Workers won’t have as much leverage over their employers in 2022

Amazon workers protest in Times Square.
Amazon workers protest in Times Square.
Image: Reuters/Ahmed Gaber
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The pandemic gave US workers more leverage over employers than they’d had in years.

Burnt-out and fed-up, they quit their jobs at all-time-high levels in 2021. Meanwhile, a labor shortage forced companies to give them the biggest raises on record.

It helped that Americans had an extra savings cushion thanks to the federal government’s pandemic aid. This gave them the ability to switch jobs at a higher rate than their European counterparts, who mainly were put on paid furloughed by their governments. But that job switching could slow down as the US abandons extra pandemic help, such as child care tax credits and student loan deferrals.

“The end of fiscal relief will hurt workers and families, especially as the omicron variant takes over,” said former Federal Reserve economist Claudia Sahm, who is now a senior fellow at the Jain Family Institute. “The labor shortages of summer 2021 could shift rapidly to a lack of labor demand in early 2022, as businesses lose money from people staying home for their safety and having less income to spend.”

A mixed picture for US workers

For now, workers might have more clout over their employers than they did pre-pandemic. US households still have more savings than before covid-19 hit, thanks to stimulus payments, a booming stock market, and fewer opportunities to spend. This could continue fueling the spurt of strikes and union organizing activity that started in 2021. Whatever comes out of this bargaining is what Employ America research analyst Alex Williams calls the “truce between labor and capital.”

Workers’ success will depend in large part on the state of the labor market. If workers can quickly find a new job without taking a pay cut, they’re more likely to organize, says Williams. US Federal Reserve officials expect the labor market to remain hot in 2022, with the unemployment rate falling to 3.5% by the end of the year.

“Full employment makes employers anxious because the threat of firing is less of a threat [when] workers can pick up a new job that’s comparable,” adds Williams.

Workers risk losing 2021 gains if business slows down, though. Firms invested heavily in inventory in response to the shift in consumer demand from services to goods, which could lead to more jobs in the future. But as Americans start spending on services again, those businesses could go back into low-growth mode if government spending in infrastructure and social services doesn’t generate enough economic activity to reward long-term investment.

Tracking US workers’ leverage

To gauge workers’ leverage, Williams will be looking at the quits rate, or the share of workers who leave their jobs of their own accord, versus job openings.

Job openings tend to overstate how much power workers have because companies can keep low-quality job postings up for months. Quits rates are a better indicator of whether workers have options, but they lag, so they only tell economists the job market has cooled after it’s happened. Quits have been increasing since April, though not as fast as job openings.

The best way to monitor the job market is locally. “Workers will tend to act based on their perception of their local situation,” says Williams. “If you see a bunch of signs that say ‘We’re hiring, $3,000 bonus’ that’s a very different environment from one where no one has a ‘We’re hiring’ sign in the window.”

How workers in poor countries will fare

Covid-19 threw 97 million more people into poverty in 2020 around the world, particularly in poorer countries where workers were already struggling to find jobs before the pandemic. More than 70% of jobs in those places are informal as well, meaning workers don’t have much leverage to negotiate with their employer when they do find a job.

“The tightness that we’re seeing in the US and other high-income countries, we’re not seeing in low-income countries,” said Christian Meyer, a development economist at the University of Oxford.

This year should look a little better for those workers, though. Global poverty started to decline again in 2021 as economic activity bounced back from the initial shock of the pandemic, and growing demand from rich countries this year should translate into better job opportunities, Meyer added.