One possible reason for South Dakota’s low wages and nationwide, wage stagnation over the past generation: declining union membership. Marketplace visits with Washington University professor Jake Rosenfeld, who says non-union workers are suffering right along with union workers from the loss of labor’s power to negotiate better pay:
Rosenfeld looked at non-union wage growth since 1979. He said union decline has had a staggering effect on non-union workers.
“We’re talking about over $100 billion a year in lost wages,” he said.
Adjusted for inflation, he found the median pay for those men without a college degree is about 13 percent lower than in 1979 [Gigi Douban, “Decline in Unions Hurts Non-Union Workers’ Wages,” Marketplace, 2016.08.30].
The study Rosenfeld co-authored for the Economic Policy Institute says that private-sector unionization has declined since 1979 among male workers from 34% to 10% and among female workers from 16% to 6%. Rosenfeld et al. find that if union membership were at 1979 levels, non-union men in private sector jobs would be making $2,704 more each year (enough to cover union dues and then some), with even higher gains for less-educated workers.
But how do non-union workers benefit from union power?
Nonunion workers benefit from a strong union presence in their labor market in many ways. Strong unions set pay and benefits standards that nonunion employers follow. Those employers may raise pay for some workers to forestall an organizing drive, which leads to an upward adjustment in wages of workers above them, to maintain relative pay differentials (similar to the effects of minimum-wage increases).
Even absent organizing activities in their spheres, nonunion employers may also follow the standards that unions help establish through politicking for labor-friendly policies, instituting informal and formal rules governing labor conditions, and generally serving as a cultural force arguing for a “fairer share” for working men and women. (For example, highly unionized states helped lift minimum wages above the levels of states where labor was comparatively weak.) Higher pay in organized establishments increases competition for labor so that nonunion firms lift wages to prevent their employees from leaving for higher, union wages. And in setting wages, new market entrants often look to what industry leaders are doing; when organized labor was strong, many of these leaders were unionized [Jake Rosenfeld, Patrick Denice, and Jennifer Laird, “Union Decline Lowers Wages of Nonunion Workers,” Economic Policy Institute, 2016.08.30].
5.9% of South Dakota’s workers belong to unions, the 14th-lowest union membership rate in the U.S. As I noted earlier this morning, our average wage is the third-lowest in the nation. Of the ten states with the highest union membership rates (ranging from 14.8% in Oregon to 24.7% in New York), six are among the top ten for average wages. (The statistical correlation between union membership and average wage by state is 0.4633, with a strongly significant p-value <0.001.)
Strengthen unions, and you’ll strengthen wages for organized and non-organized workers alike. Strengthen wages, and you’ll strengthen the economy.