Fed’s Controlled Demolition To Leave Workers With Less Bargaining Power
Last Wednesday the Federal Reserve admitted that unemployment will likely rise over the next two years due to the stepped-up pace of interest-rate hikes designed to tame soaring prices. The expected result? Employees will be left in a worse-off bargaining position as the number of open positions evaporates – along with copious benefits being showered upon workers amid the ongoing (but soon to change) shortage, Bloomberg reports.
Last week Fed Chair Jerome Powell said there’s a “real imbalance” in wage bargaining in favor of employees due to the high level of job vacancies – a dynamic that’s about to change, perhaps quickly.
The tightening will put employee compensation – and perks – to the test.
Wages aren’t the only thing workers are bargaining for. After decades in which they held almost all the cards, employers are having to accommodate millions of Americans for whom the workplace just hasn’t been a good fit. That means not only higher wages, but also better benefits and working conditions. Companies are embracing remote work. Many have gotten to better understand the life that mothers and fathers live outside the office, after getting a glimpse of kids and homes on video calls. There’s even talk of four-day work weeks. -Bloomberg
That’s all set to change
Even in the Fed’s best-case scenario, rising interest rates would reduce employee demand just enough to suppress job openings, but not enough to cause unemployment to explode. Whether they can nail that target has yet to be seen, but the Fed historically overshoots in all directions.
“It is unlikely that we are going to get inflation completely down to the 2% target without some upward movement in the unemployment rate,” said Matthew Luzzetti, chief U.S. economist at Deutsche Bank Securities.
And while inflation already reduces the purchasing power of those least able to demand higher wages, the Fed’s unemployment-boosting actions will leave them in an even worse position.
“Work is just a lot less attractive for people in the United States than it should be,” according to Nobel laureate Paul Romer, an economics professor at NYU. “This is the cumulative effect of years of pressure on wages.”
For example, men between the prime working ages of 25 – 34 have seen a steady decline in labor-force participation, dropping from 94% at the start of the 1990s to 89% today.
Millions of women also dropped out of the workforce during the pandemic, causing companies to step up benefits for workers – including stipends, remote offices, and even personalized career coaching.
“There absolutely has been a shift,” said recruiter Camille Fetter of Talentfoot Executive Search & Staffing. “We now see and know the whole self of the employee. We have a broader understanding of who they are and what they need from an employer.”
Indeed, benefits to private-sector workers rose by 1.9% in Q1 2022 – the biggest jump since 2004, and almost triple the average increase over the last 20 years.
So – better lock in those benefits now before the Fed’s latest attempt to ‘rescue’ the economy turns the tables.
