By James Sherk, senior policy analyst in labor economics at the Heritage Foundation.
Does the ability to buy Toyotas hurt middle-class Americans? That is essentially the argument made by those who say falling union membership has harmed the middle class. But it holds little water. The decline of unions has hurt unions — while benefiting most other Americans.
Union membership certainly dropped sharply in the 1970s, the period when some argue things went south for the middle class. But the unions’ decline started well before that. Union density peaked during World War II and began falling significantly in the mid-1950s. Between 1954 and 1970, the proportion of workers belonging to unions fell by one-fourth. It has continued to fall ever since.
No one remembers the 1950s and 1960s as challenging for the middle class. Americans of all income levels prospered then, even as unions contracted. Union strength matters little for workers outside of unions.
This should not be surprising. Unions operate as legal labor cartels. They try to control the supply of labor in an industry so they can drive up its price — wages. Union members benefit, but those costs get passed on as higher prices. The price hikes make non-union consumers poorer. They also (unsurprisingly) reduce sales. Lower sales mean fewer jobs in that industry. Unions, like all cartels, benefit their members at the cost of greater losses to the rest of society.
Consider Detroit. Until the late 1970s, the United Auto Workers (UAW) made almost every car built in the United States. The union used its monopoly to force the Big Three automakers to pay highly inflated compensation. UAW members made more than many scientists. This added roughly $800 to the cost of every vehicle they built.
The higher prices hurt every driver who did not belong to the UAW. They also put a new car just out of reach for some low-income families. That meant the automakers made fewer cars and hired fewer workers.
Then competition arrived. Companies such as Toyota and Honda started selling vehicles in the United States, then started building their cars in the States with American workers. Non-union American workers. Their lower costs meant they could sell more-reliable vehicles at lower prices.
Americans voted with their wallets: Over the next few decades, non-union automakers captured a majority of the U.S. market. Simultaneously unionized automakers shed jobs en masse. To compete, the Detroit automakers had to reduce compensation to market rates. Today fewer than 1 in 5 autoworkers belong to a union.
Did this de-unionization of the auto industry hurt or help the middle class?
It certainly hurt Detroit and the UAW. But every driver benefited from less expensive cars that lasted longer. Total employment in the auto industry grew as well — only that growth came outside Detroit. Middle-class opportunities expanded in cities such as Huntsville, Ala.; Chattanooga, Tenn.; and Canton, Miss., with transplant factories. Curtailing non-union competition would have hobbled workers in these cities.
Successful labor cartels benefit their members. But their gains come at the expense of other workers and consumers. Expanding union membership would not help the middle class, and their decline has not hurt it.
James Sherk is a senior policy analyst in labor economics at the Heritage Foundation.