Anna Stansbury on How to Boost Worker Bargaining Power

Tracy Alloway (0:09)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:14)

And I'm Joe Weisenthal.

Tracy Alloway (0:16)

Joe, I feel like it's been a while since we've talked about the labor market.

Joe Weisenthal (0:21)

Yeah, that's right. I mean, so, you know, for years, look, my favorite day of the year for like, for the month was always the non-farm payrolls report. But even, you know, and it has political significance, it has economic significance, it has market significance.

But of course, like this year, 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, it would seem.

Tracy Alloway (0:54)

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.

Joe Weisenthal (1:19)

It's this really strange thing, because obviously, why do we worry about high inflation? Well, because it worsens buying power.

Tracy Alloway (1:27)

Yeah, but then everyone wants to raise and yeah.

Joe Weisenthal (1:30)

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 creates all kinds of tricky things. But yes, of course, as you point out, inflation is eating into people's incomes.

Tracy Alloway (1:55)

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. 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.

Joe Weisenthal (2:36)

Right, so that was the story of the 2010s, the sluggish labor market, poor wage growth, just sort of general, like seeming like a decline in 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 2021, when we started getting all the, or early 2021, really, when we started getting all these stories about companies having trouble hiring, and that was the first real theme. There's something that's different. It's like, wait, are we gonna have a trend change here? Could we have a meaningful reversal of decades of declining labor share?

And I think there was a lot of optimism, right? Summer of 2021, I think we had a lot of optimistic guests who are like, this is gonna be the start of something different. Of course, the market was going up. And then with inflation eating into those wage gains, and then the Fed basically saying, we were wrong about transitory inflation, we're gonna hike fast. I think a lot of that optimism has gone away.

And so the question is, where do we stand?

Tracy Alloway (3:40)

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 gonna see a similar shift in the balance 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 again feeds into issues over inflation and things like that. We're gonna be speaking with Anna Stansbury. She's an economist who specializes in labor and macroeconomics and also an assistant professor at MIT Sloan, whose work is basically all about this.

Anna, thank you so much for coming on Odd Lots.

Anna Stansbury (4:18)

Thanks so much for having me.

Tracy Alloway (4:20)

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?