Has the pendulum really swung from capital to labour?

At the start of this year, there was much talk of the renewed power of ordinary workers. After a pandemic labor shortage, employers had struggled to recruit for all kinds of roles, especially in hotels, fast food restaurants, warehouses and other jobs where pay and conditions can be poor. The number of vacancies had increased in Australia, Canada, Germany, UK, USA and France among many others.

Unions, meanwhile, were depleted in terms of membership but seemed to be bursting with fresh energy. In the United States, this mood was reinforced by the election of Joe Biden, who promised to be “the most pro-union president you’ve ever seen.” After four decades where 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 that 2022 has been a good year for workers. The labor shortage has persisted and wage growth has picked up quite strongly in some countries such as the United States and Great Britain. But wages have not kept pace with rising 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 fallen, according to ILO calculations, as productivity growth outpaced wage growth by the largest 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 worry that wage growth is spiraling out of control. But this doesn’t look like a wage-price spiral to me. It looks like a standard of living carnage.

Why have workers received such large real wage cuts, even though the labor market is tight? The last time there was a serious bout of inflation in the 1970s, workers were able to secure large wage increases to maintain living standards (this was a true wage-price spiral, and it ended painfully). In Britain, real wages actually rose by 2.9 percent on average per year throughout the 1970s, according to economist Duncan Weldon in his book Two hundred years of rooting. In a sign of continued growing prosperity, car ownership increased from 45 percent in 1970 to 70 percent in 1980.

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

It is not only trade unions that matter for wages in a time of high inflation, but the structure of wage settlements. In the United States, for example, the proportion of workers covered by collective agreements linked to inflation through “cost of living adjustment” clauses rose from around 25 percent in the 1960s to 60 percent in the late 1970s. By the 1990s, the figure had dropped to 20 percent, and in 1996 the government stopped collecting data. In the eurozone, only around 3 per cent of employees in the private sector have salaries and minimum wages automatically indexed to inflation, according to analysis from the ECB last year.

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

I think it’s too early to call it. In the US, the labor movement has made progress in sectors where it usually struggles to attract members, such as Starbucks branches. But a successful grassroots effort to unionize an Amazon warehouse in New York has proven difficult to replicate so far. Joe Biden also disappointed labor activists after he intervened to prevent a railroad strike. In Britain, unions have won double-digit wage settlements for some in-demand workers such as truck drivers, but their efforts to improve public sector pay have ended in widespread strikes. The government so far refuses to give a reason.

That said, the mood seems to have changed over the past tumultuous years. Several 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 it will survive an even tougher economic environment and a weaker labor market, both of which appear to be approaching. If 2022 wasn’t the year of the workers after all, it doesn’t seem likely that 2023 will be either.


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