Over recent months, workers across industries – from Hollywood actors to neighborhood baristas and delivery truck drivers – have gone on strike, putting issues like fairer profit distribution and the need for higher wages in the national spotlight. And there are no signs yet of strife relenting: United Auto Workers recently voted to authorize a strike if a new contract is not agreed upon by Sept. 14.

John Pencavel (Image credit: Courtesy SIEPR)

Why are so many workers either going on strike or threatening to, and why now? Here, Stanford economist John Pencavel answers these questions and more in an interview with Stanford News.

According to Pencavel, many workers are feeling frustrated by seeing their wages suppressed in less competitive labor markets and by the loss of a voice (such as a trade union). Moreover, he argues, a low unemployment rate makes the timing right.

“Strikes tend to be more frequent and longer when workers have opportunities for other possibly temporary work, as indicated by a low unemployment rate,” Pencavel said.

This interview has been edited for length and clarity.  

How do economists distinguish between the different types of strikes that are happening?

Firstly, there are two types of strikes that have been occurring. One type is the union recognition strike. These are workers who are currently not unionized, but at least some of them would like to be, so they withdraw their labor to put pressure on their employer to recognize an organization – like a trade union – to represent their interests. These recognition strikes have occurred at some Amazon and Starbucks workplaces. The other type of strike is happening now in Southern California, with the scriptwriters and with the strike threatened by the UAW. These are strikes of workers already unionized who are seeking better employment conditions.

Why are so many strikes happening now?

When it comes to measuring earnings inequality, economists tend to be relativists, that is, if all workers get the same x% increase in wages, economists usually conclude wage inequality has not changed. By contrast, many workers are absolutists and measure inequality in terms of absolute dollar differences in wages. This distinction helps to explain why economists are more inclined to accept certain earnings differences that workers do not. An example is provided by examining the U.S. household income and comparing the household whose income is near the top of the income distribution.

Specifically, the household whose income is at the 95th percentile with the household whose income is below the median (specifically at the 20th percentile). Approximately these two households experienced the same 9% increase in income between 2018 and 2019. Given the existing wide income distribution, this 9% increase in income constituted a $2,484 increase for the household at the 20th percentile and a $21,274 increase for the household at the 95th percentile. To the relativist, inequality has not changed; to the absolutist income inequality has increased.

Tending to be absolutists, workers are outraged at the earnings reported for certain managers and business owners. They see the system as basically unfair. Indeed, it is well documented that the share of the nation’s total income that is categorized as profits has risen and the share called wages has fallen.

Compared to other periods, is there anything that makes these various strikes unusual?

Not really. Recognition strikes were common before legislation in the 1930s that specified procedures that employees and employers are required to follow to establish a trade union. What is remarkable is how few strikes there are today compared with the past.

What may be unusual is that compared with the 1950s and 1960s, bargaining power in labor markets has clearly shifted to employers. There has been a decline in the fraction of workers represented by workers and, on the other side of the labor market, employers have continued to devise ways to combine and evade anti-trust laws. This is evident in the suits filed by the U.S. Department of Justice against Apple, Google, Intel, Intuit, Pixar, and Adobe alleging that their recruiting practices were designed to suppress the salaries of engineers. These firms agreed not to ”cold call” employees of a rival company to induce him or her to move. These employers were colluding to keep the salaries of their employees down.

There are other examples of anti-competitive agreements. Many relatively low-skilled workers are employed by franchises such as Burger King or Ace Hardware. These franchises have written “no poaching” agreements that stipulate franchise x may not hire a former employee of franchise y belonging to the same general franchise.

The economist Adam Smith would have noted these as examples of employers “always and everywhere in constant combination not to raise the wages of labor above the actual rate.”

Will the current U.S. low unemployment rate benefit strikers?

Strikes tend to be more frequent and longer when workers have opportunities for (possibly temporary) work. When the unemployment rate is low, firms are seeking employees; that’s a good time for some workers to put pressure on their employers to raise pay.

How is the role of technology shaping these discussions?

Work has become more skill biased, that is, biased towards those who can oversee computer and other technological advances. Those workers who can oversee modern technology, correct it when it goes wrong, and operate it when it goes well, have been in demand relative to those workers who do more routine work. The talk of AI has only encouraged that concern.

Some reports have been asking whether we are seeing a new era of labor power. What do you think?

I think it’s a little bit early to tell. Union membership in America has been falling since the 1970s. The fraction of workers who are in a union is much higher in the public sector than in the private sector. The private sector employees have found a way to forestall the union membership of their workers. It’s a little too soon to talk about a new era. It may turn out to be, but it’s certainly not now.