UPS driver pay deal in US could impact inflation and labour tensions

The recent pay deal between shipping giant UPS and the Teamsters union in the US has the potential to make a significant impact on inflation and labour tensions in the country. UPS has warned that its profits will be lower than expected this year, partly due to the pay increases it agreed to grant its workers in a labour deal reached last month. Under the new contract, the average full-time driver is expected to earn around $170,000 annually, including healthcare and other benefits, up from the current average of $145,000.

This pay rise comes amid the most serious bout of inflation in the US in 40 years. Over the past 12 months, prices have risen by 3%, with a leap of more than 9% in the preceding year. As living costs continue to rise, household budgets are strained, leading to labour tensions and unionisation campaigns at various companies, including Starbucks. The recent threat of a strike by the Teamsters union impacted UPS, as customers diverted approximately one million packages per day to rival companies, resulting in a loss of around $200 million in sales.

During an investor call, UPS stated that the labour deal with the Teamsters will also have an impact on its profits, leading to a revised adjusted operating margin expectation of 11.8% for this year, down from the previously expected 12.8% in May. This decrease is also influenced by a decline in shipments as the economy weakens. UPS has the largest unionised workforce among all US companies and is known for its relatively strong compensation offering. Drivers discussing their hourly pay of $40 or more routinely make national headlines. Prior to the new deal, drivers earned an average annual pay of about $95,000 and about $50,000 in benefits.

The new agreement with the Teamsters union includes a pay boost of $2.50 an hour this year and $7.50 an hour over the span of five years. It also raises starting pay for part-time staff to $21 an hour and introduces Martin Luther King Jr Day in January as a holiday for the first time. Furthermore, the deal secures improvements in working conditions, such as the provision of air conditioning in new delivery vehicles.

The agreement has been hailed as a standard-setting move by labour leaders, with workers at Amazon and other companies using it as a precedent in their own fights for higher pay. However, economists are closely monitoring these pay increases, as they could potentially contribute to the ongoing inflation problem that originated from pandemic-related supply issues and geopolitical tensions.

In June, wage growth in the US surpassed price growth for the first time in over two years. The average hourly pay in the US reached nearly $34 in July, while the average compensation cost for employers was approximately $43 an hour during spring, according to data from the US Labor Department. Salaries accounted for about two-thirds of this cost, with benefits making up the other third.

The UPS driver pay deal with the Teamsters union represents a significant development in the ongoing conversation around fair compensation for workers and the potential impact on inflation. As companies like UPS set new precedents, it remains important to monitor the implications of these pay increases on both the economy and labour relations in the US.