Chapter 10 - Contract terms and employment outcomes. The main contents of the chapter consist of the following: Tracing the effects of union wage increases, union effects on employment conditions, union effects on wage administration, union effects on fringe benefits, union effects on work rules, management''s response to work rules.
Chapter 10 Contract Terms and Employment Outcomes McGrawHill/Irwin An Introduction to Collective Bargaining & Industrial Relations, 4e Copyright © 2008 The McGrawHill Companies, Inc. All rights reserved 1 3 Tracing the Effects of Union Wage Increases 103 • An increase in wages may result in a corresponding, automatic “roll up” in fringe benefits such as sick leave, vacation, pensions, and unemployment benefits Such wage or benefit increases may pressure the firm to hold down costs by tightening work rules These “primary direct effects” of unions set off a chain reaction 1 4 The Consequences of Union Effects on Wages 104 1 5 105 Stage 1: Primary Union Effects • The primary union effects are on the compensation received by their members • If unions did not raise wages, they would have difficulty attracting and keeping members • Thus, the primary effect is positive The critical question concerns the size of this and other primary effects 1 6 106 Stage 2: Management Adjustments • Motivation is to recoup the costs associated with unionnegotiated improvements in wages through productivity increases Management adjustments may include: • Reduction in output or employment • Increase in product price • Substitution of capital for labor 1 7 107 Stage 3: Secondary Union Effects • The union may react to management adjustments Union may seek more elaborate job security language Seek stricter seniority rules in subsequent contract negotiations These represent secondary union effects on employment conditions 1 8 108 Escape and Takeovers as Responses • The option of finding a nonunion alternative location or way to get work accomplished There has been an increase in such responses in recent years • Another possibility is for a different firm to take over the operation and extract concessions 1 9 Union Effects on Employment Conditions 109 • The primary and secondary effects of unions on pay and working conditions depend on the union’s bargaining power How do union worker earnings compare to earnings if there were no unions anywhere? This comparison is termed the “Absolute Union Wage Effect” The “Relative Wage Effect” compares the earnings of union and nonunion workers 1 10 10 The Empirical Evidence of Relative Union 10 Wage Effects • Empirical studies indicate that the relative union wage effect averages 15 to 20% That is, unionized workers earn roughly 15 to 20% more than nonunion workers • Various studies show that wage effects of unions vary: 1. Over time 2. Over the course of the business cycle 3. Across occupations 4. Across industries 5. By workers’ gender, race, education, and age 1 17 Trends in Fringe Benefit Provisions 10 17 Unionized employees exhibit a strong preference for fringe benefits Union workers receive a wider range of fringe benefits They also receive a greater percentage of total compensation in fringe benefits than nonunion employees • Health insurance benefits remain an integral part of nearly all collective bargaining agreements Recent evidence indicates that new jobs in the U.S. are less likely to provide health & pension benefits 1 18 Union Effects on Quit Rates 10 18 • Unionized business have lower quit rates than nonunion companies Unionized operations provide the ability for employees to redress problems Unions provide a voice mechanism for workers to gain higher compensation than in a similar nonunion job • Even after controlling for the union effects on wages, union establishments have been found to have lower quit rates 1 19 Union Effects on Work Rules Protection from Arbitrary Treatment • Among the most important effects of unions has been protections from arbitrary discipline, discharge, or denial of benefits • Unions developed grievance procedures ending in arbitration • Although nonunion grievance procedures have grown in recent years, few end in arbitration Seniority • Seniority plays an important role in collective bargaining • Seniority is pivotal in personnel decisions, such as promotions, job assignments, and layoffs 10 19 1 20 Frequency and Common Forms of Seniority Language 10 20 • Seniority is a factor in promotion decisions in 73% of manufacturing and 57% of nonmanufacturing agreements in 1995 Only 5% mentioned that seniority is the only criterion Seniority was the determining factor in 49% of cases if the employee was qualified • Pros and Cons of Seniority Provisions They produce longer tenure, but reduce advancement of younger workers Such provisions may slow the advancement of younger employees with aboveaverage abilities Strict adherence to seniority can be costly to businesses in a period of changing technology 1 21 Job and Income Security 10 21 Job security is of special concern to union members, since management adjusts to unions’ primary effects • As unions increase wages, they give employers reasons to make compensating adjustments that reduce employment levels Employers often oppose demands for job and income security • Since they increase costs, reduce employers’ ability to adjust labor costs to economic conditions, and limit managerial discretion • The comprehensiveness of the job and income security protections that union workers achieve is a function of bargaining power 1 22 Job Preservation • Unions can negotiate worksharing provisions that cut workweek hours during slack times This practice is found in 17% of all union contracts and almost all apparel industry contracts A disadvantage is that unemployment benefits do not cover worksharing provisions Management sometimes considers such provisions as costly