Labor Flexes Its Muscles

Some celebrate, others calculate

The first Labor Day was celebrated in September 1882 in New York City by stakeholders of the Central Labor Union. Oregon was the first to pass a law recognizing Labor Day in February 1887. After being recognized as a holiday by many states, Congress passed an act in June 1894 making the first Monday in September of each year a labor holiday.

Over 125 years later, today’s celebration sees labor in its most advantageous position in decades.

We’ve extensively chronicled that: 1) the supply of workers has been severely below demand since the start of economic recovery from COVID-19 recession, and 2) that has produced rapidly rising wages, many job changes, greater worker flexibility (my commute, it’s coming from inside the house!), and more flexing of organized labor musculature.  

Labor Taking Names and Kicking A**

As of July (the most recent month for which these data are available), there were 36,000 employed Americans not at work due to labor disputes, the most in any month since August 2003. This has and will continue to create wins for labor. The United Electrical, Radio and Machine Workers of America, for instance, just reached a deal with the largest U.S. train manufacturer in America that ended their strike and will generate some chunky raises over the next few years.

But the number of workers currently on strike is only a small part of this story. Labor can also win by merely threatening a work stoppage. This was on full display in early August when the Teamsters reached a deal with UPS that will see UPS drivers earn an average of $170,000 in annual pay and benefits at the end of a five-year contract agreement. Thankfully, I look good in brown.

Rising Inequality is so Last Decade

Tight labor markets are good for workers whether they’re organized or not. The share of workers quitting their job each month has been extraordinarily high over the past few years, and that has everything to do with the rapid wage gains for job changers. According to ADP Pay Insights data, the median job changer’s pay increased at a double digit year-over-year pace over most of the past few years.

While these dynamics have been especially apparent in recent years, labor market tightness has benefitted the lowest earning workers for the better part of the past decade. The lowest quartile of earners experienced the highest median wage growth in every month from mid-2015 to late-2022 (the second lowest quartile of earners has pulled ahead the past several months). This has much to do with rising wages within blue collar occupations.

Strike While the Iron’s Hot, Because It’s Definitely Cooling

The past few months have been associated with cooling labor demand; the unemployment rate is now at its highest level since early 2022, and job openings just fell to their lowest level since early 2021. But cooling doesn’t mean cool, and labor still has outsized leverage, especially when it’s organized, like the the United Auto Workers.

Employers see a light at the end of this tunnel, but that light might be a train barreling toward them at 80 MPH. Or it could be a car driven by 150,000 United Auto Workers who may go on strike when their contract expires on September 14, which happens to be my (Anirban’s) birthday. Thankfully, I’ll still look good in brown.

While the UAW strike is the big one to watch for, American Airlines flight attendants just voted to authorize a strike, though a work stoppage seems unlikely, and the Culinary Workers Union in Las Vegas is engaged in its own contentious contract negotiations.

Final Thoughts

When labor markets are tight, wages and economywide prices rise, and inequality, employer margins, and the quality of service fall. After a few decades that saw plentiful labor, we’re now living in a world of worker scarcity. Given known demographics, these structural issues might hang around for a while (expanded legal immigration could alter these dynamics, however).

Your views on this likely depend on where you sit. For workers, this Labor Day is about as good as it gets. Employers, on the other hand, might be thinking twice about celebrating Thanksgiving this year.