Financial markets remain jittery at the prospect that a tight job market could push up labor costs and reignite inflation, but several economists say there is little cause for worry.
"Fears of an explosion in wage inflation, driven by the lowest unemployment rate for a generation are hugely overdone," according to Ian Shepardson, chief economist at HSBC Markets Inc.
Nevertheless, this anxiety has contributed to daily swings in excess of 100 points for the much-watched Dow Jones industrial average on eight occasions since late July-or nearly one of every four trading sessions.
Much trepidation arose from the Teamsters Union's strike against United Parcel Service. The settlement that followed was seen as a victory for workers and hailed in some quarters as a turning point for the declining union movement.
However, chief economist Rosanne M. Cahn of Credit Suisse First Boston Corp. noted that "the full-time wage gain of 2.9% per year was not inflationary, nor was the part-timers' increase, considering their base pay had not risen since 1982."
In general, she said, "wage inflation has been remarkably quiescent in the face of tight labor markets because workers are not organized to take advantage of their scarcity." The level of unionization in this country has dropped dramatically during the past several decades.
"Union power can be exerted only during contract negotiations," Ms. Cahn noted, and the schedule of expiring contracts "suggests little scope for militancy top spread."
The largest number of contracts involves the United Food & Commercial Workers union, but wage and benefit increases have been mild in its recent deals, and that trend is likely to continue, she said.
The Communications Workers of America has contracts expiring next summer. It struck AT&T nationwide in 1983, but that was before the Bell monopoly was dismantled and deregulation began. In its most recent contracts, wage increases averaged 2% to 3%, and cost-of-living increases were eliminated.
As for the Teamsters, the union is unlikely to score again when the National Master Freight Agreement expires next March.
Teamster membership now comprises less than 10% of total trucking and warehousing employment, Ms. Cahn noted.
More than just reduced union leverage could lie behind the benign wage environment. "Tight labor markets are not inflationary because global competition is keeping a lid on prices and lowering workers' inflationary expectations," said Edward Yardeni, chief economist at Deutsche Morgan Grenfell Inc.
And if union power does increase, at least one observer, chief economist Mickey D. Levy of NationsBanc Capital Markets Inc., is not overly concerned.
"Contrary to conventional wisdom, an improved bargaining position for labor may point the way, not to higher inflation and interest rates but eventually to lower real interest rates and bond yields," he said.
High real rates are one sign of the current strong productivity environment, he said. "If reduced flexibility in labor markets results in less efficient production, economic growth would be constrained, putting downward pressure on real interest rates," he said.
At that point, it would be appropriate for the Federal Reserve to reduce rates in order to maintain a stable monetary policy, he pointed out.
