When Siemens decided to cut thousands of jobs in 2018, the outcome looked very different on opposite sides of the Atlantic. American workers got severance packages based on years of service and were let go. German workers at the same company faced no compulsory layoffs because the German union IG Metall holds half the seats on the Siemens board of directors, and it used that power to negotiate buyouts instead of firings.

Same company, same economic pressure. The German workers kept their jobs.

That gap is the central story of how the American middle class was built, and how unions did the building.

The Wage Premium

The most direct way unions build economic security is through the union wage premium. Union members consistently earn more than comparable nonunion workers doing the same jobs. The gap has varied over time but has generally run between 10 and 20 percent in wages alone, before accounting for benefits.

Benefits widen the gap further. Union workers are more likely to have employer-provided health insurance, more likely to have a defined-benefit pension rather than a 401(k), more likely to have paid sick days, and more likely to have paid vacation that actually scales with tenure. When you add the full compensation picture, the union advantage over comparable nonunion workers is substantial.

This wage premium explains a large portion of the income distribution story of the mid-20th century. When 35 percent of private sector workers were union members, concentrated in high-employment industries like manufacturing, construction, and mining, the union standard pulled overall wages up across the economy.

The Spillover Effect

Unions raise wages for workers who never join one, which is the part of the story that gets left out most often.

The mechanism is competitive pressure. When a unionized auto plant in Detroit pays $18 an hour with full benefits, the nonunion auto parts supplier nearby has to offer something close to that to attract and keep workers. If the nonunion shop offers $10 an hour with no benefits, its workforce walks to the union plant. To stay competitive for labor, nonunion employers in the same industry and region have to match union standards at least partially.

Researchers have documented this spillover effect consistently across decades of data. In regions and industries with high union density, nonunion workers earn more than comparable workers in low-density regions. When union membership was at its peak, that effect was large enough to raise wages across a substantial portion of the workforce. As union density fell, the spillover effect shrank, and the gap between union and nonunion compensation widened even as both fell relative to productivity.

Pattern Bargaining

In the mid-20th century, major industries bargained through a practice called pattern bargaining. The UAW would negotiate a contract with Ford, and that contract then became the template for negotiations with General Motors and Chrysler. When the steelworkers settled with US Steel, the pattern set expectations throughout the steel industry.

Pattern bargaining meant that union negotiations weren't just about one company. A strong contract at one employer set the floor for wages and benefits across an entire industry. The gains compounded. Workers at supplier companies, at regional manufacturers, at businesses that served the families of factory workers all felt the effect of those contracts through the local economy.

This industry-wide bargaining model was deliberate and hard-won. Unions that could make the pattern stick had real power. Employers that tried to break the pattern faced coordinated pressure from the whole union. The result was a wage floor under entire sectors of the economy.

Legislative Power

Unions did more than bargain at the workplace level. They organized politically and pushed the legislative agenda that produced much of what Americans now think of as basic workplace rights.

Look at the list of basic workplace rights Americans now take for granted: the minimum wage, the eight-hour workday and overtime pay, unemployment insurance, workplace safety laws and OSHA, the Family and Medical Leave Act, the expansion of Social Security, Medicare. Every one of them was either a union priority or passed against employer opposition with union political muscle providing the counterweight.

When union membership was at its peak, the AFL-CIO was one of the most powerful political organizations in the country. It could mobilize voters, fund campaigns, and hold politicians accountable in ways that corporate lobbies had to take seriously. The legislative gains from that era, from Social Security to the minimum wage to workplace safety laws, benefited every American worker regardless of union membership.

As union membership declined, that legislative muscle declined with it. The last federal minimum wage increase was in 2009. Workplace safety enforcement has been weakened through successive administrations. No major pro-labor legislation has passed Congress since the 1990s. The political silence of a weakened labor movement created space for anti-worker policy that a strong movement would have blocked.

What Decline Has Cost

Union membership in the private sector now sits around 6 percent, down from 35 percent at the peak. The economic consequences are measurable.

The wage premium still exists for union members, but it covers a far smaller share of the workforce. The spillover effect has weakened because union density is too low to drive industry-wide competition for labor in most sectors. Pattern bargaining has largely disappeared as major manufacturers moved to plant-by-plant negotiations or shifted production to nonunion regions and countries.

Research by the Economic Policy Institute estimates that the decline in unionization accounts for roughly a third of the growing pay gap between top earners and everyone else since 1979, with the effect concentrated in the bottom 80 percent of the workforce. Union decline was one of the main drivers, along with the policy choices that accelerated it.

The Siemens example at the start of this article illustrates where stronger unions lead. Germany has stronger labor laws, higher union density, and a system of worker representation on corporate boards at major companies. German manufacturing workers earn competitive wages with strong benefits and a meaningful voice in decisions that affect their jobs. After fifty years of weakened union power in the United States, the American version of that story is gig work, wages that have barely tracked productivity since the 1970s, and retirement savings that for most workers will not be enough to retire on.

The middle class the labor movement built required labor power to sustain it. Rebuilding it requires the same.

Learn more at votelabor.org.