This month HUCTW and Harvard officially began negotiations for a multi-year agreement. While a range of issues will be discussed, the pay program and annual salary increases for HUCTW members will be at the center of those discussions. Although there are a number of circumstances that make this round of talks uniquely challenging, one extremely important factor in the this round of negotiations is the inflation rate, which is the highest we’ve seen in over 40 years.
As HUCTW and Harvard enter the talks, it is important that all negotiators have a solid understanding of increases in the cost of living over the last year and their impact on our members’ financial stability and quality of life. As we are negotiating a multi-year contract, it is also important to get a clearer picture of inflation predictions for the next several years.
With this in mind, the University and the Union asked Harvard economists, Jason Furman and Lawrence Katz, to share their insights and forecasts around price inflation, wage growth in the U.S., and the U.S. labor market in a presentation to HUCTW and Harvard negotiators and leaders earlier this month.
Brief Summary of What’s In This Letter
In this letter, we will share some key aspects of Professor Jason Furman’s presentation to Harvard and HUCTW negotiators. The letter is comprised of four sections, including:
- A deeper understanding of our unusually high inflation growth (rising from 1.4% to 7% in 2021, and continuing to grow in 2022), including some important context.
- Jason Furman’s rough inflation forecast for 2022–2025, which predicts that inflation rates will come down somewhat, but still remain relatively high over those four years.
- Professor Furman’s thoughts about what’s causing the rapid increases, and how—even with high prices and a tight job market—the wages of U.S. workers are at a 40-year low.
- Some important member stories from the 2022 HUCTW Negotiations Survey, which illustrate how the inflation rates Professor Furman discussed have affected the day-to-day lives of HUCTW members.
1. High Inflation Growth: 2021 to Date
The most commonly cited measure of inflation is the federal government’s Consumer Price Index (CPI), which collects prices on the typical U.S. consumer’s monthly “basket of household goods”—things like food, housing, clothing, gasoline, electricity—and analyzes the price changes to those goods over time. The numbers we’ve seen in recent news headlines are typically citing the CPI.
Prior to 2021, the inflation grew by around 2% per year for the last ten years (see chart 1 below). But as Professor Furman noted in his presentation, this past year delivered much higher price increases in almost all household cost categories. Even though the first few months of last year started in the 2% range, 2021 inflation rates grew throughout the year, reaching 7% by December 2021 (see chart 1 and chart 3).
Now in 2022, inflation has continued to climb quickly, reaching a 40-year monthly high of 8.5% in March 2022, the highest monthly inflation reading over a 12-month period since 1981 (8.5% is the CPI increase between March 2021 and March 2022—see chart 3 for more details).
As Professor Furman recently the Harvard Gazette, “The inflation data is troubling because the price increases are so broad. For a while last year [in 2021], excuse that, “Ohit’s just car prices going up” or in March, “Oh, it’s just gasoline prices going up.” But now it’s the price of almost everything going up. And so, the broadening of inflation has been one concern. A second concern is that as some inflation rates slow, for example, the price increase of goods has slowed, other inflation has increased. The price of services, especially things like rent, have gone up.”
2. Inflation Predictions: 2022 Onwards
Although Professor Furman told union and management negotiators that he thinks inflation may have reached (or will soon be reaching) its peak, he believes it will remain relatively high in the coming years. His rough prediction for 2022 is an overall inflation rate for the year of 5%, gradually lowering over the next couple of years to 4% in 2023 and 3.5% in 2024 and 2025 (see chart 2 below). He noted that this is higher than what some economic outlets are predicting, but Professor Furman said he believes those outlets are mistakenly applying traditional economic forecast models to a set of circumstances that aren’t following traditional economic patterns.
3. U.S. Wages Are Not Keeping Pace with Inflation
Professor Furman explained that, as the U.S. has emerged from the pandemic, American consumers have shown a much higher demand for goods, which has prompted companies to raise their prices. We are also experiencing a tight labor market, in which employers are posting many more jobs and unemployment rates are unusually low. Based on past economic patterns, these indicators should be followed by substantially higher wage growth for workers. Although pay rates have risen recently across the U.S. economy, lower- and middle-income wages have not kept pace with the higher inflation or the higher demand for staff—and workers are struggling to keep up with rapidly rising costs.
