Powerful Workers Do Not Live By Bread Alone, WFH Trumps RTO, Negotiations Get Complicated

With wages rising, 11 million job openings in search of workers, quit rates and job security high and the unemployment rate low, it is clear that bargaining power has shifted from bosses to workers. But the implications of that shift for the labor market as an institution are less clear.

In the wonderful 1954 musical, “The Pajama Game,” the leader of a strike in the pajama factory announces, “I figured it out.” The seven-and-a-half-cents per hour raise the strikers are demanding “doesn’t buy a hell of a lot … but give it to me every hour, forty hours every week, and that’s enough for me to be living like a king.” With “a pencil and a pad” he figured that in five years, with overtime, he would have $852.74, enough to enable him to buy a washing machine, vacuum cleaner, forty-inch television set[1], a years’ supply of gasoline[2], and carpet the living room. A reasonable conclusion since an $852.74 raise would buy $8,841 in stuff today.

A New Type of Worker

That was then, this is now. With spending on services rising sharply relative to spending on stuff, and with much of the latter provided by imports, new entrants into the workforce are more likely to write programs than stitch pajamas. With women making up 47 percent of the workforce compared with 37 percent some 50 years ago, the needs of that large segment of the workforce carry greater weight. With millions of prime working-age men disappearing from the workforce, for reasons not clearly understood, this is not your father’s, or Biden’s father’s labor market.

These changes have consequences for all participants in the labor market. Workers want adequate pay, but in addition what is called a better work-life balance, a term sufficiently vague to test the imaginations of corporate bureaucrats. They do not want to bear the indignities of crime-ridden public transportation systems or the frustrations of traffic jams to return to the office (RTO) after tasting the joys of uninterrupted contact with spouses, kids, pets and chores while working from home (WFH).

Worker and Boss Unhappiness

Which means that a labor market historically designed to bring the demand for and the supply of labor into balance at wage rates that allow businesses to earn reasonable profits and workers to have a decent standard of living is no longer fit for purpose. Despite pocketing large wage increases, many workers are eyeing union membership for the first time in decades. Despite bidding wages up at a rapid rate, employers nevertheless face an exasperating worker shortage. Unhappiness with labor-market outcomes reigns supreme.

In part this is because employers are now competing with “such stuff that dreams are made on.” Nearly 5.4 million applications to form new businesses were filed last year, 1.9 million more than in 2019, the last year before Covid landed here from China. The Economic Innovation Group reckons that when operational these new businesses will hire 1.8 million workers who find joining a start-up attractive. That is only one of several ways in which the supply side of the labor market is changing at a pace major institutions on the demand side are having difficulty accommodating.

Managers Under Strain

In part the failure of the labor market to function to greater satisfaction is due to the fact that many corporations have not yet developed the systems needed to hire in a labor market that now includes a geographically scattered labor force, members of which the hiring officer has never met face-to-face, and never will except at an occasional alcohol-infused corporate retreat, an anachronistic description from the days when there were well-attended workplaces from which to “retreat”.

Consider the difficulty of determining who gets promoted and who does not, who gets a large inflation-exceeding raise and who does not, how to supervise WFH employees at a time when quit rates are at a record high, how to manage recruitment in an era in which half of job hunters rely on online listings for openings and information about prospective employers.

And the even more difficult problem of figuring out how to meet the multi-dimensional demands of a new-age proletariat. Apple pays its retail workforce an above-average starting wage. According to one of the leaders of the organizing drive in its Atlanta store, “Apple is a profoundly positive place to work, but we know that the company can better live up to their ideals.” Presumably, the company’s negotiator will need expert advice on just how to live up to those ideals. And, along with his Starbucks counterpart, from still others to advise him how to avoid antagonizing those companies’ largely liberal and worker-sympathetic customer bases while turning down economically unacceptable quality-of-life demands from a newly emboldened, more diverse, work force.

There’s more. Hispanics have increased from 8.5 per cent of the work force in 1990 to a reported 18.0 per cent in 2020, and blacks from 5.16 per cent to 12.6 per cent. The labor market, designed to deal primarily with wage-setting, is now more than ever the battlefield on which government agencies and employers, with the help of myriad lawyers and economists, battle to determine whether any protected groups are being discriminated against.

What’s Next?

It is difficult to predict the extent to which all of this will change when, inevitably, bargaining power shifts from employed to employer, which it might well do if the Fed’s effort to drive down inflation slows the economy and drives up the unemployment rate. The increase in WFH might be slowed, but a major reversal to RTO as it was before Covid is unlikely. Litigation surrounding discrimination claims is more likely to increase than to decrease. Concern with consumer reaction to a company’s labor-market policies is probably here to stay. We might see a retreat of some recent changes, but not their rout.

There is one certainty. Demand for human resource managers, who now number close to 900,000 and on average earn $126,320, both because hiring, retention and firing are becoming more complicated, and that, after all, is what such corporate and academic bureaucracies naturally do to cope with the burgeoning bureaucracies of government.