An Outline of the
American Economy

Part 1
Introduction

PART 9

Labor in America: The Trade Unions' Role

Surprising as it may seem, the United States -- a relatively new nation -- has the world's oldest organized trade union movement. There have been unions in the United States since the end of the 18th century. An examination of three factors within early U.S. society can help to explain this. First, labor was in short supply and was able to use its scarcity as a basis for relatively successful bargaining. Second, male suffrage was generally accepted in the United States by the early years of the 19th century; European labor movements were struggling to get this voting power when American workers had already achieved it. (Slaves could note vote, of course, and women didn't win the right to vote until 1920. Black Americans living in the South didn't achieve full voting rights until the 1960s.)

And finally, there was virtually no history of feudalism in the United States, and few working people have considered themselves to be involved in a class struggle. For the most part, they have seen themselves as the equal of all the other elements of American society, with access to the same opportunities for advancement.

The philosophical basis of the American labor movement is very different from that of other countries. The U.S. labor movement puts great emphasis on workers' collective ownership of job opportunity, something considered to be a logical extension of traditional property rights, which is itself a conservative doctrine. American unions have concentrated on job issues in order to obtain benefits within the existing free enterprise system. The earliest U.S. unions in the United States had very specific goals: among them were improving wages, hours and working conditions, and obtaining free elementary school education.

The American Federation of Labor (AFL), originally founded in the 1880s, was the nation's dominant labor organization until 1955 -- when it merged with the Congress of Industrial Organizations (CIO); the merged AFL-CIO has remained the nation's largest union organization since that time. The leaders of the AFL and the AFL-CIO have been the despair of socialists. Each has stressed the essentially pragmatic nature of the American labor movement. These leaders have sought, with some success, to enhance real living standards, not just the political power, of American workers.

Since most American working people have thought of themselves as essentially no different from other groups of Americans, there has been little agitation to organize an American labor party. But it would be wrong to assume that the U.S. labor movement has eschewed political action. In state and local politics, the labor movement always has been very active, endorsing candidates and seeking favorable legislation. On the national level, however, the American labor movement traditionally was quite careful about revealing its hand. It tacitly supported President Woodrow Wilson during his terms of office (1913-1921), then overtly supported President Franklin D. Roosevelt (1932-1945) and President Harry S. Truman (1945-1953). By the early 1950s, the American labor movement clearly was deeply involved in the internal politics of the Democratic Party. At times it has gotten enthusiastic cooperation from the party's leadership; at other times it has not fared so well.

Ever since Franklin Roosevelt's presidency, the United States has been a land with a relative tolerance for workers' organizations. It was not always so. Prior to 1933, unionism faced strong and sometimes violent opposition from employers, except in wartime. In the 1920s, the personnel administration movement, scientific management and rising real wages combined to offer American workers what was advertised as an efficient alternative to unionism. But the Great Depression of 1929-1940 was the impetus for great union growth.

THE RISE OF FACTORY LABOR

Although the American labor movement began early in the nation's history, the movement -- with its largely industrial character -- did not develop quickly or smoothly. In 1839, manufacturing accounted for only 17 percent of the work force, and in 1859, only 32 percent. The United States was still primarily an agricultural nation. This did not really change until the latter decades of the 19th century.

Unskilled workers fared relatively poorly in the new nation. About 40 percent of the workers in the cities were laborers and seamstresses in clothing factories. This group received low wages and often lived in dismal circumstances. Skilled workers, such as craftsmen, artisans and mechanics, received up to double the pay of the unskilled. They tended to own their own homes and were seen as solid citizens of their communities. As early as the 1830s, carpenters, printers, shoemakers and others had begun to organize themselves into journeymen's societies and benevolent associations. Although they did not consider themselves unionized, they did act in concert. They demanded a minimum wage and shorter working hours; working days usually ran from dawn to dusk, which meant they were much longer in summer than in winter.

