This document summarizes trends in wages, benefits, and unionization rates for American workers between 1965-2005. It shows that real wages, the value of the minimum wage, and union membership have all declined over this period. Meanwhile, economic insecurity has increased as a result of downsizing, mass layoffs, and restructuring. The document analyzes several potential factors for these trends, such as globalization and changes in the job market. It also discusses arguments around whether unions effectively advocate for workers' rights and higher compensation. Overall, the document examines many economic and legal issues relevant to the declining position of workers in the American economy in recent decades.

1. Unions, Wages
and the
American
Worker

2. TRENDS, 1965-2005
• Declining Real Wages.
• Declining Value of Minimum
Wage.
• Middle Class “Squeeze.”
• Downsizing, mass layoffs,
“restructuring,” mergers, etc.
• Economic Insecurity.
• Declining Unionization.

3. • “A man must always live by his
work, and his wages must be at
least sufficient to maintain him.
They must even upon most
occasions be somewhat more;
otherwise it would be impossible
for him to bring up a family, and
the race of such workmen would
not last beyond the first
generation.”
– Adam Smith, The Wealth of Nations, p.96

4. DECLINE OF REAL WEEKLY WAGES
Source: US Bureau of Labor Statistics
200
250
300
350
1965 1970 1975 1980 1985 1990 1995 2000
WeeklyWagesin1982ConstantDollars
REAL WAGES

5. 3
4
5
6
7
1965 1970 1975 1980 1985 1990 1995 2000
Real2003USDollars
MINIMUM WAGE
DECLINING VALUE OF MINIMUM WAGE
Source: Economic Policy Institute

6. 0.00
10.00
20.00
30.00
40.00
1965 1970 1975 1980 1985 1990 1995 2000
UnionMembershipas%ofWorkforce
US UNION MEMBERSHIP
DECLINING UNION MEMBERSHIP
Source: US Bureau of Labor Statistics

7. ARE THESE TRENDS RELATED?
Ceteris Paribus Effects
Slower Economic Growth.
Job Market Restructuring.
Globalization.

8. Stagnant Economic Growth?
• Growing Profits.
• Growing Productivity.
• Growing GDP.
• Wall Street Booming.
• Unemployment Rate
– High in late 1970s and 1980s.
– Declined in 1990s and remains steady
between 4-6% (2004-2006).

9. 0
2
4
6
8
10
12
14
1965 1970 1975 1980 1985 1990 1995 2000
GDPas%Change,FirstQuart
GDP
GDP % Change
In Current Dollars

10. 0
200
400
600
800
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
MillionsofUSDollar
Corporate AFTER TAX Profits
Corporate Profits
GROWTH OF AFTER TAX PROFITS
Source: US Dept. of Commerce, Bureau of Economic Analysis

11. Source: Bureau of Labor Statistics.
See also Economics: Private and Public Choice, p. 561
PRODUCTIVITY and EMPLOYEE COMPENSATION
US 1948-2003
0
1
2
3
4
1948-1973 1974-1995 1996-2003
%AnnualRateofIncrease
Output Compensation Difference

12. 0
1
2
3
4
5
6
7
8
9
1965 1970 1975 1980 1985 1990 1995 2000
JanuaryUE%,SeasonallyAdjusted
UNEMPLOYMENT RATE
US UNEMPLOYMENT RATE, 1965-2000
Source: US Bureau of Labor Statistics

13. • Wages & salaries now make up the
lowest share of GDP since 1947.
• According to a report by Goldman
Sachs economists, the most important
contributor to higher profit margins
over the past five years has been a
decline of labor’s share of national
income.
– Harold Meyerson, “Devaluing Labor,” The
Washington Post, Aug 30, 2006.

14. How Do We Find Answers?
• How the issue is framed.
• How the problem is described.
• What questions are asked.
• Who sets parameters of debate.

15. “In raising the price of commodities the rise of wages
operates in the same manner as simple interest does in the
accumulation of debt. The rise of profit operates like
compound interest. . . .”
“Our merchants and master-manufacturers complain much of
the bad effects of high wages in raising the price, and
thereby lessening the sale of their goods both at home and
abroad. They say nothing concerning the bad effects of high
profits. They are silent with regard to the pernicious effects
of their own gains. They complain only of those of other
people.”
Adam Smith, The Wealth of Nations, pp.136-137
Why are rising wages deemed an “inflationary” threat,
but rising profits are lauded as signs of growth?

