Why Gains for U.S. Workers Are Good for the World

For half a century, America’s wage problem has also been the world’s trade problem. Since the mid-1970s, the United States has stood out among rich countries for its high percentage of low-wage workers, nearly one-quarter of the total workforce. That is three times the rate of France and more than twice that in Japan. And that high percentage has knock-on effects far into the middle class: Many better-paid U.S. workers—especially those in trade-exposed manufacturing industries—have had good reason to fear they are just one layoff away from being thrown into a huge pool of workers competing for poorly paid jobs in retail, health services, and fast food chains. That worry explains in part why Americans have voted for leaders who promise to protect industries such as steel and automobiles, which offer a dwindling number of good jobs.

The COVID-19 pandemic, however, may turn that story on its head, with lasting consequences both for the U.S. labor market and for trade relations with other countries. There are signs that, after decades of anemic wage growth, low-wage workers in the United States are finally making significant gains. In November 2021, wages for hospitality and food service workers were 13.4 percent higher than they were one year earlier; in transportation and warehousing, pay rose by 10.4 percent. Further, most of those gains are coming in service sector industries that are not exposed to international competition. The result could be higher incomes and a greater sense of security among U.S. workers who have had little of either for decades. If better jobs become more abundant in these domestically oriented sectors, the political pressure to protect trade-exposed industries should also weaken. The post-pandemic future of the U.S. worker should therefore be of acute interest to the United States’ trading partners as well.

The United States is in the midst of what has been dubbed the “Great Resignation.” Workers are quitting their jobs in record numbers; some 4.5 million workers walked away from their jobs in November 2021 alone, the highest recorded since the U.S. Bureau of Labor Statistics began tracking these figures in 2000. Americans are especially leaving jobs in hospitality, food services, health care, transportation, and warehousing—all sectors in which face-to-face work is required and that are often poorly paid. An astonishing 6.9 percent of those in hospitality and food services quit in November alone.

The reasons are varied. In hospitality and food services, millions of workers were temporarily laid off when the pandemic hit in March 2020 and the country went into lockdown. As those businesses reopened, some workers were reluctant to come back, fearing the health risks of face-to-face work, or were stuck at home tackling the challenges of child care and remote schooling. The generous pandemic benefits approved by the U.S. Congress in early 2020 helped cushion the blow. Those who did return to work often found themselves overburdened as consumer demand surged, while the pandemic multiplied pressures on health workers. Even as the economy has recovered, the U.S. workforce participation rate remains well short of pre-pandemic levels.

The result is that low-wage workers have more power than they had in decades. A new Brookings Institution report shows that most of the Americans quitting their jobs in such high numbers are quickly finding better ones. The Brookings authors argue that the pandemic has caused a “reallocation shock”—a sudden economic change that usually hurts workers but this time is helping them. In a typical shock, workers lose their jobs because of a recession, automation, outsourcing, or trade competition. In those cases, they must scramble to find new work at different companies or in different sectors, which may involve costly relocation or retraining—and they often fall to a lower rung of the economic ladder. In this case, the shock has had the opposite effect, creating acute labor shortages in the low-wage sectors that require face-to-face work.

The sectors with the highest quit rates—hospitality and food services—have also seen the biggest wage gains, nearly twice the gains of workers in any other sector in the nine months from February to November 2021, according to the Brookings report. Other sectors that have seen especially strong wage growth include retail trade, transportation, health services, and warehousing, such as the growing number of Amazon fulfillment jobs. The fierce competition for these employees is evident, with fast food chains such as McDonalds and Chipotle raising wages to try to lure those workers back.

The growing bargaining power of workers is also evident in the rising number of strikes and other job actions. Labor activists dubbed last October “Striketober” after some 25,000 Americans walked off the job, more than double the rates of earlier in the year, while tens of thousands more won generous new contracts by threatening to strike. Labor union actions were commonplace in the United States through the 1970s, with between 1 million and 4 million workers walking off their jobs in a typical year. But since the 1980s, strikes have been exceedingly rare, with employees more concerned about job security than fighting for better wages and benefits. Now, union organizing is starting to creep into service industries that have long struggled to organize: In December, a Starbucks store in Buffalo, New York, became the first branch of the company in the United States to unionize successfully after years of failed efforts. Others are set to follow.

Labor historian Joseph McCartin thinks the pandemic has produced conditions for worker militancy that the United States has seen only three times in the past 100 years—after the two world wars and during the Great Depression. Each time, he said, Americans believed they had made collective sacrifices and deserved to be rewarded with better pay and working conditions. “I think a similar feeling pervades the American workforce today,” he told NPR. Public support for labor unions—with 68 percent of Americans saying they approve of unions—is at its highest since 1965.

For the rest of the world, the recovery of U.S. worker bargaining power—if it persists—should be good news. When Americans are more secure in their jobs and real wages are rising—as in the 1960s and the 1990s—U.S. trade conflicts with the rest of the world tend to wane. Those were also the periods in which the United States was most enthusiastic about additional trade liberalization. In periods where workers are struggling—in the 1970s, early 1980s, and after the 2008-2009 financial crisis—those conflicts multiply, and U.S. protectionism grows.

Much of the anger in the United States over trade is also rooted in fears that the small number of higher-paying manufacturing jobs that don’t require a college education have disappeared because of outsourcing to Mexico or cheaper imports from China. As long as these kinds of jobs are primarily located in trade-exposed sectors, the demand for protectionist trade policies will remain. If traditionally low-wage jobs in health care, retail, warehousing, and other services become better jobs with higher wages and benefits—whether through expanded unionization, persistent labor shortages, or both—the connection between trade competition and the loss of good jobs should weaken.

There is much that could go wrong, of course. The current bargaining power of workers could be a blip, a temporary condition created by very strong consumer demand and the pandemic fears that are still keeping many off the job. Inflation in the United States, which hit 6.8 percent for the year in 2021, has already eroded much of the wage gains workers are making by quitting bad jobs and finding better ones.

But for a country where low-wage workers have struggled for many decades, there are small signs of hope and progress. The rest of the world should be cheering them on.