Organizers from Teamsters Local Union 362 rally outside an Amazon facility to get support and distribute information to Amazon workers, in Nisku, Alta., on Sept. 14, 2021.JASON FRANSON/The Canadian Press
Workers are on the march. Investors should pay attention.
Amazon.com Inc. workers in New York voted last week to join a union, the first at one of the company’s U.S. facilities. Meanwhile, Starbucks Corp. is grappling with a wave of union organizing that began last year with a location in Victoria and has since spread to several of its U.S. locations.
Alphabet Inc., parent of Google, is also feeling the first faint stirrings of labour unrest. The Alphabet Workers Union formed a year ago and in March a handful of Google contractors in Missouri became the first workers with bargaining rights under the union.
Even Uber Technologies Inc., king of the gig economy, can see which way the wind is blowing. It signed an agreement in January that gives some 100,000 Uber drivers and delivery people in Canada the right to be represented in dispute resolution by United Food and Commercial Workers Canada, a large private-sector union.
How far unionization will spread is impossible to say but it is clear that trends are shifting. After nearly four decades of waning influence, organized labour is showing early, tentative signs of resurgence. Its recent wins may be small in absolute terms, but are coming in areas that were once considered off-limits to unions – notably, technology companies.
Many people would agree that workers have a strong case to make for greater rewards, especially at a time of ripping inflation and soaring home prices. However, investors may want to spend a few minutes pondering what a stronger labour movement would mean for the companies in their portfolios.
Even relatively modest successes for unions could dent companies’ bottom lines. Morgan Stanley analysts wrote in a note this week that every 1 per cent of Amazon’s front-line work force that unionizes means an incremental US$150-million of annual operating expenses.
One sign of how seriously some companies are taking the threat is the reappearance this week of Howard Schultz as interim chief executive officer of Starbucks. Mr. Schultz, who ran the coffee chain between 1986 and 2000 and again from 2008 to 2017, promptly suspended the company’s stock repurchase program and told a town-hall meeting with employees that companies are “being assaulted, in many ways, by the threat of unionization.”
How accurate his description is depends on your definition of assault. The share of workers that belong to unions in the United States plunged from 20.1 per cent in 1983 to 10.3 per cent last year. In Canada, the unionization rate declined more modestly, falling from 37.6 per cent in 1981 to 28.8 per cent in 2014, according to Statistics Canada.
Chief executives at large U.S. companies have done extraordinarily well during this patch of declining union influence. Last year, the median pay for chief executive officers at the biggest U.S. companies stood at 245 times that of the median company employee, according to compensation analyst Equilar.
The situation in Canada is not that different. The average CEO made 202 times the average worker’s compensation in 2019, the Canadian Centre for Policy Alternatives calculated in a report last year.
To be fair, shareholders have also benefited from labour’s declining share of the economic pie over the past two decades. “As the labour share has fallen, corporate profit margins have increased sharply,” a report from a team of Morgan Stanley analysts noted last year.
Their report, What the Workers Economy Means for Margins and Markets, argued that a reversal of the trend could pose a risk to U.S. stock prices. Restoring labour’s share of the economy to its 1990s level would shrink the profit margins of non-financial companies by about a third, the analysts calculated.
Is such a turnaround likely? Labour’s recent wins may simply be the result of tight labour markets in the wake of the pandemic. If the economy weakens, or if inflation subsides, the desire to organize could fade.
But there are reasons to think it won’t. One factor is demographics. Prime-age workers – those between 25 and 55 – are becoming an increasingly rare commodity in both Canada and the U.S. because of aging populations. This gives workers power they didn’t have a generation ago.
Another factor is geopolitics. As frictions with China increase, many companies are voicing a desire to shorten supply chains and bring more essential activities back to North America. If this reduces the incentive to export work to lower-paid Asian countries, Canadian and U.S. workers could gain more clout.
Granted, this is far from a sure thing. Companies could decide to invest more in automation than in people, or turn to Mexico instead of China as a manufacturing hub. But investors should be aware of both the risk and the potential that would accompany any reversal of the trends that have prevailed in recent decades.
The Morgan Stanley report of a few months ago urged investors to recognize the possible threat to profit margins in sectors such as retailing and consumer services. It saw sectors such as utilities, insurance and energy as being better insulated from labour pressures. As earnings reports roll out over the next year, shareholders may want to pay extra attention to how quickly worker compensation is rising at their favourite companies.
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