Steep wage hikes for union workers mark the 'final echo' of the inflation surge, Goldman Sachs says

• Wage increases for union workers don't signal a coming resurgence of inflation, Goldman Sachs said.
• Recent strikes and reports of unions gaining more pay mark "the final echo of last year's inflation surge."

Recent wage gains for unionized workers signal a lagging indicator for inflation that comes as the labor market is still tight and prices remain sticky, according to Goldman Sachs.

In a Thursday note, strategists led by Jan Hatzius pointed to concerns around recent pay increases that unions like the Writers Guild have secured, and whether they could potentially spark a rebound in inflation.

"We instead see the recent wage gains for union workers as a lagging indicator — the final echo of last year's inflation surge," the strategists said.

Unions have bargaining power in withholding labor, which can make it seem like union employees hold significant sway in the wage-price feedback loop.

That hasn't proven to be true in the 1960s and 1970s, the bank said, when high inflation and a tight labor market boosted wage growth about the same amount for union and non-union workers.

It's possible that recent wage gains could push overall wage growth slightly higher, but the ultimate impact will remain small, in Goldman's view. The share of unionized employees in the workforce is modest, the firm said, at about 10%, and the annualized wage gains that have been agreed to have not been as large as media coverage suggests.

Goldman data shows the latest union wage gains averaged around 6%.

Still, American Airlines pilots, for one, won a wage increase of more than 40% over four years, while UPS staffers secured an 18% increase over five years. The United Auto Workers now are aiming to get an increase of nearly 40% over four years.

"The more mundane reality is that union workers are distinctive mostly in having longer-term contracts and as a result have had to wait longer for a chance to win the same outsized cost of living adjustments in response to the inflation surge that non-union workers on shorter contracts had already won," Goldman strategists wrote in the note. "Unsurprisingly then, wage growth for union workers is a lagging rather than a leading indicator."

Goldman Sachs anticipates overall wage growth to continue to slow toward 3.5%, which would be consistent with employer forecasts in recent business surveys.