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LABOR AND EMPLOYMENT
RELATIONS ASSOCIATION SERIES
COLLECTIVE
BARGAINING
UNDER DURESS
Case Studies of Major U.S. Industries
Edited By
Howard R. Stanger
Ann C. Frost
Paul F. Clark
COLLECTIVE BARGAINING UNDER DURESS: Case Studies of Major U.S.
Industries. Copyright © 2013 by the Labor and Employment Relations Association.
Printed in the United States of America. All Rights Reserved. No part of the book may be
used without written permission, except in the case of brief quotations embodied in
critical articles and reviews.
First Edition
ISBN 978-0-913447-06-2
LABOR AND EMPLOYMENT RELATIONS ASSOCIATION SERIES
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LABOR AND EMPLOYMENT RELATIONS ASSOCIATION
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CONTENTS
Introduction: Collective Bargaining Under Duress: Case Studies
of Major U.S. Industries . ..................................................................1
Ann C. Frost
Chapter 1—Context, Process, and Outcomes of Collective
Bargaining in the U.S. Airline Industry..............................................9
Andrew von Nordenflycht and Jody Hoffer Gittell
Chapter 2—Crisis and Recovery in the U.S. Auto Industry:
Tumultuous Times for a Collective Bargaining Pacesetter.................45
Harry C. Katz, John Paul MacDuffie, and Frits K. Pil
Chapter 3—Hotels and Casinos: Collective Bargaining During
a Decade of Instability......................................................................81
C. Jeffrey Waddoups and Vincent H. Eade
Chapter 4—Health Care: Collective Bargaining’s Growing Role
in a Time of Transition..................................................................115
Paul F. Clark
Chapter 5—When Chickens Devoured Cows: Union Rebuilding
in the Meat and Poultry Industry...................................................161
Jeffrey Keefe and Mathias Bolton
Chapter 6—Hard Times and Hard Bargaining in the Newspaper
Industry.........................................................................................197
Howard R. Stanger
Chapter 7—Public Sector Collective Bargaining:
Tumultuous Times.........................................................................251
Robert Hebdon, Joseph E. Slater, and Marick F. Masters
Chapter 8—Professional Sports: A Tale of Conflict and Accord......293
James B. Dworkin and Richard A. Posthuma
Chapter 9—Commentary: Union Practitioner Perspective.............345
Iain Gold
Chapter 10—Commentary: Management Perspective....................353
Martin (Marty) J. Mulloy
About the Contributors..................................................................361
Introduction
Collective Bargaining Under Duress:
Case Studies of Major U.S. Industries
Ann C. Frost
Western University
For several decades, the Labor and Employment Relations Association
(LERA; previously, the Industrial Relations Research Association) has
periodically published research volumes that review the state of collective
bargaining in the United States. The most recent volume was published
in 2002. Since that time, the U.S. economy has experienced the greatest
financial crisis since the Great Depression. Beginning in December 2007
and progressing to a full-blown crisis in the last quarter of 2008, the Great
Recession was marked by high rates of unemployment, the near collapse
of the banking sector, and the bankruptcy of a host of venerable firms.
The economy reeled from bankruptcy to bankruptcy during 2009 and
has only slowly recovered over the intervening years. Throughout this
time, the labor movement has faced numerous challenges—among them,
declining union membership, lackluster organizing performance, and
difficulties at the bargaining table. The chapters in this volume highlight
the state of collective bargaining during this period in eight different
industries across both private and public sectors.
The chapters document the struggles common throughout this period
in new organizing, securing viable collective agreements for members after
winning election, and protecting earlier hard-won gains in the face of
increasingly aggressive employer opposition. Each chapter describes the
state of competitive conditions and collective bargaining in its industry
during the past decade. This introduction sets the larger context in which
the parties found themselves during this period: the pre- and post-financial
crisis economy, union organizing success over this period, the state of
labor law reform, and the responses of the American labor movement as
it tries to adapt.
THE UNION MOVEMENT RESPONDS
As is well known, the American labor movement has been in decline since
the 1950s and has been in precipitous decline since the early 1980s. From
its peak of 28.3% in 1954 (Mayer 2004) and 20% in 1980 (U.S. BLS
2013), union membership in 2012 comprised just 11.3% of the workforce,
1
2
COLLECTIVE BARGAINING UNDER DURESS
with only 6.6% of the private sector workforce being organized
(U.S. BLS 2013).
The drop in union membership over time can be attributed not only
to changes in the economy as union-heavy manufacturing jobs have been
lost (and their union status with them) and subsequently replaced by
non-union service sector jobs but also to unions’ failures in the face of
employer opposition to organize successfully or to negotiate first contracts
in workplaces where they have successfully gained collective bargaining
rights. Over the past decade, the American labor movement sought to
reverse this tide with a two-pronged attack: backing the passage of the
Employee Free Choice Act to reform what many consider outdated labor
law and placing a renewed emphasis on union organizing with the formation and breakaway of Change to Win from the AFL-CIO.
In 2005, seven unions broke away from the AFL-CIO to form the
Change to Win Federation. The objective of the breakaway unions was
to direct significantly more resources into new organizing, with the goal
of bringing thousands of new workers into the union fold. The Change to
Win unions were drawn largely from the service sector (and consequently
represented a higher proportion of women, immigrants, and workers of
color), where growth in union membership was perceived to exist. The
traditional AFL-CIO–affiliated unions were seen to represent the old
guard—relatively more privileged older, white, male manufacturing
workers.
Change to Win undertook a number of ambitious campaigns—efforts
to organize farm workers and Walmart employees among them—
but faced difficulties in achieving its goals of large-scale organizing; the
right to affordable, quality health care for all workers; and the right to
retirement security (Change to Win, no date). By 2009, two of the original
coalition partners had left the new federation, while a third member
returned to the AFL-CIO in 2010. Given the enormity of the organizing
task and the economic and political climate that Change to Win has faced
during its brief existence, it appears that its presence has made little progress
in changing the fortunes of the American labor movement.
In March 2009, at the same time that Change to Win was losing several
of its founding member unions, the labor movement turned its attention
to the passage of the Employee Free Choice Act (EFCA). The purpose of
the EFCA was threefold: to allow union organizing without the need for
a (often delayed) secret ballot election; to find ways to mediate and, if
necessary, arbitrate a first contract within 90 days of a successful union
election; and to impose more significant penalties on employers who
commit unfair labor practices during an organizing drive.
INTRODUCTION
3
The impetus for the EFCA came from the growing recognition that
U.S. labor law was sorely outdated and no longer responsive to the needs
of working Americans. Kochan and Ferguson (2008) analyzed the 22,000
National Labor Relations Board election filings occurring between 1999
and 2004 and reached four main conclusions. First, few units make it
from the initial petition for a vote to a first contract—only 20% ever do,
with only 12.9% reaching a first contract within a year of filing for election. Second, the presence of employer unfair labor practices reduces the
chances of workers securing a first contract by 30%. Third, the presence
of employer unfair labor practices reduces the chances of an election even
being held by 25%. And fourth, even after a majority of workers vote for
union representation, only 56% of those successfully certified bargaining
units ever are able to negotiate a first contract (and only 38% of those do
so within the first year).
In 2007, Senator Ted Kennedy introduced the EFCA into the
U.S. Senate after it had passed the House. The legislation fell short of the
required 60 votes in that session. In 2009, despite Democrats holding a
majority of Senate seats, the EFCA once again failed to gain the necessary
60 votes to be passed into law. Bipartisan opposition defeated the bill once
more. Opponents cited the inclusion of card-check certification as the
bill’s major flaw, claiming that without a secret ballot, election workers
would be subject to union coercion and intimidation. As well, many
opponents were uncomfortable with the imposition of first contracts in
instances in which the parties could not come to agreement, fearing undue
government intervention into a company’s affairs. Since its failure to be
passed into law during the 111th Congress in 2009, the EFCA has languished and the National Labor Relations Act remains unchanged.
THE FINANCIAL CRISIS AND ITS AFTERMATH
Bailouts
In 2007, in the wake of the bursting of the housing bubble, inklings of
problems in the subprime mortgage market began to emerge. In June
2007, S&P and Moody’s Investor Services downgraded more than 100
bonds backed by subprime mortgages. In July of that year, the country’s
largest subprime lender, Countrywide Financial, warned of “difficult
conditions.” This continued for more than a year until, in September
2008, the entire edifice came crashing down. In the space of a few weeks,
storied investment firms, including Lehman Brothers, Merrill Lynch, and
Bear Stearns, collapsed, filed for bankruptcy, or were acquired by competitors for pennies on the dollar. The federal government stepped in to shore
up Fannie Mae and Freddie Mac, the government-backed mortgage
4
providers that had been encouraged to expand and invest in complex
mortgage-backed securities, including those comprised of subprime mortgages (Taylor 2009).
In early October 2008, Congress passed the Economic Emergency
Stabilization Act of 2008 in response to this unfolding crisis. One of the
act’s key components was establishment of the Troubled Asset Relief
Program (TARP), which provided billions of dollars to protect distressed
assets. TARP initially pledged a total of $700 billion to several specific
programs, including funds to prevent the collapse of the U.S. auto industry,
to shore up and stabilize the financial services firm AIG, to help prevent
foreclosures on family homes, and to stabilize the domestic banking
industry during the crisis.
In addition to providing funds, TARP provisions also sought to rein
in the worst excesses in executive compensation. In particular, it sought
to restrict the use of golden parachutes, required clawbacks of executive
compensation paid out on the basis of inaccurate financial statements,
and sought to end compensation practices that encouraged excessive risk
taking (Burghart 2009). Despite these intentions, minimal action at the
federal level has been taken to date to put these provisions into practice.
Unemployment
Beginning in the last quarter of 2008, unemployment in the United States
began to rise. From its usual levels of 4.5% to 5% throughout the early
2000s, unemployment inched up in the last half of 2008 to nearly 7%.
By October 2009, it hit 10% and persisted above 9.5% over the following
year (U.S. BLS, “Seasonal Unemployment,” no date). The years 2011 and
2012 saw little improvement in the overall unemployment rate, with the
jobless rate stubbornly remaining above 8% until the last quarter of 2012,
when it came down to 7.9% (U.S. BLS, “Seasonal Unemployment,” no
date). Not only were more people unemployed in the wake of the financial
crisis, but they also remained unemployed longer. The numbers of people
out of work for 15 weeks or longer more than tripled from early 2008
until the end of 2011 (U.S. BLS, “Seasonal Average,” no date). Valletta
(2011) argues that this is due to the greater labor force attachment of
women (who during earlier recessions simply left the labor force after
becoming unemployed) and to greater wage dispersion that increases the
time spent in search for a new, comparably paid job. At the same time,
the number of discouraged workers doubled (and approached triple the
levels in 2010) from their pre-crisis levels through 2012 (U.S. BLS,
“Unadjusted Not In Labor Force,” no date).
Implications for Collective Bargaining
Against this backdrop, collective bargaining came under severe pressure
in both private and public sectors. Chaison (2012) has termed it “ultra
INTRODUCTION
5
concession bargaining” to distinguish it from the first wave of concession
bargaining that occurred in the 1980s. In earlier 1980s-style concession
bargaining, unions were in many cases asked to roll back wages and
benefits but in exchange received guarantees that their plants would remain
open or they were given seats on boards of directors. In this round of
concessions, few such quid pro quos from employers were forthcoming.
Employers were now more aggressive than in the 1980s, and unions were
expected to concede with no promises of anything in return (Chaison
2012). Chapters in this volume by Andrew von Nordenflycht and Jody
Hoffer Gittell on airlines and Jeffrey Keefe and Mathias Bolton on meatpacking elaborate on the experiences with both rounds of concessionary
bargaining in those industries.
The U.S. auto industry was one of the early casualties of the financial
crisis. As the unemployment ranks swelled and consumer confidence fell,
the auto industry was hard hit, and companies were pushed to the financial
brink. The full story is told in the chapter by Harry Katz, John Paul
MacDuffie, and Frits Pil in this volume. What became apparent was that
the companies needed a leaner, lower-cost structure to compete with
foreign producers as well as the non-union transplants in North America.
Concession bargaining took over the auto sector once more, with a focus
not only on wages but also on health care costs and pensions. As they
have for decades, auto sector collective agreements became bellwethers
for collective bargaining throughout the economy.
The newspaper industry was similarly hard hit by the recession following the 2008 financial crisis. Howard Stanger’s chapter on newspapers in
this volume documents the pressure on newspaper industry collective
bargaining not only from reduced advertising revenue caused by the
recession but also from changing reader preferences for online content
that have destroyed the industry’s advertising-based business model.
In particular, employers in industry after industry not only sought
wage concessions (or at least freezes) but, with singular purpose, went
after employee pensions, health care benefits, and other previously hardwon gains. Pension costs and liabilities have grown disproportionately
over time. Poor assumptions about likely growth in the funds (over prediction of returns) coupled with demographic shifts (fewer younger workers
to support older workers in retirement) have led to enormous liabilities in
many pension plans (Monga 2012). Defined benefit plans (under which
workers are guaranteed some percentage of income as an annual payout
upon retirement) are being scrapped and replaced with defined contribution plans (under which the employer agrees to put in a certain amount
each year but makes no promises about what will be there upon the
worker’s retirement) or 401(k) plans into which the employee also contributes. In addition, older, more generous plans are being frozen and not
6
made available to new employees, resulting in two-tier pension systems
in many firms.
In their chapter on professional sports, James Dworkin and Richard
Posthuma document the switch from a defined benefit to a defined contribution plan and the institution of a two-tier pension system in the case
of NFL referees. The fights over changes (or elimination) of pension benefits have been bitter and hard fought. For many workers, the generous
pension they were expecting was gained at the expense of wages they had
foregone earlier. Many workers have been left with insufficient income
for retirement.
The other area in which employers have almost universally sought
concessions is health care benefits. Like pensions, the cost of providing
health care coverage to employees has skyrocketed over the past decade.
At a time of stagnant wage growth and little or no inflation, employerbased health care premiums for family coverage rose 160% between 1999
and 2011 (AFL-CIO, no date). Employers, as a result, turned to unions
at the bargaining table to force workers to pay an increasing share of those
costs through higher deductibles, co-payments, and premiums. In some
cases, employers simply stopped offering health care benefits at all. In
most cases, unions and their members agreed to rollbacks in health care
benefits. In other instances, they resisted. It was the rare strike over the
past decade that did not have conflict over health care benefits, and who
would pay for them, at its center.
As the private sector economy remained mired in high unemployment
and business conditions remained poor, municipal and state governments
began to feel the pinch of lower tax revenues. Sensing that public opinion
was on their side, state and local governments went after union contracts
and, in some cases, the right to collective bargaining itself. State and local
workers around the country faced the stark choice of layoffs or significantly
reduced benefits, especially pensions (Chaison 2012). The public sector
chapter in this volume by Robert Hebdon, Joseph Slater, and Marick
Masters documents this process and its aftermath in detail.
More than four years after the financial crisis, collective bargaining in
the United States is still highly contentious and conflict ridden. Workers
find themselves in increasingly precarious situations not only in terms of
wages, health care, and pension benefits but also in terms of ongoing
employment. This is true of workers in both private and public sectors.
CONCLUSION
The volume’s title, Collective Bargaining Under Duress, sums up the state
of collective bargaining in the eight industries covered in this volume.
INTRODUCTION
7
New organizing remains extremely difficult, if not impossible, in most
sectors. Employer opposition remains strong, and a lack of meaningful
labor law reform has precluded any institutional support in the process.
Unions face an uphill battle trying to convince workers, who view their
current hold on any job as tenuous at best, that forming a union is in their
best interest. The chapter by Jeffrey Waddoups and Vincent Eade shows
how threats of outsourcing and an employer’s refusal to bargain ensure
that unions make little or no headway in new organizing, even in nonmobile businesses such as hotels and casinos. The one exception may be
in health care. In his chapter, Paul Clark documents the organizing success that has been ongoing for more than a decade in the health care
sector, where union density has remained consistent.
At the same time, where collective bargaining rights are in place, the
bargaining relationship often no longer resembles “business as usual” but
rather has turned into an employer assault on hard-won wages, health
care benefits, and pensions. In such concession bargaining, there is often
no quid pro quo offered to workers in return for givebacks. The plant may
stay open, the jobs may remain for the moment, but the specter of a permanent shutdown or the outsourcing of some or all of the work is ever
present.
In the chapters that follow, a number of common themes appear. Among
these are historically high unemployment levels, the failure of labor law
to support new organizing or collective bargaining, and union strategies
that cannot connect with workers outside traditional union strongholds—
especially those employed in the new economy. Some glimmers of hope
do emerge, though. These include new alternative ownership structures,
the possibility of greater political clout at local and state levels of government to advance a more labor-friendly agenda, and continued hope for
labor law reform at both the federal and state levels. Our hope is that the
chapters here update our current knowledge of collective bargaining in
the United States and bring about renewed discussion and debate about
the importance of this institution to a democratic society and its implications for American workers.
REFERENCES
AFL-CIO. No date. “Bargaining for Health Care.” <http://tinyurl.com/kds4ofw>
Burghart, S. 2009. “Overcompensating Much? The Impact of Preemption on Emerging
Federal and State Efforts to Limit Executive Compensation.” Columbia Business Law
Review, Vol. 669, pp. 669–727.
Chaison, G. 2012. The New Collective Bargaining. New York: Springer.
Change to Win. No date. “Our Campaigns.” <http://tinyurl.com/kgzpmdm>
8
Kochan, T., and J.-P. Ferguson. 2008 (Mar.). “Sequential Failures in Workers’ Rights to
Organize.” Cambridge, MA: MIT Sloan School of Management, Institute for Work
and Employment Relations. <http://tinyurl.com/cygtek>
Mayer, G. 2004 (Aug. 31). “Union Membership Trends in the United States.” Congressional
Research Service, Key Workplace Documents, Cornell University, ILR School: Digital
Commons@ILR. <http://tinyurl.com/chlong>
Monga, V. 2012 (Nov. 12). “Dealing with the Pension Deficit.” Wall Street Journal. <http://
tinyurl.com/n7hs2cf>
Taylor, J. 2009. “The Financial Crisis and the Policy Responses: An Empirical Analysis of
What Went Wrong.” Working Paper 14631. Cambridge, MA: National Bureau of
Economic Research. <http://tinyurl.com/n8efhrw>
United States Bureau of Labor Statistics (U.S. BLS). 2013 (Jan. 23). “Union Members
2012.” <http://tinyurl.com/27c4z5>
United States Bureau of Labor Statistics (U.S. BLS). No date. “Seasonal Average Weeks
Unemployed, 16 Years and Over. January 2003–February 2013.” <http://tiny
urJl.com/3gss8qd>
United States Bureau of Labor Statistics (U.S. BLS). No date. “Seasonal Unemployment
Rate, 16 Years and Over. January 2003–February 2013.” <http://tinyurl.com/3gss8qd>
United States Bureau of Labor Statistics (U.S. BLS). No date. “Unadjusted Not in Labor
Force, Searched for Work and Available, Discouraged Reasons for Not Currently
Looking. January 2003–February 2013.” <http://data.bls.gov/pdq/SurveyOutputServlet>
Valletta, R. 2011. “Rising Unemployment Duration in the United States: Composition
or Behavior?” San Francisco, CA: Federal Reserve Bank of San Francisco. <http://
tinyurl.com/ljfdyjg>
Chapter 1
Context, Process, and Outcomes
of Collective Bargaining in the
U.S. Airline Industry
Andrew von Nordenflycht
Simon Fraser University
Jody Hoffer Gittell
Brandeis University
In LERA’s 2002 research volume, Collective Bargaining in the Private
Sector, Nancy Brown Johnson concluded that, despite deregulation of the
industry in 1978 that led some observers to predict a decline in unionization and wages because of increased competition, the airline industry
remained highly unionized, wages had declined only slightly and were
rising again by the late 1990s, and a fragmented but pervasive system of
collective bargaining characterized the industry’s employment relationship. In other words, despite deregulatory turmoil and experimentations
with alternative approaches to the employment relationship, by 2000 the
industry had returned to traditional, conventional industrial relations
(Johnson 2002). However, Johnson’s chapter concluded by raising the
question of whether the economic crisis precipitated by the 9/11 terrorist
attacks would change that stable structure of collective bargaining in the
airline industry.
The 9/11 attacks did precipitate an enormous economic crisis for U.S.
airlines. Occurring when the airline industry was already moving into a
downturn, the attacks led to an unprecedented drop in travel demand for
several months: Revenues dropped by nearly 20% in the months after the
attack, and a year later they remained approximately 12% below their
pre-attack level. Failing to cover their substantial fixed costs, U.S. airlines
lost a combined $9 billion in 2001 and continued to lose billions for
several more years. Tough economic conditions continued through the
decade. Most notably, oil prices sextupled from September 2001 through
June 2008 and in 2012 remained four times higher than 2001 prices
(IOGA 2013). And it was topped off by the Great Recession of 2008–2010.
The solid line in Figure 1 shows the industry’s aggregate operating income.
Because it excludes various write-offs and other accounting charges,
aggregate operating income is a good measure of how tough or attractive
9
10
a year the industry had. Figure 1 indicates that the industry operated
largely in the red from 2001 through 2005 and had only three good years
in the next five.
In the face of the post-9/11 crisis, U.S. airlines initiated massive
restructuring efforts to reduce operating costs and fixed costs—layoffs,
plane groundings, labor contract renegotiations, aircraft lease renegotiations, etc. The dashed line in Figure 1 shows the aggregate net income of
the largest 15 airlines. This measure includes the enormous write-offs
incurred in bankruptcies. We include this figure to highlight the tens of
billions of dollars of shareholder value that were wiped out in restructuring,
even after the industry had regained profitability on a day-to-day operating
basis.
The layoffs attendant to the restructuring led to a steep decline in the
industry’s total employment level. The bars in Figure 1 show the industry’s
total employment from 2000 to 2010, graphically illustrating the 22%
decline from 2000 to 2005 in the wake of 9/11 restructuring, and then
the slow decline thereafter as the industry has continued to face adverse
economic conditions.
This economic adversity and the restructuring to adapt to it have also
led to significant corporate reorganization via bankruptcies and mergers.
FIGURE 1
U.S. Airline Industry Aggregate Profit and Employment, 2000–2010
Source: Employment and net income from MIT Airline Data Project (http://tinyurl.com/ldztd9y),
based on Form 41 Schedule P10 and SEC 10K filings. Operating income from U.S. Bureau of
Transportation Statistics.
AIRLINE INDUSTRY
11
By 2005, four of the country’s largest airlines had declared bankruptcy
(US Airways [twice], United, Northwest, Delta), as had 12 other airlines.
American Airlines avoided bankruptcy in the initial post-9/11 period but
eventually entered Chapter 11 in 2011. In conjunction with the bankruptcies, the largest U.S. airlines have merged. America West bought US
Airways out of bankruptcy in 2005; Delta and Northwest merged while
both were in bankruptcy in 2008; United, after emerging from bankruptcy,
merged with Continental in 2010; Southwest acquired AirTran in 2010;
and US Airways and American agreed to merge in early 2013. Thus, the
nine largest airlines in 2001 (the eight previously mentioned plus Alaska
Airlines, which has not participated in any mergers) are now only four.
Against this backdrop of sustained economic difficulty and corporate
restructuring, we again take up the question addressed in Johnson (2002):
What is the state of collective bargaining in the U.S. airline industry circa
2012? Is collective bargaining dead? Is it declining? Or is it alive and well?
To address these questions, we focus on three underlying questions. First,
what is the level of union representation in 2012? How has that changed
from the last report in 2002? And what is the likely future direction of
unionization: growth, stability, or decline?
Second, how well is the collective bargaining process working? In
particular, we discuss the extent to which parties have been able to rely
on collective bargaining without outside intervention, and the frequency
of negotiation breakdowns in the form of strikes or other job actions.
Third, what is the effectiveness of unions in protecting and enhancing
members’ employment interests? We have already shown that employees
and their unions have experienced substantial job loss. So the primary
dimension we discuss in this chapter is compensation: What has happened
to wage levels and benefits? A secondary dimension we discuss is employees’
voice in airline decision making. At the strategic level of decision making,
there have been several notable instances of shared ownership in this
industry’s history. So we address the current state and likely future of
shared ownership in the industry.
Finally, we discuss the role of high-quality relationships among
managers, employers, and unions for airline productivity and service
quality, and we comment on the challenges to and facilitators of building
high-quality relationships in this industry. We also discuss the relationships between high-quality relationships and the effectiveness of collective
bargaining.
Before turning to these issues—the state of unionization, the
negotiation process, wage and benefit outcomes, and shared ownership—we
provide background on the competitive structure of the industry and the
industry’s distinctive regulatory regime for labor relations.
12
U.S. PASSENGER AIRLINE INDUSTRY STRUCTURE
This chapter focuses exclusively on scheduled passenger airlines, excluding
cargo airlines and charter airlines. Scheduled passenger service accounts
for about 75% of industry revenue, while cargo accounts for about 20%,
and charter accounts for the remaining 5%. Scheduled passenger airlines,
also referred to as carriers in the United States, are commonly grouped
into several categories. The primary categorization—the one used by the
U.S. Department of Transportation in setting reporting requirements and
publishing statistics—is size based. Major airlines are those with annual
revenue greater than $1 billion. National airlines are those with revenue
between $100 million and $1 billion, and airlines smaller than that are
considered regional (U.S. BTS 2013). Table 1 lists the major and national
airlines in 2013.
A more informative categorization, however, is based on strategic
position, making distinctions across airlines on the basis of how they
compete, in particular their route network, levels of service, or both. In
TABLE 1
Major and National U.S. Scheduled Passenger Airlines in 2013
Majors
AirTran
Nationals
Air Wisconsin
Alaska Airlines
Allegiant Air
American Airlines
Colgan
American Eagle
Comair
Delta Air Lines
Compass
Frontier Airlines
Executive Airlines
Hawaiian Airlines
ExpressJet Airlines
Jet Blue
Go Jet
SkyWest
Horizon Air
Southwest Airlines
Mesa Airlines
United Airlines
Mesaba Airlines
US Airways
Pinnacle
PSA
Republic Airlines
Shuttle America
Spirit Air Lines
Sun Country
Virgin America
Source: U.S. Bureau of Transportation Statistics (http://tinyurl.com/pyeh8bs).
AIRLINE INDUSTRY
13
this categorization, there are three main strategic positions. The familiar
large airlines fall into the full-service segment, also known as network
carriers. These airlines operate national hub-and-spoke networks and offer
multiple classes of service on each plane. They target relatively priceinsensitive business travelers, though they also serve many more leisure
travelers to fill their planes. They have often been referred to as legacy
carriers, because they are the industry’s oldest incumbent firms. The largest
of these airlines operate to international destinations, but there are also
full-service network airlines that operate at a regional level, such as Alaska
Airlines and Hawaiian Airlines.
A second segment is composed of low-cost carriers (LCCs). These
airlines have lower operating costs and offer lower fares than the full-service
carriers do. They target price-sensitive leisure travelers. One way they
achieve lower costs is by operating more point-to-point route networks,
rather than hub and spoke, enabling them to use fewer types of aircraft
and achieve faster turnaround times on the ground. They also tend to be
younger firms, with consequently lower labor costs stemming from a less
senior workforce and less restrictive work rules—although Southwest, the
largest low-cost carrier (and the largest U.S. carrier by number of passengers), has been operating since 1971.
These segments are experiencing different growth prospects in the
current environment, and the nature of the employment relationship varies
across them, so it is important to keep this in mind when assessing the
state of collective bargaining in the industry as a whole. Over the past
decade, however, the distinction between these two segments has been
decreasing. As we discuss in more detail later, almost all of the legacy
carriers have shed their long-standing labor contracts while in bankruptcy,
so the term “legacy” may ultimately fade from use. At the same time,
LCC operations and networks have been increasing in complexity, and
their workforce has been aging, which increases their costs. The merger
between full-service US Airways and LCC America West in 2005, which
we discuss later, represented an explicit blending of the two. For the purposes of this chapter, we continue to use this full-service/LCC distinction
but acknowledge that it may continue to diminish.
The third segment is composed of regional carriers (also known as
commuter carriers). These airlines operate smaller types of aircraft—
turboprops and regional jets—on shorter routes. Most have agreements
with full-service carriers to be “feeder” operations for the full-service
hubs—that is, the regional airlines operate service from small cities to the
full-service carriers’ hubs, allowing passengers to connect to a wide range
of destinations. Some of these regional airlines are subsidiaries of fullservice airlines (e.g., American Eagle, Continental Express). But even those
that are independent often operate under the brand of the full-service
14
partner (for instance, SkyWest operates flights under the United Express,
Delta Connection, and US Airways Express brands). In this chapter, we
concentrate on full-service and low-cost carriers because they have been
the focus of our research over the past decade.
REGULATORY FRAMEWORK FOR U.S. AIRLINE–LABOR
RELATIONS
In contrast to labor relations in most other private sector industries, which
are governed by the National Labor Relations Act (NLRA), labor relations
in the U.S. airline industry are governed by the Railway Labor Act (RLA),
a statute first enacted to cover railroads in 1926 and then extended to air
transportation in 1934. The RLA has a number of provisions designed to
protect the public from work stoppages that are part of collective bargaining in this industry. For this reason, and because proposals for reform of
the RLA have surfaced from time to time, we outline the process in some
detail here, based on the descriptions by von Nordenflycht and Kochan
(2003) and Johnson (2002).
One key difference from the NLRA is that under the RLA contracts do
not have fixed expiration dates. Instead, they have “amendable” dates. After
the amendable date, the provisions of the existing contract remain in effect
until the parties reach a new agreement. New contract terms cannot be
imposed unilaterally, and strikes or lockouts cannot be initiated until the
parties have progressed through several steps that are regulated by the
National Mediation Board (NMB). These steps are outlined as follows.
If the parties cannot reach a contract agreement on their own, either
side may apply for mediation services from the NMB. Once in mediation,
negotiations continue until an agreement is reached or until the NMB
declares an impasse. At that point, the NMB offers the option of voluntary
binding arbitration. If either party rejects the offer of binding arbitration,
the NMB “releases” the parties. Once released, the parties enter a 30-day
cooling-off period, during which time the existing contract provisions
remain in effect. At the end of the cooling-off period, if the parties have
still not reached an agreement, the NMB chooses whether to let the parties engage in “self-help” (i.e., a strike by workers, or a lockout or unilateral
imposition of new contract terms by management) or refer the case to a
Presidential Emergency Board (PEB). The PEB, composed of three neutral
experts appointed by the U.S. president, is allowed 30 days to deliberate
and formulate a recommended settlement. After the PEB issues its recommendations, another 30-day cooling-off period begins. Finally, at the end
of the second cooling-off period, the parties are free to engage in self-help.
As a final recourse, after the expiration of the second cooling-off period,
the president can refer the case to Congress, requesting that Congress
legislate a settlement.
AIRLINE INDUSTRY
15
In other words, once a contract becomes amendable, the parties are
legally barred from self-help until the NMB releases them and the coolingoff period expires. Theoretically, the parties could be prevented from
self-help indefinitely because the decision to release the parties while in
mediation is at the discretion of the NMB. Even once the NMB releases
the parties, there is then a minimum of 30 days and a maximum of 90
days (first cooling-off period, PEB, second cooling-off period) before the
parties can engage in a strike or lockout.
In accordance with the intent of the RLA, strikes have been relatively
rare in the airline industry (notwithstanding their high visibility when
they do occur). Moreover, strikes have also become less frequent over time.
We discuss this incidence of strikes historically, and more recently, in a
later section of this chapter.
However, the cost of this avoidance of work stoppages is that the time
required to reach agreement in the airline industry has been long relative
to other industries. For industries covered by the National Labor Relations
Act, one study concluded that 74% of contracts are settled before or within
one month after the contract expiration date (Cutcher-Gershenfeld, Kochan,
and Wells 1998). By contrast, in a study of airline labor contract negotiations
from 1984 through 2002, von Nordenflycht and Kochan (2003) found that
only 11% were settled within one month after the expiration date.
A second notable difference between the NLRA and the RLA is that
union representation under the RLA is craft based rather than workplace
based. In other words, a given union will represent the employees in a
specific occupation (e.g., pilots, mechanics) across all the sites of a single
airline. This approach is in contrast to the NLRA framework of representing employees across all occupations but only at one specific site (e.g., a
given airport). As we conjecture in the next section, the craft model may
make it easier to unionize.
The RLA has remained the regulatory framework for union representation and collective bargaining in the airline industry, and, as Johnson
(2002) notes, there is little appetite on the part of management or labor
to change it. Accordingly, there is no regulatory reason to predict any
change in the level and nature of unionization. But has the aforementioned
financial and corporate turmoil during the industry’s past decade led to
any such change nonetheless?
UNION REPRESENTATION
Johnson (2002) reported that the airline industry was one of, if not the
most, unionized industries in the private sector, with union density in
1997 estimated at 39.5%. In 2001, all of the major airlines had at least
one union representing their pilots, and most had union representation
of flight attendants and mechanics as well.
16
Table 2 provides information on the representation status of each of
the five major airline occupations (crafts) at the 18 largest U.S. airlines in
2012. A number of points can be drawn from this table and supplementary
statistics.
First, the industry’s level of unionization remains high in 2012. Only
three of the 18 airlines have no union representation among their main
employee groups. Half (nine) have at least four of the five major groups
unionized. Estimates based on the Current Population Survey (CPS) show
that the industry’s union density increased over the decade to 43% in
2011 (Hirsch 2013). Second, union representation is pervasive across all
three industry segments. The first column in Table 2 indicates each airline’s
segment (FS = full service; LC = low cost; R = regional). Even in the lowcost segment, only two of the seven airlines are non-union, which contrasts
with conventional wisdom in the popular press that these airlines achieve
their low costs in large part via non-union status.
Third, representation remains fragmented, with employees represented
by a variety of unions, even across the same carrier. To some degree, this
is encouraged by the aforementioned craft-based representation within the
RLA: three of the five crafts (pilots, flight attendants, and mechanics) have
at least one union that represents members of that craft only—ALPA and
APA, AFA-CWA, and AMFA, respectively (see Table 2 notes for full names
of unions)—which means that they cannot organize all the employees at
a given airline. In addition, multiple unions represent each craft. Although
pilots and flight attendants each have a dominant union (ALPA and AFACWA), there are also other national and independent unions that represent
these groups at a few carriers. The TWU, IBT, and IAM represent employees
across all five occupations.
Furthermore, bargaining by this multitude of unions continues to be
conducted independently. There have been no new attempts at industrywide bargaining. Even within a given airline, inter-union coordination
for bargaining has been rare (Walsh 2001; Bamber, Gittell, Kochan, and
von Nordenflycht 2009). This characteristic cannot be explained by the
RLA: In the railroad industry, also governed by the RLA, bargaining
sometimes occurs at the industry level. This lack of union coordination
within and across carriers appears to be an industry-specific norm.
Several factors may contribute to the maintenance of high levels of union
representation, despite the cycles of competitive and financial turmoil the
industry experiences. One possible method by which unionization in an
industry might be reduced is through management attempts to remove
existing unions. But such attempts have been few and unsuccessful. First,
the principal opportunity to bust a union comes by hiring replacement
workers during a strike. However, as we document later in more detail,
strikes have been rare since deregulation because the RLA’s regulatory
17
AIRLINE INDUSTRY
TABLE 2
Unions Representing Employees of the 18 Largest U.S. Airlines (mid-2012)*
Mechanics and related
Flight
attendants
Mechanics
Ramp/fleet
service
Clerical/
agent
Segment
FS
Airline
Delta
Pilots
ALPA
FS
United/
Continental
ALPA
AFA-CWA
IBT
IAM
IAM
FS
American
APA
APFA
TWU
TWU
Vote
pending
LC
Southwest
SWAPA
TWU
AMFA
TWU
IAM
FS/LC
US Airways
USAPA
AFA-CWA
IAM
IAM
IBT/
CWA
LC
JetBlue
FS
Alaska
ALPA
AFA-CWA
AMFA
IAM
IAM
LC
AirTran**
ALPA
AFA-CWA
AMFA
IBT
R
SkyWest***
LC
Frontier
IBT
AFA-CWA
IBT
FS
Hawaiian
ALPA
AFA-CWA
IAM
R
ExpressJet***
ALPA
IAM
IBT
AFA-CWA
TWU
R
American Eagle ALPA
LC
Spirit
LC
Virgin America
ALPA
AFA-CWA
R
ASA***
ALPA
AFA-CWA
IAM
R
Republic
IBT
IBT
IBT
LC
Allegiant
IBT
TWU
IAM
TWU
IBT
Sources: Airlines for America, individual airline SEC 10K filings.
