The State Of Unions In America
Union membership among employees of private industry in the United States has steadily declined since World War II. Less than 8% of full time employed workers in private industry are represented by a union. Union representation among government employees has remained relatively constant over this period at levels ranging from 32 - 46%.
The decline in union membership in private industry is partially due to the fact that the group Unions help the most -- lower paid employees with less education -- have seen substantial competition from automation and less expensive labor overseas. Historically, union membership has not provided higher wages for more educated workers. That has hindered union growth. In addition, government has taken on some of unions' traditional roles by mandating minimum wages, overtime and employee benefits.
Unions remain strong in sectors that face less competition from automation or offshoring. Employees in those sectors include airline pilots, nurses, janitorial workers, policemen, firemen, utility employees and government workers.
Government union employees have been able to obtain more meaningful wage premiums than union workers in private industry. More importantly (and not easily measured), government employees receive a substantial deferred compensation premium primarily in the form of pension benefits. The attractiveness of their compensation package is reflected in government employees unusually low “voluntary leave rate” compared to private industry.
Taxpayers may not have been fully aware of the difficulty of funding future deferred compensation liabilities. Hiding government costs from taxpayers is predicted by some economic models that analyze how politicians compete for votes. However public focus on the magnitude of government deferred pensions is growing as union pension and other benefit costs have begun to force cuts in the operating components of state and local budgets.
Union Membership In 2016
This discussion is based on analyzing data from the US Consumer Population Survey (“CPS”) made available by the University of Minnesota through IPUMS-CPS. In order to more accurately analyze relative wages, the CPS data was limited to respondents with wage income, employment status of “At Work” (EMPSTAT = 10), and a work status of “full time” (WKSTAT < 12).
Overall union representation (employees in a union or not in a union, but covered by a union agreement) among full time workers was 13% of full time workers in 2016. Table 1 shows the breakdown by private industry and government in 2016 and 1990.
In 2016, private workers made up 83% of all workers in this data set. Thus roughly 1 in 6 full time workers is employed by the government and paid primarily by taxpayers. Federal government employees make up 3.9% of the workforce; state government employees account for 5.2% and local government employees for 7.9%.
Table 1: Percent Covered By Union Agreements
Table 2 Large Industries With Significant Union Representation
The decline in union membership in private industry is partially due to the fact that the group unions help the most -- lower paid employees with less education -- have seen substantial competition from automation and less expensive labor overseas. Indeed this trend is not unique to the United States as unions have declined in nearly all developed economies. Unions remain strong in sectors that face less competition from automation or offshoring. Employees in those sectors include airline pilots, nurses, janitorial workers, policemen, firemen, utility employees and government workers.
Union Wage Premium
The BLS does a poor job reporting on the difference between union and non-union income as they do not control for education and age. My analysis looks at the Union Wage Premium (“UWP”) defined as the additional wage income union members obtain above what would they would be expected to earn based on their age, occupation, education, sex and race (“AEOSR”).
Tables 3 shows the UWP in private industry has fallen significantly since 1990. It has held constant for Federal union members, fallen modestly for local government union members and fallen significantly for state union employees. It should be noted that these premiums are before paying union dues. Union dues vary by union, but often run between 1.5% to 3% of a worker’s pay. Thus there is little net wage advantage from union representation for the average worker in private industry and state government.
Table 3 2016:Union Wage Premium Statistics: Private vs. Government
UWPs were significant for some employee subgroups, however. Table 4 shows the workforce composition and UWPs by education in 2016. The largest UWPs were generally for those without a college degree. Those with professional degrees or PhDs actually made less than would have been expected based on their age, education, occupation, sex and race. Similar results were reported by the CBO in one of the few careful studies of the cost of government employees relative to their private industry counterparts.
Table 4: 2016: Union Wage Premiums By Education
As education is closely tied to income, it is not surprising that union wage premiums are also greatest for those who would not be expected to earn much based on mean AEOSR income. Table 5 shows workforce compensation and UWPs by expected AEOSR income. Those whose AEOSR expected income was less than $32,000/year in 2016 received UWPs of 16 to 18% relative to their AEOSR wage. Conversely, those expected to make more than $72,0000 based on AEOSR, saw very modest UWPs of 2 to 3% (again, before paying union dues).
Table 5: 2016: Union Wage Premiums By AEOSR Expected Wage
Table 6 shows UWPs for significant government employee groups. Firefighters, school teachers, police officers and secretaries are material beneficiaries of union representation.
Table 6: 2016: Union Wage Premiums For Significant Government Employee Groups
Union Benefit Premiums
While Union Wage Premiums are modest (except for select groups), union members also often receive benefit packages that are better than non-union workers. Unfortunately, good AEOSR-adjusted information on benefits paid to union versus non-union employees is very difficult to obtain (as noted above, the data the BLS reports is meaningless because of their failure to compare similar employees). The closest I could come was the 2012 CBO study cited above which looks at benefits paid to Federal government employees (heavily unionized) versus private industry employees (90%+ non-union). The CBO report’s Table 3 is reproduced below:
The CBO report states that pensions are the primary difference between Federal government benefits and private benefits. The attractiveness of large union benefit premiums helps explain why voluntary departures from government employment run at approximately 1/3rd the rate of voluntary departures within private industry despite the lack of material union wage premiums.
Economists have puzzled over why government employees receive so much compensation on a deferred basis. Studies indicate that government employees themselves don’t prefer deferred compensation, as the value they place on deferred benefits is only approximately 19 cents on the dollar.
A plausible hypothesis was put forth and modeled in a paper that suggests higher deferred compensation is given by politicians who are seeking votes from unionized government employees. Politicians take advantage of information asymmetry due to the fact that government employees understand the benefits they are receiving better than taxpayers who are paying the benefits. The actual costs of future pension obligations occur in the future and are subject to large estimation differences (depending on the return assumed on invested pension plan assets). Thus they are hard for the average taxpayer to understand at the time the benefit is granted.
However public attention to the magnitude of government deferred pensions is growing as the operating components of state and local budgets are increasingly being squeezed out by pension and other benefit costs. Taxpayers are increasingly questioning why they should pay above-market compensation and benefits to government employees. Indeed the rationale for the existence of government unions (Federal labor unions were opposed by Franklin Roosevelt) is not clear. Unlike the case for private industry, there are no claims that government employees work for an entity that is likely to try and underpay them or otherwise exploit them. Governments have no incentive to do so as they lack a profit motive.
Transparent and reproducible: All of the labeled Figures and Tables can be generated using the free, publicly-available R program and the R code available in “Union.r” on github to analyze the publicly available data obtainable from the links in the article.
 IPUMS-CPS, University of Minnesota, www.ipums.org. The data is provided freely but is subject to their licensing restrictions.
 See Table 4 of the BLS JOLTS release. Table 5 also shows that government layoff rates are only 40% of private industry layoff rates.