State and local governments are contending with more strikes as unions gain strength after decades of decline, a particular concern for hospitals still struggling to recover from pandemic-induced setbacks.

Wage and staffing troubles recently led more than 75,000 workers at Kaiser Permanente to stage a three-day walkout earlier this month in the largest health-care strike in U.S. history; parties reached a tentative agreement for a 21% wage increase over four years.

The Kaiser strike is part of a rising wave of labor action that will take a toll on state and local budgets at a time of shrinking revenues, according to analysts at Barclays Plc, especially in the health and education sectors.

“In the past couple of years, unions have become more active and have gained increased leverage in contract negotiations,” the analysts wrote in a note. “Strikes have multi-pronged negative effects on local, state and the national economy,” including missed work time and lower fees and tax revenues after longer strikes.

A widening gap with the private sector and the erosive effects of inflation are spurring workers to action – supported by what Barclays describes as rising public approval of unions. This year has seen 312 strikes involving about 453,000 workers compared with 180 strikes encompassing 43,700 workers two years ago, the firm said.

Notable actions this year include city workers in San Jose, California, who won a 15% raise over three years, a teachers strike in Oakland, California, which resulted in a 15.5% salary increase for most teachers and a walkout by graduate student instructors at the University of Michigan that netted better pay and health-care coverage. More than 7,000 New York City nurses walked out at two hospitals in January and came away with better staffing levels and wages.

While the outcomes are advantageous for workers and help combat the staffing shortages that have plagued health care and other industries, they are simultaneously a strain on budgets, both at hospitals – which are already dealing with weak operating results – and on municipalities concerned that they’ll have to pay more just as tax receipts and other revenues may be slowing.

The strikes are “clearly a negative” for local economies, Mikhail Foux, Barclays’ head of municipal strategy, said in an interview. There were 4.1 million work days lost in August alone this year, the highest since 2000, according to the firm. And while the report focused on public-sector strikes, private ones “also have direct and sizable effects on local economies,” including an estimated $3 billion hit to California from the writers and actors strike.

A VULNERABLE SECTOR

Not-for-profit hospitals are particularly at risk of financial distress as they grapple with continued labor shortages and higher expenses due to widespread financial and logistical woes brought on by the pandemic, and Foux said he doesn’t think the sector has fully turned a corner yet. Labor is by far the largest cost for hospitals.

Downgrades have outpaced upgrades in the hospital sector, which has also been among the worst performers in the high-yield municipal bond space, with a -4.28% return year-to-date.

But the sector has been creeping toward recovery as patients return for elective procedures and expenses stabilize after historically bad financial performance in 2022. The uptick in strikes could slow that progress and “further bifurcate” stronger from struggling systems, said Dora Lee, head of research at Belle Haven Investments.

“The larger systems will be able to absorb the higher labor costs, but it will just further add to the headwinds that this sector has been facing just when there were signs they might abate,” Lee said. And according to Foux, the high profile of the Kaiser strike is likely to encourage others, adding to the 18 strikes in the health-care space that have already happened this year.

Not every labor effort will be successful, though, said Clare Pickering, director of municipal strategy and research at Barclays. For struggling hospitals in more remote areas, “there’s only so much margin, and if you’re not in a competitive urban market, there’s not so much to negotiate.”

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