Worker voice, representation, and power
Research Summary

Reducing Household and Economy-Wide Income Inequality through Labor Market Institutions

Annabel Stattelman ScanlanOctober 17, 2023
Source: The Quarterly Journal of Economics Title: Unions and Inequality over the Twentieth Century Author(s): Henry S. Farber, Daniel Herbst, Ilyana Kuziemko, and Suresh Naidu Original Publication Date: 2021 Read Full Research Article

As several high-profile labor strikes populate the headlines, American support for unions remains high at 68 percent in 2023. Despite continued decline in union density, a majority of Americans believe that unions mostly help both union members and the economy as a whole. Prior research supports this conclusion by showing a connection between high union membership and low income inequality. However, a lack of comprehensive data on unions throughout the 20th century leaves much more unknown about the impact of unions on economic inequality.

Previously, historic data on union membership were limited to the Census Bureau’s Current Population Survey, which introduced a question about union membership in 1973. This groundbreaking study creates a new source of household-level data on union membership by integrating and harmonizing more than 500 public opinion polls between 1936 and 1986. After combining these data with more recent sources, the authors present several new findings on the impact of unions on inequality.

Key Findings
  • As unions expand, they draw in members of historically disadvantaged groups. Before 1943, union members had slightly lower educational achievement and were more likely to be white than the general population. In the 1950s and 1960s, as union membership peaked, analysis shows that members had substantially lower levels of education than nonmembers and were disproportionately nonwhite.
  • Union households have higher incomes than nonunion households, and this difference is greater for households with nonwhite and less-educated members. After controlling for other factors that impact wages, the authors found that union households earn 10 to 20 percent more than comparable nonunion households. This gap can be seen throughout the 20th century regardless of the proportion of Americans in unions and changes in the demographics of union members. Disadvantaged households gained the most by having a household member in a union, meaning that pay disparities in the union sector were smaller than in the nonunion sector.
  • Unions decrease residual income inequality for union members. In addition to promoting equal wages for their members based on observable skills, unions reduce inequality for unobservable traits like uncredentialed trade skills and natural ability.
  • Unions reduce overall income inequality. When union membership peaked between the 1940s and 1960s, several measures of inequality, including the share of income received by the top 10 percent, reached historic lows. As less-educated and nonwhite workers have lower incomes, on average, their increased participation in unions and subsequent higher incomes result in a decrease in economy-wide income inequality.
  • Policies that make union organizing easier permanently increase union membership and reduce state-level income inequality. After the passage of several policies legalizing and promoting collective action, states that were directly impacted saw dramatic increases in the prevalence and reach of unions as well as lower income inequality in the long term.
Policy and Practice Implications

WorkRise has identified the following policy implications to reduce household and economy-wide income inequality:

  • Federal and state policymakers should strengthen public sector unions. In some states, the right of government employees to unionize or engage in other forms of collective action is not legally protected. Other states heavily restrict which employees can organize and under what circumstances. By giving those working in the public sector more bargaining power, policymakers can encourage union membership and reduce income inequality.
  • Legislators should expand the rights conferred in the National Labor Relations Act to cover farm workers, domestic workers, and independent contractors. Like those working in the public sector, these types of employees are not allowed to join unions or strike under federal law. Some states have allowed collective bargaining among agricultural and home care workers, but millions of individuals are still excluded from these basic legal rights.
  • Workers in nontraditional environments should be protected through policy clarification and heightened employment standards. Gig workers, on-call workers, employees of temp agencies, and others engaged in alternative work engagements are often forgotten or excluded from labor laws. When these workers are mislabeled as independent contractors, they cannot form unions, claim overtime, and access benefits. By clarifying legal definitions and enacting tests to confirm employee classification, policymakers can ensure that those working in nontraditional environments have the right to unionize.
  • Right-to-work laws should be repealed or restricted. In the US, 26 states have enacted right-to-work laws that allow employees working at unionized companies to opt out of paying dues. These fees fund union activities and allow them to represent workers and their interests in wage and benefit negotiations. Without them, unions have limited power in collective bargaining.

As membership peaked in the mid-20th century at 35 percent, unions included more members who were nonwhite and did not have higher degrees. By incorporating low-income individuals from disadvantaged groups and working to raise the wages of all members, unions played a substantial role in reducing economy-wide income inequality. Through expanded historical data on union membership, this study found that unions have the power to reduce wage disparities and equalize incomes if they are given the necessary legislative support.

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