Anna Stansbury on How to Boost Worker Bargaining Power

like inflation Day is the news. You know, that's the day that everyone cares about when the CPI report comes out. So I think it sort of speaks to how, yes, unemployment rate is really low, but the centrality of like certain labor market indicators at least has sort of declined a little bit, you would seem. Yeah, but you could make an argument that inflation Day is kind of jobs and wages Day, right, because there's all this focus on inflation at the moment, and clearly central banks don't want

inflation to become entrenched. One of the ways it becomes entrenched is when everyone starts asking for a pay rise to offset the higher cost of living. Wages start to go up, and then you get that self reinforcing cycle. It's this really strange thing because obviously, why do we worry about high inflation. Well, because it's like it worsens

buying power. Yeah, but then everyone wants to raise and yeah. Well, but then also it's like people sometimes express relief at wages not accelerating too much, right, or people express relief that maybe the labor market is cooling down a little bit. It's like, wait, but I thought the whole reason we were worried about inflation is because we were worried about what it means for households. It's it creates all kinds of tricky things. But yes, of course you point out

inflation is eating into people's incomes. Yeah, so that's definitely one reason to care about what's going on in the

labor market and with wages. The other reason to be talking about it is because after the pandemic, and this is where our previous episodes on this topic came in, there was, I don't want to say an expectation, but there was a thought developing that maybe this would mark some sort of moment, some sort of change in the relationship between workers and bosses or their corporate employers, like the balance of power would swing back to the average

wage earner and we'd finally see salaries start to go up in a way that they hadn't really for most of the time after the financial crisis. Right, So that was the story of the tens. The sluggish labor market, poor wage growth, just sort of general like seeming like a decline and working worker bargaining power, an acceleration of a very long term trend of measures of labor share

of the national income declining. And then in the middle of when we started getting all the early one really when we started getting all the is like stories about like companies having trouble hiring, and that was like the first real theme. There's like something that's different. It's like, wait, are we gonna have a trend change here? Could we have like a meaningful reversal of decades of declining labor share? And I think, you know, there was a lot of

optimism right somewhere. I think we had a lot of like optimistic guests who are like, this is going to be the start of something different. Of course, the market was going up, and then with inflation eating into those wage games, and then the FED basically saying we were wrong about transitory inflation. We're going to hike fast. I think a lot of that optimism has gone away about him, and so the question is where do we stand. I'm

just thinking, like, what counts for optimism nowadays? Is someone coming on and saying this is like the great plague of the Middle Ages, and we're going to see a similar shift in the counts of power towards people. Okay, well, all right, this is all good context. We're going to be going back to the labor market question, the wages question, which it and feeds into issues over inflation and things like that. We're going to be speaking with Anna Stansbury.

She's an economist who specializes in labor and macro economics and also an assistant professor at m I T. Sloan whose work is basically all about this. Anna, thank you so much for coming on our thoughts. Thanks so much for having me. So your research is all about labor market forces and the sort of balance of power between the employee and the employer. How do we actually go about measuring worker power? What do you look at? Well, it's a bit of an amorphous concepts and I think

different people define it different ways. What we do to look at work of power is we say work of power. The result of work of power is the ability of workers to share in the profits of the firm that they work at, above and beyond what would happen in some kind of market where their wages were just determined by the market or their compensation was just determined by

the market. So in my work, when I'm trying to measure worker power, I'm trying to say, what would a given worker be paid in a kind of market situation without that power, And then how do different factors give that work of the ability to share in the profits of the firm. So one very obvious, very salient driver of worker power is unions. You know, being a member of a union that bargains over your compensation enables you to share, to some extent more in the profits of

your firm. But there are other, less salient, harder to measure ways that worker power can exist. It can be things like norms around pay bargaining and around fairness. It can be things like how managers are incentivized to divide up the pie that the company creates between shareholders and workers. So there are very deferious different aspects that feed in. But I think that sharing in the profits of the firm above and beyond what would happen without that power

is the is the ultimate indicator. So, you know, I mentioned that we had a number of sort of I would say, more optimistic sounding conversations last summer, like a year ago, and this hope that okay, this could be like a new day for or burgaining power and strength. And crucially, it wasn't really based on you know, there was no like fundamental change and unionization or unionization policy.

