Union Decline and Economic Redistribution DECLINE AND ECONOMIC REDISTRIBUTION: A REPORT ON TWELVE MIDWEST STATES i EXECUTIVE SUMMARY Inequality has risen to historically high levels

UnionDeclineandEconomicRedistributionAReportonTwelveMidwestStates

March13,2017

FrankManzoIV,MPPPolicyDirector

MidwestEconomicPolicyInstituteIllinoisEconomicPolicyInstitute

www.midwestepi.org

RobertBruno,PhDDirector

ProjectforMiddleClassRenewalLaborEducationProgram

UniversityofIllinoisatUrbana-Champaignwww.illinoislabored.org

UNIONDECLINEANDECONOMICREDISTRIBUTION:AREPORTONTWELVEMIDWESTSTATES

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EXECUTIVESUMMARY

Inequality has risen to historically high levels in the United States.While there aremany causes, themostimportant labor market change has been the long-term decline in labor union membership. Unions raisewages,particularlyforlower-incomeandmiddle-classworkers.Uniondeclineexplainsbetweenone-fifthandone-thirdoftheoverallincreaseininequalityintheUnitedStates.

Uniondeclinelowerslabor’sshareofstateeconomiesandraisescapital’sshareofstateeconomies:

• IntheMidwest,thecorrelationbetweentheunioncoveragerateandlabor’sshareoftheeconomyis+0.71andthecorrelationbetweentheunioncoveragerateandcapital’sshareoftheeconomyis-0.70.

• ThestatewiththemostsignificantrelationshipisWisconsin,whereunionizationwashighlycorrelatedwithbothlabor’sshareoftheeconomy(+0.83)andcapital’sshareoftheeconomy(-0.84).

• Recently,unioncoveragerate intheMidwesthasfallenbymorethanthenationaltrend.ThelargestuniondeclinesoccurredinMichiganandWisconsin,where“right-to-work”lawshavebeenpassed.

Uniondeclineaccountsforapproximatelytwo-fifths(42percent)oftheoveralldropinlabor’sshareoftheeconomicvaluegeneratedacrosstheMidwestfrom1997to2014:

1. Illinois:Labor’sshareoftheeconomydeclinedby1.2percentagepoint.Uniondeclineexplainsabout90%ofthisdrop.

2. Indiana:Labor’ssharedeclinedby6.0percentagepoints.Uniondeclineexplainsabout19%.

3. Iowa:Labor’ssharedeclinedby1.6percentagepoint.Uniondeclineexplainsabout55%.

4. Kansas:Labor’ssharedeclinedby2.1percentagepoints.Uniondeclineexplainsabout16%.

5. Michigan:Labor’ssharedeclinedby3.2percentagepoints.Uniondeclineexplainsabout78%.

6. Minnesota:Labor’ssharedeclinedby2.1percentagepoint.Uniondeclineexplainsabout82%.

7. Missouri: Labor’s share grew insignificantly by 0.2 percentage point, the lone exception in theMidwest.

8. Nebraska:Labor’ssharedeclinedby5.3percentagepoints.Uniondeclineexplainsabout18%.

9. NorthDakota:Labor’ssharedeclinedby6.6percentagepoints.Uniondeclineexplainsabout14%.

10. Ohio:Labor’ssharedeclinedby3.4percentagepoints.Uniondeclineexplainsabout55%.

11. SouthDakota:Labor’ssharedeclinedby3.6percentagepoints.Uniondeclineexplainsabout20%.

12. Wisconsin:Labor’ssharedeclinedby2.9percentagepoint.Uniondeclineexplainsabout75%.

Unionshelpworkerstakehomealargershareoftheeconomicvaluetheycreate.AsunionizationhasdeclinedacrosstheMidwest,economicoutputhasbeenredistributedfromlabortocapital.


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TABLEOFCONTENTSExecutiveSummary i

AbouttheAuthors ii

Introduction 1

DecliningUnionizationHasBeenaMajorCauseofHigherInequality 2

DataandMethodology 3

UnionDeclineLowersLabor’sShareandRaisesCapital’sShareoftheEconomy 5

StateProfilesofUnionDeclineandEconomicRedistribution 10

Illinois 11

Indiana 12

Iowa 13

Kansas 14

Michigan 15

Minnesota 16

Missouri 17

Nebraska 18

NorthDakota 19

Ohio 20

SouthDakota 21

Wisconsin 22

Conclusions 23

Sources 24

Appendix 26

ABOUTTHEAUTHORS

FrankManzo IV, MPP is the Policy Director of the Illinois Economic Policy Institute (ILEPI). He earned aMaster of Public Policy from theUniversity of ChicagoHarris School of Public Policy, a Bachelor of Arts inEconomics and Political Science from the University of Illinois at Urbana-Champaign, and an AdvancedCertificateofLaborStudies fromtheUniversityof Illinois.Hespecializes in labormarketanalysis,economicdevelopment,infrastructureinvestment,thelow-wagelaborforce,[email protected] Bruno, PhD is a Professor at the University of Illinois at Urbana-Champaign School of Labor andEmploymentRelationsandtheDirectoroftheSchool’sLaborEducationProgram.HealsodirectstheProjectforMiddleClassRenewalat theUniversityof IllinoisatUrbana-Champaign.Hisresearch focusesbroadlyonworking-classandunionstudiesissues.HeearnedhisDoctorofPhilosophyinPoliticalTheoryfromNewYorkUniversityandhisMasterofArtsinPoliticalSciencefromBowlingGreenStateUniversity.Hecanbecontactedatbbruno@illinois.edu.


