That was then. Membership in labor unions has been falling since the 1950s. As of 2017, just 10.7 percent of wage and salary workers in the U.S. belonged to a union; that is half of what it was in 1983. The share of unionized workers in the private sector is even lower, at 6.5 percent.
A turning point in the fate of unions came when President Ronald Reagan fired striking members of the Professional Air Traffic Controllers Organization. A number of states, especially in the South, passed laws making it harder for unions to organize. As union membership declined, so did the ability of workers to win pay increases from employers. This ties in to the next point.
No. 3. Capital was rewarded instead of labor: We can point to the Reagan, Clinton, Bush and Trump administrations for various changes to the tax code that were much friendlier to capital than to labor. Capital gains taxes fell, as did the top income-tax brackets. Policies that were extremely shareholder friendly were also put into place. Although income inequality has been rising for decades, these four administrations had an outsized impact.
Despite huge increases in output and productivity during the past six decades, a shrinking share of those gains have been falling to workers. Although household income rose during this period, much of the gain can be attributed to the rise of the two-income family, as large numbers of women entered the workforce.
No. 4. The vast American middle class was a historical aberration: My pet thesis, admittedly not particularly one well-supported by data, is that the broad sharing of so much of the nation’s wealth was an anomaly, the result of an unusual confluence of forces that sprang from the Great Depression and World War II. It was a one-off that couldn’t resist powerful historical forces.
Let’s back up a bit. During the feudal era and early stages of capitalism, much of the population was impoverished and either engaged in agriculture, and later on, factory work; above that was a small cohort of craftsmen, shop owners and merchants; above that was an even smaller class of nobles and royals — and later on, industrial magnates — with fabulous wealth at their disposal. Extrapolate that to the present, and we have the working poor, the middle class and the professional class, and a similar pyramid-shaped wealth distribution.
The Great Depression wiped out much of the wealth of the richest Americans. Then, after World War II, 16 million American soldiers returned home. The GI Bill gave them a chance to get a college education; pent up postwar consumer demand meant manufacturing jobs were plentiful and well-paying. Most of the rest of the world was in ruins at the time so there was little competition for U.S. industry. From the American perspective, all seemed good.
Or it was until mean reversion began to rear its head. These postwar factors faded during the following decades. Eventually, the economy returned to its prewar stratifications.
The U.S. economic expansion is both robust and weak, broad and narrow, higher and lower than before the financial crisis. How these economic gains have been distributed is likely to have an impact for decades to come.
This column was provided by Bloomberg News.