher within-group wage inequality. The biggest impact
of declining collective bargaining was on within-group
inequality (as collective bargaining declined, similar
workers started having increasingly dissimilar wages)
because of the increasing inequality among workers not
covered by collective bargaining. The direct impact of
declining coverage under collective bargaining accounted
for 20.2 percent of the growth of male wage inequality,
and the impact of declining collective bargaining
coverage within particular industry/region groups
explained another 13.7 percent of the growth of wage
inequality. Overall, eroded collective bargaining can
explain about a third (33.9 percent) of the growth of
male wage inequality from 1973 to 2007. Among women the
decline in collective bargaining had little direct
impact (9.2 percent) on within-group inequality, but the
diminished ability of collective bargaining to set labor
standards (as women experienced the decline in specific
industry/region clusters of collective bargaining ) had
a large impact, explaining more than half the rise of
within-group wage inequality among women. This erosion
of the broader role of collective bargaining generated
about a fifth (20.4 percent) of the growth of wage
inequality among women overall.

We now turn to examining the dynamics that generate
lesser wage inequalities where collective bargaining is
strong. Table 4 presents estimates of the collective
bargaining advantage computed to reflect differences in
hourly wages between those workers covered and not
covered by collective bargaining but who are otherwise
comparable in experience, education, region, industry,
occupation, and marital status. The collective
bargaining advantage is presented as the extra dollars
per hour and the percentage-higher wage earned by those
covered by a collective bargaining contract. This
methodology yields a collective bargaining advantage of
13.6 percent overall-17.3 percent for men and 9.1
percent for women.

Sizable differences exist in the collective bargaining
advantage across demographic groups, with blacks and
Hispanics having collective bargaining advantages of
17.3 percent and 23.1 percent, respectively, far higher
than the 10.9 percent advantage for whites.
Consequently, collective bargaining raises the wages of
minorities more than of whites (the wage effect of
collective bargaining on a group is calculated as the
collective bargaining rate times the collective
bargaining advantage), helping to close racial/ethnic
wage gaps. Hispanic and black men tend to reap the
greatest wage advantage from collective bargaining, and
minority women have a substantially higher collective
bargaining advantage than their white counterparts.
Asians have a collective bargaining wage advantage
somewhat higher than that of whites.

Immigrant male workers obtain a collective bargaining
advantage comparable to other male workers, whether they
have immigrated relatively recently (within 10 years) or
further back in time. Recent immigrant women have a
higher collective bargaining advantage than other women,
16.2 percent versus 9.1 percent, but immigrant women who
have been in the United States more than 10 years have a
collective bargaining advantage comparable to that of
other women.

Table 5 provides information on the collective
bargaining advantage for various nonwage dimensions of
compensation such as health insurance, pensions, and
paid time off. The first two columns present the
characteristics of compensation for those covered and
not covered by collective bargaining. The differences
between the compensation packages are presented in two
ways, unadjusted (simply the difference between the
first two columns) and adjusted (for differences in
characteristics other than collective bargaining status
such as industry, occupation, and establishment size).
The last column presents the collective bargaining
advantage, the percentage difference between
compensation set by and not set by collective
bargaining, calculated using the adjusted difference.

These data show that a collective bargaining advantage
exists in every dimension of the compensation package.
Workers covered by collective bargaining are 28.2
percent more likely to be covered by employer-provided
health insurance, and their insurance is better: an 11.1
percent higher share of single-worker coverage is paid
by the employer, and for family coverage the employer-
paid share is 15.6 percent higher; deductibles are $54,
or 18.0 percent, less for workers covered by collective
bargaining; and workers covered by collective bargaining
are 24.4 percent more likely to receive health insurance
coverage in their retirement.

Similarly, 71.9 percent of workers covered by collective
bargaining have employer-provided pensions, compared
with only 43.8 percent of other workers. Thus, workers
covered by collective bargaining are 53.9 percent more
likely to have pension coverage. Employers with
collective agreements spend 36.1 percent more on
defined-benefit plans but 17.7 percent less on defined-
contribution plans. As defined-benefit plans are
preferable for retirement security, these data indicate
that workers covered by collective bargaining are more
likely to have the better form of pension plans.