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INTRODUCTION

Inequalityhasrisentohistoricallyhighlevels intheUnitedStates.This inequalityhasbeencharacterizedbysignificanteconomicgainsamongtheverywealthy.Since1979,theincomesofthetop20percentofAmericanhouseholdsincreasedbymuchmorethantheincomesofmiddle-classhouseholds(Armouretal.,2013).Intheyearsdirectly followingtheGreatRecession, thetop1percentofearnerscapturedallneweconomicwealthcreatedinAmerica,whilethebottom99percentactuallysawtheirincomesshrinkafteradjustingforinflation(Saez,2013).

If inequality is not addressed, the economy will suffer and the middle class will experience the largestconsequences. Redistribution ofwealth to the rich can reduce overall consumer demand because poor andmiddle-class American families spend a larger share of their incomes in the economy (Dynan et al., 2004).Additionally, rising inequality canpolarize opportunities,with the poor having fewer resources to invest intheirowneducation,borrowmoney,orstartanewbusinessventure(Krueger,2012).Finally,extremelevelsofinequalitycanhaverealsocialrepercussionsbyincreasingtheprobabilityoffinancialcrises(Berg&Ostry,2011),raisingmortalityrates(Case&Deaton,2015),increasingcrimerates(Chintrakarn&Dierk,2012),andreducingoverallsatisfactionandhappinessacrossthecountry(Sacksetal.,2012).The cause of economic inequality is rooted in several recent economic trends. Structural changes in theAmerican economy– such as increased globalization and the polarization of jobs into good, high-skilledoccupationsandpoor, low-skilledoccupations–haveplayedakeyrole(Autor,2010).Dramatichikes inCEOpaycomparedtotheaverageworkerarealsoafactor:TheaverageCEOearned29timestheamounthisorherworkers earnedon average in 1978, but it is over 300 times today (Mishel&Davis, 2015). In addition, thedeclining real value of the minimum wage has particularly been a factor in worsening inequality amongwomen(U.S.JointEconomicCommittee,2010).


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DECLININGUNIONIZATIONHASBEENAMAJORCAUSEOFHIGHERINEQUALITYByfar,themostimportantlabormarketchangethathascausedworseninginequalityinAmericahasbeenthelong-termdeclineinlaborunionmembership.Unionshavebeenfoundtoraiseworkerwagesbybetween10and 17 percent (Card, 1992), which has held over time (Manzo et al., 2016; Schmitt, 2008; Hirsch &Macpherson,2006).Most significantly, lower- andmiddle-class workers benefit most from unionization. Recently, the averageunionwage premiumwas 12 percent across America; however, hourlywages for the lowest earnerswereboostedby15to21percentandby14percentforthemedianworker.Accordingly,“unionsbenefitlower-andmiddle-wageworkersmost,”helpingtoreducewageinequality(Schmitt,2008).Thewagegaphasalsobeenfoundtobe25percentlowerinunionizedworkplacesthaninnonunioncompanies.Asaresult,inthe1980sand1990s,unionizationreducedwageinequalityinthenationaleconomybyasmuchas10percent(Freeman,1996).Conversely,recentresearchhasconcludedthatshrinkingunionizationformaleworkershasbeentheprimarycause for the rise of income inequality (Gordon & Dew-Becker, 2008). Because unions equalize the wagedistributionandinstitutenormsforfairpay,thedeclineinunionizationratesexplainsbetweenone-fifthandone-thirdof theoverall growth in inequality inAmerica (Western&Rosenfeld, 2011).TheEconomicPolicyInstitutecorroborates thisconclusion,affirmingthat “de-unionizationcanexplainabouta thirdof theentiregrowthofwage inequalityamongmenandarounda fifthof thegrowthamongwomen from1973 to2007”(Mishel, 2012). Finally, the International Monetary Fund (IMF) found that “[t]he decline in unionization isstrongly associatedwith the rise of income shares at the top” and explains about half of the rise in incomeinequality(Jaumotte&OsorioBuitron,2015).Unionizationhasdeclinedprecipitouslydue to theproliferationof “right-to-work” (RTW) laws,especially intheMidwest.A“right-to-work”lawisagovernmentregulationwhichprohibitsworkersandemployersfromincludingunionsecurityclausesintocontracts.Unionsecurityclausesensurethatallworkerswhoreceivethebenefitsofcollectivebargainingpayafairshareofduesorfeesfortheservicesprovided.A“right-to-work”lawmakesthepaymentofduesorfeesoptionalforallemployeesinaworkplace,allowingworkersto“freeride”on the efforts and contributions of others. Thus, workers can enjoy the higher wages, better health andretirementbenefits, legalandgrievancerepresentation,andotherperksearnedbytheunionwithoutpayingtheirfairshare.Asaresult,RTWlawshavebeenfoundtoreduceunionmembershipby5and10percentagepoints(Manzo&Bruno,2014;Hogleretal.,2004;Moore,1980).Byreducingunionization,RTWlawshavebeenonefactor inredistributing incomefromworkerstoowners.Economicstudiesconsistentlyshowthat“right-to-work”reducesworkerearningsby3to4percentonaverage(Gould&Kimball,2015;Bruno&Manzo,2014;Gould&Shierholz,2011).Thelawsalsoreducethewagesofnonunionworkersby3percent(Lafer,2011).Furthermore,Stevans(2009)foundthatworkerwagesandpercapita income are both lower, on average, in stateswith RTW laws. Specifically, RTW lowerswages by 2.3percentandincreasesownerincomeby1.9percent,indicatingthatthelawresultsinatransferofincomefromworkerstoownerswith“little‘trickle-down’tothelargelynon-unionizedworkforceinthesestates”(Stevans,2009). The share of the economy captured byworkers through employee compensation is higher in stateswithout RTW laws, while the share of the economy captured by capital through owner income, corporateprofits,machinery,andtransferpaymentsishigherinstateswithRTWlaws(Bruno&Manzo,2014).Onecanconclude that the true intent of “right-to-work” laws is basedon ideologicalmotivations: “less influence forunions, less bargaining power for workers, more wealth for the wealthy, and more misery from theimmiserated”(Hogler,2011).


