How the Decline of Unions Has Caused Inequality to Rise in Each Midwest State

A new report finds that union decline has resulted in economic redistribution from workers to owners.

A new study released today by the Midwest Economic Policy Institute and the Project for Middle Class Renewal at the University of Illinois at Urbana-Champaign illustrates the effect of union decline on state economies across the Midwest.

Full report: Union Decline and Economic Redistribution: A Report on Twelve Midwest States

As unionization rates fall, smaller shares of economic value go to Labor (workers’ earnings) and higher shares are captured by Capital (corporate profits, owners’ earnings, capital gains, and machinery).

The figure below shows all the data analyzed for 12 Midwest states from 1997 to 2014.

UnionDecline1

  • Unmistakably, as the union coverage rate increases from left to right, labor’s share of the state economy goes up and capital’s share of the economy goes down.
  • However, since unionization has been declining, Midwest states have “moved left” on the graph, resulting in lower labor shares of the economy – with capital capturing new economic wealth.

The largest union declines in the Midwest have occurred in Michigan and Wisconsin, where “right-to-work” laws have been passed.

“Right-to-work” laws are government regulations which prohibit workers and employers from negotiating specific types of private contracts. “Right to work” has been found to significantly reduce union membership. Accordingly, economic research consistently shows that “right-to-work” reduces worker earnings by 3-4% on average but also increases owner income by 2%, resulting in a transfer of income from workers to owners with “little ‘trickle-down’ to the largely non-unionized workforce in these states.”

UnionDecline2

UnionDecline3

Ultimately, the Midwest Economic Policy Institute and the University of Illinois estimate that union decline accounted for approximately two-fifths (42%) of the overall drop in labor’s share of economic output across the Midwest from 1997 to 2014.

UnionDecline4

Below are graphics illustrating the relationship between unionization and the labor/capital split in five of the 12 states analyzed:

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Unions help workers take home a larger share of the economic value they create. As unionization has declined across the Midwest, economic output has clearly been redistributed from workers to owners.


For the full report, please click here.

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