I wrote some time ago that labor is enjoying a moment. New working habits developed out of need during the pandemic that in many ways increased quality of life for knowledge workers. Meanwhile, an expansion of job openings and a contraction in the labor participation rate created a supply-demand imbalance that favored labor.
There appears to be confusion of late as to how to read labor market dynamics. With fresh unionization wins and increased corporate commitment to location independent working, is labor power increasing? Or with a declining economy and more people returning to the workplace (as evidenced by increases in the labor participation rate) is labor power near its peak?
The question, has labor peaked?, intimates a return to the mean, specifically that labor power will revert to where it was pre-pandemic (i.e., “workers won’t continue to enjoy so much bargaining power.”) The argument goes that fewer people have left the workforce than have quit jobs for better ones; that hiring rates have increased along with exits; that the labor participation rate has ticked up slightly; that labor productivity has increased (thus lessening the need for labor); and that demand is cooling (per Q1 GDP numbers). Toss in 1970s sized inflation compelling retirees to return to the workforce and there’s an argument to be made that labor’s advantages will be short lived.
But this argument is purely economic, focusing on scarcity in the labor market that has created wage pressure. For one thing, it ignores potential structural economic changes yet to play out, such as the decoupling of supply chains in the wake of new geopolitical realities. For another, it ignores real structural changes in the labor market itself, things like labor demographics (migrations from high-tax to low-tax states), increased workplace control by the individual laborer (less direct supervision when working from home), and improvements in work/life balance.
The question, has labor peaked?, becomes relevant only when there is an outright contraction in the job market. For now, the better question to ask is how durable are the changes in the relationship between employers and employees? It isn’t so much whether labor has the upper hand as much as labor has more negotiating levers than it did just a few years ago. The fact that there hasn’t been a mad rush to return to pre-pandemic labor patterns suggests employers are responding to structural changes in labor market dynamics.
Trying to call a peak in labor power is a task wide of the mark. And for now, the more important question still seems some way off from being settled.
