by William J. Collins (Vanderbilt University) and Gregory T. Niemesh (Miami University)

This article is published by The Economic History Review, and it is available on the EHS website.

Rising income inequality in the United States has attracted scholars’ attention for decades, resulting in an extensive and detailed literature on the trend’s causes and consequences. An equally large but much less studied decline in income inequality occurred in the US during the 1940s. This led to an era of relatively compressed income inequality that lasted into the 1970s. Goldin and Margo (1992) called this ‘The Great Compression.’

Our recent research has explored the role of changing labour market institutions in contributing to the Great Compression, with a focus on the role of labour unions. In the US, labour unions rose to prominence starting in the late 1930s, following the Wagner Act of 1935 and a Supreme Court decision in 1937 upholding the Act. This recast the legal framework under which unions formed and collectively bargained by creating the National Labor Relations Board to oversee representation elections and enforce the Act’s provisions, including prohibitions of various ‘unfair practices’ which employers had used to discourage unions. Unions continued to grow through the 1940s, especially during the Second World War, and they peaked as a share of employment in the early 1950s.

Time series graphs of union density and income inequality over the full twentieth century in the US are nearly mirror images of each other (Figure 1). But it is difficult to evaluate the role of unions in influencing this period’s inequality due to limitations of standard data sources. The US census, for instance, has never inquired about union membership, which makes it impossible to link individual-level wages to individual-level union status in nationally representative samples for this period (see Callaway and Collins 2018 and Farber et al. 2017 for efforts to develop data from other sources). Research on US unions later in twentieth century, when data are more plentiful, highlight their wage compressing character, as does some of the historical literature on wage setting during the Second World War, but there is much left to learn.

Figure 1: Unions and income inequality trends in the 20th-century United States

Sources: See Collins and Niemesh (forthcoming).

In a paper titled ‘Unions and the Great Compression of wage inequality in the United States at mid-century: evidence from labour markets,’ we provide a novel perspective on changes in inequality at the local level during the 1940s (Collins and Niemesh, forthcoming). The building blocks for the empirical work are as follows: the “complete count” census microdata for 1940 provide information on wages and industry of employment (Ruggles et al. 2015); Troy’s (1957) work on mid-century unionization provides information on changes in unionization at the industry level over the 1940s; and subsequent censuses provide sufficient information to form comparable local-level measures of wage inequality. We use a combination of local employment data circa 1940 and changes in unionization by industry after 1939 to create a variable for local ‘exposure’ to changes in unionization.

We ask whether places with more exposure to unionization due to their pre-existing industrial structure experienced more compression of wages during the 1940s and beyond, conditional on many other features of the local economy including wartime production contracts and allowing for differences in regional trends. The answer is yes: a one standard-deviation increase in the exposure to unionization variable is associated with a 0.072 log point decline in inequality between the 90th and 10th wage percentile in the 1940s (equivalent to 32 percent of the mean decline). The association between local union exposure and wage compression is concentrated in the lower part of wage distribution. That is, the change in inequality between the 50th and 10th percentile is more strongly associated with exposure to unionization than the change between 90th and 50th percentile. As far as we can tell, this mid-century pattern was not driven by the re-sorting of workers (e.g., high skilled workers sorting out of unionizing locations) or by firms exiting places that were highly exposed to unionization.

We also explore whether the impression unions likely made on local wage structures persisted, even as private sector unions declined through the last decades of the twentieth century. In fact, the pattern fades a bit with time, but it remains visible to the end of the twentieth century. We leave for future research important questions about the mechanisms of persistence in local wage structures, non-wage aspects of unionization (e.g., implications for benefits or safety), implications for firm behaviour in the long run, and international comparisons.

To contact William J. Collins: william.collins@Vanderbilt.Edu

To contact Gregory T. Niemesh: niemesgt@miamioh.edu

Notes

Callaway, B. and W.J. Collins. ‘Unions, workers, and wages at the peak of the American labor movement.’ Explorations in Economic History 68 (2018), pp. 95-118.

Collins, W.J. and G.T. Niemesh. ‘Unions and the Great Compression of wage inequality in the US at mid-century: evidence from local labour markets.’ Economic History Review (forthcoming). https://doi.org/10.1111/ehr.12744

Farber, H.S., Herbst D., Kuziemko I., and Naidu, S. ‘Unions and inequality over the twentieth century: new evidence from survey data.” NBER Working Paper 24587 (Cambridge MA, 2018).

Goldin, C. and R.A. Margo, ‘The Great Compression: the wage structure in the United States at midcentury.’ Quarterly Journal of Economics 107 (1992), pp. 1-34.

Ruggles, S., K. Genadek, R. Goeken, J. Grover, and M. Sobek. Integrated public use microdataseries: version 6.0 [Machine-readable database]. (Minneapolis: University of Minnesota, 2015).

Troy, L., The distribution of union membership among the states, 1939 and 1953. (New York: National Bureau of Economic Research, 1957).