Labor's Tough New World

By Alexander L. Taylor III

With unemployment rising, job security is now the top demand of unions

The labor market is imperfect. When there is a considerable increase in unemployment, do wages drop as they would in a competitive market? History answers no.

A generation of college economics students learned that maxim from the classic textbook by Paul Samuelson. Labor unions had become so strong, the reasoning went, that they had virtually repealed the law of supply and demand as it applies to jobs and wages. Even in difficult economic times, unions would prefer to sacrifice jobs rather than relinquish hard-won gains hi salaries or benefits. During the 1973-75 recession, the worst since the Great Depression, many workers went on strike or suffered layoffs so that they would not have to give up what they won in past wage negotiations.

Labor-management relations, however, are now undergoing a radical transformation. The change has been brought on by the recession that has put 9.5 million Americans out of work and is expected to push the January unemployment rate above the postwar record of 9%. Faced with the wholesale loss of jobs on the shop floor or in airplane cabins, labor has made job security, not pay, its primary concern. At the same time, businesses suffering from sluggish sales have begun to bargain away some traditional management prerogatives in exchange for cuts in labor costs.

Figures released last week gave no sign of an early end to the business slump that is now seven months old. The Commerce Department reported that the gross national product fell at a steep 5.2% annual rate during the last three months of 1981, the biggest drop since the 9.9% decline during the second quarter of 1980. In the construction industry, one of the hardest-hit sectors of the economy, housing starts last year were at an annual rate of only 1.1 million, the lowest in 35 years. Early signs for 1982 are not much more encouraging. Treasury Secretary Donald Regan predicted last week that the G.N.P. will fall at an annual rate of about 2% in the first quarter.

Labor unions have already begun making substantial concessions in an attempt to safeguard jobs. Chrysler workers in the past two years have accepted benefit cuts and deferred pay increases amounting to $1.1 billion. Employees of Braniff Airways last March took a 10% pay cut, and pilots have agreed to fly ten extra hours a month, five of them without pay. Nine union locals at Uniroyal rubber plants have accepted a new contract that calls for sacrifices of $54.9 million over three years. The United Food and Commercial Workers Union that represents meat packers has agreed to defer some cost of living benefits in exchange for safeguards against plant closings. Says Union Official Walter Davis: "We and everybody else are concerned about job security."

One clear sign of labor's new mood is its willingness to begin bargaining well before existing contracts run out. Normally, negotiators need the pressure of a final contract expiration and a strike threat before they finally come to terms. No longer. Says Professor Daniel Mitchell, director of the Institute of Industrial Relations at the University of California at Los Angeles: "Both sides realize that they are in serious economic difficulties, and it would be imprudent on either side to allow things to drag on and run into an impasse and a possible strike."

The best evidence of the changed labor atmosphere is the new agreement between the Teamsters union and 284 major trucking companies. When the Teamsters last negotiated a contract in 1979, its 270,000 members went out on strike for ten days. The union then won national pay increases of 35% over three years, which pushed the wage of an average worker to $12.78 an hour.

The situation this year was entirely different. The truckers union faced a weakened industry in which unionized companies have been losing business to nonunion competitors. More than 100,000 Teamsters have lost their jobs because of layoffs and business failures. Before the talks began, Teamsters President Roy Williams vowed that he would be "reasonable" in bargaining for the new contract. The union started negotiations on Dec. 1 and talks concluded two weeks ago, well in advance of the March 31 expiration of the existing contract.

Details of the agreement began to leak out last week prior to ratification by workers and trucking companies. Cost of living increases have been cut from twice a year to once a year. A portion of the workers' inflation adjustment will be used to pay for health and welfare benefits; at present the trucking companies bear the entire cost. The union is also reported to have agreed in some cases to drop an expensive work rule that required longdistance truck drivers to bring freight to terminals for separate delivery by city drivers.

The path of the United Auto Workers and Detroit's carmakers toward early agreement on a new contract has not been as smooth. In a historic "agreement in principle," the U.A.W. and General Motors said in early January that they would try to find new savings in labor costs. The goal is to pass them along to consumers in the form of reduced car prices to stimulate slumping sales (see chart). Last week after nine days of intensive talks, U.A.W. President Douglas Fraser announced solemnly: "I regret to inform you that we have been unable to reach a settlement."

Bargaining broke down over specific details of job security, reductions in wages and benefits, and the duration of a new contract. But there was clearly an incentive for both sides to start talking again soon. Said Alfred S. Warren Jr., the chief negotiator for General Motors: "I don't think the industry can wait. We need something now." Late last week U.A.W. officials voted to resume negotiations where they had left off early this week.

At the end of January, 349,000 autoworkers were on temporary or permanent layoff, and 21 plants were closed. Still, time is on the side of the union. Industry observers think that GM badly needs an agreement to bring down the prices of its new cars, which now average a stunning $11,200. It has already promised customers that it would make price cuts retroactive to Jan. 13, the day after the agreement with the union was reached. Auto sales are expected to be very slow until a deal is struck. Complained a top auto company executive: "The agreement in principle and the recess of talks have hurt the whole industry. When GM puts the market on hold, the rest of us go on hold too."

Ford was not part of the initial secret negotiations between the auto-workers and GM, and refused to accept their agreement. Ford in separate talks is said to be willing to bargain on the issue of subcontracted work that it gives to non-U.A.W. or foreign suppliers, which is one of the union's chief worries. It also put forward what the company touts as an attractive profit-sharing plan. Said one leading U.A.W. official: "There are some totally new concepts relating to job security." In return, Ford wants reductions in the number of paid days off for autoworkers and other cuts in labor costs.

Ford's employees seem likely to make some concessions to the company. Says Walt Humphrey, a transmission worker at Ford's Louisville assembly plant: "I'm willing to show the American people that we are ready to sacrifice. It might swing them back to American products." GM workers, however, appear to be taking a harder line. Says Pete Kelly, a wood-model maker at the GM tech center in Warren, Mich., and a leader of dissident U.A.W. members: "If we give concessions now, they will automate that much faster and there will be more workers out of jobs. It started at Chrysler. We want to stop it at GM."

Last week's stalled auto industry negotiations demonstrate that labor unions are hardly willing to forsake their historic demands. Another example of this is the refusal by employees at American Airlines to accept a wage freeze. Observes former Labor Secretary W.J. Usery Jr.: "Those who think the labor movement is fading away are very mistaken."

In 1922 H.L. Mencken wrote: "Unionism seldom, if ever, uses such power as it has to insure better work; almost always it devotes a large part of that power to safeguarding bad work." That is no longer true. Unions today are showing that they understand that their cooperation is necessary in the drive to return the U.S. economy to steady, noninflationary growth.

--Alexander L. Taylor III. Reported by Gisela Bolte/Washington and Paul A. Witteman/Detroit

With reporting by Gisela Bolte, Paul Witteman

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