*In descending order of size, as measured by revenue passenger miles in 2011.
**AirTran was acquired by Southwest in 2010. As AirTran employees convert into
Southwest employees through the integration process, they will become represented by
Southwest’s unions.
***SkyWest, ExpressJet, and ASA are all owned by SkyWest Holdings.
AFA-CWA: Association of Flight Attendants–Communication Workers of America
ALPA: Air Line Pilots Association
AMFA: Aircraft Mechanics Fraternal Association
APA: Allied Pilots Association
APFA: Association of Professional Flight Attendants
CWA: Communication Workers of America
IAM: International Association of Machinists
IBT: International Brotherhood of Teamsters
SWAPA: Southwest Airlines’ Pilots Association
TWU: Transport Workers Union
USAPA: US Airline Pilots Association
IAM
18
framework is intended to avoid strikes and because airlines and unions
both consider strikes to be extremely costly (Bamber, Gittell, Kochan, and
von Nordenflycht 2009). Second, the main historical attempt to suppress
unions in this manner, by Frank Lorenzo at Texas Air, was ultimately a
disaster.
Lorenzo’s tenure in the deregulated industry is the most noteworthy
example of a union-containment or union-suppression strategy. Head of
Texas International when the industry deregulated, he first founded a
non-union subsidiary, New York Air. More notably, he acquired Continental
Airlines in a hostile takeover in 1981 and, after failing to win major wage
concessions, put the airline into bankruptcy to abrogate the labor contracts
and reset wages at half of their existing levels. When the unions struck,
he assembled a new non-union workforce. Lorenzo then acquired Eastern
Airlines in 1986, and in addition to demanding large concessions, began
transferring assets from Eastern to his other non-union airlines. Although
Lorenzo reduced labor costs drastically at his airlines, their service quality
also declined and profitability was infrequent. By 1991, all of his airlines
were in bankruptcy and he was banned from the industry by a court
ruling, suggesting that his approach not only was bitterly opposed by
employees—Lorenzo’s airlines were the target of seven of the industry’s
13 strikes between 1982 and 1991—but also was not rewarded in the
marketplace (Bamber, Gittell, Kochan, and von Nordenflycht 2009;
Gittell, von Nordenflycht, and Kochan 2004).
The other method by which an industry’s level of unionization might
decline is by the growth of non-union competitors that win share away
from the unionized firms. This situation has not occurred in the U.S.
airline industry, for several reasons. First, U.S. airlines are protected from
foreign “imports” (i.e., competition from foreign airlines on routes within
the United States) because of federal law (the 1938 Civil Aeronautics Act)
that requires airlines operating within the United States to be controlled
by U.S. citizens, which includes having no more than 25% foreign ownership (Odoni 2009; U.S. GAO 2003).
Second, few domestic airlines have been able to maintain non-union
status, even new entrants. Table 3 shows the most successful start-up airlines
since deregulation (defined as those that are now among the industry’s
largest), in order of their age, along with the representation status of each
craft as of 2012 or as of the year in which the firm was acquired. The
information in the table suggests that new airlines almost inevitably become
unionized, particularly among pilots and flight attendants. This relative
ease of organizing may stem in part from the RLA’s craft-based representation, in that a union can appeal to the particular needs of only one occupation, rather than trying to organize employees of very disparate skills, wage
levels, and backgrounds at a given worksite.
19
AIRLINE INDUSTRY
TABLE 3
Union Representation at New-Entrant Airlines, by Airline Age
Airline
Southwest
America West
(now US Airways)
AirTran
Firm age
(years)
40
22
(at merger)
18
(at merger)
Mechanics
Ramp/
fleet
service
Agents
TWU
AMFA
TWU
IAM
ALPA
AFA
IBT
TWU
IBT
ALPA
AFA
IBT
IBT
IBT
Pilots
Flight
attendants
SWAPA
Frontier
18
FAPA
AFA
Allegiant
13
IBT
TWU
JetBlue
12
Virgin America
4
Source: Individual airline SEC 10K filings.
Third, incumbent airlines that have become competitively and/or
financially unviable have tended to reorganize under Chapter 11 bankruptcy rather than liquidating, thus preserving the union status of their
share of the industry’s workforce.
Non-Union Strategies
Of course, Table 3 identifies three non-union airlines—JetBlue, SkyWest,
and Virgin America—as well as Delta, where only the pilots are unionized. What explains these exceptions?
Delta has remained non-union, with the exception of its pilots (and
flight dispatchers), by following a union substitution approach to labor
relations and a commitment-based approach to human resources. (For
more detail on Delta, see Kaufman 2013, as well as Bamber, Gittell,
Kochan, and von Nordenflycht 2009 and Gittell, von Nordenflycht, and
Kochan 2004.) Delta’s original approach to the employment relationship
was a paternalistic, corporate welfare approach that sought to preserve a
strong “family” culture and included a promise of industry-leading wages
and lifetime employment. In return, Delta gained strong employee commitment (as well as votes against unionization), which translated into
superior customer service and operational flexibility that allowed Delta
to outperform rival carriers (Kaufman 2013). The magnitude of employees’
commitment to Delta is often illustrated by the fact that employees jointly
purchased a Boeing 767 to demonstrate their appreciation to the company
for avoiding layoffs in the recession of the early 1980s.
Delta’s employment strategy was severely tested in the mid-1990s, when
an expensive acquisition came just before an industry downturn and
20
resulted in several years of large losses. Layoffs and wage cuts followed
from 1994 through 1997, which undermined the implicit social contract
with employees. Reduced morale was manifested in a noticeable decline
in service quality as well as in unionization drives. As part of its attempt
to preserve and restore its employment culture, Delta began some formal
employee involvement programs (Kaufman 2003, 2013). Ultimately,
employee goodwill was preserved enough to defeat this round of unionization drives.
The post-9/11 period tested Delta’s non-union commitment model even
more, as the airline went through bankruptcy restructuring—involving
the large wage, benefit, and job cuts we describe later in this chapter—as
well as a merger with Northwest Airlines, which added an almost equal
number of employees long-accustomed to union representation. However,
as Kaufman (2013) argues, the new management team that led Delta
through bankruptcy, headed by Gerald Grinstein, made significant investments of managerial time into communicating with employees and made
credible demonstrations that employee welfare was valued. Part of this
involved embracing aspects of the employee involvement programs, both
at the board and the workplace levels. Despite the concessions and the
merger, the flight attendant, fleet service, and passenger service agent
groups of the combined airline all voted against union representation in
late 2010 (Mouawad 2010; NMB 2011).
Interestingly, Kaufman points out that although Delta has maintained
a higher level of employee commitment than rival airlines, the social
contract underlying that commitment has shifted from the original paternalistic “family” approach, to a more modern “high-commitment work
system”–like model based on mutual gains, in which formal employee
involvement structures play a central role. Of note is that the promise of
industry-leading wages has been replaced with a promise of industry
average wages but with the opportunity to be industry leading if the airline
performs well. In the end, though, Delta’s ability to remain largely nonunion appears sustainable in the future.
JetBlue and Virgin America are newer airlines, only 12 and 4 years old
respectively. Based on the pattern in Table 3, we might expect the unionization of these airlines to occur eventually. However, JetBlue has expressed
a strong desire to remain non-union and employs a range of human
resources practices that foster employee commitment to the airline and
weaken employee interest in union representation (Gittell and O’Reilly
2001). The success of this approach has seemingly been validated by recent
representation votes: JetBlue pilots voted against unionization in 2009
and again in 2011, and no other crafts have filed for an election (Barinka
and Schlangenstein 2011). At Virgin America, flight attendants voted
against representation in 2011 (Carey 2011), but the carrier is very young;
AIRLINE INDUSTRY
21
therefore, little can be said about the likelihood of its future representation
status. (SkyWest, a regional carrier, falls outside the scope of this chapter,
but it warrants investigation.)
The Future of Representation
The previous discussion indicates that an individual airline may be able
to maintain non-union status. But the bigger picture of this section is that
non-union status remains the exception rather than the norm, regardless
of industry segment. There does not appear to be a trend toward lower
rates of representation despite the poor performance of incumbent airlines
and the bankruptcies and mergers of many airlines since 9/11.
The factors facilitating representation remain in place: regulatory
prohibitions against foreign competitors; reorganization rather than liquidation of failing incumbents; and, primarily, the relative ease of organizing under the RLA and/or in the particular culture of this industry and
these occupations. And a recent regulatory change has, in theory, made
organizing even easier. In June 2010, the NMB revised its election rules
such that representation occurs when votes for representation are a majority of votes cast rather than of a majority of eligible employees (a rule
change which was upheld in U.S. federal circuit court in 2011). In other
words, after this ruling, employees who do not vote in a representation
election are no longer counted as “no” votes. Thus, the state of union
representation in the U.S. airline industry will likely remain stable. We
conjecture about this future stability in more detail in the conclusion.
COLLECTIVE BARGAINING EFFECTIVENESS: NEGOTIATION
BREAKDOWNS
As noted in section on the RLA, negotiation periods tend to be long
because of RLA provisions. But however long and protracted the bargaining process is, it generally reaches a privately negotiated outcome without
any work stoppage. In other words, breakdowns in the negotiation process
are rare. In this section, we discuss briefly the frequency of negotiation
breakdowns in the form of strikes, NMB mediation and arbitration, and
judicial contract abrogations.
Strikes
The frequency of strikes since deregulation has been much lower than
before deregulation and has been decreasing during the deregulated era
despite the occurrence of four major industry contractions (1981–1982,
1990–1992, 2001–2005, and 2008–2010), which led to demands for wage
concessions. In a sample of 199 contract negotiations from 1982 through
2002, there were six strikes, representing just 3% of negotiations (von
Nordenflycht and Kochan 2003). From 2002 through 2012, despite all
the massive concessionary restructuring, there have been only two strikes
22
at passenger airlines (Northwest’s mechanics in 2005; Spirit’s pilots in
2010; four strikes have occurred at cargo carriers in this period) (NMB
2013).
The increasing rarity of strikes is attributable not only to RLA
procedures but also to the vastly increased costs of a strike since deregulation. Before deregulation, airlines organized a joint strike insurance fund
in which other airlines compensated an airline that experienced a strike.
This mutual-aid pact was nullified by the deregulating legislation in 1978.
After deregulation, then, a struck airline not only didn’t receive compensation for lost business but also likely suffered greater losses as rivals (and
entrants) were much freer to invade the struck carrier’s routes in the
deregulated environment. Strikes have also been costly for unions and
their members. The AMFA mechanics strike at Northwest Airlines in
2005 is a good example. Seeking to avert a bankruptcy filing, Northwest
reached concession agreements with all its unions except AMFA. When
the parties were released by the NMB, AMFA struck. Northwest responded
by filing for bankruptcy, hiring replacement workers, and outsourcing big
chunks of its maintenance work. Mechanics remained unrepresented
through bankruptcy and the merger with Delta. No attempts have been
made by AMFA or other mechanics unions to organize the combined
group of mechanics. Since deregulation, both labor and management have
generally concluded that strikes are very costly for both sides (Bamber,
Gittell, Kochan, and von Nordenflycht 2009), which reduced their
frequency.
Mediation and Arbitration
Under the RLA, either side of a labor contract negotiation can request
mediation by the NMB. Also, if both parties agree, negotiations can be
submitted to binding arbitration. In a study of some 200 airline labor
contract negotiations from 1982 through 2001, von Nordenflycht and
Kochan (2003) reported that half of the negotiations went into NMBsponsored mediation, whereas only 3% went to arbitration. Thus, the
parties almost never choose arbitration, preferring negotiated settlements,
but they do rely heavily on mediation. So, although strikes are rare and
negotiations are ultimately settled privately, government intervention (in
the form of mediation) is frequently needed—or at least requested.
Bankruptcy and Contract Abrogations
Almost all of the concessions during the restructuring period were
collectively bargained. Of course, most were also bargained under the threat
of or in the process of bankruptcy. Among the full-service legacies, only
American and Continental managed to renegotiate their labor contracts
outside of bankruptcy. The other four failed to negotiate agreements with
unions that staved off bankruptcy—and ultimately American joined them.
AIRLINE INDUSTRY
23
In the bankruptcy restructuring, most of the final labor contracts were
still negotiated settlements—although in these cases, unions were not in
a strong position to avoid or mitigate concessions, because some carriers
invoked the threat of liquidation as the alternative to acceptance of the
carriers’ terms.
In a few instances, though, unions and carriers failed to negotiate a
settlement in the bankruptcy process, in which case the bankruptcy court
judge abrogated the existing labor contract. Voided contracts included
IAM (mechanics) at US Airways, APA (pilots) at American, and AMFA
(mechanics) at United.
Overall, in the face of legacy airlines’ financial difficulties and their
large and repeated demands for concessions, collective bargaining avoided
strikes, but it generally did not allow legacy airlines and their unions to
escape bankruptcy. Within bankruptcy, however, collective bargaining
produced negotiated settlements for the most part, with a few exceptions
of failed negotiations for which judicial intervention allowed firms to
impose employment terms unilaterally.
BARGAINING OUTCOMES: WAGES AND BENEFITS
The airline industry has traditionally been characterized by both high levels
of unionization and relatively high wages (Hirsch and Macpherson 2000;
Johnson 2002; Hirsch 2007). Around 2000, for instance, pilots were one
of the most highly paid occupations in the country (Johnson 2002).
Research has shown that airline industry workers earn higher wages than
non-airline industry workers of comparable experience and demographics,
even after accounting for a decline of 10% to 20% in relative wage levels
over the first two decades of deregulation—part of which is due to higher
skill requirements and part of which is due to union representation
(Cremieux 1996; Card 1998; Hirsch and Macpherson 2000). This can be
seen in Table 4, which shows Hirsch’s (2007) estimates of hourly wages of
airline workers—union and non-union—compared with wages of comparable non-airline workers, averaged over the period from 1995 through
2006. The top row shows that the industry-wide weighted average wage
of $22.88 exceeds the comparison group average of $19.29. Controlling
for a range of location, occupation, and individual characteristics, Hirsch
estimates that this represented an 11.4% premium. Looking down the
table, one sees that the wage differentials for the specific airline crafts
(pilots, flight attendants, mechanics) are even higher. Hirsch also provides
the CPS skill index, which shows that airline jobs are considered to require
higher levels of skill than non-airline jobs held by individuals with similar
demographic characteristics, which accounts for some of the wage difference. But when looking at hourly wages of unionized versus non-unionized
airline workers, one sees that there is also a substantial union premium.
24
TABLE 4
Hourly Wage Estimates, Airline vs. Non-Airline Employees, 1995–2006
All
Airline Workers
Union
Non-union
Comparison groups
Industry
Wage
Skill index
$22.88
1,274
$27.03
1,241
$19.68
1,299
$19.29
1,282
Pilots
Wage
Skill index
$43.09
2,225
$49.38
2,225
$30.86
2,225
$27.30
1,864
Flight Attendants
Wage
Skill index
$21.24
933
$22.09
933
$18.99
933
$15.56
896
Mechanics
Wage
Skill index
$23.73
1,577
$26.58
1,578
$20.84
1,577
$18.75
1,204
Source: Hirsch (2007), based on U.S. Bureau of Labor Statistics Current Population Survey.
Given the maintenance of high levels of union representation since
2001, we might expect that industry wage levels would also remain relatively high over the past decade. However, many incumbent airlines
underwent substantial restructuring to reduce costs in the wake of 9/11,
including renegotiation of labor contracts. So what has happened to
compensation and benefits in the industry? We first discuss the substantial
concessions that accompanied the restructuring of legacy airlines in the
first half of the decade, and then we discuss wage trends across the industry
over the whole decade.
“Legacy” Restructuring via Concessionary Contracts: The
Case of US Airways
From the perspective of employees at legacy full-service airlines, wages
and benefits were substantially reduced during the first half of the decade.
The financial distress the airlines suffered after 9/11, which ultimately led
to bankruptcy restructuring for US Airways, United, Delta, Northwest,
and American, forced unions to accept significant concessions in wages,
benefits, and work rules. One of the most drastic restructurings via bankruptcy was that of US Airways. A brief history of US Airways offers a
useful illustration of the magnitude of legacy restructuring in the United
States (much of the material that follows is sourced from Bamber, Gittell,
Kochan, and von Nordenflycht 2009).
US Airways was founded in 1939 as All-American Airlines, ultimately
changing its name to Alleghany Air in the 1950s and then USAir shortly
AIRLINE INDUSTRY
25
after deregulation. At the time of deregulation, USAir was a large airline
but had a regional focus. To establish itself as a national airline, USAir in
1987 acquired two other large airlines, PSA and Piedmont, but a difficult
merger integration process left the airline with a cultural legacy of internal
conflict.
Through the 1990s, US Airways was roughly the sixth-largest airline
in the United States. Its route network, though, was still more regionally
concentrated than that of its large rivals. In particular, US Airways’ network included many short-haul flights around the central and eastern part
of the country. These shorter routes contributed to one of US Airways’
key disadvantages through the 1990s: the highest unit costs in the industry.
This unit cost position was also the result of a combination of high wage
rates, work rules, and the adversarial workplace culture, which yielded
the industry’s highest unit labor costs as well. The airline nonetheless
survived because many of its routes not only had a large percentage of
corporate passengers but also faced minimal competition, allowing US
Airways to charge a price premium. The cost disadvantage generally
outweighed the price advantage, however, and US Airways’ financial
performance as a result was generally poor relative to its rivals. As shown
in Figure 2, US Airways’ operating margin (operating income divided by
revenue) was consistently below the industry median since the 1987 merger
through 9/11.
Post-9/11, US Airways was hit particularly hard. One of its hub airports,
Reagan National Airport in Washington, DC, was closed for security
reasons for a month after the attacks. In addition, new-entrant competition began encroaching into much of its territory, especially Southwest
Airlines in Baltimore and Philadelphia. Not surprisingly, US Airways was
an early candidate for bankruptcy, filing in the fall of 2002.
The airline reached a concession agreement with its unions by late 2002.
Subsequent operating results, however, were not positive and worsened
by an increase in fuel prices. The airline had to ask the unions for a second
round of wage and benefit cuts. After the majority owner made an explicit
threat of liquidation, unions agreed to a second set of concessions. The
airline exited bankruptcy in March 2003, but its operating results remained
poor and the environment—namely jet fuel prices—worsened. In the fall
of 2004, US Airways went back into bankruptcy and asked the unions
for yet a third round of cuts. In addition to the threat of liquidation, the
other source of bargaining leverage for the airline was the possibility of
asking the bankruptcy judge to void the labor contracts if no agreement
could be reached after good-faith efforts. Although the pilots and flight
attendants eventually agreed to this third round of cuts, the mechanics
did not and eventually had their contract voided by the presiding judge.
26
FIGURE 2
US Airways vs. Major Airline Median Operating Income, 1989–2002
Source: MIT Airline Data Project, DOT Form 41 reports, SEC 10K reports.
After this contract voiding, US Airways and the mechanics agreed to the
terms last proposed by the airline during negotiations.
Over three rounds of concessions, employee wages were cut by 40%
in some instances. Figure 3 illustrates the wage concessions using, flight
attendant wage rates. The solid lines represent an estimated monthly pay,
based on the contractual hourly rate and an estimated 75-hour month,
for flight attendants with five years’ seniority and those with 14 years’
seniority (the highest pay rate); for example, in 2001, the most-senior flight
attendants earned about $3,241 per month. The dashed lines represent
these monthly wages as an index of monthly wages in 2001. After the
concessions, in 2005, senior flight attendants were earning 13% less than
they did in 2001, while those with five years of service earned 8% less.
It is interesting to note that in the subsequent years, wages have climbed
steadily, to the point that junior flight attendants earn more than they
did in 2001, while senior flight attendants are back to 96% of 2001 rates.
But although these flight attendants have seen their wage rates recover
almost all of the concessions, they nonetheless experienced a decade of
notably lower wages.
Concessions on benefits were perhaps more substantial. In particular,
all the defined benefit pensions were terminated and turned over to the
government agency that backs up private pensions, the Pension Benefit
AIRLINE INDUSTRY
27
FIGURE 3
US Airways Flight Attendant Monthly Wage Rates (in dollars)
and as an index (2001 = 1.0), 2000–2012
Source: Airlines for America.
Guaranty Corporation (PBGC). This meant that existing employees
would still receive some pension benefits, paid by the PBGC, but only
up to a certain amount. In the case of the pilots, for example, the payouts
would likely be one third of what the original plans would have provided.
The concessions also included significant work rule changes, leading to
employees working more hours per day and per month and allowing
US Airways much more operational flexibility. The airline also won the
right to outsource significantly more maintenance work and to use more
regional jet aircraft, which tended to go with lower pay rates for pilots
and other staff.
The agreements included some quid pro quos that offered employees
participation in the firm’s governance and financial performance. Unions
were given the right to nominate four of the members of the board of
directors. And employees had three mechanisms for financial participation: a grant of stock options, a profit-sharing program, and bonuses
based on meeting various operational performance targets.
After reaching these final concession agreements, in 2005 US Airways
exited this second bankruptcy by working out a merger agreement with
America West, one of the few surviving new-entrant airlines from the
first wave of new entry in the early 1980s. Although America West was
the acquirer, it adopted the US Airways name because of its greater
28
brand recognition. The merger with America West ended employee
representation on the board of directors.
In essence, US Airways had gone from having the industry’s highest
unit costs to having unit costs lower than all of its legacy rivals (see Figure
4 for the change from 1995 through 2010 in US Airways’ labor unit costs
relative to the network carriers’ median). Although keeping US Airways
alive and reaching the concession agreements was no small feat for the
airline’s management and its unions, employees gave up a considerable
amount in terms of expected future compensation and quality of work
life in the process. The new merged airline has billed itself as the world’s
largest low-fare airline. In 2006, US Airways even launched a bid to
acquire Delta out of bankruptcy but was rebuffed. As of this writing in
2013, the boards of US Airways and American had agreed to merge
(Mouawad 2013).
Legacy Concessions Summary
Table 5 illustrates key aspects of the concessionary labor agreements
reached at the full-service legacy airlines. Cuts to wage rates ranged from
9% to 50%, depending on airline, occupation, and seniority. Benefits also
were reduced, with the freezing or termination of defined benefit pension
plans being particularly notable.
FIGURE 4
Labor Cost per Available Seat Mile: US Airways
vs. Network Airline Median, 1995–2010
Source: MIT Airline Data Project via DOT Form 41 reports.
29
AIRLINE INDUSTRY
TABLE 5
Comparison of Labor Contract Restructuring Outcomes, by End of 2006
Airline
Bankrupt
Wage
cuts
Pensions
American
No
16%–
23%
Preserved
Continental
No
9%
(pilots)
Frozen/
converted
Delta
(pilots)
Yes
30%–
50%
Terminated
United
Yes
30%–
50%
Terminated
Twice
30%–
50%
Terminated
US Airways
Variable pay
Stock options,
profit sharing (15%
over $500 M),
performance bonus
Stock options, profit
sharing (diminishing
% starting at 30%),
performance bonus
Equity, profitsharing performance
bonus, raises tied
to profits
Equity, profit
sharing (15% over
10 M), performance
bonus
Equity, profitsharing performance
bonus (pre-merger)
Board
seats
Amendable
date
No
4/08
No
12/08
Nonvoting
seat for
pilots
12/09
No
12/09
No
12/09
Source: Bamber, Gittell, Kochan, and von Nordenflycht (2009).
As an illustration of the pattern of legacy wage rates over the past
decade, Figure 5 documents the change in flight attendant wage rates (for
the most-senior employees) at six legacy airlines from 2000 through 2012.
Wages are indexed to 2002, which was the period just before concessions
began being agreed on and implemented. Alaska and Continental did not
negotiate wage concessions from flight attendants, apparently needing
only wage freezes to weather the crises. The other four—three that went
through bankruptcy early (US Airways, United, Delta) and American,
which negotiated concessions outside of bankruptcy—experienced wage
rate decreases ranging from 10% to 20% for senior flight attendants. Since
the trough in 2005 and 2006, however, wage rates have steadily increased,
reaching within 5% of the 2002 peak by 2012 (and, of course, 10% to
15% above 2002 levels for the two that avoided wage concessions).
As illustrated in the US Airways case, one of the key outcomes that
airlines achieved via bankruptcy was the reduction of obligations to retired
and soon-to-be retired employees. In particular, this meant the termination
of defined benefit pensions, which were turned over to the PBGC. For pilots
at those legacy airlines, this transfer reduced their pension benefit by about
67%. In addition, medical insurance costs for retirees were eliminated or
reduced. Thus, the “legacy” aspects of these airlines—the long-term cost
obligations resulting from a long-operating employment system—were
30
FIGURE 5
Flight Attendant Monthly Wage Index by Airline, 2001–2012
Source: Airlines for America.
vastly reduced. Airlines that avoided bankruptcy retained the financial
obligations to fund these pension and health care costs.
The importance of shedding these legacy costs can be illustrated by
the American Airlines bankruptcy filing in 2011. In 2003, American
achieved what seemed to be a noteworthy accomplishment—it negotiated
a concessionary contract with its unions without filing bankruptcy (Bamber,
Gittell, Kochan, and von Nordenflycht 2009). But after its competitors
all went through bankruptcy, American was left with high labor costs, in
no small part because of the ongoing pension and retiree health insurance
obligations (see Figure 4 for American’s unit labor costs relative to the
network carrier median). Ultimately, American, too, resorted to bankruptcy
to restructure these costs.
Industry Wage Trends
Although the legacy labor concessions over the first half of the decade
were substantial, the overall picture for industry wages is not as starkly
negative. For one thing, many newer entrants did not face the same mismatch between revenue and cost and so did not negotiate wage decreases.
And as indicated in Figure 5, even several legacy airlines were able to
restore competitiveness without resorting to concession demands.
Furthermore, as further indicated in Figure 5, even the legacies that
negotiated concessions nonetheless saw wage rates climb over the second
half of the decade.
AIRLINE INDUSTRY
31
Figure 6 shows the average wage and salary expense per employee from
2000 through 2010 at the 15 largest airlines in 2011. These estimates come
from DOT Form 41 reports and are derived by dividing each airline’s
total wage and salary bill by the airline’s number of full-time equivalents.
The figure does show a modest decline in average compensation levels
from 2002 through 2006—the period in which the full-service legacies
were restructuring labor contracts. But then after 2006, average compensation has risen steadily through 2010.
Breaking the industry average into specific segments reveals a somewhat
surprising picture. Figure 7 breaks this overall average into three components: six large, full-service airlines (the legacies), six low-cost airlines
(excluding Southwest), and Southwest by itself. Wages at the low-cost
airlines—and especially at Southwest—have risen steadily over the past
decade, in distinct contrast to the concessionary restructuring at the legacies. The growth in wages at these low-cost airlines coupled with the
restructuring at the full-service airlines has significantly reduced the wage
gap between these two segments.
And even at the legacy full-service airlines, while the decline from 2002
through 2006 is more pronounced than is shown in Figure 6—about
10% overall—there has been a rise in wages since 2006, leaving average
compensation in 2010 about 3% higher than in the previous peak in 2002.
FIGURE 6
Average Annual Wage and Salary Expense per Employee
Across 15 Largest Airlines, 1995–2010
Source: MIT Airline Data Project, based on DOT Form 41 filings, Schedules P6 and P10.
32
FIGURE 7
Full-Service vs. Low-Cost Average Wage and Salary
Expense per Employee, 2000–2010
Source: MIT Airline Data Project, based on DOT Form 41 filings, Schedules P6 and P10.
So, although the headlines in the industry have focused on restructuring by legacy carriers and although employees and unions at these carriers
experienced substantial concessions on wages and benefits, there have
actually been substantial wage gains over the decade, particularly at the
low-cost carriers, and even modest gains in recent years at the restructured
legacies. With the defined benefit pension terminations at the legacies and
increasing levels of employee contributions to health insurance coverage,
it is likely, though, that the overall level of benefits has gone down.
Contingent Compensation
Another interesting outcome is that contingent pay, in multiple forms,
has become standard. Employees of all the major legacy airlines have stock
options or stock grants, a profit-sharing plan that pays out a percentage
of profits above a threshold level, and bonuses related to operational performance benchmarks.
At first look, these contingent compensation mechanisms might seem
like a way to reduce the historical volatility of the industry’s labor relations
AIRLINE INDUSTRY
33
by ensuring that employees will be rewarded when airline performance
improves and by generally tying compensation to industry conditions
rather than negotiating fixed wages that prove hard to adjust when the
business cycle inevitably repeats. The amount of compensation involved,
however, did not match the future wages that employees gave up in concessions. Pilots at the major legacy airlines, for example, were projected
to receive between $5,000 and $15,000 each, depending on the airline,
from profit-sharing programs in 2008. If we assume that the average pilot
earned about $120,000 in 2001 before all the restructuring and eventually
agreed to wage concessions averaging about 30%, this means he or she
gave up some $36,000 per year. In addition, many had their pension
benefits significantly reduced. Not surprisingly, as the concessionary labor
contracts became amendable in 2008 and 2009, unions began talking of
regaining lost wages and benefits as the only way to share in the airlines’
recovery, with no mention of any of the contingent pay mechanisms.
BARGAINING OUTCOMES: SHARED OWNERSHIP AND
STRATEGIC VOICE
Collective bargaining provides airline employees a greater voice not only
in negotiating the terms of their employment relationship but also in some
aspects of their airline’s strategy because labor negotiations and contracts
can give unions rights to approve or oppose shifts in an airline’s route
structure, fleet composition, or acquisitions. Beyond this, however, employees
and/or unions at a number of U.S. airlines have at times enjoyed an even
greater voice in the management of the airline in the form of representation
on the airline’s board of directors. (Unless specifically cited, the information in this section comes from Bamber, Gittell, Kochan, and von
Nordenflycht 2009 and Gittell, von Nordenflycht, and Kochan 2004.)
The most common form of this representation came as one component
of an employee stock ownership plan (ESOP). The distinctive characteristic
of airline ESOPs is the combination of collective employee ownership of
a significant share of the airline’s equity, with the right to collectively
nominate some members of the airline’s board of directors. In this way,
employees, usually via their unions, have had a formal voice in corporate
decision making. United (from 1994 through 2002) is perhaps the most
famous case of employee ownership of an airline, but there have been
several other examples among legacy airlines since deregulation, including
Western (1984), Eastern (1984), TWA (1992), and Northwest (1993).
There have also been instances when board representation was negotiated
independently of any formal ESOP, such as at US Airways during bankruptcy negotiations, as previously discussed.
However, instances of board representation and employee ownership
have had few positive effects on the labor–management relationship—in
34
fact, one might conclude that they exacerbate tensions in the bargaining
process—and they have been short lived. In all the cases discussed,
employee equity and board representation were essentially a quid pro quo
for large wage concessions. Furthermore, without the concessions, five of
the six airlines would have been facing an impending bankruptcy. Thus,
employee equity and board seats have generally been adopted by struggling
airlines and have been viewed by management and unions alike as a
financial transaction and a necessary evil rather than an opportunity for
partnership.
Nonetheless, despite the less-than-ideal starting conditions, each of the
airlines that adopted an ESOP experienced an initial burst of cooperation
and improved labor relations (Wever 1995). For example, after adopting
its ESOP, Eastern was heralded as a national example of how employee
involvement at the workplace, more cooperative labor relations, and
employee voice in strategic decision making could transform a failing
company into one with a bright future (Petzinger 1996; Blasi and Gasaway
1995). But in each case, the newfound goodwill, which had fueled joint
productivity improvements, dissipated as the parties came back to the
negotiating table. Contract negotiations were as contentious and drawn
out as ever—perhaps more so. This is most vividly illustrated by Northwest
and United, the two airlines that survived long enough to negotiate a
post-ESOP contract.
At Northwest, the ESOP began in 1993, and the accompanying concessionary labor contracts became amendable in 1996. By 1998, two years
after negotiations began, talks had progressed so well that the pilots went
on strike for 14 days! But at least that contract was settled shortly afterward. Flight attendants did not settle for two more years (four years past
the amendable date) and mechanics not for another three years (five years
past the amendable date). At United, too, negotiations on contracts that
opened in 1998 were long and were accompanied by job actions. United
did not settle with its pilots until two years later, and only after pilots
began refusing overtime assignments, which caused United to cancel five
thousand flights per month between May and August 2000 (Newsday
2000). Then after the pilots settled, the mechanics launched a set of
slowdowns (Carey 2001). After two more years, the mechanics negotiations went to a Presidential Emergency Board, whose recommended settlement was rejected by the rank and file before the parties eventually settled
in 2002 (four years after talks began). Thus, employee ownership and/or
board representation may actually lead to more difficulty in the collective
bargaining relationship, perhaps because of expectations by employees of
greater voice and control than ESOPs are intended to provide.
At the end of the day, ESOPs and board representation were short lived,
having been terminated either by merger or bankruptcy. Within two years
AIRLINE INDUSTRY
35
of establishing their ESOPs, Western and Eastern were acquired (by Delta
and Texas Air, respectively), and the acquisition ended the employee
ownership and board representation. TWA’s also ended when American
acquired TWA. US Airways’ employee board representation was terminated upon acquisition by America West. The ESOPs at United and
Northwest ended when those airlines entered bankruptcy. The longestlived was Northwest’s, from 1993 through 2005. As of 2012, no instances
of formal employee or union board representation remained in place
among the industry’s main airlines
QUALITY OF LABOR–MANAGEMENT RELATIONS AND
EMPLOYEE RELATIONS
In a study of U.S. major airlines over a 12-year period, Gittell, von
Nordenflycht, and Kochan 2004 found that union representation was
associated with higher employee wages, as well as higher aircraft productivity and operating margins; in other words, union representation during
this period improved both worker outcomes and firm performance.
Labor–management conflict in the form of strikes and arbitrations, however, was associated with lower service quality, reduced aircraft productivity,
and reduced operating margins. In sum, union representation appeared
to bring benefits for workers and their airlines, but it was counterbalanced
by decreases in service quality, productivity, and financial performance
when labor–management conflict occurred. From this, Gittell, von
Nordenflycht, and Kochan (2004) argued that achieving positive outcomes
for airline employees and airlines alike would require more than union
representation—it would require high-quality labor–management
relations.
Additional research indicates that high-quality relationships between
airlines and unions are associated with high-quality relationships at the
workplace between employees and their managers—that is, high-quality
employee relations (Gittell, von Nordenflycht, and Kochan 2004; Bamber,
Gittell, Kochan, and von Nordenflycht 2009). Traditional zero-sum
approaches presume that a high-quality relationship between employees
and their managers threatens to displace or weaken the relationship
between employees and their union representatives, and vice versa. Mutualgains approaches assume the possibility that high-quality relationships
between employees and their managers can coexist with or even contribute
to high-quality labor–management relations. The Gittell, von Nordenflycht,
and Kochan (2004) study identified several airlines with higher-quality
employment relations than the industry norm—Delta Airlines until 1994;
Continental Airlines, starting in 1994 under the leadership of Gordon
Bethune, after a long period of highly contentious employment relations
(see von Nordenflycht 2004); and Southwest Airlines for the entire 12-year
36
period of the study. Gittell, von Nordenflycht, and Kochan (2004) found
that these instances of high-quality employment relations were positively
associated with airline performance (service quality, labor productivity,
aircraft productivity, operating margins) and employee outcomes (wages),
over and above the impact of conflict (or lack thereof ) in labor–
management relations. Furthermore, airlines with high-quality employment relations also experienced shorter labor contract negotiations (Gittell,
von Nordenflycht, and Kochan 2004). In other words, high-quality
employee relations facilitated high-quality labor–management relations
and more-efficient collective bargaining.
