Why America Needs Unions But Not The Iind It Has Now

"There are always going to be people who take advantage of workers. Unions even that out, to their credit. We need them to level the field between labor and management. If you didn't have unions, it would be very difficult for even enlightened employers to not take advantage of workers on wages and working conditions, because of [competition from] rivals. I'm among the first to say I believe in unions."

Ted Kennedy spouting tired liberal dogma? Labor Secretary Robert B. Reich pandering to President Clinton's union backers? Nope. The speaker is Senator Orrin G. Hatch (R-Utah), labor's archrival on Capitol Hill for nearly two decades. Don't misunderstand:Hatch still opposes organized labor at nearly every turn. But when pressed, even he concedes a point that's of growing concern to economists, Administration officials, and some executives: Free-market economies need healthy unions. They offer "a system of checks and balances," as former Labor Secretary George P. Shultz has put it, by making managers focus on employ-ees as well as on profits and shareholders.

The concern of Shultz and others is that the balance has shifted significantly. Since 1983, union membership has fallen 6%, to 16.6 million, or 15.8% of the workforce--the lowest since the Great Depression. Subtract government employees, and unions represent a mere 11% of private-industry workers, a figure that by 2000 could plunge to 4% or 5%, some experts say.

Labor's fabled bargaining and political clout largely has vanished, too. Pay increases for union members lagged those for nonunion ones from 1983 until the recession pummeled everyone in 1990. And as labor's 1993 defeat on the North American Free Trade Agreement shows, it delivers a lightweight's political punch compared with the days when "Clear it with Sidney" referred to the veto Franklin Delano Roosevelt supposedly gave clothing-union leader Sidney Hillman over FDR's 1944 running mate. In short, if Hatch is right, the drawbacks of deunionization should be appearing.

SCARY GAP. They are. New research from respected economists at such schools as Harvard and Princeton shows that blue-collar wages trailed inflation in the 1980s partly because unions represented fewer workers (charts). The resulting drag on pay for millions of people accounts for at least 20% of the widening gap between rich and poor, which has reached Depression-era dimensions. The President's annual economic report, released earlier this year, cited these findings and called the new income disparities "a threat to the social fabric that has long bound Americans together." The full scope of that threat remains to be seen, but the early signs are disturbing: Experts cite weakening unions as a key reason for the six-percentage-point slide in the 1980s in the share of employees with company pension plans, for the seven-point decline in those with employer health plans, and for a 125-fold explosion in unlawful-discharge suits now that fewer employees have a union to stick up for them.

The surprising implication, in fact, is that the U.S. might be better off, socially and perhaps even economically, with a healthier union movement. That could be true especially if the 86 unions of the AFL-CIO follow through on a February report that urges labor to become partners with management in boosting efficiency. This is an unprecedented endorsement of alternative systems--including self-managed workplace teams--that already have fed big efficiency gains at such companies as Ford, Xerox, and Scott Paper. "If unions help improve productivity with ideas like teams, they can justify higher wages and their existence," says Paul A. Samuelson, the father of neo-classical economics and professor emeritus at Massachusetts Institute of Technology.

The AFL-CIO's action, in fact, may help legitimize the most important development in U.S. labor relations in generations. Here and there, traditional adversarial bargaining, which evolved 60 years ago in response to Frederick W. Taylor's "scientific management" methods of dividing work into its simplest tasks, is being replaced by a more flexible, participative approach as companies flatten hierarchies. "Unions helped make Taylorism work in the '30s and '40s by institutionalizing its principles" in labor contracts, says MIT management professor Thomas A. Kochan. "We need to [do] that today through cooperative labor mechanisms."

PARTNERSA. Xerox Corp. and its 6,200 U.S. copier assemblers, who belong to the Amalgamated Clothing & Textile Workers Union (ACTwu), are proving that this works. Three tries at teamwork since 1982 have fared so well that Xerox is bringing 300 jobs from abroad to a new plant in Utica, N.Y., where it expects higher quality and savings of $2 million a year. Xerox gives union officials internal financial documents and teaches them statistics in the same classes managers take. "I don't want to say we need unions if that means the old, adversarial kind," says Xerox CEO Paul A. Allaire. "But if we have a cooperative model, the union movement will be sustained and the industries it's in will be more competitive."

