It’s the Housing Bubble, Stupid!

Who’s to blame for the recession? The right-wing noise machine has pointed the finger at a bewildering array of targets: everything from burdensome regulations to too-high government spending and taxes to, of all things, the late, lamented (and chronically overworked and underfunded) community organizing group, ACORN. One institution that the right has targeted that has proved an especially popular villain of late is labor unions. In states like Wisconsin and Indiana, where anti-collective bargaining and so-called “right to work” laws have recently been passed, labor unions have been painted as public enemy number one, wreaking havoc on te state budgets and the state economy writ large.

But is the union-blaming story remotely plausible? The body of research on the macroeconomic effects (summarized in this book, for example) of labor unions does not support this explanation; it shows no clear pattern regarding the relationship between union density and macroeconomic benchmarks such as the unemployment rate. Nor is there strong evidence that unionized firms are less productive that their non-unionized counterparts (see Bennett and Kaufman’s book, What Do Unions Do? for a discussion of this issue). Unions do however, raise workers’ wages, improve their employee benefits, and reduce earnings inequality among workers (again, as per Bennett and Kaufman).

The alleged causal relationship between union strength and the Great Recession seems particularly dubious when you consider that unions have been in decline for many years, and that union density rates (currently 12.4% overall, and 7.2% in the private sector) are now among the lowest on ever record. Conversely, during the booming post-World War II economy, union density was at an all-time high; at labor’s peak in the 1940s, over one-third of private sector, non-agricultural workers were in unions.

Need more evidence? Economist Jared Bernstein recently ran some numbers, looking at the relationship between state unemployment rates and other state-level macroeconomic data. Unsurprisingly, he found no relationship between union density and unemployment. What he did find, though, was a very robust relationship between rates of negative home equity (that’s what happens when you owe more on your home than it’s worth) and unemployment. The evidence is compelling: the rate of negative home equity in fact “explains 49% of the variation in unemployment rates across states,” which is very impressive indeed. In short, it’s the housing bubble, stupid!

Kathleen Geier

Kathleen Geier is a writer and public policy researcher who lives in Chicago. She blogs at Inequality Matters. Find her on Twitter: @Kathy_Gee