Here's a transcript of an excerpt from that talk, where Krugman makes the claim that the long downward trend in union membership in the United States has been caused by 'political forces' that made it acceptable to 'bust unions'. Krugman compares the U.S. with Canada, where the level of union participation hasn't seen the same declines.
Krugman also compares teachers with hedge fund managers, as a way of showing how dramatic income inequality is present among professions with similar levels of education --
http://www.youtube.com/watch?v=5kwA-CwFK5A
http://fora.tv/2007/10/30/Paul_Krugman_Future_of_the_Middle_Class
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In the 1960's Canada and the United States had roughly the same percentage of their workers in unions -- about 30% in both countries. Today, Canada still has almost 30% of its workers in unions. In the United States it's down to about 11%, and much less than that it's it's [sic], in the private sector -- it's heavily a public sector thing left. So, the de-unionization was not something that happened because of the global economy, because Canada faces the same global economy we do -- it was something that happened here.
And how did it happen? Well, when you look into it closely you discover that it was ... political, basically Ronald Reagan, above all, though it started before him, declared open season for union busters. During the 1980's, about 1 in every 20 workers who voted for a union was illegally fired. And the reason ... sure, we're less of an industrial society, but there's no inherent reason why giant service sector companies -- you know, the iconic corporation of the 60's was General Motors, the iconic corporation of today is Walmart -- there's no inherent reason why those companies should not be unionized. In fact, similar enterprises are in the rest of the world, but because the shift to a service economy took place in an environment in which politicians -- the dominant political forces -- said it was OK to bust unions, in the way that people had in the 1920's, we've had this dramatic decline in unionization in the United States. And that in turn has all kinds of ramifications for the income distribution, so I can talk about it at some length, but there's a lot of reason to believe the politics has driven this dramatic increase in inequality -- sure technology is there, globalization is there, but it is very largely political.
I should say one more thing, there is a view on inequality that you hear all the time, which is: 'well, it's all about the increased demand for skills, for education, in the modern world economy.' You know, there's no doubt something to that, but if you actually look at the numbers, the huge growth in disparities has not been between the college educated and the non-college educated. Yes -- people with college degrees have done better than people without, but most of the increase is among people with a lot of education. So that -- the most dramatic statistic, high school teachers tend to have post-graduate degrees, and so do hedge fund managers. And, as we all know, last year the highest paid hedge fund manager in the United States made an amount equal to the salaries of all 80,000 New York City school teachers for the next three years. So, it is not education that is driving this. It's not that simple.
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Now consider this chart from the 'Center For Economic Policy And Research', from their 2012 study 'Protecting Fundamental Labor Rights: Lessons from Canada for the United States' --
http://www.cepr.net/documents/publications/canada-2012-08.pdf
It looks pretty dramatic, doesn't it? And it seems like Krugman is correct, since according to this chart the unionization rate in Canada has been oscillating around 30% (and higher), while the unionization rate in the U.S. has been in a relentless downtrend since about 1960.
But there's a problem with Krugman's seemingly obvious conclusion.
In the chart above, notice the increase in Canada's unionization rate that began in the mid 1960's. Could something unique to Canada have happened at that time to explain that increase in unionization?
The answer is yes. Canada's 'Medical Care Act' was passed in 1966, which created a government controlled universal healthcare system. This made healthcare part of the public sector in Canada, and the unionization rate in healthcare and social assistance is among the highest of all industries in Canada. Also, note that the 'Canadian Union of Public Employees', now Canada's largest union, which represents workers in health care (among other public sector industries), was formed in 1963.
Here's a chart from the 'Unionization 2011' study at 'Statistics Canda', showing Canadian unionization rates in various industries in 2011. The overall public sector unionization rate in Canada is about 70%, and the unionization rate drops to below 10% for certain private sector industries, like 'Agriculture' and 'Technical' --
http://www.statcan.gc.ca/pub/75-001-x/2011004/article/11579-eng.pdf
So, unionization in Canadian is dominated by the public sector.
And looking at the rate of unionization over time in the private sector in Canada, we see a downtrend similar to that of the U.S.
