Labor unions — the first line of defense against wage cuts and the reduction of employee benefits —  declined massively during the Reagan Administration, and this decline has had drastic consequences for the American worker. Unions ensure that employees have a voice in negotiating benefits with their company. Without them, wages drop drastically and employee benefits become either minuscule or nonexistent.

So, how did we get here?

The economist Paul Krugman provides an overview of the last century of economic history to explain this trajectory. Kurgman calls the time from 1917 to early 1930’s The Long Gilded Age, a time of great economic inequality. He then goes on to discuss the period of economic and social change between the late 1930’s to the early 1970’s, calling it The Great Compression, an era that began to close the wage gap between the richest and poorest Americans. Not coincidentally, this period coincided with the peak of unions. Krugman calls the third stage The Great Divergence / The New Gilded Age, which started in the late 1970s and goes into to the present day, where economic inequality is at a new peak. The strength of unions is far from the only reason there was less economic inequality in the middle of the century, but it is an important variable that bolstered a strong middle class.

This chart shows the share of the richest 10% of the American population in total income (an indicator that closely tracks many other measures of economic inequality) over the past 90 years, with information calculated by economists Thomas Piketty and Emmanuel Saez:

As the chart shows, the richest Americans now hold a much higher percentage of the total wealth in this country than they did in the middle of the twentieth century, almost approaching what we saw during the Long Gilded Age. This is largely due to deunionization, as many workers no longer have the strength of unions to help maintain a living wages.

The International Monetary Fund concludes that the wage disparities in the current era are largely due to the loss of unions. “[Examining] the relationship between various inequality measures (top 10 percent income share, Gini of gross income, Gini of net income) and labor market institutions, as well as a number of control variables. These controls include other important determinants of inequality identified by economists, such as technology, globalization (competition from low-cost foreign workers), financial liberalization, and top marginal personal income tax rates, as well as controls for common global trends in these variables. Our results confirm that the decline in unionization is strongly associated with the rise of income shares at the top. While causality is difficult to establish, the decline in unionization appears to be a key contributor to the rise of top income shares. This finding holds even after accounting for shifts in political power, changes in social norms regarding inequality, sectoral employment shifts (such as deindustrialization and the growing role of the financial sector), and increases in education levels.”

With deunionization, companies are no longer obligated to offer benefits such as maternity leave and health coverage, nor do they need to negotiate fair wages for their employees. Today’s labor market is geared towards efficiency – where every part and every worker is replaceable. Many retirees reflect on a time when they were able to feed their family, buy a home, buy a car, and still have leisure time – all on a unionized salary. That was the American dream, but today it is just a hopeful thought.