The New Deal Launched Unions as Key to Building Middle Class

Mar 25, 2014Richard Kirsch

This is the first in a series of posts summarizing a new Roosevelt Institute report by Senior Fellow Richard Kirsch, entitled "The Future of Work in America: Policies to Empower American Workers and Ensure Prosperity for All." The report provides a short history of how the rise and decline of unions and then explores reforms in labor policy to empower American workers to organize unions and rebuild the middle class. Today's post describes how union organizing before and after World War II led to the broadest shared prosperity in modern American history.

Americans are split and confused about the role of unions in our economy and society. On the question of the role of unions in the economy, the most recent poll in 2011 found that 45% saw unions as generally helping the economy, while 49% thought unions hurt the economy. As more and more Americans see their hopes for the future dimmed, and as income inequality becomes a defining issue, it is essential that Americans understand how workers organizing unions to demand a fair share of the wealth we generate is essential to rebuilding the middle-class, the key driver of our economy.

For that understanding, we need a history lesson. Before and after World War II, organized workers built a powerful middle class by taking direct action and advocating for government policies to give workers a fair share of economic wealth. But over the past four decades, this pattern was reversed as corporate owners and managers have taken an increasing share of America’s wealth rather than sharing it with workers. As a result, the American economy has sputtered, and more and more Americans are struggling to meet their basic needs.

The Roosevelt Institute draws inspiration from the New Deal and Franklin Roosevelt's achievements in responding to a harsh industrial economy and an immediate economic crisis by building the foundations of a very different economy. The Roosevelt era fundamentally transformed the nature and conditions of work in America, from one in which workers had virtually no voice, power, job security or personal safety to a robust social contract, cemented by law and social norms.

New Deal labor law provided legal protections that enabled workers to organize unions and to negotiate for higher wages and benefits and for safe working conditions. New Deal legislation put a floor under labor standards, establishing a minimum wage and overtime protections that lifted the incomes of workers across the wage spectrum. The New Deal’s social insurance programs, including Social Security, unemployment insurance, government guarantees for home mortgages, and financial support for poor families with children, worked hand in hand with labor organizing and wage standards to build a broad middle class.

Corporate benevolence did not hand working people good wages. It took a massive movement of striking workers, who faced decades of government suppression, to win the right to organize in 1935. After government spending on World War II finally ended the Depression by creating a full-employment economy, it took another massive wave of strikes to secure agreement from some of the nation’s largest corporations to share post-war industry profits with workers.

With the United States standing alone with a strong economy after World War II, and with pent up demand at home and huge needs to meet in a devastated world, many large corporations reached a truce with unions, enforced by the continued strikes, in which the profits from the surging economy were shared with shareholders and workers. From 1947 through the early 1970’s, worker income rose in lockstep with productivity. As the value of output produced by workers increased, so did their compensation. Hourly wages grew steadily until 1972. The share of employers who provided health coverage increased to more than 70%. Pensions became a standard practice in larger corporations.

Outside of the South, there was a public consensus in favor of unions. Republican President Dwight Eisenhower once said, “Only a fool would try to deprive working men and working women of their right to join the union of their choice.” In this context, millions of teachers and local, state, and federal workers joined unions alongside workers who labored in private industries. In 1956, three-out-of four Americans had favorable views of unions.

The higher wages and better benefits won by unions boosted wages at non-unionized companies as well. The wages of workers at non-union firms got a 7.5% boost when at least one-fourth of the workers in that industry belonged to unions.

The New Deal reforms were far from perfect. They left out broad swaths of the American public, largely along lines of race and gender. Domestic workers and farm workers – jobs held widely by African Americans and women in the 1930s – were excluded from the new federal labor rights, from most minimum standards, and from Social Security. New Deal rights were even further restricted in the 1940s, when a major roll-back of labor law enabled states to put up legal walls against increased unionization. These walls were primarily adopted by Southern states, which had the highest proportions of African American workers.

Even with these flaws, unions played a major role in increasing the economic security of women, people of color and the poor. Many unions – although not all –were major backers of the New Deal’s social insurance programs and the anti-poverty programs of the 1960s, including Medicare and Medicaid. As African American workers began to join unions in larger numbers, many were finally able to join the middle class. Even today, union membership boosts the wages of African-Americans by 12%. Other groups who have traditionally suffered from lower wages also benefit from union membership with boosted wages: women by 11%, and Latinos by 18%.

These higher wages and better benefits helped to build a huge middle class in the United States and to level income inequality. When union membership reached its peak between 1943 and 1958, income inequality dropped, as you can see in the chart below. The share of income that went to the wealthiest ten percent of Americans dropped to near 30%. But as the proportion of union members fell, the share of income taken by the wealthiest began to rise again. By 2010, the wealthiest were taking home almost 50% of the nation’s income.

The story of how we got from unions representing one-third of American workers to barely one-in-ten, is told in the next post.

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