and featherbedding • Income Security During Temporary Layoffs 10 22 When sales decline, firms commonly reduce employment levels Temporary layoffs are common in durable goods industries such as automobile and household appliance manufacturers 1 23 10 Programs in Response to Permanent Job 23 Loss Not all laid off workers area recalled Thus, Congress passed the “Worker Adjustment and Retraining Notification Act of 1989” • Requires employers to provide advance notice to employees affected by plant closings • Employers with 100 or more employees must give 60 days notice of plant shutdowns when they affect at least 50 workers • Mass layoffs that last more than six months and impact 50 or more workers, or impact 33% of the work force of more than 500 workers for any time period, require advance notice 1 24 Employment Security Initiatives • A number of collective bargaining agreements in recent years provide enhanced employment security These include lifetime job guarantees to workers on the payroll as of a specified date Auto and certain other contracts provide retraining alternatives for workers on layoff • Some other agreements provide increased incentives for older workers to retire or quit This is a way to avoid layoffs 10 24 1 25 Why the emphasis on employment security? • The emphasis on employment security is not surprising in light of the layoffs of recent years 10 25 Layoffs after WWII had mostly been temporary and workers eventually recalled In four recessions prior to 1990, 44% of those laid off were expected to get their job back In the 19911992 recession, this number declined to 14% The average displaced worker could expect a 20% reduction in pay and reduced benefits • Thus, the SaturnUAW agreement that promised 80% of workers guaranteed jobs was popular but rare 1 26 Management’s Response to Work Rules • Many provisions of the bargaining agreement limit management’s discretion In response, management has taken a number of steps to expand its discretion over work rules • Management Rights Clauses Some clauses are simple, such as “the supervision, management, and control of the company’s business, operations, and plants are exclusively the function of this company” Others are more specific in areas such as the right to hire, promote, discharge, locate plants, schedules, and methods 10 26 1 27 The Residual Rights Doctrine 10 27 • The residual rights doctrine assumes that all rights not covered by a specific clause in the contract are retained by management Most popular for management; derives from property rights of stockholders • Implied Obligations Doctrine The implied obligations doctrine assumes that the union recognition clause requires management to negotiate changes in terms and conditions of employment even in the absence of an express contract provision that covers the issues involved • Some use this to limit a firms freedom to hire and fire at will 1 28 Productivity Bargaining • Productivity bargaining can take one of two forms: 10 28 Onetime buyout of outmoded practices Longterm, joint unionmanagement program for adjusting to change • The Pacific Maritime Association signed a mechanization and modernization agreement with the International Longshoremen and Warehousemen’s Union in 1960 that provided a $5 million productivity fund, wage and employment guarantees, and incentives for early retirement in return for changing work rules • In 1974, typographers in New York City entered a productivity agreement regarding computerization 1 29 Alternative Work System: From Work Rules to Teamwork 10 29 • From the 1980s, onetime buyouts gave way to more comprehensive efforts to restructure work and enhance flexibility, teamwork, and continuous improvement in quality • From the 1940s through the 1970s, unions and companies modified provisions incrementally • By the mid1970s, the stability had failed and broader restructuring was demanded • By using the Toyota production system and flexible teams, training, and collaboration, the New United Motors Manufacturing Inc. the GMToyota venture outperformed both low and high technology GM plants with traditional work systems 1 30 Safety and Health 10 30 • Unions historically used three strategies to improve safety and health: Supporting governmental regulation Negotiating safety provisions Encouraging the formation of joint unionmanagement safety and health committees • Unions were a driving force behind the passage of OSHA in 1970 • Union demands for higher compensation also affect plant safety Safety and health committees rose from 31% in 1970 to 64% in today 1 31 Summary 10 31 • Unions raise the wages of their members over nonunion workers • Concessionary bargaining in the 1980s and the moderation of wage settlements in the 1990s have resulted in pay increases that are substantially below those of previous years • Unions increase the range of fringe benefits available to workers • Unions have negotiated a wide range of job security provisions • Unions reduce turnover, primarily by increasing the value of jobs over the alternative nonunion jobs • The average effect of unions, after management made adjustments to increase compensation costs, was to increase productivity .. .Chapter 10 Contract Terms and Employment Outcomes McGrawHill/Irwin An Introduction to Collective Bargaining & Industrial Relations, 4e Copyright © 2008 The McGrawHill Companies, Inc. All rights reserved... recognition clause requires management to negotiate changes in terms and conditions of employment even in the absence of an express contract provision that covers the issues involved • Some use this to limit a firms freedom to hire and fire ... From the 1940s through the 1970s, unions and companies modified provisions incrementally • By the mid1970s, the stability had failed and broader restructuring was demanded • By using the Toyota production system and flexible