Chapter

The Role of the Environment

4

McGraw-Hill/IrwinAn Introduction to Collective Bargaining & Industrial Relations, 4e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.

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A Conceptual Framework to Analyze the Environment

• John Dunlop, the former U.S. Secretary of Labor, classified the industrial relations environment into three main influences:

- 1. The economic context- 2. The technological context- 3. The locus of power in larger society

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Bargaining Power

• The ability of one party to achieve its goals in bargaining in the presence of opposition by another party to the process

• Union power is influenced by the ability to withdraw services through a strike

• Employer’s bargaining power is influenced by the ability to withstand a strike

• “Working to rule” may be attempted by the union

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How Strike Leverage Influences Relative Bargaining Power

• “Strike leverage” is the relative degree to which workers and the employer are willing and able to sustain a strike

• To measure leverage, we need to know what costs a strike would impose on each party

• Also, what alternative income sources are available to each party to offset any income losses induced by the strike

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The Economic Context

• Microeconomic Influences on Bargaining Power- Management’s Strike Leverage

• The more an employer is willing and able to sustain a strike, the more likely the work force will be to settle a strike before attaining all the union’s goals

• Determinants of management’s strike leverage are:

• 1) Essentiality of striking workers on production • 2) Availability of inventories for sales• 3) Effects on profits

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The Union’s Strike Leverage

• Determined by the ability and willingness of the work force to stay on strike

• The longer workers are willing and able to stay on strike, the greater the bargaining power of the union and the likelihood of a favorable outcome for the union

- Alternative sources of income, strike benefits, and solidarity influence strike duration

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The Wage-Employment Trade-off

Strike leverage determines whether workers are able to press for higher wages

- Higher wages often bring cuts in employment- In some cases, unions opt not to raise wages as

much as they could- Thus, the “wage-employment trade-off”

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Marshall’s Four Basic Conditions

• Marshall’s Four Basic Conditions- Marshall argued that unions are most powerful

when demand for labor is inelastic (i.e., when large wage increases do not cause layoffs)

- Such conditions are:• When labor cannot be easily replaced in the production

process by other workers or machines• When demand for the final product is price inelastic• When the supply of non-labor factors of production is

price inelastic• When the ratio of labor cost to total cost is small

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Examples of Union Efforts to Influence Consumer Demand

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Macroeconomic influences on Total and Relative Bargaining Power

• Economists refer to unemployment and the growth in national product or productivity as macroeconomic factors

• The higher the unemployment rate, workers are less likely to support a strike

• During the growth phase of the business cycle, job availability increases and union strike leverage is enhanced

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The Effects of Collective Bargaining on Macroeconomic Performance

• Do Unions Cause Inflation?- For union wage increases to lead directly to inflation,

the union-nonunion wage differential would have to be ever widening

- Although the differential widened during the 1970s, it narrowed during the 1980s and 1990s

- Thus, the earnings differential does not apparently produce inflation

- Furthermore, unions represent a small percentage of the workforce

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The Political Influence of Unions on the Macro Economy

• Some observers believe union political lobbying has a greater influence on the wage-price spiral than the direct effects of union wages

• Expansionary government policies allow the re-employment of workers displaced by inflationary wage increases

• Unions also support a wide range of economic and social policies that supplement its collective bargaining efforts

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The Legal and Public Policy Context

• The Legality of Unionism and Union Activity- Public policy determines how easily unions may

form and sustain themselves- Banning unions is one extreme, while requiring

union membership is the other extreme- States and the federal government perhaps have

taken a middle course

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The NLRA’s Effects on Bargaining Power

• The NLRA grants unions the right to strike and obligates employers to bargain in good faith

• Without these rights, the bargaining power of unions would be weakened

• Taft-Hartley amendments made it illegal for supervisors to join unions representing production workers

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An Illustration of Government Employment Regulation: Pensions

- The Employee Retirement Income Security Act (ERISA) of 1974 had a profound impact on pensions

• It specified minimum standards for vesting of contributions

• Required more detailed reporting and disclosure• Requires future liabilities to be funded on an annual

basis and past liabilities to be amortized• Established insurance protection through the

Pension Benefit Guaranty Corporation (PBGC)

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The Shift to Less Government Intervention

• From the late 1970s, U.S. public policy changed to a less interventionist style, with an emphasis on competitive markets

