The U.S. Labor Market and Compensation Trends

Unions

Union and collective bargaining agreements can be specific to an industry, geographical area, or an individual firm - at a single operation site or a single corporate entity. Unions may impact the labor market in four ways:

1. Strikes. Striking provides a major bargaining tool to use against the organization to raise pay above the level at which the market would dictate. The union acting as a group can put pressure on the organization that the individual employee cannot.
2. Restriction of supply. Some unions (particularly construction unions) engage in limiting the number of qualified employees, thereby keeping pay rates high. This barrier to entry is accomplished through apprenticeship programs which are a restriction based on training or education enforced by the organization's union or has been mandated by laws passed as a result of union insistence.
3. Increased labor demand. Unions may increase the demand for labor by:
   • Increasing the demand for union-made products.
   • Insisting that the organization hire more employees than are necessary, also referred to as featherbedding.
4. Political action. Unions attempt to influence legislation to positively impact their members. This includes legislation to get better pay and benefits for their members, which may also benefit all workers.

Union membership has been declining in the United States and as a result the influence of unions has also declined. When unions are strong, they not only improve wages for union jobs but there is often a spillover effect on other jobs.

Government

Laws and regulations may artificially impose constraints on labor market outcomes. They include:

1. Wage and hour laws. These laws aim to establish a standard work week, additional pay due to employees when work is performed beyond the standard work week schedule stipulated in regulations, and they also define the minimum wage to pay employees, which can vary by state and local government. High-cost cities in particular have established their own minimum wage standard that is more than double the federal minimum in an attempt to provide a reasonable living wage.

   • Fair Labor Standards Act (FLSA) - sets a minimum wage or “floor” for wages. It also has an overtime provision which requires that 150% of hourly wages be paid when hours worked exceed the standard work week.
   • Prevailing wage rate - this is defined as the average wage paid to similarly employed workers in the requested occupation in the area of intended employment.
     
     

2. Labor Legislation. These programs can affect local labor costs and consist of the following:

   • Unemployment Insurance - benefits are provided to eligible workers who become unemployed through no fault of their own. In the U.S., the employer pays for unemployment insurance, which can cost 6% or more of payroll (depending upon the experience rating of the company). These programs are administered at the state level.
   • Workers' Compensation - this is insurance that is paid for by the employer and provides a cash benefit or medical care for workers who are injured or become ill as a direct result of their job. These programs are also administered by each state.
     
     

   Strategic decisions related to business operations and labor costs will consider the statutory benefits requirements as part of the "total cost" of doing business in the specific geographic area. The higher the benefit level of these regulations, the greater the labor costs, and perhaps the fewer employees the company can afford to hire. This may deter companies from establishing a presence in an area and hire a local workforce unless more compelling business reasons exist.

3. Taxes. State and local corporate tax policy can have an impact on retaining and attracting businesses, either corporate headquarters or production facilities. This is especially true of large organizations that have options for where they can locate. Salary and labor supply and demand in an area can be impacted by these decisions.

Strategic decisions related to business operations and labor costs will consider the statutory benefits requirements as part of the "total cost" of doing business in the specific geographic area. The higher the benefit level of these regulations, the greater the labor costs, and perhaps the fewer employees the company can afford to hire. This may deter companies from establishing a presence in an area and hire a local workforce unless more compelling business reasons exist.