American employees have lost their post-pandemic leverage in the labour market

The US hiring rate is sending a signal of a labour market recession. (REUTERS)
The US hiring rate is sending a signal of a labour market recession. (REUTERS)

Summary

  • While unemployment in the US is okay, its hiring rate is sending a recession signal. The covid empowerment of workers was welcome, but the power balance has tilted away from them again.

Judging by the US unemployment rate of 4.1%, its labour market would appear to be thriving. This is about as good as it gets, economists would say, implying the economy is at or near full employment. 

Well, that’s one way to look at it. 

Another is via the hiring rate, which is sending a signal that suggests a reversal of recent fortunes for the American worker.

That measure has been falling, dropping to 3.3% in November, a level that signals a labour market in recession. Yes, recession. 

Aside from a single month at the start of the pandemic, the hiring rate suggests that the labour market has not been this weak since it was struggling to crawl out of the deep 2007-09 recession, according to data from the US Bureau of Labor Statistics.

Also Read: The Year of the Snake to bring a balance in job market

What’s unusual currently is how these metrics are correlated. 

Indeed, there were 22 months between 2000 and 2022 in which the hiring rate was 3.3%, like now, and the average unemployment rate over those months was 8.2%, double the latest 4.1% reading.

[The weak hiring rate] means that the post-pandemic balance of power that gave workers leverage over employers, an immeasurable but vital force for improving wages and work conditions through better bargaining power, is now dead.

The post-mortem offers a lesson about markets, power and policy.

The mechanisms of worker power are fairly simple. 

It mainly relates to options; the ability, not just the threat, to walk away from an employer to take a job equally good or better someplace else shifts power to the worker. 

Although some of this power is determined by individual skill, experience, location, etc, some is determined by mobility in the market. In other words, are alternative jobs plenty and available?

Recall that fast US job growth coming out of the pandemic made the stretch between mid-2021 and mid-2022 a banner one for workers. 

Wages grew rapidly, unions saw organizing victories at such big companies as Starbucks and Amazon.com, and phrases like “great resignation" and “quiet quitting" entered our vocabulary. 

The hiring rate reached 4.6%, and it spent almost a year above the pre-covid high of 4.3% in 2001.

This power surge for workers was both needed and overdue. 

The US is a laggard in basic employee protections and labour standards, still treating basic necessities such as paid sick days or medical leave as earned privileges. 

Compared with peers, the US stands apart for low wages, barriers to unionizing and paltry support for the jobless. 

Worker power helps individuals improve their own situation and helps broad classes of workers, especially those represented by unions, fight for better standards. 

But 11 interest-rate increases by the Federal Reserve, intended to cool the labour market and slow inflation, did their job. 

Also Read: Market mayhem: America’s job market slump calls for a big rate cut by the Fed

Unemployment eventually began to rise, increasing from its low of 3.4% in April 2023.

But hiring cratered, falling consistently for almost three years. And now the balance of power has shifted to employers.

Take the increasing return-to-office mandates that firms have announced, even though such decrees are objectively bad policy.

Plenty of research shows they lead to higher turnover among employees, with losses more prominent among women, the senior-most and higher-skilled workers. In return, companies can expect no improvement in corporate performance and a harder time re-hiring.

Yet, as a show of regained power, return-to-office mandates make sense.

Workers value flexibility and firms don’t want to give away for free what workers would be willing to ‘buy.’ A return-to-office mandate makes working from home a privilege that has to be bargained for.

The mandates are not that different from the reports of companies pulling back on generous paid family leave. What a collective surge in worker power made a given, a shift back to employers makes a privilege—again.

And that’s the lesson from the brief but bright empowerment of workers, that power isn’t permanent, and for workers, neither are its victories.

The only ground that’s always held is what policy has defined as the minimum.

This is a hard truth for workers in the US, where policy minimums are scant.

In other countries, ranging from Finland to Portugal, the right to flexible work arrangements, similar to the right to request part-time scheduling, is enshrined in law. So are their paid family leave benefits and paid sick days.

But it’s also a clear message to policymakers.

We saw the best of what the labour market can do for workers when they were, for a short period of time, at the apex of their power. It wasn’t enough then and the gains are eroding.

Markets do not pull up the minimum, policy does, and it’s long overdue. ©Bloomberg

Also Read: US government workers must brace for the wrath of DOGE

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
more

topics

MINT SPECIALS