Voting for Unemployment

Why union workers sometimes choose to lose their jobs rather than accept cuts in wages

WITHIN the unions, the alternative to adversarial relations is cooperation. In this, the UAW's auto divisions, considered the best-run and the most progressive and even-tempered in labor, are the leaders. (The UAW also represents workers involved in the manufacture of other heavy equipment.)

Over the past two years, the UAW has bargained cooperatively with all four auto makers, hoping both to help them through the recession and to reach new terms in a calm atmosphere, avoiding the frenzy and posturing that inevitably accompany an approaching strike deadline. The union gave concessions, in the form of postponements of promised increases, to General Motors and Ford that will save the companies between $5 billion and $6 billion. The incomes of workers at Ford and GM will continue to rise over the current $21-an-hour rate, but at a slower pace than previously agreed. The UAW's leaders offered a more lenient contract to Chrysler, too, but were forced to withdraw when the American members demanded raises and the Canadian members struck. American Motors has the most inventive arrangement: its workers "loaned" the company $150 million by forgoing scheduled raises, and will be paid back (with interest) starting in 1985 if the company is profitable again. This gives the workers a double stake in the company's future prosperity.

In contrast, relations between steelworkers and steel companies have been stormy. Twice in 1982, concessionary contracts proposed by the USW's executives were defeated by local presidents. The concessions the steelworkers finally agreed to this year were achieved only after great effort, and they were more token than substantive. They do not by any means jeopardize the steelworkers' status as the nation's highest-paid industrial workers. USW members gave up $1.25 an hour in wages, a cost-of-living increase, and a week of paid vacation, but these reductions are temporary. The week of vacation will be restored next year; the $1.25 cut from wages will be restored in increments between 1984 and 1986; and over the same period, depending on the rate of inflation, the COLA will also be restored. All told, the new contract is estimated to save the steel industry almost $3 billion—less than the new UAW contracts will save either GM or Ford alone.

Other unions, both voluntarily and not, have engaged in cooperative bargaining in recent years. The Teamsters' National Master Freight Agreement, written in January of 1982 as the pattern contract for small trucking companies to imitate, contains several reductions in benefits and productivity-enhancing changes in work rules. Executives of the Teamsters have been preoccupied by the trial and conviction of their president, Roy Williams, for attempted bribery and fraud, however, and many companies—conforming to the traditional pattern of power battles between business and labor—have taken advantage of the disarray refusing to sign and negotiating more stringent deals with their locals instead. The Oil, Chemical and Atomic Workers are seeking only to renew most of their existing contracts, and many of the unions representing various sectors of the airline business have made concessions to keep the carriers from folding. Most of the construction unions, which are losing members at a rapid rate, owing to the expansion of non-union companies, are relenting on wage demands. Two longtime union hard-liners, J.C. Turner, the president of the International Union of Operating Engineers, and Robert Georgine, the president of the AFL-CIO's building-trades department, have made unusually conciliatory statements about industry. Last August, Georgine condemned construction "work stoppages" (wildcat strikes) as "the most ridiculous thing on a job site"—a statement that would have caused jaws to drop in that union in the 1960s.

Recently, some companies have experimented with various employee stock-ownership plans—"ESOPs"—which workers own all or part of a firm's shares, and in some instances also have voting control over management. The National Center for Employee Ownership estimates that 5,000 companies offer some form of equity to workers.

ESOPs appear to be an ideal arrangement. They give workers a reason to care about the quality of their work and the company's financial health, and management the flexibility to share profit with workers, by means of dividends on stock, without committing the company to high wages that might handicap it in bad times. A study recently conducted at the University of Michigan found that companies with ESOPs were 50 percent more profitable than conventionally organized companies in the same fields.

The 5,000 companies with ESOPs are a tiny fraction of the 14.7 million incorporated businesses in the U.S., however, and resistance to the idea runs deep. Managers fear it, for obvious reasons: they are wary of being controlled by workers, or even of having to explain their decisions to workers. Union leaders fear the idea too. By making workers in effect owners, ESOPs blur the line between labor and management and alter the adversarial relationship that gives union leaders a convenient object for blame. Because of this, most of the companies converting to ESOPs have been non-union. The UAW seemed to take a first step in the direction of a major union ESOP last fall, when its leadership negotiated a contract with Chrysler that would have tied future raises to Chrysler's quarterly earnings. That was the contract that the UAW rank and file rejected; the contract eventually signed (after the Canadian strike) conferred immediate raises but involved no profit shares.

It remains to be seen whether the attempts at cooperation indicate the genesis of a true partnership of labor and management, or merely temporary desperation. Thomas Donahue, the secretary-treasurer of the AFL-CIO, is not at all reluctant to say that he considers cooperation "a fad," and that he expects a return to business as usual whenever the recession ends.

ALL the dilemmas of labor relations during a recession are being played out at the Caterpillar Tractor Company, which a division of the UAW struck in October.

Caterpillar is a sound company. In 1981, it made $579 million on sales of $9.2 billion; its market share is huge (perhaps 35 percent of all earthmovers, compactors, and other heavy equipment sold worldwide are made by the company); and its workers are well paid, averaging $13 an hour in wages and $6 an hour in benefits. In 1982, however, Caterpillar's sales took a drastic plunge. The recession had cut the world demand for heavy equipment, and it hit Caterpillar particularly hard; exports, primarily to developing countries, account for 57 percent of the company's business. (As badly as the U.S. has been affected by the recession, poor countries have been much more grievously harmed.) By the end of 1982, Caterpillar faced a loss of $180 million. It was also negotiating a new contract at that time, and asked its union for concessions: no increases in pay for three years, reduction of cost-of-living escalators, and reduction of other benefits. The union countered with a proposal to renew the contract's existing terms. Soon a strike was on.