There wasn't any like real major policy change. I think the optimism was simply labor market tightness, and that after the Great Financial Crisis and then a decade maybe or close to a decade of clearly the unemployment rate being over what it could have been, being over something that anyone would call unemployment, how much just just sort of like the cycle itself and the sustenance sustaining a strong economy or a strong labor market, how much of a

role does that play potentially in shifting the balance of power. So I think it's important, And um, I was someone that was saying, you know, for for a long time in the pre pandemic era, as I was getting into this profession that it doesn't look like labor markets aren't tight enough, and they should be tight end they can be tight to And we saw that by February twenty they had got tight. The unemployment rate was down to the lowest level in its post war period, and even

then there wasn't much evidence of inflation. So I think we might have been able to go tied to steal. So I think I think it does matter. It does matter a lot. The question as to whether it's on its own, is a sufficient driver of worker power to reverse some of the trends we've seen in the last forty fifty years, I'm less a strong believer in that hypothesis. I think tight labor markets are a necessary but not

a sufficient factor. So just real quickly, in those months like nineteen when we had sub four unemployment, were we seeing evidence I mean, you say it's necessary but not sufficient. Were we seeing evidence pre pandemic of a tilt happening? Or was it too early to see the effects of those tightening labor markets in other measures of labor bargaining power. So in terms of the direct effect on things like ages, you did start to see the the tilt of wage

growth switch. So when labor markets become tighter, typically that's disproportionately affecting lower income individuals who tend to have higher unemployment rates. Typically that's disproportionately infecting people from racial ethnic minorities. And you did start to see as the tilt of unemployment became less steep, the tilt of wage growth improved to benefit those groups. So you saw that effect directly

happening already. The question I think you're asking is is it also feeding into other secondary factors of labor market power. Something like tight labor markets enable more worker activism and more unions because people are less worried about retaliation or losing their jobs. In the pre pandemic era, my senses, we didn't see a huge amount of a huge amount of change there. There was there were some in some

waves of organizing in the summer of twenty nineteen. We can talk a bit more about what's been happening since the pandemic, but my sense was that the period probably hadn't been long enough and sustained enough at a very tight level for that to have really taken effect. So maybe before we dive into that, we could step back for a second, because the issue of stagnant wages, I mean, this has been going on for decades really, so even as productivity increases, workers seem to see less of a

share of that of the benefits of that increased productivity. So, based on your research, you know, what's the explanation for that? Why have wages been stagnating for so long? So this is one of these questions in economics which is in some sense overdetermined. If you added up everyone's different explanations, you'd get more than of the of this gap. So different people will have different views as to what's important.

The big three sets of factors that people think about largely fall into the buckets of technology, globalization, and institutions and norms, and so technology clearly plays a role in determining an important role in determining labor market outcomes and who's paid what. Part of the big part of this divergence to in pain productivity has been the fact that the incomes of lower middle income people haven't kept up

with the incomes of high income people. Right, So there's a question about did the demand for skills change in a way that education didn't keep up with it? The race between education and technology. Almost surely that was a part of it. Almost surely for some workers, globalization was a part of it, increased competition from offshoring and manufacturing, although that the magnitude of that, I would I would

put it relatively small. And then I think the big question is how much did institutions and norms and policies play a role. And this is where some of my work comes in to think about the role of the

decline and worker power. In my work, including in a paper that I that I wrote with Larry sum Is a couple of years ago, we argued that the role of the decline and worker power was actually quite big in explaining this part of this divergence, That the declining unions, the decline in informal worker power and norms about fairness within firms, the rising sharehold of value maximization ideology and it's sort of attendant capital markets practices and corporate structures,

that all of these played a role in e roading work of power in a way that actually does explain a large share of that gap. Alongside your more impersonal, large scale market forces of technology and globalization. When you talk about informal sources of worker power within firms and so called norms, What is it, what does that mean? What are we actually talking about, and how do you edit those factors? So I think it can be a

few things. But we know that anyone who's ever you know, talk to HR or been in HR will know that there are lots of factors that determine how how pay is set for different people within a company. And some of them are to do with obviously what the person would earn elsewhere, whether they're likely to leave, how much you need to offer to to make them stay or to hire them. Of course, market forces matter, but there's often quite a lot of wiggle room within that, and

that's where these norms can play a role. And in particular it can be things like a norm of how much the top executives and the CEO in particular should be paid relative to front and workers. You've seen the CEO to worker pay ratio absolutely explode in the last forty to fifty years, and if you look back at say the eighties, this was actually quite controversial in many

circles in a way that it's not now. And I think things like whether or not it is perceived to be fair and okay, to have these big paid differentials within a firm actually does affect people's pay behavior. But more broadly, I think sometimes the the norms and the I guess what all might call ideology, but not in not in a critical way, just as a as a way of describing a school of thought around how how things should be structured. So that the rise of shareholder

value maximization. Ideology was a school of thought that really, you know, it is in society's best interest for businesses to maximize shareholder value. That led to not only changes in norms, but also changes in the way companies structured themselves, things like fissuring of the workplace and outsourcing of employment, things like incentive structures from executives, things like leverage, buyouts, private equity, various capital markets structures that incent that incentivized

management to follow shareholders interests. So I think there was a role in which these more informal, intangible things like norms and ideology also crystallized into formal physical structures and changes.

