Even IMF economists see value in unions

Bill Knight column for Mon, Tues., or Wed., Jan. 4, 5 or 6

It may seem like an old song in a New Year, but on Wall Street, it’s a boom, on Main Street a bust.

That disparity is largely due to sluggish wage growth, which contributes to income inequality when the elite continue to prosper.

Income inequality in turn is tied to labor unions’ condition, according to a new report from researchers at the International Monetary Fund (IMF).

Now, that’s new.

The IMF “promotes international financial stability and monetary cooperation,” the global group says. “It also seeks to facilitate international trade, promote high employment and sustainable economic growth.”

It’s not a progressive outfit.

But IMF economists Carolina Osorio Buitron and Florence Jaumotte concede common ground where workers and corporations share interests. Their study shows that when unions are present and healthy, inequality is reduced and a healthier economy emerges for the whole society.

Their report also says a solid labor movement is essential not only for a just economy but for a functional democracy.

The opposite is also true, of course: The absence of robust labor unions can lead to economic and civic fragmentation.

“The decline in union density has been strongly associated with the rise of top income inequality,” they write. “If de-unionization weakens earnings of middle- and low-income workers, the income share of corporate managers and shareholders necessarily increases.

“In most advanced economies, the share of income accruing to the top 10-percent [of] earners has increased at the expense of all other income groups,” they say. “While some inequality can increase efficiency by strengthening incentives to work and invest, recent research suggests that high inequality is associated with lower and less sustainable growth in the medium run.”

Jaumotte and Osorio Buitron say there’s “a strong negative relationship between unionization and top earners’ income shares,” and the relationship “appears to be largely causal.”

That’s right: Economists from the IMF confirm that organized labor prevents the ever-increasing concentration of wealth at society’s upper reaches.

Having examined the relationship between unionization and income-inequality indicators in 20 advanced economies between 1980 and 2010, the economists state that the extremely wealthy seize more of an economy’s overall income when fewer people belong to unions.

In the United States, the economy used to be more fair. For decades after World War II, hourly wages mostly matched productivity gains, as reported by the Economic Policy Institute (EPI).

“If the hourly pay of typical American workers had kept pace with productivity growth since the 1970s, then there would have been no rise in income inequality during that period,” EPI said.

Richard Eskow of the Campaign for America’s Future commented, “An economy can only grow in an equitable, well-distributed way when there is a large base of consumers to purchase goods and services. When all the wealth is concentrated among a very few people at the top, the majority is deprived of spending income.

“The wealthy few will have difficulty spending all their money – or even investing all of it – while millions of others are unable to make the purchases they want and need,” Eskow continued.

Since the early 1980s, the labor movement has been the whipping boy for supply-side economics that defers to the rich in the theory that wealth will eventually “trickle down” to the rest. But while some quarters have tried to marginalize unions, their importance has been forgotten.

“The decline in union density has been strongly associated with less income redistribution, likely through unions’ reduced influence on public policy,” the IMF economists said. “Historically, unions have played an important role in the introduction of fundamental social and labor rights.”

To be sure, U.S. unions introduced many reforms that are taken for granted now, from minimum wages, overtime pay and weekends to sick leave, child labor protections, and job safety laws.

“The union movement is one of our democracy’s most potent economic tools,” Eskow added. “Its benefits flow not only to its members, but to society as a whole. The IMF paper is a research study, but it can also be taken as a call to arms.”

A new song, perhaps.

[PICTURED: Illustration from Ricardo Levins Morales Art Studio via Zinn Education Project.]