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DATAANDMETHODOLOGYThis report primarily utilizes data from the Bureau of Economic Analysis (BEA) at the U.S. Department ofCommercefrom1997to2014.Thisreportutilizesgrossdomesticproduct(GDP)dataatthestatelevel(BEA,2017).ThetwomaincomponentsofGDPmeasuredbytheBEAare“compensationofemployees”and“grossoperatingsurplus.”

• Compensationofemployeescalculates thetotalwages,salaries,andsupplemental incomeearnedbyemployees. Compensation of employees includes employer contributions paid to employee pensionfunds,employeeinsurancefunds,andsocialinsurance.“Compensationofemployees”isreferredtoaslaborinthisreport.

• Gross operating surplus calculates owners’ income, corporate profits, the value of fixed assets andmachinery,andnetbusinesstransferpayments.“Grossoperatingsurplus”isreferredtoascapital inthisreport.

TheBEAhaseightregionalclassificationscomprisingstatesthathaveinterconnectedeconomies.TwooftheregionsincludestatesthathavetraditionallybeenconsideredpartoftheMidwest(Figure1).TheGreatLakesregioncomprisesIllinois,Indiana,Michigan,Ohio,andWisconsinandthePlainsregionincludesIowa,Kansas,Minnesota,Missouri,Nebraska,NorthDakota,andSouthDakota.The12statesutilizedinthisregionalstudygenerallyalignwitha2014surveybyFiveThirtyEight,whichaskedself-identifiedMidwesternerswhatstatestheyconsideredpartoftheMidwest(Hickey,2014).Thelaborandcapitalsharesofeachstate’seconomyarematchedwithstate-leveldataonunionizationbyyear.HirschandMacpherson(2016)provideestimatesofprivateandpublicsectorunionmembershipandcoveragefor U.S. states based on data from the Current Population Survey, which is conducted monthly by the U.S.CensusBureau.Estimatesbystate,industry,andoccupationbeginin1983andcurrentlygothrough2015.Theunioncoveragerateistheshareofworkersinastatethatareunionmembersorworkatajobwithaunionoremployeeassociationcontract.The fulldataset thus includesannual estimates forall12 statesover the18-yearperiodofanalysis,or218totalobservationsofunioncoverageratesandthelabor-capitalsharesofstateeconomicvalue.Figure1:MapofBEARegions,GreatLakesStatesandPlainsStates


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This report primarily uses correlation coefficients and graphs to identify general associations. Correlationcoefficientsrangefrom-1.0to+1.0.A-1.0correlationindicatesthatthetwovariableshaveaperfectlynegativerelationshipwithoneanother,whilea+1.0correlationimpliesaperfectlypositiverelationship.Acorrelationof 0.0 would mean that the variables have no relationship to one another. The following parameters, inaccordancewithstandardsofsocialscienceinbothTurkmen(2013)andCohen(1992),areusedtodeterminethe“strength”ofarelationshipbetweentwovariableswhenevaluatingcorrelationcoefficients.

• Lessthan0.1:norelationship;• 0.1to0.3:weakrelationship;• 0.3to0.5:moderaterelationship;• Greaterthan0.5:strongrelationship.