16. JOB MARKET RESTRUCTURING
Homogenous vs. Heterogeneous Markets.
Permitted economies of scale.
Permitted efficient unionization.
Service vs. Manufacturing.
Skills Mismatch.
Both over-education and under-education.
More Winner-Take-All Markets.
Top performer receives > marginal revenue
product. May be aggravated by globalization.
(Text, pp. 554-555; 589)

17. GLOBALIZATION
• Free trade increases consumer choice
and lowers prices.
• Loss of decent jobs in US has led to
trade backlash, advocating return to
19th
century-type protectionism.
• Is free trade the problem? Or
exclusion of worker representation
from trade negotiations?

18. DR. RAVI BATRA
Professor of
Economics,
Southern Methodist
University
Dallas, TX
Correctly predicted the downfall of
Soviet Communism in 1990.
Author of:
The Great American Deception
The Myth of Free Trade
The Great Depression of 1990
Surviving the Great Depression of
1990
,,,and several texts on the Theory of
International Trade and Uncertainty.

19. “The modern classical economists have no idea
about the real wage blight that has afflicted
America…real wages have been tumbling for 80% of
the workforce since 1982.”
“Today the economic profession is greatly
bewildered…None of the schools of thought that
gained prominence in the 1970s and the 1980s has
even been aware of plummeting wages….”
“Economists have been caught napping in their
ivory towers.”
From The Great American Deception, 1996
The words of DR. RAVI BATRA

20. Assumptions of Competitive
Equilibrium
• Infinite number of buyers and sellers,
none of which has any degree of
market control.
• Absolute perfect information—infinite
computational capacity.
• Everyone has identical and correct
beliefs about prices.
• Equality of bargaining power.

21. EMPLOYER DEMAND FOR
UNION LABOR
• Elasticity vs. inelasticity of
demand for particular skill.
• Availability of substitutes.
• Supply elasticity of nonunion
labor.
• Unemployment rate.

22. EMPLOYEE DEMAND FOR
UNION REPRESENTATION
• Wage Premium.
• Benefits and job security.
• Cost—dues and fees.
• Other terms and conditions of
employment.
• Peer pressure.
• Employer pressure.

23. Do Workers Want Unions?
• 53% of nonunion workers say YES.
– Tim Noonan, ICFTU
• 52% of nonunion workers say YES.
– Andrew Stern, SEIU
• “When you take away the terror,
workers are eager to sign up.”
– Larry Cohen, CWA

24. The Leisure Tradeoff
• Are wages down because workers are
“choosing” leisure?
• Individuals are working longer hours
and more persons per household are
working.
• Americans have fewer vacation days
than any other industrialized nation.
• Suggests that wage decline has
actually been underestimated, as
more work is required just to keep
from falling farther behind.

25. WORK-LIFE BALANCE IS THE
NEW LABOR ISSUE
• Work-life balance is main concern (32%)
• New demands are flexible schedules,
child care, elder care.
• 88% of women and 85% of men favor
laws strengthening family and medical
leave.
• Second concern is job security (22%),
followed by salary (18%).

26. ROBERT LUCAS
University of
Chicago
Professor of
Economics
Awarded 1995 Nobel Prize in Economics.
Founder of Rational Expectation Theory:
People consider all variables when
making decisions about the future, not
just look at the immediate past (e.g.
interest rates). Errors of decision-makers
will be random, and not consistently
biased in one direction or another.
See Text, pp.333-334
Theory states that as wages fall, workers
will return to work only when opportunity
cost of leisure becomes too high.
Infers that all unemployment is
voluntary and therefore painless!

27. “At least the classical economists were…
not heartless enough to suggest that
joblessness is a substitute for leisure….”
“The logical flaw here is that, up to a certain
level of income, work is far more important
than relaxation because…survival may be
at stake.”
“Lucas is not alone in his belief that
because leisure and employment are
substitutes, unemployment is voluntary….”
“One wonders about the sanity of a
profession that rewards such views with
acclaim, research grants, Nobel prizes and
distinguished professorships….”
DR. RAVI BATRA

28. • “An internal culture has developed within
academic economics which positively extols
esoteric irrelevance….”
• “Contemporary orthodox economics is
isolated. It is isolated from its roots in the
late 18th
century…Its method of analysis is
isolated from the wider context of society, in
which the economy operates, and which
Adam Smith believed to be of great
importance.”
– Paul Ormerod, The Death of Economics, 1994

29. ARE UNIONS EFFECTIVE FOR
WORKERS?
• Bargaining Power.
• Better wages & benefits.
• Wage Information.
• Due Process.
– No absolute “job security.”
• Involvement in Production Decisions.
• Political Representation.

