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On Labor Day, a grim picture for workers

September 2, 2011: 5:00 AM ET

Two years after the recession ended, U.S. workers still face a grim job market. And with tepid economic growth and an election year breeding uncertainty, companies are likely to have the upper hand for some time. 

By Katherine Reynolds Lewis, contributor

FORTUNE -- It's a tough time to celebrate the American worker. This coming Monday marks the third consecutive Labor Day with an unemployment rate topping 9% and 14 million Americans looking for work. The median unemployed worker has been jobless for five months, and the government announced that the economy added no jobs in August.

The past year has been especially tumultuous for the labor movement, from Wisconsin Governor Scott Walker's defanging of his state's public-sector union to the recent strike by 45,000 Verizon (VZ) that ended with a whimper instead of a bang. Even leaders in reliably Democratic states like California, Connecticut, and New York are wresting concessions from government employees in the face of local budget deficits for the foreseeable future.

The loss of workers' negotiating power is unlikely to turn around until the economy rebounds in earnest, according to labor market experts. With millions of people marginally employed and corporate America posting record profits, employers are likely to enjoy the upper hand for some time to come.

"The bargaining power of American workers is in deep decline," says economist Gary Burtless of the Brookings Institution. "Economists are looking around for what is the source of growth that would cause businesses to want to expand in the United States and to add more to their payrolls." But, he notes, "It's hard to see likely candidates."

The heart of the U.S. jobs problem is that tepid economic growth is making employers unwilling to commit to increasing headcount. Hiring is barely keeping up with the number of new workers entering the labor force, while remaining below levels needed to absorb the millions laid off in the recession.

"The demand for products is weak, and because of that, employers' willingness to hire is weak, so there is a lot competition for positions," says Robert H. Topel, a University of Chicago economics professor, who notes that previous recessions were followed by a sharp rebound in growth.

"The most surprising thing in the last 12 months in the labor market," he says, "is that economic growth has been as weak as it has been and job growth has been as slow as it has been."

Profits without jobs

The one bright spot is corporate profits. They were the only numbers the Bureau of Economic Analysis revised upward in its estimates of gross domestic product for 2010,  as slowly rising sales, combined with leaner payrolls and lower wages, boosted companies' bottom lines. "They earned 10% more in an economy that turned out to be weaker than we thought," says Burtless. "Corporate profits have exceeded the high point they reached previously."

Businesses are sitting on over $1 trillion in cash, but they're not willing to spend it on hiring because of uncertainty over the economy and U.S. policy, according to Martin Regalia, chief economist at the U.S. Chamber of Commerce, which represents more than 3 million employers. Corporations want a little clarity, he says: "As soon as businesses start to see the market working and the economy working, they're going to want to step in. The money is there to finance the expansion; what we need is the spark."

But with a contentious election year on the horizon, don't expect that spark or any clarity any time soon. "In all likelihood," Regalia acknowledges, "it's going to take some time to get that aspect settled out in any kind of definitive way."

The future of unions

The stakes couldn't be higher for labor in the 2012 election, according to Richard Trumka, president of the AFL-CIO, which represents over 12 million unionized workers. While Trumka believes the pushback on public-sector union power in states like Wisconsin and Ohio was "overreaching" and "unprecedented," he says the grassroots response is revitalizing the union movement: "People from all walks of life and all political backgrounds came together and said, 'This is outrageous. This is overreaching. We didn't vote for it; let's put an end to it.' "

But many economists say the recession and anemic recovery have tilted the balance of power away from unionized employees. "The recession accelerated the trend toward a stronger bargaining position for company managers and business owners and a weaker bargaining position for active workers," says Burtless. "The most vivid illustration is the extremely weak bargaining position of public employees."

Whether that trend turns around will depend on the path of economic growth and who wins the 2012 elections. "What's at stake is the future of the country and whether we're going to have a country that continues to bifurcate, where you have rich and poor but no middle class," Trumka says.

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About This Author
Katherine Reynolds Lewis
Katherine Reynolds Lewis
Contributor, Fortune

Katherine Reynolds Lewis is an award-winning Washington D.C.-based journalist specializing in finance, work, and family issues. She has written for publications including the Fiscal Times, Money, MSN, the New York Times, Parade, Slate, USA Today magazines, and the Washington Post Magazine. Previously, she worked as a national correspondent for Newhouse News Service and reported for Bloomberg News in Washington. She began her career in New York at the Bond Buyer, after graduating from Harvard College with an A.B. in physics. She is active in the Asian American Journalists Association and serves as founding co-chair of the AAJA Digital Group.

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