M A Y 1 9 8 3
by Gregg Easterbrook
EVEN with 11.5 million people unemployed, it is sometimes difficult to tell who is unhappier -- those who don't have jobs or those who do. While some unions have made concessions in wages because of the weak economy, others have not. Indeed, often in recent years union workers, faced with the choice of accepting cuts in their wages or losing their jobs altogether, have voted emphatically for the latter. Two pipe mills operated by Interlake, Inc., in Newport, Kentucky, closed in 1980 after union workers voted 803 to one against a freeze of their wages and benefits at $19 an hour, which amounted to twice the local average. Forty A&P grocery stores in Pennsylvania closed last September after a union refused to amend, in mid-term, a contract that paid $10 an hour, on average, to store employees. The Buffalo Courier-Express, in Buffalo, New York, went out of business last fall after union members, including reporters who were being paid around $26,000 a year, refused to make concessions. In Milwaukee, union workers at the Schlitz brewery not only refused to accept a wage freeze, even though it was obvious that the brewery might otherwise be shut down; they went on strike demanding raises. After Schlitz closed the plant permanently, in 1981, many workers, unwilling to believe that the decision was final, continued to picket.
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See Flashback: Striking a Balance?
What is at the heart of these and other conflicts is not an urge for
self-destruction but rather the chronic mistrust between corporate management
and American labor unions. Louis Brandeis, hardly a corporate apologist, said
in 1905, "Don't assume that the interests of employer and employee are
necessarily hostile -- that what is good for one is necessarily bad for the
other. The opposite is more apt to be the case. While they have different
interests, they are likely to prosper or suffer together." One might assume
that if anything could prove the reasonableness of such advice to both labor
and management, it would be the pressures of the recession and the need to work
together to keep companies from going out of business. Nevertheless,
confrontation, however destructive, continues to be the norm in many
industries. William Hobgood, a former assistant secretary of labor, who
mediated the coal strike in 1978, says, "Historically, labor has made most of
its gains through confrontation, not cooperation, and historically, management
has been most satisfied when it has employed pressure techniques. You would
think that the recession would cause some positive structural change in that
relationship, but so far, if anything, it's made matters worse."
Why this should be so has to do largely with the course of labor relations through the years of prosperity that preceded the American economy's doldrums. Then, mechanisms designed in anticipation of infinite growth, and geared chiefly to provide a constant improvement of wages and benefits, were built into contracts. These mechanisms made little provision for any decline in profits or the retrenchment that would have to follow. Today, they still have a powerful momentum, even though they have become detrimental to the interests of all, ultimately threatening the shutdown of factories and stores that are the source of union jobs and corporate income.
INDUSTRIAL work is loud, monotonous and tiring, and it nurtures in workers a deeply felt resentment of managers, who are imagined to be relaxing in wood paneled luxury while unionists carry on with the real jobs. Although working conditions, with some exceptions, are far less dangerous now than in the past, and union level wages have become adequate for a good life, a company's past offenses remain part of an industrial town's lore, and serve to embitter workers in the present. According to Stephen Schlossberg, a labor lawyer and former director of government affairs of the United Auto Workers, "Most labor relations are still about yesterday." Thus, if one is to understand where the unions are today, one must recall where they have been.
The goon squads employed by coal-mine owners, the dirty, unventilated textile mills, the subsistence-level wages, and the broken backs and missing limbs suffered by laborers working, exhausted, too close to open-hearth furnaces or vicious stamping presses are not all that far in the past. What coal miner could be ignorant of the explosion of the mine in Monongah, West Virginia, in 1907, which killed 361 men and was caused by a company's indifference to escaping methane, or of the mine explosion in West Frankfort, Illinois, in 1961, which killed 119 men and was also caused by the owner's negligence?