So this is one of the reasons why your research is so interesting, because if you kind of follow it to its logical and extreme conclusion, you seem to be asking a question about whether or not capitalism is working for society, right, like companies being motivated by short term considerations and basically answering to their shareholders, which is something that is often at odds with the needs and requirements and happiness of their workforce. How are you thinking about that? Yeah,

that's a big question, isn't it. I'm sorry, easy one for a for an afternoon. Okay, So yes, I mean I think you're right. That is at the heart of these questions. And I tend to shy away from using the word capitalism just because I think it means such different things to different people. Yeah, to what extent? To what extent does um the current structure of ownership and incentives and the determination of value, including the value of labor pay, How does that play out? And is this

playing out in a socially beneficial way? That's that's what we're asking. And I think what what I tend to believe, and what I tend to believe based on the the research is that whether you think it's working depends a lot on what you think the baseline workings of an economy are, and in particular, how close do you think they would be to approximate the economists perfectly competitive ideal, So if you just bear would be for a second

on that, So that would be perfectly competitive. Ideal would be in a world of perfect markets, the government would, you know, set the rules of the game. There would be property rights, transactions and contracts would be uniforced. Transactions could take place, and individual companies and workers will be competing with each other, and that the best, sorry, the worst products would be competed out of the market. The

best products would survive. Prices would be low. Workers would always be competed for by companies, and so they would be paid the very highest possible value that companies can afford to pay for their skills and talents. And you've got this this market working in a very efficient way. And this is the kind of market that you start

with an eCOM one oh one. And if that's the world that you think you're in, then a system where ownership of capital is what determines the allocation of economic activity. You know who's producing what, who is hired by whom. That system is going to be efficient. And you might not think it's going to result in an equitable distribution of income, but then you should redistribute afterwards, this classic separation of let the market do its work and then

tax and transfer afterwards. If you think that the underlying market is actually not going to be very close to that perfectly competitive ideal, if you think it's going to be um, there's actually very difficult to search for a new job and find a new job, and these labor market frictions mean that once you're at a job, you're kind of at the mercy of your employer and they're not going to be paying you as much as they could.

And if you think that actually the tendency in some markets is towards large companies and consolidation, and so there's not going to be this inherent drive towards the survival of the fittest and better, better products and an increased competition. If you think that's the sort of natural state of markets, then I think you're much more predisposed to ask about, well, is the allocation of economic activity that's created by these markets actually optimal or is there an imbalance of power

that needs to be corrected. And that's where this question of lack of power for me comes in so obviously, and you mentioned it, and it's a really important part of your thesis. Part of the decline in work or power has been the major decrease over the last several decades in union density, and very different theories for why that is. But I mean, what is your story, why has union density gone down? And are there policies that

could reverse it. So the way I like to look at this and a lot of kind of big economic data stories, is so just look over time and across countries as the very first pass. And if you do that, I think you can distinguish quite effectively between different stories

of union decline straightaway. So the big story of union decline across industrialized countries in the last fifty years is basically all countries have seen some decline in union coverage the share of workers that are covered by a collective bargaining agreement. Basically all countries have seen some declining union membership. By the US in particular, the UK, which is where I'm from, to a lesser extent, have been at the

extreme end. They've seen much sharper declines than almost anywhere else. So I think at that first past, then you say, okay, well, some portion of the decline and unionization is common to all countries, and maybe that makes it more likely to be some combination of these globalization and technology explanations. It's harder to maintain a unionized manufacturing sector when there's low

wage competition from other countries, for example. But the portion that is unique to the U S and maybe the UK and a few other countries, that seems much more likely to be specific and therefore much more likely to be a function of policy and a function of norms. And in the US you can point to a lot of factors that led to a massive shift in the

policy environment and in the public attitude towards unionization. And people always point to firing of the striking air traffic controllers by Reagan, for example, as a sort of water shared moment in setting the tone for what's acceptable in terms of corporate behavior towards people who are who are