- Deregulation and privatization were emphasized

• The increasing internationalization of the economy has raised questions about the relevance of the 1930’s labor laws

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Labor Force Trends

• The labor force grew rapidly following WWII, as a result of the baby-boom

• Growth slowed in the late 1970s• The median age of the labor force peaked in 1960

at 40.5 and declined to 34.8 by 1982• By 2008, one of six workers will be over the age of 55

- These patterns mean that unions and employers will be faced with an aging work force and rising pension costs

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Women in the Labor Force

- The growing number of women in the labor force is one of the most significant labor force developments

- In 1972, one-half of all women participated in the labor force

- In 2005, 72.6 percent of women between the ages of 25 and 54 worked

- The employment-population ratio for adult women reached a record high of 60.3 percent in 2000

- The general trend can largely be explained by women’s changing marital status, education, and career expectations

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Educational Attainment

• Educational levels of the work force have increased - In 1990, the median years of school completed for

all workers was 13- In 1970, 63.9 percent of all workers had graduated

from high school and 12.9 percent from college- By 2005, only 9.6 percent of the civilian work

force had less than a high school diploma while 32.8 percent were college graduates

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Occupational and Industry Trends

• The white collar sector has grown since 1960- From 43 percent to over half now

• Service sector employment was 83.4 percent in 2004, with goods-producing jobs 16.6 percent

• As recently as 1950, goods-producing jobs were 40.9 percent

- These changes have had a profound impact on collective bargaining and unionization

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Is the U.S. Economy Deindustrializing?

- Some contend that the decline in manufacturing jobs may have led to greater income inequality

- Others feel that service sector and part-time work is a response to availability and desire of the workforce

- They note the large growth in the workforce compared to Europe

- Organizing part-time and some service workers is more difficult for unions, as they may be more easily replaced and have less leverage

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Demographic Profile of Union Members

- The average union member is more likely to be working in industries, occupations, and regions in which demand for labor is either declining or growing at a slow pace

- Women are underrepresented in the unionized sector- The traditional constituency of unions – male, blue-

collar workers living in the northeast or north central regions – is declining

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Demographic Challenges for Unions

• Demographic diversity can affect union policies• The more heterogeneous a union, the greater the

potential for internal conflict and the union will have greater difficulty establishing bargaining priorities

• If unions succeed in organizing new workers, they will face pressures for change

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The Social Context

• Polls reveal fluctuations over time in the public’s image of unions

• The percentage of the public that approves of labor unions, according to the Gallup Poll, fell from 71 percent in 1965 to 55 percent in 1981

• Public approval rose to 65 percent in 1999, but fell again to 58% in 2005

• More of the public was sympathetic to unions in labor disputes (52%) than to companies (34%)

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The Technological Context

• The Historical Debate over the Influence of Technology: Commons versus Marx

- Both Karl Marx and John Commons believed that workers were spurred to join unions by technological change, the shift from the craft system, and the rise of the modern factory

- However, they disagreed upon why it happened

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The Influence of Microelectronic Technology on Skill Levels

- Some feel that technology opens the way to less hierarchical, higher skilled work and further growth in real incomes

- Others feel technology is being used to take control away from the work force and to deskill workers

- Behavioral scientists believe that new technologies “unfreeze” existing practices and open new ways or configuring the organization of work, career ladders, and compensation

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The High-Tech Paradox

- Japanese manufacturing practices fueled the “high tech paradox” debate

- The paradox is that our most productive plants were not the highest technology, but those that integrated new technology and innovative human resource and industrial relations practices

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Recent Environmental Pressures on Collective Bargaining

• With strong economic gains in the U.S. during the 1990s, a few unions – such as autoworkers and airline pilots – achieved solid contract gains

• Nevertheless, changes in the environment placed unions at a distinct disadvantage with management

• Outsourcing, non-union alternatives, and globalization continued to pressure unions

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Signs of Innovation in the Labor Movement

• There has been a broadening of the bargaining agenda and increased union involvement in managerial decision making

• AFL-CIO president John Sweeney – elected in 1995 - increased organizing, especially in the service sector

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Summary

• Five key aspects of the environment:- Economic, public policy, demographic, social, and

technological• While generally supportive of the purposes of

unions, the public’s attitude toward unions is less favorable

• How well bargaining serves the interests of labor and management depends upon its ability to adapt to the changing environment