The human capital paradox

How labor unions hold the key to quality jobs

Summary. In recent years, the workplace landscape has undergone significant shifts, driven by economic changes. Labor unions have become increasingly crucial in advocating for fair treatment, safe working conditions, and job security. I explore recent developments in the demand for quality jobs in the United States, the lessons learned from recent trends like the "Great Resignation", and how unions are essential in creating a better work environment and diverse opportunities.

Recent developments in union approval and economic benefits

Americans' approval of labor unions has reached its second-highest level since the 1960s, signaling a growing recognition of their role in promoting job quality. This surge aligns with a new report from the U.S. Department of Treasury (published yesterday), highlighting how unions contribute to wage growth, reduce social inequality, and bolster economic expansion. These findings emerge at a time when job quality is a critical concern, with the Job Quality Index showing declines in earnings, employment security, and workplace conditions.

Far from a coincidence, this seems to suggest a close and causal relationship between (absence of) unions and the push to improve job quality, reflecting a broader recognition of unions’ importance in shaping a resilient and equitable economic landscape.

About job quality and unions

According to the OECD, job quality involves more than just wages; it also encompasses employment security and a healthy, supportive work environment. The COVID-19 pandemic highlighted these issues, revealing the vulnerabilities and risks faced by workers in low-quality jobs, particularly in sectors like retail, hospitality, and healthcare .

(labor) unions contribute to wage growth, reduce social inequality, and bolster economic expansion.

Labor unions have long been leaders in advocating for better working conditions, fair wages, and robust employment protections. They enhances job quality in several ways:

• Ensuring safe working conditions: unions are vital in negotiating safety standards, particularly in high-risk industries. During the pandemic, unions were instrumental in advocating for protective measures like PPE and enforcing safety protocols.
• Reducing income inequality: high unionization levels are linked to reduced income inequality. Unions negotiate fair wages and benefits, ensuring that workers share in economic prosperity and contribute to community stability.
• Advocating for worker rights: unions play a key role in advancing legislation which protects workers from employer retaliation for unionizing. This empowers workers to advocate for better conditions without fear of reprisal.

Lessons from the great resignation

The Great Resignation of 2021, which saw millions of U.S. workers voluntarily leaving their jobs, highlighted the importance of job quality. Economic factors like increased job vacancies and psychological factors such as a reassessment of work-life balance fueled this trend. However, a significant driver was a refusal to continue working in low-quality jobs characterized by inadequate safety, poor wages, and little job security.

Let's reflect on who left the jobs during the so called Great Resignation. From a psychological perspective, it is worth mentioning that people’s behaviors concerning work have been molded by both acts of self-expression and reactions to constraints: there is a difference between workers that temporarily take a pause in their work and those that have chosen to change jobs altogether to exit undignifying work conditions.

On the one hand, some segments of society were forced into leaving the labor force. For instance, women with children at home experienced the?lowest labor market participation in decades, prompted to temporarily?exit the workforce?in the absence of reliable child care, also due to the pandemic. Many older workers opted for an early retirement based on?health-induced reasons, given that they are the most at-risk segment of society to develop clinical complications in case of COVID infection. On the other hand, if we break down the statistics, the sharp rise in intentional quitting was not driven by remote workers complaining about burnout, rather by a concentration of front-line low-wage workers.

The industries with the highest number of low-wages workers and scarce employment protection are hospitality, leisure, and retail, which have also been the sectors?experiencing the highest turnover?in the share of total resignations. Weak workplace safety standards and layoffs during the pandemic made life grim for many (i.e., employers failing to provide protective equipment, neglecting measures of social distancing and mask-wearing, ignoring signs of flu-like symptoms). In addition to inadequate safety standards, employers also lack insensitivity towards providing family leave or extra compensation for dangerous work. The quality of work in the U.S. has been?declining?for the past three decades.

The "human capital paradox"

Paul Krugman, American economist, and Nobel prize winner, laid out the hypothesis that the Great Resignation?was predominantly an American phenomenon?because the severity of resignations was not as close to its counterpart. The explanation appears to be the differences in labor market institutions. Compared to the U.S., European countries offer greater job protection. For example, during the pandemic, this translated into job retention schemes — government funds aimed at subsidizing employers’ payroll to retain workers. The implications were that governments created an environment in which workers kept links to their jobs leading to fewer losses in employment.

Although the labor market regulations are a bit more rigid compared to the U.S., still the Eurozone has experienced a?much quicker recovery?from the pandemic in terms of labor participation, with?fewer job losses. If we review how the two labor markets behaved during the pandemic, a decomposition of supply and demand of labor based on changes in hours and wages shows that Western Europe recovery was mainly driven by the return of the workforce in the job market, while the U.S. lagged because firms have been unable to fill vacancies.

Whether an institutional environment values workers’ rights and conditions or not is something that indeed feeds into the bigger picture. For instance, Thomas Kochan, a professor of industrial relations, work, and employment at the Massachusetts Institute of Technology, explained how the US expresses “symptoms of an economy that undervalues work and the workforce”. Years ago, he solicited crucial questions concluding that the U.S. has been suffering from a so-called human capital paradox: low priority on human resources considerations, labor unions under threat by employers and public institutions, tolerance for persistent unemployment and underemployment, and disregard for solid universal social protection policies.

These are critical issues that directly impact those who precisely serve as the main driver for economic growth. The dissonance is particularly evident if we draw attention to the limited role labor unions have been able to have across the past four decades of U.S. economic history.

The U.S. has been suffering from a so called "human capital paradox": low priority on human resources considerations, labor unions under threat by employers and public institutions, tolerance for persistent unemployment and underemployment, and disregard for solid universal social protection policies.

The role of labor unions

In 2021, the U.S. recorded a staggering 65% approval rate towards labor unions membership, the highest since?1965. The benefits of high unionization levels are indisputable, not only for workers but also for communities and the solidity of public institutions. Labor unions act to ensure appropriate work standards and quality work conditions,?especially needed in times of crisis. From a broader perspective, high?unionization also reduces income inequality. Recently, several unionization efforts have taken place across the country; large employers included, namely Amazon, HelloFresh, and Starbucks. The covid crisis has exposed the cracks of labor market institutions that do?not prioritize?the safety of worker conditions as we assumed.

Laws such as the “Protecting the Right to Organize (PRO) Act” — aimed against employers’ discrimination towards forming a union or exercising the right to strike — still struggle to pass in Congress. The PRO Act is just one example in the right direction, a step towards avoiding shameful episodes such as that of Kellogg, a multinational food manufacturing company, that recently laid off and replaced?1400 striking factory workers after unions refused to negotiate an unfair pay deal.

Conclusion: moving forward with labor unions

The demand for job quality reflects a fundamental shift in how workers value their roles and well-being. Labor unions play a crucial role in advocating for these qualities, ensuring that workers' voices are heard and their rights are protected. Supporting union efforts and enacting policies that prioritize job quality is essential for building a stable and equitable society. Strengthening labor unions and advocating for better labor laws will ensure that all workers enjoy the dignity, safety, and respect they deserve, fostering a fairer and more just workplace for everyone.

If you want to read more on this brief analysis, I wrote a more comprehensive article on the Great Resignation and the hypothesis connecting that trend to low job quality and the absence of labor unions in US. You can access it here: link to article (2021).

Written by a human,

Francesco B.

Disclaimer: The views and opinions expressed in this post are my own and do not necessarily reflect those of my employer, colleagues, or any affiliated organizations. This content is provided for informational purposes only and is not intended as professional or legal advice.