A Steady Decline in the Union Wage Premium

While regression analyses of wage data from the CPS continue to show an overall average union wage premium, an important trend is worth highlighting, and that is that the union wage premium has steadily decreased over time. This is only possible if nonunion wages are growing faster (or decreasing less) than union wages, on average. And this in fact the case in nearly every sector of the economy with unionized employees.

For instance, the inflation-adjusted nonunion weekly wage in construction increased by 12 percent from 1985 to 2014, but only increased by 1 percent for unionized employees. Similar trends were found in nondurable goods manufacturing, durable goods manufacturing, wholesale trade, retail trade and transportation and warehousing. In fact, in wholesale trade and retail trade, the real average weekly union wage actually decreased from 1985 to 2014 — by 9 and 14 percent, respectively — while it rose significantly for nonunion employees — by 18 and 35 percent, respectively.

These trends are important for young workers to consider if deciding whether to join a unionized workplace or not. If these trends hold, nonunionized workers, while not starting out at as high of pay as their unionized counterparts, might enjoy faster wage growth over time and may end up at a higher wage level later in their careers compared to where they might have been in a unionized shop.

The results of a recent Gallup poll that surveyed union and nonunion workers about their satisfaction with various aspects of their jobs provide additional real-world support for the fact borne out in the data provided above, namely that the union wage premium has decreased significantly since 1985 and is nonexistent in several major industries.

Based on the survey, both union and nonunion workers report equal satisfaction with the amount of on-the-job stress and the amount of money they earn. On one hand, union workers express more satisfaction with fringe benefits such as vacation time, retirement plans and health insurance benefits then nonunion workers. Nonunion workers, on the other hand, report more satisfaction with job safety, recognition for work achievements, their boss, job security, the amount of work required of the worker, chances for promotion and relations with coworkers.[6]

Poll results that find that union workers are less satisfied with aspects of their job compared to nonunion workers are not new. In their 1984 book, Freeman and Medoff, report similar findings.[7] Economist Henry Farber, in a 1990 study, investigates the decline of unionization. Farber found that all of the decline in worker demand for union representation could be explained by an increase in nonunion workers’ job satisfaction and a decline in the belief that unions could improve wages and working conditions.[8] This is consistent with the Gallup poll results and the results from this analysis.