Here are a couple of charts from the 'Center For Economic Policy And Research', from the same 2012 study cited above, 'Protecting Fundamental Labor Rights: Lessons from Canada for the United States'. Notice that overall union participation in Canada is higher than in the U.S., but much of the difference is explained by the much higher unionization rate in the public sector in Canada.
As of 2011, the unionization rate in the private sector in Canada is still higher than in the U.S., but the difference is about 9%, versus about 18% when the overall unionization rates are compared --
http://www.cepr.net/documents/publications/canada-2012-08.pdf
In short, Krugman's explanation for the downtrend in unionization in the U.S. as a result of 'political forces' and 'union busting', is clearly false. Krugman singles out Ronald Reagan as being responsible 'above all', and he mentions illegal firings that supposedly happened in the 1980's, but union membership rates were steadily declining in the 1960's and 1970's, long before Reagan became President.
Krugman uses Canada as an example to demonstrate his claim, but other than the increase in unionization that happened in Canada as a result of its larger public sector, Canada and the U.S. display similar patterns. From 1997 to 2011, Canada actually had a larger decrease in unionization in its private sector versus the U.S., directly contradicting Krugman's claim that a decline in union membership was specific to the U.S. as a result of so-called 'union busting'.
Here's a table, again from 'Protecting Fundamental Labor Rights: Lessons from Canada for the United States', showing changes in union membership rates in the U.S. and Canada, from 1981 to 2011. Notice that from 1981 to 2004 the private sector union membership in the U.S. declined 1% more than in Canada, but from 1997 to 2011 the private sector union membership declined 3.1% more in Canada versus the U.S. --
http://www.cepr.net/documents/publications/canada-2012-08.pdf
And, finally, Krugman's comparison of teachers to hedge fund managers is comically absurd.
Hedge funds typically handle billions of dollars of investor money, so they have an enormous responsibility in comparison with teachers. Even given the importance of teaching, a hedge fund manager's skill has a direct and immediate impact on a fund's customers that can't be reasonably compared with a teacher's skill and responsibilities. It isn't surprising that hedge fund managers earn incredibly large salaries in comparison with teachers, since what successful hedge fund managers do for their clients is immensely more valuable than what teachers do.
If you believe that being a hedge fund manager is an easy job with trivial responsibilities, you should enter the hedge fund field, and see if you can get investors to give you billions of dollars to manage.
And even if you could prove that hedge funds perform a worthless service, hedge fund clients pay the salaries of the fund managers from the investment profits those managers earn — so the only people that have a legitimate interest in the salary of a particular hedge fund manager, are that manager's investors. Hedge funds typically have some version of what's called a 'two and twenty' arrangement, where investors pay some percentage of assets as a management fee (typically 2%), and some percentage of the profits the fund earns as an incentive fee (typically 20%). So to earn an unusually high salary, and to keep clients, hedge fund managers must generate high returns for their investors.
But even if hedge fund managers could earn a high salary without performing well, their salaries would still be paid by their clients, and so the public at large has no legitimate concern in what they earn, because the public is not paying their salaries. If you don't think what a hedge fund manager earns is fair, you can easily protect yourself by not investing with them.
This is certainly not the case with teachers. Not only are taxpayers forced to pay the salaries of teachers, there is plenty of evidence to indicate that teachers don't perform well, and so deserve a low salary.
For example, consider this chart of SAT reading scores, from 1967 to 2011 --
http://www.humanitiesindicators.org/content/indicatorDoc.aspx?i=23
Or, consider this chart from a March, 2014 study, entitled 'State Education Trends', by Andrew Coulson of the Cato Institute — note that the 'Total Cost' line in this figure is adjusted for inflation --
http://object.cato.org/sites/cato.org/files/pubs/pdf/pa746.pdf
Notice that our government monopolized public education system has actually achieved negative productivity. That is, every year more tax dollars are spent on education, with no improvement in the quality of the result, and sometimes a decline in the quality of the result.
The only thing that is not increasing in our public education system is student performance and enrollment.
No private company could perform this way and stay in business without forced government payments from taxpayers, and certainly no hedge fund manager could perform this way and retain clients.
There is often a good reason for income inequality, and many Krugman supporters also make this claim, when it suits them. Too bad Krugman won't.
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