Before workers formed unions, they were forced to accept the wages they were offered, and either to tolerate conditions on the job or quit. Substantial improvements in wages and conditions were not achieved in most industries until the 1940s and 1960s, when unions mustered enough power to bargain on an industry-wide basis -- a system known as "pattern bargaining." The United Mine Workers was among the first unions to achieve pattern bargaining. By the late 1940s, the UMW had narrowed its task to arguing over three master contracts with three regional associations of the nation's large mining companies. Finally, in 1960, the UMW's president, John L. Lewis, signed the first National Bituminous Coal Wage Agreement, a contract that bound all the large mining companies and that was quickly "patterned out" to smaller union-controlled mines. Following the UMW's example, the United Steelworkers of America also began, at about the same time, to negotiate master contracts, usually with U.S. Steel acting on behalf of the largest companies, and again the terms were patterned out to other firms (giving rise to the slogan "Basic Steel or No Deal"). In 1964, the Teamsters began to negotiate with an industry group now known as Trucking Management, Inc., and over the years most other large unions have developed similar arrangements.
Pattern bargaining created strong feelings of loyalty -- now fashionably called "solidarity" -- among union locals. Together, the locals would bear the burden of strikes and share the gains. Pattern bargaining would fail only if one local lost its nerve and gave in before the others, so a formidable resistance to a local's independent action developed -- a resistance that has proved critical in recent years, when locals have been asked to make concessions to save specific factories. In recent months, national unions have begun to show some willingness to tolerate such concessions. Many Teamsters locals have made separate concessions to help single companies compete with independent truckers, and locals of Wheeling Pittsburgh Steel Corporation decided not to abide by the USW's national agreement, and signed a separate, concessionary contract instead. Such changes have come hard, however, within an institution fundamentally opposed to them.
Union leaders and even some company managers liked pattern bargaining, because it made their jobs simpler. Instead of negotiating the same details or grinding through the same script of strikes, lockouts, threats, and counterthreats again and again, all parties could be served by a single round of negotiations. Thus, the United Auto Workers traditionally would target a strike against one of the four U.S. auto makers, and after a new contract was settled, the remaining three would adopt its terms without further argument. Another fortunate effect of pattern bargaining was that it took wages out of competition. If every company in an industry endorsed the same labor agreement, containing the same wage-and-benefit stipulations and the same "work rules" specifying which union members could do which tasks, then no company could achieve a cost advantage through labor.
To a point, then, pattern bargaining was admirable and humane, since it eliminated a company's incentive to wring a few extra pennies of profit out of the hides of workers, as the robber barons had clearly done in the century before. But, according to Hobgood, by neutralizing a major variable in competition, pattern bargaining made companies overconfident: what difference could each new labor expense make if all competitors had to meet it? Thus, many large companies found wage demands easier to accept than to resist, and, naturally, the unions were delighted. Aware of their advantage, they grew still bolder and harder to satisfy. But the system could work only as long as all of the important competitors were bound by the same labor contracts. That is, in the steel, auto, rubber, aluminum, and chemical industries, and others governed by pattern bargaining, it could work only as long as all important competitors were domestic. Foreign competitors, free from union wage structures, could bring the system down.
THROUGHOUT the boom years of the 1950s and 1960s, union wage negotiations were helped by dramatic increases in industrial productivity. Manufacturing techniques improved, costs fell, quality rose, and factories generated goods as never before. The world's rising demand for consumer goods could be satisfied only by the output of U.S. factories, since the industries of Western Europe and Japan had not yet recovered from the war.
As long as productivity increased, workers could generate enough new wealth to finance their own raises. Contracts signed by the UAW and General Motors in 1948 and 1950, for example, included wage increases of 3 percent a year, justified by the 3 percent annual increases in productivity that were then the national trend.
Relations between corporate officers and union leaders became more and more amiable. Over the first part of the century, the two groups had generally viewed one another with contempt. Beyond the name-calling -- John L. Lewis, for example, once referred to coal-mine operators as "human leeches" -- were deep class differences. But as the unions grew wealthier, and began to attract college-educated people to administer them, these differences became less pronounced. And as the companies prospered, everyone had less reason to do battle at the bargaining table. The companies were making enough money for managers to avoid strikes, pay the stockholders, and keep their jobs, and enough for union leaders to win wage increases, improve conditions, and secure votes to maintain their titles. Thomas N. Bethell, a writer and former UMW official, described, in The Washington Monthly in 1969, how Lewis, after leading intensely bitter and ideological coal strikes in the late 1940s, executed an about-face once he signed the UMW's lucrative national agreement in 1950. Lewis became friendly, and even relaxed, with management -- so much so that he took the union itself into management, using UMW assets to buy stock in the West Kentucky Coal Company. In l959 and 1961, the union even bailed the company out when it fell behind in pension-fund payments.