Relational Coordination
What are high-quality employment relations and how do they contribute
to performance outcomes? According to organizational scholar Jane Dutton
and her colleagues, the quality of relationships among organizational
members is the basis for a life-enhancing work environment (Dutton
2003; Dutton and Heaphy 2003; Dutton and Ragins 2007). One important manifestation of high-quality work relationships is found in relational
coordination, “a mutually reinforcing process of interaction between
communication and relationships carried out for the purpose of task
integration” (Gittell 2002:301). Relational coordination as developed by
Gittell (2003, 2006) includes three dimensions of high-quality relationships—shared goals, shared knowledge, and mutual respect. In its focus
on the relational dimensions of interaction, relational coordination is
conceptually similar to other constructs of high-quality relationships such
as heedful interrelating (Weick and Roberts 1993), respectful interacting
(Vogus 2006), and respectful engagement (Dutton 2003). In sum, the
high-quality relationships found in relational coordination increase an
organization’s information-processing capacity by supporting high-quality
communication among members who play distinct roles in the organizational division of labor, thus enabling the effective coordination of work.
In a study of flight departures at American, Continental, United, and
Southwest, relational coordination was measured among pilots, flight
attendants, gate agents, ticket agents, operations agents, ramp agents,
baggage agents, cargo agents, caterers, fuelers, mechanics, and cabin
cleaners. The strength of relational coordination among these 12 employee
groups was associated with faster turnaround times at the gate, fewer
employees per passenger enplaned, fewer late departures, fewer lost bags,
and fewer customer complaints. In sum, relational coordination was
associated with higher productivity and improved customer service in the
study of flight departures at those four airlines (Gittell 2001, 2003)—as
shown in Figure 8—similar to the performance outcomes found in our
12-year study of the airline industry (Gittell, von Nordenflycht, and
Kochan 2004).
AIRLINE INDUSTRY
37
FIGURE 8
Relational Coordination and Flight Departure Performance
Source: Gittell (2001, 2003).
Building High-Quality Relationships in the Airlines
What insights can be gleaned regarding the development of high-quality
work relationships in the airline industry, based on an examination of
case study evidence? The following represents a small portion of the findings shared in Gittell (2003).
Leadership
Relational coordination was higher in airlines whose leaders were perceived
to be both caring and credible—leaders who cared about the airline and
its employees and who could be trusted to say what they believed to be
true. These leadership characteristics were helpful for building employee
management relationships and employee relationships as well as labor–
management partnerships, as observed at Southwest under the leadership
of Herb Kelleher and Colleen Barrett, and later Gary Kelly and Laura
Wright, and at Continental under the leadership of Gordon Bethune.
Relational coordination was also higher in airlines with more supervisors
per frontline employee, unexpectedly, but owing to the closer working
relationships experienced between supervisors and frontline employees
and the tendency to rely more on coaching and feedback rather than a
directive approach to supervision.
38
Performance Measurement
Relational coordination was also higher in airlines that allowed a broader
coding of flight delays or the ability of multiple employee groups to share
accountability for delays. This shared accountability was associated with
a more trusting relationship between supervisors and frontline employees,
with a tendency to rely on coaching and feedback rather than punitive
approaches, and with less blaming and finger pointing between frontline
employees themselves.
Conflict Resolution
Relational coordination was higher in airlines that rewarded managers
for proactive conflict resolution among employees, whether in the same
or different occupational groups. The proactive use of conflict resolution
appeared to create a culture of greater openness and problem solving, with
fewer boundaries of resentment built up over time because of the lack of
outlet for wrongful treatment. By improving the quality of workplace
relationships, conflict resolution between groups of different power and
status (say, pilots and flight attendants) can also contribute to psychological safety and the ability to speak up, thus enabling airline employees to
learn from failures over time.
For seven additional practices associated with high levels of relational
coordination, see Gittell (2003).
CONCLUSION
The goal of this chapter was to assess the state of collective bargaining in
the airline industry circa 2012: Is collective bargaining dead or dying or
is it alive and well? The conclusion is that collective bargaining is, for the
most part, alive and well and that the nature of the employment relationships in the U.S. airline industry has not changed much since the last
review in 2002.
The industry’s unionization rate remains high—indeed, it has increased
since 2002. Although a few large airlines have managed to maintain largely
non-union status, they are rare exceptions. There is little to suggest that
the level of unionization will change significantly in the foreseeable future.
Even relatively young airlines tend to experience successful union organizing sooner rather than later, so new entry is not necessarily a large threat
to unionization rates. Even if regulatory barriers to the entry of foreignowned airlines into the U.S. domestic market were reduced, it is unclear
whether it would be a big threat to unionization in the medium term
because many large foreign airlines are also unionized.
One possible threat might be in the international arena—that is, flights
between countries. Full-service network airlines in the United States earn
a substantial fraction of their profits from international flying. On these
AIRLINE INDUSTRY
39
routes, they have traditionally faced competition from foreign carriers
that are also unionized (e.g., British Airways, Lufthansa, Air France, JAL,
Singapore, and Qantas). In the past decade, however, a few non-union
airlines have made significant inroads into international flying, most
notably Emirates. If non-union carriers proliferate on international routes,
they may put important pressure on unionized U.S. carriers. In inter-Asian
markets, for instance, the growth of several non-union international carriers (e.g., Air Asia, Tiger) has caused competitive problems for Qantas
to the point where Qantas has sought to use its non-union LCC subsidiary
(JetStar) to compete on some international routes (Bamber, Gittell, Kochan,
and von Nordenflycht 2009). Our overall conclusion, though, is that
unionization will remain high in the U.S. airline industry.
Second, the collective bargaining process has largely operated successfully, with contracts being negotiated privately with few work stoppages,
though with heavy reliance on the mediation services of the National
Mediation Board. The exception is that airlines have used the leverage of
bankruptcy reorganization—with its threat of contract abrogation and
even liquidation—to get unions to agree to the concessions that the airlines
felt necessary to remain competitive. In particular, it seems unlikely that
the substantial reductions to pension benefits would have been negotiated
outside of bankruptcy (as the American Airlines example illustrates).
Nonetheless, the concessions were still largely negotiated rather than
unilaterally imposed. The fact that airlines in financial difficulty resorted
to bankruptcy to facilitate obtaining concessions, however, is little different from the previous two decades of deregulation.
These concessions seemed to be the dominant feature of compensation
outcomes for the first five years after 9/11. As we described, in addition
to the loss of hundreds of thousands of jobs, employees at legacy network
airlines also experienced wage cuts of up to 30%, as well as increases in
hours of work, reductions in health insurance benefits, and terminations
of defined benefit pension plans. However, wages kept increasing at the
LCCs, and wages began increasing at the legacy network carriers in 2007.
So, the overall picture of industry wages over an entire decade since 9/11
indicates a moderation in the first half but a return to rising wages in the
second half. As the flight attendant contract data indicate, wage rates have
risen to within 5% of the 2002 peak. Overall, the industry remains consistent with Hirsch’s (2007) characterization of airline wage
determination:
The airline industry has developed a compensation
pattern in which its union workers “tax” potential profits
following the onset of good times, but agree to moderate
contractual pay increases or provide wage and benefit
40
concessions following the onset of bad times. For many
if not most airlines and their unions, this product market
union wage cycle has been accompanied by a contentious
labor relations environment with no small amount of
distrust on all sides. … Because unions retain bargaining power at the major carriers, wages are likely to head
upward as carriers’ financial health returns. Such wage
levels may or may not be sustainable in the inevitable
next downturn. (Hirsch 2007:1–2)
Although wages have indeed appeared to follow this pattern, it seems
unlikely that health and pension benefits will also return to previous levels
because the increases in employee contributions to health insurance and
the conversions of defined benefit to defined contribution pensions have
occurred throughout the economy.
Has anything changed in the airline employment relationship in the
last decade? We would point to two changes. First, there has been a reduction in the instances of shared ownership and board-level voice. At some
point between 2001 and 2005, employees and/or unions had official seats
(some voting, some non-voting) on the board of directors at United, US
Airways, Delta, and Northwest. Only the non-voting seats on the Delta
board remain today. Although the industry has seen at least four instances
of majority employee ownership of a major airline, none exists today.
Bankruptcies and mergers have generally eliminated these unorthodox
approaches to the employment relationship. These shared ownership (or
shared governance) arrangements are often instituted in the context of
concessionary contract negotiations—unions asking for a quid pro quo
in exchange for wage cuts. Given that the industry’s large firms have just
come out of a concessionary period without these arrangements, it seems
unlikely that any will reappear soon.
Second, there has been an increase in the magnitude and frequency of
contingent compensation, even within collectively bargained contracts.
Most large airlines now feature some form of monthly or quarterly bonuses
if the airline achieves operational performance targets, as well as some
form of profit sharing. In other words, employees are participating more
directly in carriers’ financial performance but less in carriers’ strategic
management.
Finally, outside of collective bargaining, research seems to indicate that
airlines can achieve operational advantages if they can establish and
maintain higher-quality relationships—between managers and employees,
management and unions, and among employees. But achieving such
relationships is, apparently, much easier said than done. Delta and
Southwest appear to retain above-average internal relationships. But
American failed to achieve such an outcome, despite substantial effort
AIRLINE INDUSTRY
41
(see Bamber, Gittell, Kochan, and von Nordenflycht 2009), and it is very
unclear what will happen to Continental’s employment relationships now
that it has merged with United. It will be interesting to see whether Delta
and Southwest will remain outliers, whether they will be joined by others,
or whether they will also revert to the more adversarial norm in the
industry.
For much more information and analysis of the issues in this chapter, see
Greg Bamber, Jody Hoffer Gittell, Thomas Kochan, and Andrew von
Nordenflycht (2009), Up in the Air: How Airlines Can Improve Performance
by Engaging Their Employees, Ithaca, NY: Cornell University Press.
The authors of this chapter participate in an international research network
sponsored by the Labor and Employment Relations Association’s Airline
Industry Council. They acknowledge that this chapter draws on the work
conducted by many others in the network. A series of articles from this network
was published in 2009 in the International Journal of Human Resource
Management.
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chapter 2
Crisis and Recovery in the
U.S. Auto Industry:
Tumultuous Times for a
Collective Bargaining Pacesetter
Harry C. Katz
Cornell University
John Paul MacDuffie
University of Pennsylvania
Frits K. Pil
University of Pittsburgh
The auto industry historically has played a prominent pacesetting role in
American collective bargaining, introducing many now common features—multi-year contracts with cost-of-living-adjustment escalators and
built-in annual real wage increases, supplementary unemployment benefits,
“30 and out” pensions, quality of working life programs, and pattern
bargaining.1 From the early 1980s on, automotive labor relations was again
at the forefront in taking actions to modify this long-established model,
under pressure from both foreign and domestic competitors and from
new production methods often linked to team working and related innovative human resource practices.
During these years, labor and management in the auto industry faced a
combination of long-term structural factors and periodic sharp cyclical
downturns. These pressures resulted in increased diversity and decentralization in collective bargaining outcomes at both company and factory levels
and widespread experimentation with new work designs and human resource
practices at the workplace. This led to debate within both union and management ranks about the best way to deal with these changes. Japanese,
Korean, and European companies also became owners or co-owners (with
American company partners) of assembly plants and auto companies in the
United States. The fact that virtually all of the assembly plants that were
solely owned by Japanese, Korean, or German companies operated without
a union introduced the threat of non-union operations to what had been
one of the few remaining fully unionized sectors in the American
economy.
45
46
Then in 2008 and 2009, a crisis of historic proportion hit the U.S. auto
industry, particularly General Motors (GM), Ford, and Chrysler, which
were already suffering from longer-term market share declines when the
crisis arrived. GM and Chrysler went through bankruptcies they were
able to escape from only with the help of bailout funds from the U.S.
federal government. First facing massive layoffs and plant closings and
then the threat of the potential liquidation of one or more of the U.S.based producers, the United Auto Workers (UAW) agreed to unprecedented
concessions that included the transfer of retiree health care liabilities to
union-managed funds and a significantly lower-tier wage for new hires.
Recent years have seen the recovery of profits and a modest rebound in
employment at GM, Ford, and Chrysler. Meanwhile, many other changes
have occurred within the U.S. auto sector, including a more prominent
role for supplier companies and an increasingly large role for foreign-owned
auto plants (that were also put into a vulnerable position during the
financial crisis by their dependence on at-risk suppliers).
Before we analyze recent developments in U.S. automotive industrial
relations, we first review the industry’s distinctive and often innovative
history of labor–management relations. In the next section, we describe the
unions and the companies involved in automotive labor relations. Subsequent
sections focus on the competitive and technological environment affecting
the bargaining context for the U.S. automotive industry; the structure of
collective bargaining; new developments in collective bargaining from 1979
to the present, with a particular emphasis on the past ten years; and a look
at challenges confronting the industry going forward.
THE PARTIES
The Unions
The UAW is the primary union representing workers in the auto industry.2
The International Union of Electricians (IUE), which recently affiliated
with the Communications Workers of America, also represents some
hourly workers in the assembly firms (primarily in the electrical products
plants of these firms). By the late 1940s, the UAW had organized all hourly
workers in the companies that assembled cars and trucks.3 Until 1985,
the UAW was an international union because it included Canadian autoworkers. In 1985, the Canadian autoworkers voted to secede, and a separation agreement was negotiated between the United States and Canadian
parts of the UAW to form the Canadian Auto Workers.
The UAW is a large and fairly centralized union. The internal structure
of the union includes departments organized along company lines in the
auto industry and an agricultural implements department. National union
staff coordinates bargaining within each department and also assists in
AUTOMOBILE INDUSTRY
47
the implementation of benefits, employee assistance, health and safety,
and quality of working life programs.
The central figure in the union over the postwar period was Walter
Reuther, who along with his brothers was active in the union’s sit-down
strikes and organizing efforts in the 1930s. Reuther served as president
of the UAW from 1947 until his death in 1970. During his tenure, Reuther
led a coalition (the Administrative Caucus) that dominated the national
affairs of the union, and while he was alive, Reuther’s influence and
imagination encouraged an innovative spirit within auto bargaining
(Steiber 1962). Under Reuther’s guidance, the UAW also was very active
in national and local politics and a strong supporter of the Democratic
Party.
Yet, even with the dominance of the Reuther coalition, the UAW
historically has had strong democratic traditions. This was evident, for
example in the 1980s and 1990s with the internal debates between Reuther’s
Administrative Caucus, which explored new forms of work organization
and experimented with union–management collaboration, and the more
militant New Directions Movement, which espoused a return to more
traditional forms of work organization. In 1996, the UAW, United Steel
Workers (USW), and International Association of Machinists (IAM)
announced plans to merge by 2001. Merger talks, however, stalled (with
the IAM pulling out of the process) over disagreements concerning how
union officials would be selected (elections versus appointment) and other
matters (Bureau of National Affairs 2000).
The UAW continues to be organized in three primary departments
aligned with the main domestic companies, even following Chrysler’s
acquisition by Daimler and then Fiat.4 When supplier firms spun off from
GM, Ford, or Chrysler (Delphi from GM and Visteon from Ford), they
were still covered by the UAW department for the parent company.
The Companies
The American assembly companies are commonly referred to as the Big
Three—GM, Ford, and Chrysler. We will continue to use this term for
consistency and simplicity, even though the creation in 2009 of Fiat–
Chrysler means that the “Big Two-and-a-Half” would be more appropriate.
More significantly, with growth in the number of foreign-owned auto
plants and the increase in U.S. sales by the parent companies of those
plants, the competitive situation in the U.S. market increasingly resembles
that of Europe, in the sense that there is fierce competition among five or
six original equipment manufacturers, each having 10% to 20% market
share, rather than the dominance of domestic automakers that the term
Big Three implies.
The Big Three produce a number of car and truck parts, and they
48
assemble those parts into final vehicles, although the extent to which the
assemblers are vertically integrated (i.e., using parts produced in their own
plants) varies. Overall, the trend across all the assemblers is toward much
more disintegration (i.e., many fewer parts procured from fully owned
suppliers, particularly since the spinoffs of Delphi and Visteon). The Big
Three are completely unionized, and their national (companywide) collective bargaining agreements cover the companies’ final assembly and
parts plants. Table 1 contains basic information about these companies.
Since the early 1980s, there has been a steady stream of foreign investment in the form of U.S.-located assembly plants with Japanese (starting
with Honda in 1982), German (BMW in 1994), and Korean (Hyundai
in 2005) ownership, referred to in the industry and in this paper as the
transplants. Table 2 contains summary information on these plants. Three
of the transplants acquired union status by virtue of their joint venture
arrangements with U.S. companies [NUMMI (GM–Toyota), Diamond
Star (Chrysler–Mitsubishi), and Auto Alliance (Ford–Mazda)]. These
TABLE 1
U.S. Automotive Companies: North American Assembly Operations
U.S.
21
16
11
Assembly plants
Canada Mexico
3
3
3
2
3
3
2000 N. American vehicle production
5,631,771
4,669,253
2,972,355
2005 company
GM
Ford
Chrysler
U.S.
21
15
12
Assembly plants
Canada Mexico
3
3
2
2
2
2
4,565,603
3,117,305
2,794,546
2010 company
GM
Ford
Chrysler
U.S.
11
10
6
Assembly plants
Canada Mexico
3
3
2
2
2
2
2,565,616
2,328,278
1,571,662
2011 company
GM
Ford
Chrysler
U.S.
11
9
7
Assembly plants
Canada Mexico
3
3
2
2
2
2
2,565,616
2,619,797
1,993,455
2000 company
GM
Ford
Chrysler
Sources: Automotive News Market Data Book, various issues; Ward’s Automotive Yearbook, various issues.
Fuji Hvy. Ind. 50%; Isuzu 50%
Subaru-Isuzu Auto Inc.
Lafayette, IN
East Liberty, OH
Ingersoll, ON
Georgetown, KY
Cambridge, ON
Normal, IL
Flat Rock, MI
Alliston, ON
Fremont, CA
1989
1989
1989
1988
1988
1988
1987
1986
1984
1,315
2,230
2,775
6,900
4,300
1,300
3,500
4,600
Closed*
6,700
208,676
225,723
107,651
123,553
183,739
221,975
107,431
326,823
344,076
377,275
245,751
246,743
242,929
371,694
307,698
29,375
122,754
278,272
90,814
282,027
340,561
241,175
195,304
—
315,889
289,124
37,083
116,430
232,411
0
333,392
Continued, next page
Sources: Automotive News, various issues; Automotive News Market Data Book; company websites.
*
In 2012, Ford took 100% ownership of this plant.
**
In 2009, GM took 100% ownership of this plant.
***
NUMMI closed in 2010 after GM withdrew from the joint venture during its bankruptcy proceedings and Toyota declined to purchase GM’s equity share.
Honda 100%
Honda of America Mfg.
GM 50%; Suzuki 50% 3
Toyota 100%
Toyota Motor Mfg. (KY)
CAMI Inc.
Toyota 100%
Mitsubishi 100%
Ford 50%; Mazda 50%**
Honda 100%
GM 50%; Toyota 50%
Toyota Motor Mfg. (Canada)
Mitsubishi Motor Mfg.
AutoAlliance International
Honda Canada Mfg.
New United Motor Mfg. Inc.
1983
451,367
285,258
Smyrna, TN
4,315
Nissan 100%
Nissan Motor Mfg. USA
1982
Honda 100%
Honda of America Mfg.
Marysville, OH
Output
2011
TABLE 2
Japanese, German, and Korean Automobile Assembly Plants (Transplants) Based in the United States and Canada
Estimated
Production employment Output
Output
Company name
Company ownership
Plant location
startup
in 2010
2000
2010
AUTOMOBILE INDUSTRY
49
Lincoln, AL
Canton, MS
San Antonio, TX
Montgomery, AL
West Point, GA
Greensburg, IN
Blue Springs, MS
Chattanooga, TN
Honda 100%
Nissan 100%
Toyota 100%
Hyundai 100%
Hyundai 100%
Honda 100%
Toyota 100%
VW 100%
Toyota Motor Mfg. (IN)
Honda Mfg. of Alabama
Nissan North America US
Mfg.
Toyota Motor Mfg. Texas Inc.
Hyundai Motor Mfg. Alabama
Kia Motors Mfg. Georgia
Honda Mfg. of Indiana, LLC
Toyota Motor Mfg. (MS)
2011
2011
2010
2009
2005
2003
2003
2001
1998
1997
1994
2,000
2,000
2,000
2,500
3,000
2,000
4,100
4,300
4,600
4,000
4,600
—
—
—
—
—
—
—
—
129,724
80,005
38,665
—
—
95,116
153,665
300,500
150,098
228,954
272,082
243,992
125,393
157,703
Sources: Automotive News, various issues; Automotive News Market Data Book; company websites.
*
In 2012, Ford took 100% ownership of this plant.
**
In 2009, GM took 100% ownership of this plant.
***
NUMMI closed in 2010 after GM withdrew from the joint venture during its bankruptcy proceedings and Toyota declined to purchase GM’s equity share.
Volkswagen
Vance, AL
Princeton, IN
Toyota 100%
Mercedes-Benz U.S.
Daimler-Benz 100%
Spartanburg, NC
BMW 100%
BMW Mfg. Corp.
TABLE 2 (CONTINUED)
Japanese, German, and Korean Automobile Assembly Plants (Transplants) Based in the United States and Canada
Estimated
Production employment Output
Output
Company name
Company ownership
Plant location
startup
in 2010
2000
2010
32,259
2,358
81,554
282,316
342,162
147,645
229,502
264,324
248,659
127,273
277,074
Output
2011
50
AUTOMOBILE INDUSTRY
51
arrangements have been somewhat fluid; they have been altered at two of
these plants since they opened, and NUMMI closed in 2010.5
In the three decades since the first Japanese transplant was located in
the United States, the penetration of Japanese producers has been dramatic.
As of 2012, 15 Japanese car factories operate in North America. In addition to the Japanese facilities, two German transplants started production
in the 1990s—BMW in Spartanburg, North Carolina; and MercedesBenz in Vance, Alabama. Volkswagen opened the third German transplant
facility in Chattanooga, Tennessee, in 2011, returning to the U.S. for the
first time since its failed effort at a converted Chrysler plant in Westmoreland,
Pennsylvania, which closed in 1988. Hyundai and Kia established their
own facilities in Alabama and Georgia, respectively, bringing the total
number of foreign-owned factories to 20. Overall, transplant production
doubled from approximately two million units in 1990 to more than four
million in 2011.
Because of the growth in transplant production, the geography of
automotive production has shifted. The initial Japanese transplants in the
1980s were located close to the I-75 interstate highway in states near (or
just south of) the Great Lakes Region (Illinois, Indiana, Kentucky,
Michigan, Ohio, and Tennessee) in proximity to the bulk of the Big
Three’s facilities. However, since 1994, foreign firms have been choosing
locations farther south, albeit still close to I-75 to facilitate supply chain
logistics, in Alabama (Mercedes-Benz, Honda, Hyundai), Georgia (Kia),
Mississippi (Nissan and Toyota), and Texas (Toyota), as well as further
investment in Tennessee (Nissan, Volkswagen). Although Ford, GM, and
Chrysler all had factories in that region, many of those factories have since
closed; also now closed are all Big Three assembly plants on the East and
West Coasts.
Overall, although the east–west dispersion of automotive manufacturing was dramatically reduced, north–south dispersion was greatly increased
such that many new foreign-owned plants are located far from areas with
substantial histories of unionization. This combination of geographical
separation and location in historically non-union states poses substantive
challenges for the UAW’s efforts to organize the newer transplants.
Although the UAW has launched various organizing drives in unorganized transplants in recent years, none of these drives has come close
to being successful. The UAW, for example, tried to unionize Nissan
workers in Tennessee in 1997, and then again in 2001, but soundly lost
both representation elections (receiving only 32% of the vote in the 2001
election) (Bureau of National Affairs 2001). Despite these losses, UAW
efforts to organize the transplants continue. In the case of Nissan, the
UAW shifted its focus to the newer Mississippi plant, trying (unsuccessfully) to unionize the facility in 2005 and 2007.
As a result of the employment and market share declines occurring at
52
the Big Three and the union’s inability to organize the transplants and
many of the independent supplier companies (described more fully later),
UAW membership has declined significantly. In 1979, the UAW’s membership peaked at 1,527,858 members. The union had 654,657 members
as recently as 2004. As of 2011, the UAW had 380,719 members, a reduction of 75% over 33 years (Bureau of National Affairs 2012).
THE BARGAINING CONTEXT
The Competitive Environment
From 1946 until 1979, the auto industry in the United States was on a
prosperous growth path, even in the face of the industry’s periodic sharp
cyclical swings. Over those years, domestic production of cars and trucks
increased from 5 million to 13 million vehicles. This economic environment was conducive to steady improvements and general stability in labor
relations. Three environmental factors were critical—growth in domestic
auto sales, a low level of imported vehicle sales, and a high degree of
unionization. Yet, in the early 1980s, labor and management that had
grown accustomed to long-run growth in total vehicle sales and profits
were confronted by a number of fundamental changes in the auto
market.
One important aspect of the change was an increase in international
competition in the form of increased vehicle imports. The level of imports
increased steadily during the 1960s and 1970s from a postwar low of 5%
in 1955; surged during the 1980s; declined in the 1990s as Japanese,
Korean, and German companies increased their North American production capacity; and rose again as the sales of foreign models only available
as imports grew. The market share of these foreign automakers, based on
sales of both imported and locally manufactured products, has increased
steadily from less than 10% of the market in the mid-1960s to more than
50% today. As shown in Table 3, the North American market share of
the Big Three plummeted from close to 70% at the turn of this century
to 47% in 2011, with a large chunk of the lost market share going to
Japanese and other transplants.
Sizable cyclical swings buffeted the auto industry from the early 1980s
through the arrival of the new millennium. The industry experienced a
sharp downturn in the early 1980s, a sales rebound in the late 1980s,
another downturn in the early 1990s, and a sales/profit recovery in the
mid- and late 1990s. Following the attacks of 9/11/2001, automotive sales
helped lead an economic recovery, spurred by extensive sales incentives,
driving the U.S. industry to record annual sales of nearly 17 million in
2005. During these swings, industry employment rose and fell along with
vehicle sales and production. Then in 2008 and 2009, the U.S. auto
industry was hit with its biggest downturn ever as a consequence of the
53
AUTOMOBILE INDUSTRY
TABLE 3
U.S. New Vehicle Sales of American Automakers, Japanese
Transplants and Imports, and Total Imports, 1991–2011 (in 1,000s)
American
automakers
Japanese
transplants
production
Other
transplants
Japanese
Total
production imports sales imports sales
Year
Sales
Total
sales (%)
1991
8,672
70
1,312
19
1,862
2,567
1992
9,279
72
1,438
17
1,698
2,337
1993 10,247
73
1,644
15
1,575
2,158
1994 10,998
73
1,921
73
1,597
2,145
1995 10,764
73
2,036
100
1,337
1,908
1996 10,990
72
2,310
130
1,127
1,714
1997 10,788
71
2,301
147
1,271
1,947
1998
10,93
70
2,409
243
1,310
2,036
1999 11,731
69
2,586
293
1,500
2,494
2000 11,582
67
2,818
337
1,619
2,868
2001 11,042
65
2,922
325
1,659
3,079
2002 10,598
63
2,882
297
1,772
3,292
2003 10,281
62
3,071
266
1,737
3,310
2004 10,135
60
3,483
209
1,677
3,395
2005
9,868
58
3,735
294
1,743
3,402
2006
9,060
55
3,627
441
2,146
3,692
2007
8,402
52
3,744
487
2,223
3,753
2008
6,346
48
3,241
423
2,043
3,375
2009
4,656
45
2,764
413
1,484
2,721
2010
5,228
45
3,454
737
1,403
2,669
2011
5,996
47
3,020
1,029
1,433
2,792
Sources: Ward’s Automotive Yearbook, various issues; Automotive News Data Center.
financial crisis. Total car and truck production in the United States plummeted from 10.8 million in 2007 to 8.7 million in 2008 and ended at a
low of 5.8 million in 2009. By 2011, the production levels were back to
the 10.8 million of 2007, but close to 40% of that now represents foreign
transplant production.
Also significant for collective bargaining in recent years has been the
formation of more extensive linkages between the assembler companies
and their parts suppliers. Most assemblers dramatically reduced the number
54
of their parts suppliers and initiated longer-term contracts with the select
group of suppliers that remained. In the late 1990s, GM and Ford spun
off their internal parts plants into separate companies, Delphi and Visteon,
respectively. Other first-tier suppliers have also grown through merger
and acquisition, forming (along with the Big Three spinoffs) a new class
of mega-supplier capable of designing, building, and handling the complex
logistics for major modules or subsystems of the vehicle. These megasuppliers are primarily non-union, with some exceptions, although the
UAW is devoting considerable organizing resources to change this situation. The collective bargaining implications of these spinoffs and the
emergence of the mega-suppliers are discussed later in this chapter.
Partially as a result of the spinoff of supplier divisions but also as a
result of a strong trend in the direction of outsourcing, employment at
supplier plants has increased dramatically since the 1980s, at the expense
of employment at vehicle assembly plants. Auto parts employment grew
61% from 1980 to 2000, while over the same period, employment fell just
3% at auto assembly plants (Katz, MacDuffie, and Pil 2002). However,
the ratio of assembly production workers to supplier production workers
dropped steadily over this period, from 0.94 (1980) to 0.57 (2000), with
further decline to 0.39 by 2012. Interestingly, this shift in employment
has not been accompanied by a commensurate closing of the gap between
auto assembler and parts sector wages, as shown in Table 4. The pressure
on wages from the non-union parts sector, which is now larger than the
unionized sector, is the primary reason behind this persistent differential
(the difference in benefits received by workers in the assembly and parts
sectors, although difficult to quantify, are likely much larger).
Plant-Level Performance Differentials
In the face of heightened competition, the Big Three and the UAW made
substantial changes in their industrial relations practices from the early
1980s on. An important force for change was the perception that Japaneseowned plants, both in Japan and in the United States, had substantial
productivity and quality advantages over the typical Big Three plant
because of their use of lean production, a system developed by Toyota and
used to varying degrees by all Japanese companies.
Lean production is described as combining a different way of thinking
about production goals (quality and productivity as mutually attainable,
not a trade-off) with new production methods aimed at boosting efficiency
through the elimination of waste (reducing buffers through just-in-time
inventory systems; “building in” rather than “inspecting in” quality) and
human resource practices aimed at motivating workers and developing
their skills (work teams; job rotation; problem-solving groups; increased
227,800
219,100
201,400
187,600
179,300
146,000
109,600
109,300
131,600
138,400
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
172,500
165,500
138,100
139,900
186,900
223,000
234,400
250,000
268,300
277,000
All employees
28.13
28.02
29.55
27.97
28.67
29.65
28.87
29.59
28.90
27.96
Assembly
hourly wage ($)
356,900
349,700
343,300
326,300
403,900
482,400
517,500
540,400
552,700
556,300
Production
employees
470,200
453,900
443,500
421,800
517,000
597,000
640,800
658,200
682,700
693,100
All employees
Parts employment
19.89
20.40
20.85
20.82
21.09
20.66
21.11
21.90
20.84
20.19
Parts hourly
wage ($)
229.815
226.230
218.803
216.330
212.425
210.177
201.500
197.600
191.000
184.500
CPI
12.24
12.39
13.51
12.93
13.50
14.11
14.33
14.97
15.13
15.15
Assembly real
wage ($)
Sources and notes:
The assembly data refer to SIC 3711 (NAICS 3361), while the parts data refer to SIC 3714 (NAICS 3363).
2003–2011 Employment and hourly wage data: January issues of Employment and Earnings, U.S. Department of Labor, Bureau of Labor Statistics, previous year’s
November data.
2012 Employment and hourly wage data: June issue of Employment and Earnings, month of May’s data.
2003–2006 data can be found online at http://fraser.stlouisfed.org; 2007–2012 data can be found in Employment and Earnings publications
CPI data can be found at http://tinyurl.com/rdx83a
2003–2011: November CPI data; 2012: May CPI data
The real wage figures are derived by dividing the Assembly Wage and Parts Wage columns by the CPI numbers.
Production
employees
Year
Assembly employment
TABLE 4
Employment and Wage Data for US Auto Assembly and Parts Sectors, 2003–2012
8.65
9.02
9.53
9.62
9.93
9.83
10.48
11.08
10.91
10.94
Parts real
wage ($)
AUTOMOBILE INDUSTRY
55
56
worker training; performance-based bonus pay; reduction of status barriers) (Womack, Jones, and Roos 1990; MacDuffie 1995). Underpinning
the entire system is the idea of kaizen, or continuous improvement in
production processes and in productivity and quality outcomes. According
to this model, buffer reduction reveals production problems and creates
the pressure to solve them. This gives management an incentive to develop
worker skill and motivation and to encourage extensive worker participation in the improvement process; workers in turn may be willing to participate if they perceive this activity as contributing to their employment
security through achieving better quality and productivity and if it improves
their job design and boosts pride in their work.
The identification of lean production as the source of Japanese competitive advantage represented an important shift away from Japan-specific
explanations based on factors such as lower wage rates, longer working
hours, cooperative enterprise unions, lifetime employment, and cultural
differences. Data from M.I.T.’s International Assembly Plant Study indicated that the transplants, using American workers, engineers, managers
and (at some plants) union officials, achieved performance results, in terms
of both productivity and quality, that matched or surpassed most American
plants (Krafcik and MacDuffie 1989; Pil and MacDuffie 1999).6
Furthermore, the source of the transplants’ performance advantage
appeared to be their implementation of lean production methods very
similar to those used in plants in Japan (Shimada and MacDuffie 1987;
Florida and Kenney 1993). However, these practices have been adapted
to the U.S. context (Pil and MacDuffie 1999).
This view of lean production has been challenged on two points. Some
researchers question whether lean production is indeed a distinctive paradigm with performance advantages, pointing to industry- and companylevel statistics on inventory levels and financial performance that show
only modest variation across U.S. and Japanese companies (Williams,
Haslam, Johal, and Williams 1994). According to these researchers, any
Japanese or transplant cost advantages are due to lower wages in the various tiers of the supply system.7 Other accounts of the transplants develop
a broader critique of lean production, arguing that it is dependent on
sweating workers through a faster work pace, rigid job standardization,
intensive peer pressure for higher work effort within teams, and continual
stress from the lack of buffers and from kaizen efforts to remove work
content from jobs (Parker and Slaughter 1988; Babson 1995).
Overall, the data show that while the idea of lean production as a new
production paradigm capable of superior performance has taken hold
strongly among corporate management at the U.S. companies, the implementation of lean production at U.S. plants has been relatively slow, and
it varies for different aspects of this system. Most quickly adopted have
AUTOMOBILE INDUSTRY
57
been lean production policies on the reduction of buffers. The pace of
implementation of new human resource practices has been slower, particularly in cases where new work structures such as teams are being
implemented at existing plants.
In recent analyses, we have shown that automakers can attain productivity levels of under 18 hours per vehicle and decent quality at their
assembly plants using what we term an efficient mass production approach.
These productivity levels are on par with those of factories that recently
adopted lean manufacturing practices, and quality levels of 40 defects per
100 vehicles are approaching the average of 30 defects per 100 vehicles
attained by experienced lean factories. The main hallmark of this approach
rests in reducing inventory levels, increasing automation levels, and reducing buffers (MacDuffie et al. 2013). However, a further important prerequisite is a great reduction in product variety at each plant, which
includes reducing engine and transmission variations and limiting color
options. Efficient mass production plants thus achieve productivity through
lower manufacturing complexity but in turn may lack the capabilities for
handling high levels of product variety and the flexibility to adjust production mix when demand shifts. This choice may have competitive
implications where these plants compete with more fully flexible, high
variety plants in the United States and elsewhere. The fact that many U.S.
assembly plants fall into this efficient mass production category also calls
into question past predictions that the industry would largely converge
on the Toyota/lean production prototype.
One of the key performance criteria that companies will have to deal
with in years ahead, as noted previously, is organizational flexibility to
deal with production variability. As more content shifts out of assembly
factories through outsourcing, and as efforts continue to increase the
responsiveness of manufacturing to customer demand through build-toorder initiatives, flexibility in terms of production volumes will become
increasingly important. Vehicle sales vary dramatically during the course
of the year, and the current solution of maintaining between one and two
months of finished goods inventory in the distribution system is under
increasing cost and competitive pressures as customers seek more customized products.