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UNIONDECLINELOWERSLABOR’SSHAREANDRAISESCAPITAL’SSHAREOFTHEECONOMYFigure2isananalysisofallthedataandrevealsthemostnotablefindingoftheentirereport.Labor’sshareofthestateeconomyispresentedinred,whilecapital’sshareofthestateeconomyisrepresentedingreen.Thefigure illustrates two unmistakable associations with union coverage rates. First, as the state-level unioncoverage rate increases from left to right, labor’s share of the state economy increases. The correlationbetween the union coverage rate and labor’s share of the economy is +0.71, indicating a strong positiverelationshipintheMidwest.Second,asthestate-levelunioncoveragerateincreasesfromlefttoright,capital’sshareofthestateeconomydeclines.Thecorrelationbetweentheunioncoveragerateandcapital’sshareoftheeconomyis-0.70,indicatingastrongnegativerelationshipintheMidwest.SinceunionizationhasbeendecliningacrosstheMidwest,stateshave“movedleft”onthegraph,resultinginlower laborsharesof theeconomy,withcapital capturingneweconomicwealth (Figure2).Figures3and4demonstratethisphenomenon,comparingdatafrom2000and2014asanexample.Attheturnofthecentury,theunioncoverageratesofMidweststatesrangedfrom6.7percentinSouthDakotato 21.8 percent in Michigan (Figure 3). Ten of the 12Midwest states had a union coverage rate above 10percent(Figure4).Asaresult,workerscapturedover50percentofeconomicoutputthroughcompensationinall Midwestern states, while owners andmachinery accounted for 32.4 percent of Michigan’s economy. By2014,however,theunioncoverageratesofMidweststatesdeclined,rangingfrom6.1percentinSouthDakotatojust16.0percentinIllinois.Only7ofthe12stateshadaunioncoveragerateabove10percent.Theshareofthe economy captured by labor fell below 50 percent in three states– Nebraska, North Dakota, and SouthDakota–whilecapital’sshareroseineverystate.Figure2:Labor/CapitalSharesbyUnionizationRatesinMidwestStates,AllData,1997-2014

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LaborandCapitalShareofEconomybyUnionCoverageRateinMidwestStates,AllData,1997-2014

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Clearrelationshipsexistbetweenstate-levelunioncoverageratesandthestate-leveldistributionoflaborandcapital inboth2000and2014(Figures3and4).Similargraphsforallyearsfrom1997through2014andatablereportingcorrelationcoefficientsbyyearcanbefoundintheAppendixofthisreport(Page26).Figure3:Labor/CapitalSharesbyUnionizationRatesinMidwestStates,2000vs.2014

Figure4:Labor/CapitalSharesbyUnionizationRatesbyStateintheMidwest,2000vs.2014

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CoverageLaborShareOfEconomy

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LaborShareOfEconomy


Illinois 19.5% 58.1% 35.4% 16.0% 55.0% 38.1%Indiana 17.1% 57.5% 36.8% 12.0% 51.0% 43.5%Iowa 16.1% 54.6% 39.7% 12.6% 50.1% 44.0%Kansas 11.2% 58.9% 34.6% 9.0% 54.5% 39.1%Michigan 21.8% 61.2% 32.4% 15.6% 56.0% 36.8%Minnesota 18.8% 60.8% 32.8% 14.9% 56.6% 36.8%Missouri 14.2% 57.8% 36.3% 9.7% 56.2% 38.2%Nebraska 11.5% 57.5% 37.0% 9.0% 49.0% 45.9%

NorthDakota 7.8% 56.6% 36.5% 6.9% 48.9% 45.2%Ohio 18.8% 58.0% 36.0% 13.9% 53.9% 39.7%

SouthDakota 6.7% 51.6% 42.3% 6.1% 46.8% 47.7%Wisconsin 18.7% 60.3% 32.8% 12.5% 56.5% 36.3%

Theregionalchangesinunioncoverage,labor’sshareoftheeconomy,andcapital’sshareoftheeconomyfromFigure 4 are respectively mapped out in Figures 5, 6, and 7 on the next two pages. The geographicrepresentationsmakeitclearthatunioncoveragehasgenerallydeclinedmostinstatesthatadoptednewRTWlaws (Figure 5). In addition, the redistribution of economicwealth fromworkers to owners has noticeablyoccurredinNorthDakota,Nebraska,andIndianasincethenewmillennium(Figures6and7).

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LaborandCapitalShareofEconomybyUnionCoverageRateinMidwestStates,2000

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Slope:+0.377

Slope:-0.381

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LaborandCapitalShareofEconomybyUnionCoverageRateinMidwestStates,2014

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Slope:+0.713

Slope:-0.859


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Figure5:MapoftheChangeinUnionCoveragebyState,PercentagePointDifference,2000-2014

Figure6:MapoftheChangeinLaborSharebyState,PercentagePointDifference,2000-2014


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Figure7:MapoftheChangeinCapitalSharebyState,PercentagePointDifference,2000-2014