Workers covered by collective bargaining also get more
paid time off. Their three weeks of vacation amount to
about three days (0.63 weeks) more than other workers
receive. Including both vacations and holidays, workers
covered by collective bargaining enjoy 14.3 percent more
paid time off.

Table 6 provides a more refined analysis of the
collective bargaining advantage by comparing the
employer costs in collective bargaining settings with
other settings in comparable occupations and
establishments, i.e., factories or offices. (Data are
based on a survey of firms, whereas Table 5 used a
survey of workers.) Specifically, the estimated
collective bargaining advantage controls for the sector
(public or private) in which the establishment is
located, the establishment's size, full-time or part-
time status of its employees, and its detailed industry
and region. Workers covered by collective bargaining are
18.3 percent more likely to have health insurance, 22.5
percent more likely to have pension coverage, and 3.2
percent more likely to have paid leave. Employers with
collective agreements pay more for these benefits both
because the benefits they provide are better than those
offered by other employers and because employers with
collective agreements are more likely to provide these
benefits. For instance, employers with collective
bargaining agreements pay 77.4 percent more in health
insurance costs per hour, 24.7 percent more because of
the greater incidence and 52.7 percent because of the
better benefit.

This analysis also shows that employers with collective
bargaining agreements pay 56.0 percent more per hour for
pension plans, 28.4 percent from a greater incidence of
providing pensions and 27.7 percent from providing
better pensions. Similarly, workers covered by
collective bargaining have 11.4 percent greater costs
for their paid leave, mostly because of the more
extensive paid leave (the 8.0 percent "better benefit"
effect).

The effect of the erosion of collective bargaining on
the wages of a segment of the workforce depends on the
degree to which collective bargaining has eroded and the
degree to which the collective bargaining advantage
among that segment of the workforce has declined. Table
7 shows the degree to which collective bargaining and
the collective bargaining wage advantage have declined
by occupation and education level over the 1978-2011
period (1979 data were not available). These data, which
are for men only, are used to calculate the effect of
weakened collective bargaining (less representation and
a weaker impact on wages) over the period on the wages
of particular groups and the effect of eroded collective
bargaining on wage inequality across occupations and by
education. The focus, in particular, is on the role of
eroded collective bargaining on the widening wage
differentials between blue-collar and white-collar
occupations and between high school and college
graduates.

Collective bargaining coverage fell dramatically among
blue-collar and high-school-educated male workers from
1978 to 2011. Among the high-school-graduate workforce,
collective bargaining fell from 37.9 percent in 1978 to
14.9 percent in 2011, or by more than half. This decline
obviously weakened the effect of collective bargaining
on the wages of high-school-educated workers. Because
high school graduates covered by collective bargaining
earned about 22 percent more than equivalent workers in
1978 (a premium estimated for this analysis, but not
shown in the table, that declined to 17 percent in
2011), collective bargaining raised the wage of the
average high school graduate (the "collective bargaining
effect") by 8.2 percent in 1978. Collective bargaining
had a 0.9 percent impact on male college graduate wages
in 1978, meaning that collective bargaining had the net
effect of narrowing the college/high school gap by 7.3
percentage points in that year. The decline in
collective bargaining coverage (and the lower collective
bargaining wage advantage) from 1978 to 2011, however,
reduced the collective bargaining wage impact for male
high school workers to just 2.6 percent in 2011 while
hardly affecting college graduates. Thus, collective
bargaining closed the college/high school wage gap by
only 2.0 percentage points in 2011. The lessened ability
of collective bargaining to narrow this wage gap
(represented by the drop from a 7.3 percent to a 2.0
percent narrowing effect) contributed to a 5.1
percentage-point rise in the college/high school wage
differential from 1978 to 2011 (shown in the "Change in
collective bargaining advantage" portion of the table),
an amount equal to 21.2 percent of the total rise in
this wage gap (shown in the next panel). In other words,
the decline in collective bargaining can explain a fifth
of the growth in the college/high school wage gap among
men between 1978 and 2011.

