With Inflation High, Unions Suppress Wages

With Inflation High, Unions Suppress Wages
Most contracts lock in nominal raises that aren’t enough to keep up with rising prices.

By F. Vincent Vernuccio
Aug. 7, 2022
Wall Street Journal

Good luck getting a big raise if you’re in a union right now. That’s the unspoken message of a July 29 report from the federal Bureau of Labor Statistics. It showed that nonunion workers’ nominal pay in June was up 5.8% year over year, compared with only 3.8% for union workers’. The gap has been widening for a year.

Why? Inflation. This divergence makes sense when you think of how union contracts operate. Unions negotiate long-term collective-bargaining agreements between workers and employers, with a typical contract lasting three to five years. That locks in the union’s gains but leaves it with little bargaining power or flexibility when something sudden or severe, like the current inflation, hits. So unless the contract is about to expire, union members are trapped when they need the freedom to negotiate better raises much faster.

Consider a collective-bargaining agreement that was reached in, say, 2020 or early 2021. It probably won’t expire until the middle of the decade. The employees it covers need immediate relief from inflation. While they can expect regular “cost of living” wage hikes, these are typically at a fixed rate, not tied to actual inflation. Most unionized employees aren’t as lucky as those at John Deere, which agreed to a new six-year contract with a 10% raise and two 5% raises after the previous contract expired last fall.

Faced with the knowledge that their members are falling behind, labor leaders will talk a big game about putting the squeeze on management. But federal labor law prevents changes to working conditions (including wages) without contract negotiations, which a unionized business has little incentive to begin earlier than necessary.

By contrast, for the tens of millions of employees who aren’t covered by a union contract, getting a raise is often as simple as asking for one. What may take months or years for a union member may take hours for a nonunion worker.

Consider Delta Air Lines. In June, the company started paying flight attendants for the 30 to 50 minutes that passengers spend boarding—time that was previously off the clock. Delta could make this move quickly because its attendants aren’t unionized. Yet the attendants at 17 other airlines, who are represented by the Association of Flight Attendants, have no chance of seeing the same pay policy until their contracts are renegotiated.

The contrast at Starbucks is even more stark. In May, CEO Howard Schultz announced $200 million in raises and other investments at about 9,000 nonunion stores. The roughly 200 stores that have recently been organized by Starbucks Workers United were excluded; negotiations on wages and other demands are under way.

Last week the union asked Starbucks to extend the same wage hikes to its members, but outside the collective-bargaining process—a unilateral concession by management that Starbucks says it can’t make under federal labor law. The union is tacitly admitting that in this time of high inflation, its members can’t keep up with their nonunion peers.

Mr. Vernuccio is president of the Institute for the American Worker.