Dec 5, 2010

Reduction in unionization helped break the economy


Do unions have any role in today’s society?  Right wing organizations like the Fraser Institute say no but a report from an unlikely source suggests otherwise.  The International Monetary Fund, no left wing organization, has published a paper suggesting the decline of unionization is one of the causes of the financial crisis and an increase in unionization might help prevent it from happening again.

The paper identifies links between the increasing wealth of the wealthy, higher debt among poor and middle income people and our vulnerability to financial crisis.  The rapid growth of the financial sector made the rich richer.  That wealth got recycled down the economic ladder through loans.  But unlike the wealthy, low and middle income households were facing higher debt at the same time that their incomes were not going up.  We saw the results of this cycle starting in 2008.

The paper list a number of reasons for the growing income gap between the rich and the rest.  Post-secondary education plays a role.  So do big bonuses at the top end.  But the paper also sites a report showing that the decline in unionization has also paid a big role in reducing the growth of wages for low and middle income workers.

What needs to happen?  The IMF paper suggests:

restoration of poor and middle income households’ bargaining power can be very effective, leading to the prospect of a sustained reduction in leverage that should reduce the probability of a further crisis.

Bargaining power.  That’s what union do. 

Thanks to the Canadian Labour Congress’s Andrew Jackson who mentioned this report in the Progressive Economics blog that can be found here.

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