active in unions. So my view, my view is that a big portion, not all, but a big portion of the decline in unionization in the US has been a result of active hostility from business many businesses, obviously not from many businesses towards union organizing, and that this creates a kind of race to the bottom equilibrium where if you know that all your competitors are not going to be unionized. It becomes very very difficult for you as a business to be unionized because your cost are higher

than everyone else's. And so then you get this race to the bottom dynamic where even if not all businesses want to be hostile towards union organizing and union activity, there becomes a competitive imperative to have to be. So that's where I think we've got to right now in terms of policies to change that. I think there's a lot that could be done, and you can think about it in two buckets. One bucket is within the current conception of what work of power is and what unions

look like in the US. What could be done and what I mean there is unions typically bargain at the level of an establishment like a plant or a unit or a firm, and they typically bargain over pay and other job related attributes. And there there's a lot of reforms that could be done to increase penalties on firms for for cracking down on union organizing. There could be ways to make it easier for unions to share information

with workers. So a lot of the reforms that were proposed in the Proact, for example, were things that we're trying to change how and when the firm versus the union can share information with workers about the union or persuade people to vote for or against the union. But in some ways, I think the more exciting portion is, and the more promising portion, if you want to see

a big change, is trying to rethink the structure. And I'm very in favor of, or at least interested by changing the structure of worker power so that bargaining is done to a larger extent at a broader level, on a sectoral level, like I said, in much of continental Europe, which sets a kind of baseline wage floor, compensation benefits flow for a whole sector or occupation in a particular region, as well as with bargaining at the firm level. Could you talk a little bit more about the europe system

versus the US system, because I'm not familiar with that. Yeah, of course, So just to take there's a lot of different variations on themes in different continental European country. So I'll take Germany as one example. So the German system um they call it codetermination, has worker power at essentially

three different levels within within within companies and industries. One level is bargaining over largely pay, and this bargaining is done between the unions and confederation of employers at the

level of the whole industry in a region. So there will be a bargain for the whole of the metal working industry in a certain region in Germany, and that will set a wage floor for the different types of workers in metalworking, so that that agreement will look quite like an agreement would look like at the level of a firm in the US, but instead it will apply

to the whole sector. Then you've got at the level of the firm in Germany a works council, which is worker representatives who are elected and have different rights over front topics. So they have joint decision making rights with the firm over things like UM, leave policies, hoursum to some extent redundancies. And then they have information and consultative rights on various other things that go a lot deeper than a lot of the rights that unions have in

the US. So they have information rights and consultative rights on things like what kinds of technology is the firm is going to implement UM, So it's a lot more into the managerial decisions. And then the third level is at the very top, which is that of large firms, supervisory boards are elected by workers and the other by shareholders, and then the deciding vote as a shareholder elected director. So and practice it slightly less than a majority of

the board is worker representatives. So you have these three different tiers, all of which have different types of powers

over different questions. Essentially, Yeah, I mean it seems to me listening to this that like part of the question or the tension is like, well, you know, and you mentioned this, like maybe like people have this like very like sort of like strict view of like what the market system is, Like the board represents the shareholders and that's the boards job, and then the board negotiates with employees, etcetera.

And the idea of wait, why can't employees have an actual role on the board or be represented on the board. It feels like, you know, it's very foreign to the sort of American way of capitalism. Whether we want to use that term or not, it's feel it's very foreign to the American way of business. But I guess, you know, sort of like one takeaway from you're saying, it's like

why not do it a different way. Yeah, exactly exactly, And as you said, it goes down to what you think will just create good, betteral west incentives, and Milton Friedman would say, well, this is just going to distract from the corporation's most efficient task of maximizing profits, and it's going to let managers off the hook who are inefficient because they'll say, well, I was just trying to meet all of these different competing goals and so you

can never really hold them accountable. So there are arguments to think that this adding other more representatives of different types of stakeholders is going to dilute accountability, and it's going to dilute incentives and make things work less well. On the other hand, I think if you're going to add any stakeholders into the mix, workers are the obvious one in some ways because they are whole lives and fortunes are so tied up with what happens to the company.

