Richard Florida
by Richard Florida
Fri Mar 11th 2011 at 10:30am UTC

Unions and State Economies: Don’t Believe the Hype

“The bitter political standoff in Wisconsin over Governor Scott Walker’s bid to sharply curtail collective bargaining for public-sector workers ended abruptly Wednesday night as Republican colleagues in the State Senate successfully maneuvered to adopt a bill doing just that,” The New York Times reports this morning. “Democrats….condemned the move as an attack on working families, a violation of open meetings requirements….and a virtual firebomb in state that already found itself politically polarized and consumed with recall efforts, large scale protests and fury from public workers.” Rallies and demonstrations continue in the state.

As heated as it’s been, the rhetoric over unions is fast-approaching the boiling point; Wisconsin is just the beginning. The right accuses unions, especially public sector unions, of stifling economic competitiveness and putting state economies in the red. “The bottom line is we are trying to balance our budget and there really is no room to negotiate on that because we’re broke,” Scott Walker told George Stephanopoulos on Good Morning America. Or as Harvard economist Robert Barro wrote in the The Wall Street Journal: “Labor unions like to portray collective bargaining as a basic civil liberty, akin to the freedoms of speech, press, assembly and religion .…[but] collective bargaining on a broad scale is more similar to an antitrust violation than to a civil liberty.”

On the left, unions are seen as a bulwark against falling wages and the decline of the middle class. “Collective bargaining didn’t cause the economic meltdown, and crushing unions won’t solve it,” Paul Toner, the president of the Massachusetts Teachers Association, protested in The Boston Globe. In a passionate defense of unions on the op ed page of The Washington Post, Yale’s Jacob S. Hacker and Berkeley’s Paul Pierson pointed out that unions “have resisted the rampant deregulation of financial markets and the soaring growth of executive pay. They have been one of the few organized voices that has consistently pressed back against the string of tax-cut bills for the rich that began in the late 1970s.”  

For all the sound and fury, neither side has adduced much hard data to support their positions. While there have been many studies of the effects of unions on corporate profits and productivity, surprisingly few assess their effects on state economies.  (One exception is a careful 1988 study by Harvard labor economist Richard Freeman, “Union Density and Economic Performance,” which finds that union density improves earnings and income, but exacerbates unemployment and hurts growth.) But that was over twenty years ago. And so, with my colleagues at the Martin Prosperity Institute, I decided to take a close look at current data and trends for unions across the 50 states.

For starters, there’s huge variation in unionization levels across the U.S. states (see map above).  Nationally, nearly 12 percent (11.9%) of workers are union members. New York touts the highest level of unionization in the nation, more than double the national rate at 24.2% percent. More than one in five workers are union members in Alaska (22.9%) and Hawaii (21.8%).  Unionization tops 15 percent in an additional ten states, and it’s above 10 percent in 14 more. Wisconsin ranks 17th in union membership, less than 15 percent (14.2%) of its workforce are union members.

On the other side of the ledger, just 3.2 percent of North Carolina’s workforce is unionized.  Union members make up less than one in 20 workers in Georgia (4%), Arkansas (4%), Louisiana (4.3%), Mississippi (4.5%), Virginia and South Carolina (4.6%) and Tennessee (4.7%). While the conventional wisdom is that large numbers of workers are unionized in the Rustbelt states, that’s more of a myth than reality. Less than one in five workers in Michigan (16.75%) belong to unions. The rate is 15.5% in Illinois, 14.7% in Pennsylvania, and 13.7% in Ohio.

Unionization has fallen off massively in the past fifty years or so. Part of this is doubtless due to the transformation of the American economy from one that was primarily industrial to one that is more knowledge and service based.  Still the numbers are staggering (see the graph above).

Nationally, the percentage of union members declined by almost 20 percentage points (17.4) from 1964 to 2010. This drop has been much more pronounced in certain states, especially the older industrial states (see the map below).  Union membership fell by more than 30 percentage points in Indiana, from 40.8% to 10.9%; from 39.9% to 7.3% in New Jersey and from 36.5% to 4.6% in West Virginia. Ten additional states posted declines of 20 percent or more. Wisconsin saw its rate of union membership fall from 34 to 14 percent. And 25 others saw declines of more than ten percentage points.

All the posturing and sound byte-ready rhetoric aside, how do unions line up against key measures of state economic health?  Are more unionized states less competitive, as right wing critics would have us believe? Conversely, do unions provide a bulwark against unemployment and other adverse economic outcomes?

Relying on the steady statistical hand of my collaborator Charlotta Mellander, we examined the relationships between state unionization levels and key measures of state economies. As always, we remind our readers that correlation is not causation—we are simply looking at associations. Nonetheless, they tell a very different story than the ones you’re most likely to hear.

