Are Unions the Best Fix to Poverty?

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poverty soup kitchen

While the country made considerable progress in reducing the poverty rate in the sixties and seventies, there has been little show for the last three decades. The downturn has reversed any progress that we made over this period.

However, this is not the story everywhere. Other wealthy countries have considerably lower poverty rates than the United States. There are a variety of factors that affect poverty rates but one that stands out is the power of unions. There is a very strong inverse relationship between the percentage of workers who are covered by a union contract and the poverty rate as measured by the OECD.

A simple regression shows that a 10 percentage point increase in the percentage of workers covered by a union contract is associated with a 0.7 percentage point drop in the poverty rate. (This result is significant at a 1.0 percent level.) This means that countries like Sweden, Belgium, and France, where the coverage rate is close to 90 percent, can be expected to have poverty rates that are more than 5.0 percentages points lower than in the United States, where the coverage rate is less than 15 percent. In the case of the United States, this would imply a reduction in the poverty rate of almost a third from current levels.

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