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New unions at Amazon and Starbucks have capped a surge in workers’ bargaining power during the Covid-19 pandemic. Yet much of the newfound leverage has stemmed from labor shortages that may prove temporary, and rates of union membership are still a far cry from their peak. In the meantime, there’s another path to greater bargaining power that also brings benefits to businesses.
The calculus of bargaining power is simple. When negotiating for pay — or anything else — it’s good to have few competitors on your side and as many as possible on the other. At their peak in the 1950s, the biggest unions benefited hugely from this calculus by joining workers into a single unit: a sole negotiator against several employers in the same industry. In the subsequent decades, however, the numbers steadily tipped to employers’ advantage.
Unionization declined from roughly 35% of wage and salary workers in 1954 to under 12% in 2021. As a result, thousands of workers — rather than one union — sat opposite businesses at the virtual negotiating table, all competing to sell their labor. The opening of new markets around the world put millions more workers on the same side of the table, and employers were free to negotiate with any of them. Increasingly, workers also had to compete with robots and software that could replace them if the price were right.
Fewer employers, fewer options for workers
These well-known trends weren’t the only ones influencing workers’ bargaining power. The largest employers were also joining together via mergers and acquisitions, so there were even fewer negotiators facing off with the growing number of workers. In 1986, there were 14.4 workers for every employer in the United States; by 2019, before the pandemic, that number had risen to 16.7 workers.
This long wave of corporate consolidation had profound effects on pay. Highly concentrated labor markets in manufacturing, retail, and healthcare reduced wages by undercutting workers’ bargaining power, especially at the local level. The rise of “superstar firms” that dominated their industries eroded workers’ share in national income even more. Over the past two decades, this same consolidation may have been responsible for up to two-thirds of the increase in wage inequality in American workplaces and was the subject of a landmark report published by the Treasury Department in March.
With a small number of employers negotiating with essentially atomized workers in local markets across the country, income in the United States steadily shifted away from workers’ paychecks. In 1960, American workers in the private sector received nearly 66% of the proceeds from the sale of goods and services. By 2019, that share had dropped to about 56%.
How can workers gain more control of the income generated by the fruits of their labor? One way is by unionizing. In countless studies, economists have estimated that unions have raised wages by 10% to 20% versus pay in comparable non-union jobs.
But unionization isn’t easy. For all the victories by workers taking on some of the nation’s biggest corporations, there have also been notable failures. Weeks after an Amazon warehouse in New York City voted for a union, another one across the street rejected the change. Some workers — especially part-timers — prefer to stay independent rather than pay union dues.
So what else can workers do? If they can’t come together on one side of the table, then the only way to restore balance to negotiations is to make sure there are more people on the other side. In other words, workers need to have more options — more offers of employment, and more businesses with whom to negotiate.
For so-called knowledge or white-collar workers, finding more options usually means an orderly search on an online platform, filtering millions of job offers across a variety of industries. But for in-person hourly workers like those at Amazon and Starbucks, skills may not transfer easily between industries, and job prospects may arrive primarily via word of mouth. They need a different solution.
Leveraging technology in the labor market
Online marketplaces for hourly work are a crucial tool for bringing these workers more options. They’re not just places to post a resume or peruse job listings; they carry the actual transactions as businesses hire people for in-person work, smoothing the hiring and scheduling process. They also operate on mobile phones, with no need for desktop or laptop computers. Workers can look across different roles and regions, choosing their own hours from available shifts. The more options they find, the more they make businesses compete for their labor.
It’s no surprise that pay in these marketplaces is higher than in the market at large. On the Instawork platform, from my company, the average hourly pay in 2022 has been much higher than the minimum wage in all of our major markets; so far this year, the median percentage difference is 44% of the minimum wage, and the median difference in dollars is $6.40 per hour. That’s much more than the $4.14 businesses spend, on average, for benefits covering part-time workers. When businesses compete to hire the best people for in-person shifts, workers win.
And businesses win as well. When more workers find out about job openings, businesses can fill more positions — and filling positions is a pressing issue right now, with almost twice as many job openings as unemployed people in the economy. A larger and more diverse worker pool also allows businesses to find better matches for each position. The transactions in the labor market become more efficient, and the size of the pie increases for everyone.
Workers don’t usually run these marketplaces, but they can cement them into the infrastructure of the labor market by using them. The more workers use the marketplaces, the more businesses will rely on them for staffing. The network effects implicit in the marketplace make them especially powerful, too; once a marketplace has critical mass in an industry, businesses will rely on it not just to fill shifts, but also to spread the word about new openings.
Changes in bargaining power usually lead to zero-sum outcomes: if one side gains, the other loses, and vice versa. But online marketplaces for hourly work can increase workers’ bargaining power while mitigating the effect on businesses by improving each transaction. For a labor market in flux, they offer one path towards a more productive and more equitable future.