Nearly everything Americans consume came to them by way of a truck. And, of course, trucks are—at least for now—driven by people. Low pay for truck drivers, therefore, helps keep prices of US consumer goods in check. Consequently, a possible shortage of truckers could drive up their pay, causing flare-ups in inflation that could hurt the whole economy by triggering a recession (paywall).
Following that logic, a surprise jump in consumer inflation might come also come from an unlikely source: the US Supreme Court.
America’s truckers just had their day in the highest court in the nation in a case about their employment protections. A ruling, which will be issued next spring, could beef up their legal rights and, in theory, lead to higher wages.
The dispute is between Dominic Oliveira, a long-haul trucker who worked as an independent contractor for New Prime Inc., a freight company based in Missouri. In any industry, independent contractors tend to receive fewer benefits and face more economic instability than traditional employees. However, those working in the transportation industry might be entitled to a few more rights than other freelancers—thanks to the confusingly vague wording of a 1925 labor law.
The law in question requires all employees to take grievances with their employers to arbitration, instead of clogging up the courts with lawsuits. (This can be a bum deal for workers because courts tend to rule in their favor (pdf) more often than arbitration panels do.) But there’s a key exemption for “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”
Does Oliveira’s status as an independent contractor in the trucking business mean that he’s entitled to sue his employer? Or are independent contractors not covered by the transportation workers’ exemption—and therefore, required to submit to arbitration like everyone else? According to SCOTUSblog’s analysis of the justices’ questions, the court seems inclined to side with Oliveira.
That seems pretty reasonable once you hear more of Oliveira’s story and the plight of truckers more generally—both of which the New York Times editorial board recently explored in detail. Despite the growing trucker shortage, which has dogged the industry for 15 years now, pay has continued to worsen. In 2017 the average trucker made $44,500—around $11,000 less a year, in real terms, than in 1980 (though these figures include short-haul truckers, who unlike long-haul drivers aren’t paid by the mile, it also doesn’t include expenses).
The decline is in part thanks to federal deregulation, which encouraged companies to cut costs and offload more operating expenses onto drivers. Things are particularly rough for independent contractors like Oliveira; many end up owing trucking companies money, like modern-day sharecroppers.
But a victory for transport workers might come at the cost (quite literally) of the rest of the economy.
That’s the alarm bell that J. Bruce Chan, who analyzes logistics firms for Stifel Capital Markets, sounded in remarks to CNBC. Faced with skimpy margins and a shortage of workers willing to accept extremely lousy working conditions, trucking companies have been taking on more independent contractors, said Chan—an arrangement that slashes employment costs as much as 20%.
A SCOTUS decision that guarantees more protections for drivers like Oliveira could force up wages across the industry. Alongside trade war fears, that could help push up consumer prices by between 10% and 20%, says Chan. That’s an alarming amount given that current consumer inflation hovers around 2%. Higher inflation—or even just fears of higher inflation—could prompt the Federal Reserve to hike rates aggressively enough to trigger a recession. This is similar to the warnings given by analysts about the price impact of the trucker shortage (paywall).
However, as the Times editorial argues, it might be a little premature to give in to inflation-phobia. Whether through a SCOTUS ruling or simple supply and demand, higher wages for truckers may well drive up prices for the American consumer. But the higher costs associated with paying drivers a living wage would be spread across the titanic volume of freight that travels via trucks, as the Times editorial points out. (Quartz reached out to Chan in order to understand his reasoning. Given the trucker shortage, Chan expects it will take salary increases on the order of 30% to 50% to start retaining the drivers needed to meet demand. These higher labor costs, combined with tariffs of anywhere from 10-25% on a range of consumer goods, are finally going to start showing up in store shelf price tags next year.)
To frame it another way, considering that America employs fewer than 1.8 million truckers to deliver the nearly $13 trillion worth of goods that American consumers bought in 2017, it’s hard to see how a few extra cents per good translates to an uncontrollable rash of inflation.
This post was updated on October 15, 2018, at 5pm ET to include more detail on Chan’s analysis .