30. What is Due Process?
• Notice of action to be taken and
reasons therefore.
• Opportunity to be heard.
• Opportunity to cross-examine.
• Requirement that factual elements be
proven before deprivation takes
effect.
• Fair hearing before an impartial
decision-maker.

31. NON- % DIFF-
UNION UNION ERENCE
All Workers $781 $612 28%
Private $739 $604 22%
Public $832 $683 22%
Male $829 $685 21%
Female $723 $541 34%
Construction $893 $588 52%
Manufacturing $694 $654 6%
Transportation &
Warehousing
$819 $619 32%
Utilities $979 $948 3%
Healthcare &
Social Assistance
$656 $588 12%
Wholesale Trade $722 $674 7%
Retail Trade $567 $507 12%
Service Occupations $655 $389 68%
Source: US Bureau of Labor Statistics

32. UNIONS & EMPLOYEE BENEFITS
Source: US Bureau of Labor Statistics
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Pension Def Benefit Def Contrib Medical Dental Vision
%ofPrivateSectorWorkers
Union Nonunion

33. WHEN UNIONS AREN’T
EFFECTIVE
• Corruption.
• Cooptation.
• Resist New Technology.
• Industry Transitions.
• Diverse work force.
– Discrimination.
– “Cafeteria” benefits.
• Victims of their own success?
– Airline concessions.

34. Effect on Nonunion Wages
• Threat—employers raise wages to
avoid unionization.
• Crowding—Job loss in union sector
results in displaced workers lowering
wages in nonunion sector.
• Positive correlation between higher
nonunion wages and % of
unionization.

35. THE PARADOX OF PUBLIC
EMPLOYEES
• Public sector wages and job
schedules are set by legislatures.
• Limits to wages of public workers
dictated by budget constraints, not
share of profits.
• Public sector job security also
determined more by Constitutional
mandates and budget issues rather
than CBA.

36. 0
10
20
30
40
1965 1970 1975 1980 1985 1990 1995 2000
Unionizationas%ofWorkforce
% Private Sector % Public Sector
Private Sector vs. Public Sector
Source: US Bureau of Labor Statistics

37. LEGAL HISTORY OF US
LABOR LAW
• The Law of Master & Servant.
• Obscure 1885 decision by NY Court of
Appeals creates “at-will” rule.
– US employees are only industrialized
workers with no general statutory
protections against unjust dismissal.
• National Labor Relations Act, 1935.
• Taft-Harley Act, 1947.
• Equal Employment Opportunity Act,
1972.

38. NATIONAL LABOR
RELATIONS ACT
• Section 7: Guarantees right to engage
in concerted activities for the
purpose of either collective bargaining
or “other mutual aid or protection.”
• This section protects conduct
pertaining to wages, hours, working
conditions or other terms and
conditions of the employment
relationship.

39. TAFT-HARTLEY, 1947
• Authorizes President to call up
the National Guard in order to
dispel “labor uprisings.”
• Permits individual states to
enact “right-to-work” laws.

40. 22 RIGHT TO WORK STATES

41. RIGHT TO WORK LAWS
• 22 States.
• Approx 20% of workers.
• Lower unionization rate.
• Lower wages.
• Free Rider.
– Reduces demand for membership.
– Reduces “supply” of unions willing to
commit to costs of certification.

42. • LEGISLATION.
– Who has most influence in Congress.
– Deregulation.
– Expand definition of “exempt” employees.
• AGENCY RULES.
– Agency heads are political appointments.
– Lengthy & complicated procedures.
– Enforcement (or lack thereof).
• US Supreme Court Rulings.
Do Laws Generally Favor Employees or
Employers?