Last December, seventy-five days into the strike, I visited UAW Local 1989, in Memphis, Tennessee. There, on a Friday, Caterpillar workers were arriving to pick up their strike-fund benefit checks of $65 a week. The signs of old-time unionism were evident. On one wall of the local hall was a petition demanding that federal law be changed to allow striking workers to collect food stamps. On another was a cartoon depicting a pig dressed in business coattails, labeled CAT, and holding a pistol. On the ground was Santa Claus. The pig had just shot him.

James O'Connor, the president of the biggest UAW local in the Caterpillar dispute, in Peoria, had sworn to ride out the strike, however long it took. Concession fever is overt he said to a reporter for The New York Times. "My members would burn me at the stake if I brought them a contract like that." In Memphis, the mood seemed equally determined. The local president there, Louie Hill, Sr., said his 165 workers—down, because of layoffs, from 236—would not fold. Another local official, Steven Brice, said, "The company is making money. Why should we take cuts? All we want is to keep what we already have." The union's official position is that it wants only to renew the previous contract. That contract calls for automatic raises and cost-of-living allowances, however, and Caterpillar officials estimate that wages and benefits would increase 22 percent over its lifetime, to a total of $23 an hour. In any case, the union passed the point of no return in late January. By then, even if the union won, it would not make up in raises what its members had lost by not working during the strike.

Caterpillar in many ways stands today where the auto, steel, and rubber companies stood in the 1960s. Foreign competition has awakened to its market—especially Komatsu Ltd., a Japanese manufacturer of heavy equipment, which is undercutting Caterpillar's prices by about 10 percent, and producing what industry observers concede are high-quality machines. Komatsu has all but finished off International Harvester. Because it is competing with Caterpillar mainly in developing countries, its encroachment is invisible here. Caterpillar's employees cannot see Komatsu's machines doing the work that Caterpillar's machines used to, any more than steelworkers can tell if the steel in a bridge or a building is Japanese or American. One reason why the auto workers have been willing to moderate their demands is that they can see the physical evidence of the industry's predicament: Hondas, Toyotas, and Isuzus on the highways. In most troubled industries, as at Caterpillar, the competition is not so obvious.

As I talked with the leaders of Local 1989, it became clear that they are nothing like the stereotypical fist-shaking union zealot that American management has traditionally invoked. Thoughtful and sincere, they had some kind words for the company, and regrets that the strike was dragging on. They also, it turned out, had the highest seniority possible in their plant, even though several were young (Caterpillar did not come to Memphis until 1975), so they had a lot to gain by going on strike and, being all but immune to layoffs, little to lose. One thing seemed to draw them together and to override their mixed feelings about the economy and strikes and Caterpillar's balance sheet: they simply could not bear the thought of not getting a raise. "We realize what happened to International Harvester could happen to us, but it's the chance you have to take if you want what's yours," Brice said.

THE inherent bias of unions towards raises at all costs helps to justify the general view that American heavy industry cannot recover and should simply be written off. Liberals who are loath to criticize unions for ideological reasons are inclined to accept this view, and to praise the "information industry" as a panacea, as if the entire country could be gainfully employed compiling and analyzing computer print-outs. Some point to the development of worker-robots as a salvation, as if permanently replacing a worker with a robot, which might be good for industrial competitiveness, would also somehow relieve unemployment. An analyst at the consulting firm Arthur D. Little, Inc., has estimated that as many as 4 million factory jobs will be lost to robotics in the coming decade—in part because of technological progress, but also in part because high-priced labor has made high-priced robots an affordable alternative.

Conservatives seem also to be accepting the position that nothing can be done to solve labor's problems. Soon after the Reagan Administration took office, it enacted a "build abroad" program of maritime subsidies. This program gives shipbuilders $454 million in subsidies to take work out of the country, on the grounds that the U.S. maritime fleet must be expanded, and only foreign shipyards can do the work at a reasonable cost. The Reagan Administration abandoned the idea of money for shipbuilding in U.S. dry docks, assuming that it would be impossible to get the machinists' and boilermakers' unions to moderate their wage demands

What kind of a future is there for an America without an industrial engine, and without industrial jobs to give employment, money, and meaningful lives to those who lack the credentials to become computer programmers or information analysts in the high-technology order? In a way, unions have come full circle. Conceived and developed as a voice for the average worker—and winning many important social victories on the average worker's behalf—they now represent an elite of workers who are highly paid and elaborately protected. If factories continue to be closed because of wage demands, young Americans without academic credentials will have little hope for work other than frying hamburgers or washing cars, at a fraction of what they might have earned in industry, even under concessionary contracts.

It does not have to be this way. Some evidence that it doesn't is in Newport, Kentucky. Eight and a half months after Interlake, Inc., closed its pipe mills there, they were bought by a group of former managers. The new owners have been running one of the mills now for more than a year, employing about 500 people, and have shown some modest profits. Despite the depressed state of the steel industry, the new company, Newport Steel, is in no danger of closing the plant again, according to its president, Clifford Borland.

Newport Steel was able to start business because the steelworkers' local, after its members had been out of work for a while, was willing to make wage concessions and to change work rules enough to allow the plant to be productive. To get the mill running again, members of Newport's local gave up a quarter of their wages and benefits. Walter Soward, who is among the union members who have returned to the mill, says, "I think we're happier with the new management in every sense except that we make less money, but it sure beats making nothing." Although earning less than steelworkers elsewhere, the workers still earn about $18 an hour, placing them near the top of the manufacturing pay scale. They are working a little harder and making a little less, but they still live well, and they are working—which is, at the moment, the missing term in the labor equation.

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Gregg Easterbrook is a contributing editor of The Atlantic. He is the author of The Leading Indicators and The King of Sports: Football’s Impact on America.

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