So if you're thinking about long term best interests, obviously the shareholders interests or for the firm to do well. Obviously the workers interests in many ways for the firm to do well. And obviously there are areas in which their interests conflict, which is, given that the firm is

doing well, how do you split the proceeds. So if you have that kind of a view of the company as a set of different stakeholders who have some aligned interests in some conflicting interests, it becomes a little bit more natural to think about what we should actually give all of them a voice, because they are all invested in a long term way, in a very meaningful way in this organization. M just to play Double's advocate, and I want to make it really really clear that this

is not my personal view, but I love Devil's advocate. Clearly, there there is some resistance to unions in the States, and I mean I think there was a gallop Pole recently that said actually overwhelmingly if you ask people what they think about unions, I think it came in at like sixty percent in favor something like that. But that said, there is a subset of the American population that think unions and they think this is, you know, something I

can to communism. Basically, it's a way for people to eat as much out of the system by doing as little work as possible. In some cases, like I think there's a sense that in some way it might be unfair to people who work really hard and it's a way for others to basically get a free ride. How do you deal with those types of criticisms and how much are those criticisms or that sense an impediment to

stronger worker power in the US. So I think there's a lot of fairness in these critiques, and and a reinvigorated work of power system would want to be would want to be careful about a number of things. I think one thing that will want to be careful about is that concentrations of power tend to breed abuses of power. I think anywhere in society, and and a union would

be no different than that. And we've seen lots of very good examples in unions in recent years of you know, the famous Jimmy Hoffer and the Teamsters, a lleged association with organized crime. We've seen corruption cases from from certain union bosses, you know, convictions of corruption and this management of money. So obviously there are legitimate reasons to be

concerned on that front. Right, It's like, is this organization that is a sensibly representing workers really representing me as as a member of this of this big union, and I think the issue there is, as with any concentration of our there needs to be really serious accountability structures and mechanisms in place. So that's that's one that I think the point you raised, Tracy, which is is more

about within the union are their free riders? Are some people going to be bouncing off the labor of everyone else essentially, And I think that there is a real concern of that as well, and one of the biggest worries that often plays out with unions, I think in in people's people's lives in the world at the moment, given who is union member at the moment, it is

mostly in the public sector. Is are police unions or teachers unions preventing society from holding bad police or bad teachers accountable because there are a lot of rules about how and when people can be disciplined and how and when they can be fired. So I think that's another another issue where if there are people that have behaved badly, if there are mismanas, you know, how do you ensure that the balance of power is such that the right

social outcome happens. On the other hand, you've got a lot of situations where in non union workplaces, people are fired or disciplined for things that they really shouldn't be and there's no one to fight their side of the case. And that's where the union would come in. So I think it's about what I would say is these are all thorny issues. It's about figuring out the right balance

of power and the right accountability mechanisms. But if you think, and this goes to a broader question than just the economic question, I think, which is the concept of of workplace democracy is something that is not central to most workplaces, but I think a lot of people have become more interested in since the pandemic, which is the concept of if I'm spending forty hours a week or whatever it is, for several years of my life in a given place, with the given set of people, why is it run

like a like a dictatorship in some sense? You know, a workplace is run largely from above, with no formal rights for anyone else to disagree. You simply leave if you disagree. And I think another another way of organizing workplaces is to have workplace with some democratic elements, where people have a say over what the health and safety policies, or have a say, over what the remote work policy is.

And once you start to see that as a good in and of itself, it becomes something that how do we think about how to structure these organizations, such should the accountability mechanisms work rather than you know, is it a yes or no? Should we have no no workplace voice at all? Because of these risks of abuses of power.

So there's another thing that's been talked about quite a lot recently, which is transparency on pay and the idea that maybe you can have a system where you could see how much all of your co workers are making and then you could I guess internalized whether or not you think they deserve that, or if you should demand a bigger raise because you know someone else is getting money. Is that something that you've considered in your research or something that maybe could be helpful when it comes to

raising wages. And also there's I think there's a new law in New York that like job opening too, So I'm curious about that. Yeah, so this is a hot topic and I think it's an interesting one. Broadly, I think it is likely to go in the direction of making pay more equitable between between groups of the same

job level. Roughly speaking, so you know, reducing the gender pay gap for the same type of job, reducing racial pay gaps for the same type of job, because it becomes much more it becomes much more obvious and salient if individuals pay is transparent that some people are making less money than others, and that's embarrassing for firms, and it also provides grounds for workers too to lobby for higher pay for themselves if they're on the lower end

of that scale. I think that's also true with the New York vacancy page on Sparency Law, in that you can see what other kinds of jobs like yours are being paid, and then you can use that as a negotiating tool with your own employer. I think on on net it is likely to be a somewhat positive thing. I doubt that it has huge potential for impact, and part of my reason for saying that is also for impact.