Figure 8 describes the association between union decline and the distribution of labor and capital by statefrom1997to2014.Thestatewith themostsignificantrelationshipwasWisconsin,whereunionizationwashighly correlatedwithboth the labor shareof theeconomy (+0.83)and the capital shareof theeconomy (-0.84)between1997and2014.ThestatewiththeweakestrelationshipwasMissouri(withcoefficientsof+0.29forlaborand-0.39forcapital).Between1997and2014, thestate-levelunioncoveragerate fellby4.7percentagepoints intheMidwestonaverage(Figure8).Thisdecrease isgreaterthanthe3.3percentage-pointdropnationally.The largestuniondeclinesoccurredinMichigan(-8.8percentagepoints)andWisconsin(-7.5percentagepoints),where“right-to-work”lawswerepassed.ThesmallestuniondeclineoccurredinKansas(-1.2percentagepoints),butuniondensityinKansaswasalreadyrelativelylowin1997.The important discovery in Figure 8 is that as union coverage declined, labor’s share of the state economydeclined,andcapital’sshareoftheeconomyincreasedacrosstheboard–withonlyoneexception.1Therewasanearone-for-onetransferofeconomicincomefromlabortocapitalintheseMidwesternstates.InIllinois,forexample, labor’s share of the economy decreased by about 1 percentage point from 1997 to 2014, whilecapital’sshareoftheeconomyincreasedbyabout1percentagepoint.2Thehighestredistributionsofincomefrom labor to capitaloccurred inNorthDakota,whereanenergyboom led to significant capital investmentfromcompaniesandenormousprofits,andinIndiana,wherea“right-to-work”lawwasadopted.1Theonlyexception isMissouri,where the laborshareof theeconomyand thecapital shareof theeconomybothmarginallyincreased.Thiscanoccurifthe“taxeslesssubsidies”sharefalls,meaningthatgovernmentcomprisedasmallershare(about-0.3percentagepoints)oftheoverallMissourieconomyin2014thanin1997.2InIllinois,thelaborsharefellby1.2percentagepointsandthecapitalshareroseby0.9percentagepoint.Again,theresidualof0.3percentagepointwascapturedby“taxes lesssubsidies,”meaningthatgovernmentcomprisedaslightly largershareoftheoverallIllinoiseconomyin2014thanin1997.


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ResultsfromaregressionanalysiswhichcontrolsforregionaltrendsarereportedinthefinalcolumnofFigure8.Themodelestimates“howmuch”thedeclineofunionizationineachstateisassociatedwithlabor’sshareofeachstate’seconomy. In Illinois,Michigan,Minnesota,andWisconsin,over75percentof thedrop in labor’sshareoftheeconomycanbeattributedtouniondecline.Onaverage,uniondeclineaccountsforanestimated42percentoftheoveralldropinlabor’sshareoftheeconomicvalueacrosstheMidwest.Figure8:CorrelationsbetweenLabor/CapitalSharesandUnionizationinMidwestStates,1997-2014

1997-2014 CorrelationBetweentheUnionCoverageRateand:

Percentage-PointChangefrom1997to2014:

ImpactDuetoUnionDecline*

State LaborShareofEconomy


UnionCoverage

LaborShare

CapitalShare

LaborShare

Illinois 0.701 -0.601 -3.9% -1.2% +0.9% 90%Indiana 0.834 -0.789 -4.0% -6.0% +6.7% 19%Iowa 0.790 -0.800 -3.1% -1.6% +1.8% 55%Kansas 0.745 -0.729 -1.2% -2.1% +2.7% 16%Michigan 0.748 -0.612 -8.8% -3.3% +2.4% 78%Minnesota 0.794 -0.796 -6.0% -2.1% +2.1% 82%Missouri 0.286 -0.395 -6.1% +0.2% +0.1% N/A

Nebraska 0.490 -0.509 -3.3% -5.3% +6.7% 18%NorthDakota 0.409 -0.427 -3.2% -6.6% +8.9% 14%

Ohio 0.760 -0.692 -6.4% -3.4% +3.2% 55%SouthDakota 0.559 -0.631 -2.5% -3.6% +5.6% 20%Wisconsin 0.833 -0.845 -7.5% -2.9% +3.0% 75%Average 0.662 -0.652 -4.7% -3.2% +3.7% 42%

UnitedStates 0.849 -0.860 -3.3% -1.6% +1.7% N/A

*Estimates are the result of an OLS regression analysis controlling for regional trends. For regression results in .txtformat,[email protected].

Theconsistenttakeawayfromthisregionalanalysis is thatunionshelpworkerstakehomea largershareoftheeconomicvaluetheycreate.AsunionizationhasdeclinedacrosstheMidwest,economicwealthhasbeenredistributed from labor to capital. RTW laws, which have accelerated the decline in union coverage, haveplayed a significant role in the redistribution from labor to capital. Overall, two-fifths of thedrop in labor’sshareoftheMidwesteconomycanbeattributedtotheoveralldeclineofunionizationintheregion.


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STATEPROFILESOFUNIONDECLINEANDECONOMICREDISTRIBUTIONFigures9and10depictthechangeinlabor’sshareoftheU.S.economyandcapital’sshareoftheU.S.economycomparedtothechangeintheU.S.unioncoverageratesince1997.Despitebrieflyrisingfrom1997to2000,labor’spieceoftheeconomyhasgenerallyfallenintandemwiththedeclineinunionizationovertime(Figure9). In fact, the national correlation between union decline and labor’s shrinking share of the economy is astrong+0.85.Similarly,asunionizationhasgraduallydeclined,capitalhasincreasinglycapturedalargershareoftheeconomy,corroboratedbyastrongcorrelationof-0.86.Figure9:CorrelationsbetweenLaborShareandUnionizationintheUnitedStatesbyYear

