Is worker power on the rise?

| Podcast

In this episode of McKinsey Talks Talent, McKinsey talent experts Bryan Hancock and Bill Schaninger explore the shifts in employee agency in a labor market heavily affected by the COVID-19 pandemic and the Great Attrition. The following transcript has been edited for clarity.

The McKinsey Talks Talent podcast is hosted by Lucia Rahilly.

What’s different—and for whom

Lucia Rahilly: Bryan, give us your best quick and dirty on this spike in quitting that emerged so unexpectedly over the course of the pandemic. What’s the state of the labor market in the throes of the Great Attrition?

Bryan Hancock: What we’re seeing in the labor market is that there are a record number of job openings, and people are continuing to quit. And when you look at the people that are continuing to quit, they’re willing to quit even without another job in hand.

That means that the labor market becomes even more tight because you have people moving to the sidelines. Until you get some of those people moving back from the sidelines into the labor market, we’re going to continue to see some of the tightening that’s happening.

Lucia Rahilly: Is the tightness in the labor market eliciting wage growth?

Bryan Hancock: It is, and we’re seeing wage growth among hourly workers who are at the lower end of the wage scale. That is where some of the bigger growth is happening. There is expectation of it going up, but it’s not necessarily double-digit wage growth.

Lucia Rahilly: Folks leave jobs for very different reasons. How might worker power, or perceived worker power, differ among demographics?

Bryan Hancock: Knowledge workers with skills that are easily portable across employers and geographic locations have power. If I’m a tech worker based in New York, and it’s easy for me to have a lot of my work done remotely, I’ve got a nationwide labor market. So I now have the power to walk away from my employer in New York and join an employer in Illinois, in Colorado, in Arkansas. The national labor market is open to me.

What we’re seeing is a bifurcation, or continued bifurcation, of the labor market, where knowledge workers can truly access a national labor market and therefore say, “This is how I want to work.”

Folks that are in jobs that require you to be in person, such as service-related jobs, are still facing very local labor markets with very different dynamics than that of knowledge workers. And people in locations where there is still not enough work to go around are seeing a very different reality than those who can access the international labor market.

Bill Schaninger: There’s a classic question, do you take work to people or people to work? The bulk of the workforce is still people to work—you’ve got to go put your hands on equipment or directly serve someone. But all the press and all the media have largely been around the creative class and the knowledge class.

There’s already a bit of a fissure between two groups of employees. Some people are saying, “I don’t know if I want to come in.” Others who haven’t stopped going in to work for two years are saying, “Yeah, I’ll tell you about not wanting to go in.” Workers who have continued going in to work, to either work with equipment or serve customers, and knowledge workers have different amounts of power.

In both cases, the employers are throwing money at the workers and missing the mark. The actual conditions are not any better.

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Higher wages, higher expectations—on both sides

Lucia Rahilly: Do we expect wage growth for retail, restaurant, and hospitality workers to be short term because they’re filling a short-term gap in the labor supply? And then to even out and slow down again?

Bill Schaninger: I’m curious to Bryan’s thoughts on this, just because he serves folks who are in this space. My gut instinct, from an economic standpoint, is this will likely ratchet up. It’s very hard to bring wages down. So I feel like the labor market is forcing us to resolve things around minimum wage.

Bryan Hancock: I do think that we’re seeing frontline employers have an increasing expectation with the increasing wage. And what you’re seeing is that there’s going to be an investment in the higher expectation that comes with that wage.

And what we have to be careful of and watch out for is, as that comes up, are we skilling people into those roles? And what do we do with the folks who aren’t at that skill level? Because right now, there are still six million people who are disconnected from work who would like to be working. And there are another four million people who are working part time that would like to be working full time.

Lucia Rahilly: The job market was really tight prepandemic. Why do you think we didn’t see wage growth of this kind prepandemic? What’s different?

Bryan Hancock: When people working in hospitality were unable to work due to the pandemic, they thought about what else they could be doing. When hiring came back at their previous jobs, they said, “Actually, I have a great job at the Amazon distribution center.” Or “I got a job somewhere else.” It is some of the hospitality positions that are the most in demand and where some of the biggest imbalance is today.

I think employers have a unique opportunity to say, ‘We see you. We hear you. And we understand what’s going on and we want to meet you there.’

