The AFL-CIO disintegrated on Monday July 25, 2005-somewhat ironically, the 50th anniversary of its integration. Four member unions representing roughly one-quarter of AFL-CIO membership announced their departure from the federation. They are led by Teamsters president James Hoffa and Service Employees International Union (SEIU) head Andrew Stern, both of whom disagree with the strategies of AFL-CIO President John Sweeney. Many observers see this is the beginning of the end, but it may instead be an essential phase for the rebirth of American labor. Here's how these events should be interpreted:

• Union membership has been in sharp decline for decades. Today, approximately 1 in 12 private sector workers is a union member, compared to 1 in 5 back in 1983.[1] Simultaneously, unions have become increasingly political and partisan. Hoffa characterized the status quo strategy as "throwing money at politicians." He went on to suggest that the breakaway labor movement would be, "more bipartisan.... We're not going to be afraid to back a Republican." At the heart of the current split was whether the AFL-CIO should focus on growing its membership via recruiting (as Stern and Hoffa demanded) or continue as a political organization under Sweeney's leadership.
   
• Real incomes and productivity are rising. Economists agree that higher wages are caused by higher worker productivity, which is the increasing output per hour of products with real value to consumers. From the microeconomic point of view, pay of any kind is ultimately linked to the worker's marginal product, and the macro data bear this out. For example, compensation per hour grew by an average of 2.2 percent per year from 1950 to 1980, while output per hour grew by an average of 2.4 percent. From 1981 to 2000, both compensation and productivity continued to rise, at rates of 1.1 and 1.8 percent per year, respectively. Since 2000, productivity growth has surprised forecasters with robust rates often exceeding 4 percent- notably, while union power has continued to fade. The lesson is that national strategies aiming to enhance paychecks involve skill-building, education reform, and pro-growth economic policy and have very little to gain from the old approach of negotiating over a fixed pie of company income.
   
• Only 35 percent of non-unionized American workers are interested in unionizing their workplaces, according to new survey by Zogby, and only 16 percent would definitely vote to unionize.[2] This is strong evidence that unions are unrepresentative of the interests of most American workers, who like their jobs. The paradigm of conventional union organizers-the 1950s-style lifetime employer-simply isn't meaningful in today's workplace negotiations. Indeed, the simplistic framework of management-versus-labor does not represent the conventional wisdom that entrepreneurs are essential and that capital income and labor income are closely related. Thanks for this change go partly to the unions that fought in the past for things like profit-sharing and stock options, which define the workplace reality for many Americans today.
   
• The union movement is identified with huge companies under duress. The demise of companies like General Motors, with its exorbitant health care costs, and United Airlines, with its bankrupt pension plans, does not reflect well on the unions themselves. Yes, the unions negotiated aggressively for workers at those companies years ago, but the overly generous health care and pension promises they "won" were not victories in hindsight. They made the companies less competitive, and in the end, the promises could not be met. If "unionized" continues to equate with "uncompetitive," unions will never grow.
   
• Unions seem to have lost touch with their main interest. The recent fight against Social Security reform is a case in point. Organized labor essentially ruled out all solvency solutions for the troubled program, save one: higher taxes on labor through the payroll tax. What kind of special interest advocates higher taxes on its chief interest? AFL-CIO hostility to immigration, as well as its incessant demand for a higher minimum wage, are also contrary to the interests of many low-skill workers and their unions.

Union disintegration is not the result of declining union membership and may actually be the only alternative to further decline. As a metaphor, one need look no further than the economics of monopolies. Monopolies tend to produce lower levels of output than competitive industries. A diverse constellation of labor unions has the advantage of representing new and neglected perspectives and may achieve better results for members. Certainly, the vast majority of American workers who are not union members can imagine ways to improve their workplace environments, but organized labor does not have the flexibility to represent these diverse interests in its present form.

After the disintegration of the AFL-CIO, organized labor may surprise everyone by advocating for policies dear to the majority of American workers, such as flex-time, pension and benefit reforms, and retirement solvency, and thus growing anew. Meanwhile, the eternal fight to protect against abusive employers must and will continue, and it would be incorrect to see the break-up of the AFL-CIO as a weakening of that principle. Finally, Congress is likely to welcome young voices in the labor movement as it considers the institutions for the 21st century workforce.

Tim Kane, Ph.D., is Bradley Research Fellow in Labor Policy in the Center for Data Analysis at The Heritage Foundation.