Organized labor, in the form of unionization, has declined dramatically in wealthy democratic countries (rich democracies) over the past 50 years. The United States is among countries showing the greatest reduction, with union membership decreasing from nearly one in three workers in the 1950s to less than one in ten in 2024.
A recent study published in the American Sociological Review led by Matthew C. Mahutga, UC Riverside professor of sociology, shows a strong causal link between this decline and the increasing entrenchment of global value chains, or GVCs, that heavily rely on supplier firms in less developed countries, or LDCs, for making business products. The researchers’ findings counter the vast majority of previous studies.
Mahutga says the negative effect of GVCs on unionization may help explain broad societal trends including income inequality and recent political outcomes. Though recent economic indices showed that the U.S. was thriving as an economic powerhouse in the world, this did not reflect reality for scores of lower-skilled (and formerly unionized) workers who lived through the devastation of their cities with closed factories and the loss of good- paying jobs. Such communities are still struggling to recover.
“If you want to understand the working class's excitement about Donald Trump, you have to understand just how decimated they were by globalization. The promises he made to them resonated with their lived experience.”
- Matthew C. Mahutga
GVCs describe a production model where the various steps and materials used to manufacture a product are carried out and supplied by firms in different countries. It has become a common practice for firms in rich democracies to shift from domestic manufacturing to GVCs that incorporate less costly labor, supplies, and products from LDCs. This should reduce union density by empowering firms in rich democracies to shed unionized jobs and utilize additional strategies that undermine unions.
“If you want to understand the working class's excitement about Donald Trump, you have to understand just how decimated they were by globalization,” Mahutga said. “The promises he made to them resonated with their lived experience.”
Yet so far, most studies that analyzed worldwide, quantitative data failed to show a convincing connection between the globalization of production and unionization. Mahutga and his colleagues explained this in several ways. For example, newer perspectives on GVCs complicate classical theories of trade utilized in prior research, and most previous statistical analyses measured trade in ways that did not capture GVC mechanisms.
Another complicating factor they identified was the likely simultaneous relationship between unionization and offshoring, which is the moving of business activities to other countries. LDC imports reduce the competitiveness of unionized firms and make new union organizing more difficult. But at the same time, firms with highly unionized labor forces should also be more likely to offshore; i.e., unionization increases LDC imports. This type of simultaneity would bias statistical results toward what previous researchers concluded up until now: that overall, LDC imports have a minimal to no effect on unionization.
To address this, Mahutga et al. used an instrumental variable, or IV, design to examine the effect of LDC imports on union density in 22 rich democracies from 1963 to 2017, the longest historical period that has been studied to date. This IV analysis allowed them to reduce bias in their estimate of the effect of LDC imports, and the results indicated that trade with LDCs had a negative effect on unionization that was statistically significant and was nearly three times larger than estimates that ignored simultaneity bias.
Further, the effect was magnified as GVCs became more common models of production around the world. The expansion of GVCs over time has been facilitated by such factors as easier international trade, improved communication technology, and lowered transportation costs. Through a dynamic process of “learning by doing” among LDC suppliers, and with lead firms looking to offshore a growing share of manufacturing to LDC firms, Mahutga says that there was basically an explosion of potential supplier firms in LDCs.
Mahutga et al.’s paper additionally explains that the growing ratio of LDC suppliers to lead-firm “buyers” increased the ability of leading firms to squeeze price concessions from LDC suppliers, worsening the effect of LDC imports on unionization. Mahutga says that rich democracies should be concerned that workers in LDCs are bearing this cost in greatly lowered wages and substandard working conditions because this ultimately undermines unions, and wages and working conditions, in the more affluent countries.
A third explanation for null effects in prior research is that scholars failed to account for the buffering effect of labor market institutions, such as nationwide wage coordination and union-run unemployment insurance, or Ghent, systems. However, Mahutga et al.’s study suggests that GVCs caused lowered unionization even in the most union-friendly countries, although the effect was smaller.
Mahutga hopes these findings will enable researchers to grapple with the effects of GVCs more realistically, and better inform policymakers to improve quality of life in both developed and less-developed countries.