More broadly than that, I think closing gender and racial pay gaps within job types is still a very worthy goal and we should do it. But in terms of rectifying the broader increase in income in equality that we've seen, and I think that's because largely people kind of know

how different jobs are paid on the grand scale. It's is a software engineer making X or y, that kind of information will be revealed by this, But a software engineer versus a dishwasher, we all know the difference is astronomical already, and transparency isn't going to change that, so we'll affect some types of inequality. The other The other hesitation I have is there have been certain patients sparency

reforms introduced different types of patientsparency reforms in different countries recently. So, for example, the UK m and dating a gender pay gap disclosure for companies which is an average and a median rather than for specific jobs. And what some of the early academic studies have seen is that these do seem to reduce gender pay gaps, but it's not clear if they do so by boosting the pay of the

women versus lowering the pay of the men. And so if you don't rectify more broadly the balance of power between workers and shareholders, it's not clear that this is giving all workers more power versus just rectifying power imbalances between sort of within the group of workers, it between groups. I want to go back to the sectoral bargaining question in Germany. You mentioned Germany because it sort of relates

to like big structural changes in the economy. You know, if we're going to have like this, like sort of like an the nobility for workers across multiple firms to negotiate with employers across multiple multiple firms within an industry.

It feels like that kind of thing makes sense in a sort of old industrial style economy where it's like, you know, Detroit, you have three big carmakers and literally no other carmakers, or it's you know, German chemical companies or something like that, or like, you know, in journalism, if there were just Bloomberg and the walshare journal in the New York Times, then you could like imagine you know, a sort of like a journalist journalist pay standard. But

that a that many industries are not like that. And in media there's like startups all the time, and in autos we've seen a proliferation of new car companies, And so I'm curious, like, is there a minimum level of corporate concentration that needs to exist in order for an arrangement like that to work? And then more broadly, how much of the decline in unionization across Rich countries. Does have to do with the like the fact that a sort of like industrial industry or big industry is just

a smaller and smaller part of the overall economy. Yeah, great questions. So on the overall corporate concentration. I think in some ways that it reminds me of Galbraith's work when he was basically in the Galbraithian vision of an economy was one where there were a handful of very big companies and then very strong unions that were bargaining with those companies. And that was, you know, what he

was talking about in his book American Capitalism. And I think, yes, it's it's certainly going to be easier for that kind of bargaining to work if there are a handful of

lead large companies. So even in the US auto industry in the fifties, it was you know, the big three automakers, and then the other small auto parts manufacturers and other supply chain players would follow what that what that agreement with the Big three and the U a W said, It's not clear to me that this is not that there's not this critical mass of large companies or large

umbrella brands in different industries. I mean look at something like fast food, which is very fragmented in terms of lots of franchise e s owning individual stores, but there's a handful of brand organizations that own basically all of the brands. So you can imagine different industries have slightly different corporate structures. But in most industries there are there are a handful of big players, and I think you might be able to get around the table, and they

do in in um in the industry boggains. In some continental European countries, you have caught outs for smaller employees. You have ways that startups or that small companies wouldn't necessarily be found by these agreements and wouldn't be at the table with them, and you would have to strike

that kind of a balance. You know. Something else related to this, and I believe you talk about it specifically in your work, is like you know, in the old days, and maybe it was like apocryphal, but in the old days you would hear stories like, oh, someone started in the mail room at X and then thirty days and

thirty years later they became the CEO. And these days there's a good chance that the person who works in the mail room at a given company doesn't actually work for the company, like they're on premises, but maybe they work for a sub contractor and they have different color

badges or something like that. There's like they're not really there talk to us about like this sort of like and I guess this is sort of like a it's part of the shareholder revolution, is part of like norms and structure that like company is like we're just gonna do our one thing. We're gonna have our search engine business, and then everyone else, like you know, the people work

in the cafeteria that are don't actually work for our company. Yes, this is this is a hugely important trend and as you say, I think it's a big part a part of these broader forces that have been happening over the last fifty years. It's very prevalent, as you said, in dining services, in security services and cleaning services. That is also increasingly prevalent in warehousing, staffing, in transportation and logistics.

That the people that are doing the work, usually mostly or entirely working for one company, are not working are not employees of that company. And it comes out of this drive to to focus on call composite competencies. But it creates a whole lot of problems, including when we're thinking about bargaining. So if you're cleaning worker for a bank, say and you're can to unionize, Okay, what happens You unionize your fellow cleaning workers. You're then unionizing the cleaning

services company. The bank then simply does not renew the contract and gets a different, cheaper cleaning services company. So once you are outside the boundaries of the firm, and if we're in a world where unions are organized at the level of the firm, which they are, then the ability to exert work of power disappears because the bank is where the profits are, not the cleaning services company.