Although increased sales incentives and other tools can be used to even
out customer demand during the course of the year, another avenue is to
increase manufacturing flexibility (Holweg and Pil 2001, 2004). Currently,
plants face very high fixed costs, and per-unit costs increase dramatically
as production volumes drop. Indeed, it costs the average North American
plant 84% of full-capacity costs to run at half-capacity production levels
for a week. It is slightly cheaper to produce at half capacity for a full year,
but doing so still costs almost 77% of full-capacity costs. Labor represents
58
an important source of rigidity in reducing production (overcapacity situations are typically handled with overtime), and layoffs seem to be the
primary solution. This is true, even for some of the transplants; for example,
the Mitsubishi–UAW contract for the Normal, Illinois, plant had an
explicit no-layoff provision.
There are few provisions in place, either at transplants or at the Big
Three, to alter labor levels in response to shifts in demand. During the
auto sales boom of the 1990s, that was not a big issue because plants often
ran close to full capacity. However, the Big Three were slow to make the
investments necessary to adjust production mix or volume at their North
American plants to deal with demand volatility and shifting customer
preferences. Right up until the massive sales downturn in 2008 and 2009,
these automakers had some factories running extensive overtime, while
others were operating well under capacity. Even after restructuring and
dealing with overcapacity problems, the Big Three still have a long way
to go to be as flexible, both technologically and in terms of the organization and workforce, as their competitors. Various experiments in production flexibility are under way overseas. These include the banking of hours
when labor demand is low and using those hours at a later date without
incurring overtime. The models now in vogue in Europe typically limit
the number of hours that can be banked or withdrawn in any one time
period, specify the length of time that banked hours can be held, and
provide an agreed-upon compensatory payment if no work-hour reductions follow a period of overtime.8
In contrast, the Big Three auto companies, like other large U.S. manufacturing firms, have little flexibility in altering their labor use during the
course of the year (short of layoffs). Most of management’s efforts are
centered on increasing capacity utilization rather than managing reductions in demand. The most common approaches are to run plants for three
shifts or to use three crews of workers to run two shifts six or seven days
a week.
These issues warrant attention because production (and labor relations)
flexibility may emerge as a key source of international comparative advantage (or disadvantage) in the years ahead.
Mergers and Co-Production
Consolidation between the auto assembly companies, including mergers
and co-production agreements, became a strong trend around the globe
in the late 1990s. Ford—already the owner of Jaguar and Aston Martin
and with a controlling equity share of Mazda—bought Volvo and Land
Rover. GM purchased the 50% of Saab that it did not already own;
increased its equity stakes in Isuzu, Suzuki, and Fiat; and purchased
AUTOMOBILE INDUSTRY
59
Daewoo out of bankruptcy in 2001. In Europe, French-based Renault
purchased a controlling equity stake in Nissan and Samsung, and Germanybased Volkswagen bought Bentley, with BMW claiming the Rolls-Royce
brand. In Korea, Hyundai took over Kia and became by far the dominant
firm in both domestic and export sales.
Daimler-Benz also increased its stake in Mitsubishi, leaving Honda
and Toyota as the only two fully independent Japanese automakers. Even
Honda and Toyota, while asserting their independence, became more
intertwined with the fate of other firms, with Honda beginning to sell
engines to GM and Toyota, embarking on a joint venture plant and
product in Europe with Peugeot, and taking a small (under 10%) stake
in Subaru. All of those firms remained unionized in their home countries
throughout this period of consolidation, although the foreign firms with
assembly plants in the United States remained non-union.
Despite the initial enthusiasm for consolidation, things rapidly fell
apart for the Big Three when the auto market collapsed in 2008. Ford
was forced to divest its ownership of Aston Martin, Jaguar, Volvo, and
Land Rover, as well as most of its stake in Mazda. GM had to abandon
Saab (which disappeared after bankruptcy) and divest its stakes in Fiat,
Isuzu, and Suzuki. Both GM and Chrysler were forced into bankruptcy.
GM re-emerged as a stand-alone entity. Chrysler, in contrast, emerged
initially as a new entity jointly owned by Fiat, the U.S. and Canadian
governments, and the UAW’s retirement health care trust, a voluntary
employee beneficiary association (VEBA). After several months, Fiat
purchased the government stake and then started purchasing shares from
the VEBA, effectively becoming Chrysler’s largest owner. We will discuss
the implications of the crisis in more depth later in this chapter. However,
it left the Big Three with few of the global partners they had entered into
relationships with only a decade or so earlier. And in the process of rationalization, in-house brands were not spared, with the crisis-driven restructuring causing the elimination of Saturn, Pontiac, and Oldsmobile for
GM, Mercury for Ford, and Plymouth for Chrysler.
THE STRUCTURE OF COLLECTIVE BARGAINING
Pattern Bargaining
Prior to 1979, the U.S. auto bargaining structure involved very strong
pattern-following within and across the auto companies. From the early
1980s on, however, the degree of pattern-following has declined across
the Big Three, and cross-company variation has increased with the entry
and then growth of the transplants.
In the traditional bargaining structure that prevailed at the Big Three,
60
compensation is set by national, company-specific, multi-year agreements
(from 1955 to 1999, they were for three years; the most recent, four years).
Some work rules such as overtime administration, employee transfer rights,
and seniority guidelines are also set in the national contracts. Local unions,
in turn, negotiate plant-level agreements, which supplement the national
agreements. These local agreements define work rules such as the form of
the seniority ladder, job characteristics, job bidding and transfer rights,
health and safety standards, production standards, and an array of other
rules that guide shop-floor production. The local agreements do not regulate wages or fringe benefits, which are set in the national contract. Some
indirect influences on wage determination, however, do occur at the plant
level in the definition and modification of job classifications provided
through the local agreements.
Local bargaining over work rules allows for the expression of local
preferences and some adjustment to local conditions. In this system, the
grievance procedure with binding third-party arbitration serves as the end
point of contract administration, although disputes concerning production standards, new job rates, and health and safety issues are not resolved
through recourse to arbitration.
The influence of the agreements reached in the auto assembly firms has
traditionally extended out to the auto supplier sector and beyond. The
UAW, for example, has used the auto assembly agreements as a pattern
setter in their negotiations in the agricultural implements industry. Other
unions, especially those linked to auto production, such as the rubber
industry, also looked to the contracts in the auto assembly firms as pattern
setters. From the early 1950s until the late 1970s, the extent of interindustry pattern-following varied somewhat over time, but generally it
continued at a high level. In the 1980s, the pattern-leading role of the Big
Three settlements declined (Budd 1992).
The Bargaining Process: Wage Rules and Fringe
Benefit Determination
From 1948 until 1980, formulaic mechanisms were used to set wage levels
in collective bargaining agreements in the Big Three.9 The formulaic
wage-setting mechanisms traditionally included in the contracts were an
annual improvement factor (AIF) that after the mid-1960s amounted to
3% per year, and a cost-of-living adjustment (COLA) escalator that often
provided full or close to full cost-of-living protection.
The importance of these formulaic mechanisms was that they provided
continuity in wage determination over time and across the assembly companies at any given point in time. The continuity over time was
provided by the fact that, except for minor adjustments, the formula
mechanisms rigidly set wages from 1948 until 1979 among the Big Three
companies.10 Continuity across the industry was provided by intercompany
AUTOMOBILE INDUSTRY
61
pattern-following and by the fact that in the plants covered by the company
agreements, the national contract wage was not modified in local
bargaining.
Along with increases in real hourly earnings, autoworkers received
steady improvements in their fringe benefit package. A number of these
fringe benefit advances such as supplementary unemployment benefits,
“30 and out” pensions, and paid personnel holidays were innovations that
eventually spread to the auto supplier firms and to a number of other
industries. Over the postwar period, fringe benefits became a larger share
of total worker compensation.
Job Control Unionism
At both national and shop-floor levels, the labor relations system in
the Big Three traditionally relied on contractually defined procedures to
regulate disagreements between labor and management. The contractual
regulation of these procedures was heavily focused on “job control.”11
Wages were explicitly tied to jobs and not to worker characteristics. In
addition, much of the detail within the contract concerns the specification
of an elaborate job classification system with much attention paid to the
exact requirements of each job and to seniority rights that were tied to a
job ladder guiding promotions, transfers, and layoffs (Piore 1982).
From the late 1940s until the late 1970s, the application of wage rules
and job control unionism produced steadily rising real compensation to
autoworkers and long-term growth in auto employment and production.
With limited import penetration in auto sales, this was a bargaining
process in which the geographic bounds of union organization closely
matched the relevant product market. The consistency the bargaining
process had with the economic environment was one of the primary factors contributing to the system’s attractiveness to both labor and management. Important political functions for labor and management also were
served by the stability and continuity in the auto negotiation processes.
DEVELOPMENTS IN COLLECTIVE BARGAINING FROM THE
EARLY 1980S ON
Wages
As import share rose in the 1980s and economic recession took hold, the
total bargaining power of labor and management at the Big Three auto
companies declined, and the contracts negotiated in the early 1980s
reflected this power decline. In addition, the relative bargaining power of
the UAW was weakened by such factors as the rise in imports, the ease
by which the companies could move production offshore, and the erosion
of strike leverage resulting from excessive production capacity.
In collective bargaining at the Big Three, the wage rules traditionally
62
used to set wage levels were modified significantly, first as part of efforts
to avoid bankruptcy at Chrysler in 1979 and 1980. In agreements reached
at the Big Three after 1979, the traditional formulaic wage rules were
replaced by lump sum increases, periodic base pay increases, and profit
sharing.12 With respect to fringe benefits, the agreements reached at the
Big Three after 1979 included a number of concessions.
The introduction of profit sharing received much attention in the press,
particularly in light of the traditional pattern-setting role the auto assemblers
have played in American collective bargaining. The payouts of the profitsharing plans adopted in the Big Three from 1983 on have varied substantially, in large part because of differences in the financial performance of
the companies. The profit-sharing payouts between 1983 and 2012 at Ford,
GM, and Chrysler, respectively, totaled $61,790, $32,171, and $51,385
(Table 5). From 2001 until 2009, as shown in the table, profit-sharing
payouts were either nil or insignificant. With the recovery of the Big Three
over the past two years, significant payouts returned. The level of the
payouts and the variation in profit-sharing payouts received by workers
across companies were the source of some controversy within the workforce
and the UAW. Meanwhile, the companies were concerned about the possibility of unusually large profit-sharing payouts in the future as a result of
their strong financial recovery. This led to serious focus on the profit-sharing
plans in fall 2011 bargaining and substantial modifications of the various
plans in the contracts negotiated and signed at that time.
Income and Employment Security Programs
The contracts at the Big Three after 1979 also included a number of new
income and job security programs—programs that were induced by the
layoffs and plant closings occurring at the Big Three. These programs
include guaranteed income stream benefits, joint national employee
development and training programs at each company funded by company
contributions, and jobs bank programs protecting workers displaced by
causes unrelated to the market (i.e., sales).13 A worker’s seniority heavily
influenced the level and duration of benefits he or she received in these
programs, although the specific benefit criteria varied across the
programs.
Big Three contracts from 1990 on provided extensive additions to the
income security package. A significant new element in these contracts
was the provision that workers could not be laid off for more than 36
weeks whatever the cause. The contracts also include guaranteed employment levels at each Big Three plant. The companies agreed to replace
workers at rates that depend on whether a plant is above or below its
employment target and the cause of any employment declines. The basic
guarantee was that for every two workers that leave because of attrition,
63
AUTOMOBILE INDUSTRY
TABLE 5
Big Three Average Worker Profit-Sharing Checks, 1983–2012
Year
1983
Ford ($)
402
GM ($)
605
Chrysler ($)
0
1984
1,993
515
0
1985
1,262
329
1986
2,177
0
1987
3,762
0
1988
2,874
242
725
1989
1,025
50
0
1990
0
0
0
1991
0
0
0
1992
0
0
425
1993
1,350
0
4,300
1994
4,000
550
8,000
1995
1,700
800
3,200
1996
1,800
300
7,900
1997
4,400
750
4,600
1998
200
6,100
7,400
1999
8,000
1,775
8,100
2000
6,700
800
375
0
500**
500**
2001
0
0
0
2002
160*
940
460
2003
195
170
0
2004
0
195
1,500
2005
0
0
650
2006
0
0
0
2007
0
0
0
2008
0
0
0
2009
450
0
2010
5,000
4,300
0
2011
6,200
7,000
1,500
2012
8,300
6,750
2,250
TOTAL
61,790
32,171
51,385
750***
Sources: Unpublished table prepared by the UAW Research Department, February
8, 1995; various news stories in the Daily Labor Report, Bureau of National Affairs;
and the 2007 Chrysler Media Briefing Book.
*Ford made this payment despite losing $980 million.
**Chrysler workers received a $500 contractual payment not tied to profits.
***Chrysler workers received $750 despite Chrysler’s not earning a profit after
interest expenses and restructuring obligations.
64
one new worker was to be hired.
A key factor that loomed in the background that influenced the workings of the employment guarantees and the companies’ efforts to improve
productivity was the fact that the workforces at all of the Big Three had
substantial seniority because there had been limited new hiring among
these firms since 1979.
All of these trends intensified significantly after 2001 as the influence
of the Big Three and the UAW over labor relations in the U.S. auto industry
declined. The beginning of the new century saw the Big Three face declining market share coupled with the failure of the UAW to organize the
transplants or make significant inroads into organizing the non-union
independent supplier plants. Market share declines along with steady
productivity increases led to sizeable declines in employment levels at the
Big Three firms and a weakening of the historic role the UAW had played
as a pattern setter in the wider auto sector and general U.S. labor
market.
The UAW agreed to massive redundancies in the companies’ workforces
from October 2005 through 2009 that were achieved largely through
voluntary severance and early retirement plans. For example, internal data
from Ford reveal that the number of hourly workers at Ford fell from
102,907 in 2000 to 40,274 in 2009.14
It is revealing that, although the UAW was agreeing to pay concessions,
the union still had a sizeable amount of relative bargaining power, despite
facing a sharp decline in employment levels and deterioration in the
financial strength of the Big Three (and associated declines in the union’s
total bargaining power). The union’s relative power derived from the
weakened financial state of the Big Three made the companies especially
vulnerable to strike threats, which if exercised would likely have led to
their collapse. The UAW used this relative bargaining power to negotiate
extensive severance and retirement options for its now largely aged
workforce.
Especially noteworthy were the changes made to medical care benefits
during the 2007–2009 crisis. In their 2007 company-level collective
bargaining agreements at GM, Ford, and Chrysler, under the pressure of
significant layoffs and plant closings and facing the threat of potential
corporate bankruptcies, the UAW accepted the creation of VEBAs to fund
retiree health benefits. A VEBA is a form of trust fund whose sole purpose
is to provide employee benefits. In December 2009, for example, Ford
transferred all retiree health care liabilities to the UAW Retiree Medical
Benefits trust (a VEBA), paying a total of $14.8 billion as part of this
transfer. The creation of VEBAs for retiree medical benefits also helped
clarify and solidify the auto companies’ financial situations by removing
the retiree health obligation from their financial books. VEBAs also put
AUTOMOBILE INDUSTRY
65
authority for benefit levels in the hands of boards made up of a combination of UAW appointees and outside trustees. Furthermore, the stock
transfers associated with funding of VEBAs gave the UAW significant
ownership stakes in GM and Chrysler.
The benefit package in the Big Three–UAW collective bargaining
contracts came under particular pressure as the legacy costs associated
with pensions and retiree health care were criticized in the popular press
as well as by corporate managers. These costs were high in part because
the large number of retirees relative to active workers, given the declines
that had occurred in the size of the Big Three workforces. (It is worth
noting that pensions and retiree health plans are part of the private benefit
system that prevails in the United States, in contrast to the more public
provision of these benefits common to many other countries.)
The U.S. auto legacy costs were criticized as the key source of the
competitive cost disadvantage the Big Three faced vis-à-vis the transplant
companies. The latter were advantaged by more limited benefit plans,
younger current workforces, and very few retirees. Internal data from the
Ford Motor Company showed total average hourly labor costs of $58.12
in 2010, including a base hourly wage of $29.11, overtime costs of $3.36
per worker hour, and fringe benefit costs of $25.64 per worked hour. Ford
also claimed that the amortized costs of the Ford VEBA added an additional $12 per hour to average hourly labor costs. In contrast, Ford internal
data suggested that the base average hourly earnings at the transplants
was between $24.70 and $29.72 per hour in 2009 and that the cost of
fringe benefits paid to the transplants’ hourly workers in the United States
averaged $13.50 to $18.29 on an hourly basis.
THE BANKRUPTCY AND GOVERNMENT BAILOUT OF
GM AND CHRYSLER
The global financial crisis of 2007 through 2009 led to even more dramatic
changes in the profile of the U.S. automobile industry. The crisis amounted
to a “perfect storm” in that the effects of ongoing structural changes in
the auto sector (Big Three market share declines and the growth of transplants and non-union suppliers) were exacerbated by a sharp cyclical
downturn in auto sales that itself was greatly intensified by the credit crisis
affecting the United States. The credit crisis had particularly large effects
on auto sales, which plummeted because of the increased role that car
loan securitization had come to play in auto purchases and the sudden
collapse of securitization markets that came with the U.S. housing market
collapse. As shown in Table 4, employment in the auto sector (NAICS
3361 and 3363, all employees) fell from 970,100 in 2003 to a low of
561,700 in 2009 (a decline of 42%). The employment losses at the Big
Three were even larger and were associated with massive profit losses at
66
the three companies. For example, Ford lost, respectively, $17.0 billion,
$5.0 billion, and $11.8 billion in 2006, 2007, and 2008. Meanwhile, GM
suffered an even greater loss of $38.7 billion in 2007.
By June 2009, two of the Big Three American car manufacturers (GM
and Chrysler) had filed for bankruptcy and emerged as new companies
with significant government ownership. In addition, Fiat became a coowner of Chrysler. Ford managed to avoid similar bankruptcy and government ownership because it had arranged large private loans before the
financial collapse. Ford raised $23.5 billion in liquidity, consisting of $18.5
billion of secured debt, which was backed by virtually all of the company’s
domestic assets, and $5 billion of unsecured debt.
Under pressure from the U.S. government to bring labor costs to the
lower levels found in the transplants and fearing the potential liquidation
of GM and Chrysler, the UAW agreed to unprecedented concessions.
These concessions included a lower wage for new “non-core” hires ($14
per hour versus the $28 per hour received by then current UAW workers),
the end to the much maligned jobs banks, a pay freeze for current workers,
and six-year collective bargaining agreements that included no-strike and
binding interest arbitration provisions.15
The no-strike and binding interest arbitration provisions came as part
of the legislation authorizing the Troubled Asset Recovery Program (TARP)
bailout of GM and Chrysler. The language approved by the U.S. Congress
and accepted by the companies and the UAW reads:
Upon expiration of the 2007 agreement, the parties will
enter into a new National Collective Bargaining agreement which will continue in full force and effect until
September 14, 2015. Unresolved issues remaining at the
end of negotiations on the 2011 renewal of the 2007
Agreement shall be resolved through binding arbitration
with wage and benefit improvements to be based upon
General Motors maintaining an all-in hourly labor cost
comparable to its U.S. competitors, including transplant automotive manufacturers. (UAW General Motors
Settlement Agreement, Addendum to 2007 GM–UAW
National Agreement, p. 6)
Interestingly, in November 2009, workers at Ford rejected tentative
contract modifications that would have included similar no-strike and
interest arbitration provisions. A revised 2007–2011 Ford–UAW contract
that excluded those two terms was eventually accepted by the Ford
workforce.
When the new lower entry tier was created in the company-level
AUTOMOBILE INDUSTRY
67
collective bargaining agreements in 2007, the lower tier was limited to
so-called non-core jobs (and three specific job classifications). This restriction did not last long. As stipulated in the contract modifications negotiated in spring 2009 at each of the three companies, all new hires from
that point on are being hired into the lower pay tier.
Furthermore, the UAW agreed to allow certain other workers who
would otherwise work at the regular base pay rate (and receive the regular
expansive fringe benefit package) to be transferred to the lower-tier pay
level. For example, the May 2009 modifications to the 2007 UAW–GM
agreement included language stating, “It is understood that the compact
and small car segment is extremely competitive and in order for the company to consider investing in producing such vehicles in the U.S., innovative labor agreement provisions will have to be put in place so that such
production can be done profitably under what may be extremely challenging market conditions” (Bureau of National Affairs 2010). Making
use of this language, at the GM Orion assembly plant, a number of current workers on layoff status were called back to work on the assembly of
a new small car (the Aveo) at the lower-tier pay level.16
Although the UAW obviously values the hiring (or recall) of workers,
it faces a difficult choice regarding how far it is willing to accept employment at the lower tier of pay. For one thing, as the use of the lower tier of
pay spreads, it is ever more difficult for the union to defend the higher
pay tier or bargaining in subsequent rounds of negotiations for increases
to regular-tier worker wages.17 Potentially even more worrisome for the
UAW is the fact that the creation of a growing lower tier of workers creates
intense political pressures inside the union, especially within local unions
if lower-tier workers become a sizeable share of the workforce.18
The Increase in Diversity and Decentralization
The pay concessions and the move to contingent compensation schemes
that tied wages to company performance increased the variation in employment conditions across the auto assembly companies. The profit-sharing
payments received by workers at the Big Three from 1983 to 2011, listed
in Table 5, were one aspect of this variation. In addition, sizeable pay
variation was created through the addition of the unionized transplants
and the wage and benefit policies at the non-union transplants.
Sizeable variation also now appears in the work practices used in unionized auto assembly plants because work rules and work organization have
been modified in different ways and at a varied pace across auto assembly
plants. The threat of increased employment loss resulting from increased
foreign sourcing of vehicles, plant closings resulting from excess capacity,
and outsourcing of certain operations, all created pressure to lower costs
68
and improve product quality. Ultimately, the pressure for increased interplant work rule divergence came from the same source as the pressure for
intercompany pay variation—the fear that even greater losses in employment would result if previous policies were maintained. Companies often
used investment decisions as explicit leverage for these changes, a strategy
that unions perceived as whipsawing (i.e., forcing plants to compete against
each other through concessions).
The traditional work system in assembly plants involved numerous job
classifications, a very heavy and highly structured role for seniority rights
in job assignments (transfers, promotions, shift preferences etc.), and a
clear separation in the responsibilities of workers and managerial employees.
The team-based approach, in contrast, provides greater and broader
responsibilities to the blue-collar workforce, in many instances involving
workers in production decisions, and in some cases, even in basic business
decisions. The core of this approach is the work team, typically led by an
hourly team coordinator. As the use of teams has spread, the number of
supervisors has been reduced and the role of the remaining supervisors
has shifted to a coaching and facilitating role (although discipline did
remain a key function of supervision).
The pace at which this team-based approach has spread varies across
the Big Three. GM was the first automaker to experiment extensively with
this approach in the 1970s by using initially non-union strategy plants in
the South as a testing ground for the concept. In the early 1980s, GM
started spreading the team approach in its northern assembly plants. By
the late 1980s, GM management often made use of a team approach a
necessary precondition for the survival of what were then often redundant
facilities. Ford and Chrysler were more gradual in their implementation
of the team-based approach in part because neither was building new
assembly plants in the 1980s and 1990s (and thus did not have the opportunity to experiment in greenfield sites) and in part because the GM
experience of introducing teams in existing (brownfield) plants had not
always worked out so well (Katz, Kochan, and Keefe 1987).
Yet from the early 1990s on, even at a number of Ford and Chrysler
assembly plants, management was pressuring the union and workforce to
move to a team-based approach. Both Ford and Chrysler management
began pushing what they referred to as modern operating agreements
(MOAs), which included teams, reduced job classifications, and weakened
seniority rights. MOAs were often negotiated at a time when corporate
decisions were being made about investment in a new product or new
technology for a given plant; some were approved only under the threat
of plant closure. The provisions of MOAs were negotiated centrally by the
company and the UAW and then approved locally, creating some tensions
AUTOMOBILE INDUSTRY
69
between the national and local unions.
Despite these varied and often difficult founding conditions, however,
evidence from the Chrysler MOA plants suggests that as workers gained
experience working in teams, the majority became quite positive about
these work reforms. Ultimately, the actual experience of working under
the MOA work reforms was more important in shaping worker responses
than the forcing strategy used during implementation to overcome the
barrier of workers’ negative preconceptions (Hunter, MacDuffie, and
Doucet 2002).
Substantial variation is now widespread in how teams and other features
of this approach are actually being implemented. A number of the Big
Three plants do not implement teams or small group activities to any
noticeable extent. Furthermore, in team plants, there is wide variety in
the procedures used to select team leaders and the role that hourly team
members exert in that selection process.
The existence of teamwork organization is part of a deepening of worker
involvement in managerial roles and activities. Yet, in many other ways
not directly linked to teams per se, workers and union officials are playing
an increasing role in plant operations and other business decisions. In
broad terms, these activities blur the lines between the roles that workers
and managers exercise in the production process. This blurring occurs,
for example, when workers serve on a task force to solve a specific production problem, and it also occurs when workers become members of the
many types of joint committees that are now typically a key part of each
plant’s administrative structure (e.g., committees on in-sourcing, quality,
scrap reduction, and energy savings). In some Big Three assembly plants,
union officers now meet regularly with plant managers as business issues
or crises arise, and in some cases, this participation extends to involvement
in the preparation of a plant’s long-term business plans. In recent analyses
with international assembly plant data that include North American
plants, we have found that the voice workers provide through team-based
mechanisms can substitute for the voice provided through the union local.
This counters the perceived notion that union and team-based voice
complement one another and suggests another potential risk for the UAW
in team plants (Kim, MacDuffie, and Pil 2010).
The most extensive participatory labor–management relationship in
the auto industry (and perhaps the most extensive anywhere) occurred at
the Saturn Corporation (Rubinstein and Kochan 2001). As early as 1982,
GM undertook an extensive study of the small car segment and concluded
that it needed to undertake a substantively new approach to its products
and manufacturing model, as well as its labor relations, if it was going to
be competitive. GM and the UAW decided to explore the issue in a joint
effort, ultimately resulting in the creation of the Saturn Corporation in
70
1987 and the opening of the Saturn plant in Spring Hill, Tennessee. Billed
as “a different kind of company, a different kind of car,” Saturn served as
the test bed for a number of innovations, ranging from its no-haggle pricing to its space-frame product technology to process technology such as
its lost-foam engine casting process (Pil and Rubinstein 1998).
Most intriguing, however, was Saturn’s innovative labor–management
relationship. Centered on a consensus decision-making process, it included
a partnering arrangement whereby the UAW was involved not just in
supplier selection and dealer approval but also in the day-to-day management of the Saturn operations. Every supervisor (called a module advisor)
had a union counterpart. At the top level of Saturn was a Strategic Advisory
Committee that engaged in long-run business planning and included the
president of the UAW local union. Unfortunately, plagued by sales declines
and a lack of attractive new models and facing a national union and
corporate leadership that were not committed to radical labor relations
change, Saturn did not survive the 2007–2009 financial crisis.
Despite the general pattern of diversity and decentralization, new
corporate-level initiatives beginning in the mid-1990s attempted to
standardize the production system across plants around the world. This
trend differs from a past in which production systems varied widely across
facilities, depending on history, product line, vintage of technology, nature
of labor relations, and the inclinations of particular managers and union
officials. One factor, as noted previously, is the influence of lean production, which most auto companies have seized on as their model for
manufacturing. But a more universal impulse derives from the high level
of complexity and volatility affecting many modern manufacturing operations and therefore the goal of reducing process variance while also
establishing a clear basis for evaluating the impact of changes in production methods. Standardization becomes an important step in both internal
learning processes and in the transfer of learning across settings.
The most prominent examples of this trend can be found at Ford and
Chrysler. Following their MOA initiatives, which were carried out jointly
with the UAW but affected only a small number of assembly plants, both
companies by the late 1990s chose to promote a common production
system, modeled closely on the Toyota Production System, throughout
all of their North American plants; these were called the Ford Production
System and the Chrysler Operating System. General Motors has been
attempting a replication strategy, with new plants in China, Poland,
Argentina, and Brazil all modeled on their successful implementation of
lean production at Eisenach in the former East Germany. Mercedes-Benz
has been much influenced by the success of its new plant in the United
States, which was set up from the start to operate under lean production,
and its managers now speak of implementing a common production
AUTOMOBILE INDUSTRY
71
system, modeled on Toyota, that will be applied in its German factories
as well.
The historical record suggests that such efforts at standardization often
fail to achieve anything more than partial diffusion. This trend is also
directly counter to the pattern of diversity and decentralization observed
for industrial relations and collective bargaining. But it is worth noting
that a logic now exists for automakers to undertake careful efforts to
coordinate production globally, particularly for products built on common
platforms, and that efforts to transfer knowledge across plants are far more
extensive and sophisticated that in the past. Indeed, in recovering from
the industry crisis, Ford and GM are both emphasizing not just North
American uniformity in production systems but the goal of global consistency in initial implementation and in diffusion of any solutions found
to production problems. This logic could certainly affect corporate strategies for industrial relations in such areas as work organization, pay and
benefits, and dispute resolution. Union responses could thus have a more
determinant effect on whether the standardization of production systems,
is achieved even partially.
Variation in employment relations has increased in the auto parts sector
generally in a manner similar to developments in the assembly sector. At
the same time, a number of factors differ in these two sectors, in part
because of differences in the timing and intensity of non-union employment growth. Before they were split off into separate companies, the
internal parts operations of GM, Ford, and Chrysler had been the largest
producers in the auto parts industry.
Prior to the spinoff of Delphi and Visteon, Big Three company negotiators frequently had complained about the competitive pressures confronting
the internal parts plants and had expressed the desire to create separate
lower-tier pay rates for these operations. The UAW successfully had resisted
these demands, but it was less successful in constraining the outsourcing
of parts production and the negotiation of work rule concessions. In line
with the Big Three–UAW bargaining structure, there were separate local
(often plant) agreements at the internal parts operations, and from the
early 1980s on, major concessions were negotiated in the work practices
at the internal parts plants.
To improve their ability to sell auto parts to a range of customers and
for bargaining leverage vis-à-vis the UAW, in May 1999, GM formally
spun off its parts subsidiary, Delphi Automotive Systems, against the
wishes of the UAW.19 The formal terms of the spinoff initially provided
that Delphi workers were covered under the same terms of the GM–UAW
national agreement. Then in 1999, a separate Delphi–UAW national
contract was negotiated. The 1999–2003 Delphi–UAW agreement closely
mirrored the GM–UAW agreement for the 45,000 workers at Delphi’s
72
U.S. plants and provided that wages, layoff benefits, pensions, health care,
and other benefits were to be on par with the GM–UAW national contract.
The Delphi contract also included a mirror card-check union recognition
clause that was important to the UAW, given the fact that some of Delphi’s
plants were non-union and the possibility of future acquisition by Delphi
of non-union operations.
Interestingly, the UAW negotiated even more-favorable terms with
Ford when Visteon Corporation (employing 23,500 hourly workers in the
United States) was spun off. The 1999 Ford–UAW contract provided
lifetime coverage under Ford–UAW contracts for existing employees of
Visteon (these employees continued to be formally paid by Ford). The
2004 contract negotiations between suppliers and the UAW led to dramatic
wage reductions for new workers, bringing salaries for this cadre of
employees more in line with wages offered at non-union suppliers. But
cost challenges remained. Delphi went bankrupt in 2005. Meanwhile,
Ford reabsorbed a large portion of Visteon and associated employees that
same year in an effort to keep Visteon afloat. Even that was not enough,
and Visteon entered bankruptcy in 2010. It recently re-emerged with just
more than 25,000 employees—less than a third of what it had in 1998.
Declining Unionization of Independent Auto Suppliers
Because the growth of non-union competition has become such a significant
factor in the independent auto parts sector, it is worth examining how
non-union growth has occurred. The independent (non–Big Three) parts
companies that produce auto parts but do not assemble those parts into
final vehicles were heavily, although never completely, organized with a
lag behind the unionization of the Big Three. The percentage of the supplier plants with a majority of their workers covered by a collective bargaining agreement rose from 50% to 55% in 1940 to 95% in 1957, and
unionization then produced a substantial rise in the earnings of organized
workers.20
Union coverage in the independent parts plants, however, fell
substantially from the mid-1970s on (Katz and Darbishire 2000:43– 44).
The fall in unionization has been a major cause of the decline in the earnings of workers in the independent parts firms relative to the earnings of
workers in auto assembly plants. Relative earnings declines occurred earlier,
and have been much greater, in small firms. These earnings declines are
probably linked to the fact that unionization declines were particularly
large in small auto supplier firms.
The push for concessions at the independent parts firms from the early
1980s on was exacerbated by the fact that independent parts firms faced
all the pressures that were impinging on the auto assemblers, lacked the
financial resources of the assemblers, and faced greater low-wage domestic
AUTOMOBILE INDUSTRY
73
non‑union competition. Even in the face of a set of common pressures,
substantial diversity emerged in the employment relations strategies pursued by independent parts firms—diversity influenced by business and
union strategies and the degree to which new investments, or the lack
thereof, gave management an interest in work reorganization and/or
bargaining leverage.
The Recovery of the Big Three from 2010 On
The managed bankruptcy of GM and Chrysler with support provided by
federal TARP funds helped those companies recover, as did the slow but
significant broader economic recovery. In addition, GM, Chrysler, and
Ford successfully launched a number of new products. This approach
contributed to strong vehicle sales, which involved some growth in market
share relative to foreign imports and the transplants. The sales recovery
in turn led to solid financial returns at the Big Three. As shown in Table
5, this recovery led to the reintroducton of large profit-sharing payouts
for Big Three autoworkers.
As auto sales rose, so did auto sector employment, to 642,700 in 2012
(a rise of 14% from the 2009 low), as shown in Table 4. Although this
increase in employment was significant, it is important to note that auto
sector employment remains far below previous levels. It is also noteworthy
that the average hourly wage of autoworkers continued to fall, declining
from $29.65 in 2007 to $28.13 in 2012 (Table 4). Contributing to this
fall was the hiring of workers at the lower pay tier at the Big Three.
Fall 2011 bargaining at the Big Three led to collective bargaining
settlements that included large lump-sum payments for regular workers
but no base pay or normal cost-of-living-adjustment increases (Hobbs
2011). Notably, the size of these lump sums varied across the three companies in line with differences in the financial performance of the three
companies. For example, Ford workers received a contract ratification
bonus of $6,000 and annual inflation protection bonuses of $1,500, while
at GM, the ratification bonus was $5,000 and the inflation bonuses were
$1,000.
The 2011 contracts did provide significant pay increases to the lowertier workers. Under the new four-year contract, pay for lower-tier workers
can rise by 2015 to a maximum of $19.28 per hour by the end of the
contract. Because regular (higher-tier) workers did not receive any base
pay increases in the contracts negotiated in fall 2011, this agreement
promised to narrow somewhat the pay differential between lower-tier and
regular workers.
The 2011 contracts also provided sizeable investment and product
placement commitments from the companies. This is another part of the
UAW’s efforts to ensure that employment growth would follow at the Big
74
Three. As in 2007 and 2009, the company-level contracts negotiated in
2011 also included large early retirement buyouts for current workers.
Furthermore, the GM–UAW and Chrysler–UAW 2011 contracts were
settled through negotiations and, as a result, the interest arbitration impasse
procedure provided in the 2009 TARP provisions did not come into play.
New Organizing
The UAW has been seriously challenged by the decline occurring in the
percentage of the auto workforce that is organized. This decline has been
particularly steep in the independent auto parts sector, but the increasing
share of non-union (transplant) auto assembly plants is also emerging as
a key threat to the union’s power.
The UAW has used card-check and election neutrality provisions to
assist its organizing activities. GM and Ford, for example, agreed to accept
card-check recognition within their operations and those of any subsidiaries. The UAW has recently intensified its efforts to organize one or more
of the foreign transplants. UAW President Bob King appointed Richard
Bensinger as the acting director of the UAW’s organizing department,
and Bensinger expanded the staff involved in organizing efforts currently
under way at a number of the transplants. Apparently, King and Bensinger
also made overtures to some of the parent owners of transplants, seeking
their agreement to adhere to a set of ethical principles as a way to defuse
the animosity that normally appears in organizing efforts (Bureau of
National Affairs 2011).21
The UAW also increased organizing campaigns focused on organizing
workers outside the auto sector. The UAW, for example, has had great
success organizing table-games dealers and other Detroit casino workers
and has been aggressively conducting organizing drives among university
graduate teaching assistants and workers in the health care sector (Bureau
of National Affairs 1999).
