May 23, 2018

How Labor Unions Impact Inequality – And Whether That Justifies the Legacy Costs They Leave

Unions recently took some hits in Republican states, but now teachers’ strikes are pushing back and winning. Can unions still be influential in Red America, when they are mostly in the public sector? And are they out to defend their own interests or to play a broader social role? Laura Bucci finds that despite declines, unions still help reduce inequality across states—through policy and the labor market. But Daniel DiSalvo finds public sector unions are also leaving states with burdensome legacy costs, with even Republicans capitulating. In both cases, labor unions are still influencing our politics and economy even after big declines in the private sector.

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Grossmann: This week on Political Research Digest, “How Labor Unions Affect Politics and Policy.” For the Niskanen Center, I’m Matt Grossman.

Unions recently took some hits in Republican states, but now teacher strikes are pushing back and winning. Can unions still be influential in red America when they are mostly public sector? And are they out to defend their own interests or to play a broader social role? New research finds that despite declines, unions still help reduce inequality across states through policy and the labor market.

I talked to Laura Bucci of St. Joseph’s University about her new study in State Politics and Policy quarterly called “Organized Labor’s Check on Rising Economic Inequality in the U.S. States.”

But public unions may also be leaving states with burdensome legacy costs. With even Republicans capitulating. I also talked to Daniel DiSalvo of City College about his new research with Jeffrey Kucik published in Policy Studies Journal: “Unions, Parties, and the Politics of State Government Legacy Cost.” He finds that high public sector unionization leads to greater non-pension liabilities, especially in Republican states.

Until the recent teacher strikes, most thought unions were in permanent decline in both economic and political influence. But at a time of concern about growing inequality, Bucci says unions are still serving to equalize income.

Bucci: States were unions are more dense or have more members tend to be more equal economically, and that isn’t simply just that they’re more liberal places that there’s an excess of unions that just go above and beyond just public policy.

Grossmann: Unions can track the income distribution both in the market and after taxes and transfers.

Bucci: Unions are still able to influence levels of economic equality in the states over time, and that’s from the seventies up until 2014 when I stopped. And they influence the degree of market inequality, so what you take home in your paycheck and post transfer inequality, so after government intervenes how much people make in relation to each other.

Grossmann: Bucci finds union influence policy through the political process but have a bigger direct impact on wages in the economy.

Bucci: The biggest influence that unions have is their work in firm, their ability to influence wages and benefits within the workplace. So we know that inequality should be influenced this way because places where unions are stronger tend to have higher wages for lower income workers. They also tend to have lower wages for those in management. So that’s going to decrease levels of inequality because it’s condensing the scale, but that’s a primarily economic role. It’s a role within workplaces, but we also know that there’s a public policy aspect of this and redistributive policies that are meant to influence members some of the time. But in general it has had broader influence beyond membership.

So we know that unions at this point have been pretty key in discussions of paid leave, maternal leave, minimum wage increases, mandatory overtime compensation, laws like that. So that degree of influence isn’t as direct. It isn’t within the market directly. Its more political. So unions should matter according to both pathways, and they should be able to influence inequality directly as well as indirectly.

Grossmann: The primary impact of unions is at the top of the income distribution suggesting their long-time decline may play a role in increasing concentration at the top.

Bucci: Unions have been in decline for long periods of time, but they haven’t been declining equally across different groups of people. So right now we’re seeing the decline of public sector unions in the same way private sector unions declined years ago. And so it’s a question of who are union member, right, and if those are predominantly middle class people, which a lot of them are, then we’d expect the membership in that group to be influenced by union policies. But I would interpret what I’m finding is that where unions are best able to influence the income distribution is primarily off the top which is where we see inequality growing most rapidly. So they’re able to kind of cap top incomes rather than grow the middle class or shrink the size of low-income folks.

They’re able to cap the top, and therefore it gets redistributed back down. So you could interpret that as helping the middle class or you could interpret it as redistributing across the full scale.

Grossmann: The impact of unions on state policy differences may have come mostly before her data starts in 1976, with states largely sticking with their early patterns of social welfare and labor market policies.

Bucci: ’76 is sort of late in the game. It captures some of the decline, but it doesn’t capture its very beginning. And so what I’m looking at going forward is how states develop pathways to deal with redistribution. And generally we tend to think of this as sort of high involvement within the welfare state and high engagement with workplace regulation or workplace environments or they’re low on both, but for some states we see a sort of higher degree of involvement in mandatory leave and workplace compensation for injury or illness or in sort of pensions schemes, that kind of thing, from an otherwise fairly conservative government.

