Is there still time to worry about a wage-price spiral?

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For decades, workers settled for a smaller share of the loot of capitalism, and the unions that represented them lost membership and influence. Today, employees are finding their collective voice, and not before their time.

Tight labor markets and soaring costs of living are fueling demands for higher wages and better working conditions on both sides of the Atlantic. Petitions to elect a union and applications for union membership are increasing, albeit from historically low levels.

Britain could face a summer of social unrest due to strikes by railway and postal workers, teachers, aviation staff and nurses. In the United States, a wave of industrial action at companies such as Deere & Co. and Kellogg Co. last year was followed by local efforts to organize employees of Apple Inc., Amazon.com Inc. and Starbucks Corp. Meanwhile, a union representing millions of German manufacturing workers is demanding a pay rise of up to 8%, the highest in 13 years.

While still modest compared to the labor activism of the 1970s, this nascent labor resurgence may worry central bankers because higher wages could drive up consumer prices even further. But urging employees to moderate wage demands, as Bank of England Governor Andrew Bailey did in February, is both unfair and unrealistic.

Companies have been quick to raise prices to protect their profit margins, which last year reached their highest level since the 1950s. income – should they make concessions now that they finally have some clout?

Globalization is retreating and the pandemic has slowed international migration, with Brexit posing an additional hurdle. Workers are forgoing strenuous or numbing manual labor such as baggage handling at airports, which has contributed to the travel chaos we’ve seen.

Barring a deep recession that leads to high unemployment and further job insecurity, higher wage pressure and tighter profit margins could be here to stay. While the fight against excessive inflation will inevitably require sacrifices from the better-off workers, a more collaborative approach to labor relations and a fairer distribution of the profits of capitalism will also be needed.

Until recently, central banks in wealthier countries seemed to have all but abolished high inflation: unemployment was low, corporate profits and the stock market boomed, and consumer prices remained subdued. However, our monetary guardians may have overestimated their own brilliance and underestimated the impact of workers’ diminishing bargaining power.

The decline of manufacturing and outsourcing to low-wage countries, the rise of corporate monopolies, and automation replacing labor have all made it harder for workers to earn a higher wage. high in recent decades. But dwindling union membership, loosening worker protections (including inadequate minimum wages), and shareholder pressure to cut labor costs may have been even more damaging to workers, as the argued economists Anna Stansbury and Larry Summers. (1)

Today, only 10% of the American workforce belongs to a union, about half the level of four decades ago. In the private sector, this figure is only 6%. In the UK, the proportion of union members fell to 23%, the lowest on record.

It is no wonder that labor’s share of national income has only recently begun to recover in the United States, after falling sharply since the early 1980s. Many British workers have experienced a squeeze on incomes in real terms in the years following the 2008 crisis, including those in the public sector. (3)

And yet the Conservative government of Boris Johnson and Britain’s mostly right-wing tabloids are appalled that Margaret Thatcher’s union-busting legacy is so brazenly challenged.

Attempts to characterize striking workers as Marxist dinosaurs holding Britain’s economy to ransom underestimate the level of public sympathy for those on the picket lines. The pandemic has revealed how dependent we are on key workers, who often don’t have the luxury of working from home.

The outspoken leader of the National Union of Railway, Maritime and Transport Workers, Mick Lynch, proved a particularly effective foil to hapless ministers and television interlocutors. His withering bashings are widely shared on social media, which must be a first for a union boss.

In the United States, public approval of unions is the highest since 1965, despite the recent imprisonment of former United Auto Workers union leaders for embezzlement.

US President Joe Biden has been the most pro-union occupant of the White House in decades and has used appointees and executive orders to advance a pro-worker agenda, despite congressional opposition to his protection law. of the right to organize.

Of course, renewal of the labor movement will not happen quickly and it is unlikely that unions will ever regain the grip they once had on business. Over 40% of UK union members are over 50 and the majority work in the public sector.

But instead of resisting workers’ efforts to organize, companies and governments should foster the kind of relationships that exist in places like Germany. Although here, too, union membership has declined, worker representatives sit on company boards, giving them a better sense of the competitive pressures and costs employers face. Chancellor Olaf Scholz will meet unions and business leaders next week to discuss how to avoid a price-wage spiral.

French President Emmanuel Macron hopes to avoid perennial labor unrest and “rebuild the social contract between labor and capital” through employee profit-sharing plans. Even the most intransigent American capitalists realized they had to change: because KKR & Co. granted equity to employees of one of its holding companies, they received six-figure payments during the acquisition of the company last month.

What better way to neutralize the debate about corporate profits fueling inflation than by giving workers their fair share of the spoils?

More from Bloomberg Opinion:

• The UK railway strike is a cautionary tale for American labour: Clive Crook

• Unions have not kept up with the new economy: Allison Schrager

• Britain’s summer of discontent hits Tories: Martin Ivens

(1) See the declining workers power hypothesis

(2) While Britain’s labor share of national income is lower than in the 1970s, it has remained relatively stable since 2000

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Chris Bryant is a Bloomberg Opinion columnist covering industrial companies in Europe. Previously, he was a reporter for the Financial Times.

More stories like this are available at bloomberg.com/opinion

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