Potential Labor Strikes Worsen Companies’ Inflation Struggle
Potential Labor Strikes Worsen Companies’ Inflation Struggle

By Fan Yu

Businesses have already been struggling with inflation for more than a year. But this summer, the biggest wave of labor strikes in more than 50 years will further complicate their inflation fight.

Almost 700,000 workers, across several companies in different industries, are threatening to go on strike this summer in an effort to secure higher wages and more benefits. In all, 2023 is shaping up to be the biggest strike year since the 1970s.

Two strikes are already occurring in Hollywood, with the writers’ and screen actors’ guilds both walking off their jobs by July in the first twin strike in Hollywood in six decades. Together, these strikes could prove to be absolutely devastating for the media and entertainment industry.

Now, the Teamsters union at logistics giant United Parcel Service (UPS) and the United Auto Workers union at Detroit’s “Big Three” automakers are likely to join them soon in what Bloomberg News called a “Summer of Strikes.”

Unions, which have dwindled in importance over the last few decades, are ready to test their clout just as corporate earnings wobble and companies are wrestling with high inflation and an economic slowdown.

Why Is This Happening?

At a macro level, more than two years of negative real wage growth have hurt middle-class workers. Despite modest wage growth over the last few years, recent wage growth has not kept up with inflation, which has been at multi-decade highs.

And companies have not been able to meet union wage demands as deadlines for new multi-year labor agreements near. While the companies potentially impacted by the strikes differ, all are facing economic and financial headwinds.

Hollywood studio profits have been lowered by secular consumer shift from linear TV to streaming. In a report from late July, rating agency Moody’s said the media and entertainment industry’s eventual new contracts with the actors and writers guilds—and the contract with the Directors Guild—could add between $450 million and $600 million in costs to the sector as a whole. The analysts expect companies with network cable delivery, which relies on having new content, such as Paramount and Warner Media, to be among the most negatively impacted by a prolonged strike. On the other end of the spectrum, streaming companies such as Netflix, which can recycle existing content and don’t rely on advertising, can better withstand a protracted labor dispute.

UPS does package deliveries and faces an uncertain economic environment going forward. A key issue is significantly increasing part-time workers’ hourly wages to parity with full-time workers.

Obviously, a firm that handles almost 30 percent of all package deliveries in the United States is critical for the country’s economy. The company, for its part, has been training non-union workers to minimize disruption. And businesses relying on UPS for deliveries must look for alternatives such as using FedEx and the United States Postal Service.

UPS’s total compensation and benefits expense in the first quarter 2023 was 50 percent of its total revenues, which has already increased by 2 percent from Q1 2022 and by 1 percent from Q4 2022.

In Detroit, United Auto Workers is gearing up for a labor fight as its U.S. contract with Ford, General Motors, and Stellantis (formally known as Chrysler) is set to expire on Sept. 14. John Murphy, a Bank of America equity research analyst covering the auto sector, wrote in a note to clients last month that there’s a “better than 90 percent” chance of a strike occurring.

The automakers so far have been digging in their heels. They believe union wages are competitive, especially compared to non-unionized U.S. workers at Tesla and other foreign automakers. And the automakers have been spending billions of dollars on modernizing factories and investing in electric vehicle development.

All of the strikes, at least from the vantage point of late July, appear inevitable. And they could have a lingering impact on the workers, the companies, and their investors.

If these strikes end up benefiting the unions, it could galvanize organizing efforts at other companies like Amazon, Tesla, and Starbucks, which have hundreds of thousands of mostly non-unionized workers.

For example, Teamsters President Sean O’Brien already has his sights set on Amazon regardless of how the fight with UPS resolves.

Investors owning shares in companies subject to employees potentially unionizing need to take these additional costs into their investment thesis.

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