Did the pandemic finally give working Americans power over their employers? Not really
Union-organizing victories at Starbucks may obscure the longer-term decline in union membership, and consequently worker leverage. (Matt Rourke / Associated Press)
Labor advocates have been feeling their oats lately, what with a surge of successful union organizing drives at Starbucks stores, the hint of union interest at Amazon warehouses, higher minimum wage standards in cities and states across the country, and a nudge up of average wages across the board.
Labor advocates have been feeling their oats lately, what with a surge of successful union organizing drives at Starbucks stores, the hint of union interest at Amazon warehouses, higher minimum wage standards in cities and states across the country, and a nudge up of average wages across the board.
These trends have inspired some to proclaim the advent of a new era of worker power.
“The labor market is experiencing a Great Upgrade,” the progressive Roosevelt Institute declared in February.
“We’re in a moment where, politically, workers are ascendant,” David Madland of the Center for American Progress, a liberal think tank, told the investment publication Barron’s in May. (The article’s headline read: “How Workers Gained an Edge — and Why They Won’t Lose It Soon.”)
Unfortunately, this sort of confidence can be a drug that invites dangerous overdoses. That’s the view of economist Teresa Ghilarducci of the New School.
Ghilarducci recently compiled a roster of economic indicators suggesting that workers haven’t gained as much leverage as a superficial examination might suggest. Even the advances thus far, such as they are, still leave miles to travel before the American working class recovers all the economic standing it has lost since the 1970s.
“A lot of the talk about labor having power is based on organizing efforts at Starbucks and Amazon,” Ghilarducci told me. Of 11 economic indicators she examined, she says, “most indicators show either declining labor power or give mixed signals.”
Ghilarducci is not aiming to be a killjoy just for the hell of it. The condition of the labor market is critically important because the Federal Reserve Board is convinced that the tight labor market is an important factor driving inflation higher. Consequently, its inflation-fighting approach involves kneecapping worker bargaining power.
Who’s got the power? Corporate profits (red line) have grown sevenfold since 1994 — and faster since the pandemic — while labor’s share of the economy (blue line) has stagnated. (Federal Reserve Bank of St. Louis)
Fed Chairman Jerome H. Powell has explicitly stated that unemployment must rise for inflation to come down. “The labor market has remained extremely tight,” Powell said at his Sept. 21 news conference after the Fed’s monthly decision to raise interest rates by three-quarters of a percentage point for the third time in a row.
As evidence for the tight labor market, Powell cited “the unemployment rate near a 50-year low, job vacancies near historical highs, and wage growth elevated ... with demand for workers substantially exceeding the supply of available workers.” He concluded, with evident regret, “So far, there’s only modest evidence that the labor market is cooling off.”
Yet if the labor market hasn’t been tight enough to provide workers with real gains in wages and living standards, the Fed’s approach threatens to take away the lackluster gains they have achieved in the last year.
So let’s examine what has really been happening on the labor front.
The most important indicator is wage growth. Although pay has been rising, wages have been outstripped by price inflation. In raw terms, average nonfarm hourly wages rose by 5.2% in the year that ended in August, according to the Bureau of Labor Statistics. In real terms, however — that is, accounting for inflation — they fell by 2.8% in that period.
The Fed’s approach is based on an economic concept known as the Phillips curve, which posits a concrete relationship between unemployment and inflation (as unemployment rises, inflation falls and vice versa).
As I reported previously, though, this is a mechanistic approach that harks back to pre-Depression policy, when working men and women were regarded as just another economic input and downturns were valued as necessary medicine to preserve the financial well-being of the bondholding class.
It was the era when the prescription for an economic downturn offered by Treasury Secretary Andrew Mellon, one of the richest men in America, was “liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate,” as Herbert Hoover described Mellon’s argument in his own memoirs.
There’s reason to doubt that the relationship applies to today’s variety of inflation, which has been generated by factors such as pandemic-related supply chain obstacles and an aggressive expansion of corporate profits. The Phillips curve also depends on an accurate reading of unemployment.
As Ghilarducci observes, the published unemployment rate of 3.7% may be artificially low because it doesn’t account for workers who may still be kept out of the workforce by long COVID. As their illness abates, they may come flooding back into the workforce — a “large reserve army of labor,” as she calls it, indicating that the market isn’t nearly as tight as the Fed believes.
In any event, the fact that wage growth has lagged behind price inflation suggests that the first can’t be driving inflation higher — if anything, it’s holding inflation down.
The inadequacy of wage growth is shown by two other factors. One is the disconnect between productivity growth and wage growth. The two factors marched along together from 1948 until 1979, as the labor-oriented Economic Policy Institute has shown. Since then, the gap between them has grown: From 1979 through 2020, U.S. productivity advanced by 61.8%, but average wages grew by only 17.5%.
Productivity growth (dark blue) and wage growth (light blue) began to diverge in 1979, and the gap has widened ever since then. (Economic Policy Institute)
The second factor is the value of the federal minimum wage, which peaked in 1970 at an inflation-adjusted $12.04 per hour (in 2022 dollars). Today it’s mired at $7.75, where it was set in 2009.