Or the reverse. So you have a fairly liberal government in most respects, but relatively low levels of workplace protection. And so that’s a more historical argument that I’m working on to try to get at how these systems get set up in the states and then what happens over time as pathways for dealing with grievances kind of go away. So if your primary mode of engagement is complaints within the workplace and the avenue for those complaints aren’t there, how do you rely on welfare states…and are welfare states willing to hear those grievances?

Grossmann: But public sector unions are now facing more political challenges.

Bucci: They’ve been in continual decline and everyone says that they’re dying, but they haven’t died yet.

So it’s this question of what influence are they still having? And how are strategies going to change? And how are politics change in relation to this? Some people say that these right to work campaigns are changing how politics are taking place in the states right now. So that because right to work is existing, because collective bargaining rights aren’t as strong, people are turning to strikes as the primary mode of engagement, and these strikes have been somewhat successful in terms of getting benefits for more people.

Grossmann: The teacher strikes may be different, however, as they have a better image and message.

Bucci: I think that states are also seeing the protests succeed more generally, and that’s putting a lot of pressure to make the strikes stop. I think that has to do with news coverage. I think it also has to do with early success and a narrative that’s pretty compelling for most of these strikes when it comes to who is striking and why they’re striking. One of the types of conversation that we heard in Wisconsin to a large degree, or at least the type of conversation I head coming out of Wisconsin, which was less dire.

Grossmann: Daniel Disalvo’s new study looks at the effects of public unionization and parties on employment benefits.

DiSalvo: What our paper looks at is trying to explain why some state and local governments offer better benefits in retirement to public employees. And better benefits we specify as retiree benefits, but the technical word is other post-employment benefits because it’s not just health care benefits. It can be vision care, life insurance, all kinds of other things, but the big chunk is usually retiree health care benefits. So we try to explain that by looking at the power of public employee unions, and the alignment or share of Republicans or Democrats in the state legislature, and then the ideological composition of those legislatures. We put those factors together, and that’s what our study is about.

Grossmann: Legacy costs are a major burden for state and local governments.

DiSalvo: What scholars really are talking about here is sometimes referred to as legacy costs. This refers to the fact that state and local government employment back loads a lot of compensation into retirement. In two forms basically, the first is pensions and then the second is retiree health care. Our paper only looks at the politics of the retiree health care component, and there’s been much less research on that.

Grossmann: But states differ a lot in the benefits offered, lining up largely with unionization and partisanship.

DiSalvo: There’s lots of variations. You have some states that are very generous and fair retirement benefits to public employees, and other states that are less so. You also have some states that, leaving aside the generosity question, are well-funded in advance on the pension side or have low OPEB liabilities that they are carrying. That if they’re in good fiscal health and others are in bad shape. So what does that really look like? This matches up in some ways with the kind of red/blue state maps that everyone’s familiar with. A lot of the blue states, like my home state of New York or California, are generous state and local government employers offering handsome pensions and generous retiree health care benefits. And then you have states in that basket like Illinois or Connecticut that offer generous pensions but are in very poor fiscal health in terms of funding or financing their pensions and retiree health care. So that’s created obviously big controversies for the politics of those states.

DiSalvo: And then you have on the other side of the spectrum, to go all the way to the extreme, you could have the Utah would be the example of fiscal prudence. Very modest benefits either in pensions or retiree health care. Very well financed. And so in that sense, then you have sort of everything in between. Sort of Illinois on one side and Utah on the other.

Grossmann: DiSalvo finds that Republican states are surprisingly influenced by their unions.

DiSalvo: Public employees are spread out across the country fairly evenly. They’re in every single legislative district in the country, so Republicans who often also have close alliances with public employees in the protective services. Think corrections officers, police officers, firefighters are in some ways likely to be more responsive to those groups. And those employees are also the ones who are likely to make the most use of retiree health care benefits because they’re the most likely to retire prior to medicare. So in that sense there’s a strong incentive for those groups to lobby Republicans. Republicans have certain pre-existing connections with those kinds of public employees and that’s in some sense why we find that they can work their way into the Republican coalition as much as the Democratic one.

Grossmann: With high union Democratic states and low union Republican states at the extremes, the middle influenceable states are mostly Republican states with substantial unions.

DiSalvo: What you find is starting from the position of say the Utah example where you have a situation where you have low rates of public employee unionization and high Republican seat share. You basically have very low retiree health care liabilities, meaning it’s not a generous benefit that’s being provided, and therefore states are not on the hook for paying a lot into this area. Now, in a situation where you have on the other side a strong Democratic seat share on the legislature and high unionization rates, say New York, you end up with very generous or very high OPEB or retiree health care liabilities. Now, in between there the interesting story is about Republicans, so to the extent that unionization rates go up and you have higher republican seat share Republicans will be the kind of flip vote, or swing vote, on this issue and you can end up … And that’s really what’s explaining the variation of the relationship of unions and Republicans.