Figure10:CorrelationsbetweenCapitalShareandUnionizationintheUnitedStatesbyYear

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IllinoisIn Illinois between 1997 and 2014, the union coverage rate declined by3.9 percentage points, from 19.9percentto16.0percent(Figures11and12).Theunioncoverageratepeakedat20.6percentin2002andwasat its lowestpoint,15.2percent, in2007.After theGreatRecession,unionizationbriefly increased in Illinoisbeforeonceagainexperiencingdecline.Between1997and2014, labor’sshareof the Illinoiseconomydeclinedby1.2percentagepoint, from56.2percentto55.0percent,andcapital’sshareoftheIllinoiseconomygrewby0.9percentagepoint,from37.2percent to 38.1 percent (Figures 11 and 12). Overall, union decline in Illinois explains approximately 90percentofthedropinlabor’sshareofthestate’seconomy.Unionshaveplayedacriticalroleinraisingwagesandinstitutingnormsformiddle-classpayinIllinois.Asaresult,thedeclineinunioncoveragehasreducedtheshareoftheeconomycapturedbybothunionandnonunionworkersinthestate.Figure11:CorrelationsbetweenLaborShareandUnionizationinIllinoisbyYear

Figure12:CorrelationsbetweenCapitalShareandUnionizationinIllinoisbyYear

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IndianaIn Indianabetween1997 and2014, theunion coverage ratedeclinedby4.0percentagepoints, from16.0percentto12.0percent(Figures13and14).Theunioncoverageratepeakedat17.7percentin1998andwasatitslowestpoint,9.9percent,in2012.Between1997and2014,labor’sshareoftheIndianaeconomydeclinedby6.0percentagepoints,from57.0percentto51.0percent,andcapital’sshareoftheIndianaeconomygrewby6.7percentagepoints,from36.8percent to 43.5 percent (Figures 13 and 14). Overall, union decline in Indiana explains approximately 19percentofthedropinlabor’sshareofthestate’seconomy.Asthestatehasenacteda“right-to-work”lawandother business-friendly policies, owners, corporations, and machinery have increasingly captured a largershareofthestate’seconomy.Figure13:CorrelationsbetweenLaborShareandUnionizationinIndianabyYear

Figure14:CorrelationsbetweenCapitalShareandUnionizationinIndianabyYear

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IowaIn Iowa between 1997 and 2014, the union coverage rate declined by 3.1 percentage points, from 15.7percentto12.6percent(Figures15and16).Theunioncoverageratepeakedat16.1percentin2000andwasatitslowestpoint,12.0percent,in2013.Between 1997 and 2014, labor’s share of the Iowa economy declined by1.6 percentage point, from 51.7percent to50.2percent, and capital’s shareof the Iowaeconomygrewby1.8percentagepoint, from42.2percentto44.0percent(Figures15and16).Overall,uniondeclineinIowaexplainsapproximately55percentofthedropinlabor’sshareofthestate’seconomy.Iowahastraditionallyhadoneofthehighestunionizationrates among “right-to-work” states. Recently, however, the labor-capital divide in Iowa has expandedconsiderably, joining their “right-to-work” counterparts with a very high capital share. In addition, a veryrestrictive public sector collective bargaining law passed in February 2017 will likely further increase thelabor-capitaldisparity(Petroski&Pfannenstiel,2017).Figure15:CorrelationsbetweenLaborShareandUnionizationinIowabyYear

Figure16:CorrelationsbetweenCapitalShareandUnionizationinIowabyYear

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LaborShareofEconomy

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KansasIn Kansas between 1997 and 2014, the union coverage rate declined by 1.2 percentage point, from 10.2percentto9.0percent(Figures17and18).Theunioncoverageratepeakedat11.5percentin1999andwasatitslowestpoint,8.4percent,in2012and2013.Between1997and2014,labor’sshareoftheKansaseconomydeclinedby2.1percentagepoints,from56.6percentto54.5percent,andcapital’sshareoftheKansaseconomygrewby2.7percentagepoints,from36.4percent to 39.1 percent (Figures 17 and 18). Overall, union decline in Kansas explains approximately 16percentofthedropinlabor’sshareofthestate’seconomy.Figure17:CorrelationsbetweenLaborShareandUnionizationinKansasbyYear

Figure18:CorrelationsbetweenCapitalShareandUnionizationinKansasbyYear

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15

MichiganInMichiganbetween1997and2014,theunioncoverageratedeclinedby8.8percentagepoints, from24.4percentto15.6percent(Figures19and20).Theunioncoverageratepeakedat24.4percentin1997andwasatitslowestpointin2014.Between1997and2014,labor’sshareoftheMichiganeconomydeclinedby3.2percentagepoints,from59.2percent to56.0percent, andcapital’s shareof theMichiganeconomygrewby2.4percentagepoints, from34.5percentto36.9percent(Figures19and20).Overall,uniondeclineinMichiganexplainsapproximately78percentofthedropinlabor’sshareofthestate’seconomy.Michigan’senactmentof“right-to-work”in2013islikelytoacceleratethetrendofredistributingincomefromlabortocapital.Figure19:CorrelationsbetweenLaborShareandUnionizationinMichiganbyYear