Unionized states are better-off economically than non-unionized states.  While it’s probably not surprising that unionization levels are correlated with higher hourly wages (.48), they are also correlated with higher incomes across the board—and the correlation between union membership and median income is substantial (.45). To put it baldly, unions are associated with the country’s economic winners, not its losers.   And it’s not that unionized states work more—unionization is negatively correlated with hours worked (-.36). States with higher levels of union membership work less hours per week but make more money—higher levels of union memberships are positively correlated with wage per hour (.48).

That said, unionization does not appear to mitigate the effects of inequality or to protect against unemployment, according to our analysis. There is no correlation whatsoever between union membership and income inequality. Union membership is not correlated with unemployment, either.

Unions are usually thought to go along with blue-collar working class jobs.  But that’s not the case either, at least for state economies.  Union membership is negatively correlated with the proportion of blue-collar, working class jobs in a state (-.48). This too is a likely consequence of the ongoing transformation of the U.S. economy. As manufacturing unions have declined, service and public workers unions have grown.

To that point, unionization levels are higher in states with more highly educated workforces and knowledge based economies. Union membership is moderately correlated (.3) with both human capital levels (the percent of adults with a college degree) and the share of the workforce in knowledge, professional, and creative jobs (.35). More surprising, unionization is even more highly correlated with the percentage of the workforce in artistic and culturally creative jobs (.53). This is not to say that artistic and culturally creative workers are more likely to belong to  unions (though some, like actors and musicians, do) but rather that states with more dynamic creative economies are also more likely to be highly unionized.  It’s also worth pointing out that unionization is more likely in states with higher levels of immigrants. Union membership is closely correlated with the share of adults that are foreign born (.42).

Unions continue to be a hot button issue in American politics despite the fact that the level of unionization has fallen precipitously over the past half century.  While many continue to think of unions as the province of blue-collar working class economies, less than one in five workers in Rustbelt states – Michigan, Illinois, Pennsylvania, Ohio—belongs to a union. Union states have more knowledge-intensive economies, boast more highly educated workforces, and have higher incomes as well.

The basic fact that unions are positively associated with so many key measures of prosperity suggests that their existence has little to do with state budget problems. Unions are not the cause of the serious economic and fiscal problems that are challenging so many American states, which are result of the economic crisis, collapsed housing market and massively reduced revenues. In fact, the economic influence of unions has been dramatically curtailed as a result of the ongoing transformation of the U.S. economy. At the same time, the existence of unions does not appear to be enough to forestall growing income inequality within the U.S. states.

It’s time to get beyond the angry, ideologically motivated rhetoric about unions. We need to put our fiscal house in order and buckle down to the serious business of generating good jobs; more than that, we need to reinvent the U.S. economy for this new age.

7 Responses to “Unions and State Economies: Don’t Believe the Hype”

  1. Michael Wells Says:

    This has nothing to do with state budgets, it’s pure politics. With the Citizens United Supreme Court decision, there are no limits on corporations or unions political contributions. The political right wants to eliminate unions because they’re a major contributor of funds and manpower to Democrats and social justice causes. Most corporations are either conservative or politically neutral (give to whoever seems to be in power.)

    It’s also part of the blanket anti-government philosophy of the Tea Party right wing. If by weakening public employee unions they can drive good people out of wanting to work for government, they make it less effective and less able to regulate or oversee things like pollution, working safety conditions, product safety, etc.

  2. Tom Christoffel Says:

    Thanks for this timely analysis.

    Re: “It’s time to get beyond the angry, ideologically motivated rhetoric about unions.”

    Since the neo-liberal economic ideology rhetoriticians believe they are right and they don’t feel that the current outcomes are due to thier wrong-headed theory, but improper implementation, the ideology needs to be challenged. Can economic geographers do that? Does modern economic take into account the value of historic municipal corporations, cities that last for centuries, while private corportions rarely last 50 years?

    The angry rhetoric is coming from the ideological side which believes in the divine right of management to do whatever is needed to squeeze out a quarterly profit number or assign blame to others when failure occurs.

    The automotive industry blamed the American workforce for its problems. When the Japanese brought production to the U.S., their W. Edwards Deming’s inspired statistical quality control methods enabled American workers to match or exceed home country plants. Deming, an American, was part of the government team that developed such methods to meet the production needs of WW-II with a workforce of women and 4F men.

    We do have to get out of the hole that debt fueled “growth” created. This occurred with little notice by economists.

    Cities and their regions have been diminished over time when self-serving corporate ideology led to staganation in key industries. Leveraged buy-outs may have led to a change in ownership, but companies run by outsides for short term profits killed many companies.

    How can we have long term sustainable cities-regions that maintain infrastructure, meet water and air quality standards, become more energy efficient and thus provide environments where human creativity and skill can develop, if focused on high growth every quarter?

