Greetings all!
Now that I look at it, it really has been a while
since I last posted something here. Needless to say, I’ve been working out some
issues with this blog, along with struggling to get back into writing after an
odd writer’s block. Regular posting will likely resume in the New Year, but to
bide my time I’ll be posting my research paper I did for my economics of
poverty class this past semester. It covers the link between unionization and
inequality. This week’s quote comes from Carl Sagan, a legendary modern
intellectual.
Unionization
and Inequality: An Economic Analysis
Introduction
Five years into an
economic recession among most developed nations, the issues of income and
wealth inequality have been brought to the forefront of economic discussion. A
piece of debate centers of unionization rates within the nations in question,
chiefly because some of these countries have escaped the hardest throes of
economic suffering while others have fallen by the wayside. If a higher level
of unionization in a nation is a large factor in curbing inequality and thereby
boosting the economy, then such information would be highly valuable. To
determine if this is true, we have taken three developed, western countries for
study over a period from 1970 to 2012: the United States, Canada, and Finland.
The United States is the control, a country in which the unionization rate has
drastically fallen. Canada and Finland are the objects of research, with each
representing a country where unionization rates have steadily fallen and one
where unionization rates have risen, respectively. Will the relative pace of
technological change influence the Gini coefficient of a country, even though
the three countries involved are all relatively equally advanced? Will non-corresponding
years of growth and contraction significantly change the numbers of those
experiencing poverty in these countries? And lastly, will the rate of
unionization among employed persons in these countries reduce the inequality
they experience? We intend to answer these questions by examining the
conditions in each nation separately, and then comparing them in the end.
The United States
The
U.S. is the control for this study because, like most developed countries, its
unionized workers as a percentage of employed persons has been falling for many
years at a speedy pace. At the beginning of the trial period in 1970, the
percentage of employed persons whom belonged to unions exceeded 24% [1].
By 2012, that rate had fallen by more than half, to just 11.3% [2]. And
while union membership levels fluctuated during the 1970s briefly, since then
the progression towards less unionization has been constant and sharp. Despite
some changes to American labor laws since 1970 that have favored unionized
workers, in general the fall in union membership can be contributed to various
factors which emphasized greater flexibility and deregulation of the labor
market since the mid-1980s [3].
We
will now examine the level of inequality in the United States, and whether other
factors may contribute more to it than union membership of those whom are
employed. During the 1970s, the era of stagflation and competing economic
theories to replace Keynesianism [4] led to deep recession, thus
likely explaining the unstable unionization rate during this time period. Since
then however, the United States has mostly experienced consistent economic
growth barring short recessions from 1981-1982, 1990-1991, and 2000-2001. Thus,
it should follow that income inequality levels should have steadily fallen over
said time period, but this is not the case. For example, the relative level of
technological progress and advancement in countries is often considered a large
factor in increasing inequality because new creations replace human workers, thereby
raising joblessness while narrowing the available labor market. Therefore, it
should follow that in nations experiencing similar technological growth,
inequality must be growing as well. However, this is not uniformly the case [5],
as several nations where technology has made leaps and bounds are now less
unequal in terms of income and wealth than they were previously. Another factor
in greater inequality is the restructuring of industries and the shift to
services, wherein fewer people do more work which is generally white collar in
nature, as opposed to the blue collar past. Again, though, this is not always
true [6], as in nations like Poland and Romania the rise of services
and abandonment of heavy industry have led to slight or significant decreases
in the Gini coefficient. Lastly, globalization is often pointed to as being
responsible for major economic shifts towards greater inequality in developed
countries. This is an indisputable fact in developing nations, simply due to
great demand for cheap labor which the less educated populace can’t keep up
with. This study is concerned instead with developed nations, and globalization
has, in many cases, led to less [7] inequality among these countries
like Austria, Belgium, Estonia, etc. Through all this, we can definitively say
that the unionization rate is linked directly to the level of inequality in the
United States.
Canada
Canada
represents the moderate experimental factor in this study. Compared to the
United States, the Canadian unionization rate has fallen at a much slower pace.
Canada has gone from a high union membership percentage of 33.7% in 1997 to
31.5% in 2012 [8], a much less radical drop and a still fair level
of unionized worker representation in the total employed population. In fact,
from 1970 until the late 1990s the unionization rate in Canada grew [9],
from a low of 33.6% in 1970 to a high of 38.1% in 1985. Only since that point
has the union membership rate steadily fallen to where it sits today. While
Canada did experience sharp yet brief recessions in the early 1980s and 1990s
and from 1995-1996, it has mostly gone through strong and constant growth while
maintaining budget surpluses. And, in parallel with the United States, Canadian
public policy has done about the same in terms of protections (or lack of
protections) for workers over the years, giving about the same results when
linked to inequality levels.
And
now, onto the levels of inequality in Canada for the trial period. The Gini
coefficient for Canada approached 0.30 in 1970, falling to a low of 0.281 in
1989, and reaching a high of around 0.32 in 2012 [10]. The initial
fall in the Gini coefficient occurred despite financial and budget shortfalls
during said period, while the rising inequality period only had one significant
recession during 1995-1996. Again, we must examine whether other factors in
Canada’s progression since 1970 have contributed more towards inequality than
the unionization rate; after all, with so many years of growth, Canadian
inequality should have been shrinking. We start with technological growth and
its relation to industry once more. While Canada started the trial period with
less technological advancement than the United States, it has largely become an
equally modern, developed nation. In fact, Canadian infrastructure is in better
shape [11] than infrastructure in the United States [12],
and thus technological changes are likely not a largely differentiating factor.
