Across human society, bargaining power is determined by which party can most “afford” to leave the relationship. If workers can leave their job at a lower cost, they have more bargaining power than if the costs of quitting or retiring are high. When asking for a raise a person or union must consider basic economics: How tight is the labor market? Are employers begging for workers? Will employers meet workers’ terms to hire them?
The latest answers are not promising for workers. Analyzing gobs of data, I’ve found that worker bargaining power is slipping more than it’s rising. On a year-over-year basis, examining 11 key indicators, my research finds seven pointing downward, three indicators with mixed results, and just one aspect of worker bargaining power increasing. While not all the news here is bad, the larger picture bodes discouragingly for workers. Here’s the breakdown:
1. DOWN: Inflation-adjusted value of wages.
2. DOWN: Inflation-adjusted value of federal minimum wage.
3. DOWN: Labor’s share of the nation’s wealth.
4. DOWN: Wages are not keeping pace with worker productivity.
5. DOWN: Rising pay gap between managers and workers.
6. DOWN: Portion of workers expecting one or more job offers.
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7. DOWN: Unemployment rates are up slightly.
8. MIXED: Reservation wages—the lowest pay a worker will accept—are up for some, down for others.
9. MIXED: (slightly): Number of jobs available for every unemployed worker.
10. MIXED: Unionization rates are rising.
11. UP: Quits rates—the “Take This Job and Shove It” indicator—are up.
Why and how is worker bargaining power slipping more than it’s growing in a time of supposed economic strength? What do these trends mean for workers and our economy? Here’s my take based on extensive number-crunching:
1. DOWN: Inflation-adjusted wages and salaries. Although wages are up, prices are rising faster. Between August 2021 to August 2022. While private-sector workers’ earnings rose by 4.6%, inflation shot up by 8%. In 12 of 13 sectors I studied, workers’ raises failed to keep up with price increases (the exception was mining; not even construction and leisure and hospitality kept pace with inflation). It is not plausible that worker bargaining power is causing price increases. Josh Bivens, research director of the Economic Policy Institute, argues, “labor costs are dampening—not amplifying—price pressures.” In other words, workers’ rising wages have alleviated rather than exacerbated inflation.
Speaking of dampening, workers’ wages would be higher and more able to contend with inflation if employees had greater bargaining power. Combined with declining unionization over decades, employers’ greater bargaining power has kept American workers’ pay 20% lower than it would be if employers didn’t have so much power. In a revealing recent report, the U.S. Treasury Department fingers corporate monopoly and monopsony power as a main driver keeping wages low; as corporations consolidate both buying and selling power, workers have fewer choices, thus less bargaining power.
Here’s a little more context: since 1979, U.S. wages adjusted for inflation have stagnated compared to the rest of the G7 nations, as well as Norway, Sweden, and Denmark. There has also been meager improvement for American workers in other measures such as total compensation and working conditions. The increasing automation of tasks may lead to new kinds of stress and injuries, research suggests. The Economic Policy Institute has dubbed employers’ ability to intensify the working hour and day without increasing pay as “quiet fleecing.”
2. DOWN: Inflation-adjusted value of the federal minimum wage. In real terms, the federal U.S. minimum wage of $7.75 is much lower than its peak in 1968, when its inflation-adjusted value was $11.91 an hour. Think about that: over the past half-century, lower-wage workers have lost more than four dollars an hour in real terms. The minimum wage, which has not been raised since 2009, boosts wages for workers at the bottom and is a sign of unions’ and workers’ political power. The fact that the federal minimum wage is so low is a sign of labor weakness. However, the fact that more than 20 states and cities have a higher minimum wage says that workers have more power in those places. Adjusted for inflation, the minimum wage has decreased by 8% in the U.S. since 2001, while it has gone up in Spain by 51% in real terms, Canada by 43%, France by 20%, the U.K. by 56%, and the Netherlands by 2.7%, according to the OECD.
3. DOWN: Labor’s share of the nation’s wealth. How much of America’s massive gross national product goes to labor, and how much goes to capital? The balance of power has been so skewed toward capital for so many years that despite today’s relatively tight labor market, workers’ share is at an all-time low. Just before the pandemic, in the summer of 2019 amid historically tight labor markets, workers’ share was 59% of total GNP, down significantly from its peak of 65% in the 1970s, and below the average share since 1955. According to a McKinsey report, if workers had the same share in 2019 that they had in 1970, they would have had 6.7% more of the $19 trillion dollar economy—$8,266 a year more per full-time worker, and about 18% higher median real earnings.