A LOOK TO THE FUTURE
The events of recent years confirm that a key determinant of the future
course of auto labor relations will be the strength of the U.S. economy,
given the heavy influence the business cycle exerts on auto sales and labor’s
bargaining power. It also remains to be seen how Fiat–Chrysler performs,
as well as the consequences of the current European overcapacity problem
for further international mergers and consolidation. Experience suggests
that the latter exerts mixed effects on labor’s bargaining power, reducing
labor’s power by enhancing outsourcing opportunities and providing
whipsaw advantages to ever-larger corporate behemoths, yet it potentially
benefits labor through the advantages that industry consolidation exerts
on labor and management’s total power by generating oligopoly-based
AUTOMOBILE INDUSTRY
75
economic rents.
A number of long-term structural challenges also confront the UAW
and autoworkers (and, obviously, auto management as well, given the
interactive nature of labor relations). A particularly critical issue is whether
the UAW (or other unions) will find a way to reverse the sizeable growth
in non-union employment occurring in both auto parts and auto assembly
operations. As this chapter described, although the Big Three remain fully
organized, the auto sector is increasingly unorganized. The UAW has had
only limited success organizing in the independent parts sector, even as
the union increasingly relies on state-of-the-art organizing techniques. In
the assembly sector, the abject failure experienced in recent UAW organizing at the transplants is foreboding.
Union strength is also waning in the auto sector because of the
heightened opportunities assembly and parts companies have to outsource
production, especially because so much of any outsourced work tends to
go to non-union (and low-wage) domestic or international sites. Although
the UAW has benefited from the fact that just-in-time and other lean
production methods have produced pressure for production concentration,
and hence the absence of long-predicted U.S. de-industrialization in this
sector, the fact or threat of outsourcing continues to weaken the union.
This chapter also reported on the substantial shrinkage occurring in
employment at the Big Three companies even after their recent financial
recovery. Given that the Big Three were the high payers and pattern setters
in the auto industry, these developments do not bode well for the future
bargaining power of the UAW.
The creation of a lower tier of workers in the Big Three who earn
significantly lower wages and fringe benefits compared with regular workers has created political and strategic issues for the UAW. Will the UAW
continue to press for a narrowing of the pay differential between lower-tier
and regular workers and even at some point create a step/seniority-based
promotion ladder that guarantees access to regular pay for lower-tier
workers? Although the UAW would clearly desire such a resolution to the
two-tier wage issue, it is unclear whether it will have the bargaining power
to achieve this objective. What is more certain is that as the share of
lower-tier workers grows, political tensions are likely to build, especially
at shop-floor and local union levels.
Although the unionized component of the automotive sector struggles
to rediscover its footing after the dramatic bankruptcies of not just Chrysler
and GM but also of the two largest unionized suppliers, intensified competition from transplant facilities will continue to put pressure on both
the UAW and the Big Three. The Big Three have increased their factorylevel flexibility to some extent (although a flexibility gap with the transplants
remains) and have eliminated a large number of factories that were under-
76
performing. However, volumes have shrunk to the point at which pressure
from non-union competitors operating in the domestic market will certainly alter the nature of collective bargaining in the years to come.
Whatever the course of economic developments, it is clear that there
will be much to be learned from the ongoing evolution of the auto industry.
Although the influence of the Big Three and the UAW may decline, the
auto sector remains a sizable employer and a source of revealing information concerning the evolution of production practices and industrial
relations.
ENDNOTES
30-and-out pensions provide that workers can retire and receive pension benefits
after 30 years of service no matter what their age.
2
For an analysis of the internal political operation of the UAW, see Steiber (1962).
3
For lively accounts of the early history of the UAW, see Reuther (1976) and Howe
and Widick (1949). An interesting account of the UAW during World War II is provided
in Lichtenstein (1982).
4
Chrysler was acquired by Daimler and became a wholly owned subsidiary in 1998.
In 2007, Daimler sold an 80% stake in Chrysler to Cerberus Capital. In April 2009,
Chrysler filed for bankruptcy. It emerged from bankruptcy as a new entity, owned by Fiat,
the U.S. and Canadian governments, and the UAW’s retirement health care trust. In 2011,
Fiat purchased the stakes held by the U.S. and Canadian governments.
5
Mitsubishi bought out Chrysler’s share of Diamond Star in 1995. The NUMMI
plant closed in June 2010 after GM, during its bankruptcy proceedings, decided it could
no longer maintain its 50% ownership share and Toyota declined to buy out GM’s share;
a small area in the NUMMI facility is now being used to build Tesla electric vehicles. In
September 2012, Ford retook full management control of the AutoAlliance plant when
Mazda ceased producing vehicles in the United States, renaming the plant the Ford Flat
Rock Assembly Plant. Outside the U.S., GM and Suzuki had a unionized joint venture
plant, CAMI, in Ingersoll, Ontario; GM took full control of this plant in 2009, and in
2012, Suzuki announced that it would no longer sell vehicles in North America.
6
This research used a methodology for productivity that adjusts for differences in
vertical integration, product size, option content, and absenteeism to ensure comparability across plants. Quality data are derived from J.D. Power’s Initial Quality Survey, adjusted
to include only those defects that the assembly plant has some control over. 7
Williams, Haslam, Johal, and Williams (1994) claim that performance differentials
observed in M.I.T.’s International Assembly Plant Study are not valid because such plantlevel comparisons cannot be made accurately. However, their own case rests on shaky
empirical evidence, including national industry data that include car and truck producers
as well as suppliers, and company data that are unadjusted for vertical integration, among
other problems.
8
This is very different from the jobs bank included in Big Three contracts with the
UAW from the 1970s on. While originally designed to protect workers displaced by
technological change and give them rights to bid on jobs elsewhere in the company, persistent year-after-year declines in market share at these companies meant no realistic
1
AUTOMOBILE INDUSTRY
77
prospect of redeploying those being paid under this provision while not working. GM and
Chrysler dropped this provision as part of the bankruptcy-related negotiations, and Ford
did the same.
9
The history of wage setting in the U.S. auto industry is discussed in more detail in
Katz (1985).
10
A chronology of postwar bargaining in the U.S. auto industry is in Bureau of
National Affairs (various years) and U.S. Department of Labor (1969).
11
Job control unionism is not synonymous with business unionism. The latter refers
to the political philosophy of the labor movement. There are labor movements, such as
those in Japan, that could be characterized as business unionist but not job control oriented.
12
See Katz (1985 and 1988) for descriptions of early and mid-1980s bargaining.
13
These and other job and income security programs are described more fully in Katz
(1985 and 1988).
14
For example, see Bureau of National Affairs (2008) for a description of the expanded
attrition program at GM.
15
The lower-tier hires also received significantly lower fringe benefits, including a
cash-balance defined contribution pension and much more limited health care benefits.
16
Another key part of the 2009 contract modifications was terms that allowed the
companies to contribute stock in lieu of much of their cash obligation to the newly created
VEBA funds.
17
The UAW did constrain the potential number of lower-tier workers as it negotiated
caps on the share of each company’s workforce that could be employed at the lower tier
(the cap was first set at 20% at GM in 2007 and then expanded to 25% in the 2009
contract renegotiation).
18
For a discussion of political tensions between lower- and higher-tier workers with
reference to experiences in other U.S. industries, see Chaison (2009).
19
Chrysler had reduced its vertical integration with much less fanfare in the early
1980s during its earlier brush with bankruptcy.
20
Mean earnings in the supplier firms relative to earnings in assembly firms rose from
87.5% to 95.3% from 1940 to 1957 (Katz 1988).
21
Bensinger had been the director of the Organizing Institute launched at the AFLCIO during John Sweeney’s presidency and later had developed an ethical principle–based
approach to organizing in tandem with a former president of Bethlehem Steel, Richard
Schubert.
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Kim, Jaewon, John Paul MacDuffie, and Frits K. Pil. 2010. “Employee Voice and
Organizational Performance.” Human Relations, Vol. 63, no. 3, pp. 371–94.
Krafcik, John F., and John Paul MacDuffie. 1989. “Explaining High Performance
Manufacturing: The International Assembly Plant Study.” Working paper, International
Motor Vehicle Program, MIT.
Lichtenstein, Nelson. 1982. Labor’s War at Home. London: Cambridge University Press.
MacDuffie, John Paul. 1995. “Human Resource Bundles and Manufacturing Performance:
Organizational Logic and Flexible Production Systems in the World Auto Industry.”
MacDuffie, John Paul, Bruce Kogut, Frits K. Pil, and Charles Ragin. 2013. “Competition
Among Systems of Complements: Learning Among Prototypes and the Race to Keep
Up.” Working paper.
Parker, Mike, and Jane Slaughter. 1988. Choosing Sides: Unions and the Team Concept.
Boston: South End Press.
Pil, Frits K., and John Paul MacDuffie. 1999. “What Makes Transplants Thrive: Managing
the Transfer of ‘Best Practice’ at Japanese Auto Plants in North America.” Journal of
World Business, Vol. 34, no. 4, pp. 372–91.
Pil, Frits K., and Saul Rubinstein. 1998. “Saturn: A Different Kind of Company?” In
Robert Boyer, Elsie Charron, Ulrich Jurgens, and Steven Tolliday, eds., Between
Imitation and Innovation: The Transfer and Hybridization of Productive Models in the
International Automobile Industry. London: Oxford University Press, pp. 361–73.
Piore, Michael J. 1982. “American Labor and the Industrial Crisis.” Challenge, Vol. 25,
March–April, pp. 5–11.
Reuther, Victor G. 1976. The Brothers Reuther and the Story of the UAW: A Memoir. Boston:
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Stieber, Jack. 1962. Governing the UAW. New York: Wiley.
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New York: Rawson Associates.
Chapter 3
Hotels and Casinos: Collective Bargaining
During a Decade of Instability
C. Jeffrey Waddoups
Vincent H. Eade
University of Nevada, Las Vegas
Over the past decade, economic instability and institutional change have
altered the collective bargaining landscape in the American hot
The occupancy rate and other two measures of financial health (ADR
and RevPAR) closely track each other and further illustrate the negative
fallout from the Great Recession. In the year 2000, before the recession
and the 9/11 attacks, ADR registered $110.53, which is adjusted for inflation to 2011 dollars using the Consumer Price Index. By 2003, the ADR
had fallen by 8.6% to $101.03. It recovered robustly during the period
2004 through 2007, reaching a peak of $113.15 in 2007. The effect of the
financial crisis and Great Recession manifested itself in the precipitous
fall between 2008 and 2009, when the ADR dropped by 8.3% from
$112.16 in 2008 to $102.81. As an indication of the continued depressed
state of the industry, ADR in 2011, registering at $101.71, remains below
the level of 2009 (Smith Travel Research 2012).
Another indicator of the financial health of the lodging sector, RevPAR,
takes into account occupancy, price, and the overall supply of rooms.
Table 1 reveals an abrupt decline in RevPAR from the year 2000 to 2003,
moving from $69.84 to $59.79. After recovering between the years 2004
and 2007 and reaching a peak of $71.10 in 2007, RevPAR plunged again
during the financial crisis and accompanying Great Recession. It fell from
$67.10 in 2008 to $56.11 in 2009, a 16.4% decline. Although RevPAR
recovered somewhat in 2011, reaching $61.02, it remains well off its peak
measures from the years 2000 and 2007 (Smith Travel Research 2012).
Indeed, the fall in RevPAR reflects both negative supply and demand
conditions. The overbuilding of the mid-2000s significantly increased
supply (available rooms), while the recession reduced the demand for travel
accommodations (and therefore occupancy and daily rental rates) as
employers sought to cut costs and individuals reduced their travel budgets
in response to lower incomes.
As the financial indicators would suggest, the 2000s was a dismal
decade from the perspective of profits for the lodging sector. In an interesting analysis of long-term profitability, Woodworth and Mandelbaum
81
82
TABLE 1
Economic Indicators of the U.S. Lodging Industry, 2000–2011
(in 2011 U.S. Dollars)
Year
2000
2001
2002
Occupancy (%)
63.2
59.7
59.0
ADR ($)*
110.53
106.14
103.16
RevPAR ($)**
69.84
63.36
60.88
2003
59.2
101.03
59.79
2004
2005
2006
2007
2008
2009
2010
2011
61.3
63.0
63.2
62.8
59.8
54.6
57.5
60.0
102.60
104.81
109.10
113.15
112.16
102.81
101.10
101.71
62.87
66.07
68.91
71.10
67.10
56.11
58.15
61.02
Source: Smith Travel Research (2012).
*ADR is defined as the average daily room rate.
**RevPAR is defined as revenue per available room.
(2010) found that the 2000s was worse than every other decade since
modern statistics have been gathered, including the 1930s. Using data
from PFK-Hospitality Research’s Trends in the Hotel Industry database,
they computed the compound annual growth rate of profits in the decades
from the 1930s to the 2000s. The compound annual growth rate in the
2000s was measured at an astonishing –5.1% compared with the growth
rates that were positive in all other decades, even the 1930s. The rates in
Figure 1 indicate that during the 1930s, profits grew at a very slow 0.4%,
with similarly slow growth also occurring in the 1950s and 1960s. On
the other hand, profits grew robustly during the 1970s and 1990s.
Although the major indicators of health in the lodging sector tend to
be moving off the lows experienced in 2009, they are still far from their
peaks in the mid-2000s. Such conditions suggest that there will likely be
little investment in new lodging capacity in the next several years, and
they also portend difficult rounds of bargaining as the important labor
agreements in the industry expire during persistent economic hard times
for the industry.
The economic performance of the casino sector is becoming increasingly important to the national economy and the economies of many
states. According to the American Gaming Association (AGA) (2012),
commercial casinos and tribal casinos are located in all but 12 states.1
Commercial casinos, defined as land-based or riverboat casinos, in 2011
were located in 22 states. The AGA reported that commercial casinos
HOTELS AND CASINOS
83
FIGURE 1
Compound Growth Rate of Profits in Lodging Industry During Various Decades
Source: Woodworth and Mandelbaum (2010). generated $35.6 billion in revenue, were responsible for 339,000 jobs, and
paid 7.9 billion in taxes. Table 2 provides a state-by-state breakdown of
the revenues, employment, and taxes paid as reported by the AGA (2012).
Notice that Nevada, by far, generates the most spending and employment
from its casino operations, but the exceedingly low tax rate translates into
a surprisingly low level of tax revenue.
Table 3 provides data on commercial casino revenue over time. It shows
that revenues grew steadily after the recession of the early 2000s until it
reached a peak of approximately $40.3 billion in inflation-adjusted 2011
dollars. Revenue then dropped off considerably as a result of the financial
crisis and Great Recession. In spite of the technical end to the recession,
the stagnant economy and falling household incomes have kept revenues
at relatively depressed levels (AGA 2012).
Tribal gaming is rapidly approaching commercial gaming in terms of
size and employment. The National Indian Gaming Association (NIGA)
(2011) reports that as of 2010, 237 tribes ran gaming operations in 28
states and generated 27.2 billion in total revenue. NIGA’s economic impact
study (2009:7) found that as of 2009, Indian gaming accounted for
204,000 direct jobs and $2.4 billion in state taxes, revenue sharing, and
regulatory payments (2009:7). The revenue stream consists of state income,
sales and excise taxes, regulatory payments, and revenue sharing pursuant
to tribal–state compacts. Tribal gaming in the 2000s grew significantly
84
TABLE 2
Consumer Spending (Millions of Dollars), Employment, and
Tax Revenue (Millions of Dollars): Commercial Casinos in 2011 by State
State
Nevada
New Jersey
Pennsylvania
Indiana
Louisiana
Mississippi
Missouri
Illinois
Iowa
Spending ($)
10,700.00
3,320.00
3,020.00
2,720.00
2,370.00
2,240.00
1,810.00
1,480.00
1,420.00
Employment ($)
174,381
34,145
13,050
14,079
17,207
23,721
10,435
7,911
9,384
Tax revenue ($)
865.25
277.60
1,456.00
846.37
573.19
274.42
484.83
489.42
321.53
Michigan
1,420.00
7,303
320.67
New York
West Virginia
Colorado
Delaware
Rhode Island*
Florida
New Mexico
Maryland
Oklahoma
South Dakota
Maine
Kansas**
Total
1,260.00
958.70
750.11
552.37
512.86
381.72
248.92
155.71
106.23
100.90
59.45
48.48
35,635.45
3,465
4,528
9,263
2,730
—
2,601
1,423
290
905
1,512
364
303
339,000
593.40
406.46
102.17
230.16
308.71
143.60
64.72
89.53
18.30
16.36
29.06
9.48
7,921.23
Source: American Gaming Association, 2012 State Survey of Gaming Entertainment.
*One or more properties declined to participate in the survey.
**Based on 2010 data.
more rapidly than gaming in commercial casinos. Table 3 shows that
revenue increased from $18.4 billion in 2002 to $28.3 billion by 2007, as
measured in constant 2011 dollars.
Just as the Great Recession negatively affected the financial conditions
of the lodging industry, it also reduced revenues for casino operators. As
Table 3 indicates, commercial casinos’ inflation-adjusted revenues peaked
in 2007 at roughly $40.7 billion. Revenues plummeted in response to the
financial crisis and ensuing recession, falling by 11.8% to $35.9 billion in
2009 and staying roughly flat since then. Indeed, unlike the hotel industry,
the commercial casino sector has failed to recover any of its recessioninduced losses (AGA 2012).
85
HOTELS AND CASINOS
TABLE 3
Revenue of U.S. Commercial and Tribal Casinos
in Billions of U.S. Dollars (2002–2011)
Year
Commercial ($)
Tribal ($)
2002
35.09
18.38
2003
35.10
20.53
2004
37.11
23.22
2005
37.74
26.03
2006
2007
2008
2009
2010
2011
39.35
40.71
37.84
35.94
35.68
35.64
27.78
28.32
27.89
27.78
27.33
27.20
Sources: American Gaming Association, 2012 State Survey of
Gaming Entertainment; National Indian Gaming Commission
(2012).
Tribal casinos also experienced reduced revenue in 2008 as a result of
the financial crisis and Great Recession. That year also marked the first
year-over-year fall in revenue since tribal gaming commenced operations
in 1988. The fall in revenues, however, was relatively mild compared with
that of commercial casinos, as Table 3 demonstrates. The peak of $28.3
billion in 2007 was followed by only a 1.4% decline to $27.9 billion in
2008. Revenue has continued to decline slightly since then, which is likely
a reflection of the stagnant economy, persistently high unemployment
rates, and falling household incomes. Similar to commercial casinos—and
unlike the lodging sector—as of 2009, tribal casinos have not experienced
any recovery in revenues with the technical end to the recession.
PATTERNS OF COLLECTIVE BARGAINING AMONG
EMPLOYERS
Lodging
Although analysts have segmented the industry along a number of
dimensions, one useful characterization of the sector is a division of
establishments into segments by price and quality of service. Using a
price–quality schema, some industry analysts have developed a threesegment structure: (1) upscale and luxury, (2) mid-scale, and (3) economy
and budget (see, e.g., Kalnins 2006; Waddoups and Eade 2002). Typically,
upscale and luxury and many mid-scale properties are relatively large and
are often located in urban centers as convention hotels or in tourist destinations as resort hotels. They cater to business and convention travelers
86
and middle- to upper-income tourists, who are less price conscious than
their counterparts who patronize economy or budget establishments, but
also expect higher levels of service. The establishments in the economy
and budget categories, usually much smaller, tend to be located in suburban or roadside locations—although they may also operate in urban
areas—and attract customers who are less interested in high levels of
service and are more sensitive to price.
The existence of collective bargaining often depends on a property’s
location within the three-tiered segment structure. Most hotel unionism
is found in larger urban hotels in the full-service and upscale segments or
in mid-scale establishments. The union that generally represents hotel
workers, UNITE HERE, has its largest local affiliates in large urban areas
and tourist destinations such as Las Vegas, New York, San Francisco,
Honolulu, and Atlantic City.
Unionization is more likely to be found in the top two segments for a
number of reasons. First, the size of establishments provides economies
of scale to union activities, from organizing to contract administration,
which make representing workers at larger establishments more cost effective. Second, upper tier hotels tend to agglomerate in urban centers, which
provide additional economies of scale to union activity and also provide
the union with an incentive to organize all or most of the competing
properties in the relevant submarket. Union leaders have long recognized
that additional bargaining power can be obtained if most or all of the
competitors in a given market are unionized, essentially taking wages and
working conditions out of competition. With wages and working conditions removed from competition, firms compete by providing higher-quality
products and services rather than by cutting wages and benefits.
Third, compared with lower-segment establishments, upper-segment
establishments must deliver higher-quality service, which places a premium
on a stable and more highly trained workforce. Empirical evidence leaves
no doubt that a unionized workforce has lower turnover rates (Freeman
and Medoff 1984). To the extent that employment relations in unionized
firms leads to lower turnover rates, accumulation of firm- and industryspecific human capital is encouraged.
Workers with greater amounts of human capital are more productive
and thus have the capacity to more effectively deliver high-quality service.
To the extent that such reasoning applies to hotels, then collective bargaining may be more consistent with building and maintaining the kind
of workforces required in upscale and full-service properties compared
with the economy and budget segment. Consequently, employers might
be less likely to resist union activities, and higher union wages and benefits
become more economically viable based on higher productivity and lower
recruitment and training costs (associated with lower turnover).
HOTELS AND CASINOS
87
On the other hand, location and market considerations appear to
present obstacles to unionization in the economy and budget segment.
First, smaller, more geographically dispersed establishments, often located
outside urban centers, likely require hotel unions to spend more resources
per potential member to organize. This makes representation of workers
in such establishments less cost effective. Unions are less likely to expend
scarce resources in areas where organizing and representation activities
may be not be viable.
Second, because customers of economy and budget properties tend to
expect low prices rather than high levels of service, keeping costs and
prices down becomes managements’ major imperative. Productivity related
to lower turnover and the accompanying human capital accumulation
thus become relatively less important in lower-segment properties.
Consequently, employment relationships in a unionized environment are
less consistent with maintaining a workforce compatible with a lower-tier
segment’s operations, suggesting a greater incentive to remain
union-free.
Although the segment in which the property competes partially
determines patterns of collective bargaining, such patterns are also a
function of geography. Hotels in urban centers in the South and in some
locations in the Mountain West, despite being in the more heavily unionized upper segment of the industry, remain largely non-union. At the
same time, union coverage among hotel workers is quite prevalent—
although certainly not universal—in the upper-segment hotels located in
urban centers of the Northeast and Midwest. Region-specific customs of
managerial and perhaps worker resistance—or indifference—to unionization, therefore, must also be recognized as determinants of the observed
patterns of unionization.
Casinos
As was evident from the discussion of economic performance, casino
industry analysis generally differentiates commercial casinos, which are
land based and on riverboats, from tribal casinos. The commercial casino
segment may be further subdivided into operations that are connected
with a lodging facility, such as casinos in Nevada, where gaming laws
mandate that full-service casinos have at least 200 hotel rooms, and standalone commercial casinos, including most casinos on riverboats along the
Mississippi River in Iowa, Illinois, Missouri, Mississippi, and Louisiana.
Of course, in a number of locations—for example, Biloxi and Tunica,
Mississippi— riverboat casinos are associated with large destination resort
hotels, and lodging services are also found in a number of other locations
throughout the United States where tribal casinos operate. Commercial
casinos are also emerging in newer jurisdictions, notably, Pennsylvania,
88
which now has 14 casinos with gaming revenue in 2012 that surpassed
New Jersey, moving it into second place behind Nevada.
As with the lodging sector, researchers have employed a segmentation
structure to describe the casino industry. The National Gaming Impact
Study Commission (NGISC) (1998:7–8) reported on research conducted
by the National Opinion Research Council (NORC), which surveyed
casinos for the commission’s report. The NORC divided casinos into three
segments: (1) the top 25 casinos based on revenue (almost all of which are
part of destination resorts); (2) other commercial casinos including, but
not limited to, riverboats; and (3) tribal casinos. It must be noted that
NORC’s segmentation scheme is not entirely consistent with the organization of the casino sector. For example, there is little doubt that most of
the top 25 revenue-generating casinos are indeed correctly classified as
resort destination properties; however, other casinos not listed in the top
segment may also be appropriately classified as destination resorts.
Classification problems notwithstanding, casinos in the resort segment
offer a much greater variety of gambling products, ranging from sophisticated sports books to highly specialized state-of-the-art slot machines
to a wide variety of table games. In addition, they provide other nongambling amenities such as high-quality shows, fine dining, health spas, and
other forms of recreation.
Although the NORC report does not mention the physical location of
the 25 responding properties in the top segment, it stated that 21 of the
25 were unionized and tended to offer better and higher-quality jobs relative to casinos in the other two segments (NGISC 1998:7–8). Because
most of NORC’s top-segment properties are unionized, it can be inferred
that a large majority are either located in Las Vegas or Atlantic City. Any
other top-segment casinos outside Las Vegas and Atlantic City would
have been non-union at the time (e.g., Foxwoods Resort in Connecticut
may have been on the list).
In casinos connected to resort hotels, the prospect for unionization is
generally tied to the union status of the hotel to which it is connected. A
major exception to this generalization recently emerged at the Foxwoods
Resort, where the dealers and the UAW recently signed a collective bargaining contract with the casino operators. The other workers at Foxwoods
remain without union representation.
Generally, for nondealer casino workers, the same unions that represent
hotel workers also represent casino workers. For example, housekeepers
in a typical unionized Las Vegas hotel and cocktail servers in the hotel’s
casino are part of the same bargaining unit, which is represented by
UNITE HERE’s Culinary Union Local 226. However, in non-union
resort destination hotel-casinos on the Las Vegas Strip (e.g., The Venetian),
neither hotel nor casino workers are unionized. Other commercial casinos
HOTELS AND CASINOS
89
operating outside the top segment of the market in Atlantic City, Las
Vegas, and Reno may or may not be unionized. However, where there are
unions, they almost always represent both casino and hotel workers.
On the other end of the size spectrum, smaller commercial casinos
such as in Colorado and South Dakota, riverboat casinos in the Midwest
and South, and nearly all tribal casinos have gambling operations that are
more limited than those of the top segment. Not only are there fewer
gambling products available, but there are also usually lower betting limits
and fewer nongambling amenities, such as shows and fine dining. Moreover,
as was indicated in Table 2, in the case of commercial casinos, higher tax
rates are levied (at least compared with Nevada). In addition, casinos
located outside tourist areas are more likely to attract local residents as
customers so that in some cases lodging establishments are not connected
with casinos. Where lodging does exist, the establishments are generally
smaller and less likely to be in the full-service or luxury segments of the
industry.
Like their lodging counterparts, location and size of casinos affect
unionization. Remotely located and smaller casinos that are not tourist
destinations tend to attract customers interested in lower-stakes betting.
Casino customers’ demand for lower-stakes games limits the potential
revenue and ultimately the potential productivity of casino workers, where
productivity is defined as revenue per employee hour. Establishments that
generate low levels of revenue per employee may be less able to pay unionscale wages and benefits, and thus may more strongly resist union organizing efforts. Furthermore, because of the isolation and smaller scale of
operations, unions are likely to find organizing casino workers less cost
effective.
In the case of tribal casinos, another difficulty for unions has been
tribal sovereignty and the resulting inability of federal labor laws to protect
workers’ rights to organize and bargain collectively (NGISC 1998). The
federal government recognizes 565 Indian tribes, providing each with
some level of independence from the regulations promulgated and enforced
by the U.S. government.2
The Indian Gaming Regulatory Act, a consequence of tribal sovereignty,
was passed in 1988 and paved the way for tribes to begin operating casinos
on tribal land (Gordon 2010). The law, however, required that tribes who
desired to operate Class 3 casinos must establish a compact with the surrounding state, which allowed the state some power in regulating the
casino operations and also allowed for revenue sharing. Class 3 casinos
permit table games and slot machines that are common in contemporary
commercial casinos. Class 2 gaming includes bingo and certain other
nonbanked games. Of the 565 federally recognized tribes, 233 operate
Class 2 or Class 3 casinos in 28 states.
90
An important issue of tribal sovereignty is the applicability of labor
laws such as the National Labor Relations Act (NLRA), which provide
certain well-defined rights for workers to organize and bargain collectively.
Of course, to the extent that such rights have not applied to enterprises
operated by Indian tribes, the ability of workers to unionize was necessarily limited. The relative paucity of union activity in tribal casinos suggests that perhaps the lack of legal protection, among other impediments,
has made it difficult for workers to obtain union recognition and for
unions to successfully organize workers (Gordon 2010).
Against this backdrop, an interesting case emerged in California, where,
uniquely, the gaming compact states that tribes must allow workers to
organize and bargain collectively along the lines of the NLRA. In 1998,
the Communication Workers of America (CWA) signed the first collective
bargaining agreement with the Viejas Band of Kumeyaay Indians operating a casino outside of San Diego (Gordon 2010). The agreement was
controversial in a jurisdictional sense, because the UNITE HERE union
argued that it had jurisdiction over organizing casino workers. In 1999,
the CWA then attempted to organize workers in another casino operated
by the San Manuel Band of Mission Indians, who operated a casino on
their reservation near San Bernardino, California. UNITE HERE officials,
also making a bid to represent the workers, complained that the casino
operators were favoring the CWA by allowing them to park a trailer as
their organizing headquarters on casino property without extending the
same opportunity to them (Gordon 2010).
Differential treatment of the two unions bidding for worker support
would be considered a violation of the NLRA, and given that the California
compact called for NLRA-like regulation of collective bargaining, UNITE
HERE filed a complaint with the National Labor Relations Board (NLRB).
The NLRB in 2004 claimed jurisdiction in the case and ordered the tribe
to cease favoring the CWA. The ruling was appealed to federal court,
which sided with the NLRB in a precedent-setting ruling in 2007, finding
that because a majority of workers and patrons are not members of the
tribe, the workplace was under the jurisdiction of NLRA. The ruling also
held that because Native American tribes did not traditionally operate
casinos, the gaming operations were not government-run enterprises, as
they had been previously classified, but were to be considered as for-profit
corporations (Gordon 2010:5).
By defining tribal casinos as for-profit corporations and confirming
jurisdiction of the NLRA, the court through the San Manuel decision
weakened tribal sovereignty and made it easier for unions to organize
workers. Indeed, the recent unionization of casino dealers at the Foxwoods
Resort is likely a direct manifestation of San Manuel (Gordon 2010:7).
The decision is certainly troubling for tribal casino operators, who would
HOTELS AND CASINOS
91
prefer not to be subject to laws that generally apply to U.S. commercial
operations.
PATTERNS OF COLLECTIVE BARGAINING: THE UNIONS
Several unions represent lodging and casino workers based primarily on
occupation. UNITE HERE is the primary international union that represents workers associated with food and beverage and cleaning service
occupations. According to the UNITE HERE website, the union represents some 265,000 workers in the United States and Canada. The largest
concentration of UNITE HERE members is in Las Vegas, where the two
local affiliates (Culinary Union Local 226 and Bartenders Local 165)
claim more than 60,000 members. The union also has large locals in
Honolulu, Los Angeles, New York, Atlantic City, San Francisco, and
Washington, DC.
Alongside UNITE HERE locals are other unions representing different
classes of front-line workers in the industry. For example, the Teamsters
(IBT) represents warehouse and transportation workers, as well as frontdesk workers, in many of the hotel-casino properties in Las Vegas; Operating
Engineers (IUOE) represents workers who manage and maintain the
physical plant; and the Stagehands (IATSE) represent staging workers
and audio visual technicians.3 In addition, skilled trades often provide
representation for workers who provide construction and maintenance
work at large properties on an ongoing basis. A growing number of casino
dealers are also gaining union representation. The UAW represents dealers
in Detroit and Connecticut, while the TWU represents roughly 1,000
dealers at The Wynn and Caesars Palace in Las Vegas.
New organizing over the past decade has occurred in both the hotel
and casino sectors. A substantial increase in the number of unionized
hotel-casino workers occurred along the Las Vegas Strip with the opening
of properties connected with the City Center project in 2008 and 2009.
As previously mentioned, union organizing has been less prevalent in
tribal casinos. Along with the Viejas tribal casino in Palm Springs,
California, and the dealers at the Foxwoods casino, the Rumsey Rancheria
tribe of Wintun Indians that operate the Cache Creek Casino in Northern
California signed an agreement with the UNITE HERE local to represent
casino workers in 2003 (Bailey 2003).
Bargaining Units in Hotels and Casinos
Because the pattern of union representation varies in unionized lodging
and casino establishments, one would also expect the occupational composition of bargaining units to vary. Indeed, in some cases, UNITE HERE
locals have “wall-to-wall” representation in hotels such as the New Yorker
Hotel in Manhattan (Waddoups and Eade 2002). In other cases, especially
92
among larger properties, several unions represent workers according to
their occupations. Table 4 lists a number of major occupational categories
in hotels and casinos and corresponding unions that often represent them.
Table 4 indicates that food and beverage preparation, serving, baggage
handling, and housekeeping are generally in UNITE HERE locals. The
IBT often represent front-desk personnel, PBX operators, valet parkers,
warehouse workers, window washers, and small-equipment operators.
Workers maintaining the physical plant, such as heating, air conditioning,
and ventilation equipment, tend to be in IUOE bargaining units. The
IATSE often represents stagehands and technical workers serving conventions and shows. Workers skilled in the building and construction trades
employed in-house, such as carpenters, electricians, and painters, tend to
be represented by their respective craft unions (Waddoups and Eade 2002).
Dealers and Unions
Dealers operate table games such as roulette, poker, craps, blackjack and
baccarat. In the past, dealers in U.S. casinos have not been represented
by a union. This changed, however, when the casino industry began
operations in Detroit in 1994 and the UAW won bargaining rights and
a contract for dealers. Since then, additional pockets of unionism among
dealers have emerged. The UAW, after several years of struggle, organized
dealers in four properties in Atlantic City—the Trump Plaza, Tropicana
Resort and Casino, Bally’s Atlantic City, and Caesars Atlantic City. In
January 2010, the UAW negotiated a contract for more than 3,000 dealers
TABLE 4
Occupational Composition of Bargaining Units in
Typical Resort Hotel-Casino (by Union)*
UNITE-HERE
Food preparation
Kitchen sanitation
Dining room
Bell desk
Housekeeping
Servers
Bartenders
Bar backs
IBT
Front desk
Telephone operators
Valet parkers
Warehouse
Equipment operators
Window washers
IUOE
Maintenance
Heating and air conditioning
Ventilation
IATSE
Staging staff
Audio/visual
Carpenters
IBEW
Painters
UAW/TWU
Construction
Repair
Electrical
Painters
Casino dealers**
Paper hangers
*Hotel workers are also represented by the International Longshore and Warehouse Union in
Hawaii.
**Dealers in Detroit, at Caesars Palace and The Wynn in Las Vegas, at several properties in
Atlantic City, and at the Foxwoods Resort in Connecticut currently collectively bargain.
HOTELS AND CASINOS
93
at the Foxwoods Resort. Additional unionization of dealers may be on
the horizon in Atlantic City, with the UAW targeting the new Revel
Casino (Associated Press 2012).
Dealers have also unionized in Las Vegas. At The Wynn Resort, dealers
were angered by a new tip-sharing policy adopted by management in
2006, whereby tips earned by the dealers would be shared with supervisors. After a long struggle, the TWU Local 721 eventually negotiated a
ten-year contract with The Wynn Resort, which, interestingly, kept a
modified version of the tip-sharing arrangement in place. The groundbreaking agreement, ratified in November 2010, was the first major labor
contract for dealers in Las Vegas. Two years later, in July 2012, the TWU
Local 721 and Caesars signed a labor agreement, which became the second
contract between dealers and a Las Vegas casino (Green 2012).
