While the rich were the biggest victims of the Great Compression, blue-collar workers—above all, industrial workers—were the biggest beneficiaries. The three decades that followed the Great Compression, from the mid-forties to the mid-seventies, were the golden age of manual labor.
In fact, by the end of the 1950s American men with a high school degree but no college were earning about as much, adjusted for inflation, as workers with similar qualifications make today. And their relative status was, of course, much higher: Blue-collar workers with especially good jobs often made as much or more than many college-educated professionals.
Why were times so good for blue-collar workers? To some extent they were helped by the state of the world economy: U.S. manufacturing companies were able to pay high wages in part because they faced little foreign competition. They were also helped by a scarcity of labor created by the severe immigration restrictions imposed by the Immigration Act of 1924.
But if there’s a single reason blue-collar workers did so much better in the fifties than they had in the twenties, it was the rise of unions.
At the end of the twenties, the American union movement was in retreat. Major organizing attempts failed, partly because employers successfully broke strikes, partly because the government consistently came down on the side of employers, arresting union organizers and deporting them if, as was often the case, they were foreign born. Union membership, which had surged during World War I, fell sharply thereafter. By 1930 only a bit more than 10 percent of nonagricultural workers were unionized, a number roughly comparable to the unionized share of private-sector workers today. Union membership continued to decline for the first few years of the depression, reaching a low point in 1933.
But under the New Deal unions surged in both membership and power. Union membership tripled from 1933 to 1938, then nearly doubled again by 1947. At the end of World War II more than a third of nonfarm workers were members of unions—and many others were paid wages that, explicitly or implicitly, were set either to match union wages or to keep workers happy enough to forestall union organizers.
Why did union membership surge? That’s the subject of a serious debate among economists and historians.
One story about the surge in union membership gives most of the credit (or blame, depending on your perspective) to the New Deal. Until the New Deal the federal government was a reliable ally of employers seeking to suppress union organizers or crush existing unions. Under FDR it became, instead, a protector of workers’ right to organize. Roosevelt’s statement on signing the Fair Labor Relations Act in 1935, which established the National Labor Relations Board, couldn’t have been clearer: “This act defines, as a part of our substantive law, the right of self-organization of employees in industry for the purpose of collective bargaining, and provides methods by which the government can safeguard that legal right.” Not surprisingly many historians argue that this reversal in public policy toward unions caused the great union surge.
An alternative story, however, places less emphasis on the role of government policy and more on the internal dynamic of the union movement itself. Richard Freeman, a prominent labor economist at Harvard, points out that the surge in unionization in the thirties mirrored an earlier surge between 1910 and 1920, and that there were similar surges in other Western countries in the thirties; this suggests that FDR and the New Deal may not have played a crucial role. Freeman argues that what really happened in the thirties was a two-stage process that was largely independent of government action. First the Great Depression, which led many employers to reduce wages, gave new strength to the union movement as angry workers organized to fight pay cuts. Then the rising strength of the union movement became self-reinforcing, as workers who had already joined unions provided crucial support in the form of financial aid, picketers, and so on to other workers seeking to organize.
It’s not clear that we have to decide between these stories. The same factors that mobilized workers also helped provide the New Deal with the political power it needed to change federal policy. Meanwhile, even if FDR didn’t single-handedly create the conditions for a powerful union movement, the government’s shift from agent of the bosses to protector of the workers surely must have helped the union drive.
Whatever the relative weight of politics, the depression, and the dynamics of organizing in the union surge, everything we know about unions says that their new power was a major factor in the creation of a middle-class society. According to a wide range of scholarly research, unions have two main effects relevant to the Great Compression. First, unions raise average wages for their membership; they also, indirectly and to a lesser extent, raise wages for similar workers, even if they aren’t represented by unions, as nonunionized employers try to diminish the appeal of union drives to their workers. As a result unions tend to reduce the gap in earnings between blue-collar workers and higher-paid occupations, such as managers. Second, unions tend to narrow income gaps among blue-collar workers, by negotiating bigger wage increases for their worst-paid members than for their best-paid members. And nonunion employers, seeking to forestall union organizers, tend to echo this effect. In other words the known effects of unions on wages are exactly what we see in the Great Compression: a rise in the wages of blue-collar workers compared with managers and professionals, and a narrowing of wage differentials among blue-collar workers themselves.
Still, unionization by itself wasn’t enough to bring about the full extent of the compression. The full transformation needed the special circumstances of World War II.
Under ordinary circumstances the government in a market economy like the United States can, at most, influence wages; it doesn’t set them directly. But for almost four years in the 1940s important parts of the U.S. economy were more or less directly controlled by the government, as part of the war effort. And the government used its influence to produce a major equalization of income.
The National War Labor Board was actually created by Woodrow Wilson in 1918. Its mandate was to arbitrate disputes between labor and capital, in order to avoid strikes that might disrupt the war effort. In practice the board favored labor’s interests—protecting the right of workers to organize and bargain collectively, pushing for a living wage. Union membership almost doubled over a short period.
After World War I the war labor board was abolished, and the federal government returned to its traditional pro-employer stance. As already noted, labor soon found itself in retreat, and the wartime gains were rolled back.
But FDR reestablished the National War Labor Board little more than a month after Pearl Harbor, this time with more power. The war created huge inflationary pressures, leading to government price controls on many key commodities. These controls would have been unsustainable if the labor shortages created by the war’s demands led to huge wage increases, so wages in many key national industries were also placed under federal controls. Any increase in those wages had to be approved by the NWLB. In effect the government found itself not just arbitrating disputes but dictating wage rates to the private sector.
Not surprisingly, given the Roosevelt administration’s values, the rules established by the NWLB tended to raise the wages of low-paid workers more than those of highly paid employees. Following a directive by Roosevelt that substandard wages should be raised, employers were given the freedom to raise any wage to forty cents an hour (the equivalent of about five dollars an hour today) without approval, or to fifty cents an hour with approval from the local office of the NWLB. By contrast increases above that level had to be approved by Washington, so the system had an inherent tendency to raise wages for low-paid workers faster than for the highly paid. The NWLB also set pay brackets for each occupation, and employers were free to raise any worker’s wage to the bottom of the pay bracket for the worker’s occupation. Again this favored wage increases for the low paid, but not for those with higher wage rates. Finally the NWLB allowed increases that eliminated differences in wages across plants—again raising the wages of those who were paid least.