As Professor Furman noted in a recent Wall St Journal Op Ed, “The U.S. economy has been enjoying the fastest job growth in almost four decades. Unfortunately, inflation-adjusted wages are falling faster than they have in 40 years. Millions of new jobs don’t necessarily lead to higher pay for the 150 million workers who are already employed.”
4. What Does This Mean for HUCTW Workers?
In the 2022 Negotiations Member Survey, when asked to share details with us about how rising costs of household goods and services have affected individual members and their families, hundreds of members shared stories about how inflation has noticeably diminished their budgets. Many members report that they have tried to keep their costs in check by making tough choices about their quality of life:
“I recently had to spend almost a week’s pay to put heating fuel in my home. This is double what I paid last year at this time. Also, I have to reconsider going to visit my daughter and grandchildren due to gas prices.”
“We also cannot afford to live closer to campus on my wages and must rent an apartment over an hour from campus. Now with the increase in gas prices, we’re getting squeezed out even from there. In the last few months, the cost just to drive to work each week has gone up to over $100, and because I have to live so far out of town, I can’t take public transportation.”
“My wife and I have gone from living at least somewhat comfortably prior to the pandemic to living paycheck to paycheck. If our rent is raised again, we will be forced to leave our home. I love working for Harvard in my current position, but if the financial insecurity we face continues, I might have to seek more lucrative employment just to get by.”
“I know that we are probably in better shape than a lot of people, but it’s very concerning — and a bit scary — to think that we’re just one emergency (medical, accident) away from not being able to pay our bills. We have no cushion to fall back on.”
In the comments section of the survey, many HUCTW members also reported that they’ve had to eat into their minimal savings, stop contributing to retirement accounts and college savings accounts, or go into debt to keep up with rising prices:
“I am supposed to be starting student loan payments but everything I have had in my savings has gone towards food and gas.”
“For the first time in 10 years, I’ve had to decrease contributions to my retirement account, mostly due to the cost of food and medical items.”
“Although we would be considered “middle class”, we do not have significant savings outside of our retirement accounts. When/if we incur unexpected costs, as we did this year when we needed to install a new heating pump on our furnace or a new faucet to replace a faulty one, it is difficult to pay off, outside of using home equity credit, which just increases our debt. It is difficult to get ahead.”
“My rent went up 30% this year in addition to the rise in the above costs. My salary no longer covers my bills and I am currently taking from savings to cover my rent until I can move.”
As Professor Furman commented in the Harvard Gazette: “Consumers have been seeing their inflation-adjusted pay falling, but they’ve held up their consumption by dipping into their savings. How long will they be able to continue doing that?”
In the negotiations survey, HUCTW staff indicated that dipping into retirement savings and accumulating more debt just to afford basic necessities is an untenable situation. Union members made it clear that they need substantial financial relief—relief above inflation—soon.
“The rising costs/inflation and soaring housing prices make it difficult to even imagine purchasing a place for myself and my child. It has been nice to save on commuting expenses while working from home, however my costs went up in other areas and, without reasonable raises to at least match inflation, I feel I am continuing to tread water. It’s getting to be too much.”
“It is very difficult to actually get anywhere with my savings goals, as so much of my income is going to rent, utilities, food, insurance, with loan payments to be restarted soon on top of that. I was excited about the raise we got in last negotiations, but now I hardly feel my pay rose at all given how much the costs of everything else have risen.”
“Salary increases above inflation are hugely important because without the raise we are simply falling more and more behind, in a perpetual circle of debt.”
“I am living more or less paycheck to paycheck at a time of out-of-control inflation. Rising rent costs, grocery costs, medical co-pays, and gas prices are eating into my savings. I live a in state of chronic precarity. We need salary increases that reflect the skyrocketing costs of urban life amidst the ongoing effects of pandemic and war.”
HUCTW negotiators will be using what we learned from Jason Furman and Larry Katz—as well as the powerful member stories and data from the survey—to make a fuller presentation to University leaders on how the rising costs have affected our members, and why raises that surpass inflation are critical.
We will continue to send out communications and hold meetings with members as negotiations progress, as well as sharing more information from the member survey with you in the coming weeks and months. Please keep an eye out for an invitation for a meeting in your school or department later in June. As always, please let us know if you have any thoughts or questions.
HUCTW Negotiators & Executive Board