This view is spreading among the few dozen major companies developing partnerships with labor. "There's definitely a place in American society for unions," says David H. Hoag, chief executive of LTV Corp. In 1993, he signed a labor pact with the United Steelworkers (USW) that lets the union nominate a board member in return for backing teams and other efficiency measures. Declares Ernest J. Savoie, who heads Ford Motor Co.'s cooperative labor programs: "If unions were to disappear, the country would be in serious trouble."

Most employers couldn't agree less. Few American managers have ever accepted the right of unions to exist, even though that's guaranteed by the 1935 Wagner Act. Over the past dozen years, in fact, U.S. industry has conducted one of the most successful antiunion wars ever, illegally firing thousands of workers for exercising their rights to organize. The chilling effect: Elections to form a union are running at half the 7,000-a-year pace of the 1970s. And major strikes--involving 1,000 or more workers--have fallen from 200-plus a year to 35 in 1993. To ease up now, many executives feel, would be to snatch defeat from the jaws of victory.

Most managements detest unions out of a belief that they impede productivity and raise wage costs. That's partly true. Numerous studies have confirmed that unions reduce profits, especially in such industries as steel and autos, where workers got a healthy share of outsized, oligopolistic earnings in the '50s and '60s. Now that the oligopolies are being undercut by global competition and deregulation, "large employers no longer have oligopoly profits to share with unions," says Samuelson.

Still, unions are often blamed for more trouble than they've caused. In the 1970s, for instance, many executives believed that unions inflated prices by lifting wages above some presumed market level. Since then, however, more than 50 quantitative studies have concluded that the higher productivity of unionized companies offsets most of their higher costs. "It's a misreading of economic analysis to conclude that unions inherently cause inflation or unemployment," says Nobel laureate Gary S. Becker, a conservative economist at the University of Chicago. "Some kind of union behavior is bad, but unions that help workers bargain collectively instead of individually perform a legitimate role that's not counter to social efficiency."

George Shultz, now a fellow at Stanford University's Hoover Institution, goes further. "As a management person, if I don't have a union, I don't want one," he said in a 1991 speech to the National Planning Assn., a labor-management group. "But...look at this more broadly. Free societies and free trade unions go together. Societies are missing something important if they do not have an organization in the private sector, such as a trade union movement" that gives workers the clout labor has exerted to help pass safety and pension laws.

Shultz's notion is taken for granted in most of the industrialized world. True, Europe's recession has set off nasty clashes between unions and companies bent on cost-cutting. Still, say European labor experts, most companies there continue to see unions as social partners, not enemies. What's more, ev-ery Western European country except Britain and Ireland has a legally mandated second channel, such as works councils, for advancing worker interests. These groups, usually elected by employees, provide input into many managerial decisions.

The Clinton Administration would make this the model for U.S. labor-management cooperation. A year ago, the Labor and Commerce Depts. appointed a 10-member commission composed primarily of academics. Headed by former Labor Secretary John T. Dunlop, it may ultimately suggest revising the Wagner Act to ease roadblocks to organizing. In return, some commission members want to amend the act to legalize teams in nonunion companies, which risk violating a prohibition against sham unions--groups that workers seem to run but actually are controlled by management.

Afl-cio President Lane Kirkland will take this trade-off, leaving a divided business community to decide if teams are worth the risk of more union organizing. It isn't clear if it will take the chance. But even the National Association of Manufacturers--founder of the Council on a Union-Free Environment--may consider the idea. "Can you fix the management abuses without tilting the field too much back to labor?" asks NAM Industrial Relations Vice-President Randolph M. Hale. "I'm not sure, but I'm open to listening to the arguments."

"THREAT EFFECT." While those issues are thrashed out, the effects of labor's decline pile up. Take inflation-adjusted pay. Historically, it has tracked productivity. But in the 1980s, output per worker jumped 12%, while real wages and benefits for all workers rose only 4%, according to the Bureau of Labor Statistics. Falling unionism was a major factor, several studies have found. Private-sector union workers on average earn 39% more in pay and benefits than nonunionized ones, according to the BLS. And as unions shrank, a rising share of workers had to settle for lower-paying nonunion jobs.