Bill Schaninger

Lucia Rahilly: Employers are now drawing people back to the office, but there’s a segment of employees who are stubbornly resisting resuming their commute or whose configuration of needs at home means that it will be really hard for them to return to the office. How do you think that particular knot will unravel?

Bill Schaninger: I think it’s a unique opportunity for employers to say, “We see you. We hear you. And we understand what’s going on and we want to meet you there.” The worst thing employers can do is come out with a mandate, whether it’s the five-day return to how it was or the dressed-up four-day mandate.

If we’re going to meet employees as people and accept that we all have lives that are bigger than work, then it might not be unreasonable to say that one day a month is for the company, and maybe two days a month are for the unit. And the rest of your schedule is determined by who you’re working with.

If people go back, they will remember that they like the people they work with. They might actually want to have lunch with them or go get a beer or a drink after work. The social component is lacking for many people.

Lucia Rahilly: What are we seeing from the McKinsey research on folks who voluntarily left the workforce? Are they coming back, or are they staying out?

Bryan Hancock: About a third are coming back to full-time work. But the remainder are either coming back to part-time work or not coming back at all. So we are seeing that folks that have left voluntarily aren’t necessarily just hopping to the next job. They’re waiting to see what works right for them. What’s the right situation for them, their family, and ultimately their career? They’re not rushing into it.

Women are still disproportionately caregivers, so they’re thinking about the cost and availability of childcare and whether or not COVID-19 is going to come back. So until we get women back in the workforce and finding jobs that they’re excited about, we’re going to continue to have shortages in many of our frontline roles.

Bill Schaninger: Employers are missing workers who have retired early. But if they were to say to those workers, “Come back for 20 hours a week. Hang out with your friends and get your medical benefits.” I think you’d have them coming back in droves.

The majority of the workforce has said, “No, we’re not going back.” And I think maybe that’s the real power. They aren’t going back. And the employers have to decide whether or not they like the new terms.

Is worker power increasing? It depends

Lucia Rahilly: We have seen consumer prices shoot up over the past year at the fastest rate in the past four decades. How much is inflation eating away at employees’ wage gains?

Bill Schaninger: Straight economics is, if inflation is higher than wage gains, you’re losing ground. That’s just straightforward. And particularly on food and gas, right? You see that in the basket of goods, food and gas drive a lot of it. And they’re both skyrocketing.

Lucia Rahilly: We’re seeing a lot of media coverage on increasing employee activism: strikes, walkouts, instances of individual retail stores that are voting to unionize. But membership in unions has been on a downward trajectory.

How meaningful, then, is what is being reported as a shift in employee agency? And over what time frame?

Bryan Hancock: Overall, is there more power to workers in the labor market? I think the jury’s really out. To your point, unionization is at an all-time low.

We did a survey last year and found that 27 percent of workers reported their job being via the gig economy. And of those, the majority were looking for full-time employment. You still have these workers that are feeling connected to the work platform or gig economy and don’t feel a lot of agency or control.

So we are seeing some indications of some increased worker power in some pockets. But the overall trends are still, if anything, away from unions and toward these work platforms, which, while they are evolving, still haven’t for many workers met all of their needs.

Bill Schaninger: You could argue that the migration toward gig or platform or side hustles is rather individualistic for the employee. The whole point of the platforms was so you could be your own contractor, your own boss. On the opposite end of that would be if the workers ever decided, hey, we have an opportunity to really change the face of the workplace.

Lucia Rahilly: And do you think employees have that power now?

Bryan Hancock: If I’m a knowledge worker who doesn’t like the culture of my job and doesn’t like what I’m doing and doesn’t like management, I have two options. One, I can get another job. Or I can turn to my coworkers and say, “Hey, something’s not right here. Let’s band together and let’s figure it out.”

It’s easier to walk across the street and get another job. What we’re seeing in the labor market—because it is fluid enough that you don’t have people who feel trapped to a particular employer—is that people would rather leave than organize.

Lucia Rahilly: We’re talking primarily now in a US context. Is there anything to be learned by looking at the UK and Europe on collective bargaining or organization?

Bill Schaninger: Well, the legislative environment is dramatically different. In Germany, you need to have employees on the board. In Holland, you couldn’t do a major change without seeking the counsel of the works council. So there, the rules are just laid out that there is, I wouldn’t say parity, but it’s for sure shared governance.

