By Kathryn Anne Edwards / Bloomberg Opinion
Judging by the 4.1 percent unemployment rate, the U.S. labor market would appear to be thriving. Most any economist would say this is about as good as it gets, implying the economy is at or near or near full employment.
Well, that’s one way to look at it. Another is via the hiring rate, which is sending a very concerning signal; and one that suggests a reversal of recent fortunes for the American worker.
That measure has been falling, dropping to 3.3 percent in November, a level that signals the labor market is in a deep recession. Yes, recession. Aside from a single month at the start of the pandemic, the hiring rate suggests that the labor market has not been this weak since it was struggling to crawl out of the deep 2007-09 recession caused by the global financial crisis, according to Bureau of Labor Statistics.
What’s unusual about the current situation is that these two metrics should be inversely correlated, with a low unemployment rate implying a high hiring rate, and vice versa. Indeed, there were 22 months between 2000 and 2022 in which the hiring rate was 3.3 percent, like now, and the average unemployment rate over those months was 8.2 percent, double the latest 4.1 percent reading.
What this all means is the balance of power that, coming out of the pandemic, has given workers leverage over employers — an immeasurable but vital force for improving wages and working conditions through increased bargaining power — is dead. The postmortem 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 the individual — their skill, experience, location, etc. — some is determined by mobility in the market. In other words, are alternative jobs plenty and available for the taking?
Recall that the historically fast job growth coming out of the pandemic made the year stretching between mid-2021 and mid-2022 a banner one for workers. Wages grew at a very rapid clip, unions saw organizing victories at such big (and arguably anti-union) companies as Starbucks and Amazon.com, and the phrases “great resignation” and “quiet quitting” entered our vocabulary. The hiring rate reached 4.6 percent, spending almost a year above the pre-covid high of 4.3 percent in 2001, the first year data are available.
This surging power for workers was both needed and overdue. The U.S. is a laggard in basic employee protections and labor standards, still treating basic necessities such as paid sick days or medical leave as earned privileges. Compared with peer industrialized countries, the U.S. stands apart for its low wages, barriers to unionizing and paltry support for the unemployed. 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 labor market and slow inflation — did their job. Unemployment eventually began to rise, increasing from its low of 3.4 percent 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 number of 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 workers and higher-skilled workers. In return, companies can expect no improvement to corporate performance and a harder time hiring.
Yet, as show of newly regained power, return-to-office mandates make perfect sense. Workers value flexibility, and firms don’t want to give away for free what workers would be willing, so to say, to buy. A return-to-office mandate makes working from home a privilege that has to be bargained for at the expense of, say, a bigger raise. 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 U.S., 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 labor 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 don’t pull up the minimum, policy does, and it’s long overdue.
Kathryn Anne Edwards is a labor economist and independent policy consultant.
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