Power from the People

Source: Florence Jaumotte and Carolina Osorio Buitron, Finance & Development: A quarterly magazine of the IMF, Vol. 52 No. 1, March 2015

The decline in unionization in recent decades has fed the rise in incomes at the top….

….We examine the causes of the rise in inequality and focus on the relationship between labor market institutions and the distribution of incomes, by analyzing the experience of advanced economies since the early 1980s. The widely held view is that changes in unionization or the minimum wage affect low- and middle-wage workers but are unlikely to have a direct impact on top income earners. While our findings are consistent with prior views about the effects of the minimum wage, we find strong evidence that lower unionization is associated with an increase in top income shares in advanced economies during the period 1980–2010 (for example, see Chart 2), thus challenging preconceptions about the channels through which union density affects income distribution. This is the most novel aspect of our analysis, which sets the stage for further research on the link between the erosion of unions and the rise of inequality at the top….