Unions Help Middle Class Families Save for Their Future

The loss of unions has done real harm to American families’ financial security. Declining union membership, for one, contributes to massive wealth inequality.

Many families struggle to deal with economic emergencies, have a hard time getting ahead and face an uncertain retirement, partly because a key to building middle class wealth, the labor movement, has diminished in importance.

Wealth is key to families’ economic security. It is a way to handle the fallout from a financial emergency, such as a layoff or a large medical bill. Yet, four in ten adults could not pay for a $400 emergency without borrowing or selling assets in 2017, meaning they had no or very few emergency funds.

It is also a means to achieve economic mobility. Wealth allows families to move to a neighborhood with more desirable schools, finance a start-up or invest in an existing business, support a career change when new and better opportunities arise and help pay for their children’s education. The lack of wealth then leaves a growing number of families with more limited opportunities to get ahead.

Families also need substantial wealth in retirement accounts, other financial assets and home equity to supplement their future Social Security checks and enjoy a secure retirement. Yet, about half of all working families do not have enough to make ends meet and face an insecure retirement, with possibly large and painful cuts to their spending in retirement.

The growth in wealth inequality then has gone along with a decline in union membership. My co-authors and I showed in a 2016 paper that union families had greater wealth than non-union ones. Based on the Federal Reserve’s Survey of Consumer Finances, we calculated in an update that, from 2010 to 2016, union families had a median wealth of $80,993 (in 2016 dollars) compared to $45,025 for non-members — a difference of 80%. But, the share of workers in a union has steadily declined over the past thirty years, giving fewer and fewer workers access to the benefits of a collective bargaining agreement that helps families build wealth for their future. Fewer union members has meant rising wealth inequality.

The difference in family wealth by union membership is even more stunning when considering that these numbers do not account for families having a defined benefit (DB) pension. From 2010 to 2016, 52.8% of union households could expect benefits from a DB pension, while only 19.8% of non-union households could. Union membership translates into a real boost to retirement security because they are more likely to have both a DB pension and substantial savings.

Unions help families save more in three ways. First, union members enjoy a wage premium thanks to collective bargaining. These higher wages make it generally easier to save. Higher wages also mean that families receive more tax incentives to save on their own, for instance, in a 401(k) plan. Because the tax code is progressive, higher income earners receive a greater boost in their after-tax income from deducting their contributions than is the case for lower-income earners.

Second, union members are more likely than non-union members to have a wide range of benefits from their employer. These include health insurance, DB pensions and life insurance, to name the most common ones. Having such benefits then again frees up more money for union households to save in other ways, for example, by buying a house and building up home equity. From 2010 to 2016, for example, union members had a homeownership rate of 74.3%, compared to 63.6% for non-union members.

Third, union members have more job stability. Collective bargaining agreements make it easier to engage with employers on job related concerns and thus fewer reasons to just leave when things are not working out. They also establish processes for promotion, which means incentives to stay on a job longer. As a result, union members are more likely to stay with one employer for longer periods of time than is the case for non-union members. Greater job stability then makes it easier for people to plan for the future and less likely for families to have to dip into their savings to cover the costs of a job switch such as a new commute, a possible move, and training. And, more job stability makes it more likely that people qualify for key benefits such as 401(k)s.

It’s Labor Day. This is not just a time to grill in the backyard and bemoan the end of summer. It is also a time to think about the future of unions and Americans’ financial security. Improving the long-term financial security of American families requires rebuilding unions by making it easier for people to join a union.

Source: Forbes
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