Myth 8: Unions stop us making money

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Myth 8: Unions stop us making money


Rich people always say that Labour union members make problems for free markets and so with people making money. In Britain, there are new legal restrictions on union ‘militants’ and the Daily Mail calls them a ‘war on the trade unions’.

But the idea that labour unions stop people making money is simply wrong.

The evidence from the rich Minority World shows the opposite is true.

There are two parts of this evidence. First, at the heart of the Great Recession is the fact that real wages have gone down since the 1980s. The result has been most people cannot buy enough of the things that are produced. And so people do not want to invest money in producing more things, and people are saving most of their money.

Second, inequality is worse with only a few people who are very rich. This is bad for the economy because if you have more money, you need to spend less and there is less for others to spend. You make a society where the rich find it difficult to make productive use of their money and the others find it difficult to live from one day to the next.

There are three changes along with these two parts. The first is a big reduction in the numbers of workers joining labour unions. In ‘advanced economies’, this fell from over 45 per cent in 1980 to not much more than 30 per cent by 2010 (see graph above). The most important job of labour unions is to improve wages and conditions and so it is not surprising that real wages have gone down.

Second, research by the International Monetary Fund shows that with fewer people in the unions there is a rise in top income shares and less redistribution. And the decrease in minimum wages goes with big increases in inequality. When people do not have enough money to buy the things produced, there is a the rise in inequality, real wages go down. and there is less organized labour.

Third the economic success of ‘advanced economies’ – Gross Domestic Product (GDP) for each person in the population – has fallen as fewer people join unions. In the 1960s GDP grew much faster than in later years (see table). The idea that fewer people joining unions means you make more money is wrong.


So, labour unions don’t stop us making money. They make economic growth, if that’s what you want. But that’s not all that labour unions want. They have played a very important part in democracy, in the fight against unemployment and injustice, and in international solidarity. If you take away unions, you take away a lot of that too.

It is possible that the reasons why unions find it difficult to organise in rich countries are: fewer large factories, more globalization, fewer union rights, the need for ‘flexible labour markets’, and the unions’ own problems. But none of that supports the economic myth.


(This article has been simplified so the words, text structure and quotes may have been changed).