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Labor Day is the end of summer. What if it's the end of the strong labor market, too?
It does not have to be.
During the past three years, the labor market was very strong—or extremely tight, as the Fed likes to say. It has been a silver lining in the Covid crisis. Millions of workers moved to higher-paying, better jobs, others got raises, and many marginalized workers made gains. The unemployment rate has been below 4% for a year and a half.
But we are seeing a slowdown: 150,000 jobs were added in the past three months— about half the pace in the first three months of this year. Workers are quitting less, suggesting they have fewer good options. Both job gains and quits are relatively close to pre-pandemic levels, though where we go from here is unclear.
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Labor Day is a day to celebrate workers and the labor movement. Today’s post discusses some ‘wins’ for labor since the pandemic began. Ones that will become harder, if not impossible, to achieve if we fall into a recession.
A strong labor market is helping those workers whose work is often undervalued and underpaid.
We were going to have higher inflation, regardless. Look around the world. Our strong labor market and robust growth softened the blow, especially for low- and moderate-income workers. Workers, we have been told for decades, were being paid what they were ‘worth,’ which was not much. Turns out, these workers are valuable and worth the higher pay.
Across the three years, real wages rose over 2% in the first wage quartile and about 1% in the second. In other words, wage growth exceeded inflation.
That’s just wages. Real disposal income overall is up 0.6% over the same period. That said, people have every right to be discouraged, as we see in confidence surveys. A higher price tag is tough, but being unable to pay it is the worst. There are people in that second group, and we should help them and celebrate those whose pay is keeping up with inflation. We should celebrate the opportunities in this labor market.
Labor Day celebrates the dignity of hard work. A paycheck is different than a handout. It’s a difference that many economists and our models miss.
Here’s Jason Furman in 2005, “Wal-Mart: A Progressive Success Story”:
But Wal-Mart, like other retailers and employers of less-skilled workers, does not pay enough for a family to live the dignified life Americans have come to expect and demand. That is where a second progressive success story comes in: the transformation of our social safety net from a support for the indigent to a system that makes work pay. In the 1990s, President Clinton fought for expansions in support for low-income workers, including a more generous Earned Income Tax Credit (EITC) and efforts to ensure that children did not lose their Medicaid if their parents took a low-paid job. The bulk of the benefits of these expansions go to the workers that receive them, not to the corporations that employ them.
Is your paycheck too small? Apply for safety net programs so Wal-Mart shoppers can buy cheap stuff. These safety net programs reward work, but they also take work to apply and keep the benefits. EITC benefits are once a year, and Medicaid is a mess.
The American economy has witnessed a large increase in the return for skills over the last decades. Driven largely by technology, but also by globalization, the benefits of education and training are larger than ever before. The most fundamental solution to this is to invest in the education and training necessary to ensure that all workers can succeed in the global economy.
Another fundamental solution is to have a strong labor market. Wal-Mart this year:
Walmart said Tuesday it would raise the average hourly wage of its associates to more than $17.50 an hour — up from about $17 an hour.
In a note to employees published on Walmart's website, John Furner, the president and CEO of Walmart U.S., said the move is part of an effort to strengthen the retail giant's jobs and invest in its people.
The range of salaries for store employees will also climb to $14 to $19 an hour, from $12 to $18 an hour. About 340,000 store employees will get a raise, representing 21% of Walmart’s 1.6 million U.S. employees.
Labor shortages gave lower-wage workers borrowing power in the past three years, which, as a group, they have not had in several decades. But we did not build new institutions to continue that after the labor moves back to its pre-pandemic ways. It was a good market then, but not as good for all workers.
Unions have more bargaining power now, too.
Labor unions bargain for their members in good times and bad. Unions have been out with UPS and United pilots this summer, negotiating historic with high pay, better hours, and more worker protections.
Today, Teamsters voted by an overwhelming 86.3 percent to ratify the most historic collective bargaining agreement in the history of UPS. The five-year contract protects and rewards more than 340,000 UPS Teamsters nationwide, raising wages for full- and part-time workers [$2.75 per hour more now to $7.50 more in five years], creating more full-time jobs, and securing essential workplace protections, including air conditioning.
