- After nearly 30 years, organized labor activity in the US is increasing.
- The shift could help rebalance the lopsided US economy, giving more income to workers.
- It could also be beneficial to business by reestablishing healthy relations with labor.
- George Pearkes is the Global Macro Strategist for Bespoke Investment Group.
- Visit Business Insider’s homepage for more stories.
You may have noticed some labor disruptions in the headlines. A few examples from the past month: employees of Vox Media successfully negotiated a collective bargaining agreement, Buzzfeed employees walked out in an effort to get recognition for their union, and Volkswagen workers in Tennessee talked wildcat strikes after a vote to unionize failed by a small margin.
Last year, teachers walked off the job in West Virginia, Oklahoma, and Arizona with walk-outs and other disruptions from Colorado to the Carolinas. This may seem like bad news for capitalists, but unions can be a source of stability as well as class conflict. The recent labor renaissance could help to reverse some worrying long-term trends in the American economy, while also still benefiting the businesses from which workers are extracting gains.
The recent uptick in strikes is not just your imagination, and it recalls an earlier era when unions played a greater role in the American labor market. Data from the Bureau of Labor Statistics (BLS) showed more than 485,000 workers were impacted by large strikes that started during the year, the highest number since 1986.
This year, the first five months of the year have seen 307,000 workers impacted by strikes, versus 431,000 in the first five months of 2018.
The return to labor disruptions after a long post-Reagan slumber comes as workers are becoming scarcer. Using BLS data which goes back to 1994, as-of May only 9.12% of the potential workers either had no job and want one, or are working part-time because they can’t find full-time work. The measure is approaching its record low of 8.9%, from April of 2000.
This extremely broad metric measures not just those who are counted as unemployed by the BLS, but goes further to include those who haven’t been looking for work but want a job as well as those working part-time for economic reasons. If employers want to add capacity or replace workers who retire or quit, there are fewer and fewer places to turn, which gives workers more bargaining power.
The surge in organized labor activity also poses a concern for investors and economic observers: won’t all that labor bargaining power lead to wage-price spirals and runaway inflation? Not necessarily.
In fact, the FOMC’s most recent Summary of Economic Projections showed 8 of 15 FOMC members see multiple interest rate cuts this year, spurred in part by a weak inflation outlook. Many doves are more worried about slow inflation and the possibility of slipping inflation expectations, rather than inflation surging thanks to excessive labor bargaining power.
One reason a dovish outlook in the presence of low unemployment may carry less risk of a sudden uptick in inflation than it otherwise might: labor share of income is extremely low.
As Bloomberg’s Matt Boelser pointed out in April, Federal Reserve Vice Chair Richard Clarida brought the below chart with him from his role at fixed income fund giant Pimco. It shows that labor compensation share of national income hit a record low earlier in the expansion, and has only risen modestly since.
Tight labor markets may help return some balance to the economy, raising income share for workers after decades of declines and very little bounce during the current economic expansion. Higher labor compensation share of income could push up wages and incomes, without a dramatic uptick in inflation from businesses passing wage costs on to consumers.
Can a burgeoning push for unions help that process along? It’s always hard to draw concrete causal links between two economic variables, and we should be cautious to say rising union power would definitely raise worker bargaining power…especially without inflationary consequences. But it’s clear that declines in labor share of income since the 1970s only took place after unionization rates had been falling, and for quite some time.
Today, less than 11% of workers are union members per the BLS, with even lower numbers for the private sector (6.4%). Back in 1960, per the University of Amsterdam’s ICTWSS database, almost a third of the labor force was unionized.
The contemporary political framing of unions is often very negative, and given the experience of high inflation that subsided after supply-side reforms in the 1980s, that’s somewhat understandable, but it ignores a longer and more nuanced history of the labor movement in the US. Modern edifices like the National Labor Relations Board (NLRB) were introduced to balance the conflicts between unions and employers.
Examples of past excesses include a million rounds fired and chemical weapons used at the Battle of Blair Mountain (West Virginia, 1921) or President Truman nationalizing the steel industry by executive order in 1952 in response to a strike. Unrestrained conflict between workers and management is bad for everyone, but a managed negotiation between workers and business can play a role in creating a more equitable and stable society.
Years of political and judicial maneuvering (ranging from the 2018 Janus decision to much older right-to-work laws) have reduced the power of unions and the NLRB. But workers and employers are also well-served to remember that both can benefit from orderly collective bargaining: stability and predictability may be worth the bottom-line cost of paying workers more.
No employer need worry about an armed revolt or sudden nationalization these days, but even small wildcat strikes or walk-outs (which can destroy a business overnight), higher turnover rates in a low unemployment economy, and failure to attract talent can have devastating consequences. Unions and formalized negotiating can be a venue for class conflict that might otherwise boil over if kept bottled up.
For now, unionization movements are still limited. Organizers’ failure to introduce the South to unionized auto manufacturing via the Volkswagen plant is just one example of the difficulties organized labor still faces.
Given the longstanding frustration with slow wage growth and a society that feels imbalanced, recent victories at the bargaining table for journalists and teachers, facilitated by unions, seem likely to get copied in other workplaces.
George Pearkes is the Global Macro Strategist for Bespoke Investment Group. He covers markets and economies around the world and across assets, relying on economic data and models, policy analysis, and behavioral factors to guide asset allocation, idea generation, and analytical background for individual investors and large institutions.
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