But you can only organize the cleaning services company. So this is also the kind of thing where I think a sectoral well, really, I think an occupation level bargaining structure would help because you'd say, well, it doesn't matter the corporate structure should be irrelevant. If we're thinking about setting a minimum wage for cleaners in New England, that minimum wage will be set across corporate structures and whether or not they're employed by the cleaning services company or

by the bank. So I want to go back to our framing at the beginning of this conversation, which is what does the labor market mean for inflation? And one thing that you see a lot of nowadays is people reaching for the historic parallel of the nineteen seventies. You know,

we have high inflation, we have an energy crisis. Are we going to basically see a repeat of the high inflation that we saw in the nineteen seventies which didn't really end until the early nineteen eighties, either because Reagan busted some of the unions or because Paul Vulker came in and raised interest rates massively. How do you view the current labor market versus the nineteen seventies and what is the broader impact of the structure of what we

have now on the rate of inflation. It's yeah, it's a million dollar question, and I don't know that. There are so many different possibilities that I don't think I would stand by any specific answer I give, you know, in the face of fire, because I think we really don't know. And when you look across many very very knowledgeable macro economists on these topics, there's a very wide divergence of opinions because we don't know. Having said that I would say there are aspects that look similar to

the late sixties early seventies. You know, we've had a series of unfortunate supply shocks one after the other, which for US has been COVID happening several times as different supply chains are disrupted in different places. Um and then the war in Ukraine and in the sixties and seventies were obviously well in the early seventies with the oil price shocks, and then we've also had some to some degree at least a big demand shock in the US

with the pandemic government spending slash fiscal stimulus packages. But I don't think we've seen the kind of massive sustained government spending that we saw in the late sixties, particularly with the Vietnam War and the Great Society. And so there's a there's an extent to which the demand impetus might have been smaller that now than it well at

least less sustained than it was then. And the big question really is if if inflation is coming from a combination of things, but it's coming from a demand side, a supply side, too much money chasing too few goods, but also then it gets entrenched if expectations get in trench, so if it ratchets, the big question is what's happening now with the ratchet effect, and is what's happening now

what was happening in the seventies. And that's where I think, as I think you're getting towards this work of power question comes in, which is is a wage price spiral less likely in a world with less work of power? And I would think almost certainly that answer is yes, just because in a world with union contracts with cost of living clauses plus x percent built in, that makes

a wage price spiral that much more likely. In a world where private sector union membership is six percent in the US and the tight labor market is present right now but may not last forever as as interest rates continue to rise, it doesn't seem that likely to me that we're going to get stuck in one of those

ratcheting labor to product market spirals. There are other ways inflation could stick, but I doubt that would be the one that it sticks as a result of I mean, this gets to like the sort of like perversity of what Tracy and I were talking about in the beginning, which is like, Okay, why do we care about inflation. Well, one of the reasons at least is because that erodes worker bargaining power and leads to declining standard of living.

But then there's like this sort of weird thing where people like then take relief at lower wages because I guess that in theory means that inflation won't get entrenched. But lower wages are the thing we want to avoid in the first place, because that's another way of declining

or sort of like staminating worker buying power. But it does seem that it's like frequently framed, and maybe it's because of this memory of it definitely feels like it's often framed implicitly in the conversation that we can't have sustained wage growth because that just means a spiral and workers ultimately running and place. Yeah, I I agree with you that it feels like a paradox. And I guess the the easy but not easy to achieve on st is we need sustained productivity growth and then you can

have sustained wage growth. But you get worried if nominal wage growth is systematically outstripping productivity, because that's going to mean one of two things. Either it's going to mean that there's this big redistribution happening from capital to labor. That's one way that nominal wage growth can grow faster

than productivity. Or it's because there's inflation and that's going to generate and stimulate more inflation in prices, and that means that, as you said, you're running to stand still. Which maybe that means no one on net is worse off on average, but some groups are going to lose out more than others, and inflations difficult in terms of planning, and there are worries about spirals and getting out of control and all these other sort of second order costs.

So I mean, I would say it creates a problem in that if you want to redistribute, you're going to need nominal wage growth. It's faster than productivity growth, but you need to make sure that it's coming from an impetus that is about either productivity growth or redistribution, and not an impetus that seems driven by this demand demand cycle. So just finally to wrap up and looking forward a little bit more, and you sort of make the case why this is not likely to be the nineteen seventies.