The relatively slow movement to collective bargaining by dealers in the
United States remains a curious phenomenon. In contrast to those in the
United States, casino dealers are likely to be unionized in Canada, France,
Belgium, Australia, and Spain, among other nations, which generally have
a longer tradition of collective bargaining. Before the notable successes
in Atlantic City and Las Vegas, several attempts to organize dealers in
Nevada over the past 40 years were unsuccessful (Campbell 1989).
A number of factors explain why dealers in United States generally have
not unionized. First, employer opposition plays a key role. Casino employers’ argue that “at-will” employment for dealers helps them to keep games
honest. If dealers are suspected of running dishonest games, they must be
removed quickly to avoid serious financial damage. Due process procedures
in labor agreements could allow cheating to continue, rendering companies
vulnerable to unacceptable financial risk (Frey and Carns 1987).
Second, dealers’ own perceptions of their jobs may be a factor. Many
dealers at smaller properties see the occupation as a short-term job of less
than five years. Thus, job protections provided by a union contract hold
less value for them.
Third, the work itself complicates union organizing. In some cases,
dealers work part-time dealing games and part-time supervising them.
The ambiguous position between management and front-line workers not
only complicates the formation of traditional bargaining units, but it also
increases dealers’ affinity with management (Frey and Carns 1987).
Fourth, affinity with management may also originate from the path
dealers have traditionally followed to obtain increasingly lucrative jobs
over time. Upward economic and occupational mobility has typically
required “juice” (network human capital) with managers in the industry
(Binkley 2001). To the extent that dealers perceive support of a union as
a threat to the “juice” that got them their jobs and that will be necessary
to obtain better jobs, they may not support unionization (Frey and Carns
94
1987). More recently, as the industry has expanded, corporate-style human
resource policies are gradually replacing the traditional system of patronage and “juice.” Unions have become more attractive to dealers, resulting
in an increase in the incidence of collective bargaining. As major properties gain experience with collective bargaining and unions become more
adept at representing dealers, additional union organizing among dealers
is likely to emerge.
Organizing Strategy with Neutrality Agreements and
Card-Checks
UNITE HERE has earned a reputation for aggressively organizing new
properties without the NLRB election machinery. From the perspective
of UNITE HERE, intense resistance by employers using techniques such
as captive-audience meetings and long legal delays, as well as alleged
retaliation against union activists, combine to make the NLRB election
process ineffective as a means to secure recognition (Hurd 2008). Union
elections are also particularly problematic from the union’s perspective
because of high turnover rates in the industry. Under current labor law,
union certification elections can be delayed for years. Long delays coupled
with high turnover rates mean that there may be very few workers who
initiated the unionization effort remaining with the employer by the time
an election occurs. Indeed, total separations data from the Bureau of Labor
Statistics (2012) show that after construction, the sectors of leisure and
hospitality, and accommodation and food services register the second and
third highest rate of job separations.
In place of elections, the UNITE HERE has adopted strategies that
include intensive organizing among workers within establishments while
attempting to secure neutrality agreements from employers. Although
neutrality agreements take different forms, they typically contain language
that provides union organizers access to employers’ facilities, along with
agreements by employers not to campaign against the union, card-check
recognition, arbitration of first contracts, and accretion clauses that extend
the employer’s neutrality for purposes of organizing to other properties
that may be acquired or built by the company. The union commonly
agrees not to picket or disrupt business as the organization drive proceeds
(Hurd 2007; Sherwyn, Eigen, and Wagner 2006).
Not only are neutrality agreements enforceable in federal court, but
UNITE HERE’s recent experiences have also demonstrated that they
increase the probability that a union will obtain NLRB certification. Such
results appear to be generalizable according to Eaton and Kriesky (2001),
who examined outcomes of 170 union organizing drives and found that
when a neutrality agreement was in place, unions won recognition 78.2%
of the time compared with a 46.0% win rate when elections were held.
HOTELS AND CASINOS
95
UNITE HERE has used various methods to secure neutrality
agreements. A particularly interesting case occurred in the summer of
2006 with the Hotel Workers Rising campaign, which publicized, among
other things, high injury rates among hotel maids.4 At the same time,
through a coordinated strategy of signing short contracts or having workers continue to work without a contract (for two years in the case of San
Francisco), UNITE HERE secured common contract expiration dates in
major large-city convention and upscale hotel markets. Thus, in the summer of 2006, unionized hotel workers in Boston, Chicago, Honolulu, Los
Angeles, New York, San Francisco, and Toronto—seven of the top convention cities in North America—were working without contracts. The
simultaneous expiration was a particular threat to hotel chains because
unions could coordinate job actions across major convention and tourist
venues. If only one location was in negotiations and a union-led job action
occurred, some of the negative consequences could be absorbed by sister
hotels in other cities. However, with hotels in so many major markets
simultaneously in negotiations, the potential negative consequence of job
actions became magnified.
With the help of the added bargaining power derived from simultaneous
expirations and a booming economy, leaders of UNITE HERE secured
favorable contract terms without strikes, which included national neutrality
agreements with Hilton and Starwood in specified markets (Hurd 2008;
Sherwyn, Eigen, and Wagner 2006). According to public statements by
Bruce Raynor—then president of the union—the strategy led to 6,000
additional workers on the union rolls (Hurd 2007). In 2012, UNITE HERE
engaged in an international boycott of most Hyatt properties around the
world. These aggressive tactics can be seen, in part, as a continuation of the
strategy to secure neutrality agreements from Hyatt in similar way that they
were secured from Hilton and Starwood (Stangler 2012).
In Las Vegas, the largest hotel-casino market in the United States,
virtually all new organizing has relied on employer neutrality and cardcheck recognition. For example, three new properties connected with the
City Center project in the heart of the Las Vegas Strip, which was completed in 2008, were covered under the accretion clause in the contract
between MGM Grand Corporation and the Culinary Local 226 (the
UNITE HERE affiliate in Las Vegas).5 The Cosmopolitan, another major
property adjacent to City Center, signed a stand-alone neutrality agreement with the union. Local 226 continues its long-running struggle for
a neutrality agreement with Station Casinos, which currently operates a
chain of off-Strip hotel-casinos in the Las Vegas area (Coolican 2012).
Other strategies to obtain neutrality agreements have also been employed
in the past. In Jacksonville, Florida, the AFL-CIO invested funds from
its Building Investment Trust (BIT) in the Jacksonville Hilton and Towers.
96
In exchange for the financing, the hotel signed a neutrality agreement.
The Hyatt Regency Philadelphia at Penn’s Landing also signed a neutrality
agreement after receiving financing from the AFL-CIO’s BIT funds
(HERE 1999:14).
Failed Merger Between UNITE and HERE
The previous decade witnessed a historic merger on February 25, 2004,
between UNITE and HERE. UNITE, a union with 180,000 workers,
owned the Amalgamated Bank and a $70 million building as its headquarters in Manhattan. It faced a shrinking base of workers to organize,
as technology replaced textile workers and many remaining jobs were
outsourced to overseas operations. The union was led Bruce Raynor, who
orchestrated the 17-year battle with J.P. Stevens to organize 3,500 workers
in the South, a battle that inspired the film Norma Rae. HERE was led
by John Wilhelm, a progressive labor leader known for aggressively organizing hotel, gaming, and restaurant workers. The union had a large and
growing pool of workers to organize, but it lacked the financial resources
to support such an effort on a scale that was desired. Thus, merger of the
two unions into UNITE HERE appeared to be a good strategy to form
a larger, well-financed union focused on organizing less-skilled workers.
In the newly merged union, Raynor took the role of general president
and Wilhelm the role of president of the hospitality workers section, with
the two men sharing decision-making authority (Greenhouse 2004). This
arrangement of essentially having co-presidents was a novel, and largely
unprecedented, approach to union leadership. Difficulties in merging the
two organizations caused the relationship to deteriorate steadily to the
point that by March 2009, Raynor declared the merger failed and called
for the union to split (Greenhouse 2009).
In May 2009, Raynor announced his resignation from the union
presidency and formed a new union called Workers United, which was
composed of roughly 100,000 workers, most of who were formerly UNITE
members. Raynor and Workers United joined the Service Employees
International Union (SEIU). A point of controversy in the split centered
on which union—UNITE HERE or Workers United, SEIU—would
maintain control of the Amalgamated Bank and the office building that
housed UNITE HERE’s headquarters (Greenhouse 2009).
The dispute was settled in July 2010 with the Amalgamated Bank going
to Workers United, SEIU and UNITE HERE maintaining ownership of
the Manhattan headquarters. Jurisdictional matters were also settled.
UNITE HERE was to retain jurisdiction over organization of food service
workers in stadiums, convention centers, businesses, airports, and airline
caterers. SEIU would organize food service workers at health care facilities,
prisons, and government buildings (Greenhouse 2010).
HOTELS AND CASINOS
97
It is difficult to quantify the damage the internecine battles battle between
Workers United, SEIU and UNITE HERE inflicted on the latter’s efforts
to organize workers in the casino/hotel industry; however, the transition of
leadership in UNITE HERE appears to have stabilized the union.
In November 2012, John Wilhelm retired as president of UNITE
HERE and D. Taylor, the former national vice president of UNITE HERE
and secretary-treasurer of the Culinary Union Local 226 headquartered
in Las Vegas, was formally elected to the presidency. In his new capacity,
Taylor is likely to focus on issues surrounding union organizing and
expansion within the hospitality industry using the Las Vegas union
experience as a reference point. Other national issues of concern will be
the economy’s impact on union members, health care, card-checks, and
immigration reform. Taylor will still be involved in contract negotiations
in the near future with many Las Vegas casinos as a significant number
of collective bargaining agreements expire in 2013 (Stutz 2012).
ISSUES IN ORGANIZATION AND BARGAINING
Labor–Management Cooperation and Conflict
The creation and success of labor–management cooperation programs
often depend on the maturity of the relationship between the two parties.
Because some hotel markets have experienced collective bargaining for
decades, a level of trust has evolved that serves as a foundation for cooperation. A notable example of labor–management cooperation is the jointly
operated Culinary Academy of Las Vegas (CALV).6
The UNITE HERE local in the Las Vegas and 26 Strip hotel-casino
properties established a training trust to support the CALV, which is
financed by a payment of $.04 per bargaining unit worker hour. CALV’s
program trains potential and incumbent workers who want entry-level
jobs, or to upgrade their skills in cooking and serving. The curriculum
also includes courses in life skills and English as a second language.
Signatory properties have access to the pool of trained workers who graduate from the academy. Moreover, signatory hotels can also request programs
that are tailored to meet their specific needs.7
CALV’s training programs have continued to evolve. In summer 2011,
CALV moved operations to a new state-of-the-art building. Suggestive of
its high-quality training and output, it recently won an exclusive contract
to provide catering services to the Smith Center, a new upscale fine arts
venue in downtown Las Vegas. The Working for America Institute—an
organization affiliated with the AFL-CIO that researches and highlights
innovative, high-road, partnerships among labor organizations, employers,
and community groups—singled out the CALV partnership as a model
of labor–management cooperation (Working for America Institute 2001).
98
There is also a history of conflict in labor–management relations in the
hotel industry, which, given the remarkably difficult economic conditions
of the present time, threatens to re-emerge as major contracts expire.
Examples of this conflictual relationship are the major strikes in Las Vegas
in 1984 and New York in 1985. The proximate cause for the 67-day strike
in Las Vegas was a demand by properties that newly hired or transferred
workers be paid 80% of the contractually bargained rate for workers with
less than a year of experience in an occupation. The union eventually agreed
to the demand. The local hotel industry and its unions were both battered
by the strike in which replacement workers were used to keep some of the
Strip and downtown properties operating. In addition, picket-line violence,
decertifications, and substantial membership losses weakened the union.
Similarly, hotels in New York in 1985 were able to continue operating
during the citywide strike. One hundred sixty-five properties were struck
by 25,000 union members in the 26-day walkout in New York City. As
in Las Vegas, a central issue was a lower starting wage (75% of union
scale) for workers in their first year. To the surprise of union leaders, the
strike failed to shut down the industry; nevertheless, workers obtained
wage and benefit increases in exchange for more flexible job classification
systems and the lower wage for first year workers (Cobble and Merrill
1994). The 1980s was generally an era of substantial union decline. The
outcome of these strikes was a weaker union and many lost members. In
fact, a similar strike in Reno several years earlier left the hotel and casino
industries virtually union-free (Taylor 2001).
Isolated incidents of strikes, boycotts, and other labor unrest, however,
have affected some hotel and casino properties. One example was the
protracted strike at the Frontier Hotel and Gambling Hall in Las Vegas
in 1991. After the employer cut wages and payments to unions’ health,
welfare, and pension funds, 550 workers from five unions walked out in
an unfair labor practice strike. By the time it ended in 1998, the strike
had become the longest in U.S. history. Although no union workers crossed
the picket line, the company continued to operate with replacement workers. The strike was finally resolved after the property was sold and the new
employer recognized the union. An estimated 300 of the original strikers
returned to work at the “New Frontier Hotel and Casino” (Berns 1998).
Overt conflict has also arisen when properties on Las Vegas’s highly
unionized Strip have attempted to open and operate non-union. The
MGM Grand opened in December 1993 without agreeing to remain
neutral or to recognize a card-check procedure. The union protested with
informational pickets and by leafleting customers. A free-speech issue
arose when the hotel-casino, which also owned the sidewalk surrounding
the property, asserted its property rights to remove the protesters from
the sidewalk as trespassers.
HOTELS AND CASINOS
99
A similar controversy arose at the 3,000-room Venetian Hotel and
Casino on the Strip. The company claimed that sidewalks in front of
property were privately owned and therefore not available for demonstrators to protest the company’s anti-union stance. In a federal court ruling,
however, sidewalks owned by hotel properties were judged to be areas in
which free speech—including union activities—is protected (United States
Court of Appeals, Ninth District 2001).
The ruling did not end the controversy over the access of union
protesters to public and quasi-public walkways. In 2003, a group of roughly
1,000 union protesters was demonstrating on a temporary walkway in
front of the Venetian Casino. Audiotaped and posted messages warned
protesters that they were trespassing on private property. After the demonstrators refused to leave the walkway, security personnel placed a union
agent under citizen’s arrest and called the police to issue trespass citations.
The union filed an unfair labor practice complaint with the NLRB, which
ruled that quasi-public walkways were available for union demonstrators
to protest and that the actions of the company violated Section 8a(1) of
the NLRA (Ross 2010).
Conflict over health and safety issues also emerged during the first
decade of the 2000s. Dangerous working conditions affecting housekeepers in particular have become the focus of a worldwide boycott of the
Hyatt chain (Hoover 2012). The boycott received declarations of public
support from the National Organization for Women and the National
Football League Players Association, among other organizations. Findings
from a study of working conditions affecting front-line hotel workers
underlie UNITE HERE’s action.
A study of a randomly selected group of unionized hotels from five
chains found that hotel workers were significantly more likely to report
occupational injuries—particularly acute musculoskeletal injuries—than
their counterparts in other service-sector employment (Buchanan et al.
2009). Financially supported by UNITE HERE, the study is based on
data gathered from Occupational Safety and Health Administration
(OSHA) injury logs on the incidence and nature of injuries between the
years 2003 and 2005. The results, published in the American Journal of
Industrial Medicine, indicate that Hispanic housekeepers were particularly
vulnerable to occupational injuries compared with workers in other occupations and ethnicities. The research also reports statistically significant
differences in rates of injuries between hotel chains, a finding that suggests
that, even among unionized firms, employer-specific policies can ameliorate
or exacerbate health and safety outcomes. UNITE HERE seized on the
results of the study to bring public pressure to bear on the Hyatt Corporation,
which was found to have the worst injury record of the five chosen chains
represented in the sample.
100
WORKERS AND LABOR MARKETS IN HOTELS AND CASINOS
The workforce of the lodging industry includes a large proportion of
relatively unskilled service workers. Without union coverage, such employees are often paid poverty-level wages and receive few benefits (Waddoups
2001a). Indeed, employment in many front-line hotel and motel jobs fits
the profile of “nonstandard” work—part-time, contingent, and/or lacking
in affordable fringe benefits—according to the definition of Carré, Ferber,
Golden, and Herzenberg (2000). In this section, we use Current Population
Survey (CPS) data on travel accommodation workers to establish union
density, compare characteristics of union and non-union workers, estimate
differentials in union and non-union wages, and investigate the incidence
and determinants of health insurance and pension coverage.
Union Density, Worker Characteristics, and Union Effects
on Compensation
Collective bargaining is closely connected with higher real wages for
workers in both union and non-union establishments in a given location.
For example, in research on Nevada’s hotel and casino industries, Waddoups
(1999a, 2001b) compared median wages of a number of occupations that
were highly unionized in Las Vegas with identical occupations in Reno,
which were largely non-union. The comparison highlighted a marked
difference in the wage structure of hotel-casino firms in the two regions.
Median wages for less-skilled service jobs in Las Vegas were found to be
more than 40% higher than those of their counterparts in Reno. When
the union/non-union differentials were estimated using multiple regression
analysis to account for the possibility of product market differences between
Las Vegas and Reno, the differential fell to a still significant 24% (Waddoups
2000). In addition, wage inequality between managerial and front-line
workers in the hotel-casino sector was found to be significantly lower in
the highly unionized Las Vegas compared with Reno (Waddoups 2002b).
To see how unions affect wages in the United States more broadly, we
gathered data on travel accommodation workers from the CPS-ORG files
from the years between 2005 and 2011.8 Such data are commonly used
in the literature to estimate union densities and union/non-union wage
differentials. The results in Table 5 show that union coverage is significantly
lower in the accommodation sector than in the labor force as a whole
(7.9% compared with 13.0%) and that union densities in that sector have
been drifting downward over the period, from 9. 6% covered in 2005 to
7.9% in 2011.
Table 6 presents the summary statistics of selected worker characteristics
in the union and non-union sectors. The results indicate that, compared
with the non-union sector, unionized workers are less likely to be female
and more likely to be older, married, Hispanic, and non-U.S. citizens.
They are also more likely to live in a city with a population of one million
101
HOTELS AND CASINOS
TABLE 5
Union Densities: All Workers and Accommodation Workers by Year
Year
2005
2006
2007
2008
2009
2010
2011
All
Member (%) Covered (%)
12.5
13.7
12.0
13.1
12.1
13.3
12.5
13.8
12.3
13.6
11.9
13.1
11.8
13.0
Accommodation
Member (%)
9.0
9.8
8.2
8.3
8.4
8.4
7.2
Covered (%)
9.6
10.6
9.2
8.6
9.0
9.0
7.9
Source: Current Population Survey, Outgoing Rotation Files.
TABLE 6
Selected Characteristics: Travel Accommodation Workers in the United States
Covered by union
Not covered by
contract
union contract
Characteristic
Hourly wage
Age
High school
Some college
Bachelor’s degree
Graduate degree
Female
Married
African American
Hispanic
Noncitizen
Does not reside in
MSA*
CBSA:** 250,000–
1,000,000
CBSA 1,000,000–
7,000,000
CBSA: 7,000,000+
Union city***
Number in sample
Mean
16.44
44.0
0.419
0.182
0.102
0.007
0.509
0.596
0.123
0.312
0.230
Standard
deviation
6.15
12.3
—
—
—
—
—
—
—
—
—
Mean
14.18
39.15
0.341
0.219
0.146
0.023
0.611
0.489
0.104
0.215
0.168
Standard
deviation
10.18
13.6
—
—
—
—
—
—
—
—
—
0.248
—
0.393
—
0.163
—
0.168
—
0.465
—
0.348
—
0.125
0.544
609
—
0.091
0.148
4804
—
—
Source: Current Population Survey, Outgoing Rotation Files.
* MSA: Metropolitan statistical area.
**CBSA: Core-based statistical area.
***Union cities were determined based on union densities in the accommodation sector over the
2005–2011 period. The cities include Atlantic City, Detroit, Honolulu, New York, Las Vegas,
and San Francisco.
102
or greater, and more than half of union-covered workers reside in one of
the six major metropolitan areas designated a “union city.” The results
also suggest that education beyond high school is negatively correlated
with the probability of union membership or coverage. On average, unioncovered workers earn $2.28 more per hour than their non-union counterparts ($16.44 compared with $14.16), which amounts to an unadjusted
premium of 16%.
Using standard OLS regression techniques in which the natural log of
earnings is regressed on union status, human capital, and other characteristics, we computed union/non-union differentials for various educational,
demographic, and geographic groups of lodging workers. The coefficient
for union coverage in the earnings equation was used to compute the union/
non-union wage differential for each group. Results in Table 7 indicate
that union coverage provides a substantially higher premium for lesseducated workers. Workers with no high school education earn a 24%
premium compared with college-educated workers, who experience no
union wage effect. Union coverage also appears to be especially useful in
providing a wage premium for workers who are female, Hispanic, non-U.S.
citizens, and African American.
Results in Table 7 also show that union-covered workers who reside in
small metropolitan areas enjoy a substantial wage premium compared
with their counterparts in large areas. Interestingly, in cities that are highly
unionized, the union wage premium is substantially lower than in cities
where there is less of a union presence. The pattern among hotel workers
is consistent with a threat effect raising wages of non-union workers, and
it seems to conform to what Belman and Voos (1993) argued for “local
labor market industries” more generally. They demonstrated the pattern
using workers in grocery stores.
The evidence on accommodation workers presented in Table 7 indicates
that the union wage premium has declined over the period, from 15.0%
in 2005 to 8.5% in 2011. Such findings could be a result of diminished
bargaining power of union workers as the recession and stagnant economy
continues to put downward pressure on their wages relative to that of their
non-union counterparts. The finding is something of a puzzle, however,
because labor agreements often prevent unionized workers’ wages from
falling during slow economic times, while wages of non-union workers,
left unprotected by contracts, are more likely to fall or stagnate. More
research to address this issue would be useful.
Results from the CPS indicate that high levels of occupational
segregation based on race and gender continue to characterize occupational
structure in the lodging industry. For example, Table 8 shows that, although
females make up 59.9% of production workers, they represent 90% of
maids and 81% of cashiers. Similarly, only 22% of transport workers and
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HOTELS AND CASINOS
TABLE 7
Predicted Union/Non-Union Differential for Travel
Accommodation Workers by Selected Characteristics*
Characteristic
Average
No high school
High school
Some college
Associate’s degree
Bachelor's degree
Male
Female
Not married
Married
White
African American
Hispanic
Noncitizen
Union city**
Non-union city
Differential (%)
14.8
29.6
21.1
6.3
16.1
1.5
11.5
16.2
18.5
12.5
9.4
16.7
23.5
21.6
8.0
20.1
Small CBSA***
29.2
7.03
CBSA 250,000–1,000,000
CBSA 1,000,000–5,000,000
CBSA 5,000,000+
Interviewed in 2005
Interviewed in 2011
5.5
8.0
12.2
17.5
7.5
1.25
2.96
1.26
3.69
1.30
t-statistic
4.53
5.26
5.64
1.02
1.74
0.08
2.25
4.00
5.07
4.69
3.42
2.03
6.91
5.56
3.15
5.92
Source: Coefficients estimated using linear probability models and data
from the Current Population Survey, Outgoing Rotation Files (2005–2011).
*Wage-allocated workers were not included.
**Union cities were determined based on union densities in the accommodation sector over the 2005–2011 period. The cities include Atlantic City,
Detroit, Honolulu, New York, Las Vegas, and San Francisco.
***CBSA: Core-based statistical area.
protective services workers are female. The table also shows that noncitizen,
Hispanic, and African American workers tend to be disproportionately
over-represented as guest room attendants and janitors, while being
under-represented as managers and business, finance, and accounting
analysts.
Access to employer-sponsored health insurance and pensions represents
other important elements of compensation. Summary statistics taken
from the March CPS (Table 9) show that accommodation workers are
104
TABLE 8
Employment by Selected Occupations and Demographics
Characteristics
Female
Hispanic Black
Non-citizen
Selected occupations
(%)
(%)
(%)
(%)
Managers
58.7
13.01 5.6
3.7
Business/finance/accounting
71.8
7.4
6.0
7.4
Protective services
21.5
11.2
10.3
5.2
Chef/cook/food prep
34.8
28.4
14.7
20.1
Cashiers
81.5
29.6
5.6
12.9
Administration
77.1
15.9
13.7
8.8
Food service
59.5
23.3
8.6
14.2
Bartenders
42.6
9.2
6.9
8.0
Entertainment
28.6
3.6
0
14.3
Maintenance and repair
1.3
22.8
2.5
12.7
Janitors
12.3
30.3
11.6
32.1
Maids
90.6
37.3
15.6
36.3
Laundry/dry cleaners
75.6
25.5
15.3
11.6
Porter, bellhop, concierge
21.7
23.2
13.1
11.6
Gaming service
58.1
8.1
5.4
13.5
Cage workers
88.9
11.1
22.2
11.1
Front desk clerks
69.6
12.6
10.5
4.2
Transport
22.1
31.7
13.4
20.7
All production
58.3
26.3
13.3
19.2
All accommodation
59.9
22.6
10.6
17.5
All workers
49.8
11.7
9.3
7.6
Source: Author’s calculations using data from the Current Population Survey, Outgoing
Rotation Files (2005–2011) on workers employed in the accommodation industry.
TABLE 9
Proportion of Travel Accommodation Workers with Employer-Sponsored Health
Insurance and Pension Plan Coverage
Employer-Sponsored Health
Insurance available
Employer pays all or part
Average contribution
Pension Plan
Employer offers pension
Total pension participation
Employee take-up rate
Total
Accommodation industry
All industries
0.499
0.473
$4,156.62
0.557
0.535
$5,497.09
0.458
0.305
0.666
6,658
0.556
0.457
0.813
571,672
Source: Author’s calculations using March Current Population Survey data (2005–2011).
105
HOTELS AND CASINOS
less likely to report employer-sponsored insurance coverage than workers
in general (49.9% compared with 55.7%) and that employers’ average
contribution is lower. Similarly, compared with the typical worker in the
United States, workers in accommodation are less likely to be offered a
pension and less likely to participate in a pension plan that is offered.
To isolate the factors that affect probability of health insurance being
offered and paid for by employers, we estimated a linear probability model
in which the dependent variable is the probability of employment-sponsored
health insurance. Selected results are listed in Table 10. The variables
controlling for age and education are positively correlated with the availability of health insurance, all other things being equal. The results also
demonstrate that the probability of health insurance coverage increases
TABLE 10
Probability That Health Insurance Is Paid
for by Employer: Linear Probability Model
Variable*
Age
Age2*100
High school
Some college
Bachelor’s degree
Health insurance paid
Coefficient
t-statistic
0.030
12.67
–0.003
–10.05
0.079
5.06
0.100
5.43
0.125
5.29
0.192
9.32
Female
–0.037
–3.00
Hispanic
African American
Non-citizen
Employer size 10–99
Employer size 1,000+
Union city**
Constant
Number of observations
Adjusted R-squared
–0.013
0.006
0.015
0.105
0.258
0.322
0.298
0.234
–0.512
6658
–0.87
0.33
0.92
4.72
10.93
11.11
14.59
15.26
–9.61
0.2416
Source: Data from the March Current Population Survey (2005–2011).
*A series of regional, occupational, and year dummies were included as control
variables in the equation.
**Union cities were determined based on union densities in the accommodation sector over the 2005–2011 period. The cities include Atlantic City,
Detroit, Honolulu, New York, Las Vegas, and San Francisco.
106
with employer size and increases substantially for workers employed in a
“union city.” Although it is not surprising, it appears that accommodation
workers in highly unionized cities are more likely to have employmentsponsored health insurance than their counterparts elsewhere, even after
controlling for many common characteristics that affect the incidence of
health insurance coverage.
Another linear probability model was used to estimate the probability
that accommodation workers had an employer-sponsored pension available
to them. A second model was then estimated to determine the probability
that workers participated in the pension plan if it were available. As with
the results on the probability of health insurance, the findings in Table
11 indicate that age and education are positively correlated to the probability
that a pension plan is offered. The results also suggest that female and
Hispanic workers are less likely to have access to a pension. Residing in
TABLE 11
Probability of Travel Accommodation Workers Being
Covered by a Pension: Linear Probability Model
Variable*
Age
Pension available
Coefficient
t-statistic
0.014
5.87
Participation, if available
Coefficient
t-statistic
0.044
11.38
Age 2*100
0.004
–5.10
–0.040
–10.03
High school
Some college
Bachelor’s degree
Female
0.067
0.085
0.138
0.161
–0.042
4.31
4.57
5.75
7.70
–3.14
0.113
0.122
0.127
0.178
–0.015
4.35
4.11
3.60
5.74
–0.86
Married
0.017
1.45
Hispanic
African American
Employer size 1,000+
Union city**
–0.057
0.009
0.105
0.299
0.382
0.427
0.146
–4.11
0.50
4.66
12.47
13.00
20.60
9.56
Number of observations
6658
3053
R-squared
0.2161
0.1949
0.057
–0.035
–0.038
0.059
0.052
0.086
0.070
0.144
3.28
–1.67
–1.48
0.96
0.87
1.36
1.23
7.10
Source: Data from the March Current Population Survey (2005–2011).
*A series of regional, occupational, and year dummies were also included as control variables in
the equations.
**Union cities were determined based on union densities in the accommodation sector over the
2005–2011 period. The cities include Atlantic City, Detroit, Honolulu, New York, Las Vegas,
and San Francisco.
HOTELS AND CASINOS
107
a “union city” adds 14.6 percentage points to the probability a pension
plan is offered. Employer size is the most significant determinant of such
a probability, however, with workers progressively more likely to have
access to pensions as the size of the firm increases.
Compensation in Casinos
Data from the CPS allow estimates of the effects of unions on wages for
accommodation workers. Similar data, unfortunately, are not available
for casino workers. We instead used data from Wage Watch, Inc., a company that produces proprietary occupational wage surveys, one of which
focuses specifically on casino employers. Table 12 contains median occupational wages for common casino occupations in Las Vegas and the
midwestern United States, including Illinois (six properties), Louisiana
(two properties), Minnesota (one property), Missouri (three properties),
and Oklahoma (one property). The median wage is substantially higher
for occupations in Las Vegas compared with the same occupations in
Midwest casinos. The difference is especially large in tipped occupations.
For example, cocktail servers in Las Vegas earn 112% more than their
counterparts in the Midwest do. Similarly large premiums accompany
occupations such as bartender and restaurant server. If tips were added to
these wages, the premiums would probably fall somewhat.
Occupations that are not tipped, but which generally are covered under
a union contract in Las Vegas, are also quite large. Restaurant cashiers
and line cooks in Las Vegas, for example, earn 71% and 48% more,
respectively, than their counterparts in midwestern casinos. The median
wage for Las Vegas as reported in Table 12 for such occupations is roughly
consistent with the union wage (see Waddoups 1999a and Waddoups
2001b).
Similarly, the lack of unions in the Midwest casinos means that the
median wage there is consistent with a non-union wage. Not surprisingly,
occupations that are not unionized in either location are those with the
smallest wage differential between Las Vegas and the Midwest. For example,
casino dealers, cage cashiers, and surveillance operators earn more in Las
Vegas, but the differential tends to be smaller. The pattern of results in
Table 12 is suggestive of a Las Vegas effect, where casino occupations in
general pay higher wages, but the results also indicate a significant union
effect. Unfortunately, the data are not complete enough to make a definitive estimate of a union premium for casino workers that would be analogous
to our estimate for accommodation workers in the CPS.
The union benefits package for casino workers is widely viewed to be
particularly generous for workers in larger jurisdictions such as Las Vegas
and Atlantic City. Large non-union casinos in Las Vegas and other locations within Nevada and elsewhere also offer standard benefits packages
to workers that are characteristic of most large employers. Unfortunately,
Bar back
Bartender
Restaurant cashier
Cocktail server
Line cook
Casino dealer
Cage cashier
Restaurant server
Slot floorperson
Slot technician
Surveillance operator
Valet
23
32
35
32
29
43
34
25
47
28
41
29
Las Vegas
# of properties
587
276
269
861
1934
1537
10265
1651
2942
746
2156
599
# of workers
5.77
15.38
17.38
12.06
6.63
13.08
7.25
11.00
5.61
9.98
9.14
8.49
11
13
12
13
12
12
11
12
11
7
11
9
329
199
205
629
381
518
2738
401
560
166
228
67
Central United States*
Median wage ($)
# of properties
# of workers
0.72
0.23
0.36
0.19
0.68
0.11
0.14
0.48
1.12
0.71
0.79
0.76
Difference (%)
Source: Wage Watch Casino Wage Survey, 2011.
*Casinos from the central United States that contribute data are located in Illinois (six properties), Louisiana (two properties), Minnesota (one property),
Missouri (three properties), and Oklahoma (one property). There is no definitive information about whether the properties are commercial or tribal casinos.
According to the American Gaming Association (2012), however, Illinois has only commercial gaming, Missouri and Louisiana have mostly commercial gaming,
and Minnesota and Oklahoma have only tribal gaming. Thus, the numbers reported here from the central United States primarily originate from commercial
casinos.
9.92
18.91
23.63
14.32
11.11
14.55
8.25
16.27
11.88
17.10
16.33
14.95
Median wage ($)
Occupation
TABLE 12
Median Wages for Selected Casino Occupations in Las Vegas and the Central United States for 2011
108
HOTELS AND CASINOS
109
evidence of the existence of employer-sponsored insurance for workers in
emerging, largely non-union, casino markets is limited. Our previous
research drew on more complete occupational wage surveys, which were
available for the year 2000 (Waddoups and Eade 2002:169–70). The surveys
qualitatively described casino workers’ access to, and participation in, fringe
benefits programs. At that time, full-time workers (40 hours or more per
week) on all riverboat casinos were offered employer-sponsored health
insurance of some kind. Of the 21 respondents operating riverboat casinos,
11 reported offering health insurance to part-timers (24 to 32 hours per
week). The types of plans differed substantially among respondents, as did
the percentages of workers who were reported to have participated.
The incidence of health insurance offered to workers on tribal casinos
was found to be very similar to that of riverboat casinos (Waddoups and
Eade 2002:169–70). Of the 44 casinos responding, all but one offered
some sort of health insurance package to its full-time workers (again
defined as 40 hours per week). Only 24 employers offered insurance to
part-timers (defined in this case from 20 through 33 hours per week). As
with the riverboat casinos, a range of coverage plans were offered both
within and across firms, and the rates of worker participation also varied
substantially by property and plan type. And similar to riverboat properties, no information about the percentage of workers who qualified for
insurance was reported. Although it is likely that similar patterns of
employer-sponsored coverage exist in casinos now, no hard evidence exists
to support the assertion.
As is the case for health insurance benefits, little data are available about
the incidence and characteristics of pension plans for front-line casino
workers. Waddoups and Eade (2002), however, reported that as of 2000,
all responding riverboat casinos offered 401(k) pension plans and all
included some kind of employer match. It was not specified, however,
whether part-time workers were eligible to participate nor was the rate at
which employees participated given.
Also as of 2000, Waddoups and Eade (2002) found that tribal casinos
were less likely than casinos on riverboats to offer pension plans. Thirtyseven of the 44 tribal casinos represented in the data reported offering a
401(k) pension plan, most with some kind of employer-matching scheme.
The other seven did not report offering a pension. No information was given
on whether part-timers are eligible to participate in the program or to receive
the matching contribution. In addition, no numbers were available on the
proportion of workers who actually participate in the pension plans.
CONCLUSION: THE FUTURE OF COLLECTIVE BARGAINING
Prospects for the expansion of collective bargaining in the lodging sector
do not appear promising. The slowly recovering economy accompanying
110
the Great Recession has compromised the financial health of many lodging properties. Unless there is a significant turnaround in their financial
prospects, non-union employers will likely be very resistant to unionism,
while unionized employers may be more likely to seek to reduce costs and
restore profitability through hard bargaining. Given the gloomy financial
situation, not only will lodging firms be less likely to agree to wage and
benefit increases, but they will most likely hold out for give-backs. Such
conditions have the potential to create a tumultuous environment for
labor relations in this industry when the parties enter bargaining again
when the contracts expire. It seems unlikely that we will see the kind of
unrest experienced in the 1980s, however, as the costs of such large-scale
job actions proved to be quite high for both unions and employers.
