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Jul 25, 2022

A Bigger Piece of the (Apple) Pie: What Unionization Could Mean

Unions seem to be popping up everywhere these days. In fact, the National Labor Relations Board reported that requests for union elections during the last nine months are up 58% over the prior fiscal year. This trend has received significant coverage in the media, with particular interest in successful organization efforts at Amazon, Starbucks and Apple.

How Should We Think About This Trend?

So far, these newly unionized employees represent a small fraction of workers. For example, the union at Apple applies only to workers at the Towson Town Center, a mall near Baltimore. More than 180 Starbucks retail outlets have voted to unionize, but cumulatively, these elections cover only about 2% of the company’s U.S. workforce. Unionization at Amazon has perhaps received the most press because the vote at the Staten Island distribution center covered 8,300 workers — but Amazon is a very large employer. This represents less than 1 percent of Amazon’s domestic workforce. And until recently, the overall trend in the U.S. over almost 70 years has been one of declining union membership.

Another important point, one that has received less attention: These are workers at highly profitable firms demanding a larger share of the profits that they helped to generate. Amazon, Starbucks and Apple are not reflective of most employers in the U.S. These firms have the ability to pay higher wages without risking bankruptcy.

It is important to put this into context. A number of papers have documented a significant decline in the labor share, or the fraction of national income that is allocated to wages, over the last few decades.1,2,3 This decline has been observed across developed countries and is a stark break from past trends. Before the more recent period, the labor share had been remarkably stable. As total income went up, wages went up more or less as a constant fraction. But this changed around 2000. 

Digging more into the data, the industries that have seen the greatest decline in their labor shares are also the industries where market concentration has grown most dramatically, on average.4 The firms driving this are so-called superstar firms, or highly productive firms with large workforces. These firms have seen increasing profits, in large part because of economies of scale related to networks or advances in scalable technologies. Profits at these firms are not being shared with their workers in the same ratio as historical trends, leading to a drop in the aggregate U.S. labor share. The recent unionization effort is fueled in part to reverse this pattern. Workers at Apple, Amazon, Starbucks and other large, profitable firms are asking for a larger share of the profits. It will be interesting to see whether the recent pickup in labor share is related to these trends and a broader shift in bargaining power or just the tightness in the labor market.

The Unionization Trend and Income Inequality

It is important to understand the limitations of this strategy to address broader trends in income inequality in the U.S. The increase in wage inequality is primarily being driven by rising gaps in salaries between high-wage firms and low-wage firms. In fact, Song, et al. (2019) shows that two-thirds of the increase in recent wage inequality can be attributed to growing wage variance between firms.5 These differences across firms are even more stark if you also include nonwage benefits.6 High-wage firms are paying more generous wages that low-wage firms can’t necessarily match. 

Unions are primarily popping up at those firms that already paid relatively higher wages. Amazon’s average starting wage is now $18 an hour. Starbucks expects to pay workers an average of nearly $17 an hour over this summer. These wages are below the U.S. median wage of $21.11 but well above the federally mandated minimum wage, which is now $7.25. 

What Will Unions Achieve? 

We know unions are seeking higher wages. Many unions are also asking for a greater voice in corporate decisions, but if unionized employees do get a greater say in those decisions, will this benefit the economy as a whole? Historically, unions have played an important role in addressing unsafe work conditions and unfair workplaces. But in light of expanded regulatory oversight of labor, do we still need unions to safeguard workers?

One place where unions may place such a role is in regard to COVID-19. As we enter yet another wave of COVID, are firms doing all they reasonably can to protect the health and safety of their workers? Many firms are not, and often this is because doing so would put them at a competitive disadvantage.7 The best solution is for federal mandates regarding COVID precautions that would level the playing field across firms. In the absence of such actions, however, unions can push for adoption of COVID-19 best practices in order to ensure worker safety. 

But any benefits to unions also come with costs. Unions will limit the actions available to firms. Not surprisingly, unionization has been shown to reduce share prices.8 Restricting the flexibility of employers is potentially very costly in today’s ever-changing economy. The net benefits for society will represent a trade-off, leading to gains for some segments of the U.S. economy but also costs for other areas. Given the modest total employment covered by the recent spate of successful unionization efforts, I expect the effects on the economy will be too small to detect. However, if the trend in unionization persists, we could see broader implications.

1 Blanchard, O., & Giavazzi, F. (2003). Macroeconomic effects of regulation and deregulation in goods and labor markets. The Quarterly Journal of Economics, 118(3), 879-907. https://doi.org/10.1162/00335530360698450

2 Elsby, M. W. L., Hobijn, B., & Sahin, A. (2013). The decline of the U.S. labor share. Brookings Papers on Economic Activity, Fall(2), 1-52. https://doi.org/10.1353/eca.2013.0016

3 Karabarbounis, L., & Neiman, B. (2014). The global decline of the labor share. The Quarterly Journal of Economics, 129(1), 61-104. https://doi.org/10.1093/qje/qjt032

4 Autor, D., Dorn, D., Katz, L. F., Patterson, C., & Reenen, J. V. (2020). The fall of the labor share and the rise of superstar firms. The Quarterly Journal of Economics, 135(2), 645-709. https://doi.org/10.1093/qje/qjaa004

5 Song, J., Price, D. J., Guvenen, F., Bloom, N., & Von Wachter, T. (2019). Firming up inequality. The Quarterly Journal of Economics, 134(1), 1-50. https://doi.org/10.1093/qje/qjy025

6 Ouimet, P. & G. Tate (2022).Firms with Benefits?  Nonwage Compensation and Implications for Firms and Labor Market. SSRN. https://ssrn.com/abstract=4112463

7 Wolfe, K., Harknett, K., & Schneider, D. (2021, June 4). Inequalities at Work and The Toll Of COVID-19 (Health Policy Brief). Health Affairs. DOI: 10.1377/hpb20210428.863621

8 Abowd, J. M. (1989). The Effect of Wage Bargains on the Stock Market Value of the Firm. The American Economic Review, 79(4), 774–800. http://www.jstor.org/stable/1827932

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