Decision Time for Boeing's Machinists
Boeing Co. is in the middle of a contentious negotiation with unionized machinists in Washington state over a plan to dramatically alter the structure of pensions and other benefits under their next contract. According to the Wall Street Journal, the International Association of Machinists and Aerospace Workers' national leadership is supporting the changes, while local members are resisting. And no wonder the local union members are reluctant. Although the contract remains generous, it's not the same "lifetime security" deal that union workers at major corporations have gotten used to:
The contract would preserve pension accruals until the end of October 2016, at which point Boeing would move the workforce to a defined contribution plan. The plan would raise and cap the basic benefit pension at $95 per year of service each month, and become available for employees over 58, instead of 60, starting in October 2016.
Under its new defined contribution plan, Boeing proposes contributing 10% of eligible pay each of the first two years of the contract, and 6% and 4% in the following two years, respectively, and 4% for the remaining years to machinists hired before the contract's proposed ratification. if the measure passes, new employees after Nov. 13 will receive 4% per year.
Boeing is also trying to keep wage growth tightly in check, extending the seniority scale and offering a cost of living increase and a 1% general wage increase every other year of the eight-year deal. If the machinists ratify the new contract by Nov. 13, they will receive a $10,000 signing bonus.
My editor asked me an interesting question this morning: What would I do if I were a Boeing machinist?
It's also a tough question. Let me start with my priors: I think that Boeing workers, like those at manufacturing firms all over the U.S. and Europe, are being battered by the globalization of their wages. Trade, cheaper shipping and better communications are going to keep pushing down the rich-world wages for manufactured goods until, adjusted for productivity, they are roughly equal to those for Chinese or Vietnamese workers, less shipping costs. And with airplanes, the shipping costs are pretty much irrelevant.
As someone in an industry that is also being rocked by massive disruption, I'm very sympathetic to that plight. But in my own industry, I've pointed out that it won't do us much good to make anguished proclamations about our social value. We will get paid if we can find someone who is willing to pay us; if we can't find that person, then it will not help to declare that we ought to get paid.
That goes for machinists, too. Boeing's machinists ought to base their decisions on two factors, neither of which is anger at the greedy bastards in management, rage about the global factors making life harder for workers with good union jobs, or a determination to somehow, by any means necessary, get back what they think they are entitled to. Here are the factors they should think about:
- If we reject this contract, are we likely to get a better one from management?
- If we get a better contract from management, do we risk killing the goose that lays the golden eggs?
From the workers' point of view, this isn't an entirely terrible contract; the adjustment burden is disproportionately borne by new workers, not the ones currently there. Nonetheless, I'm sure they'd much rather have a defined benefit pension with the company bearing the market risk than to have to bear that risk themselves. Having the company deposit 4 percent of pay into a 401(k) is a lot less generous than whatever the workers are getting now; lots of nonunion companies have that kind of match.
Could they get a better deal from management? In some sense, they obviously could, because the company is profitable -- not wildly so, but profits are pretty steady. But the company also has a responsibility to shareholders and to its long-term competitive position. Getting a better deal might eventually lead Boeing to shift production of the new 777X airframe elsewhere. That's far from certain, but if I were a Boeing machinist in Everett, Washington, I'd be keenly alive to that risk.
And what about the longer term? China and Russia are pushing to develop in the airframe business, and Airbus SAS is breathing down Boeing's neck. You don't want to handicap Boeing with a long-term contract (the one under negotiation will run from 2016 to 2024) that makes them uncompetitive in a very competitive business.
On the other hand, China seems unlikely to have a jumbo airframe business up and ready to take business away from Boeing in 2016. This is a business with some of the longest lead times of any industry. How long-term should a Boeing machinist think? If I can eke out a better pension until 2024, in many cases, that's going to bring me close to retirement.
But now we need a third hand, because unlike most workers, Boeing workers are lifetime employees. Their early years represent a huge investment in the company, one that's supposed to pay off late in life. If you're a 44-year-old Boeing worker, even something that only makes the company less profitable in 2025 is something you have to worry about.
The temptation in these situations is to spend too much time looking at the sunk costs -- to insist on getting exactly the pension you've been expecting since you were 19, because dammit, that's 25 years of your life. And I'm sure I'd feel the same way, if I were in the kind of job that offers defined benefit plans and seniority pay. But it's dangerous. You can easily end up doubling down, insisting on all your benefits and ending up putting the company into a position where those benefits ultimately get cut even more dramatically -- roughly what happened to General Motors Co .
But that doesn't mean that the union should make any and all concessions that management asks for. After all, management's going to ask, even if they're not necessary.
OK, so enough hands: What would I do?
Ultimately, I'd probably vote for the contract, for two reasons. First, national leadership supports it, and I doubt they're simply in league with management. I'd expect that they've thought pretty carefully about the strategic reasons that Boeing needs to alter its labor structure.
Second, I'm pretty risk-averse, particularly if I've built up a lot of time at Boeing. So if you parachuted me into the role of 44-year-old veteran of the company, I'd probably take it.
On the other hand, I'm not in that position; I'm a 40-year-old journalist who lives in Washington, D.C. I haven't spent 25 years of my life expecting a pension that is now going to be altered. I can see how, no matter what the logic, that might be a pretty hard deal to take.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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Megan McArdle at firstname.lastname@example.org