Over the past decade, a substantial portion of the expansion in the
incidence of collective bargaining among hotel and casino workers has
occurred as newly constructed properties fell under accretion clauses
establishing employer neutrality and card-check determination of majority
status (e.g., the City Center development on the Las Vegas Strip). The
sluggish economy and overbuilding that occurred during the 2000s,
however, suggests that fewer new properties will be built that could conceivably be covered under such clauses. If growth in union membership
in this industry is to occur, it will have to come from some other source.
As we have documented above, leaders of UNITE HERE have developed
aggressive strategies to secure neutrality agreements from major employers
by finding new pressure points and novel sources of bargaining power.
We expect this activity to continue over the next decade. The same stagnant
economic conditions facing hotels also affects casinos, which suggests that
currently non-union casinos also will likely be more resistant to collective
bargaining than would otherwise be the case. And currently unionized
casinos will try to drive harder bargains as new rounds of negotiations
begin.
A potentially new source of unionism in casinos, however, may come
from the dealers at major properties. The UAW has represented dealers
since gaming arrived in Detroit in the mid-1990s and has since organized
several bargaining units of dealers in Atlantic City and at Foxwoods in
Connecticut. At the same time, the TWU has won two notable victories
on the Las Vegas Strip.
Although dealers traditionally have not organized as readily as other
casino workers, indications are that this may be changing. As major
employers become accustomed to operating with unionized dealers,
employer resistance to dealer unionism may dissipate somewhat.
Additionally, as non-union dealers see the benefits of collective bargaining,
they may be more likely to embrace unions as a way to gain greater control
HOTELS AND CASINOS
111
over their work lives. In Detroit, unionism among dealers is clearly established and will surely persist over the next decade. Dealer unionism also
has a good chance of expanding in Atlantic City, where the culture is
much more accepting of unions than in Las Vegas, where dealers have
been slower to embrace collective bargaining and employers have been
more resistant.
Tribal casinos are another potential source of expansion in unionism.
Tribal sovereignty and the resulting lack of protection afforded by the
NLRA was one of the primary reasons that unions could not make much
headway in tribal casinos. The 2007 San Manuel decision defined tribal
casinos as business enterprises and brought many of them under the
jurisdiction of the NLRA. This will likely open them up for union organizing, which would not have occurred in the past. As a result, it is likely
that there will be more union organizing activity in tribal casinos in the
next decade.
ENDNOTES
According to the AGA, the following 12 states do not have commercial or tribal
casinos, although they might have racetrack casinos: Arkansas, Georgia, Hawaii, Kentucky,
Massachusetts, New Hampshire, Ohio, South Carolina, Tennessee, Utah, Vermont, and
Virginia.
2
Gordon (2010) provides a thorough discussion of the legal infrastructure underlying the ability of Indian tribes to operate casinos.
3
Hotels and casinos generally have food, liquor, and dry goods warehouses. Such
items are typically received by warehouse workers, who receive, store, inventory, and issue
the goods.
4
The union’s report, Creating Luxury, Enduring Pain, by June Moriarty (2006), found
that the trend toward larger beds and multiple oversized pillows was associated with a
notable rise in work-related injuries among members of the housekeeping staff.
5
The Aria, Vdara, and Mandarin Oriental are covered under the accretion clause
through the MGM contract. The Cosmopolitan is covered under a stand-alone neutrality
agreement (Taylor 2012).
6
Hospitality training academies are also found in New York, Los Angeles, and Boston
(Taylor 2012).
7
Waddoups (2002a) provides additional detail on the labor relations history and
economic conditions surrounding the origin of the CALV.
8
Waddoups (1999b) conducted similar research using CPS data from the 1990s.
1
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Chapter 4
Health Care: Collective Bargaining’s Growing
Role in a Time of Transition
paul f. clark
Penn State University
The U.S. health care industry plays a critical role in our society. Almost
everyone will use the services of this industry at some point, and many
will do so at the most critical moments in their lives. For that reason, most
people have a stake in the American health care system. And because
health care is a labor-intensive industry that has an above-average level of
union density, collective bargaining in health care has relevance for every
American.
In addition, the health care industry plays a very important role in the
economic life of the United States. It is a large and growing segment of
the American economy. In 2010, national health expenditures in the
United States totaled 2.6 trillion dollars, up from 1.4 trillion in 2000. By
2020, this is expected to increase to 4.6 trillion. Health care costs represented 18% of the nation’s gross domestic product (GDP) in 2010. By
2020, those costs are predicted to account for 40% of GDP (U.S. Centers
for Medicare and Medicaid Services 2012).
The industry is also one of the leading employers in the United States.
In 2010, roughly 14 million people worked in health care–related jobs
(Figure 1). By 2020, that number is projected to grow to 18.3 million
(AHA 2012; AHCA 2010).
Most important, the U.S. health care industry is an industry in crisis
and in transition. At the heart of this crisis are rising health care costs,
increasing pressures on public and private budgets, changing demographics, and accelerating scientific and technological advances. It is in transition
as a result of the health care reform process and the passage of the Patient
Protection and Affordable Care Act of 2010 (PPACA).
Since the late 1990s, managed care has been the most common framework for the delivery of health care in the United States. Managed care
is a market-based approach to the delivery of health care services that
includes a number of cost-control strategies such as pre-payment arrangements and pre-admission authorizations. Health maintenance organizations
(HMOs) and preferred provider organizations (PPOs) serve as the primary
vehicles for delivering managed care (NCSL 2012).
115
116
FIGURE 1
Health Spending Per Capita, United States, 2000 to 2012, Selected Years
Source: Centers for Medicare and Medicaid Services (CMAS), Office of the
Actuary, National Health Expenditure Data, 2012 release.
In many respects, managed care and its manifestations have adversely
affected health care employees, resulting in increased unionization.
Collective bargaining in this industry, particularly for professional employees
in the private sector, gained momentum later than most other industries.1
However, driven by the implementation of managed care, collective bargaining is fast becoming an important part of our health care system, and
the evidence suggests that there is significant potential for this process in
this industry in the years ahead.
This chapter examines the parties, the practices, and the challenges
involved in collective bargaining in the U.S. private sector health care
industry.2 Particular attention will be given to the two largest segments
of the industry—the acute-care hospital sector and the long-term care/
nursing home sector.3 And although this chapter touches on the status of
the entire range of employees working in the industry, the relationship
between employers and the largest group of employees responsible for
providing patient care—registered nurses (RNs)—will be given particular
attention. Because managed care influences every aspect of health care
today, the impact of this phenomenon on the employment relationship
serves as the framework for this discussion.
117
HEALTH CARE INDUSTRY
THE HEALTH CARE INDUSTRY
The two most significant sectors of the private U.S. health care industry,
in terms of expenditures and numbers of patients and employees, are the
acute-care hospital sector (including medical centers and clinics) and the
long-term care/nursing home sector.4
The Private Acute-Care Hospital Sector
The private hospital sector of the U.S. health care industry is made up of
two types of acute-care facilities. The majority of hospitals are not-forprofit community hospitals; the remainder are privately owned, for-profit,
hospitals. As Table 1 indicates, in 2010 there were 2,904 not-for-profit
community hospitals and 1,013 for-profit hospitals (AHA 2012).
Not-for-profit community hospitals are defined as hospitals that reinvest
any leftover monies rather than distributing such funds to individuals or
groups. These hospitals are usually built and financed by citizens’ or
religious groups, with money for constructing facilities coming from
individuals, charities, the sale of tax-exempt bonds, and government grants.
Most have 100 to 300 beds, with urban hospitals often having considerably more and rural hospitals sometimes having as few as 25 to 50.
Traditionally, such hospitals serve a limited geographic area and are
administered by a board composed of citizens from the area (Raffel and
Raffel 1997).
For-profit hospitals constitute the second type of hospital. These
hospitals are usually owned by corporations, and, each year, they distribute
profits to their shareholders. The states with the most for-profit hospitals
are Texas and Florida. Many are part of national chains, the largest of
which are HCA (with 140 hospitals and 31,000 beds in 2009) and
Community Health Systems (with 111 hospitals and 13,210 beds, also in
2009) (“Largest for-Profit Hospital Chains” 2011).
TABLE 1
Private Acute-Care Hospitals and Long-Term Care/
Nursing Home Facilities in the U.S., 1995–2010
Total private acute-care hospitals
Total not-for-profit acute-care hospitals
Total for-profit acute-care hospitals
Acute care hospitals in a system
Acute care hospitals in a network
Total private long-term care/nursing homes
Sources: AHA (2012), AHCA (2010).
1995
5,794
3,092
752
1,990
1,178
15,300
2000
4,915
3,003
771
2,217
1,327
16,715
2010
4,995
2,904
1,013
2,941
1,508
15,669
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Because of mergers and closings, the total number of private hospitals
has fallen since 1995 from 5,794 to 4,995 in 2010 (AHA 2012). At the
same time, the hospital sector has seen the growth of hospital “systems”
and “networks.” According to the American Hospital Association (AHA),
a multi-hospital system “is two or more hospitals owned, leased, sponsored,
or contract managed by a central organization” (AHA 2013). A single,
freestanding hospital may be categorized as a system if it owns or leases
nonhospital pre-acute or post-acute health care organizations (clinics,
rehabilitation facilities, or nursing homes). The AHA defines a network
as “a group of hospitals, physicians, other providers, insurers, and/or community agencies that work together to coordinate and deliver a broad
spectrum of services to their community” (AHA 2013).
Based on these definitions, network participation does not preclude
system affiliation, nor does system affiliation preclude network participation. Of the 4,995 private hospitals registered with the AHA in 2010,
2,941 were affiliated with a system and 1,508 were part of a network.
These numbers represent an increase from 1995, when 1,990 such hospitals
were system affiliated and 1,178 were associated with a network (AHA
2012).
In 2010, U.S. hospitals employed 4,599,752 full-time equivalent
employees. This was up from 3,911,412 employees in 2000 and 3,415,622
employees in 1990. The largest single occupational group working in
hospitals is RNs. The number of full-time equivalent nurses’ positions in
U.S. hospitals has grown from 809,900 in 1990 to 957,600 in 2000 to
1,293,900 in 2010. Likewise, the number of full-time equivalent physicians positions in U.S. hospitals has increased from 615,421 in 1990 to
813,770 in 2000 to 985,375 in 2010 (Table 2) (AHA 2012).
The Long-Term Care/Nursing Home Sector
As of June 2013, there were 15,666 certified long-term care/nursing home
facilities in the United States with 1,378,360 patients. This was down
from 16,486 facilities and 1,456,990 patients in 2002 (AHCA 2012). The
majority of these facilities are traditional nursing homes that care for the
elderly; however, the number also includes Alzheimer’s, AIDs, hospice,
and other special care facilities. The average number of beds per facility
is 107. Six percent of these facilities are hospital-based; the remainder are
separate facilities. Sixty-nine percent are for-profit operations, 25% are
not-for-profit, and 6% are government-operated (AHCA 2013).
The growth of large corporate chains is even more prevalent in longterm care than among acute-care hospitals. The largest chains include
Golden Living (304 facilities in 21 states), HCR ManorCare (279 facilities
in 30 states), Life Care Centers of America (231 facilities in 28 states),
and Kindred Health Care (226 facilities in 30 states) (LaPorte 2012).
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TABLE 2
Employment in Private Acute Care Hospitals and LongTerm Care/Nursing Home Facilities in the U.S., 1990–2010
Total private acute-care hospital employees
Registered nurses
Physicians
Total private long-term care/nursing home
employees
Registered nurses
1990
3,415,622
809,900
615,421
2000
3,911,412
957,600
813,770
2010
4,599,752
1,293,900
985,375
n.a.
1,380,000*
1,823,000*,**
n.a.
1,380,000*
1,823,000*,**
Sources: AHA (2012), U.S. BLS (2003).
*Direct care workers only (RNs, LPNs, nurses’ aides).
**Projected.
In 2009, 4.7 million people worked in long-term care and nursing
home facilities. The demographics of the United States indicate that more
people are living longer and that the elderly population (the group most
needing long-term care/nursing home services) is growing. In 2008,
approximately 38.8 million Americans were 65 or older. By 2030, that
number will increase to 72 million. This suggests that there will be significant growth in the number of people employed in the long-term care/
nursing home sector in the decades ahead (AHCA 2010).
THE INDUSTRY IN TRANSITION
The U.S. health care system, as previously described, is in the midst of a
period of transition and transformation. Central to these changes are the
increasing cost of health care and the rapidly evolving ways in which
health care services are delivered and financed. The reforms that have
been introduced over the past 20 years, particularly managed care, have
had a significant impact on employees in the industry and have led to
considerable dissatisfaction among the health care workforce. It remains
to be seen what the impact of the Patient Protection and Affordable Care
Act of 2010 will be in this regard.
As discussed earlier, health care expenditures have risen significantly
in the United States over the past decade. One of the most significant
factors contributing to the increased cost of health care is the development
and expanded use of more expensive, state-of-the-art medical technologies
and drugs (KaiserEDU.com 2013).
The aging of the U.S. population is another significant factor. In 1980,
11.3% of the U.S. population was age 65 or older. In 2010, that figure
increased to 13%. By 2020, this age group is expected to make up 16.1%
of the population (Administration on Aging 2013). As the number and
percentage of Americans over 65 years of age increase, per capita health
120
care costs rise significantly. People in this age group are much more likely
than their younger counterparts to suffer from chronic illnesses and their
complications. Consequently, they have more frequent and longer hospital
stays and higher surgical rates. In addition, the elderly are treated more
aggressively in the U.S. health care system than in many other countries,
resulting in longer life expectancies. As life expectancies have increased,
so has the need for long-term care. These factors have pushed, and will
continue to push, the costs of health care in the United States rapidly
upward (Raffel and Raffel 1997; CHWS 2006).
The increasing pressure on the budgets of public and private health
care institutions has its origins in the enactment of Medicare and Medicaid
in 1965. These programs spurred a rapid growth in demand for, and use
of, health care services. One of the results was an unprecedented increase
in the cost of care and the share of the nation’s resources that it consumed.
Between 1970 and 1980, the inflation rate for health care was double the
overall Consumer Price Index (CPI). This spurred the drive for new
approaches to the delivery and financing of both acute and long-term care
(Wunderlich, Sloan, and Davis 1996).
Hospitals
In the 1950s and 1960s, hospital care in the United States was delivered
on a fee-for-service basis. Patients receiving treatment in hospitals either
paid for these services themselves or submitted their bills to an insurance
company that paid them in full or in part. However, as costs rose, the main
providers of health insurance—employers and insurance companies—began
to look for new, cost-effective approaches to providing care (Knight 1998).
The pro-market policies of the Reagan administration created a favorable
climate in the 1980s in which these approaches could flourish (Budrys
1997). The system that developed to address these issues was managed
care.
The past three decades have seen managed care, and managed care
organizations such as HMOs, come to dominate the health care system
in the United States. As mentioned earlier, managed care is a market-based
approach to the delivery of health care services that includes a number of
cost-control strategies such as pre-payment arrangements and pre-admission
authorizations. HMOs and PPOs have served as the primary vehicles for
delivering managed care (NCSL 2012). By the 1990s, HMOs and managed care were increasingly penetrating the health care market. Between
1988 and 2011, HMO enrollment grew from 20 million to 70 million
(MCOL 2012). When combined with other programs such as PPOs and
high-deductible health plans (HDHPs), roughly 210 million Americans
were covered by some form of managed care plan in 2010. This growth
has significantly influenced the structure of the industry and the manner
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in which health care services are delivered. The consolidation of hospitals
and health care systems through closings and mergers and the reorganization of work within these facilities were two of the products of marketdriven health care reforms (Dranove, Simon, and White 2002).
The widespread closings and mergers were efforts to take advantage of
economies of scale and strengthen providers’ positions in the health care
marketplace. Hospital closures reduce the number of excess hospital beds
and lead to cost savings by permitting the remaining hospitals to spread
costs over a wider patient base. Mergers are pursued either to eliminate
competitors or to expand services. Ultimately, cost containment is the
driving force behind market-driven reforms such as closures and mergers
(Wunderlich, Sloan, and Davis 1996; Covington 2012).
Personnel costs make up the largest expense in hospital budgets, and
any effort to reduce costs in these institutions would have to involve labor
costs. Because nurses represent the largest group within most hospitals’
personnel budgets, RNs were one of the groups most affected by the
introduction of managed care (Kangas, Kee, and McKee-Waddle 1999).
A number of studies found that nurses’ jobs were negatively impacted by
hospitals mergers (Armstrong-Stassen, Cameron, Mantler, and Horsbaug
2001). They were also affected by the restructuring and downsizing of
hospital staffs.
As the number of nurses was reduced, the remaining nurses were
required to take care of more patients (Corey-Lisle, Tarzian, Cohen, and
Trinkoff 1999). Also, because managed care called for hospitals to admit
only “the sickest patients for the shortest possible stays” (Sochalski and
Aiken 1999:1), RNs reported that patient acuity (how sick a patient is)
rose significantly. Accordingly, the patients under the care of nurses
required greater attention. The result significantly increased workloads
for nurses, reduced the satisfaction they received from their work, and
increased the stress they felt on the job (Corey-Lisle, Tarzian, Cohen, and
Trinkoff 1999; Sochalski and Aiken 1999).
A study by Clark, Clark, Day, and Shea (2001) found that restructuring
also had a negative effect on nurses’ perception of the climate for patient
care in their hospitals. In that study, nurses who experienced job restructuring judged their ability to provide quality patient care more negatively than
nurses who had not experienced these changes.
These studies suggested that for many nurses “hospitals [had] become
lousy places to work” (Jaklevic and Lovern 2000:48). This has been cited
as one of the reasons for a nurse shortage that began in the late 1990s and
continued into the first decade of the new century. The shortage was particularly significant in the acute-care hospital sector. There were multiple
reasons for the shortage, but one significant contributing factor was the
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dissatisfaction of RNs with the working conditions in acute-care hospitals.
This dissatisfaction caused tens of thousands of nurses to leave the profession (McHugh et al. 2011).
Long-Term Care/Nursing Homes
Over the past 20 years, changes in the long-term care/nursing home sector
have been as dramatic and traumatic as in the hospital sector. In 2001,
five of the seven largest nursing home chains entered bankruptcy under
Chapter 11, including Mariner (which lost $1.78 billion in 1999) and
Vencor/Kindred (which lost $692 million the same year). These financial
difficulties can be traced, in part, to changes in the Medicare system that
occurred in the late 1990s (SEIU 2001). As the decade progressed, the
fortunes of this sector rebounded as investors began to see opportunities
in long-term care/nursing home facilities. As a result, the latter part of
the 2000s saw an increase in the number of for-profit providers (Highbeam
Business 2012).
Funding for long-term/nursing home care comes from three sources.
In 2009, Medicare, a jointly funded federal–state program that is administered by the individual states, paid for 70% of all nursing home patients.
Medicaid, another federal–state program, also covers some costs for lower
income people. And patients themselves, or patients’ private insurance,
contribute to the costs of long-term and nursing home care (Highbeam
Business 2012).
As the recession of the mid-2000s began to hit hard, government began
to cut back on Medicare and Medicaid reimbursements. Individuals were
also hit by the recession and saw reductions in personal funds available
to cover long-term/nursing home care. At the same time, the cost of health
care rose rapidly. The result was a financial crisis for the long-term and
nursing home care industry (Workforce Connections 2012). This crisis
has had negative ramifications for workers in the industry.
A business consulting firm’s 2011 report on the long-term care/nursing
home industry concluded that it suffered from an unusual number of
labor-related problems, including low pay, high turnover, staff shortages,
physical job requirements, and an above-average number of safety and
health problems (Highbeam Business 2012).
The workforce in most long-term care/nursing home facilities is made
up primarily of certified nurse assistants (CNAs). A relatively small number
of RNs work in mostly supervisory capacities. Support personnel (food
service, housekeeping, maintenance, and clerical workers) make up the
rest of the staff. The median salary for CNAs in 2011 was $24,172 (Salary
.com 2012). Their work is sometimes unpleasant, requires little training,
is physically taxing (CNAs often move and lift patients), and has a high
injury rate. These factors, along with low pay, have resulted in a decades-
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long CNAs shortage. It also is why CNAs in long-term care/nursing home
facilities have one of the highest turnover rates of any job classification in
any industry. In 2010, turnover for CNAs was more than 70% (down
from nearly 100% a decade earlier). The New York Times reported that
“in nursing homes with high turnover rates, certified nursing assistants
tend to leave within three months” (Russakoff 2010).
HEALTH CARE UNIONS
Union Representation
In 1995, 821,321 hospital employees, or 16.5% of the hospital workforce
in the United States, were represented by a union. By 2011, union coverage for this group of employees fell to 15.9%; however, the total number
of hospital workers with union representation grew to 1,008,957. During
the years between 1995 and 2011, union density held relatively steady,
fluctuating generally within this range (Hirsch and Macpherson 1995,
2011).5
In the long-term care/nursing home sector, unions represented 193,564
employees, or 11.3% of the workforce, in 1995. By 2011, union representation in this sector had fallen to 8.9%, with 155,251 nursing home employees
covered by union contracts. In that same year, 10.3% of workers in home
health care were represented by unions, as were 8.4% of outpatient clinic
workers, 3.8% of employees in physicians’ offices, and 1.8% of workers
in dentists’ offices (Hirsch and Macpherson 1995, 2011).
According to the most recent data (2011), the union representation rate
for hospital employees (15.9%) was higher than the representation rate
for the U.S. workforce as a whole (13%). The rates for nursing home and
home health care workers, as well as for employees working in outpatient
clinics and physicians’ and dentists’ offices, were less than the overall
union coverage rate. However, the number of employees working in those
settings who were represented by unions was still substantial, totaling
almost 1,500,000 in 2011, an increase from approximately 1,250,000 in
1995 (Hirsch and Macpherson 1995, 2011).
When broken down by occupation, the union representation rate for
the largest single group of employees in the hospital sector—RNs—was
19.8% in 2011. This is a 1.3% increase over 1995, when the percentage
of RNs represented by unions was 18.5% (union representation peaked
during this period at 21.6% in 2007). Union membership rates for nurses
have historically been 1.5% to 3.0% less than union representation rates.
In 1995, 15.4% of RNs held union membership; in 2011, that number
increased to 18%. In real terms, 538,613 nurses were represented by unions
in 2011, while 487,205 were union members (Hirsch and Macpherson
1995, 2011).
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A number of other occupations primarily in the hospital sector also
have above-average union representation rates. In 2011, more than 30%
of speech pathologists working in hospitals were represented by unions,
as were 23% of nurse practitioners. These are the highest representation
rates among all occupational groups in American hospitals. Radiation
therapists and occupational therapists had union coverage rates of 16.9%
and 16.8%, respectively, and 14.4% of physician’s assistants were covered
by a union contract (Hirsch and Macpherson 2011).
Physicians, however, are represented by unions at a rate below the
overall union representation rate. There was a small surge of physician
organizing following the 1999 National Labor Relations Board (NLRB)
decision extending the right to bargain to interns and residents in the
private sector. However, few of these efforts were successful, and union
activity among this profession remains low. In 2011, 61,461, or 10%, of
the 615,000 physicians in the United States were represented by unions
(Hirsch and Macpherson 2011). However, this is an increase from 1995,
when the union representation rate for physicians was 8.8% (Hirsch and
Macpherson 1995, 2011). In almost all cases, physicians' bargaining units
are in urban hospitals.
Another important indicator of union activity is representation or
organizing elections. Recent years have seen a decrease in the number of
these elections among all workers. This has also been the case among
health care workers. However, the experience of the hospital sector has
been quite different from that of the long-term care/nursing home sector
in this respect.
The number of organizing elections for all industries fell 40% between
2005 and 2009 (the most current year for which data are available), from
2,215 to 1,333 elections. However, during that same period, hospital sector
elections declined by only 14%, from 108 in 93, while long-term care/
nursing homes organizing elections fell by 54%, from 192 to 88.
These numbers suggest that union activity in the hospital industry has
remained relatively strong, compared with national trends, while activity
in the long-term care/nursing homes sector has fallen (NLRB 2000, 2005,
2009).
The percentage of organizing elections won by unions is another indicator of the state of unionism in a particular industry or sector. Overall,
unions won 52% of organizing elections in 2000, 61% in 2005, and 69%
in 2009. This increase is usually attributed to unions being more selective
in petitioning the NLRB for representation elections in recent years, doing
so only when they believe the chances of winning are high (this is supported by the overall decline in the number of union elections held)
(NLRB 2000, 2005, 2009).
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Win rates in hospitals, which in 2000 were higher than for the labor
movement overall, increased at a rate slightly greater than the increases
for unions overall. In 2000, unions won 58% of hospital elections. The
win rate in the hospital sector increased to 68% in 2005 and to 79% in
2009. Election rates for the long-term care/nursing home sector also
increased between 2000 and 2009 but only by a small margin (from 65%
in 2000 to 65.9% in 2009) (NLRB 2000, 2005, 2009).
Unions Representing Health Care Employees
A relatively large number of unions represent workers in the U.S. health
care industry. This appears to be a function of at least two factors. First,
a large segment of the health care workforce did not become eligible to
organize a union until 1974, after many national and international unions
were already well established. Thus, there was less reason for the formation
of entirely new health care unions. Second, during this period, many
existing unions suffered significant membership losses. Not surprisingly,
many of these unions saw health care as fertile ground for organizing.
Only a few industries in the United States are growing at the rate experienced by the health care industry. And, unlike many of the industries
that have long been a focus of the American labor movement, health care
facilities cannot move to lower-wage nations abroad or even to low-wage
regions of the country. This has made health care attractive to a wide
range of unions, including those with little or no previous connection to
the industry.
The unions that organize health care workers in the United States
represent all three of the major types of unions found in the American
labor movement—craft, industrial, and general labor organizations.6
Service Employees International Union
The union that represents the largest number of workers in the health care
industry is SEIU (Table 3). One of the American labor movement’s fastest
growing unions, SEIU has a long history of organizing health care employees,
initially in public and private nursing homes and public sector hospitals and
more recently in acute-care hospitals. SEIU not only has the most members
working in the industry generally (1.1 million of its 2.1 million members),
it also is as close to an industrial health care union as exists in the United
States today. SEIU’s ranks include significant numbers of health care workers in virtually all professional and nonprofessional job classifications (it
does not represent hospital security guards) and all types of facilities (SEIU
2012b).
A subdivision of the union, the Nurse Alliance, reports a membership
of 85,000 RNs in 21 states (SEIU 2012c). This SEIU affiliate represents
nurses working primarily in acute-care hospitals across the United States.
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TABLE 3
Health Care Employee Membership in U.S. Unions, 2012
Union/health care division(s)
or major affiliates
SEIU
National Doctors Alliance
Physicians
Total
health care
members
Total
members
1,100,000
2,100,000
360,000*
1,300,000*
15,000*
Nurse Alliance
85,000
AFSCME
United Nurses of America
Union of American
Physicians and Dentists
Registered
nurses
60,000
*,**
6,000*
NNU
CA Nurses Association
86,000
MA Nurses Association
23,000
MN Nurses Association
20,000
MI Nurses Association
10,000
185,000
Other affiliates
46,000
Total
185,000
185,000
82,000
105,000
AFGE
55,000
93,000
650,000
UFCW
30,000
69,200
1,300,000
USWA
45,000
667,000
Teamsters
35,000
1,400,00
OPEIU
33,000
110,000
CWA
20,000
700,000
Laborers
11,300
822,000
Operating Engineers
10,000
358,000
UAW
10,000
767,000
SPFPA
10,000
20,000
AFT
Healthcare Division
1,500,000
1,000
Sources: Self-reported membership figures from individual union websites or union media.
*Membership made up largely of public sector employees.
**Includes LPNs.
127
They work for a range of employers, including large health care systems
such as Kaiser Permanente, for-profit chains such as HCA, public hospitals
in major cities, and small community hospitals.
SEIU also represents far more support staff—nurses’ aides, housekeeping and food service personnel, and maintenance workers—in acute-care
hospitals than any other union.
One of the reasons for SEIU’s dramatic growth in the past ten years
has been its success in organizing workers in the long-term care sector.
The union has long organized employees working in nursing homes and
rehabilitation facilities, including those operated by major chains such as
HCR ManorCare, Kindred Healthcare, Golden Living, and Genesis
Healthcare, as well as government-run facilities.
More recently, SEIU has organized hundreds of thousands of workers
in home health care, one of the fastest growing sectors of the health care
industry. Some of these organizing drives have brought huge numbers of
members into the union. In one of the biggest union elections ever held,
more than 70,000 home care workers in Los Angeles County voted to
join SEIU in 1999. Six years later, the union won elections for 49,000
home care workers in Illinois and 41,000 in Michigan (“Michigan Workers
to Join Union” 2005).7 As of 2012, SEIU claimed to have more than
500,000 members working in home care, 180,000 of whom belong to its
California affiliate, United Long-Term Care Workers (ULTCW) (SEIU
2012f).
SEIU is also the only U.S. union that represents a significant number
of physicians. SEIU’s Committee of Interns and Residents (CIR) represents
“house staff” (resident physicians of a hospital who care for
patients under the direction of the attending staff) (SEIU 2012d).
SEIU’s Doctors Council represents attending physicians, dentists,
optometrists, podiatrists, and veterinarians employed by a variety of
government agencies, hospitals, and private health care facilities. The two
affiliates, CIR and the Doctors Council, have a combined membership
of approximately 17,000, almost all of whom practice in urban areas.
Together they form the National Doctors Alliance (NDA) (SEIU 2012a).
Over the past decade, SEIU has gained a reputation for aggressive
organizing and for independent action. Its success in organizing has made
it the second largest union in the American labor movement, and it showed
its independence in 2005 by disaffiliating from the AFL-CIO and, with
six other unions, forming a second American labor federation called
Change to Win (CTW) (Greenhouse 2005). SEIU remains a member of
CTW, along with three other unions—the Teamsters, the United Food
and Commercial Workers (UFCW), and the United Farm Workers (UFW)
(CTW 2012).
128
SEIU has also been a union in turmoil over the past several years. In
2009, its president, Andy Stern, placed the second largest SEIU local in
California—United Healthcare Workers (UHW)—into trusteeship,
removed its officers, and essentially took over the local. This began a long
fight between the local and the national union that consumed a tremendous amount of both groups’ time, energy, and money (Pringle 2009). It
also spurred the creation of a rival union, the National Union of Healthcare
Workers (NUHW), led by former SEIU leaders ousted by the trusteeship,
which unsuccessfully contested SEIU’s right to represent UHW’s members
(Carlson 2009; Orechwa 2009; Cutler 2013).
In 2010, Stern stepped down as president, thus setting up a fierce battle
among a handful of would-be successors (Gonzalez 2010). Mary Kay
Henry, the leader of SEIU’s Healthcare Division, came out on top of this
internecine fight and later that year was elected to the presidency of the
union (MacGillis 2010).
American Federation of State, County, and Municipal Employees
The union with the second largest number of members working in health
care is AFSCME. AFSCME represents 360,000 health care members,
more than 60,000 of whom are RNs (AFSCME RNs have their own
division within the union called the United Nurses of America) (AFSCME
2009; Weiss 2011). The remaining health care members represented by
AFSCME work in a wide range of occupations ranging from nurses’ aides
to food service and maintenance workers to physicians. Most are employed
in acute and long-term care facilities operated by state or local government
agencies, although some members work at private, nonprofit facilities. For
example, health care workers at the state-run Missouri Veterans Home in
St. Louis are represented by AFSCME, as are the psychiatric technicians
at the Napa (California) State Hospital and Trumbell Memorial Hospital,
a non-profit community facility in Niles, Ohio.
National Nurses Union
The third most significant union representing health care workers is NNU.
If SEIU and AFSCME represent industrial unions in the health care sector, NNU represents the other end of the spectrum—craft unionism—
because it organizes only RNs.
The NNU is, in essence, an amalgamation of state nursing associations.
State nursing associations are a vestige of the American Nurses Association
(ANA), a professional organization created in 1896 to advance the nursing
profession. Because of differing views among nurses regarding collective
bargaining, most of the ANA state organizations split into two associations: one that engaged in collective bargaining and one that functioned
as a professional association. It is from the state associations created to
129
engage in collective bargaining that affiliates of the NNU are drawn
(AUD 2008).
The NNU was created in 2009 by bringing together three nurses’
unions—the California Nurses Association/National Nurses Organizing
Committee (CNA/NNOC), the United American Nurses (UAN), the
Massachusetts Nurses Association (MASSNA). At its founding, it reported
a combined membership of 150,000. The CNA/NNOC was the moving
force in the creation of the new union (AUD 2010).
Since it broke away from the ANA in 1995 to pursue a more militant
course of action in representing RNs, CNA/NNOC has been both one
of the fastest growing unions in the country and the most influential and
dynamic union in the burgeoning nurse labor movement. In its first 15
years, CNA/NNOC membership grew by 400%. It now represents 86,000
members in hospitals, clinics, and home health agencies in all 50 states
(CNA/NNOC 2012).
The UAN was formed in 1999 as the national collective bargaining
arm of the ANA. The UAN was actually a federation of 27 ANA state
associations and was created to assist those associations with organizing
and bargaining (Amber 1999a). At its height, UAN had 96,000 members,
second only to SEIU in the number of RNs organized. In 2001, it affiliated with the AFL-CIO (ANA 2001a).
Because of internal differences, four of UAN’s larger state affiliates—New
York, Ohio, Oregon, and Washington—withdrew from the organization
in 2006 (AUD 2008). In 2009, UAN, including a majority of its remaining
state affiliates, the largest being the Michigan Nurses Association (AUD
2010).
The other major union that helped form the NNU was the MASSNA
and the MINNA. In 2001, the MASSNA split with the ANA over the
issue of collective bargaining and became an independent organization.
In 2009, it brought 23,000 members to the new union. The 20,000member MINNA also affiliated with NNU in 2009 (AUD 2010).
The NNU now claims 185,000 members from all 50 states. It continues
to grow rapidly, in part because of the pioneering work of CNA/NNOC
in organizing RNs in union-hostile states such as Texas and Florida and
in other states that have previously seen little nurse organizing. It continues
to be a force politically as one of the most vocal groups calling for a singlepayer health care system.
CNA/NNOC/NNU’s efforts to organize RNs in states without a
significant nurses union presence have been greatly aided by a neutrality
agreement it signed in 2010 with one of the nation’s largest hospital
chainS—HCA. SEIU also signed the same agreement. The agreement
allowed the two unions to organize 20 HCA hospitals in Florida, Missouri,
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Nevada, and Texas without opposition from the employer. Under the
terms of the arrangement, CNA/NNOC/NNU would organize the nurses
at these hospitals, while SEIU would organize the support staff. In return,
the unions agreed to refrain from engaging in negative campaigns against
the company and to not attempt to organize workers at other HCA facilities (Maher 2011).
The joint initiative was a departure from the unions’ past relationship
with one another. For years, the two unions had clashed over many issues,
particularly in California where NNU affiliate CNA/NNOC had engaged
in a running battle with SEIU affiliate UHW. Nonetheless, the agreement
has played a critical role in CNA/NNOC/NNU’s successful efforts to gain
a foothold in important, largely anti-union, states. Since 2010, CNA/
NNOC/NNU has organized RNs at 13 HCA hospitals, while SEIU has
organized more than 4,500 support workers at those facilities (Maher 2011).
American Federation of Teachers
The union with the fourth largest number of health care workers is the
AFT. Although AFT has a total membership of 1.5 million, the division
of the union that represents health care workers, AFT Healthcare, has
approximately 105,000 members. That membership includes 82,000 RNs,
with the remainder working in other professional capacities such as medical researchers, physicians, dieticians, psychologists, x-ray technicians,
and therapists. The majority of these members work in acute-care hospitals
(AFT 2013; Amber 2013). AFT’s members work in both the private and
public sectors (AFT 2013).
AFT Healthcare’s membership increased significantly in February 2013
when the National Federation of Nurses (NFN) voted to affiliate with
them. When it was originally created in 2008, NFN brought together
the state nurses associations of Montana, New Jersey, New York, Ohio,
Oregon, and Washington. At its inception, it claimed 75,000 nurse members. Like the NNU, the NFN was a decentralized organization that
granted its affiliates a great deal of autonomy (NFN 2012). The NFN was
dealt a significant blow when the New York State Nurses Association
(NYSNA) pulled its 37,000 members out of the NFN in 2012, effectively
cutting its membership in half (NYSNA 2012; Amber 2013).8 With its
34,000 members, NFN’s 2013 affiliation increased AFT Healthcare’s RN
membership to its present level of 82,000, ranking it third behind NNU
and SEIU in that category.