That particularly hurt the least educated. For instance, deunionization accounts for one-third of the 15% decline in real earnings of white male high school dropouts between 1979 and 1988, according to a 1991 study led by McKinley L. Blackburn of the University of South Carolina. Weaker unions account for half the 10% pay slump of black male high school grads in that period and two-thirds of the 3% decline for white female dropouts. And the study didn't measure smaller pay hikes nonunion workers got as the threat of unions subsided. "We ignored the threat effect, which would make the impact bigger," says Blackburn.

These figures portray the partial dismantling of the middle class. By pushing up blue-collar pay, unions helped narrow the gap between rich and poor after World War II. But now the trend has reversed. In 1988, white-collar men aged 25 to 64 earned 48% more than blue-collar men of the same age, up from 35% more in 1979, according to a 1991 study by Harvard University economist Richard B. Freeman. Nearly half the increase reflected falling unionization, Freeman found. And for all men aged 25 to 64, including service workers, deunionization caused at least 20% of the spike in male wage inequality in the '80s. Freeman's findings have been confirmed by recent studies by Princeton University economist David Card and George J. Borjas of the University of California at San Diego. "It's clear that deunionization had an important impact," says Borjas, a political conservative who's no fan of unions.

Labor's decline has even hurt professionals. Traditionally, companies have pegged white-collar pay hikes to those won by their unionized workers. Nonunion employers did so indirectly, with salary surveys that cover unionized companies. In the '80s, professionals got fatter raises than union members. But they got a bigger share of a smaller pie.

If unions had represented one-third of the workforce in 1990, as they did in 1950, the bottom 80% of families--those earning up to $83,400 a year--would have received 61% of the nation's income, according to a 1993 study by economist Rudy Fichtenbaum at Wright State University in Dayton, Ohio. Instead, they got 56%. "White-collar workers think unions don't matter, but they're not on a separate boat from blue-collar ones," says Research Director Lawrence Mishel of the Economic Policy Institute (EPI), a Washington think tank partly funded by unions.

There's no way to tell whether the combined income of all U.S. workers would have been higher had unions not lost ground: No one has yet proved whether unions push up overall income or merely redistribute it. But it's clear who prospered in the '80s. The rent, dividends, and interest that owners of capital earned jumped 65%, according to an EPI analysis of Commerce Dept. figures. Wages and salaries, including white-collar ones, grew only 23%.

FRAYED FRINGES. As wages have gone, so have fringe benefits: Most workers have them largely because of unions, and they're disappearing partly because unions are weaker. Company-paid retirement plans, for instance, caught on after World War II, when federal wage and price controls prompted unions to demand pensions in lieu of pay. To keep unions at bay, nonunion employers followed suit, and pension plans multiplied. The trend reversed as the union threat shrank. The share of workers aged 25 to 64 with an employer-paid pension plan slid 6 points, to 57%, from 1979 to 1988, according to a 1992 study by Freeman and David E. Bloom, a Columbia University economist. "The single biggest reason for the decline," says Freeman--roughly 25%--"is deunionization."

The same goes for health insurance, which also became a standard benefit after unions pushed it during the war. Since 1980, the share of workers under 65 with employer-paid health care has plunged from 63% to 56%, according to the Employee Benefit Research Institute (EBRI), a Washington research group. Rising costs are a factor, but "coverage would not have dropped as much if unions had stayed strong," says EBRI research director William S. Custer.

Similarly, fewer workers now have grievance systems to protect against mistreatment. Forced to fend for themselves, they're filing unjust-dismissal suits, which have exploded from about 200 a year in the late 1970s to more than 25,000 a year now, experts estimate. "There's no question that protections for workers have gone down with the decline of unions," says Theodore J. St. Antoine, a University of Michigan professor who's an authority on such cases.

Of course, employers don't respond just to unions. They react as well to social trends and market forces, such as the women's movement or competition for skilled workers. For instance, the share of workers in midsize and large companies with unpaid maternity leave--for which unions haven't pushed hard--rose from 33% to 37% between 1988 and 1991, says the BLS. And some benefits, such as pensions and Social Security, have developed their own constituencies.

