September 13, 2010: The Great Divergence coincided with a dramatic decline in the power of organized labor. Union members now account for about 12 percent of the workforce, down from about 20 percent in 1983. When you exclude public-employee unions (whose membership has been growing), union membership has dropped to a mere 7.5 percent of the private-sector workforce. Did the decline of labor create the income-inequality binge?

The chief purpose of a union is to maximize the income of its members. Since union workers usually earn more than nonunion workers, and since union members in higher-paying occupations tend to exercise more clout than union members in lower-paying ones, you might think higher union membership would increase income inequality. That was, in fact, the consensus among economists before the Great Divergence. But the Harvard economist Richard Freeman demonstrated in a 1980 paper that at the national level, unions' ability to reduce income disparities among members outweighed other factors, and therefore their net effect was to reduce income inequality. That remains true, though perhaps not as true as it was 30 years ago, because union membership has been declining more precipitously for workers at lower incomes. Berkeley economist David Card calculated in a 2001 paper that the decline in union membership among men explained about 15 percent to 20 percent of the Great Divergence among men. (Among women—whose incomes, as noted in an earlier installment, were largely unaffected by the Great Divergence—union membership remained relatively stable during the past three decades.)

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