Employers are still struggling to fill job openings, but a potential recession threatens to undermine labor's progress.
U.S. workers increased their bargaining power over the course of the pandemic, defying long-term economic trends. Whether those gains will endure, though, is uncertain.
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As of July, employment and unemployment had returned to their pre-pandemic levels, and wages had risen across the U.S. economy. Average hourly earnings grew 5.2% in August from a year earlier, and as of July, there were still 11.2 million job openings, far more than the 6 million Americans looking for work in August, according to the U.S. Bureau of Labor Statistics.
People quit their jobs in record numbers during the pandemic, lured by positions with better pay or retiring altogether. With more workers rethinking their worth, emboldened employees fueled high-profile union drives at companies such as Starbucks Corp. and Amazon.com Inc. Nationwide, union election petition filings grew 58% year over year between October 2021 and June.
Faced with labor shortages, employers are scrambling to retain talent and lure new employees. Lowe's Cos. Inc., for example, is paying $55 million in bonuses to its front-line associates to help them cope with inflation. Walmart Inc. is increasing pharmacy technicians' salaries and promising more frequent raises. Two American Airlines Group Inc. subsidiaries increased pay for their pilots, flight attendants and dispatchers.
These trends have strengthened labor's position at the bargaining table, but signs of softness are beginning to materialize. Unemployment ticked up in August, and job openings, while still elevated, have come down. Some companies including Netflix Inc., Tesla Inc., Ford Motor Co. and Apple Inc. have reportedly laid off, or plan to lay off, workers.
Most economists agree that the unemployment rate, at a historically low 3.7%, will rise by the end of 2022 as the Federal Reserve raises interest rates in an effort to limit soaring inflation. If a recession hits, hiring slows and inflation continues to erode Americans' buying power, the gains achieved by labor in the last two years could be reduced or eliminated.
"Once unemployment goes up, that leverage disappears," said Jake Rosenfeld, a professor of sociology at Washington University in St. Louis who specializes in what determines wages and salaries. "And all of a sudden, power shifts towards employers who can reject your demands for a union, can reject your demands for higher pay, knowing full well that you don't have many other options out there."
Hiring slows
Employers cut a record number of jobs during the pandemic-fueled recession in 2020, but the labor market recovered faster than many anticipated with the help of federal stimulus funding. The labor market now has fewer workers with more jobs to choose from at higher rates of pay. The booming job market has belied warnings that the U.S. economy is teetering on recession.
Now that could be changing. S&P Global Market Intelligence forecasts that U.S. unemployment will peak at 4.8% in the fourth quarter of 2024. Unemployment under 5% usually indicates a stable labor market, said Emily Crowley, an associate director of economics at Market Intelligence. Sectors will fare differently, with work-from-home jobs most likely to suffer as construction and manufacturing companies still deal with labor shortages, Crowley said.
"Where we're going to probably see the layoffs more highly concentrated are any of the industries that were doing well in the pandemic," Crowley said. "We're already seeing this in the tech sector."
Unemployment would become a concern if it surpassed 6%, but the chances of such a dramatic rise remain low, said Ron Hetrick, a senior economist at Lightcast, a global labor market analytics company. Spikes in unemployment have historically hit workers in manufacturing, retail, construction and the service sector hardest, but these are the kinds of workers employers have been struggling to hire, Hetrick said.
"We can't lay off what we couldn't hire," Hetrick said.
Absent policies and institutions that are favorable to workers, the labor market's improved bargaining power could be erased as the economic conditions that fueled those gains evaporate.
"When we do something like reduce labor demand and temper some of those market forces, I think we will revert to those previous norms of both inequality and things like reduced worker bargaining power," said Kate Bahn, director of labor market policy and chief economist at the Washington Center for Equitable Growth.
Some political winds have shifted in workers' favor. President Joe Biden campaigned pledging to strengthen organized labor and has made union-friendly appointments across his administration — including Secretary of Labor Marty Walsh, a former union official. The House of Representatives in 2021 approved the Protecting the Right to Organize Act of 2021, which would give protections to workers trying to organize.
The Senate has yet to vote on the measure, which has little Republican support. Although many employment laws impose financial penalties on companies that violate them, the National Labor Relations Act does not — but that would change under the new legislation, said Bill Samuel, director of government affairs for the American Federation of Labor and Congress of Industrial Organizations.
"It should be much easier for workers to decide to form a union," Samuel said. "They supposedly have freedom of association and the right to act in a concerted way to change their conditions of work ... [but] the law is so weak in protecting workers who choose to exercise that right, it's not really a right at all."
The Great Reshuffling
The labor participation rate in the U.S. — the number of people of working age who are employed or seeking work — has been declining for decades, meaning that employers are competing over a smaller supply of workers.
Some sectors have felt the pinch more than others. Durable goods manufacturing, wholesale and retail trade, and education and health services all have more unfilled job openings than unemployed workers with experience in their industries, according to a U.S. Chamber of Commerce report from July. Durable goods manufacturing would only fill 65% of its vacant jobs if it hired every unemployed person with experience in the industry, the Chamber said.
Typically, workers laid off from one industry need time to get retrained before they can find new jobs, but the ease with which low-skilled workers most impacted by the pandemic have found new jobs has helped fuel a rapid recovery, said Shigeru Fujita, an economist at the Federal Reserve Bank of Philadelphia.
"Coming from, let's say, a supermarket cashier to Amazon warehouse workers — that's not very difficult because neither of them requires significant development of the skills," Fujita said in an interview.
Workers departing for new sectors put a strain on the industries they left behind. Companies cannot assume they can fill vacancies with workers similar to those who just left, according to a July McKinsey & Co. report. Employers continue to rely on time-honored strategies for recruiting workers, but the emergence of "nontraditional workers" with varying workplace priorities means that companies in the post-pandemic world have more to consider, the report said.
"It cannot be overstated just how influential a bad boss can be in causing people to leave," the McKinsey report said. "And while in the past an attractive salary could keep people in a job despite a bad boss, that is much less true now than it was before the pandemic."
The drop in the labor force participation rate has helped increase the bargaining power of workers despite longer-term trends, such as increased automation, that are working against them, Fujita said.
"To the extent that these increases in worker bargaining power are created by the peculiarity of this recession, then I would imagine that this wouldn't continue into the future," Fujita said.
A cooling market
Already there are signs that the labor market, robust as it is, has begun to cool.
Many companies are slowing hiring and laying off staff. Biotechnology company Invitae Corp. said in July that it was laying off more than 1,000 physicians. Mortgage company loanDepot Inc. said it would reduce its workforce from 7,400 to less than 6,500 by the end of the year. Peloton Interactive Inc., a quintessential pandemic-fueled business, has eliminated more than 4,000 jobs in 2022.
Some sectors are even dealing with labor surpluses. Transportation, construction and mining — sectors that have been hit hard by the pandemic — actually have more unemployed people with experience in their fields than there are job openings, according to the U.S. Chamber of Commerce report.
Thus, the gains of the last two years may well prove ephemeral. A softer labor market will likely lead to changes in how employers approach hiring and how workers deal with their job hunts. The fear of retaliation for joining a union will become more real if jobs become harder to find or keep. Temporary measures, such as signing bonuses, lavish office spaces and generous education allowances, could become memories of a brief and fading flowering.
"A lot of job quality outcomes are determined by public policy," Bahn said. "And employers aren't going to maintain them if they don't have to."