Nevertheless, in the rank and file of many unions, suspiciousness prevailed. Workers, even as they rose higher and higher on the nation's economic scale, began to distrust union leaders who, in their view, were too closely allied with management. According to a former official in the Labor Department, who asked not to be identified, this perception was generally accurate. Through the 1960s and early 1970s, he says, management and labor leaders shared the same chief interest: dividing up the country's growing wealth. Union membership, which peaked in 1953, entered a decline thereafter, as union leaders concentrated on improving the lot of workers already in unions rather than on organizing new shops. When the boom economy slowed, the decline became substantial. As time passed, the average age of union members, like the age of the factories the unions depended on for plenty, began to rise.
In the late 1960s, U.S. increases in productivity faltered. Incremental increases in steel productivity, for example, dropped so much that, in 1975, the unthinkable happened: Japan passed us by. That year, according to the U.S. Bureau of Labor Statistics, Japanese firms took only 9.2 man-hours to produce a ton of steel (far down from the 25.2 hours it took them in 1964), while U.S. firms required 10.9 hours of work per ton (only a modest improvement over the 13.1 hours required in 1964).
The nation's weak growth in productivity was doubtless chiefly the fault of management, but the unions were part of the problem. As the seniority of members increased, unions fought harder for featherbedding rules to give older workers more short-term security; unfortunately, these rules made the workplace inefficient, inhibited the exploitation of new technology, and damaged the long-term economic health of employers. Featherbedding has been especially detrimental to the transportation business, in which foreign competition is not a factor. Rail unions, for example, have fought for preservation of the "100-mile rule," which dates to the age of steam locomotives, when moving a train a hundred miles was a day's work; now, though the trip takes only a few hours, the 100-mile rule still gives most crews a full day's pay for the job. In Conrail yards around Philadelphia, four union workers might be assigned to fix an air-conditioner that any non-union company would assign a single mechanic to, according to a report last fall in The Wall Street Journal. Union workers on Conrail's Philadelphia commuter lines average $40,300 a year in wages and benefits, at a time when the system is crumbling, and dilapidated bridges and spur lines are being closed down, for lack of capital to repair them. Since 1979, the system's fares have doubled and ridership has fallen by 31 percent.
While featherbedding in other unions is not so extreme, it does exist. In auto-assembly plants, for example, job descriptions (i.e. duties) of union members may not be changed without the UAW's approval; in construction, there must be a large number of high-paid journeymen (senior workers) for every low-paid apprentice on a job, whether or not the job demands any special skills.
Although productivity growth slowed in the late 1960s, union wages continued to rise. The USW led the way. In 1973, two years before Japan's productivity in steelmaking surpassed that of the U.S., the steelworkers and the largest American steel companies signed the Experimental Negotiating Agreement (ENA). In exchange for the USW's pledge never to strike nationwide, the steel companies committed themselves to a sequence of 3 percent wage increases payable regardless of the companies' financial health. Reached at a time when American companies were selling as much steel as they could produce, the ENA, with its promise of no supply-disrupting strikes, seemed to be a good deal for everyone. Although both labor and management were aware by 1973 that foreign competition could become a threat, the industry was protected from competition within the U.S. by its "list-price" system. The large companies, generally led by U.S. Steel, published price lists to which most other companies conformed, and set the prices high enough to allow for high wages as well as large profits. The list-price system enabled the steel industry to function profitably with thirty-year-old furnaces. Yet the high prices begged foreign competitors to enter the field. The steel companies and the USW thought that rather than meet the new competition head on, they could neutralize it, by lobbying for import restrictions. As a result of the ENA, underwritten by the list-price system, the wages of steelworkers increased, in real terms, some 29 percent between 1970 and 1980, even though the steel industry's productivity scarcely changed.