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Lucia Rahilly: Bryan, you alluded to folks who might live in a small town where there’s only one employer and therefore may have difficulty getting other jobs. Say something about industry concentration, how that’s changed in recent years, and what the effect is on wages and employee power.

Bryan Hancock: There are still factory towns in pockets of rural America. But these factories are changing. The level of automation is going up. The nature of the roles are changing. So we are seeing what used to be a 5,000-person factory being a 3,000-person factory, with the remaining work being higher skilled.

And then you are also seeing, in terms of industry concentration, a bit of a concentration on the platforms, where there’s a return to scale. If you're going to drive, you probably have two big options. If it’s a food delivery platform, there are a few more. But there is a set number of platforms that exist out there that you can hook into.

Lucia Rahilly: Given increasing industry concentration, would you say that monopsony power is on the rise?

Bryan Hancock: It’s worth asking the question, “Hey, is there really a limited number of buyers for labor? And is that limited number of buyers dictating the conditions?” That’s the definition of a monopsony. In some markets, the answer is yes. In many, it may be claimed there’s monopsony power, but not really. But in some markets, yes. Absolutely.

Lucia Rahilly: And how does monopsony power typically affect wages?

Bryan Hancock: Well, if you’re the only person buying labor, you get to set the terms for that market. So until there is some form of people leaving that labor market to an adjacent one, you get to set them. The economic theory would be that it would depress wages because there’s not a competition for them.

Bill Schaninger: It’s just interesting. Historically, you would have seen a lot more movement, labor mobility. I grew up in Lehigh Valley, [Pennsylvania]. My dad was a printer. And he continued to go south toward Philadelphia because every move south came with seventy-five cents or a dollar an hour more.

Overall, is there more power to workers in the labor market? I think the jury’s really out.

Bryan Hancock

Making work better—together

Lucia Rahilly: How do you think employers should reframe their relationship to their employees?

Bill Schaninger: It’s an interesting conundrum. I would hope that for the health of the organizations, they would take it as an opportunity to reset the nature of the exchange and not make it so transactional and actually be thoughtful.

I view it as an opportunity more than anything. Let’s reset the nature of our exchange. It’s not just an employer writing an employee a check. It’s actually a partnership. I don’t know that everyone’s going to take it up on that. But I do think from an employer brand standpoint, there’s an opportunity there.

Lucia Rahilly: Bill, let’s talk about the “how” on that. We’ve seen businesses, for example, commit to ESG [environmental, social, and governance] goals, to stakeholder capitalism, at least on paper. But, obviously, maximizing shareholder value has been the norm and the imperative for decades now, and changing behavior is hard. Give us some examples of what the kind of rebalancing you describe might look like in ways that could prove beneficial both to employers and to employees.

Bill Schaninger: We have these people who are in charge, notably people leaders in the middle, who for the better part of two and a half decades have been on the receiving end of a hammering. For the better part of two and a half years, we have grown leaders who are incapable of creating better connection to purpose and actual coaching. We haven’t grown them to be capable. So it would require a real investment to make them decent leaders—selecting differently, being more thoughtful about who gets to lead for you.

If we don’t start there, we’re just making promises and then putting employees right back in with the lousy bosses. I worry quite a bit about that. I think that’s actually brand destroying. What do you think, Bryan?

Bryan Hancock: This is where the intersection of what’s good for the company and what’s good for the worker is going to come together. If you can improve the day-to-day work experience of millions of employees by making sure they have better managers, making sure that they feel more productive, that they feel more aligned with the value that they’re adding day to day, that’s going to be good for the employee and the employer.

What drives me crazy is when I hear an executive say, “This is just a near-term employee power thing.” No, it’s not.

Bill Schaninger: You know, in all the data on life satisfaction, the number-one driver is work. And it has to do with the boss at work. It’s remarkable. If you spend the bulk of your waking hours at work, that relationship singularly drives so much of whether or not you’re happy.

Bryan Hancock: It’s true. On the front line, where automation is taking away the dull and the dangerous, the repetitive work, people are no longer expected to work like machines. People are expected to be people, have interactions, do problem solving, engage with customers. So even in the frontline context, organizations need to get people back to the truly human. And to do that, you have to have great managers.

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