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September 07, 2021
As the US celebrates Labor Day, many employers are still struggling to find enough workers. McDonald’s, Chipotle, Walmart and many other companies have announced sizable wage increases to attract workers, and some economists argue American workers have the most bargaining power they’ve had in years.
Many people, from low-wage workers to White House officials, are cheering this news, but there’s a fierce debate about this increased bargaining power. On Friday, the US released disappointing jobs figures that show the coronavirus is still affecting hiring. And while some argue this new-found worker power will be a longer-lasting phenomenon that yields years of better pay for workers, others believe it’s just a temporary blip.
Already this year, Chipotle, CVS and Walgreens have raised their minimum pay to $15 an hour, while Costco has raised its minimum to $16. Heidi Shierholz, senior economist at the Economic Policy Institute, a progressive thinktank, applauds these increases, but sees them as largely a response to a temporary labor squeeze in specific industries, especially the hospitality industry. Shierholz fears the increase in worker bargaining power will be short-lived.
“There’s nothing I see that gives me any feeling that it’s going to be permanent,” she said. “The reasons we’ve seen wage stagnation and declining economic leverage for workers is four decades of policy choices. A couple of months like this is not going to wipe that out. How can anyone seriously think this will be a lasting situation?”
Arindrajit Dube, an economics professor at the University of Massachusetts, says increased worker bargaining power could last longer-term. Dube says that numerous factors have made many workers think twice about returning to their jobs – especially to low-wage jobs – and that hesitation has given them more bargaining power. Those hesitation-causing factors include protections against evictions, increased food stamps, the $300-a-month unemployment benefits supplement, and stimulus checks that fattened many workers’ banks account.
On top of that, many workers hesitate to return to work because of difficulties finding childcare and fears about Covid.
“People have become more discerning about which jobs they’re willing to take,” Dube said. “A reasonable case can be made that we may be looking at a more extended period where workers have greater power.”
Dube acknowledges that many of the factors that have let workers remain on the sidelines will dissipate: their savings may dwindle, childcare will improve, the $300 jobless supplement is ending. But when the pandemic recedes, Dube notes, the jobless rate is likely to fall, strengthening worker bargaining power. Dube says wage norms have been changing for the better; many employers were raised pay pre-pandemic because of a low jobless rate. Moreover, public pressure, from Bernie Sanders to union protests, helped persuade some employers, most notably Amazon, to raise pay.
“Norms on wage standards might start to get baked in,” Dube said. “From one perspective, you can have a replay of the 1980s, but backwards. In the 1980s, there were differing shocks, like the weakening of unions, that led to erosion of wage standards. We could be looking at a time where we rebuild some of those wage standards.”
He added: “We could actually perhaps bend the trajectory of the labor market” toward better pay and treatment. Economists point to a big factor helping to change that trajectory: the Federal Reserve’s willingness to let the labor market run hot, paving the way for more wage increases.
Betsey Stevenson, a University of Michigan economics professor, agrees that many workers are reticent to return to their jobs. She noted that in-person service workers, like waiters, see their jobs as especially risky during the pandemic. “Economists say the riskier the job, the more the pay should be,” she said. “We’ve always had restaurant servers who face sexual harassment and hostility, but it was never as bad as it is now. It’s given workers a lot more space to say, “I’m not OK with being treated that way.’”
With the federal government strengthening the social safety net because of Covid, Stevenson said, “We made it easier for people who live on the knife’s edge of starvation to eat. We made it difficult to evict people. We made food stamps more available. We enabled people to catch their breath and ask, ‘Is this something I want to do?’”
She added: “Coming out of a recession, we’ve never seen so much movement by workers into new fields.”
In her view, many businesses might adopt different norms during the pandemic, and that could result in more worker bargaining power. “Successful businesses are going to have to think harder about the humanity of the people they’re hiring. The ones who adapt to that are going to be the first ones to get workers back.
The ruthless company that pays as little as possible, with all the profits going to managers and investors – that cutthroat approach was a successful US model. I think it’s not a successful US model after the pandemic. That has the potential to reshape bargaining power.”
David Neumark, an economics professor at the University of California, Irvine, says the troubled labor market in industries such as restaurants “may just be a temporary imbalance between supply and demand, and there may not be a fundamental shift in bargaining power.”
“The labor market is very hot right now,” he noted, saying it will of course cool off. He said some long-term trends, like retirements among older workers, might tighten the labor market and nudge wages upward. Concurring with Stevenson, he said some employers, having adopted a higher-pay strategy to retain and attract workers during the pandemic, may conclude, post-pandemic, that a high-road approach works best for their business.
Curtis Dubay, senior economist with the US Chamber of Commerce, said the $300-a-week unemployment supplement was one factor helping workers hesitate about taking jobs. “Workers,” he said, “have tremendous bargaining power because businesses are bargaining against government benefits, which are very generous right now. But they’re winding down.”
Dubay said fears of returning to work because of Covid “give workers bargaining power. Employers have to pay more to overcome that fear.”
The dynamic between workers and employers is always shifting, Dubay said, and that makes it unclear how long workers’ beefed-up leverage will last. “The one thing that will last is the pay increases,” he said, noting that employers are reluctant to roll back wages.
William Spriggs, the AFL-CIO’s chief economist and a Howard University economics professor, said he thinks increased worker bargaining leverage is a “temporary blip”. To his mind, the so-called labor shortage is greatly exaggerated. His explanation: many people left their low-paying restaurant and retailing jobs to work at Amazon, and that created hiring difficulties, especially in restaurants, when customer traffic boomed in June and July
“To increase bargaining power, we really have to raise the minimum wage,” Spriggs said, asserting that many employers have been able to hold down wages because their workers feel little ability to move to other employers. “Increasing the minimum wage to $15 will force them to do what they should have done on their own.”
Shierholz of the Economic Policy Institute, said: “The most important things to do to increase worker bargaining power are increase the minimum wage and pass the Pro Act,” the Protecting the Right to Organize Act, which faces a Senate filibuster.
“Another key thing is to always keep unemployment low,” she said. “If we look back in 10 years and there are no policy changes, I worry what will have happened to wages.”