Figure20:CorrelationsbetweenCapitalShareandUnionizationinMichiganbyYear

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16

MinnesotaInMinnesotabetween1997and2014,theunioncoverageratedeclinedby6.0percentagepoints,from20.9percentto14.9percent(Figures21and22).Theunioncoverageratepeakedat20.9percentin1997andwasatitslowestpointin2014.Between1997and2014, labor’s shareof theMinnesotaeconomydeclinedby2.1percentagepoints, from58.7percentto56.6percent,andcapital’sshareof theMinnesotaeconomygrewby2.1percentagepoints,from 34.7 percent to 36.8 percent (Figures 21 and 22). Overall, union decline in Minnesota explainsapproximately82percent of thedrop in labor’s shareof thestate’seconomy.Unionshaveplayeda criticalroleinraisingwagesandinstitutingnormsformiddle-classpayinMinnesota.Asaresult,thedeclineinunioncoveragehasreducedtheshareoftheeconomycapturedbybothunionandnonunionworkersinthestate.Figure21:CorrelationsbetweenLaborShareandUnionizationinMinnesotabyYear

Figure22:CorrelationsbetweenCapitalShareandUnionizationinMinnesotabyYear

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17

MissouriInMissouribetween1997and2014, theunioncoverageratedeclinedby6.1percentagepoints, from15.8percentto9.7percent(Figures23and24).Theunioncoverageratepeakedat15.8percentin1997andwasatitslowestpointin2014.Between1997and2014,labor’sshareoftheMissourieconomygrewinsignificantlyby0.2percentagepoint,from 56.0 percent to 56.2 percent, and capital’s share of theMissouri economy grew insignificantly by0.1percentagepoints,from38.1percentto38.2percent(Figures23and24).MissouriistheonlyoutlierintheMidwestwherelabor’sshareoftheeconomymarginallyincreased.Unfortunately,anew2017“right-to-work”lawinMissouriwilllikelyreversethisphenomenonofMissouribuckingtheregionaltrend.Figure23:CorrelationsbetweenLaborShareandUnionizationinMissouribyYear

Figure24:CorrelationsbetweenCapitalShareandUnionizationinMissouribyYear

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18

NebraskaInNebraskabetween1997and2014,theunioncoverageratedeclinedby3.3percentagepoints, from12.3percentto10.0percent(Figures25and26).Theunioncoverageratepeakedat13.8percentin1998andwasatitslowestpoint,8.1percent,in2012.Between1997and2014,labor’sshareoftheNebraskaeconomydeclinedby5.3percentagepoints,from54.3percent to49.0percent,andcapital’s shareof theNebraskaeconomygrewby6.7percentagepoints, from39.2percentto45.9percent(Figures25and26).Overall,uniondecline inNebraskaexplainsapproximately18percentofthedropinlabor’sshareofthestate’seconomy.Figure25:CorrelationsbetweenLaborShareandUnionizationinNebraskabyYear

Figure26:CorrelationsbetweenCapitalShareandUnionizationinNebraskabyYear

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Nebraska:LaborShareoftheEconomyandUnionCoverageRate,1997-2014

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NorthDakotaInNorthDakotabetween1997and2014, theunioncoverageratedeclinedby3.2percentagepoints, from10.1percentto6.9percent(Figures27and28).Theunioncoverageratepeakedat10.1percentin1999andwasatitslowestpointin2014.Between1997and2014,labor’sshareoftheNorthDakotaeconomydeclinedby6.6percentagepoints,from55.6percentto48.9percent,andcapital’sshareoftheNorthDakotaeconomygrewby8.9percentagepoints,from 36.3 percent to 45.2 percent (Figures 27 and 28). Overall, union decline in North Dakota explainsapproximately14 percent of the drop in labor’s share of the state’s economy. The energy boom in NorthDakotaresultedinaneconomicboontothestate,butnearlyallofthegainswerecapturedbycapital.Figure27:CorrelationsbetweenLaborShareandUnionizationinNorthDakotabyYear

Figure28:CorrelationsbetweenCapitalShareandUnionizationinNorthDakotabyYear

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OhioIn Ohio between 1997 and 2014, the union coverage rate declined by 6.4 percentage points, from 20.3percentto13.9percent(Figures29and30).Theunioncoverageratepeakedat20.3percentin1997andwasatitslowestpointin2014.Between1997 and2014, labor’s share of theOhio economydeclined by3.4percentagepoints, from57.3percent to53.9percent,andcapital’sshareof theOhioeconomygrewby3.2percentagepoints, from36.5percentto39.7percent(Figures29and30).Overall,uniondeclineinOhioexplainsapproximately55percentofthedropinlabor’sshareofthestate’seconomy.Figure29:CorrelationsbetweenLaborShareandUnionizationinOhiobyYear

Figure30:CorrelationsbetweenCapitalShareandUnionizationinOhiobyYear

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21

SouthDakotaInSouthDakotabetween1997and2014,theunioncoverageratedeclinedby2.5percentagepoints,from8.6percentto6.1percent(Figures31and32).Theunioncoverageratepeakedatjust8.0percentin1997andwasatitslowestpoint,5.8percent,in2013.Between1997and2014,labor’sshareoftheSouthDakotaeconomydeclinedby3.6percentagepoints,from50.4percentto46.8percent,andcapital’sshareoftheSouthDakotaeconomygrewby5.6percentagepoints,from 42.1 percent to 47.7 percent (Figures 31 and 32). Overall, union decline in South Dakota explainsapproximately20percentofthedropinlabor’sshareofthestate’seconomy.SouthDakotaistheonlystateinthe Midwest where capital’s share of the economy exceeds labor’s share. In 2011, capital comprised 49.8percentofthestateeconomywhilelaboraccountedforjust44.9percentofthestateeconomy.Figure31:CorrelationsbetweenLaborShareandUnionizationinSouthDakotabyYear