With the rise of factories came significant changes in the work force: the use of children, women and poor immigrants to run machines became commonplace. In New England in the 1820s and 1830s, children under age 16 constituted one-third to one-half of the labor force in some factories, especially in textile plants. Additionally, 5 percent of the entire slave population in the South worked in factories by 1850. About four-fifths of the slaves were owned outright by those using their labor, and the rest were rented to factory owners by their masters.

Industrial growth also brought other changes. Innovations in technology and business practices led to specialization of function for both labor and management. This, coupled with the growing number of workers being employed, led many workers to feel that they had no voice in their economic destinies. They experienced alienation -- a feeling of being cut off from their work -- and described themselves as cogs in the industrial machines. Some turned to unions to improve their situation.

The first significant national labor movement was called the Knights of Labor. Founded in 1869, after the Civil War, it began in Philadelphia, Pennsylvania, among the garment cutters. The Knights were dedicated to organizing all workers for the general betterment of their lot in life.

At first the Knights of Labor was a secret society. It was broad based, welcoming blacks, women, farmers and merchants, as well as wage earners. It excluded "only lawyers, bankers, gamblers and stockholders." The Knights reached its high point during the mid-1880s, when it won a strike against railroads owned by American millionaire Jay Gould. By 1886 the organization had about 700,000 members, both skilled craftsmen and unskilled factory workers.

But the interests of the various groups within the Knights were often in conflict with each other. Thus, members had very little sense of identity with the movement. The Knights lost a second strike against the Gould railroads in 1886, and its membership declined rapidly in the late 1880s.

AMERICAN FEDERATION OF LABOR

In 1881, a Dutch immigrant cigarmaker named Samuel Gompers and some other leading craftsmen organized the Federation of Organized Trades and Labor Unions of the United States and Canada -- the predecessor of the American Federation of Labor. Unlike the Knights of Labor, it included only wage earners. In 1886 it was reorganized and changed its name to the American Federation of Labor. Gompers became the AFL's first president.

Gompers' three-point program of union strategy served the AFL movement throughout its history. First, he insisted on working for practical benefits in the form of higher wages and better working conditions, rather than engaging in a philosophical class struggle. Second, he committed the AFL to the principle of federalism within the movement, allowing each union considerable internal freedom to organize and operate according to its own style. Third, he did what he could to keep government out of collective bargaining, while favoring rewards to political friends and defeat of members of Congress who opposed labor's position. Gompers also insisted that no more than one union should try to organize the same workers at the same time.

Despite the successful beginning of the AFL, labor organizers faced a number of difficulties. For the most part, employers had never fully accepted the legitimacy of unions, much less their right to strike or bargain collectively. Management, which preferred to discuss issues separately with each worker, often sought to circumvent the union, firing or "blacklisting" (agreeing with other companies not to hire) those workers who were in favor of unions, or by signing workers to "yellow dog" contracts, which prohibited them from joining unions.

Employers also sought court injunctions against unions to stop them from engaging in strikes. For most of the years between 1880 and 1932, the government and the courts were generally sympathetic or, at best, neutral to the position of management. In fact, it was often the government, in the name of public order, that provided the force necessary to put down a strike. For example, when employees of the Pullman Palace Car Company went on strike in 1894 to protest a wage cut, joined by members of the American Railway Union in a sympathy strike, the U.S. government sent federal troops to end the strike, declaring that it interfered with mail trains. There were other violent strikes during this era, some of which resulted in numerous deaths.

Another major setback for the labor movement occurred in 1905 with the Supreme Court ruling in the case of Lochner v. New York. The Court held that a law limiting the number of working hours was unconstitutional because it restricted the right of an individual to contract for employment. The Court's reasoning was based on the principle that individuals have "liberty of contract" as derived from the 14th Amendment to the Constitution.

By the close of World War I, the AFL had some 5 million members and was growing both in numbers and in influence. However, growth slowed during the 1920s when labor met determined opposition from business groups like the National Association of Manufacturers (NAM). One fierce battle was over the principle of the "open shop," the right of a worker not to be forced to join a union. Additionally, because the 1920s tended to be prosperous years with high employment, workers felt relatively secure without union support. After Gompers' death in 1924, William Green was elected president of the AFL as a compromise candidate.