For other unions, automatic raises such as those provided by the ENA became the goal, and most big-labor contracts began to include inflation indexing and cost-of-living escalators that triggered automatic raises regardless of a company's financial outlook. Thus, by 1980, although U.S. manufacturers sold fewer cars than in 1970, the wages of auto workers, in real terms, had increased 15 percent. The wages of union workers in the tire industry increased by 7 percent between 1970 and 1980, while total production fell 16 percent.
By providing raises for many years and boasting about more to come, labor leaders have given members the impression that raises are mandatory. According to Schlossberg, "At some point, items like indexing and COLAs [cost-of-living allowances] became rituals. We didn't even think of them as contract gains anymore -- they were just rights."
Workers aren't the only ones who have been led to expect more money regardless of the economy. Business managers, who also have enjoyed steady raises, bonuses, and benefits over the years, have come to think the same way. From 1970 to 1980, executives of major manufacturing firms gained an average of 16 percent in real income. David Roderick, the chairman of U.S. Steel, received $821,322 in 1981, which, adjusted for inflation, was 29 percent more than his predecessor earned a decade earlier -- the same percentage of increase enjoyed by steelworkers. Frederick Jaicks, the chairman and chief executive of Inland Steel, received $330,000 in 1982, despite his company's shaky financial outlook and the fact that it lost $119 million that year. Edward Jefferson, the chief executive officer of Du Pont, who presided over the company's merger with Conoco in 1981 -- a decision viewed by many as a disaster for Du Pont's fortunes -- received $887,299 that year.
High corporate profits have allowed both management and labor to view raises as unrelated to performance -- as a right rather than a reward. When foreign competition did not threaten profits, it was possible for both management and labor to satisfy their expectations. Now that foreign competition has eroded profits, it has become clear that something has to give. But can it be the unions? The wage escalating mechanisms are so deeply entrenched as to seem inalterable, and chief among them are those associated with seniority.
IN nearly every union, when layoffs occur, the young go and the old stay. Seniority rights are perhaps the most passionately guarded of all union benefits, and in many respects they constitute a social victory. It is only fair, after all, that one's job should not be threatened merely because one is no longer young. But union seniority regulations were designed in an age of prosperity, when most layoffs were temporary. These days, unfortunately, layoffs are routine, and often permanent.
At some point, workers who have been laid off either lose interest in maintaining their union membership or become ineligible to do so. USW members, for example, retain their voting rights for only two years -- recently increased from one year -- after a layoff. Thus, many of the 160,000 steelworkers now out of work did not have a voice when their new contract came before the union early this year, and they did not have a voice when two more stringent contract proposals were defeated in 1982. In the UAW, workers who have been laid off keep their voting rights for six months after their unemployment benefits expire. Thereafter, they must renew their voting rights on a monthly basis, a process that in some locals entails filing forms at the union hall. "As a practical matter, very few bother," a UAW spokesman says.
When a new contract or a proposed concession comes up for a vote, especially in industries already hard hit by layoffs, such as auto and steel manufacturing, the majority of those doing the voting are the least likely to be laid off. Senior workers can afford to remain militant in their wage demands; they know they will lose their jobs only if the factory closes or the company itself goes out of business. Younger workers, anxious for employment, might be more willing to forgo raises or to make concessions, but as their ranks are depleted by successive layoffs, they become outnumbered in any vote.
Last fall, Chrysler's American workers rejected a proposed no-raise, no-layoff contract that union leaders had approved. The UAW then called an unusual "strike sentiment" vote. Fifty thousand Chrysler workers -- the 45,000 still on the job and the 5,000 most recently laid off -- were entitled to vote. Chrysler's remaining 42,000 workers, who had been laid off so long that they had lost their voting rights, did not participate. The workers voted 65 percent to 35 percent against a strike, but in favor of a demand for raises; eventually, a strike began anyway, when the UAW's Canadian affiliate walked out. The contract that settled the strike gives Chrysler workers in the U.S. immediate raises to about $20 an hour in wages and benefits -- a total of about $2,200 each for the year. The contract satisfies those who want raises and helps those drawing retirement benefits, but it also hinders Chrysler from calling back many of the 47,000 workers hoping to be rehired.
