The following is a reproduction of an article originally published in Jacobin written by Law of Work blog host David Doorey and Jim Standord, economist and director of the Centre for Future Work.   This article is based on material in the forthcoming third edition of The Law of Work by David Doorey (Emond).

Union Density Lowers the Income Share Going to the Top 1%

Strong unions can reduce inequality in society through various means. Most directly, through collective bargaining, they lift wages for union members and negotiate other employment benefits that stabilize incomes and secure household financial well-being for union members.

Within workplaces, unionization also correlates with reduced wage disparities among workers. This is because wages are determined through transparent, negotiated wage schedules that consider factors like seniority and experience, rather than relying on arbitrary management decisions or favoritism.

In the policy and political arenas, unions play a significant role in advocating for public programs that contribute to reducing inequality. This includes support for programs such as public pensions, unemployment insurance, and the implementation of more progressive taxation systems.

Finally, by lifting labor costs and limiting the unilateral authority of management, unions may reduce the profitability of private firms. However, the potential negative impact on profitability may be mitigated by the positive effects of unionization on labor productivity. When unions are able to redistribute income from capital to labor, they can limit the incomes received by the owners and top managers of those companies. This reduction applies to various forms of profit-dependent income such as management bonuses, stock options, and dividends, which are disproportionately obtained by the richest segments of society. This, in turn, produces a further moderation in income inequality across households.

The combined effect of these impacts of unions are visible in recent data on income inequality and trade union density in Canada. While Canada’s overall union coverage rate, indicating the proportion of workers covered by a union collective agreement, is higher than that in the United States, it has declined modestly in recent decades. This rate, which was approximately 35 percent during the 1980s and early 1990s, currently stands at about 30 percent.

In the same period, the share of national income captured by the richest 1 percent of Canadian households has increased significantly: from under 10 percent of national income until the early 1990s to 14 percent today (with even higher shares experienced during stock market peak years, such as 2007 or 2015). The following chart illustrates this inverse relationship between union coverage and top income shares.

Some of the channels linking union power to greater equality listed above are driven by overall union membership and coverage. But some are especially important in the private sector — primarily through the impact of unionization on business profits and hence on the capital income flows received by the richest households.

Unfortunately, annual data on trade union coverage in the private sector in Canada is not available before 1997. Occasional data points are provided by census surveys and other irregular sources. The following table compares the erosion of private sector trade union coverage (which has been more rapid than the erosion of overall union coverage in Canada), to the growth of top incomes.

Private sector union coverage has been halved since 1970: from 32 percent to 15 percent. Meanwhile, the top 1 percent’s share of national income has almost doubled in the same period: from 8 to 14 percent. This unmistakably demonstrates that the reduced capacity of workers in Canada to use collective bargaining to wrest a greater share of income from private sector employers has translated into a rising share of income for the richest Canadians.

Another instructive comparison can be made between Canada and its southern neighbor. Canada and the United States share many economic characteristics, but there is a stark difference in the more resilient state of Canadian unions. Overall union coverage in Canada is now almost three times higher than in the United States (30 percent versus 11 percent). Coverage in the private sector is 2.5 times higher than in the United States (15 percent versus 6 percent). Not surprisingly, the share of national income received by the richest 1 percent in the US is significantly higher than in Canada: 19 percent versus 14 percent north of the border.

The moderated intensity of inequality in Canada is not solely due to stronger unions, of course. Other policies, such as higher and more progressive taxes, more generous public programs, and larger redistributive transfer payments are also vital in moderating inequality. However, those programs, too, owe their viability in part to the continued influence of trade unions in shaping political and social discussions within Canada.

Directly and indirectly, therefore, trade unions play a vital role in strengthening the capacity of workers to win a larger share of the economic wealth they produce, and correspondingly constraining the ability of employers and owners to extract maximum economic surplus. The statistical evidence shows that Canadian unions are effectively fulfilling this role. However, to continue to play that role, unions will need to devise strategies to halt and reverse the steady decline of union power that is visible in Canada’s private sector economy. Updating labor laws to extend the reach of collective bargaining to more private sector workers will help that cause, as will a heightened commitment by the Canadian labor movement to prioritize organizing in the years to come.