Figure32:CorrelationsbetweenCapitalShareandUnionizationinSouthDakotabyYear

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22

WisconsinInWisconsinbetween1997and2014,theunioncoverageratedeclinedby7.5percentagepoints,from20.0percentto12.5percent(Figures33and34).Theunioncoverageratepeakedat20.0percentin1997andwasatitslowestpoint,12.0percent,in2012.Between1997and2014, labor’s shareof theWisconsin economydeclinedby2.9percentagepoints, from59.4percent to56.5percent,andcapital’sshareof theWisconsineconomygrewby3.0percentagepoints,from 33.3 percent to 36.3 percent (Figures 33 and 34). Overall, union decline in Wisconsin explainsapproximately75percentofthedropinlabor’sshareofthestate’seconomy.Wisconsin’senactmentof“right-to-work”in2015islikelytoacceleratethetrendofredistributingincomefromlabortocapital.Figure33:CorrelationsbetweenLaborShareandUnionizationinWisconsinbyYear

Figure34:CorrelationsbetweenCapitalShareandUnionizationinWisconsinbyYear

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23

CONCLUSIONSInequality has risen to historically high levels in the United States.While there aremany causes, themostimportant labor market change is the long-term decline in labor union membership. Unions raise wages,particularly for lower-income andmiddle-classworkers. Union decline explains between one-fifth and one-thirdoftheincreaseininequalityintheUnitedStates.Uniondeclinelowerslabor’sshareofthestateeconomiesandraisescapital’sshareoftheeconomy:

• IntheMidwest,thecorrelationbetweentheunioncoveragerateandlabor’sshareoftheeconomyis+0.71andthecorrelationbetweentheunioncoveragerateandcapital’sshareoftheeconomyis-0.70.

• ThestatewiththemostsignificantrelationshipisWisconsin,whereunionizationwashighlycorrelatedwithbothlabor’sshareoftheeconomy(+0.83)andcapital’sshareoftheeconomy(-0.84).

• Recently,unioncoveragerate intheMidwesthasfallenbymorethanthenationaltrend.ThelargestuniondeclinesoccurredinMichiganandWisconsin,where“right-to-work”lawshavebeenpassed.

Union decline accounts for approximately two-fifths (42 percent) of the overall drop in labor’s share ofeconomicoutputacrosstheMidwestfrom1997to2014(Figure35).Figure35:SummaryofChangeinLaborShareDuetoUnionDeclineinMidwestStates,1997-2014

State ChangeinLabor’sShareoftheEconomy

EstimatedPercentofChangeAssociatedwithUnionDecline

NorthDakota -6.6% 14%Indiana -6.0% 19%Nebraska -5.3% 18%

SouthDakota -3.6% 20%Ohio -3.4% 55%

Michigan -3.3% 78%Wisconsin -2.9% 75%Kansas -2.1% 16%

Minnesota -2.1% 82%Iowa -1.6% 55%Illinois -1.2% 90%Missouri +0.2% N/A

Average -3.2% 42%

Unionshelpworkerstakehomealargershareoftheeconomicvaluetheycreate.AsunionizationhasdeclinedacrosstheMidwest,economicoutputhasbeenredistributedfromlabortocapital.


24

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26

APPENDIX

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LaborandCapitalShareofEconomybyUnionCoverageRate

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FigureA:CorrelationsbetweenLabor/CapitalSharesandUnionizationintheMidwest,byYear12StatesintheMidwest

CorrelationBetweentheUnionCoverageRateand:

Year LaborShareofEconomy


1997 0.699 -0.5811998 0.767 -0.6961999 0.759 -0.7022000 0.690 -0.6452001 0.719 -0.7162002 0.641 -0.6312003 0.728 -0.7232004 0.663 -0.6262005 0.550 -0.5662006 0.625 -0.639

12Statesin CorrelationBetweenthe

theMidwest UnionCoverageRateand:Year LaborShare

ofEconomyCapitalShareofEconomy

2007 0.655 -0.6802008 0.834 -0.8502009 0.740 -0.7922010 0.721 -0.7562011 0.821 -0.8282012 0.711 -0.7392013 0.748 -0.7732014 0.681 -0.709

Average 0.709 -0.703

25%

50%

75%

0% 5% 10% 15% 20% 25% 30%

Shareofth

eEcon

omy

UnionCoverageRate



Labor Capital

25%

50%

75%

0% 5% 10% 15% 20% 25% 30%

Shareofth

eEcon

omy

UnionCoverageRate



Labor Capital

Documents

Union Decline and Economic Redistribution DECLINE AND ECONOMIC REDISTRIBUTION: A REPORT ON TWELVE MIDWEST STATES i EXECUTIVE SUMMARY Inequality has risen to historically high levels