The economy is steadily improving, but wages aren’t. Could unions be the answer?
After two stellar months, August’s jobs report showed that the U.S. economy returned to its steady but slow climb. The U.S. economy added 151,000 jobs, and the unemployment rate remained unchanged at 4.9 percent. In other words, the summer fun is over.
Hidden bit of bad news in the jobs report: The BLS is reporting that summer is over.
— Justin Wolfers (@JustinWolfers) September 2, 2016
“It was a solid report,” said Michael Strain of the right-leaning American Enterprise Institute. While not matching the whopping 271,000 jobs added in June and 275,000 jobs in July, “151,00 jobs is a healthy clip.”
As we always say here, don’t put too much stock in one month’s number. It’s better to look at job gains over time, where month to month aberrations average out. And over the past three months, job gains have averaged 232,000 per month. At that rate, we could close the jobs gap — the number of jobs that the U.S. economy needs to create in order to return to pre-recession employment levels — in seven months.
“The broad metrics are moving in the right direction,” said economist Kate Bahn of the left-leaning Center for American Progress. “Unemployment is stable; it’s still not as low as the last boom, which was 4.4 percent.”
“When you look at the broader pattern that has emerged over the spring and summer, you see a labor market that is steadily gaining jobs, steadily pushing down the rate of unemployment and that is recovering from the Great Recession at a steady pace,” said Strain.
Moreover, August was, as economist Justin Wolfers noted emphatically on Twitter, the 71st month of straight job growth.
IT'S A RECORD: 71 STRAIGHT MONTHS OF JOB GROWTH, ECLIPSING PREVIOUS 48-MONTH STREAK.
— Justin Wolfers (@JustinWolfers) September 2, 2016
However, wage growth and the labor force participation rate, which stayed steady at 62.8 percent, are barely budging. “Wage growth has been a source of concern for some time now,” said Strain.
Average hourly earnings rose 2 cents in August, following an 8-cent gain in July. Over the year, wages have risen 2.4 percent. But considering how low unemployment is, it’s a mystery to many economists why wages haven’t increased more.
“You would expect that businesses would need to accelerate the rate of wage growth to retain existing workers and attract new workers,” said Strain.
One theory is that there are still plenty of people on the sideline, waiting to jump back into the labor force as soon as they believe there’s a job available for them. And judging by the labor force participation rate, which reached a historical low last year and has slowly inched up, this picture makes sense.
“Business still see [these people on the sidelines] as a pool of available workers,” said Strain. As a result, they don’t feel the need to raise wages.
Could unions be the answer?
But there’s another theory to why wages have remained stagnant, one that’s just in time for Labor Day. The left-leaning Economic Policy Institute recently released a study that found that declining union participation has lowered the wages of not only union workers, but nonunion workers as well. Union participation has dropped dramatically in the past 60 years; from roughly one in three workers in the 1950s to about one in 20 today, according to EPI.
As the report explains, “Unions, especially in industries and regions where they are strong, help boost the wages of all workers by establishing pay and benefit standards that many nonunion firms adopt.”
“For 40 years, we’ve had wage stagnation for middle-wage workers,” said Lawrence Mishel, president of the Economic Policy Institute. “The system has been stacked against workers. There is only a weak presence of collective bargaining.”
So if we increased union participation would wages be higher? The report certainly suggests so.
Weekly wages would be an estimated 5 percent higher in 2013 for nonunion men had union participation levels remained at its 1979 level, the study finds. And for those nonunion men with a high school education or less, the effect of unions on wages is even more pronounced: Wages would be an estimated 9 percent higher. For nonunion women, wages would be only 2 to 3 percent higher during the same time period. The authors explained that the wage effects are smaller “simply because women were not as unionized as men in 1979.”
Diana Furchtgott-Roth, a senior fellow at the conservative Manhattan Institute, doesn’t think an increase in unions will raise wages for most union or nonunion workers, however.
“When some industries get unionized, they move off-shore,” said Furchtgott-Roth. “People that used to have a job find that they don’t have one any more.”
Pointing to the former Volkswagen plant in Pennsylvania, Furchtgott-Roth explained how the workers opted to unionize only to have the plant close down shortly thereafter and move to Mexico, where the company did not have to pay as high of wages. And when manufacturers don’t move offshore, she added, companies will use technology to replace workers for less money.
Bahn, on the other hand, doesn’t think increasing union membership would be a loss to unemployment levels.
“There’s still slack in the economy. Corporate profits are so high — that [suggests] we do have space to increase wages without losing employment,” said Bahn.