Supplemental unemployment benefits (or SUBs) -- a fairly recent development in labor contracts -- have become a powerful incentive for senior workers to resist compromises. Various SUB plans provide for workers who are laid off or whose factories close, and all the plans become significantly more lucrative as a worker's years of service increase. In steel, senior workers can get up to $180 a week from their SUB plans, in addition to the money they receive from the state and from the federal trade adjustment insurance program, which covers workers in industries that have been hurt by foreign competition. All told, these benefits can provide a senior steelworker with about 80 percent of what he would have made on the job, for as long as two years.
Steelworkers are eligible to retire after thirty years of service, and a new benefit, called the "rule of sixty-five," allows retirement also to steelworkers whose mills shut down and whose age added to years of service equals sixty-five. Based on the American Iron and Steel Institute's figures for 1980 -- the most recent ones available -- steelworkers would now be, on average, forty-three years old with eighteen years of service, which works out to sixty-one under the rule of sixty-five. Thus, a large number of steelworkers in any threatened mill are quite close to eligibility for retirement, and their special SUB benefits would see them halfway there.
Steel's SUB benefits are not unique in industry, although they are the most generous. Many UAW members have the benefit of SUBs and trade-adjustment insurance coverage, and at Ford and General Motors they are also protected by a new benefit called "guaranteed income stream," or GIS, which pays senior union members at factories that are shut down about $13,000 a year, on average, until they retire (most auto workers, like steelworkers, can retire after thirty years' service) or turn sixty-two. According to the Bureau of Labor Statistics, half of the country's manufacturing workers -- the most heavily unionized sector of American business -- have some kind of SUB protection. Some 95 percent of rubber and plastics workers, 82 percent of auto and aircraft workers, 70 percent of workers in "primary metals" industries (steel, aluminum, and so on), and 61 percent of apparel workers are covered by SUBs.
Audrey Freedman, the labor economist for the Conference Board, a non-profit organization for research in business economics and management, points out that SUBs and other special benefits were not intended as severance payments for the shutting down of the industrial state; instead, they were devised to give workers subject to cyclical layoffs the means to live relatively undisrupted lives (Likewise, the early-retirement plans that are being exploited by many companies to cut back work forces were conceived originally to be a gentle way of laying off employees to make room for new talent.) As the economy has spiraled downward, the character of SUBs has been transformed. Now, in many cases, the benefits encourage union workers to root for failure.
Consider the fate of the Ford Motor Company plant in Sheffield, Alabama, which had been losing money since 1974. Last year, Ford offered to keep the plant open if the local would break with the national union and accept a cut in wages and benefits to $10.50 an hour -- about half of union scale, but by no means low pay for a small town in Alabama. Ford also offered to sell the plant to its employees. The union local turned down both proposals, and let the plant close. The workers at the Sheffield plant were, on average, forty-eight years old, with fifteen years of service. By combining SUBs, the "income stream" (for which Sheffield workers were eligible), and early retirement, many could live reasonably well without working at all, and some with high seniority could actually make more with the plant closed than they could working at the concessionary rate.
A similar chain of events led to the closing of the pipe mills operated by Interlake, Inc., in Newport, Kentucky. Interlake offered in 1980 to keep the plants open, and make investments to improve them, if the USW local would agree to postpone for a year the raises then due. No reduction in pay was asked. Negotiations went on for two months: the union insisted that the company was bluffing; the company insisted that it was not. The local voted against a postponement, and, according to an Interlake spokesman, "the plants were chained and padlocked by that evening."
Freedman, of the Conference Board, had been contacted during the negotiations by one of Interlake's directors, who was puzzled by the company's inability to preserve the plants. "I told him to check the average age," she said. "He did, and it was high. That was all you needed to know." Walter Soward, fifty-five, a USW member who worked for Interlake for sixteen years, says, "The men who had their thirty years were the ones shouting loudest against making concessions. They just knew they had nothing to lose." Phillip Brown, fifty-six, who worked for Interlake for thirty years, and was on the union's negotiating committee, says, "It did give me satisfaction [during the negotiations] knowing that pension was going to be there."
