UPS-Teamsters deal threatens to keep inflation elevated

UPS and the Teamsters reached a deal on Tuesday to avert a potentially catastrophic strike, but the new five-year contract between the two sides also threatens to keep inflation abnormally high.

Under the tentative agreement, current full- and part-time UPS employees represented by the union will receive a $2.75-per-hour pay increase this year and $7.50 more per hour over the length of the contract. 

The deal is worth about $30 billion, according to Teamsters General President Sean O’Brien. 

The concern now is that the pay increase included in the deal risks creating a wage-price spiral, in which prices march higher and workers demand additional compensation in order to keep pace. That, in turn, can push prices even higher as companies look to offset the steeper labor cost. 

UPS AND TEAMSTERS UNION REACH AGREEMENT ON NEW CONTRACT TO AVOID POTENTIAL STRIKE

"I worry about what the resolution will mean for wage growth," Nationwide chief economist Kathy Bostjancic told FOX Business. "I think that if wage growth remains fast and elevated, it prevents inflation from coming down as quickly as the Federal Reserve would hope." 

Pay increases will also put more money into the UPS workers' pockets, allowing them to spend more and accommodate higher prices that companies are still putting into place.  

"The UPS and Teamsters agreement both reflects and adds to further upward wage pressure in the services side of the economy," Bostjancic said. "It could permeate to other industries as well. The wage concessions look quite large."  

UPS STRIKE COULD BE THE MOST EXPENSIVE IN 100 YEARS

The Federal Reserve has continued to caution about the possibility of a wage-price spiral, with Chairman Jerome Powell repeatedly speaking about the risks of rapid pay increases.

"I think many, many analysts believe that it will be an important part of getting inflation down, especially in the non-housing sector, to getting wage inflation back to a level that is sustainable, that is consistent with 2% inflation," Powell told reporters in June.

The Teamsters, which represents about 340,000 workers, still need to ratify the agreement, a process that could take about three weeks. If the members vote to reject the deal, the union would go on strike in late August, dealing a blow to the already fragile economy. 

A recent analysis from the Anderson Economic Group, a Michigan-based think tank that specializes in the economic impact of labor strikes, found the economic losses from a 10-day work stoppage could cost more than $7 billion.

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"The consequences here of this strike would reach every town in America in a matter of days," Patrick Anderson, president of Anderson Economic Group, told FOX Business. 

The $7 billion figure includes UPS customer losses of at least $4 billion and lost direct wages of more than $1 billion. It does not take into consideration strike pay, unemployment benefits, unemployment taxes, income taxes, government spending or settlement bonuses. 

Should the UPS workers walk out, it could also mean package delays for consumers and small businesses across the country, including Amazon orders, the delivery of critical medical supplies and electronic components needed for day-to-day work. 

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In 2021, UPS commanded about 37% of the parcel delivery market by revenue, followed by FedEx at 33%, the U.S. Postal Service at 17% and Amazon Logistics at 12%, according to data from the Pitney Bowes Parcel Shipping Index.