Macro Economy

Rising income inequality strongly linked to decline of unions: IMF paper

Aditi Nigam New Delhi | Updated on January 24, 2018 Published on July 27, 2015

The decline in unionisation is related to the rise of top income shares and less redistribution, while the erosion of minimum wages is correlated with considerable increases in overall inequality, says an IMF study.

There is a marked decimation in the power of unions across the world as contractual, casual labour grows





A paper by the International Monetary Fund (IMF) says there is a strong link between the weakening of unions and the rise in income share of the top 10 per cent, leading to growing income inequalities!

Coming at a time when labour unions are finding it tough to keep afloat across the world, the IMF staff discussion paper, ‘Inequality and Labour Market Institutions’ by analysts Florence Jaumotte and Carolina Osorio Buitron, says “The decline in unionisation is related to the rise of top income shares and less redistribution, while the erosion of minimum wages is correlated with considerable increases in overall inequality.”

By weakening earnings for middle- and low-income workers by reducing their bargaining power, de-unionisation “necessarily increases the income share of corporate managers’ pay and shareholder returns....Moreover, weaker unions can reduce workers’ influence on corporate decisions that benefit top earners, such as the size and structure of top executive compensation”, it says.

The paper, however, adds that this doesn’t mean they support blanket measures to increase unionisation, promote collective bargaining or raise minimum wages, as all these require a country-to-country approach.

The IMF paper, based on studies in 20 advanced economies from 1982 to 2010, says it found evidence that “the decline in union density — the fraction of union members in the workforce —is strongly associated with the rise of top income shares,” adding that “unions help raise wages, both for members and the community at large and can affect income redistribution through their influence on public policy.

The other factors behind rising income inequality are institutional, such as financial deregulation and lower top marginal tax rates, it adds.

The paper cautions governments that wage inequality may hinder their ability to react to shocks, as it incites political instability. Also, it may limit opportunities for the poor to invest in education and entrepreneurial activity.

The paper is significant as it comes at a time there is a marked decimation in the power of unions across the world, along with growing contractual and casual labour.

In India, 11 trade unions in India, which have given a call for a country-wide strike on September 2, have also listed problems in getting unions registered among their demands. It is a different matter, though, that over 90 per cent of the Indian workforce is in the unorganised sector and are not unionised.

Published on July 27, 2015
This article is closed for comments.
Please Email the Editor