THE GREAT DEPRESSION

Although the advent of the Great Depression reduced AFL membership to fewer than 3 million, the Depression helped advance the labor movement by creating sympathy for the plight of working people (at the depths of the Depression, about one-third of the American work force was unemployed). With the election of President Franklin D. Roosevelt, government and the courts began to look more favorably on the pleas of labor. In 1932, Congress passed one of the first pro-labor laws, the Norris-La Guardia Act, which made yellow dog contracts unenforceable and limited the power of federal courts to issue injunctions in labor disputes.

Roosevelt's program to end the Depression included several laws that advanced labor's cause. One of these, the National Industrial Recovery Act of 1933, guaranteed workers a minimum wage, reasonable hours, collective bargaining and the right to join unions. But in 1935, the Supreme Court declared the law unconstitutional. The federal government responded by enacting the National Labor Relations Act of 1935, better known as the Wagner Act, which states: "Employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in connected activities for the purpose of collective bargaining or other mutual aid or protection."

For the first time, labor had been given the legal right to bargain collectively. Moreover, the act established the National Labor Relations Board (NLRB) to administer its provisions, to punish unfair labor practices, and to determine which union should represent workers. The NLRB was required to go into factories and hold elections when workers wanted to organize or to be represented by a particular union. It gained the authority to force employers to provide back pay if employees were unjustly discharged because of union activities. With such support from legislation, trade union membership jumped to almost 9 million by 1940.

THE CONGRESS OF INDUSTRIAL ORGANIZATIONS

In 1935 eight unions within the AFL created the Committee for Industrial Organization (CIO) in order to launch a campaign to organize workers in such mass-production industries as automobiles and steel. But the craft unions that controlled the AFL opposed efforts to unionize these generally unskilled or semiskilled workers. Despite this opposition, the Committee's aggressive unionization drives succeeded in unionizing many plants that had been previously unorganized.

But the dispute over industrial organization did not abate. In 1938 the AFL leadership expelled the unions that formed the CIO, and the CIO established its own federation using a new name, the Congress of Industrial Organizations. The CIO rapidly developed into a full competitor with the AFL.

THE POSTWAR PERIOD

Shortly after the United States entered World War II, the nation's key labor leaders promised President Roosevelt that they would avoid strikes during the war so as not to interrupt the nation's defense production. During this period, unions won many important fringe benefits and their membership soared. After the war ended in 1945, strikes began again, with the number of work stoppages reaching its peak in 1946.

Soon there was a sharp reaction against what many people considered to be the unwarranted power of unions. Many believed that the Wagner Act had been biased in favor of labor and they demanded a new law to correct this imbalance. As a result, in 1947 Congress passed the Labor Management Relations Act over President Truman's veto.

The Labor Management Relations Act, better known as the Taft-Hartley Act, prescribed standards of conduct for unions as well as for employers. It banned the closed shop and the secondary boycott, permitted employers to sue unions for broken contracts and for damages inflicted during strikes, required unions to abide by a 60-day "cooling-off" period before striking, and created other special rules for handling strikes that endangered the nation's health or safety. It also required unions to make public their financial statements. Despite continued efforts to repeal this act, federal courts have upheld its major provisions.

In light of this resurgence of opposition to labor, the AFL and CIO began to consider joining forces. But the two leading labor groups had to overcome philosophical and other differences. In 1952, one obstacle disappeared when the leaders of the AFL and the CIO, William Green and Philip Murray, both died. They had been involved in the split between the two organizations. In 1955, the AFL and the CIO merged, becoming the AFL-CIO -- the nation's largest labor organization. George Meany, who had been president of the AFL from the time of William Green's death, assumed the presidency of the newly formed labor organization.

In 1962, President John F. Kennedy issued an executive order that gave federal employees the right to organize and to bargain collectively, but not to strike. Similar legislation was passed in many states, and a few even allowed state government workers to strike. Public employee unions grew rapidly, and police, teachers and other government employees organized strikes in many states and cities during the 1970s.

