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Strikes and Unions
The Labor Market Is Old
The labor market in the United States is currently experiencing a significant shift driven by public support for unions, successful strike outcomes, and a push for favorable economic conditions for workers. According to Gallup polls, 67% of Americans approved of labor unions in the past year, a slight dip from the previous year's 71%, which was the highest percentage since 1965. This renewed public support has played a crucial role in emboldening workers to take collective action.
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The success of recent strikes has also encouraged workers to demand better treatment and compensation. Pilots at Delta Air Lines and American Airlines secured raises of over 30% over four years after authorizing a strike. Drivers at United Parcel Service (UPS) also reached a deal with Teamsters, narrowly avoiding a strike and securing an 18% pay increase over five years. The success of the Teamsters' negotiations has inspired other unions, including the United Auto Workers (UAW), to fight for their members' rights.
United Auto Workers
The UAW, representing a large portion of the workforce in the automotive industry, is currently engaged in negotiations with major automakers, including General Motors (GM), Ford, and Stellantis. This strike has expanded to include more assembly plants and has already impacted 18,000 of the UAW's 146,000 members at the three carmakers. The addition of two new plants will put an additional 7,000 workers on picket lines. The UAW strike is driven by demands for pay raises in the mid-30% range and an end to concessions made during the 2007-09 recession.
The strike's impact on the automakers has been significant. Ford and GM have seen their stocks decline by 17% and 16% respectively since July when labor talks intensified. In contrast, the S&P 500 has only dropped by about 4% during the same period. Stellantis, the parent company of Chrysler, has seen its shares rise by approximately 7%. This underscores the urgency for Ford and GM to reach a deal and resolve the strike.
The UAW's strategy is to gradually expand the strikes without causing deep disruption across the companies' factory footprints. The union has applied pressure unevenly, rewarding companies that give up more ground in negotiations. The latest work stoppages have targeted plants that produce popular seven-passenger SUV models.
The UAW has been pressing for wage increases of up to 40% over four years, along with the return of cost-of-living adjustments and more paid time off. The companies have countered with offers of around 20% wage increases and other benefits, which they claim are among the most competitive in history.
The labor dispute has also brought attention to the issue of stock repurchases by Detroit's legacy carmakers. Share buybacks involve a company repurchasing its own shares from the market, a move popular with investors as it signals management optimism and a healthy balance sheet. However, labor organizations argue that companies use buybacks to manipulate stock prices and reward wealthy investors, including executives who own shares. The UAW believes that buybacks are diverting funds that could be used to improve wages and working conditions for employees.
GM, for example, has repurchased $14.2 billion in common stock since its return to the public market in 2010. The company defends its use of buybacks, stating that they have been employed to return capital to shareholders after investing in growth. Ford, on the other hand, has preferred to issue dividends instead of engaging in significant share buybacks.
Political & Labor Implications
Both President Biden and former President Trump made appearances that were seen as attempts to appeal to union voters for the upcoming 2024 election. The rise of income inequality in the United States has been a significant trend in recent decades, largely driven by stagnant wage growth for all but the highest-paid workers. One of the main factors contributing to this inequality is the decline of organized labor and unionization.
It is worth noting that the spread of unionization in the mid-20th century played a crucial role in building the American middle class. This was achieved through grassroots organizing efforts and policy initiatives under Franklin Roosevelt's New Deal, such as the National Labor Relations Act of 1935 (the Wagner Act) that protected workers' freedom of association and encouraged collective bargaining.
Additionally, strong pro-labor conditions were attached to federal defense spending during World War II, which also fought against racial discrimination by employers. While these policy efforts were controversial at the time, they laid the foundation for a more equitable society.
Unionization and Labor Laws
The current labor laws pose significant obstacles to increased unionization. Union-busting has become a routine cost of doing business for most companies, and the weak labor laws offer little protection to workers. To address this issue, the National Labor Relations Board is working to establish better protections for workers' right to organize. However, their efforts require significant legislative support to level the playing field.
At the federal level, the passage of the Protecting the Right to Organize (PRO) Act and its public sector counterpart, the Public Service Freedom to Negotiate Act, would mark the first pro-labor legislative reforms since the Wagner Act. These reforms aim to rebuild workers' rights to unionize and bargain collectively while addressing the tactics employers have used to undermine organizing efforts in recent decades.
At the state level, it is crucial to overturn right-to-work laws and enact legislation that supports collective bargaining for public sector workers. Additionally, labor standards attached to investment projects launched under the Biden administration must be implemented assertively and expanded where possible.
Aging Labor Market
The United States is currently grappling with a long-term labor crisis, a situation that has been decades in the making. This crisis is primarily driven by factors such as the retirement of the baby boomer generation, low birthrates, shifting immigration policies, and changing worker preferences.
