- 2018 IPUMS USA Published Research Award Winner
In contrast to the recent experience, income inequality in the United States declined sharply around the middle of the twentieth century, an event that Goldin and Margo (1992) termed the “Great Compression.” Compared to the recent era of rising income inequality, our understanding of the earlier compression of wages is far less developed. In this paper, we exploit new data sources and empirical strategies to assess whether the rise of labor unions contributed substantially to the “Great Compression.” From the late 1930s to the early 1950s, union membership increased from approximately 11 to 30 percent of nonfarm employment. We adopt a difference-in-differences regression strategy to measure the association between changes in union density in the 1940s and changes in local inequality, conditional on other factors that may have simultaneously affected local wage structures. In essence, we test whether places with larger increases in union density tended to have larger declines in wage inequality. Therefore, isolating the role of unions, apart from the many other influences on the wage structure, poses difficult measurement challenges. Nonetheless, we find strong evidence that places that were “more exposed” to increases in unionization due to their pre-existing industrial structure experienced sharper declines in wage inequality during the 1940s, while controlling for several other factors such as the distribution of war contracts to local producers. This correlation extended at least until 1960, as did the “Great Compression.” Thus, the evidence is consistent with the hypothesis that unions caused a substantial amount of wage compression around mid-century.
Suggested citation: “Collins, William and Gregory Niemesh. (2019). “Unions and the Great Compression of American Inequality, 1940-1960,” Economic History Review, 72(2): 691-715.