It’s not only about pay. A safe workplace like the air conditioning is important, too. I wrote recently in Bloomberg Opinion, “Summer Heat Is Becoming a Big Drag on Productivity,” about the one-fifth of workers in heat-exposed jobs, including UPS. It’s important for workers and business.
A strong labor market and strong demand are important. Dan Vicente, the director of UAW Region 9, in his interview on Odd Lots with Tracy Alloway and Joe Weisenthal, explained how economic conditions could shape the negotiations.
Vicente compared the contract negotiated in 2009 and this summer. The miserable labor market in 2009 meant there were plenty of workers to replace them, and the car industry itself was hanging by a thread. The result was an unfavorable but unavoidable contract. It is not until this year, with the labor shortages and big profits in the industry, that the UAW has the upper hand and is pushing for a strong contract, including reversing problems in the 2009 contract.
I do not expect the Fed to call out the unions, who just signed big contracts, as contributing to inflation, even though the Fed tells us higher wages do. Larry Summers is willing to say the quiet part out loud:
Looking ahead, it will be important to monitor potential pressures on wages from labor activity, he said. The recent deal signed between United Parcel Service Inc. and its union workers was “probably not consistent with 2% inflation,” [Larry Summers] said. Now, automakers are facing strike threats from the United Auto Workers union …
It’s understandable that the UAW is “very ambitious” in its demands, given that there are “a lot of workers left behind” at a time that carmakers did well.
“These are very difficult situations for administrations,” Summers said. “If there’s a strike — and in terms of inflation pressures — it’s going to be something people need to watch over the next month.”
Viewing everything through the lens of inflation often means looking past workers. And carmakers “did well?” Record profits are better than well. If the union got a very bad contract when times were terrible, it makes sense they get a great one when the economy is great.
A tight labor market is not enough.
It’s unlikely that the labor market will remain so favorable to workers. And even if it did, there’s only so much labor shortages and strong consumer demand can do.
The challenges of how to support workers are not new. It took decades to create worker protections, everything from overtime pay to a forty-hour work week to unemployment insurance, to become federal law in the New Deal. I wrote a piece on Francis Perkins, who championed the laws.
These laws were a start, not a finish, in efforts to ensure that workers were paid their fair share, worked in safe conditions, and had other protections. We have seen them expanded and updated over time, and supporting workers is an ongoing process. Some recent examples: Phoenix, the hottest city in the country, now requires that businesses provide their workers with “adequate access to water, shade, and rest.” That’s an example for other cities and states as temperatures rise. As another example, the Biden Administration proposed a rule that would raise the salary cap for being eligible for overtime pay. More workers would be paid time and a half for working more than 40-hour work week, raising the income of millions.
Also, labor unions cannot bet on a strong labor market. The Protecting the Right to Organize (PRO) Act is one proposal to support union organizing and bargaining. William Spriggs, the AFL-CIO chief economist and Howard economics professor—until he passed away earlier this year—was a staunch proponent of the act. He and others also drew attention to the fact that the union membership of Black workers had fallen more than other groups, meaning that fewer had the benefits of collective bargaining and union membership. Significant protections like the PRO Act for unionizing could reverse that.
No one step is sufficient, but each is important for workers.
The celebration of workers and the labor movement is fundamental to Labor Day. After three years of a strong labor market, we have much to celebrate, with big wage gains among low-wage workers and unions negotiating historic contracts. But we are seeing that strength wane some.
We may not be able to celebrate like this next year.
There are policies to maintain full employment and policies at all levels of government to support and protect workers. Get it done.
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Once you get past the provocative title, it’s a well-argued piece full of economics research. It’s a clear example of how many economists think of the tradeoff between low-wage workers and low consumer prices. Jason’s safety net reforms are good.
I encourage you to listen to the entire conversation; there is much more. Jacobin reporter Alex Press is also there.