A blockbuster question is one that people won't ask, not only because they're afraid of the answer but also because they don't even want to be associated with the question. Usually, these are the questions that most need asking. One such question is: Do unions cause inflation?
Compared with most societies, America is not a class-conscious place, but if you ask this sort of question, you're likely to be accused of being a union-hater and an apologist for business. Even most corporate executives no longer publicly broach the subject because they wish to bury the cruel antiworker, robber-baron image that it inevitably evokes. But mere silence won't put the issue to rest.
Well, we finally have a good study that dares ask the question. It comes from the Brookings Institution and is written by Daniel J. B. Mitchell, an economics professor at the University of California (Los Angeles).
Mitchell's book suffers from a defect common to most serious economic studies: The average citizen can't read it. There is too much jargon, too many regression equations and too little straightforward prose. But between all the coefficients, there's a mountain of fascinating information with important implications for the economy in the 1980s.
Let's look at some of Mitchell's information first.
If you believe union power derives from the proportion of workers who belong to unions, it's on the wane. In 1976, union members represented about 20 percent of the labor force -- which includes the unemployed -- and 24.5 percent of nonfarm employment. In 1955, those figures were 24.7 percent and 33.2 percent, respectively.
There are a lot of theories to explain this decline. The growth of white-collar employment, the expansion of service industries and the increase in the number of women in the work force are all said to have hampered union growth. Mitchell is skeptical.
After examining all the studies, he believes that the most obvious explanation is still the best: Social unrest during the Depression -- and the accompanying passage of the Wagner Act in 1935 establishing collective bargaining rights -- promoted the unionization of key industries.
In 1930, union members constituted only 6.8 percent of the labor force. Consolidation and expansion continued after World War II, but Mitchell's basic point is that your chances of being unionized depend basically on whether your industry happened to be organized in the Depression. Most growing postwar industries -- such as computers -- aren't heavily unionized.
If, however, the power of unions relates to what they can do for their members, then it may have increased in the past 15 years. Using a number of different sources of information, Mitchell compares the "real" wage gains -- that is, after adjustment for inflation -- of industries with high unionization and those with low unionization.
The story was the same. In the 1950s and in the 1960s, all workers received higher real gains than in the 1970s, but unions were better able to maintain gains in the 1970s.
Not all unions did equally well. For example, clothing workers -- in a highly competitive industry facing stiff foreign competition -- did not fare so well. But the following table, which shows annual real wage gains, indicates that workers in highly unionized industries did best: Unionization (TABLE) (COLUMN)High(COLUMN)Low 1953-58(COLUMN)2.8%(COLUMN)2.2% 1958-64(COLUMN)2.1(COLUMN)2.0 1964-71(COLUMN)1.4(COLUMN)1.3 1971-76(COLUMN)1.3(COLUMN)0.2(END TABLE)
In general, Mitchell believes that unions focus heavily on obtaining new benefits. Either they don't believe that higher company labor costs threaten jobs or they think that the job losses for a small minority are an acceptable price to pay for substantial wage and benefit increases for the majority.
Put all this together, and you can answer Mitchell's basic question about the unions' relationship to inflation. It's difficult to judge unions a major villain in getting the inflation bandwagon rolling. Their size in relationship to the labor force and their premiums in wage gains in the 1950s and 1960s were too small.
Now, the effect is probably larger. The great frustration of economic policy is that past inflation breeds future inflation; workers' wages reflect past price increases and create future ones. The fact that wages and benefits do this more than average exaggerates inflationary momentum.
In a world where oil price increases are beyond our control, restrictive government anti-inflation policies then collide with rigid wage-setting practices and produce added unemployment.
You can read this analysis as having sharply different implications for unions in the 1980s. A resurgence of union growth seems conceivable. Mitchell discounts the prospect, but the experience of the Depression is worth remembering.
If social unrest favors unionism, poor economic performance in the 1980s may aid union organizing efforts. People may feel they need the added protection of union bargaining.
But it's also arguable that the union sector will feel the effects of economic slowdown most severely -- not so much in lower wage rates as in higher joblessness. Over long periods of time, industries with excessive labor costs can become uncompetitive.
That's part of what has happened to the steel and auto industries. In the 1980s, the volume of sales that U.S. auto companies can recapture from imports with new fuel-efficient models will depend heavily on pricing. And pricing depends heavily on wages.
The distinctive thing about union workers is that they are more political than most. If unionized sectors are hurting and, at the same time, more workers are seeking union protection, then economic life will become more politicized.
In any case, Mitchell is pessimistic about the inflation outlook. He is skeptical about the usefulness of wage-price guidelines and believes that high unemployment will bring down wage gains -- and, therefore, inflation -- only slowly.
Other economists argue that determined government policies will stiffen company resistance to wage gains and make workers readjust their expectations. Consequently, inflation will drop more rapidly and with less unemployment, they say.
The economy's performance in the 1980s will depend very much on who's right.