And, as proven previously in the section on the United States, the
restructuring of industries and shift to services has not been a uniquely
strong piece of the changes to Canadian inequality, especially since similar
nations have experienced less inequality over the time period in question. However,
it should be noted that the primary sector of the Canadian economy represents a
greater portion of the complete Canadian economy [13] than in the
United States. Of course, the final possible influence in differences of
inequality is the impact and spread of globalization in Canada. It can
certainly be noted that the population size of Canada in relation to its scale
of globalization may have a diluting effect on said impact, yet Canada is still
generally considered to be equally as globalized as the United States [14].
As such, rising and lowering levels of inequality in Canada are likely not tied
to the extent of globalization it has experienced. Thus, the union membership
rate among employed persons in Canada must be a greater deciding piece instead.
Finland
Finland,
unlike most developed, modern nations of the west, has seen its unionization
rate from 1970 to 2012 rise, and fairly so. Finland started with 51.3% of its
workers unionized in 1970, rising all the way to 80.7% in 1993 [15],
and then down to 69.0% by 2012 [16]. While the total percentage as a
part of population has fallen since its peak in the 1990s, the union membership
rate in Finland has greatly increased since the beginning of the trial period,
despite population growth. Finland has also fared generally better than either
the United States or Canada over the time period selected, with just one major
recession between 1991 and 1993 [17] during the time period
(excluding the global recession which began in 2008, in which Finland has
experienced brief yet sharp GDP shrinkage). This is in contrast to both the
United States and Canada, both of which have entered recession more frequently
from 1970 to 2012. It should be noted that, also unlike either Canada or the
United States, until the mid to late 1980s Finland did not pursue a liberalized
economic market economy, and thus public policy was likely an element up until
neoliberal policies were put in place.
Based
on trends within this paper, one would expect inequality in Finland to be lower
than either Canada or the United States, and to have fallen over the trial
period. However, this is not universally the case. While the Finnish Gini
coefficient did fall from 1970 at about 0.30 up until about 1986 at about 0.19,
it has risen dramatically since then [18], to about 0.28 in 2006
alone. The Gini coefficient in 2012 is only slightly lower, reaching 0.27 by
the end of the trial period [19]. Despite this
inclination-interrupting knowledge, the other usual aspects which would affect
inequality levels are quite the same in modern Finland. Finland is a
high-technology and knowledge-driven economy, with an infrastructure ranking of
6th in the world [20], 18 places above the United States
and 8 places above Canada. While Finland does have a strong primary sector
based around the timber and forestry industries, services still make up nearly
¾ of all Finnish jobs [21]. And lastly, while globalization has
largely come late to Finland (the Finnish economy was not truly
internationalized until the 1990s), Finland is just as privy to international
trade and markets as the United States and Canada are today [22]. Thus,
it cannot be decidedly concluded that the Finnish unionization rate is linked
to its income and wealth inequality.
Conclusion and Further Analysis
The
hypothesis of this study was as follows: a higher unionization rate among
employed workers in a nation would correspond with lower inequality of income
and wealth among citizens. In addition, we predicted that a rising union
membership percentage over time would correlate with falling inequality. In
both Canada and the United States, these predictions appeared true. Both
nations exhibited the negative situation of the hypothesis, one in which
unionization fell and inequality rose. And yet, Finland disproved the link
between unionization and inequality, and highly so. For as the Finnish
unionization rate has surged over the trial period between 1970 and 2012, the
Gini coefficient for Finland has also risen. Therefore, the hypothesis of this
study must be rejected. While it may be plausible that unionization rates play
a role in inequality, it is a falsehood to say that they are a deciding
attribute.
Therefore,
this means that something else must be providing a grander engine of inequality
in the economies of developed nations. It is possible that currency changes and
revaluations helped drive inequality up or down in Finland, given that said
nation switched to usage of the euro in 1999. However, based on appearances
alone it would seem that public policy is likely a larger factor in determining
levels of income inequality among nations. For the purposes of this study,
public policy was only reviewed on a cursory basis because comparisons are
nearly impossible between Canada, Finland, and the United States. The three
countries started out in 1970 with vastly different national attitudes,
population sizes, economic divisions, and state models. However, certain
aspects of the effect of public policy can be seen individually in these
countries. In the United States, a switch over from Keynesianism in the 1980s
is reflected in the unionization rate, which fluctuated in the 1970s and began
falling shortly afterward. This clearly is linked to the Gini coefficient,
which also rose correspondingly. In Finland, pursuance of the Nordic economic
model dropped off in the mid-1980s, and this too is seen to quickly change the
inequality among Finns. Due to this, we believe closer study of economic policy
between these nations is necessary to determine how linked to inequality public
policy may truly be. For the time being though, it is certain that unionization
rates do not determine income and wealth inequality levels.
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