None of this is meant to suggest that older union workers are scheming on an organized scale to be paid for not working. While there are a few shirkers in any group, the work ethic runs deep in American society, and very few people, given the choice, would rather be idle than work. Instead, these episodes show why -- especially in the heat of the moment -- workers would take the seemingly illogical step of abolishing their own jobs. The senior workers who vote against concessions are not voting to turn themselves out into the cold, because they have special benefits to fall back on. The payments may not be as generous in some industries as in others, but they at least give workers some courage when the time comes for a show of hands. Then, too, imagine the perspective of a senior worker looking back on two decades of monotonous labor in a pipe mill. The prospect of a long paid vacation -- available only if the plant shuts down -- could, understandably, be tempting. And while most workers might tire of their vacations after a year or two, relent, and wish to resume working and earning their place in society, by then the plant would be closed, and the chance to work gone.
Of course, the SUB and other benefit plans must be financed by someone, and they are only as good as the companies that back them. Caterpillar's SUB fund is out of money, as is International Harvester's. International Harvester, in fact, is contemplating a default on its entire pension system, and may try to saddle the federal government's Pension Benefit Guaranty Corporation with its obligation. The guaranteed income stream is guaranteed only for the length of a three-year contract. But in the anger and confusion of a union-hall concessions vote, considerations of a company's long-term economic health are readily forgotten. The closing of a single factory does not erase the benefits a company has agreed to pay; as long as a company exists, even if it diversifies out of manufacturing into some other field, its contract pledges remain. Thus, union workers need to fear the disappearance of their benefits only if the company as a whole is threatened with bankruptcy, and so far bankruptcy is a bullet that major manufacturing companies have been able to dodge.
KEITH Johnson, the president of the International Woodworkers of America, told his union at its 1982 annual convention that wages are not a factor in the 30 percent unemployment rate current in the forest-products industry. Johnson blamed instead the nation's high interest rates and monetary policy, and management's failures. William Winpisinger, the president of the International Association of Machinists and Aerospace Workers, told the Conference Board in 1982, "The steel industry's inability to compete with more modern, government-subsidized, foreign manufacturers is largely due to its own shortsightedness. These companies now blame their plight on wages .... It is not labor's fault."
Clearly, wages are not the only source of America's industrial ailments. It is wrong to say, however, that wages are irrelevant. Unfortunately, this is what union members -- especially those with seniority -- want to hear. In the words of the former official in the Department of Labor who was cited earlier, "No labor leader can run on any platform except higher wages, and once they're elected, they can take a concession at most once if they want to stay in office." Recent history bears out his observation. In 1977, for example, as I. W. Abel was retiring as the president of the USW, he and Lloyd McBride, his chosen successor, were also negotiating a new contract. Abel and McBride both believed that the steel industry was in grave danger; they offered to waive many union work rules to allow for greater productivity, in return for management's pledge of greater job security. The idea seemed to be a breakthrough in cooperation between labor and management, for the good of both. But a young leader of a USW local, Edward Sadlowski, who was challenging McBride for Abel's job, got wind of the proposed deal and made it a campaign issue, charging that it proved that the USW leadership was too cozy with management. McBride retreated and was forced to run on a platform similar to Sadlowski's: no cooperation, no trade-offs and raises for all. The revision in work rules was abandoned. McBride won, but only by running up majorities in the USW among members other than the 40 percent in steel. (The USW also represents workers in the aluminum, copper, zinc, lead, container-manufacturing, chemicals and plastics, and metal-fabricating industries.) Sadlowski carried the steelworkers themselves handily.
Most labor leaders who wish to retain their high status and income have few alternatives other than winning reelection. Unlike business executives or politicians, union officials cannot smoothly transfer to corporate or legal jobs; according to an officer of the AFL-CIO, the "possibilities available to a defeated labor leader are extremely limited."
