Labor on the Rise

With unemployment at historically low levels and inflation running hot, employees are pressing owners for better pay and benefits. Versus the same period in 2021, the number of strikes is up from 116 to 200 (a 72% increase), and the size of these strikes has grown from 27,000 to 320,000 people (a 12.5x increase). Among those getting the most attention are the strikes in Hollywood affecting writers, actors, city employees, and hotel workers, and the recent negotiations at UPS involving 340,000 workers. (UPS workers are not counted in the strike number above since they ratified the new contract on August 22, and didn’t go out on strike).

Sides are now facing off for the next big labor battle: renegotiation of the United Auto Workers (UAW) contract with the Big Three auto manufacturers (GM, Ford, and Stellantis). These talks directly affect 146,000 workers and thousands of others from suppliers that are dependent on the Big Three for business. Negotiators are talking tough on both sides. As labor braces for the transition to electric vehicles with less manual assembly, the UAW is pushing for a 40%+ increase in wages over the next four years, improved pension benefits, and the restoration of automatic cost-of-living increases, among other items. Armed with an $825 million strike pay fund, the head of the UAW appears determined to force a strike if their demands are not met.

Beyond these high-profile disputes, what are the broader implications for the U.S. economy and inflation? Will corporations handle the higher costs of labor by passing along cost increases to consumers (increasing inflation), or by absorbing these costs and reducing profit margins? Could the success of these negotiations result in a resurgence in unionized labor? Will companies operating non-union labor forces be forced into similar concessions? As strikes drag on, what is the fallout on other industries that depend on these companies for their livelihood? More broadly, what will the impact of artificial intelligence be on the power of labor in the future? These are a few of the tricky questions that arise from labor’s newfound bargaining power.

It’s no secret that the labor movement in the United States has undergone a significant decline in recent decades. We wrote about this phenomenon last Fall. In 1980, union membership represented 20.1% of the workforce. By 2021, that number had fallen to just 10.3%. There are many reasons for this decline. Among them is the diminishing number of U.S. manufacturing jobs as employers sought locations with lower labor costs, the growth in service sector jobs, which are harder to unionize, and more aggressive government efforts to constrain the ability for unions to organize.

But now employees are fighting back. Companies are struggling to find qualified workers as lower immigration, early COVID-related retirements, and plentiful job openings are increasing worker negotiating leverage. 

The economic fallout from strikes is significant. A recent study by a professor of entertainment industry management at Cal State Northridge, pegged the cost of the Hollywood writer’s strike (which just crossed the 100-day mark) and the more recent actor’s strike at more than $3 billion to California’s economy, with no end in sight. Had the UPS rank-and-file rejected the contract negotiated by its leaders, competitors would have been hard-pressed to handle the approximately 25 million packages that UPS handles on a single day, with cascading impacts on businesses reliant on timely deliveries. 

Halting production for even one giant automaker during a UAW strike would cost the company millions in terms of lost sales and production. Strikers would lose out on wages that would only be partially offset by the union’s striker benefits of $500 per week. Financial losses can be immense for automotive companies when their workers walk off the job. The 40-day strike in 2019 cost G.M. a reported $3.6 billion.

So, the stakes are high, but are they high enough to alter the trajectory of the U.S. economy? We think not unless the strikes persist for much longer than expected. As strike pay dwindles and the economic costs of the shutdown spiral higher, both sides face increasing pressure to return to the bargaining table. What first appears as an unbreachable divide between the two sides eventually dissolves into a series of forced compromises. Despite recent advancements, the diminished role of labor unions in the U.S. economy is likely to constrain their overall impact. And it is possible that labor’s newfound bargaining strength could allow them to overplay their hand. According to Insider Magazine, the average UPS driver could be earning $170,000 in pay and benefits in five years under the new contract, which has resulted in a 50% spike in job applications for UPS drivers. Such generous agreements may weaken growing national sympathy for the labor/strike movement.  

What about A.I.? Of increasing concern to workers of all stripes is the express train called artificial intelligence barreling down the tracks. The promise of A.I. is to radically reshape the workplace by automating many of the processes currently performed by humans, resulting in giant leaps in productivity and innovation, but displacing many workers across a range of industries and education levels. Service sector workers such as UPS drivers might be among the last to feel the effects of this radical transformation of the economy, but in the end, almost no job will be left unaffected. As A.I. expands its influence across industries, labor’s newfound clout may be short-lived.

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About Bruce D. Simon, MBA, CFA, CPWA®

Bruce is a Partner & Senior Investment Advisor at the firm. In addition to working directly with a number of family clients, Bruce serves on Ballentine’s Investment Management Committee, which is responsible for the oversight of all of the investment activities for the firm.

This report is the confidential work product of Ballentine Partners. Unauthorized distribution of this material is strictly prohibited. The information in this report is deemed to be reliable. Some of the conclusions in this report are intended to be generalizations. The specific circumstances of an individual’s situation may require advice that is different from that reflected in this report. Furthermore, the advice reflected in this report is based on our opinion, and our opinion may change as new information becomes available. Nothing in this presentation should be construed as an offer to sell or a solicitation of an offer to buy any securities. You should read the prospectus or offering memo before making any investment. You are solely responsible for any decision to invest in a private offering. The investment recommendations contained in this document may not prove to be profitable, and the actual performance of any investment may not be as favorable as the expectations that are expressed in this document. There is no guarantee that the past performance of any investment will continue in the future.

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