    The failure to allow for slower organic growth over time led to use of easy credit, temporarily inflating values and giving high short term growth rates. Now that “growth” is crushing debt. CEO’s William K. Black uses the term “control fraud” for management strategies that generate short term transaction profits at the risk of long term failure. Such CEO’s generally get out before the crash, but now they can still lead zombie companies that are too big to fail.

    A longer term focus based on municipal, rather than private corporations, might make some of the ideology irrelevant. This could be the time to set benchmarks for the next 300-500 years of North American settlement. The European phase began about half a century ago leading to independence 235 years ago.

    Global cities have been in place for centuries, so we ought to be thinking forward in a multi-generational way about our cities-regions and the many scales of regional communities, nations, states, provinces and multi-jurisdictional councils, that have worked and do work to give us the creative freedom we now enjoy. Negotiating the visioning and monitoring incremental outcomes over time would go well with some slow food.

  3. Mike Linacre Says:

    RF, the argument currently focuses on public-service unions. Are they beneficial or detrimental to States? Could you and Charlotta do the same analysis again, but only for public-service unions?

  4. Michael Wells Says:

    Mike,

    I don’t think you’d find much difference if you took the private unions out. According to the Bureau of Labor Statistics, in 2010:
    • The union membership rate for public sector workers (36.2 percent) was substantially higher than the rate for private sector workers (6.9 percent).
    • 7.6 million public sector employees belonged to a union, compared with 7.1 million union workers in the private sector.

    This Wall Street Journal article shows that the highest union membership states as shown above also have some of the highest public union memberships.
    http://www.marketwatch.com/story/strongest-and-weakest-labor-unions-by-state-2011-03-10.

    On a personal note, I got a look at the need for public sector unions a couple of years ago. I’m adjunct faculty at Portland State and teach one graduate class a term. Oregon part time faculty are very underpaid compared to other states and the legislature allocated a couple of million dollars to increase our pay. When contract time came, we knew how much money was legally supposed to be committed to increase adjunct pay, so it should have been simple. But negotiations took almost a year and only under strike threat did management (the Oregon University System) agree to raises to the budgeted amount. I sat in on a couple of bargaining sessions and the administration wouldn’t give straight answers on funds available, wouldn’t address the legislative intent, tried every way they could to divert the funds to other purposes. I was shocked, having assumed somehow that public university officials would want to support their faculty, especially when there was dedicated funding.

  5. Mike Linacre Says:

    Thanks, Michael Wells. “highest union membership states as shown above also have some of the highest public union memberships”

    I compared per-capita State debt with unionization. 8 of the top 10 States with the highest unionization are also 8 of the 10 States with the highest per-capita debt. The 7 States with the lowest per-capita debt are “right-to-work states”. Correlation is not causation, but the correlation between “not-right-to-work” and State per-capita debt is r=0.49. No wonder Unions are blamed for the financial problems of the States. :-(

    Per-capita debt from: http://www-958.ibm.com/software/data/cognos/manyeyes/datasets/state-debt-per-capita-and-the-2008/versions/1.txt

  6. Jim Timmy Says:

    Have you ever heard the phrase correlation does not equal causation. My idea is that states have high union membership because they have high incomes, not the other way around. Look at New York, for example. They have high union membership and high income. Would you seriously argue that they have high income because they have high union membership?

    I don’t think so. Unions rose to power in the midst of the great wealth of the gilded age. They were a response to the rapidly rising incomes of the time, not the cause. Most of the states that have both high income and union membership are northern or western. States that have always been wealthy. The non union states that have low income are mostly southern. Obviously, they are not poor because of a lack of unions. there are many reasons the south is poor, lack of unions is not one of them. In fact, most of the poorer southern states have been gaining ground in recent years. This is largely due to conditional convergence, but it could have something to do with policy as well.

  7. Isidoros Kyrlangitses Says:

    Wisconsin’s debate got me thinking of my recent experience in Denmark.

    Copenhagen was the most expensive city I ever visited, more than London, more than Tokyo. We asked an American who was living there why is it so? He said,” cause everyone gets paid alot.” Minimum wage is around $18 / hour. Not sure the details behind the high-wage, but it appears to be a wage negotiated among the various trade unions, professional associations, and business groups. Note tax rates are 45%-60% and purchasing power parity might make them poorer than Americans… but there is something else.

    When an employees time is such a large proportion of costs (relative to the rest of the world), then the actual product costs are negligible. So the made in Denmark toy costs a business twice as much as the made in China toy, but the difference is a small percentage of their overall costs when you figure labour costs. This means Danish manufactured products are competitive with foreign products and the difference in cost is made up by knowing the market better.

    I was amazed for a small country how many toys, clothes, furnishings, bicycles, etc… were products of Denmark. It reminded me of the book I recently read about why the Industrial Revolution took place in Britain, and not the Netherlands or France. It was all tied to high labour costs that drove innovation.

    I don’t know Denmark’s stance on unemployment, job security, or healthcare… but it convinced me that high labour costs are a good thing for innovation.