Falling union membership could be one of the factors causing profits to grow so much faster than wages across the West, according to a new study from Natixis economist Patrick Artus.
“In most OECD countries (the exceptions being France and Italy), the trend has been for a distortion of income in favour of profits,” writes Artus. “In some cases this distortion is such that household demand is reduced without being offset by a rise in business investment.”
He proposes three possible reasons for this change: a fall in wage earners’ bargaining power (either due to falling union membership or simply competition from other markets), a structural rise in the capital intensity of production, or increasing demands for return on equity. To be fair, Artus doesn’t claim to find a definitive answer, though he mostly rules out the middle option.
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Union Membership Falls Dramatically In Europe
There’s a common conception that unions are a much stronger political force in Europe than in the US, but the reality is that it’s just part of a larger Western trend, neither above nor below the curve. If we look at the data, US union membership has fallen by half since 1980, down to 11 percent of the workforce in 2012, but it fell by roughly as much everywhere else. In the UK it fell by about half (49.7 percent to 25.8 percent) as well as in Germany (34.9 percent to 18 percent in 2011).
The US isn’t even the country with the smallest percentage of union membership: French unions fell from 18.3 percent of the workforce in 1980 to just 7.8 percent in 2010, a drop of nearly 60 percent. Spain is the exception, with union membership rising, and Italian membership is much flatter than the other countries listed, but everywhere else it’s a steady three-decade drop.
Whether this is a triumph for business or a loss for workers is largely a matter of opinion, and of one’s politics, but one thing is certain. When people make comparisons between the business environment in Europe and the US, they will have to leave union membership out of the conversation.