Despite the influx of college-educated administrators over the years, union headquarters are still dominated by men and women who worked their way up from the labor force. John DeConcini, the president of the Bakery, Confectionery and Tobacco Workers International, grew up in the coal town of Kulpmont, Pennsylvania, never went to college, and began his career at the Bond Bread Company. Robert F. Goss, the president of the Oil, Chemical and Atomic Workers International, went to work as a laborer at a Union Oil Company refinery after graduating from high school. S. Frank Raftery, the president of the International Brotherhood of Painters and Allied Trades, joined a sign-painters' local when he was sixteen. Frank Drozak, the president of the Seafarers International, started work at a Mobile, Alabama, shipyard at the age of sixteen, and a year later he was at sea.
Unions are perhaps the only institution left in the U.S. in which people without academic credentials routinely rise to high office. When the business establishment ignores or patronizes labor, union leaders become all the more determined to protect their organization -- their brotherhood. Typically, they do not want to leave the union hierarchy, because it accords them the respect that, in their view, society as a whole denies them. As a result, union leaders, like union members, are advancing in seniority (the average age of members of the AFL-CIO's executive council is fifty-seven), and faced with the temptation of defending their perquisites at the expense of future generations.
THE increasing size of U.S. conglomerates means sales figures well into the billions, and where billions are involved, many union workers cannot believe that there isn't enough left over for them. When U.S. Steel spends $7 billion on Marathon Oil, and then goes, hat-in-hand, to its workers, asking for a cutback of $1.50 an hour in wages, its chances of being taken seriously are slight, even though its need for a wage concession may be real. Last year, International Harvester asked its unions for $100 million in concessions, citing the company's undeniably bleak financial condition, but not long after, the workers learned that it had paid a total of $6 million in year-end bonuses to top management. In April of 1982, on the very day that General Motors signed a delicate and hard-won concessionary contract with the UAW, it sent a proxy solicitation to shareholders, asking them to make it easier for management to award itself bonuses. Needless to say, the union was furious, and the workers who had voted for concessions felt betrayed.
One impediment in wage negotiations, in any case, traditionally has been the rank and file's belief that every company has a set of "secret books," which, unlike the doctored public books shown to the union, are swollen with profit. Efforts to keep the Interlake, Inc., pipe mills in Newport open were probably doomed when the USW local discovered, at a late stage, that one of the plants had shown a $1.9 million pre-tax profit in the first six months of the year. Although the raises the company wanted to defer would have quickly wiped that profit out, such a sum uncovered after Interlake's pronouncements of certain doom enabled the union local's leaders to convince its members that they were up against a secret-books ploy. Walter Reuther, who was the head of the UAW from 1946 until he died, in 1970, pursued the secret-books theory with gusto. Last year, when General Motors for the first time opened all its records to an independent audit, during negotiations for a concessionary contract, it was found, to no one's surprise, that the company actually was in trouble. Given the creative possibilities of modern bookkeeping, however, it is only natural that unions should be uncertain about whether the numbers are accurate or not.
Golden parachutes -- the huge bonuses payable to corporate officers whose companies are acquired -- also suggest to workers that a company can always come up with extra money if it is forced to do so. The bonuses have been justified with the argument that they will discourage mergers, by making the companies providing them more expensive to take over, but the message they imply is clear: forget the health of the company and grab everything for yourself that you can. John C. Duncan, the chairman and chief executive officer of the St. Joe Mineral Corporation, acquired by the Fluor Corporation in 1981, was able to take a $1 million golden-parachute bonus, not because he had been fired but merely because his responsibilities had been "substantially reduced." According to Ward Howell International, an executive search firm, some 15 percent of the nation's l,000 largest corporations have made provisions for golden parachutes, and it's not hard to predict how unions will react in the next rounds of contract talks with those firms.
Golden-parachute awards are symptomatic of the debilitating emphasis on short-term gains current in American corporations as a whole. And in a maddening way, management's zeal for quick profits can be served by the closing of factories. A company can often take a tax write-off far greater than the value of the facility's physical assets, because it can also write off some of the cost of the long-term benefits it is obliged to pay workers. When Colt Industries closed its Crucible Steel mill in Midland, Pennsylvania, it took a tax write-off of $134 million in benefit obligations. Although the company will be paying on that debt for many years to come, most of the tax advantages -- and short-term earnings improvements -- were realized immediately. U.S. Steel was able to spend $7 billion for Marathon in part because the closing of thirteen steel mills had generated $850 million in cash flow, as assets and obligations were written off. Just as the promise of SUBs may discourage workers from devoting themselves wholeheartedly to keeping plants open, so the promise of these tax breaks may discourage managers from doing so.