During this period, union membership among minorities and women also increased. Labor leaders helped women, blacks, Mexican-Americans and others who often held the poorest paying jobs to obtain certain rights such as equal pay. During the 1960s, for example, Cesar E. Chavez, a Mexican-American labor leader, began to organize migrant and other farm laborers in California, many of whom are Mexican-Americans. Chavez established what is now the United Farm Workers of America.

CURRENT LABOR ISSUES

In the late 20th century, a major challenge to the American labor movement was the declining size of the American industrial base, particularly traditional industries such as steel and heavy machinery. In some instances, lower labor costs have helped foreign companies in such fields as automobiles and electronics to gain larger shares of the American market. Many large U.S. factories have closed, and large numbers of union members have lost their jobs.

Automation is a continuing challenge. Many older factories have been introducing automatic machinery to perform tasks previously done by workers. This is done mainly to increase productivity, in response to the challenge of foreign competition. But in some cases it has meant the elimination of jobs. In response, unions have sought a variety of measures to protect jobs and incomes, including free retraining and shorter work-weeks to share the available work among employees. Nevertheless, the shrinking of the traditional American industrial base was a powerful blow from which the labor movement has yet fully to recover.

At the same time, the percentage of workers who belong to unions has also declined. Although more than one-third of employed people were members of unions in 1945, only about 16 percent were in the late 1980s. Economists, labor leaders, and others have offered several explanations for this. Some say it reflects the trend in American society away from manufacturing industries, which have traditionally been union strongholds, toward service industries, where union organization has been weaker. Others point out that women, young people and part-time workers comprise an unusually large proportion of the employment increases of recent years. Still others note that much American industry has migrated to the southern and western parts of the United States, regions that have a weaker union tradition than does the North or the East.

A major criticism of the labor movement has been that its traditional demand for higher wages and better working conditions -- even during periods of inflation -- adds to still further inflation, and damages productivity in American industry. In the recession of the early 1980s, however, there were increasing examples of union willingness to forgo wage increases in favor of employment security and enhanced company competitiveness. In addition, labor proponents argue that most recent increases in wages are designed just to keep up with the cost of living, not to make substantial gains in real standards.

Labor-management disputes have also focused on the question: what special benefits are workers entitled to receive? Issues related to retirement benefits, disability pay and medical insurance, as well as recent demands by some very large unions for lifetime job security, are very much in the bargaining forefront in the latter part of the 20th century. Emerging benefit issues included questions about maternity and paternity leave, and child care.

For their part, employers have not seen fit to sit back and let labor have its own way. Management wants increased productivity from its workers and has shown a willingness to fight against rules or benefits that it believes are detrimental to this end.

The trade union movement is an important component of the U.S. economy because it represents the interests and needs of workers to managers and the government. Although unions have given primary importance to negotiations with management for higher wages, economists disagree on whether or not unions have significantly affected workers' wages -- with most pointing to increased productivity as the major factor in salary increases. But most analysts also agree that unions exert influence disproportionate to their size on such matters as job safety, procedures for handling grievances and monitoring other working conditions. Through a union, a worker can gain a voice in almost all aspects of his or her job. In addition, some experts argue that unions have performed valuable social and psychological functions, serving as fraternal organizations and, perhaps more importantly, providing a source of pride and a sense of dignity to workers.

LABOR STANDARDS

The responsibility for protecting the rights of U.S. workers is shared by the federal government and the 50 individual states. The federal government may act to regulate commerce among the states, while the states may set conditions applicable to commerce within their own borders. Many states have adopted laws setting labor standards. Among federal laws, some-of the most important include:

• The Fair Labor Standards Act of 1938 (as amended) sets national minimum wages, overtime pay, equal pay and standards to protect child labor from abuses. Minimum wages are determined by Congress and enforced by the Department of Labor. In 1991 the minimum wage was raised to $4.25 an hour, but there was also a lower "training wage" for teenagers just entering the work force.
• The Age and Discrimination in Employment Act of 1967 protects the jobs of older workers through age 70.
• The Occupational Health and Safety Act of 1970 requires employers to provide safe and healthy working conditions. The Occupational Safety and Health Administration develops occupational safety and health standards, develops and issues regulations, conducts investigations and inspections to determine the status of compliance with the standards and regulations, and issues citations and proposes penalties for noncompliance.
• The Trade Act of 1974 (as amended) provides adjustment assistance to employees, companies and communities hurt by foreign competition. The Office of Trade Adjustment Assistance administers the program based on this act through agreements with individual states. The program provides reemployment services such as training, job search and relocation allowances, and weekly cash payments to U.S. workers who are separated from employment because of foreign imports.