The weakening of collective bargaining's wage impact had
an even larger effect on blue-collar workers and on the
wage gap between blue-collar and white-collar workers.
The 43.1 percent collective bargaining rate among blue-
collar workers in 1978 and their 26.6 percent collective
bargaining wage advantage (not in table) boosted average
blue-collar wages by 11.5 percent, thereby closing the
blue-collar/white-collar wage gap by 11.3 percentage
points in that year. The collective bargaining impact on
this differential declined as collective bargaining and
the collective bargaining wage advantage declined, such
that collective bargaining reduced the blue-
collar/white-collar differential by 3.6 rather than 11.3
percentage points in 2011, a 7.7 percentage-point
weakening. This lessened effect of collective bargaining
can account for 76.1 percent of the 10.1 percentage-
point growth of the blue-collar/white-collar wage gap
between 1978 and 2011, and the lessened effect was
primarily driven by the enormous decline of collective
bargaining among blue-collar men, from 43.1 percent in
1978 to just 17.8 percent in 2011. In that 30-year-plus
period collective bargaining among blue-collar workers
lost much of its ability to set wage patterns and
standards. The impact of this decline in collective
bargaining is underestimated here because it does not
take account of the collective bargaining impact on
other (not directly affected) workers' wages.

Collective bargaining reduces wage inequalities because
it raises wages more at the bottom and in the middle of
the wage scale than at the top. Lower-wage, middle-wage,
blue-collar, and high-school-educated workers are also
more likely than high-wage, white-collar, and college-
educated workers to be covered by collective bargaining.
These two factors-the greater collective bargaining
coverage and the larger collective bargaining wage
advantage for low- and mid-wage workers-are key to
collective bargaining's role in reducing wage
inequalities.

The larger collective bargaining wage advantage for
those with low wages, in lower-paid occupations, and
with less education is shown in Table 8. For instance,
the collective bargaining wage advantage for blue-collar
workers in 1997, 23.3 percent, was far larger than the
2.2 percent collective bargaining wage advantage for
white-collar workers. Likewise, the 1997 collective
bargaining wage advantage for high school graduates,
20.8 percent, was much higher than the 5.1 percent
premium for college graduates. The collective bargaining
wage advantage for those with a high school degree or
less, at 35.5 percent, was significantly greater than
the 24.5 percent advantage for all workers.

Table 8 also presents a comprehensive picture of the
impact of collective bargaining on wage inequality by
drawing on the estimated collective bargaining wage
advantage for the different fifths of the wage
distribution. The table presents the results of three
different studies, and each demonstrates that the
collective bargaining advantage is higher among lower-
wage workers than among the highest-wage workers. This
wage advantage can be seen in the last row, which shows
the percent by which the advantage of the bottom 40
percent exceeds that of the top 40 percent of earners;
the results range from 140 percent to 223 percent. These
numbers illustrate that collective bargaining generates
a less unequal distribution of wages in the sector
covered by agreements by raising the wages of low- and
middle-wage workers more than those of higher-wage
workers. That is, lower-wage workers benefit more than
higher-wage workers from coverage by a collective
bargaining agreement. The countervailing factor,
however, is that the rates of coverage under collective
bargaining are lower for low-wage workers than for other
workers. Conclusion

The last decade has produced no improvement in the real
wages of a broad range of workers, including those with
either a high school or college degree. It has also
produced a widening divergence between overall
productivity and the wages or compensation of the
typical worker. In addition, wage inequality has
continued to grow between those at the top and those in
the middle. This continues trends established in the
1980s and 1990s and is true in Michigan and the rest of
the nation.

Declining collective bargaining coverage has played a
key role in these trends. Today, about 13 percent of
workers are covered by collective bargaining in the
United States and 18.3 percent in Michigan-roughly half
the share of the early 1980s. This reduction has limited
the number of jobs with the wage and benefit advantages
provided by collective bargaining; weakened workers'
ability to bargain for higher wages, more comprehensive
benefits, and better working conditions; and limited the
"spillover effect" wherein firms raise wages and
benefits to compete with firms where workers enjoy the
benefits of collective bargaining. Together with other
policies, the erosion of collective bargaining has
strengthened the hands of employers and undercut the
ability of low- and middle-wage workers to have good
jobs and economic security.

If we want the fruits of economic growth to benefit the
vast majority, we will have to adopt a different set of
guideposts for setting economic policy, as the ones in
place over the last several decades have served those
with the most income, wealth, and political power.
Strengthening collective bargaining and its important
role in setting standards for all workers is a good
place to start.

___________________________________________

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