Been Down So Long...Aaron Bernstein
Even before the economy began to sour, the 1990s looked like a dark decade for organized labor. First, Greyhound Lines Inc. replaced its striking drivers last summer. Then, the New York Daily News tried to put out a paper without its unions. Now, with a recession apparently in full swing, you might think that any union negotiating a new contract in 1991 would have to run at top speed just to stay in place.
Not exactly. In fact, many union employees can look forward to a fairly happy new year. To be sure, there will be some tough negotiations. And unions will probably get minimal raises in hard-hit industries such as rubber, trucking, and in parts of the public sector.
Still, unless the recession is much more severe than most economists predict, few unions will face the kind of concessionary demands that left labor reeling in the 1980s. Most of those whose pacts expire this year can anticipate at least a small pay hike (table). And a few of the stronger unions should see increases that approximate or even exceed inflation, assuming that 1991 prices rise by only the current consensus forecast of 4% or so. That would be no small achievement, since union employees as a whole have matched the Consumer Price Index (CPI) only once since 1983. "If we don't have a really long recession, unions should do O. K. on pay next year," says Audrey Freedman, a labor economist at the Conference Board.
The prospects for organized labor look relatively upbeat largely because union workers have already taken most of their lumps. Spurred by overseas rivals, much of the manufacturing sector bit the bullet during the past decade. The resulting restructurings caused sharp cuts in jobs and pay for many unions, which are most heavily represented in factories. But productivity also shot up. What's more, manufacturers kept the efficiency gains coming last year by quietly trimming their payrolls before demand dipped. That kept unit-labor costs flat even as employers doled out bigger pay hikes (chart).
TIGHT SHIPS. The result: Many manufacturers are relatively well-equipped to deal with a slowdown. In the 12 months prior to September, 1990, factory productivity shot up nearly 4%, notes Stephen S. Roach, an economist at Morgan Stanley & Co. That's roughly four times greater than the gains that occurred in the 12 months preceding the past four recessions. "The manufacturing sector is finally realizing a significant productivity dividend," says Roach. "So this down cycle may not be as bad as usual." USX Corp.'s steel unit is a good example. The former U. S. Steel Corp. responded to the industry shakeout of the early 1980s by cutting employee compensation, closing old plants, and slashing its unionized work force from some 50,000 in 1982 to about 18,000 today. The company's remaining plants are among the most productive in the world.
Now, USX believes it can sustain an expected 5% to 10% decline in industry shipments this year with little impact on the bottom line. The company recently tried to negotiate a new contract with the United Steelworkers (USW) months before the current one expires on Jan. 31. Management offered an 8.8% pay hike over four years, plus relatively generous benefit upgrades. And an incentive plan tied to quality improvements could bring added increases of anywhere from 2% to 29%. The USW turned down the idea, increasing the probability of a short strike this winter. But in the end, the union is likely to get a package that roughly matches inflation.
General Electric Co.'s spring bargaining sessions are also likely to be relatively cordial. The company weathered the '80s by holding down pay hikes, boosting productivity, and selling less competitive divisions such as television manufacturing. As a result, its estimated 1990 operating margin was 16.5%, up from 12% in 1980, and is expected to remain over 16% in 1991, according to First Boston Corp. True, much of the good news comes from NBC Inc. and other units that employ relatively few union workers. Still, insiders say management will probably avoid a fight by granting pay hikes that more or less keep pace with the CPI.
The pay cuts of the 1980s are over at the airlines, too, at least at the strongest carriers. The rhetoric is already flying at American Airlines Inc. and United Airlines Inc., where initial bargaining began last year. American's pilots are unhappy with a low pay offer and proposed cost shifts in medical insurance. But they have already been offered a deal that would almost match inflation, and the terms are sure to be sweetened before the battle ends.
Although there could be a fight in heavy equipment as well, the final outcome may not be much different there, either. The United Auto Workers (UAW) is sure to demand that Caterpillar Inc. and Deere & Co. match the terms it recently won from Navistar International Corp. after a short strike in early November. Navistar agreed to an immediate 3% pay hike, plus two 3% bonuses in the second and third years, on top of a generous cost-of-living-adjustment formula. Caterpillar and Deere are expecting a poor first quarter and may resist a similar deal. But unless the recession shows no sign of easing by October, when their contracts expire, the UAW is likely to put its foot down. Already, the union has pointed to the fat profits Deere has raked in since 1988.
WHERE IT HURTS. Labor's prospects aren't uniformly cheery, of course. There's likely to be a lot less give in industries such as trucking, rubber, garment-making, and in the public payrolls of budget-pinched states such as New York. In trucking, for example, stiff competition from nonunion truckers hurt many unionized companies long before the economy slowed. In fact, a number of smaller truckers would probably go belly-up without special concessions granted by the Teamsters.
The union knows it could lose more jobs if it demands too much in its Master Freight Agreement, which covers some 160,000 drivers and sets a pattern for several hundred thousand more. But that doesn't guarantee labor peace. In 1988, skimpy pay raises prompted angry members to vote down the current contract by 63%. It took effect only because of a union rule that allowed the leadership to implement any deal not rejected by a two-thirds margin. That rule has since been abolished.
What's more, the first-ever, secret-ballot elections for the union's presidency are scheduled for next year. That will put the contenders, including R. V. Durham, the Teamsters' chief negotiator, under intense political pressure to fight for a better deal. "I don't think we can sell our members on a deal that doesn't include a wage hike that's higher than last time," says a top Teamsters official.
While some unions may get respectable raises in 1991, unionized workers as a whole will have a tough time outpacing inflation. Still, given labor's weakness in the past decade, union members should be as pleased with their prospects as anyone can be in an economy that's on the decline.
LABOR'S 1991 CALENDAR Employers Number of Contract workers expiration AIRLINES 53,000 Bargaining* USX 18,000 February NEW YORK STATE 174,000 March TRUCKING 160,000 March RUBBER 26,000 April GE 51,000 June GARMENT MAKERS 41,000 August CATERPILLAR, DEERE 23,000 October *Pacts became amendable in 1990 DATA: BUREAU OF NATIONAL AFFAIRS; BW