Friday, December 26, 2008

Off-topic: Unionization and the labor share of GDP

I occasionally go off the Social Security/pensions/aging theme and do some digging on other issues that interest me. Like many Americans, I've been hearing about what the bailouts of the auto industry may require of union wages, benefits and work rules, as well as reading a bit on whether Congress should pass so-called "card check" legislation that would make it easier for workers to unionize.

The basic logic I see for a union is that it improves the bargaining power of labor versus capital (meaning, the stock and bond holders who own a company). Capital can easily shift from state to state or overseas while labor moves only slowly, so you could argue that by banding together workers have more leverage and can extract more from their employers in terms of wages or benefits. So here's a quick test I thought of: compare the rate of unionization within a country with the share of that country's GDP that flows to labor rather than capital. Presumably, if unions are effective at increasing the bargaining power of labor versus company ownership – distinct from, say, benefiting union workers versus non-union workers – then the labor share of GDP should be higher in countries where a larger share of workers are unionized.

As it turns out, that's not really the case among large countries. Here's a chart showing what I found. In some countries, such as Finland and Denmark, around three-quarters of workers are in unions. In other countries, like the U.S., less than 15 percent are union members. The labor share of GDP which ranges from 45 percent in Italy to 60 percent in the U.K. (I calculated the labor shares in the year 2000 from UN data available here (fewer countries are available in more recent years) using a methodology similar to that used in this paper. The unionized share of the workforce is from NationMaster (a very cool site) using OECD data.)

The variation in union membership is a lot larger than the variation in the labor share of GDP, but there's no strong statistical relationship between one and the other. Countries with a larger unionized labor force don't receive a larger share of economic output. The split between workers and owners seems pretty much independent of whether the workers are union-represented or not.

This seems strange given that we know that, in the U.S. at least, unionized jobs pay more than non-unionized ones, even within the same industry. The question is, who is "paying" for these higher wages? It might be other workers, such that unionization might result in a smaller number of higher-paid jobs, although a quick cut through the data doesn't show anything obvious there. In any case, though, I thought the lack of any correlation between unionization and the share of GDP that flows to workers rather than owners is interesting, given how big a policy issue unions have become in recent months. I'm sure there's more I could check, both in terms of my own numbers and existing literature, but this was really a little distraction for a day off.

2 comments:

Jim Glass said...

Countries with a larger unionized labor force don't receive a larger share of economic output. The split between workers and owners seems pretty much independent of whether the workers are union-represented or not.

You might tell this to the NY Times editorialists on labor economics:

"...The first and biggest test of Mr. Obama’s commitment to labor ... will be his decision on whether or not to push the Employee Free Choice Act in 2009... which would make it easier than it has been for workers to form unions...

"The measure is vital legislation and should not be postponed. Even modest increases in the share of the unionized labor force push wages upward, because nonunion workplaces must keep up with unionized ones..."

This seems strange given that we know that, in the U.S. at least, unionized jobs pay more than non-unionized ones, even within the same industry. The question is, who is "paying" for these higher wages? It might be other workers...

And the Timesians could check out this worry anecdotally, at least, with their colleagues at the Detroit Free Press by asking them about the effect the UAW has had on the general wage level in Motown....

"Detroit, the nation's poorest big city, is the poster place for a central city in a free fall, having lost half its population over the last 50 years, with no end in sight. Motown's economic losses have exceeded even those of its population. From 1970-2000, the city shed more than half its jobs..."

Imagine how bad things would be out there without the UAW pushing everybody's wages up.

Andrew G. Biggs said...

The Times's arguments re wages are pretty much what I was thinking about here. If unionization raises wages at the expense of profits, then the labor share of GDP would rise and capital share fall. This doesn't seem to be how unionization plays out, at least by my quick look at OECD countries. I'm not ready to say that higher union wages are necessarily "paid for" by non-union workers, but it's possible.