The baby boomer generation, born between 1946 and 1964, is the largest in American history. However, many have retired during the pandemic and have not returned to the workforce. By 2028, even the youngest baby boomers will have reached the average retirement age of around 64. This mass retirement is leaving a significant gap in the labor market.
The millennial generation, born between 1981 and 1996, is the next largest generation. Despite their numbers, the labor market is still facing a shortage of workers. This shortage is exacerbated by a declining birthrate in the U.S., which has been decreasing for decades. This decline in population growth has resulted in slower employment growth and is expected to impact the overall economic growth of the country.
The U.S. Labor Department projects that total employment will only grow by about 0.3% per year until 2032, significantly slower than the 1.2% rate seen over the past decade. This projection reflects the constraints imposed by the aging population and declining birthrate.
The labor shortage has significant implications for the U.S. economy. It is expected to result in slower growth in gross domestic product (GDP) as the shortage of workers hampers productivity and limits the expansion of businesses. During the pandemic recovery, wages experienced a surge and have recently been outpacing inflation, giving workers more purchasing power. However, the long-term labor shortages could lead to a sustained acceleration in wage growth.
To address labor shortages, several potential strategies have been proposed, including increasing the size of the labor force, enhancing productivity, and exploring alternative labor pools. Immigration is one approach to expanding the labor force. However, immigration remains a contentious issue, and the lack of a coherent and stable policy is seen as contributing to the labor problem.
A study by the Federal Reserve Bank of San Francisco found that increasing migration in 2022 has helped lower the vacancy-to-unemployment ratio by 6 percentage points, thereby improving the balance between the supply and demand for workers. Increased immigration alone cannot fully alleviate the worker shortage. Still, Federal Reserve officials view it as a means to assist in the fight against inflation by addressing the imbalance between labor supply and demand. Jerome Powell cited the rebound in immigration to pre-pandemic levels as a factor contributing to the boost in labor supply.
Outsourcing work overseas is another option to alleviate labor shortages. However, this approach has lost favor among some business leaders following the vulnerabilities exposed by the global supply chain during the pandemic. As a result, there is a growing trend of reshoring, bringing manufacturing back to the United States, supported by substantial government subsidies.
M2 Money Supply
The labor market is also influenced by broader economic trends. Recent economic data has been drawing parallels not just to the Global Financial Crisis (GFC) of 2008, but to the Great Depression of the 1930s. This is evident in the M2 money supply which shows a concerning trend. The M2 money supply growth rate is at negative 4.07%, which is 5% worse than during the GFC. This is the first time since the Great Depression that the M2 money supply growth rate has been negative year over year.
The Federal Reserve and economists on Wall Street have adjusted their unemployment forecasts downward as they try to understand why the labor market has remained so strong. If the factors that have kept unemployment low continue, the central bank may be able to keep interest rates at restrictive levels and bring down inflation without causing a painful economic transition. However, their are signs of a cooling job market such as slower employment growth and a decline in job openings. The Fed believes views these trends as a return to normalcy rather than the start of a recession. In September, economists are forecasting the addition of 150,000 jobs, down from the 187,000 added in August. The unemployment rate is also expected to have dipped to 3.7% from 3.8%.
While Americans' paychecks are growing, when adjusted for inflation and taxes, incomes fell in August for the second consecutive month. If the labor market cools down and companies start laying off workers, incomes could take a further hit. Additionally, the growing number of strikes could temporarily curtail the spending power of some.
Another crucial development is the rise in labor-force participation. The overall labor-force participation rate currently stands at 62.8%. Prior to the pandemic, it was projected that the participation rate would fall below 62% by the end of next year due to an aging population and increased retirements. The increasing labor force participation rate may be due to the purchasing power of individuals decreasing, forcing people back into the labor market
Data from the Department of Labor indicates that a significant share of people who were previously disconnected from the labor force have found employment without actively searching for work. This expanding labor supply could help rebalance the job market & reduce upward pressure on wages.
The surge in union activity and strikes has already created some significant economic consequences. According to the Labor Department, the U.S. has already lost over seven million workdays due to labor disputes this year through August, surpassing any full year since 2000. This loss of workdays can lead to decreased productivity and economic output. As well, increased union activity could lead to higher wages for workers, which can increase consumer spending and stimulate economic growth. However, it can also lead to increased costs for businesses, which may be passed on to consumers in the form of higher prices. These strikes can have also had a negative impact on the stock prices of companies. The ongoing UAW strike has led to a fall in the stock prices of Ford and GM. and can affect investor sentiment potentially leading to reduced investment in these companies.
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