Labor Unions: Up In Arms But Down In Clout

Behind labor's latest militancy is the offshore threat

General Motors Corp. workers in Flint, Mich., have walked the picket lines for seven weeks. And they angrily pledge to stay out until Labor Day, if necessary--putting their employer billions of dollars into the red. Militant? Most definitely. Powerful? Not really.

These members of the United Auto Workers are symbols of where much of organized labor stands today. Instead of fighting for higher wages or better benefits, they're battling just to keep their jobs. Despite an eight-year economic expansion that has produced the lowest unemployment rate in two decades, unions still are trying desperately to keep GM and other employers from sending their well-paid union jobs to less expensive nonunion shops in the U.S. and abroad.

The casualty count on the union side is staggering. Take GM. Since 1978, the car company has built more than 50 auto-parts plants in Mexico, where it employs some 72,000 workers. The parts, made south of the border, are then sent to assembly plants, mostly in the U.S. But the practice is hardly confined to companies with contentious labor relations: Even Ford Motor Co. and Chrysler Corp., which have good relations with the UAW, have steadily moved parts jobs to lower-cost suppliers, both inside the U.S. and across the border. Last year, Ford bought $3 billion in parts from Mexico. And the company hopes to raise that by 10% over the next three years.

BIG SHIFT. Nor is outsourcing--shifting work offshore or to nonunion plants--restricted to the auto industry. Since the mid-'90s, the practice has exploded across the manufacturing economy. Companies in industries from apparel to electronics have shifted production to nonunion shops and to Mexico.

The trend began to accelerate with the North American Free Trade Agreement in 1994, which made it easier and cheaper to shift jobs to Mexico. Now, the Asian economic crisis has ratcheted up the pressure: Low-cost imports undercut U.S. factories, pushing management to find cheaper sources of labor. And sagging exports reduce high-wage U.S. manufacturing jobs.

The result: Many factory workers, who already have borne the brunt of increasing global competition for decades, continue to face job losses and pressure from bosses to cut compensation. Despite the booming economy, the average hourly pay and benefits of factory workers have lagged behind inflation by 9% since NAFTA took effect in 1994, according to the Bureau of Labor Statistics.

Real wages have begun to rise for all workers, thanks to the tightest labor markets in a generation. And unions have been winning real wage gains in the neighborhood of 3% a year at the bargaining table. Still, because so many high-paid union factory jobs have disappeared, overall union average hourly compensation has fallen. Adjusted for inflation, average hourly compensation for union workers has dropped 7.6% since 1994, according to the BLS.

Unions have few options to halt the trend. Strikers in Flint may seem on the offensive with their angry chants. But even the crippling GM action isn't a sign of strength. In fact, most unions dare not strike for fear management will outsource work. The number of strikes sinks each year, even while union pay lags. "The strike today is a defensive act, and isn't much help in raising wages," says Thomas A. Kochan, management professor at the Massachusetts Institute of Technology.

Even the most profitable companies are still cutting union jobs. In June, General Electric Co. announced that it would lay off 1,500 members of the International Union of Electronic Workers, which represents 6,400 employees at Appliance Park in Louisville, where pay averages $17.50 an hour. Some jobs will go to nonunion workers earning $9 an hour at a plant GE bought in LaFayette, Ga. Others will be moved to a joint venture GE has in Mexico with a Mexican company called Mabe.

MOVING SOUTH. The wage differentials are so great that even huge pay cuts often can't save union jobs. For example, on May 28, Huffy Corp. said it would close its Celina, Ohio bicycle plant, eliminating about 1,000 jobs held by USW members. Employees there now earn $17 an hour, including benefits--that's after a 33% cut workers swallowed to keep the plant open two years ago.

Now, Huffy plans to move jobs to a supplier in Mexico--where it will pay workers less than $3 an hour in wages and benefits--and to its own nonunion factory in Farmington, Mo., where employees make $12 an hour in wages and benefits. Huffy also will import bicycles from China. "China has emerged as a major supplier of low-cost bikes, [cutting] prices by 25% over the last four years," says Huffy Chief Financial Officer Thomas A. Frederick. "We couldn't compete at USW wages anymore."


While today's 4.5% jobless rate makes it easier for laid-off workers to find other jobs, union members aren't likely to match the pay of their old ones. Despite labor's dwindling power, union wages remain a third higher than nonunion pay, according to BLS figures. And because the number of union jobs in the country isn't growing, the likelihood of finding one is slim. "Most companies start you out low and then increase your pay gradually over the years," says John Folk, head of USW Local 5369 at the Huffy plant in Celina. "So workers here, who are mostly in their 40s, will go back to a 20-year-old's wage."

That's what the UAW says it wants to avoid in Flint. And in this case, the workers have a better chance of gaining some concessions from GM. But that won't turn the tide: The most any union can hope for is to slow, not stop, the pressures leading manufacturers to look for cheaper labor elsewhere.

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