Unions Not Companies Deliver Real, Sustainable Financial Security

A lot of American working-class families struggle financially. A range of organizations thus encourage employers to help their employees gain more financial security. The goal is to provide families with some peace of mind, so that they become better at their jobs. Real employee financial security – higher wages, better benefits and more stable jobs – does not come from employers’ goodwill, but from workers negotiating for it, typically through a union.

Several organizations have conducted research on how and why employers should focus on employees’ financial security. For example, Gallup researchers argue that both employers and employees benefit when employers offer financial wellness initiatives. The Aspen Institute analyzed changing financial wellness programs and their popularity, concluding that they could help people achieve financial security if they became larger and more effective. Other research at the Aspen Institute show that income volatility is an important driver for financial insecurity now and in the future. And AARP supports more help from employers to their employees in saving for emergencies. Such emergencies can come from health care issues and responsibilities for caring for a child and an aging loved one. Employers who want to create more financial security for their employees could then provide employees with more help saving for emergencies, financial counseling but also more health insurance and paid family leave.

There are two related arguments in favor of greater employee financial security. More financially secure employees will have fewer worries on their mind, thus allowing them to focus more on their job. This shows up as greater productivity and less turnover, which bolsters businesses’ bottom line. And fewer financial worries get workers to focus on longer-term goals such as retirement savings. Workers supposedly become more appreciative of employers’ retirement benefits, which makes it more likely that they’ll stay, again reducing turnover and increasing productivity.

These are reasonable arguments. The data shows that people who are in more financially secure positions because they have more stable jobs, are more likely to save, and are also more likely to stick with an employer also end up with more wealth for their future. My summary of Federal Reserve data concludes that the median wealth for households that experienced negative income volatility was $33,016 from 2010 to 2016. In comparison, families that experienced positive income shocks had more than three times as much with $104,300. More job stability, among other factors, can help generate more long-term economic security. Financial security then includes job stability, for instance, through paid family leave to manage the dual demands from caring for somebody else and working for pay.

Leaving financial security to the goodwill of employers has its drawbacks, though. Employees who are already in a more financially secure position are more likely to get additional benefits. Consider paid family leave. Only 18% of all private sector employees had this benefit in 2018 (see figure below). And managers and professionals had a 29% chance of having paid family leave, while only 12% of workers in service occupations did (see figure below).

Employers will continue to see some occupations as more important than others and thus more worthy of their financial support. This is also evident in the changes made to paid family leave. Employers have recently offered more benefits to recruit and retain people in an increasingly tight labor market. The share of managers and professionals with paid family leave rose by 11 percentage points from 2010 to 2018, compared to six percentage points for service occupations and eight percentage points for people in sales (see figure above). Moreover, employers started to offer more paid family leave benefits to managers and professionals starting in 2011, while the improvements for others did not happen until 2017 (see figure above). Workers in low-quality jobs have benefited less from employers’ newfound generosity than those who are already financially secure.

Employer-provided benefits can quickly disappear again. Just like a strengthening labor market has given employer incentives to offer these goodies, a weaker labor market will eliminate the need to provide them. Employers after all give employees these benefits on their own volition because they benefit their bottom line, not because they all of a sudden have decided to become more charitable for its own sake.

Real, sustained financial security for workers doesn’t come from employers’ goodwill, but from workers negotiating for it. Union members are more likely to enjoy a range of benefits at work. They have more health insurance, retirement benefits, life insurance and financial education at work. They also enjoy higher wages and, at least as important, they have more stable jobs. All of these factors contribute to higher levels of wealth than is the case for non-union members.

Unions level the playing field for workers. They negotiate for all people in a workplace, whether they are members or not. And unions naturally represent front line workers, not managers, providing the most assistance to those who are most likely to struggle otherwise. My colleague, David Madland and I found that all union members had higher wealth than those not covered by a collective bargaining agreement, but those benefits were much larger for African-Americans and Latinx workers. Job stability is a particularly important contributor to this gap as unions give workers a voice when things don’t work out, so that they can stay in their job and remain productive rather than leaving.

American families need more financial security. Counting on employers to finally change course on helping their employees after they have decimated job security for decades will have only limited effects. Instead, all workers will need a stronger voice in the workplace through union membership and collective bargaining. They can then more equitably benefit from an improving economy and enjoying more financial security for them and their families.