Whither labor?

Photographer: Chip Somodevilla/Getty Images

Unions Are Powerless. Workers Aren't.

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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The long-simmering dispute between West Coast port owners and the International Longshore and Warehouse Union had already been settled, but everywhere I went at the International Home and Housewares Show, people were still talking about it. The standoff left ships sitting offshore, unable to unload their cargo, and snarled everyone's supply chains into the kind of knot that you have to spend weeks in the basement untangling. Product launches were being delayed, and retailers were making nervous noises about empty shelves. 

The showdown at the ports was very bad for the U.S. economy, which lost an estimated $2 billion a day as food rotted and ships idled. But it seems to be good for the port workers, though the details of the tentative agreement are somewhat scarce. Through solidarity and aggressive bargaining, the ILWU won higher wages and other concessions from an employer group that is not afraid to play hardball.

If you're hoping that trade unionism can be resurrected in the U.S. -- and along with it the high wage growth and lower inequality that characterized mid-century America -- this might seem like a hopeful sign. In fact, it's the opposite. The very factors that enabled the longshoremen to drive such a high bargain are the same factors that are killing unions and lowering wages for low- and medium-skilled workers in the rest of the economy; the ILWU's victory just tells you how bad their bargaining position is.

Whither labor? The last year has been filled with interesting stories on this front: The United Automobile Workers union is still struggling to organize Volkswagen's plant in Chattanooga, Tennessee, despite the support of the company and its German unions; local governments are mandating massive hikes in the minimum wage supported by dubious readings of the available evidence; and meanwhile, the governor who won an epic showdown with Wisconsin's public-sector unions may well be the next president of the United States. And did I mention that Wal-Mart, after spending years strenuously resisting pressure to raise wages, went ahead and announced generous increases? What the flaming heck is going on with our labor markets?

Well, let me see if I can boil it down for you:

  1. After years of flopping around on the ground and gasping that full employment is just too hard, labor markets have finally decided to shape up and start clearing.
  2. Nonetheless, unions are still dying, except in a few favored sectors that are shielded from competition.
  3. Wages will improve, but they won't improve much.
  4. Attempts to manhandle the markets into giving us the wages we would like to have risk serious disemployment.

Confused, aren't you? If labor markets are getting better, why would Big Labor's prospects be getting worse? Bear with me and I promise it will all make sense.

In February 2008, 138.3 million people were employed in the U.S. Six years later, in February 2014, that number was ... 137.8 million. The labor market had actually lost jobs over those six years, even as the working-age population grew by millions. Some of this can be explained by the aging of the baby boomers, but in fact, many workers delayed their retirements due to the financial crisis. Mostly, this is explained by the weakness of the U.S. job market. No, weak doesn't adequately describe it: America's labor market had to have its head propped up while it gingerly sipped some juice.

Then suddenly, over the last year, the labor market has had the kind of turnaround that's usually only seen at the third-act break of inspiring movies about people who get their legs crushed in terrible car crashes, then go on to win the Olympics anyway. The labor market jumped out of bed and demanded a set of free weights so that it could get back into training. Over the past 12 months -- if the preliminary numbers are to be believed -- the economy has added some 3.3 million jobs.

Many people think that's why Wal-Mart has decided to announce a major wage increase: It needs higher wages to maintain its labor force. When economic times are lean, you get better workers in not-so-great jobs, because a not-so-great job is better than no paycheck at all. As hiring picks up, those workers see their alternatives improve, so you have to raise wages to keep them in the building.

This is, obviously, very good news for people who work at Wal-Mart. And yet, we're not necessarily seeing this same turnaround story in the earnings numbers. Average hourly wages did increase by almost 50 cents over the past year, but that's not a radical change from the previous two years. It's not even that much better than wage growth during the darkest days of the financial crisis. What's going on here?

Well, for one thing, there's still a lot of slack in the labor market -- what Karl Marx called the reserve army of labor, who help keep wages down for the rest. They may not be officially unemployed; they may be "consulting" or "staying home to help Mom out" or "getting my third graduate degree." But whatever you call them, they are people who might like to work, if they could find a good enough job. Only they can't, so they're doing something else. In our reference month of February 2008, the employment-to-population ratio was 62.8. Today it's 59.3. And to reiterate, we can't blame this all on the baby boomers. That number undoubtedly represents some retirement, but it also represents millions of people who could be working, who would ideally like to be working but aren't.

As those people flow back into the labor market, they put downward pressure on wages. Until our reserve army has been demobilized, booming employment numbers won't necessarily translate into booming wages.

Even then, however, we can't expect a return to the robust wage growth that followed the Great Depression and World War II -- or even the go-go days of the 1990s. Which is why, as I say, unions are dying. At this point, it's unlikely that anything can revive them.

Tuesday: Unions, wages and competition.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net

To contact the editors on this story:
Brooke Sample at bsample1@bloomberg.net
James Gibney at jgibney5@bloomberg.net