Nonetheless avoiding the nineteen seventies is a far cry from the sort of hopes of last of a year ago, when it's like, oh, maybe we're going to get a change in trajectory, and we have seen maybe a pickup in union activity, and of course I'm thinking about some of the stuff we're seeing it Amazon and Starbucks, which feels very organic, and you know, we still do have tight labor markets which may contribute some role. Do you

see a potential for some sort of trajectory change. Are we in a position where we could affect that with right policy choices or is it still are we all? You know, still a lot of work to do in order to turn some of these trends around. So I'm both optimistic and pessimistic in the sense that it's always easy to take refuge in that, isn't it so optimistic in the sense that this does feel like an inflection point.

If you compare this year last year to some extent, the union activity with the union activity in the US in you know, almost all of the last few decades, there's been a lot of energy, and there's been a lot of new organizing and places that we don't typically see its successful organizing as you mentioned Amazon and Starbucks being prime examples. We're also seeing up swells of organizing and things like care the care sector, which is another sector which is a which is very low paid and

has had typically very difficult conditions. So in that sense, I think it feels like there's an inflection point. The ongoing type labor market creates conditions for that that, you know, the quit the high quick rates as people move to find better jobs or jobs that suit them better. And I think it shouldn't be underestimated that we have this ground swell of awareness and I think popular support from the pandemic which really laid bare how appalling conditions are

for many people. You know, when it was when it was seen that people who were making going to be low wages and providing completely essential services to the economy were essentially being asked to risk death for themselves or their families without even the ability to have a certain amount of protective equipment or paid leave. I think people seeing that has has has generated some popular ups well

and popular support for a rebalancing of power. So I think there is this is an unusual moment, This is a unique moment. We're also in a moment where the administration is very supportive of unions and strengthening unions. But the reason for pessimism is just that there's such a long way to go if you believe that that work of power is an important ingredient of of of change. Private sector unionization in the US is at six percent

at its peak. It was one in three in the nineteen fifties, and over time there's a natural attrition anyway of unionization. You have to have a certain amount of union organizing activity just to keep the membership rate constant because you know, people retire, firms close, You've got to have that that rate organizing just to keep the rate

flat at six percent. So the rates of organizing that would be needed successfully to reach the levels of unionization necessary to actually make a meaningful DNT in how pay is set in the economy is astronomically high. And that's where I think a lot more of a change really in the organizing environment, really underscored by policy, is necessary or would be necessary if that was the goal to achieve.

All right, well, Anna, I'm glad we could end with like some optimism tempered by quite a bit of pessimism. That's all. That's all we can hope for it nowadays, I think, um Anna Standsbury, thank you so much for joining us that so much so, Joe. I think this is a fascinating topic, and there's clearly a lot of

interest at the moment. But I guess I come away from that conversation thinking about how it feels like almost everything is geared towards like the structure of the of capitalism basically I know, and I didn't want to use that word, but it feels like the structure of capitalism is basically geared towards diverting benefits away from workers, unsurprisingly perhaps. And the other thing I would say, it's like there

is a real effort underway. And I don't mean this in a good or bad way per se, but look, the goal of kind of everyone in power right is more or less it's like, let's get back to the economy, right, Like that would be I think a lot of people in power, particularly at the FED, would see that like as a pretty pretty huge wind to just get back there and sort of like all these trends, all these things we like, you know, the sort of the Pandora's box that was opened during the pandemic with could this

being era of universal basic income and checks as a sort of automatic response to every downturn you see like the sort of white blood cells of the existing system, like attacking all the innovations and trying to like go back to the pre pandemic status quo. Yeah. But also it's weird, as you pointed out, this idea that inflation is bad, but wage increases to offset inflation are also bad because in theory that increases inflation, and so you

almost have like a collective action problem. Yeah, And like I feel like one of the messages is like, well, increasing labor share is actually impossible, is the implicit message? Like that makes no sense because labor share changes. But the implicit messages you can't if if higher wages I mean higher inflation, then why you achieve higher wages and you just you don't get anywhere with workers. There's like this like core con contradiction much of the discourse. I

would say, yeah, I think that's right. Shall we leave it that? Let's leave it there. Okay. This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy allow and I'm Joe Wi isn't thal. You can follow me on Twitter at the Stalwart. Follow our guest Anna Stansbury on Twitter. She's at Anna Stansbury. Follow our producer Carmen Rodriguez at Carmen Armann, and check out all of our podcasts at

Bloomberg under the handle at podcasts. Thanks for listening,