White and black hands held up in fists

Can Labor Unions Shrink the Racial Wealth Gap?

Almost 16 million workers in the United States are represented by labor unions. Dating back to the Industrial Revolution in Europe, labor unions have given workers the power to negotiate higher wages, better benefits and safer working conditions. In addition to giving workers a voice in the workplace, unions can play an important role in shrinking the racial wealth gap, a chasm that has existed for generations. 

“Unions help all workers, but because they help Black and Hispanic workers more, they narrow the income gap and the income gap contributes to the wage gap,” says Monique Morrissey, an economist at the Economic Policy Institute

The racial wealth gap is rooted in discrimination that denied communities of color the wealth-building policies that helped the middle class expand in the United States.

“Strengthening unions is important to growing the middle class and reducing inequality,” Morrissey says. “I cannot think of a single, more important factor because it touches on so many things. It touches on your earnings, it touches on your retirement benefits. It has all these direct and indirect effects on income and wealth and helps disadvantaged people.”

What is the Racial Wealth Gap?

The racial wealth gap is the disparity between the wealth of white Americans and people of color.

A median white family has about $184,000 in wealth, according to the St. Louis Federal Reserve. Compare that with $38,000 for the typical Hispanic family and $23,000 for the typical Black family. 

The divide was more pronounced for Black Americans in 2020 as they suffered the effects of the COVID-19 pandemic and recession. A legacy of discrimination, along with differences in income, savings rates and the types of assets held, are some of the reasons behind the racial wealth gap.  

“The bottom line is that we created this racial wealth gap. It exists because of structural racism, because of policies that have benefited white households over decades and centuries, going back to slavery,” says Christian Weller, Senior Fellow at the Center for American Progress and Professor of Public Policy at the University of Massachusetts, Boston. 

“There’s lots of other stuff that followed in the years, decades and centuries after slavery ended that have benefitted white households and wealth creation, like the exclusion of Chinese Americans from owning property,” he adds.

The inequality of wealth distribution is most pronounced in the Asian American community. While Asian Americans tend to have higher incomes than other communities of color, their poverty rate is much greater than white Americans. 

“That means that the bottom is much larger and poorer,” says Weller. “For instance, dependence on social assistance in old age is larger among Asian Americans than among any other sub-population in the country. There is a huge share of Asian Americans that are struggling and they don’t have much wealth.”

Wage Growth 

Union memberships can increase wealth for all households regardless of race, especially for Black and Hispanic households, according to research from the Center for American Progress. 

“They’re (unions) about creating a process that creates fairness and thereby overcomes structural barriers, discrimination and other factors,” says Weller. “That is critical across the wage spectrum. The pathways by which wealth gets created for union members and particularly for people of color is good wages and a whole battery of benefits – health insurance, retirement savings and life insurance.”

Research from the Economic Policy Institute found that collective bargaining rights – an organized group of employees negotiating wages and other conditions of employment  – can help narrow the pay gap for public sector jobs, which tend to be unionized and employ more Black workers.

“Controlling for your age, your experience and your education, you’re going to get less pay or salary in the public sector, but you’re gonna get better benefits,” says Morrissey. “Those benefits are worth more to African Americans because they are less likely to have inherited or generational wealth.”

Average Black and Latino households in the United States earn about half as much as the typical white household, according to 2021 data from the Federal Reserve. Research has shown that unions can boost the wages of union and comparable nonunion workers, with Black and Hispanic unionized workers earning more than their non-unionized peers. 

As for Asian American workers, Weller says they often face the ‘bamboo ceiling’ in the workplace. 

“You have a lot of professional workers of color – Asian American workers who get into technical professions and who are highly compensated, but don’t make it into managerial professions, then don’t make it into executive positions,” he says. “That’s where unions can play a role to make sure that everybody has the same shot. It’s not just closing the gap at the bottom. It’s about closing the gap in terms of the wage scale.”

Job Stability

Weller says unions allow a ‘leveling up’ for workers which brings “everybody to the same upper level in terms of benefits and wages and job stability.” He says the step up is bigger for Black Americans and Latinos than it is for whites. 

“That’s because people of color have fewer opportunities and career paths in the private sector than is the case for white households,” Weller says. 

Strong contracts can increase the time workers stay with a company and contribute to their job security. 

“The length of time with an employer is a massive boost to wealth,” he says. “Largely because it feeds into psychology. If you know you are secure in your job, you can start planning better for the future.”

Unionized workplaces can create an environment of fairness and workplace equality. 

“It’s about making sure everybody is, at least in theory, treated equally,” Weller says. “If there is a complaint, there is a grievance process to uphold.”

Working in a more predictable environment lessens the need for workers to create or dip into an emergency fund, improving their financial outlook. 

“Those emergencies – which are primarily layoffs or spells of unemployment – those kinds of things are much rarer in a unionized environment,” he says.

Pension Plans 

Not only do labor unions protect workers on the job, but they also work to ensure workers’ financial security after retirement. 

Research shows labor union memberships can increase worker access and enrollment in pension plans. Unlike 401(k)-style plans, which put the burden of saving on employees, a pension plan is funded by employers. 

Pensions guarantee a specific retirement benefit for life, providing retirees with stable income in their later years. The guaranteed income is critical for people of color, whose retirement savings are often significantly below white households. 

“In a traditional pension, it’s all invested together and there’s no risk involved for participants and that’s much more beneficial,” Morrissey says. “It’s related to your salary, but it’s not related to how well you do on your investments.”

A majority of local and state government employees are covered by pensions. Weller says the nature of the plans in unionized settings can play a significant role in shrinking the racial wealth gap. 

“There are substantial amounts of money that go into it. That’s not true for 401(k)s,” he says. “If you’re with an employer that offers a pension, you don’t have the choice to go into it or not. With a 401(k), you can always say I don’t want to do that. The equalization is critical.”

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