THE BLOG

Weaker Unions = Higher CEO Pay

03/04/2015 05:15 pm ET | Updated May 04, 2015

As labor unions have declined in most countries around the world, CEO paychecks have ballooned. And that's not just a coincidence, according to new research from the International Monetary Fund.

In the latest issue of the IMF's Finance and Development journal, researchers Florence Jaumotte and Carolina Osorio Buitron give a preview of their forthcoming study on the links between unionization rates and inequality.

Without strong and vital unions, new IMF research concludes, top corporate executives can rig the economy to their favor.

Their article -- entitled, I kid you not, "Power from the People" -- notes that "weaker unions can reduce workers' influence on corporate decisions that benefit top earners, such as the size and structure of top executive compensation."

Jaumotte and Osorio Buitron also dare to point out that "top earners' compensation may be larger than what is justified by their contribution to the economy's output."

You may, of course, have reached that conclusion without the benefit of IMF research. But for the IMF, this rates as pretty populist stuff -- and a welcome contribution to the inequality debate.

A few other welcome nuggets from the new IMF research:

  • Higher inequality goes hand in glove with lower and less sustainable medium-term growth.
  • Income concentration at the top "can reduce a population's welfare if it allows top earners to manipulate the economic and political system in their favor."
  • Unionization and minimum wages help equalize the distribution of wages.

Unfortunately, the policies the IMF is pushing all around the world reflect hardly any of these IMF research findings, and the gap between what the IMF research says and what IMF officials are demanding from nations like Greece doesn't seem to be shrinking.

"Recent IMF loan conditions in countries such as Greece, Portugal, and Romania," as Peter Bakvis, the Washington director of the International Trade Union Confederation, points out, "have led to sharp declines in collective bargaining coverage and trade union power in those countries."

The ITUC, the main global umbrella body for labor unions, has documented these anti-union policies in several reports.

We can only hope that the Jaumotte-Osorio Buitron research will help open more eyes -- from Wisconsin to Greece -- to the positive role labor unions can play in creating healthy economies.