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Unions Are Key to Tackling Inequality, Says Top Global Financial Institution

Rising inequality is directly tied to waning rates of unionization, says a groundbreaking report released recently by the International Monetary Fund.
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This post is co-authored by Gregory Randolph.

Rising inequality is directly tied to waning rates of unionization, says a groundbreaking report released recently by the International Monetary Fund. Tackling the escalating problem of inequality -- which endangers democratic institutions, limits economic mobility, and constricts economic growth -- requires restoring the rights of workers in the United States and around the world to bargain collectively.

The findings couldn't come at a more crucial moment. Estimates suggest that 1 percent of the world's richest control 48 percent of the world's $263 trillion in net household wealth. Global real wage growth has decelerated, and six years after the economic crisis, it has yet to return to pre-crisis levels. These trends coincide with steadily declining trade union density. In the world's most advanced economies, where rates of unionization tend to be the highest, trade union density has decreased from 20.8 percent in 1999 to 16.9 percent in 2013. Today, only about one in 10 American workers is part of a union.

According to the IMF's study, "the decline in unionization is strongly associated with the rise of income shares at the top." The report illustrates that about half the income share gains made by the world's wealthiest 10 percent are due to the decline in unionization.

The report goes further to suggest that high rates of inequality are "allowing top earners to manipulate the economic and political system." This isn't Elizabeth Warren speaking; it's the global financial institution once popular with the likes of Ronald Reagan and better known for advocating hard-nosed fiscal policy.

Technology and globalization have long been blamed for the rising levels of national and global inequality. In some cases, the former can displace workers and increase the profit share of those who own the technology. Globalization, meanwhile, spreads production across diverse economies, which often widens the income gap between shareholders and the workers at the other end of the supply chain.

But unlike technological progress and globalization, low rates of unionization are actually something policymakers can and should want to reverse. This new evidence illustrates that reinforcing the right to collectively bargain may be one of the most practical solutions to the global problem of soaring inequality.

In countries like the United States, politicians are engaged in heated debates around collective bargaining rights. These findings from a non-partisan institution show that supporting unions is common sense economics for any country concerned about the detrimental effects of extreme inequality.

Beyond reinforcing collective bargaining rights, lawmakers in the United States and around the world must also address the broader reasons behind eroding union density. Partly to blame for historically low levels of union membership is the rising number of temporary workers and those who -- unable to find full-time jobs -- resort to part-time work or self-employment. A new policy framework is needed to empower those workers with the right to collectively bargain.

Skeptics will quickly retreat to a tired argument -- that powerful unions increase unemployment by discouraging hiring among employers. But the new report studied the relationship between union density and unemployment and found that the "empirical support for this hypothesis is not very strong."

As governments and the private sector struggle to shore up a weak economic recovery around the world and boost employment, they must bear in mind that job creation policies will only bring shared prosperity and the promise of sustained economic growth if they are linked to the basic right of collective bargaining. Unions have a pivotal role to play in building a more inclusive global economy.

Sabina Dewan is Executive Director of JustJobs Network, an independent global research institute influencing the policy debate on one of the most critical questions of our era: how to create more and better jobs. Gregory Randolph is the organization's Deputy Director.

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