Unions are the guardians of others, however. Take safety regulations. The Occupational Safety & Health Administration under Reagan and Bush was a hands-off agency--and workdays lost to injuries jumped from 58 per 100 workers in 1983 to 86 in 1991. Now, President Clinton is beefing up the agency, partly because of the support unions gave him. That's typical of interest-group politics, which experts say works best if all major interests in society are represented. Even Senator Hatch agrees: "We need unions to make sure that working people have a legitimate and consistent voice."

If unions are so important, why are they going the way of T. Rex? Certainly, labor itself hasn't helped. When global competition hit, most unions dismissed employers' demands for change as the same old handwringing by fat-cat bosses. And as their ranks thinned, unions were slow to tackle the costly and iffy job of aggressively organizing new industries.

In fact, the 1980s spotlighted the lackluster leadership that has plagued unions for years. They never developed an antidote to union-fighting tactics. And they found no rejoinder when President Reagan labeled labor's millions of middle-class constituents a special-interest group. The dour, cerebral Kirkland instead found soulmates among Reaganites who shared his hatred of communism. His failure to devise a domestic strategy left labor rudderless at its most crucial moment in half a century.

Still, even a brilliant leader would have struggled. The shift from factories to services spurred new jobs in industries that traditionally have been hard to unionize. The effects were compounded by industry's antiunion fervor in the face of global competition. Other industrialized countries have shifted to services, yet their unions haven't collapsed, Harvard's Freeman says. The difference, he adds, is the extraordinary opposition of U.S. managers.

For instance, employers illegally fired 1 of every 36 union supporters during organizing drives in the late 1980s, vs. 1 in 110 in the late '70s and 1 in 209 in the late '60s, according to an analysis of National Labor Relations Board figures by University of Chicago professors Robert J. LaLonde and Bernard D. Meltzer. Unlawful firings occurred in one-third of all representation elections in the late '80s, vs. 8% in the late '60s, they found. "Even more significant than the numbers is the perception of risk among workers, who think they'll be fired in an organizing campaign," says Harvard law professor Paul C. Weiler. Indeed, when managements obey the law, they don't defeat unions nearly as often. Union membership in the public sector, where federal, state, and local officials don't try so desperately to break or avoid unions, has risen by 23% since 1983, to 7 million last year.

The excuse on which industry based its assault--that U.S. labor costs were out of line internationally--was largely a bogus issue: Such comparisons sprang mostly from the ultrastrong dollar. Now that it's lower again, U.S. wages are below Europe's and Japan's.

BLUNDERBUSSES. Companies had a point, though, on productivity. Across the economy, it rose only 1% a year in the '70s and '80s, down from 3% in the '50s and '60s, meaning that it failed to offset wage growth. Bad management was a major culprit. But labor blundered, too: Its contracts made it hard for unionized employers to cut costs as quickly as nonunion companies when global competition undercut the pricing power of U.S. industry. As a result, the premium union members earn over nonunion workers rose from 10% to 15% in the 1960s, economists have found, to about 21% today. That's partly why corporate animosity toward unions continued even as annual factory productivity growth returned to 3% in the '80s and union pay lagged behind inflation.

This attitude may change only if labor embraces cooperation with unprecedented enthusiasm. Doing so will require unions to reinvent themselves as extensively as executives are reinventing the corporation. The unions of tomorrow will need to balance better wages with efforts to help employers win competitive battles. And in place of adversarial skills, labor leaders will need expertise in everything from management techniques to technology.

More fundamentally, unions will need to adopt a "we're-in-this-together" mentality instead of the "us-vs.-them" one that has characterized both sides of the industrial divide for decades. "We want a whole new approach to how labor and industry can work together," says Lynn Williams, a leading advocate of labor cooperation who retired in March as USW president. Such views received an important boost from the AFL-CIO's remarkably self-critical February report, titled The New American Workplace: A Labor Perspective. It declares that new cooperative work methods "increase worker opportunities...bring greater democracy to the workplace...and improve the quality, and reduce the cost, of the goods and services."

