Has the pendulum really swung from capital to labour?

At the start of this year, there was a lot of talk about the renewed power of ordinary workers. Post-pandemic labor shortages had left employers struggling to recruit for all kinds of roles, especially in hotels, fast food restaurants, warehouses and other jobs where pay and conditions can be poor. Job vacancy rates had increased in Australia, Canada, Germany, the UK, the US and France among many others.

Unions, meanwhile, were depleted in terms of members but seemed to fizz with fresh energy. In the US, that mood was bolstered by the election of Joe Biden who promised to be “the most pro-union president you’ve ever seen”. After four decades in which capital had dominated labour, was the pendulum beginning to swing the other way?

As we reach the end of the year, it’s hard to argue 2022 has been a good one for workers. Labor shortages have persisted and wage growth has picked up quite strongly in some countries like the US and the UK. But pay hasn’t kept up with surging prices. As a result, global wages fell in real terms this year for the first time since comparable records began, according to the International Labor Organization.

Labour’s share of global income has also declined, by the ILO’s calculations, as productivity growth outstripped wage growth by the biggest margin since 1999. In the UK, a decade of stagnant wage growth before the pandemic is now set to be followed by the steepest fall in household living standards in six decades, according to official forecasts. Central bankers continue to fret about wage inflation getting out of hand. But this doesn’t look like a wage-price spiral to me. It looks like a living standard bloodbath.

Why have workers suffered such big real wage cuts, even though the labor market is tight? The last time there was a severe bout of inflation in the 1970s, workers managed to secure pay rises high enough to maintain their living standards (this was a true wage-price spiral, and it ended painfully). In the UK, real wages actually rose by 2.9 per cent on average per year throughout the 1970s, according to economist Duncan Weldon in his book Two Hundred Years of Muddling Through. In a sign of continued rising prosperity, because ownership increased from 45 per cent in 1970 to 70 per cent in 1980.

The labor market works very differently today. Higher levels of globalization, automation and self-employment have changed the balance of power between workers and employers. So too has the decline in trade union membership, which has halved on average across OECD countries since 1985. Coverage of collective agreements signed at the national, sector or company level has declined by a third.

It’s not just unions that matter for wages at a time of high inflation, but the structure of pay settlements. In the US, for example, the proportion of workers under collective bargaining agreements which were linked to inflation through “cost-of-living-adjustment” clauses rose from about 25 per cent in the 1960s to 60 per cent in the late 1970s. By the 1990s the number had dropped to 20 per cent, and in 1996 the government stopped collecting the data. In the eurozone, only about 3 per cent of private sector employees have their wages and minimum wages automatically indexed to inflation, according to analysis last year by the ECB.

Still, even if workers have struggled to keep up with inflation this year due to their structural lack of bargaining power, have unions used this moment to begin a renaissance that could change that power balance in the future?

I think it’s too soon to make that call. In the US, the labor movement has made headway in sectors where they usually struggle to attract members, such as Starbucks branches. But a successful grassroots effort to unionize an Amazon warehouse in New York has proved hard to replicate so far. Joe Biden also disappointed labor activists after he intervened to prevent a rail strike. In the UK, unions have won double-digit pay settlements for some in-demand workers like truck drivers, but their attempts to improve pay for public sector workers have ended in widespread strikes. The government refuses so far to give ground.

That said, the mood does seem to have changed over the past few tumultuous years. More workers have simply had enough, and are willing to stand up collectively to demand better. The public seems more willing to support them. The big question is whether any of that will survive an even tougher economic environment and a weaker labor market, both of which seem to be looming. If 2022 wasn’t the workers’ year in the end, it doesn’t seem likely that 2023 will be either.

sarah.oconnor@ft.com

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