PENSIONS

About half of the privately employed people in the United States and most government employees are covered by some type of pension plan. Pensions are a form of income that workers receive after they retire or become disabled, or their dependents receive after they die. Most union contracts with employers include retirement pension benefits.

Most private pension plans provide benefits to retirees in proportion to a formula based on the employee's age, years of service and annual salary. By federal law, all pension plans offer "vested pension rights" to workers who have completed a certain number of years of service. These employees are guaranteed to receive pension payments after retirement even if they leave the firm before they retire.

In 1974 Congress passed the Employee Retirement Income Security Act, which set standards for private pension plans; a federal agency, the Pension Benefit Guaranty Corporation, helps to administer it. Private pension plans must purchase insurance from the corporation, and if a company cannot pay pension benefits, the corporation will pay them.

The U.S. government administers several types of pension plans, the most important being Social Security -- the largest retirement income program in the country. The Social Security program was created in 1935 when President Franklin D. Roosevelt signed what is now known as the Social Security Act. This program provides full-rate old-age pensions to working people who retire at age 65, or reduced-rate pensions to those retiring between the ages of 62 and 65. Although the program is administered by a federal agency, the Social Security Administration, it uses no federal funds. Employees contribute to the pension plan through a payroll tax, which is taken as a percentage of their salaries; employers contribute an equal amount. Self-employed workers also pay a portion of their earnings to the program.

The federal government has traditionally provided military pensions as well as pensions for most federal workers, although legislation passed in the 1980s brought most new federal employees under Social Security as well. Ever since the Revolutionary War (1775-1783) disabled war veterans have received some type of pension. All military pensions are funded by federal revenue. By contrast, the largest of the federal civilian pension systems, the U.S. Civil Service Retirement System, is funded jointly by federal employees and the government.

In addition, many people -- generally those who are self-employed, those whose employers do not provide a pension, and those who believe their pension plan to be inadequate -- put part of their income into a special individual pension program. The two chief types of these programs are Individual Retirement Accounts (IRAs) and Keogh plans. Both types of accounts are administered by financial institutions such as banks, savings and loan associations, credit unions and insurance companies. The federal government supports both plans by providing income tax advantages for individuals who use them.

Money put into an IRA earns interest that is automatically added to the account; interest earned on an IRA is not taxed until it is withdrawn. In addition, people who do not have private pensions or who earn less than a certain amount may deposit money into an IRA each year without having to pay income tax on the money until it is withdrawn. Unlike IRAs, Keogh accounts may be set up only by self-employed people or by people who are full or partial owners of an unincorporated business. These individuals may deposit up to 25 percent of their income into a Keogh plan annually. Interest earned on the account is not taxed until withdrawn.

UNEMPLOYMENT INSURANCE

Unlike Social Security, which is administered entirely by the federal government, unemployment insurance is organized as a federal-state system. Established under the provisions of the Social Security Act of 1935, the Federal-State Unemployment Compensation Program is the basic program of income support for unemployed U.S. workers. It provides insured wage earners with a partial replacement of their wages during periods of involuntary unemployment. In general, the worker must be able to work, must not have quit without good cause or have been discharged for misconduct, must not be involved in a labor dispute and must be willing to work.

Each state operates its own program under its own laws with only limited federal intervention. Each determines the amount and duration of the weekly unemployment benefits on the basis of prior wages and length of employment. States must extend the duration of benefits when unemployment rises and remains above specified state levels; the federal government shares the costs of extended benefits with the states.

An Outline of the American Economy