Labour union members have always been subjected to more or less constant assault from the wealthy on the grounds that they interfere with free markets and therefore with the creation of wealth. In Britain, the Daily Mail hails a renewed round of legal restrictions on union ‘militants’ as ‘war on the trade unions’.¹ In the US, the National Right to Work Foundation suggests that labour unions indulge in ‘unreported campaign operations to elect and control congressional majorities dedicated to higher taxes and increased government spending’.²

But the idea that labour unions prevent the creation of wealth is simply wrong. If anything, the evidence from the rich Minority World shows the opposite to be true.

There are two related features of this evidence. First, at the heart of the Great Recession is what’s known as a ‘liquidity trap’ – crudely speaking, the stagnation of real wages since the 1980s.

The result has been a lack of ‘effective demand’ – the inability of most people to buy enough of the things that are being produced. That, in turn, has led to a reluctance to invest in producing any more things, and a glut of savings.

Second, inequality has spiralled, with astonishing accumulations of private wealth among a tiny band of individuals. This is bad for an economy as a whole, because the more wealth you have the less of it you need to spend, rather than accumulate, and the less there is for everyone else to spend. The ‘liquidity trap’ is opened wider. You create a society where the rich struggle to make productive – as opposed to profitable – use of their wealth, while the rest struggle just to get by from one day to the next.

These two features have been accompanied by three related trends. The first is a sharp decline in the density of labour unions – the proportion of all employees who are members. In ‘advanced economies’, this fell from over 45 per cent in 1980 to not much more than 30 per cent by 2010 (see graph above). Since the main task of labour unions is to improve wages and conditions, it is reasonable to associate this decline with the stagnation of real wages.

But, second, there’s more than just a reasonable association. Recent research by the International Monetary Fund has found that ‘the decline in unionization is related to the rise of top income shares and less redistribution, while the erosion of minimum wages is correlated with considerable increases in overall inequality.’³ So the ‘liquidity trap’ is set, in large part, by the rise in inequality, the stagnation of real wages and the decline in organized labour that contribute to it.

Finally, the economic performance of ‘advanced economies’ – at least in the conventional terms of Gross Domestic Product (GDP) per head of the population – has fallen in parallel with union membership. In the 1960s GDP grew much faster than in subsequent decades, when its decline has continued along a steady downward trend (see table). The idea that by removing the regressive effect of labour unions you create more economic prosperity is patently false.

So, say what you like about labour unions, they don’t prevent the creation of wealth. With a lot more reason, you might say that they actually promote economic growth, if that’s what you’re after. But that’s not all that labour unions have ever been after. They have, historically, played a vital part in democracy, in the struggle against unemployment and injustice, and in international solidarity. Dispense with organized labour and you dispense with much of that as well.

It may be that the decline of large factories, the rise of corporate globalization, the erosion of union rights and the relentless push for ‘flexible labour markets’ – as well, to be sure, as unions’ own shortcomings – have made it harder for them to organize effectively in wealthy countries. But none of that gives any more substance to the economic myth.

1. The Daily Mail, 27 May 2015. ↩

2. nrtw.org ↩

3. Florence Jaumotte and Carolina Osorio Buitron, Inequality and Labour Market Institutions, IMF, July 2015, nin.tl/IMF-labour-inequality ↩

This article is from the December 2015 issue of New Internationalist.

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