43. “Whenever the legislature
attempts to regulate the
differences between masters and
their workmen, its counsellors are
always the masters. When the
regulation, therefore, is in favor of
the workmen, it is always just and
equitable; but it is sometimes
otherwise when in favor of the
masters.”
Adam Smith, The Wealth of Nations, p. 195

44. Who Has Heard About….?
Bayview Massacre (Wisconsin, 1886)
Ludlow Massacre (Colorado, 1914)
Triangle Shirtwaist Fire (New York, 1911)
Bisbee Deportation (Arizona, 1917)
Salt of the Earth, 1954 movie about striking
Mexican-American miners—banned by the
US government.

45. “The masters, being fewer in number, can combine
much more easily…and in all disputes…can hold out much
longer. Masters are always and everywhere in a sort of tacit
but constant and uniform combination not to raise wages
above their actual [natural] rate…[and upon occasion] even
below this rate.”
“We seldom, indeed, hear of this combination because
it is the usual…natural state of things… These are always
conducted with the utmost silence and secrecy till the
moment of execution, and when the workmen yield, as they
sometimes do, without resistance…They [employer efforts to
reduce wages] are never heard of by the people.”
“Such combinations, however, are frequently resisted
by a contrary combination of workmen…But whether [the
workers’] combination be offensive or defensive, they are
always abundantly heard of.”
Adam Smith, The Wealth of Nations, pp. 94-95

46. UNION-BUSTING
• 92% of employers force employees to
attend closed door meetings to listen to
anti-union propaganda.
• 80% required supervisors to attend
session on how to attack unions and
instruct them to hold one-on-one “pressure
sessions” with employees.
• 75% hire consultants to conduct anti-union
campaigns based on mass psychology.

47. UNION-BUSTING (cont.)
• 51% threaten to shut down if workers
join a union.
• In 25% of organizing campaigns,
workers wanting to join a union are
illegally fired. If employer is
prosecuted (rare), penalties are
minimal.
• When workers win a union election,
1/3 of employers never enter into a
bargaining agreement.

48. HISTORY OF PROPERTY
RIGHTS
• Magna Carta, 1215.
• US Constitution.
• Slavery.
• Protects employment of Federal and
State workers.
• Extended to intangibles such as
patents, trademarks, stock options,
trade secrets, business “good will,”
but not private employees.

49. Constitutional Basis of
Property Rights
• Property rights in the Constitutional
Convention.
• No persons shall be…deprived of
life, liberty or property, without due
process of law….
– Am. V, US Constitution
• [No] State shall deprive any person
of life, liberty, or property, without due
process of law…
– Am. XIV, US Constitution

50. “The property which every
man has in his own labor, as
it is the original foundation
of all other property, so it is
the most sacred and
inviolable.”
– Adam Smith, The Wealth of Nations,
p.168

51. “In that original state of
things, which precedes both
the appropriation of land and
the accumulation of stock, the
whole produce of labor
belongs to the laborer. He has
neither landlord nor master to
share with him.”
– Adam Smith, The Wealth of
Nations, p.91

52. “Necessitous men are not free men.”
Franklin Delano Roosevelt, January 1944
“Such dependence of the mass of the people for all
of their income is something new in the world. For our
generation, the substance of life is in another man’s
hands.”
F. Tannenbaum, a Philosophy of Labor, 1951
“Our cultural values of freedom, independence and
equality make the necessity of working for someone else
seem undemocratic, even un-American.”
Joanne B. Ciulla, The Working Life: The Promise
and Betrayal Of Modern Work, 2000

53. PROPERTY RIGHTS PROTECTION as the
NEW LABOR LAW
• An insecure subsistence is a threat to
liberty.
• Expansion of property rights appeals to
both liberals and conservatives.
• Challenge for policymakers is trade off
between flexibility and security.
• Economy should serve the people
rather than the reverse.

54. Summary
• Classical economics is unable to fully
explain trends.
• “Natural” wage cannot be defined.
• Traditional labor unions will have to
adapt to constantly changing
environment.
• Workers are more than inputs or
expenses—they are citizens,
customers and potential investors.

55. • “ Is…improvement in the
circumstances of the lower ranks
of the people to be regarded as an
advantage or as an inconvenience
to society?...What improves the
circumstances of the greater part
can never be regarded as an
inconveniency to the whole. No
society can surely be flourishing
and happy, of which the far greater
part of the members are poor and
miserable.”
– Adam Smith, The Wealth of Nations, pp.110-111