THE development of the skyscraper -- which moved management off the factory grounds -- was probably a bad omen for labor-management cooperation. Workers are not inclined to trust pronouncements coming from some far-off headquarters suite; managers, remote from the daily fears and concerns of workers, find it possible to see labor as just another factor in a business school equation. Many companies have created special departments to deal with labor relations, distancing top managers still further from workers. "Even in good companies, they pick the meanest son-of-a-bitch they've ever seen to be vice president for labor," the Department of Labor official says. "And that man, if he wants to advance his career, has to do one thing: bust the union. So it's not in his personal interest to have cooperative labor relations."
Small attitudinal and language differences can become major barriers when the gap between management and labor is large. Companies refer to "salaried" management personnel and "hourly" factory employees, as if to emphasize that blue-collar workers may be jettisoned at any moment. They speak of "wages" for workers but "compensation" for executives, as if a manager honored a company merely by consenting to keep office hours. I asked one business executive last fall why his company could not offer employment guarantees in return for wage concessions, and he replied, "Why, that would be converting a variable cost into a fixed cost!" Try to imagine a union's reaction after the word filters down that management considers workers to be "variable costs."
From one industry to another, there can be marked differences in style and spirit, which contribute significantly to the mood of labor relations. The auto industry, though troubled, is still committed to the future; it is still building new plants and designing new products, and many auto executives simply like cars. Management's attitude gives union members hope that there is a reason for them to sacrifice. The steel industry, on the other hand, is a skeleton. It has been spending neither to build new plants nor to improve old ones. (As part of the most recent contract negotiated with the USW, which was signed in March, the steelmakers sent the union a "letter of intent" to reinvest their savings in labor costs in steel plants, but they did not commit themselves to any specific projects.) Most steel companies have been investing their money elsewhere, and managers at those companies deprecate their own business and appear uniformly funereal. Not surprisingly, their attitude tends to convince steelworkers that all hope is lost, and that they ought to take what they can and run.
Even within industries, distinct differences exist between one company and another. General Motors, for example, has a tradition of insensitivity that goes beyond its ill-timed maneuver to win bonuses last spring. (In 1964, the company ordered all doors removed from toilet stalls, to prevent loitering. It would not have required much insight into human nature to realize that workers would be furiously insulted, and, of course, a strike followed.) The vote on General Motors's present concessionary contract was only 52 to 48 percent in favor, despite the company's marginal profitability. "Even we were amazed at the depth of resentment and hostility people feel toward GM," a source close to the UAW says. He believes that this narrow victory was achieved only because General Motors had recently laid off a relatively large number of workers, who hoped the new contract might bring them back to work. (The contract also requires GM to put more money into its SUB fund to cover workers with low seniority.) Ford, by contrast, has a tradition of appreciation and concern for workers. Ford's vice president for labor relations, Peter Pestillo, often makes statements of glowing praise for workers and labor leaders, and although he follows up his praise with requests for concessions, his respectful manner makes him unusual. Ford has begun to emphasize communications within its factories, and to adopt a version of the "quality circles" -- the factory equivalent of staff meetings -- that Japanese companies have found make workers more productive and convince them that their employers value their opinions. Ford's corporate attitude seems to trace to the Ford family itself. Auto workers frequently tell the story of how, on a frigid day during a strike at Ford's vast River Rouge complex in 1967, Henry Ford II sent out fire drums and coffee urns to keep workers on picket lines warm. The gesture was minor, but the fact that it is long and fondly remembered illustrates the rarity of acts of good will in labor relations.
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.
Copyright © 1983 by Gregg Easterbrook. All rights reserved.
The Atlantic Monthly; May, 1983; Voting for Unemployment; Volume 251, No. 5; pages 31-44