Last week, the Center for American Progress (CAP) issued a report that confirmed a fact we all knew: unions build workers’ wealth. Even though its principal finding approaches the level of truism, it needs to be repeated and supported frequently with fresh evidence or it can get lost in the discourse.
This recent CAP report, appropriately entitled “Unions Build Wealth for the American Working Class,” reminds us that unions help “working-class families” to put some of the building blocks of wealth in place. CAP defines “working-class families” as households that do not include anyone with a college degree. That’s the educational attainment of about two-thirds of adults age 25 and older.
The 2023 report’s bottom line is striking: working-class union households from 2010 to 2019 had median wealth of slightly more than $200,000 while the median working-class nonunion household had a little more than $52,000 in wealth. The gap is even greater for working-class families of color, although their total wealth is lower than that of white families. CAP issued an earlier report that analyzed 2013 data and focused on middle-class families’ wealth. It found that median middle-class union household possessed $50,800 in wealth while the median middle-class nonunion household had $27,000 in wealth. The earlier report found wealth gaps between union and nonunion households dating back to 1989.
CAP's newest wealth report is surprising because of how unsurprising it is. Everything we know about unions points to this result. Unions raise wages, which puts more money in workers’ pockets and creates the opportunity to save. Unions increase the likelihood that workers will receive employer-provided benefits, including health insurance and paid sick leave, that protect workers from potentially devastating economic losses that can be associated with illness or injury. Unions protect employees from discriminatory and unfair discharges, including those driven by age discrimination, that can force workers to subsist on unemployment insurance benefits that can be a small fraction of their wages. As the CAP report says, “[j]ob stability also creates peace of mind, which helps workers focus on the longer term and save more.”
So, unions add wealth. This is not to say that workers are getting rich. They are not. But the median wealth identified in the CAP report should help to ameliorate some of these workers’ worries about whether they can retire and maintain some semblance of their pre-retirement lifestyles. As noted above, unionized workers are more likely to have retirement plans than non-union workers. Defined-benefit pensions that provide workers with guaranteed lifetime income to supplement their Social Security benefits are available to only a very small percentage of workers, almost certainly consisting largely of union members and public-sector employees. Yet, unionized workplaces have not been immune to the long-term trend toward defined-contribution plans --- like 401(k)s --- that collect workers’ savings, but do not guarantee lifetime income. As a result, for many workers, their retirement savings, their homes, and Social Security may be their only economic supports in retirement.
Let’s check a few back-of-the-envelope calculations. There is a general, not-very-good, but still worth considering rule-of-thumb that retirees need to replace about 70% of their pre-retirement incomes to continue their lifestyles. This lower income reflects, in part, the possibility that workers’ tax rates and expenses will be lower after retirement. Median annual earnings in 2021 for a full-time full-year worker with a high school degree and no college education was slightly above $40,000. For those with some college, but no college degree, the median annual income was around $45,000. We know incomes are higher for union workers and lower for non-union workers, but let’s ignore that differential for now.
Applying the 70% rule of thumb, these working-class people very roughly need around $28,000 to $31,500 per year to support themselves in retirement. On average, Social Security replaces about 40% of workers’ pre-retirement income. The replacement rate is higher for workers at lower earnings levels, so let’s call it 50% or $20,000 to $22,500. So, to reach a 70% target retirement income, these workers need to supplement their Social Security benefits with between $8,000 and $9,000. If working-class union members take their savings of $200,000 and buy an annuity that guarantees income of about 5% per year, they will have $10,000 --- slightly more than they need. If they decide not to buy an annuity, keep their money in safe investments, and spend it down at a rate of $8,000 per year, they will have sufficient savings to support themselves for more than 25 years. In sum, unions do not just make workers wealthier. Unions make retiring with dignity possible.
Of course, these are the roughest of rough calculations. Don’t rely on them for your retirement planning. Really. Also, these calculations fail to take into account the reality that some working-class families’ wealth is tied up in their homes. If they sell their homes to finance their retirements, they will need some place to live, which would add to their annual expenses. So, sustaining reasonable lifestyles in retirement is likely to be more of a struggle than my simple math discloses. However, that’s certainly not a consequence of unions that fight aggressively for retirement plans and sufficient incomes to allow workers to have savings they can put in those plans. It’s a failure of our retirement system, and that failure threatens non-union workers’ retirement finances far worse.
The bottom line is that workers’ bottom line, and their wealth, and their retirement, will be much better with a union than without.
