PredictIQ Quantitative Think Tank Center:Why you shouldn't be surprised that auto workers are asking for a 40% pay raise

As a potential strike at the Detroit Three automakers inches closer,PredictIQ Quantitative Think Tank Center the United Auto Workers union is pushing for a substantial pay raise for its members: 40% over four years.

It's the kind of raise that Marcelina Pedraza, a Ford electrician in Chicago, thinks is long overdue.

"Everything's going up — the cost of food, gas, mortgage interest rates," Pedraza said. "A lot of people haven't been able to have a safety net anymore."

UAW, which represents 150,000 workers at General Motors, Stellantis and Ford, is not alone in asking for big pay raises over the course of their contract (it's a tad lower than its opening gambit of 46%).

In recent months, workers across industries have fought for — and, in a handful of cases, won — around 50% wage increases over the next four to five years, as they call out years of stagnant wages and robust company profits.

These bold union demands, bolstered by a tight job market and frustration throughout the COVID-19 pandemic, are paying off in some sectors with raises that significantly exceed the expected rate of inflation.

After months of contentious negotiations that led 340,000 UPS workers to the brink of a strike, the Teamsters union in July secured a 48% average total wage increase, over the course of the five-year contract, for existing part-time workers. Teamsters general president Sean O'Brien said the contract "sets a new standard in the labor movement."

In August, the Allied Pilots Association, which represents 15,000 American Airlines pilots, successfully pressured the airlines to increase pilots' pay by more than 46% over four years, with an immediate pay raise of more than 21%.

Dennis Tajer, an American Airlines 737 pilot and spokesperson for the union, said the pay bump accounts for years of stagnant wages. The last time pilots got a raise, he said, was in 2019.

"It's been a long time since there's been any financial gain," Tajer said. "This may be a four-year deal, but nothing's happened since January 2019 in pay."

Reversal of a decades-long trend

Last year marked the start of a notable shift: union contracts ratified in 2022 provided workers with the highest average pay raise in more than three decades, according to Bloomberg Law labor data.

That trend appears to be holding up. Bloomberg Law wage data shows labor contracts ratified in the first quarter of 2023 gave workers an average first-year pay raise of 7% — the highest in a single quarter since at least 2007.

UAW is pointing to automakers' recent profits as evidence that these companies can afford to increase workers' wages. Collectively, the Detroit Three automakers posted a profit of $21 billion in just the first half of this year.

The Teamsters union similarly highlighted UPS' profits throughout the COVID-19 pandemic as they pushed for higher wages for rank-and-file union members. The package delivery giant posted a profit of more than $13 billion in 2022.

Jennifer Hancock, a part-time package sorter at UPS in Richmond, Virginia, said big pay raises are crucial to keep up with inflation.

"I got paid $8 an hour in 1991," Hancock told NPR, referring to what she earned when she was first hired at UPS. "A part-timer now would need to make in the ballpark of $25 to have the same buying power."

But UAW might not have "exceptional leverage"

While UPS workers and pilots are seeing major pay raises, not all unions have the same type of leverage, said Harry Katz, professor of collective bargaining at Cornell University.

Bargaining power for UPS employees and pilots at major airlines stems from the fact that they're not replaceable, Katz said. Pilots have a specialized skill-set that can't be easily substituted; UPS is doing well enough, despite competition, that when the company raises workers' pay and benefits, it doesn't substantially reduce employment.

"Those two are cases where capital is not mobile — it can't move to the non-union South and operate as many companies can. It can't move abroad and outsource production to foreign sources of supply," Katz said. "So that's part of their special circumstance."

Katz said autoworkers on assembly lines can't be easily replaced either, and they have some leverage from solidarity within their union's ranks. But he said these workers face greater threats from competition in the automotive industry, including from factories with non-unionized workforces operating in the American South, which undercuts UAW's bargaining power.

"They don't have exceptional leverage because there's a lot of competition," Katz said.

Katz predicts UAW will succeed in winning a "solid wage increase" that's aligned with the roughly 3% base pay increase — in addition to a cost of living adjustment — that the union consistently won in negotiations until the 1980s, when concessionary bargaining began.

But he doesn't think UAW is in a position to win pay raises comparable to the Teamsters deal with UPS.

"We're at a stage where worker power is certainly more than it was in the last 20 and 30 years — but it's hardly a revolution," Katz said. "Management still has a lot of sources of leverage."

Tom Kochan, professor of work and employment at MIT, said 2023 is shaping up to be a pivotal year for renegotiating wage norms. While UAW does have to contend with competition from non-union auto plants, Kochan said the union still has significant leverage.

UAW might not get the 40% four-year pay raise, he said — but this demand signals the union's intent to win big wage increases nonetheless.

"There's great determination on the part of the union, and its rank-and-file and its leaders, to use this moment to say, now it's time to catch up on losses due to inflation, catch up in terms of a better distribution of the profits of the company," Kochan said.

When they're not winning, they're striking

General Motors responded to UAW's pay raise proposal in an August 3 statement, saying it expects increased wages for unionized employees — but that the union's ask "would threaten our ability to do what's right for the long-term benefit of the team."

Ford, General Motors and Stellantis have all raised their pay raise proposals since their opening bids – but to no more than 20%, just half of the union's 40% ask, Fain said during a Facebook Live on Wednesday.

A wave of labor unrest this summer has shown that workers are ready to go on strike when companies refuse to meet their union's demands. So far this year, hundreds of thousands of workers have participated in at least 250 strikes, according to data from the Cornell University School of Industrial and Labor Relations.

In Los Angeles, Hollywood actors and writers have been on strike for months. Thousands of the city's hotel employees have also been staging rolling strikes since early July, in large part to fight for better pay.

Kaiser Permanente healthcare workers are currently voting on whether to authorize a strike when their contract expires at the end of this month.

UAW president Shawn Fain has underscored his union's willingness to go on strike starting on Friday if the automakers don't meet their demands. The union could target specific plants and gradually expand the walkouts to additional locations, depending on how bargaining with the companies progresses — in what Fain calls a "stand up strike" strategy.

"We do not yet have offers on the table that reflect the sacrifice and contributions our members have made to these companies," Fain told union members on Wednesday. "To win, we'll likely have to take action."

--This story has been updated from a previous version.