This attitude already has begun to filter into industries as diverse as farm equipment, autos, electrical equipment, garments, mining, paper, steel, and telecommunications. Companies such as Deere, AT&t, and National Steel are creating completely new roles for both managers and union officials, who collaborate daily on everything from work assignments to marketing strategies. One early example of this new unionism is General Motors Corp.'s Saturn Corp., where teams of workers largely govern themselves and union officials are involved at every level of management.

PAPER COPIER. Another is Scott Paper Co., which four years ago took a startlingly different tack than the frontal assault International Paper Co. had mounted on the United Paperworkers Union in an effort to cut costs. Scott and the union formed a committee of 10 top officials from each side who pledged to "work together to meet the needs of employees, customers, shareholders, the union, and the community." They set up teams that give workers more decision-making power, a move so successful in reducing costs and boosting quality that other paper companies, such as Champion International Corp., are copying it. "The union can play a key role in our business," says Philip E. Lippincott, who retired as Scott's chief executive officer on Apr. 1.

It isn't easy for unions to make the transition. The days of sitdown strikes and company goons stamped generations of labor leaders with a profound suspicion of management. And recent antiunion battles exacerbated this. For instance, the United Auto Workers (UAW) advocated cooperation in 1973 at GM. But a dissident group sprang up to resist in the '80s, when GM shut some plants that didn't accept teams. And some unions fear that managers use teams to abolish hard-won work rules or dupe employees into working harder for no extra pay. Beyond that, some experiments in cooperation have left a bitter taste: An early-1980s effort between AT&t Co. and the Communications Workers of America (CWA) failed when lower-level officials weren't included and AT&T cut jobs.

Perhaps the hardest question for unions to deal with is why they're necessary for a high-performance workplace. What really makes empowerment succeed, after all, isn't unions per se, but employee trust and commitment. Teams lift productivity most in companies with four features, according to a 1990 review of two dozen studies by University of California at Berkeley economist David I. Levine and Laura D'Andrea Tyson, who now heads the Council of Economic Advisers. These include productivity bonuses, job security, steps to build group cohesiveness (such as limiting pay differences between workers and managers), and employee rights (such as protection from arbitrary firings). "A union is one way to do [all] that," says Levine, "although it's [not] the only way."

FUTURISTS. Still, employers that pull all this off, such as Motorola Inc. and Procter & Gamble Co., have formal mechanisms that protect employees much as unions do. These include no-layoff practices, grievance procedures, and profit sharing. Moreover, unions can be very helpful when they're willing. In fact, surveys by the General Accounting Office show that alternative work schemes are spreading at least as rapidly in unionized companies as in nonunion ones.

National Steel Corp., for example, began cooperation two years after Japan's NKK Corp. bought 70% of the No.4 U.S. steelmaker in 1986. To build trust, the company adopted a no-layoff policy for all 9,500 union members with a year's seniority. Hourly workers act as foremen. And USW officers get data on everything from earnings to market conditions--to help them see what it takes to compete. The payoff: Despite recent operational problems that have hurt profits, the number of hours needed to make a ton of steel at National's main plant in Ecorse, Mich., has fallen by 33% since 1988, to 2.95--among the industry's best numbers. National has run ads proclaiming: "We're partners with labor because we can't imagine a future without them."

Even AT&T and the CWA are starting over. In December, 1992, they set up elaborate joint structures, such as councils of company and union officials at the local, regional, and national level. Now those are paying off. For instance, AT&t's long-distance unit wanted to evaluate technicians in Virginia for traits that make employees good at customer relations. Technicians feared that those who did poorly might be moved or fired. But instead of fighting the effort, the CWA won a guarantee of no forced layoffs or relocations. The profiling has helped to speed up AT&t's maintenance times, officials say, and now is being expanded to 1,600 technicians nationwide. "If we had tried to do that absent the union's involvement, we wouldn't have gotten as much cooperation from our technicians," says Stan Kabala, the unit's head.

The lesson: If organized labor can offer itself as a partner, it may win at least grudging acceptance and carve out a place in the global economy. If not, its slow fade will continue. And many employees, union and nonunion alike, will suffer, whether they know it or not.

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