4. DOWN: Wages are not keeping pace with worker productivity. Since the Economic Policy Institute published the famous alligator graph in the 1980s, with the wide jaws of productivity going up and wages going down, workers have been giving more to the economy than they have been getting. This is the “quiet fleecing” mentioned above.
5. DOWN: Rising pay gap between managers and workers. Wage inequality between workers and managers continues to increase. Recent data indicate that the top one percent of owners have garnered a 179% increase in pay since 1979 while the earnings share for the bottom 90% of workers has fallen to a new low.
6. DOWN: Portion of workers expecting one or more job offers. In just the past three years, the share of employed and unemployed jobseekers who expect one or more job offers has declined significantly. In the summer of 2019, 45.1% of jobseekers under age 45 expected one or more offers—now it’s down to 40.8%. People over 45 are even less optimistic: 36.8% expect to get at least one offer, down from 38.6% in 2019. Among those surveyed in March 2021, 17% thought they would get a job offer, while in July 2022 those expectations had fallen to just 15.7%.
7. MIXED: Unemployment has risen slightly. When unemployment rises, worker power falls, as workers have fewer options and more competition. While the unemployment rate inched down from 3.7% in Summer 2019 to 3.6 percent in March 2022, it has since gone back up to 3.7%. This indicator as a whole shows worker bargaining power is high because the rate is low no matter what the trend. The rate is not likely to fall anymore but we are at full employment – that will change when people come back from the sidelines and start looking for work.
8. MIXED: Reservation wages are up for some workers, down for others. The reservation wage is one of the most important concepts in labor economics. It refers to the wage that people say they must be offered before they accept or change jobs. According to the Federal Reserve’s 2022 survey of worker expectations, the reservation wage has increased for workers earning over $60,000—rising from $82,595 in March 2021 to $90,962 in July 2022. But the wage demand for those earning below $60,000 has fallen from $50,825 in March 2021 to just $45,814 in July 2022. Meanwhile, for people without college education (generally lower wage earners), the reservation wage rose by 17% from March 2021 to July 2022; and overall reservation wages went up by 13%, according to the Fed.
Two more layers of this mixed trend deserve attention:
a. During this same period, the reservation wage fell by 18% for women to $59,543 in July 2022, while for men it increased by 6.4%, to $86,259.
b. Older workers’ bargaining power slipped further, as the reservation wage for those over 45 years old fell by 1.5%, to $68,874, while workers under 45 rose their wage demands by 2.6%, to $76,971.
9. MIXED: Unionization efforts are rising, but the numbers haven’t shown up in the statistics, which show minor declines because the newly organized workers don’t have contracts. Starbucks SBUX workers at 220 stores across the U.S. have unionized, but the company refuses to bargain; same thing with Amazon AMZN . It remains to be seen if overall levels of workers in unions will rise, giving labor increased bargaining power.
10. UP: Quits rates are up. Labor power can also be measured by what I call the “Take This Job and Shove It” indicator. The quits rate has risen in almost all sectors since the beginning of the pandemic—increasing by 16% in the private sector and 22.8% in government. Quits have gone up the fastest in manufacturing. Despite much-heralded worker complaints in the leisure and hospitality sector, we have not seen a big increase in their quit rates (just 2.8% in July 2021, and 2.7% in July 2022).
Closely related is the job leaver rate. Comparing the “quitters” and “leavers”—similar groups measured separately in the data—to the share of unemployed who lost their jobs gives you a good idea of the desperation of the unemployed; the more economically desperate they are, the less bargaining power workers have. In the summer of 2019, the share of unemployed who quit their job was 14.1%; as of March 2022, that share was up to 15.1%, and by August it was at 15.2%.
11. UP: Number of jobs available for every unemployed worker. As the ratio of unemployed workers to job vacancies falls, it means workers have more options in the labor market and thus more power. In February 2020 that ratio stood at 0.8 unemployed people for every job available, and now it is even lower, at 0.6. This is a clear indicator that labor has a little more power than it had two years ago.
Sifting through all the data and indicators, the bigger takeaway is that despite quite low unemployment rates, workers’ overall bargaining power is mostly diminishing. Inflation and productivity are outpacing workers’ wage gains. Capital’s share and power are growing. But by some measures, workers are pushing back for their piece of the pie. Stay tuned.