Labor union militancy has increased, as evidenced by the Boeing strike as well as a surge in strikes in 2023. Union pay increases have lagged pay raises at non-unionized employers over the last two years, which is key to understanding recent labor disputes.

In 2021, the labor market tightened dramatically. The number of job openings rose from about seven million to 12 million. At the same time, the number of unemployed people dropped from ten million to six million. Historically, we usually have many more unemployed people than job openings. In the last three years, though, open positions have exceeded the number of unemployed. (Both of these measures, though, are estimated from surveys and not perfectly reliable. They are, however, broadly indicative of the underlying trend.)

Median weekly earnings growth

Dr. Bill Conerly using data from U.S. Bureau of Labor Statistics

Businesses responded to the tight labor market by boosting wage rates. Unionized companies, however, cannot raise wages without the union’s consent. (That is not legal advice; check out the NLRB’s website.) Most labor contracts have a three-year duration, though shorter or longer is permissible. That limits a company’s ability to quickly raise wages or benefits in a tightening labor market.

Why would a union object if a company wants to raise wages in the middle of a contract? After all, aren’t higher wages one of the main reasons for having a union? Union leadership probably understands that if the company thinks it will benefit from raising wages, they will probably make another concession in order to do so. The union might ask for protection against future layoffs or automation or any number of other benefits. The company might want to limit the pay raise to entry-level workers, those hardest to hire. The union might demand that more experienced workers also get raises.

Negotiations take time. And many companies facing the labor shortage in 2021 and 2022 were unsure whether hiring would become easier, as it has. They hesitated to commit to keep wages high. Of course few companies ever cut wages for existing employees, but companies can lower the offer they make to new hires. If companies secured union consent to higher wages, they would probably be locked into the higher wages even after hiring became easier.

In a fairly stable economy, unionization will not lower wage gains relative to non-unionized employers. From 2001 through 2019, both types of employers raised wages by roughly the same amount. In an economy with major changes, though, unionization will slow wage changes. That will provide an edge to non-unionized competitors, which can respond quickly to labor market changes.

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