Grossmann: Disalvo says recent fights against public unions in Republican state were concentrated in a few states and were more salient than legacy cost fights.

DiSalvo: Bigger story is one of continuity, and it’s only been a small group of states that have undertaken to pass right to work laws. Which of course to weaken unions it doesn’t have to mean pass the law and be effective immediately. It’s something that takes a couple of years to take effect, so for our story in the period of time that we look at basically it’s not that much of a complicating factor. Now, why are Republican states with fairly high unionization rates, Michigan where you are and Wisconsin most notably Indiana as well, passing right to work laws? Well, the politics there are much different than the politics of retiree health care. Retiree health care is a technical area. It’s fairly under the radar you could say. There weren’t points to be won in the past by opposing the expansions. Whereas right to work laws are something that’s very public, that’s come to the fore in the wake of the Great Recession that Republicans see they can score a lot of political points. And it’s a much bigger, high profile change where they might have to in some sense push against their union allies.

Grossmann: He sees the teacher strike’s effectiveness as a sign that even weak unions remain influential.

DiSalvo: Unions even where they’re weaker can still be influential and powerful political actors. I think there’s some research by Richard Freeman at Harvard that shows that even in states that public employee unions don’t even have rights to collectively bargain, they can still influence wage rates. Usually increasing them for teachers in particular is what he studied. So what I think what we’re seeing here is partly a story about … in terms of these recent strikes in West Virginia, Arizona, Kentucky, and elsewhere, is one where state budgets have been under enormous pressure since the recession. And even though we’re 12 years into a bull market, they’re still having trouble meeting their pension obligations as pension and especially medicaid costs have risen. They’ve basically flat-lined or held constant or even in some cases cut education spending. That’s been what’s been sacrificed in these state budgets. The result is now outcry from teachers.

Grossmann: He agrees with Bucci that private sector unions can decrease inequality, but he’s skeptical about the public sector’s role.

DiSalvo: On the private sector side, I think there’s been long established evidence for example that higher unionization rates can have what economists call “threat effects” on the surrounding labor markets. Meaning unions raise wages for their workers, which is obviously good for them and there’s lots of evidence to show that that’s what private sector unions do, but it also has the effect of raising surrounding wages in important ways.

And that contributes to the overall story of unions being this force for reducing income or economic inequality.

The public sector side is I think a bit different. There is very little evidence to show that public employee unions win higher salaries for teachers, cops, you name it, and that then influences surrounding wage rates. So, it may be that public employee unions by winning better salaries and benefits for their members slightly decrease income inequality insofar as they pay the portion of the labor market that works for the government more, but, so far as we know, they don’t have this big threat effect that I mentioned that the private sector side has.

Grossmann: Bucci says that even by helping themselves, unions may still be reducing inequality overall.

Bucci: There’s a question about what union’s primary goal is. Is it to members or is it to some broader social justice? And I think that both answers can coexist in the same story. So, if unions are primarily interested in representing the wants of membership, how often do benefits go over to other groups in similar industries?

And there’s some evidence that that takes place more regularly than others might want to say. So if unionized workers are receiving some wage benefit that similar occupations or similar non-unionized firms, pay increases there as well. There is a question that remains about what goals union have…and who those goals are best meant to serve.

Grossmann: Bucci says it’s not yet clear how Democrats will adapt to union change and decline.

Bucci: How unions understand decline and how do politicians react to a group that they perceive as being in decline? So the association between unions and Democrats has been someone tense historically, but that’s organized labor’s clear home within the party structure.

So how do Democrats prioritize or relate to organized labor when the conventional wisdom is that this group is declining somewhat rapidly?

And how do they prioritize their needs with the needs of other groups?

Grossmann: But DiSalvo sees some evidence of fights within the Democratic coalition where legacy cost burdens may eventually trade off with broader desire to expand social welfare and services.

DiSalvo: So we’ve seen Democrats in some ways in opposition in many cases to public employee unions over these benefit questions whether that was in Detroit, in Chicago, in Rhode Island, even in some cases here in New York over a new pension tier after the recession. So in that sense it’s sometimes a intra-Democratic party story of we need to get a handle on these legacy costs because as they’re rising and eating up more of our budgets that’s preventing us from doing all kind of other things that we would like to do elsewhere. Or it’s forcing us to more and more just trying to raise more revenue, and for many of the higher tax states there’s somewhat of an upper bound to how much that they can do on the revenue side.

Grossmann: There’s a lot more to learn. Political Research Digest is available biweekly from the Niskanen Center and on iTunes. I’m your host, Matt Grossman. Thanks to Laura Bucci and Daniel DiSalvo for joining me. Join us next time to find out about ideological divides about genetic versus environmental and individual versus structural factors in human differences.