American Federation of Government Employees
The union with the fifth largest number of members working in health
care is AFGE. AFGE’s 650,000 members work for the federal government.
Its membership includes approximately 93,000 health care workers, 55,000
of whom are RNs. Most of these employees work for the Veteran’s
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Administration at health care facilities around the country. A far smaller
number work for the Department of Defense or the Bureau of Prisons
(AFGE 2013; Jane Nygard, AFGE Vice President, District 8, email communications, March 3 and 5, 2013).
Other Unions Representing Health Care Employees
Other unions that include a substantial number of health care workers
among their membership include the UFCW (69,200 members), the
United Steelworkers (USW; 45,000), the Teamsters (35,000), the Office
and Professional Employees International Union (OPEIU; 33,000), the
Communications Workers of America (CWA) (20,000), and the Laborers
(11,300) (UFCW 2013; USW 2013; Teamsters 2013; OPEIU 2013; CWA
2013; Laborers 2013).
A handful of additional unions each have fewer than 10,000 members
working in health care. They include the Operating Engineers; the Security,
Police, and Fire Professionals of America (SPFPA); the United Mine
Workers of America (UMWA), and the United Auto Workers (UAW)
(Operating Engineers 2013; SPFPA 2013; UAW 2013; UMWA 2013).
There are a number of reasons why non-health care unions such as
AFT, UFCW, CWA, UAW, UMWA, USW, SPFPA, the Laborers, and
the Operating Engineers seek to organize and represent health care workers. In many case, declining memberships in their primary industries have
forced unions to look elsewhere for members to keep the organization
financially viable. In some cases, health care workers turn to a union that
already has a strong presence in a community or region. This explains
why the UAW represents health care workers in a number of locations in
Michigan and Ohio and why the UMWA has health care units in Kentucky,
Pennsylvania, and West Virginia, among other places.
THE LEGAL FRAMEWORK
Bargaining Rights
Hospitals
Like most other private sector workers in the United States, employees of
private hospitals were first given the right to form unions, bargain collectively, and strike by the passage of the National Labor Relations Act
(NLRA) in 1935. Although there is a record of at least one hospital’s
employees organizing as early as 1936, there was little union activity
among hospital workers for the first 12 years of the act’s existence. In 1947,
employees of not-for-profit hospitals (virtually all private hospitals at that
time) were dropped from coverage by the Taft-Hartley amendments to
the NLRA. This action was based on Congress’s belief that health services
were essential to the public’s welfare, that they provided “eleemo-synary”
(charitable) services, and that unionization could result in the disruption
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of those services (U.S. Congress 1947). With the exception of eight states
that passed legislation granting some or all private, not-for-profit, hospital
employees some collective bargaining rights during this period, most
employees in this sector would not have a right to union representation
for more than 25 years (Metzger and Pointer 1972).
Although for-profit hospitals were rare during the several decades
following passage of the NLRA, their employees were not excluded by the
1947 amendment. However, the NLRB did not exert jurisdiction over
those hospitals until 1967 (NLRB 1967). In 1974, more than a quarter
century after it excluded nonprofit hospitals, Congress deleted the TaftHartley exemption for these types of employees and again brought them
under the aegis of the NLRA through the passage of Public Law 93-360
(AHA 1976).
Public Law 93-360 amended the NLRA by extending coverage to
nonprofit hospitals. Its passage raised additional questions about which
health care employees were now eligible to organize under the act. The
eligibility of physicians proved to be a particularly difficult issue to resolve.
Only in the past few years has the board made definitive rulings on physician eligibility (Kimzey and Johlie 2009).
Physicians
Physicians generally fall into one of three categories in terms of their
employment status. They are either employed by hospitals or health care
systems, serving internships or residencies in hospitals, or self-employed.
Physicians working directly for hospitals or health care systems are considered employees for purposes of the NLRA and can organize and bargain
collectively under the law’s protection. Employed physicians who meet
the act’s definition of manager or supervisor, however, are excluded from
coverage, as are managers and supervisors in all industries.
Medical interns and residents, often referred to as house staff,
constitute the second major category of physicians. Interns and residents
are doctors who have already received a medical degree but are serving a
supervised period of clinical training. These physicians are typically
employed by hospitals or medical centers.
As far back as the 1960s, some interns and residents working for public
hospitals successfully formed bargaining units under state laws. However,
in a series of cases handed down after the 1974 amendment, the NLRB
ruled that house staff in private facilities were primarily students, not
employees, and therefore were not eligible to form unions or engage in collective bargaining (Keating 1991). In 1999, the NLRB reversed itself and
extended protection of the NLRA to interns and residents at private hospitals,
reasoning that although “residents are students … , they are also employees
who conform to the NLRA definition of an employee in every way” (NLRB
1999b).
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The third category of physicians includes those who work in solo or
group practices. The NLRB has long held that such doctors are selfemployed because their practices are essentially small businesses that treat
and bill patients. In 1999, the NLRB, in AmeriHealth HMO v. UFCW,
Local 56 (NLRB 1999a), reconfirmed this view (Amber 1999b).
Nurses
In addition to the disputed collective bargaining rights of physicians, there
has also been controversy about the rights of RNs working in private hospitals to engage in bargaining. Because RNs sometimes exercise independent
professional judgment in directing less-skilled workers (such as LPNs and
aides), hospitals have sought to have them categorized as supervisors under
the NLRA. Generally, the NLRB has ruled that staff nurses are protected
by the act and that head nurses and shift supervisors are not. However, the
2001 Supreme Court decision in Kentucky River specifically ruled that RNs
could be considered supervisors if they “direct others in dispensing medicine,
serve as the highest ranking employee in a building, address staff shortages,
and move employees among units as needed” (Bellandi 2001:1), at least in
the context of a long-term, psychiatric hospital.
In a 2006 case, Oakwood Healthcare, the NLRB provided further
guidance on the supervisory issue, ruling that permanent charge nurses
were supervisors and, thus, under the NLRA, were not eligible to unionize
(McGolrick 2007). Despite dire warnings from the labor movement that
this ruling could result in thousands of nurse union members being
declared supervisors, the board’s decision has not yet had a significant
impact.
Other Hospital Employees
Generally, other patient care employees (LPNs, aides, laboratory technicians, radiation technologists, pharmacists, and physical and occupational
therapists) and nonpatient-care employees (food service, maintenance,
housekeeping, and security workers) in private hospitals are considered
to be covered by the NLRA and have the right to be represented by a
union for the purposes of collective bargaining.
Long-Term Care/Nursing Home Employees
Employees of private sector nursing homes and for-profit, long-term care
hospitals have been covered by the NLRA since its passage in 1935.
Employees of nonprofit, long-term care hospitals/nursing homes were
excluded in 1947 by the Taft-Hartley amendments. In 1974, coverage was
once again extended to those employees (Feldeckar 2000). However, as
noted previously, the Kentucky River case raised questions about the
eligibility of nurses who perform certain duties to organize.
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Bargaining Units
Hospitals
Because hospital employees range widely in training, skills, responsibilities,
and compensation, the passage of the 1974 amendment to the NLRA was
quickly followed by questions about the most appropriate bargaining units
for hospital employees. After years of contentious litigation between hospitals
(who wanted large, or even facility-wide, units) and health care unions (who
generally wanted smaller units), the Supreme Court decided the issue in
1991 by affirming the NLRB’s ruling in American Hospital Association (AHA)
v. NLRB (U.S. Supreme Court 1991).
In its decision, the Supreme Court ruled that there are eight appropriate
bargaining units for acute-care hospitals. The court divided professional
employees into three units—physicians, RNs, and other professional
employees (e.g., pharmacists, medical technologists). Five units were designated for nonprofessionals: technical employees (e.g., LPNs, laboratory
technicians), skilled maintenance workers, business office clericals, all other
nonprofessional and service employees, and security guards (Table 4) (U.S.
Supreme Court 1991).
Health care employees who organized a union prior to the 1991 AHA
ruling often were in bargaining units that included a greater variety of
employees than was called for in AHA. In many case, units would include
professionals (RNs, medical and lab techs, etc.) and nonprofessionals
(LPNs, CNAs, food service, housekeeping, and maintenance). Such unions
were “grandfathered in” (kept intact) when the AHA ruling was handed
down. Units with such a wide variety of employees present unions with
challenges in terms of determining bargaining priorities and maintaining
solidarity.
Long-Term Care/Nursing Home Facilities
Long-term care/nursing home facilities generally have a less complicated
bargaining unit configuration than acute-care hospitals because nursing
homes, rehabilitation facilities, and other long-term care facilities have
TABLE 4
Private Acute Care Hospital Bargaining Units (AHA v. NLRB 1991)
Professionals
Nonprofessionals
Physicians
Technical employees (e.g., LPNs, laboratory technicians)
Nurses
Skilled maintenance workers
Other professionals
Business office clericals
All other non-professional and service employees
Security guards
Source: U.S. Supreme Court (1991).
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fewer categories of employees than hospitals. For example, it is somewhat
unusual for rehabilitation facilities to employ physicians and very unusual
for nursing homes to do so. There often are a small number of RNs working in such settings, some of whom usually assume the responsibilities of
supervisors, while others may work in a nonsupervisory capacity. In terms
of patient care, the bulk of the workforce consists of a small number of
LPNs working with a greater number of CNAs. Service workers performing dietary, housekeeping, and laundry functions; maintenance employees;
and security personnel typically make up the rest of the workforce.
In the 1991 Park Manor Care Center case, the NLRB declined to apply
the eight-unit rule decided in AHA to long-term care/nursing home facilities, citing differences in the structure and organization of nonacute-care
workplaces. In the past, the most common bargaining unit in these facilities
consisted of nonsupervisory, nonsecurity employees, both patient care and
nonpatient care, in one unit. Such a unit could include RNs, LPNs, and
CNAs, as well as maintenance, dietary, and housekeeping personnel.
However, in 2011, the board overruled Park Manor and adopted a new
standard for determining bargaining units in long-term care/nursing home
facilities in the Specialty Healthcare case. Under that standard, the NLRB
allows the unit that a union requests as long as it consists of a clearly
identifiable group of employees who have similar job responsibilities, work
locations, skills, supervisors, and pay scales. The unit approved in Specialty
Healthcare consisted solely of CNAs. Employers generally oppose this
ruling because they fear that such “micro-units” will make it significantly
easier for unions to organize long-term care/nursing home employees (Polli
and Torrence 2011; Kaplan and Walsh 2012).
Mediation and Strikes
In addition to regulating the process by which employees form unions,
the NLRA provides the legal framework under which collective bargaining takes place once a union has been certified. It also provides a process
unique to the health care industry to help unions and employers resolve
bargaining impasses. The additional steps the parties must go through
before engaging in a work stoppage were designed to minimize such
disruptions (Miller 1980).
Unions must provide health care institutions, as well as the Federal
Mediation and Conciliation Service (FMCS), with ten days’ written notice
before striking or picketing. They also are required to submit their dispute
to mediation by the FMCS before initiating a work stoppage. And, if the
FMCS believes a strike or lockout will “substantially interrupt” the provision of health care to a community, it can order a board of inquiry (BOI)
(Miller 1980).
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A BOI is a fact-finding process. The fact-finder considers the issues and
writes a nonbinding report that includes a recommendation for settlement.
If one or both parties refuse to follow the recommendations, the report is
made public. This often puts pressure on the parties to settle. If no agreement is reached, the parties can proceed to a work stoppage (Miller 1980).
BARGAINING STRUCTURE
Traditionally, collective bargaining in the U.S. health care industry occurs
on a decentralized basis. This approach to bargaining is generally consistent
with the bargaining structures found in many U.S. industries. At its most
decentralized level, bargaining occurs between a single employer and a
single bargaining unit. Where a single employer has separate bargaining
units of employees working in separate facilities, the bargaining units
might be brought together to bargain one common contract for all of
those workplaces. This companywide bargaining structure is more centralized than single-employer, single-unit bargaining.
An even more centralized approach occurs when employers in an
industry come together to bargain one contract with the multiple bargaining units that represent some or all of the employees of some or all of the
employers in a geographic region. This multi-employer approach to
bargaining represents a highly centralized structure.
Although bargaining in both the hospital and long-term care/nursing
home sectors of the health care industry has historically taken place on a
decentralized basis, the trend toward forming systems and networks in the
hospital sector, and toward corporatization in the long-term care/nursing
home sector, has led to more centralized, companywide bargaining.
Hospitals
Bargaining between hospitals and their employees still most often occurs
at the facility level. Usually, this involves one or more units of hospital
workers bargaining with the same hospital/employer. Sometimes, multiple
units in the same facility band together to engage in coordinated bargaining; other times, the units bargain separately with the common employer.
Although less common, companywide bargaining takes place between
a single employer and bargaining units working in dispersed locations for
that employer. This might occur, for instance, where a health care system
or network owns multiple hospitals, either in a single region or
nationally.
Such was the case in 2012 when Kaiser Permanente and a coalition of
28 local unions successfully negotiated a national contract. Kaiser
Permanente is the largest not-for-profit HMO in the United States. It has
37 hospitals and hundreds of clinics and offices in California, Colorado,
the District of Columbia, Georgia, Hawaii, Maryland, Ohio, Oregon,
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Virginia, and Washington. The negotiations involved a coalition of local
unions representing nine international unions [SEIU, AFSCME, OPEIU,
UFCW, USW, AFT, NFN, the Teamsters, and the International Federation
of Professional and Technical Engineers (IFPTE)], as well as a number of
smaller independent unions. These unions represented a wide variety of
health care employees, including nurses, pharmacists, service workers,
technicians, psychologists, and lab scientists (Hobbs 2012a). Although
CNA/NNOC and NUHW have members working at Kaiser Permanente,
neither union participates in the coalition and neither was a party to the
negotiations.
An example of single-employer, multi-unit bargaining on a smaller
scale is the relationship between the CNA/NNOC, an affiliate of NNU,
and HCA, the nation’s largest for-profit hospital chain, in Florida. In May
2012, CNA/NNOC and HCA signed a three-year contract that covers
RNs in ten hospitals in the state. The agreement provides consistent salaries
and working conditions, as well as opportunities for nurses to have a voice
in staffing levels through professional practice committees (Hobbs 2012b).
Multi-employer bargaining is another approach to negotiations that,
although still not prevalent, is becoming more common in health care.
Multi-employer bargaining occurs more in urban areas where multiple
hospitals serve similar purposes and where unions have achieved significant
bargaining power by organizing most of the hospitals in the area. Where
unions are powerful enough to “whipsaw” individual employers against
one another, multi-employer bargaining can become the employers’
“counter” to union power (Miller 1980).
Multi-employer bargaining can involve a significant number of
hospitals. Bargaining between the League of Voluntary Hospitals in New
York City and 1199SEIU United Healthcare Workers East is one example
of this approach. The league is an employer association that represents
180 hospitals, nursing homes, and other facilities in the New York metropolitan area. Its members employ more than 145,000 workers. The most
recent contract between the league and SEIU involving acute-care
hospitals was reached in July 2009. The five-year contract covers a wide
range of employees, including nurses, nurses’ aides and attendants; laundry,
housekeeping, and dietary workers; building and custodial staff; x-ray
and laboratory technicians; and various professionals, such as social
workers, therapists, and pharmacists (Greenhouse 2009).
Another example of multi-employer bargaining is the agreement reached
in 2010 between the MINNA and 14 hospitals in the Minneapolis–St.
Paul area. In those negotiations, MINNA was bargaining on behalf of
12,000 RNs in the metro area. During the talks, MINNA RNs engaged
in a one-day strike that was billed at the time as the largest nurses’ strike
in U.S. history. A number of hospitals briefly locked out the nurses in
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response. With the MINNA threatening an open-ended strike, the
negotiations went down to the wire before a settlement was reached (Kucera
2010; Amber 2010).
Physicians have shown little interest in bargaining in conjunction with
other health care employees, and physician organizing is not yet so widespread that physicians in multiple locations can band together to engage
in multi-unit bargaining. Thus, physician bargaining tends to be very
decentralized, occurring, in most cases, on a single-unit basis.
As previously discussed, long-term care/nursing home facilities do not
have the multiple bargaining unit requirement that hospitals do. In fact,
in most cases, an individual independently operated nursing home facility
has only one unit, which often includes LPNs, CNAs, and maintenance
and support staff. For that reason, most bargaining in this sector of health
care takes the form of single-facility, single-union bargaining. Bargaining
one contract covering one facility at a time is time consuming from the
union perspective. It also makes it difficult to standardize contracts across
different facilities, creating a situation where members of the same union
doing the same work at different facilities have different pay, benefits, and
working conditions.
When possible, unions usually favor bargaining contracts that cover
multiple facilities. The presence of large chains in the long-term care/
nursing home sector make single-employer, multiple-facility bargaining
possible. True companywide bargaining with a national chain is rare,
given regional differences within these companies. Regional bargaining,
however, is more common.
Bargaining in this sector also sometimes occurs on a regional, multiemployer basis. Perhaps the largest of these kinds of bargaining structures
involves the Greater New York Health Care Facilities Association
(GNYHFA), and 1199SEIU United Healthcare Workers East. GNYHFA
is an employer association that represents 250 long-term care hospitals,
nursing homes, and continuing care facilities, including private and public
facilities in the metropolitan New York City area, New York State, New
Jersey, Connecticut, and Rhode Island (GNYHFA 2012). 1199SEIU
United Healthcare Workers East represents more than 275,000 health
care workers throughout New York City and New York State, the District
of Columbia, Maryland, and Massachusetts (1199SEIU 2012).
In 2004, GNYHFA and 1199SEIU negotiated a ten-year master contract for all GNYHFA members operating long-term care and nursing
home facilities in New York City, New York City’s northern suburbs, and
Long Island. The contract covers tens of thousands of 1199SEIU members
and establishes uniform wages, benefits, and working conditions for longterm care workers in that region, regardless of employer (1199SEIU 2012).
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The growing corporatization of long-term care has led to an increase
in multi-unit bargaining with nursing home chains. One example of
bargaining between a relatively small chain and a health care union is the
relationship between HealthBridge, a company that operates six nursing
homes in Connecticut that employ roughly 600 workers, and District
1199, New England Healthcare Workers.
BARGAINING ISSUES, IMPASSES, AND OUTCOMES
Hospitals
Physicians
Collective bargaining for physicians is a relatively rare phenomenon in
the private sector. Of the two categories of physicians who have the right
to organize and bargain mentioned earlier—employees of hospitals or
health care systems and interns and residents—unions representing interns
and residents (“house staff”) have the most significant track record in
bargaining.
Like other employees, interns and residents are interested in higher
incomes and better benefits; however, in recent years NDA, the union that
represents most physicians, has focused increasingly on working conditions
and issues related to patient care issues. Gaining greater control over decision making in patient care appears to be a top bargaining priority of the
union. Physicians want more input into administrative decisions that affect
patient care and greater authority to make patient care decisions without
consulting with, or being limited by, nonphysician representatives of HMOs
and insurance companies. Their unions contend that these issues are necessary to improving patient care (SEIU Doctors Council 2012).
A typical example is the contract negotiated by CIR/SEIU on behalf
of the residents at St. Luke’s–Roosevelt Hospital in New York City in
2010. In addition to negotiating a 3% annual pay raise for each of the
contract’s three years and a doubling of the textbook allowance, the union
won “new collaborative venues for residents to develop quality care initiatives” (CIR/SEIU 2011).
One somewhat novel issue that has been a part of some CIR/SEIU
settlements is Patient Care Funds (PCF). PCFs are union-negotiated,
employer-financed funds used to purchase services and equipment “that
can help residents better care for their patients” (CIR/SEIU 2010). At the
Alameda County Medical Center in California, residents used these funds
to have the medical center purchase a life-saving piece of equipment called
a glidescope. At the Oakland (California) Children’s Hospital and the
University of New Mexico Medical Center, the CIR/SEIU units used
their PCF funds to provide discharge medications to indigent patients
who otherwise might not get these critical drugs (CIR/SEIU 2010).
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Ultimately, negotiations by private sector physicians are still a
relatively new phenomenon, and the parties are relatively inexperienced.
One area where this inexperience might be particularly problematic is in
the resolution of bargaining disputes. Although CIR/SEIU did engage in
strikes early in its history, strikes have been rare in recent years, and NDA/
SEIU has pledged not to strike. Because lockouts by hospitals seem equally
improbable, it remains unclear how disputes between these parties would
be resolved (NDA/SEIU 2001).
Nurses
The shortage of RNs in the first half of the 2000s, combined with the
growth of the nurse labor movement during this period, increased the
bargaining power of nurses’ unions. These factors led to increased compensation for nurses. In 2000, the mean hourly wage for RNs was $22.31.
By 2005, the hourly wage had risen to $27.35, an 18.4% increase over six
years. In the six years that followed, average hourly wage growth for nurses
slowed, rising 15.7% from $28.71 in 2006 to $33.23% in 2011 (U.S. BLS
2000, 2005, 2006, 2011). This represented less than a 1% real increase
yearly over the six-year period (when adjusted for inflation). In recent
years, more employers are demanding that nurses agree to concessions on
a range of issues. This reflects both an easing of the nurse shortage, which
has weakened nurses’ unions push for increased pay, and the recession
that has put increasing pressure on the budgets of most hospitals.
The changing economic situation is illustrated by the regional multiemployer contract settlement between MINNA and Minneapolis–St.
Paul area hospitals. In 2001, MINNA won a 20% to 21% pay increase
for RNs at ten hospitals over three years that pushed the pay range for
nurses with a bachelor’s degree in that city to a range of $23.09 to $34.63
per hour, depending on years of service (Wascoe 2001; Andrew Calkins,
policy analyst, Minnesota Nurses Association, phone interview, January
17, 2002). In 2010 negotiations, the hospital coalition opened negotiations
by asking MINNA nurses to accept pay cuts and a reduction of benefits.
The union successfully resisted the concessions demanded by the hospitals
but signed a contract that included a wage freeze in year one, a 1% increase
in year two, and a 2% increase in year three (Amber 2010).
Nurses working for the University of California did somewhat better
when their union—CNA/NNU—negotiated a statewide single-employer,
multiple-facilities contract in 2011 that covered 11,000 RNs. The agreement provided for a 3% to 4.25% pay increase the first year and 4%
increases in 2012 and 2013 (Cutler 2011).
In recent years, nurses’ unions have begun to make inroads in Florida,
Kansas, and Texas, where health care unions previously had very little
presence. Despite difficult economic circumstances, CNA/NNOC negoti-
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ated above-average settlements in these states. In 2012, NNOC-Florida,
an affiliate of NNU, negotiated contracts for 3,100 RNs in ten HCA
hospitals in Florida. The contracts included annual wage increases of
1.75% to 4% (Hobbs 2012b).
In Texas, NNOC-Texas negotiated first contracts at four HCA
hospitals in Brownsville, Corpus Christi, and El Paso and for 1,500 RNs
that included above-average pay raises. At the Corpus Christi Medical
Center, the agreement provided pay increases of 2.25% in the first and
third years of the contract and 2% in the second year (BNA 2012a), which
are above average for contract settlements during this period (BNA 2012b).
And NNOC-Kansas won a breakthrough victory when 325 nurses at
the Menorah Park Medical Center in Kansas City signed a contract in
September 2012 that included wage hikes of 6% to 16% over three years
(Twiddy 2012).
Benefits, particularly health care and pensions, played a significant role
in hospital negotiations in the late 2000s and early 2010s, just as they had
in labor negotiations in almost all industries. In recent years, many, if not
most, employers have come to bargaining with the goal of shifting more
of the cost for health care benefits to employees and, if they still have a
defined benefits retirement plan, converting to a defined contribution plan.
Both of these issues were at the heart of a bargaining dispute between
the Mercy Regional Medical Center in Lorain County, Ohio, and SEIU1199
in 2012. The company proposed concessions that include switching to a
403(b) defined contribution retirement plan. Although the union threatened to strike, the parties eventually settled (Miller 2012).
Members of the NYSNA settled separate contracts in 2011 and 2012
with the Flushing Hospital Medical Center, St. Luke’s–Roosevelt Hospital
Center, and Mount Sinai Medical Center that required nurses to contribute
$25 to $100 a month for their health coverage (Massey 2011; Chinese
2012). Settlements such as these are increasingly becoming
commonplace.
Compensation and benefits are important to nurses, as they are to all
employees. However, there is evidence suggesting that changes in patient
care and working conditions are at least of equal importance to RNs
working in the hospital sector. Nurses have long sought to influence the
patient care process through collective bargaining (Miller 1980). However,
as nurse dissatisfaction over short-staffing, mandatory overtime, and
floating practices has grown, patient care issues have come to the forefront
of hospital nurses’ union bargaining (Clark, Clark, Day, and Shea 2001;
ANA 2001b; Olin 2012).
Like managers in most industries, hospital administrators have
generally tried to limit the scope of bargaining with unions to traditional
issues and have been reluctant to allow unions to participate in patient
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care decision making on the basis that such decisions are management’s
rights and responsibilities. Today, however, under intense pressure from
nurses’ unions, hospitals are being forced to gradually open up the patient
care process to greater employee involvement (Bronder 2001; Budd,
Warino, and Patton 2004).
Of all the patient care issues, staffing is the issue of primary concern
to hospital RNs. Although all of the unions representing nurses have
fought to minimize or prevent understaffing in hospitals, a deep divide
has developed over the best strategy for addressing this and other patient
care issues. CNA/NNOC has taken the position that legislative action
and collective bargaining are the best mechanisms for resolving staffing
problems, while other unions have pursued cooperation with employers,
often in the form of labor–management committees designed to monitor
staffing levels and make staffing recommendations. In support of its position, CNA/NNOC points to its successful legislative campaign that
resulted in the 1999 passage of a law mandating RN-to-patient ratios of
one nurse to six patients on medical–surgical units in California hospitals.
The ratios required by the legislation are significantly better than those
found in most American hospitals (ratios of one nurse for seven to ten
patients are common), and research to date suggests that these improved
ratios have a positive impact on patient care (Aiken et al. 2010).
An example of how unions can negotiate contract language to address
professional practice and quality care concerns can be found in the
collective bargaining agreement between AFT affiliate Health Professionals
and Allied Employees (HPAE) Local 5004 and the Englewood (New
Jersey) Hospital and Medical Center. The contract includes language
requiring the union and the hospital to jointly determine staffing levels.
If the parties are unable to do so, they must submit their dispute to a
neutral third party, chosen by the American Arbitration Association, for
final resolution (HPAE 2004).
An alternative strategy for giving nurses a greater voice in patient care
issues involves the creation and implementation of cooperative labor–
management partnerships of nurses and their union and a hospital’s
administration. These partnerships are implemented through various
mechanisms, including patient practice committees, safe-staffing committees, and broader labor–management forums. The purpose of such
groups is to give RNs an actual seat at the table with management so that
they can participate in discussions about how to improve care.
Proponents argue that including experienced nurses who provide handson care around the clock in such discussions adds a critical perspective that
has been previously missing in decision making about patient care (Clark
and Clark 2009). Opponents point out that the ability of unions involved
in these committees to affect staffing decisions often depends on the
143
authority they are given. In their weakest form, the committees are solely
advisory; when they are empowered to determine nurse–patient ratios,
they can play a very significant role (Budd, Warino, and Patton 2004).
CNA/NNOC rejects these collaborative efforts out of hand, arguing that
such programs are simply another way that health care employers try to
take advantage of unions and union members (Carlson 2009).
Notable examples of this approach are the Kaiser Permanente Labor–
Management Partnership, the initiative between SEIU-represented nurses
and Allegheny General Hospital in Pittsburgh, and the cooperative
arrangement involving AFT RNs and management at the Fletcher Allen
Medical Center in Burlington, Vermont.
Mandatory overtime is another issue that has patient care ramifications
and that unions have worked hard at the bargaining table and elsewhere
to address. Hospitals that try to reduce costs by cutting their workforces
often operate with the absolute minimum nurse workforce possible. When
a nurse calls in sick or a hospital experiences a higher than normal census,
administrators often turn to mandatory overtime to meet their staffing
needs. Because of the disruption mandatory overtime causes in their
members’ lives, and the danger presented by nurses working excessively
long hours, many nurses’ unions have negotiated contractual limits on
mandatory overtime.
The goal of most nurses’ unions is a complete ban on mandatory
overtime, and an increasing number of contracts contain such language.
MINNA effectively eliminated forced overtime in most hospitals in the
Minneapolis–St. Paul area in 2004 by including contract language stating
that “no nurse shall be disciplined for refusal to work overtime” (MINNA
2004). And the contract between Kaiser Permanente and the CNA (covering the largest number of RNs in the United States) includes a ban on
mandatory overtime (Kochan, Eaton, McKersie, and Adler 2009).
When not able to win a complete ban, many nurses’ unions have settled
for language that limits mandatory overtime to emergency situations. In
those situations, contract language is negotiated stating that mandatory
overtime can only be used as a last resort after a comprehensive process
of seeking volunteers has been exhausted (CNA HealthPro 2009).
Another approach to reducing mandatory overtime is to place limits
on the amount of overtime employees can be forced to work. SEIU has
included language in their contract with Jackson Memorial Hospital in
Miami that nurses “working 12½-hour shifts will normally be scheduled
for no more than three consecutive days on duty or more than seven days
on duty within a period of 14 consecutive days” (SEIU 2012e). The contract also requires management to make every effort to post schedules
four weeks in advance. This gives nurses an opportunity to adjust schedules
according to their needs (SEIU 2012e). Other unions have negotiated
144
language that limits the number of times an employer can force an individual nurse to work per year.
One additional approach that is sometimes combined with limits on
mandatory overtime is to try to increase the compensation for overtime
work to discourage its use by hospitals. A contract between SEIU and the
University of Iowa hospitals requires double pay for all hours employees
work in excess of their regularly scheduled shifts (SEIU Local 199 2013).
A final issue that RN unions are beginning to address is the danger nurses
face in the workplace. A 2012 contract between the Centinela Hospital
Medical Center in Inglewood, California, and the CNA includes what the
parties called a “first in the nation needlestick and workplace violence insurance benefit funded by the employer” (Amber 2012b:1). The contract includes
insurance that provides benefits to nurses who suffer injury or illness from
violent assault or exposure to disease. The benefits include payments for
work-related injuries or illnesses, bereavement and trauma counseling,
psychological therapy, and travel assistance (Amber 2012b).
Support Staff
The experience of support staff in acute-care hospitals parallels to a great
degree the experiences of RNs. However, because of labor market considerations, support staff workers, on balance, have less bargaining power
than nurses. This has made it more difficult for them to resist the efforts
of employers to force them to accept concessions in a number of areas.
The subjects of bargaining in the long-term care/nursing home sector are
similar to those in the acute-care hospital sector. They include wages and
benefits, staffing levels, and mandatory overtime, as well as health and
safety concerns and training opportunities. However, funding for the
long-term care sector differs from the hospital sector, which significantly
affects the way the parties approach bargaining.
A substantial portion of the revenues a long-term care/nursing facility
receives for the care it provides comes from Medicaid. Because reimbursement rates depend on the amount of money individual states designate
for this purpose, an employer’s ability to meet union demands in this
sector depends, in turn, on the level at which that employer’s state decides
to fund Medicaid. For this reason, unions representing long-term care/
nursing home workers closely monitor the budget processes of state legislatures across the country. They regularly lobby legislators and governors
for the maximum increase to Medicaid and Medicare and for other state
funding related to health care because doing so provides a larger pool of
funds over which to bargain (Clark 2002).
As in virtually all industries, unions are able to increase wages for longterm care/nursing home employees above non-union wage levels. However,
145
compensation for RNs in long-term care historically has been lower than
their wages in other health care settings. In 2011, the mean hourly wage
and mean yearly compensation for RNs in nursing homes were $29.25
and $60,830, respectively. For RNs working in hospitals, the mean hourly
wage was $35.81 and the mean yearly compensation was $70,330 (U.S.
BLS 2012). This discrepancy can be attributed, in part, to the large role
that public financing plays in long-term care.
It is actually the role that government funding plays in this sector that
led some unions and employers to sign statewide alliance agreements
beginning in the early to mid-2000s. These agreements brought together
unions representing nursing home employees (most commonly SEIU)
and nursing home owners across a given state.
The unions and employers signed formal agreements that ostensibly
benefitted both parties. Unions agreed to join with employers to use their
collective power to lobby state legislatures to increase, or at a minimum,
not reduce, funding for long-term care. Unions also agreed to standardize
wages, benefits, and other conditions of employment through “template”
collective bargaining agreements. In return, unions received
neutrality pledges from employers that would allow them to organize a
portion of the employer’s non-union facilities without opposition from
the employer (Thomas 2007). Such alliances were formed between SEIU
locals representing long-term care/nursing home workers in California,
Oregon, Washington, and other states.
An example of these types of arrangements is the Alliance Agreement
between SEIU’s Local 503, a statewide local in Oregon, and nursing home
operators in that state. In 2002, Local 503 signed such a pact with four
nursing home chains in the state. In 2005, workers at six more nursing
homes organized with SEIU and bargained their first contracts under the
Alliance Agreement. Additional nursing homes were organized in 2006
and 2007 (SEIU Local 503 2009).
The union points to a number of positive outcomes that have resulted
from the Alliance. In 2008, the Alliance’s lobbying efforts resulted in
implementation of new staffing ratios in nursing homes across the state.
It also points to increases in Medicaid funding for nursing homes, which
helped make the staffing ratios possible. The union also claimed progress
in the bargaining arena, reporting an average 6% pay increase per year
for workers at Alliance facilities between 2004 and 2008. In September
2011, the local signed a new bargaining agreement for 32 nursing homes
around the state (SEIU Local 503 2011).
Although alliance arrangements in some states appear to have benefitted both unions and employers, the California Nursing Home Alliance
Agreement fared less well. First negotiated by SEIU locals 205, 434B, and
2028 in 2004, the agreement covered 284, or 25%, of the nursing homes
146
in California. In its early years, it had positive benefits for both parties—
increased funding for nursing homes and increased organizing opportunities for the union. However, the locals’ membership appeared to quickly
sour on the agreement because it locked nursing home workers into substandard contracts, and it was not renewed in 2007 (Schafer 2012). The
agreement also was at the heart of an internal division within SEIU that
eventually led to a large portion of the union’s organization in California
being placed under trusteeship.
Because of reductions in government spending for long-term/nursing
home care and the recent recession, unions representing workers in this
sector have faced difficult times at the bargaining table over the past several
years. As employers push for givebacks, unions have had to work hard to
keep wages at current levels or, at best, win small increases. Unions have
also had to deal with employers’ efforts to switch from defined benefit to
defined contribution pension plans and to shift more of the costs of health
care insurance from the employer to the employee.
As in hospital bargaining, it is notable that unions in the long-term
care/nursing home sector are also concerned about patient care issues.
One of the more common issues brought up by these unions is inadequate
staffing. Unlike hospitals, the main focus of staffing concerns in the longterm care/nursing home facilities is not RNs but LPNs and CNAs. As
noted earlier, the Oregon Alliance was instrumental in getting the state
government to improve staffing ratios in nursing homes (SEIU Local 503
2009). Likewise, ratios were one of the key issues in a long strike in 2012
at HealthBridge nursing homes in Connecticut (Brown 2012). Nursing
home unions in other states continue to advocate for better staffing levels
through both bargaining and legislative action.
STRIKES AND LOCKOUTS
Because of the nature of the industry, health care employers and unions
have been reluctant to engage in work stoppages that would disrupt their
ability to provide patient care. However, recent years have seen an increase
in strike and lockout activity at health care facilities.
Hospitals
In the acute-care hospital sector, strike and lockout activity appear to have
increased in the past few years. Many of these disputes involve RNs and
their unions.9
For much of nursing’s history, strikes were viewed as unprofessional
and, at one time, were forbidden by ANA policy (Ellis and Hartley 2004).
However, as RNs have increasingly turned to unions in an effort to gain
a greater voice in the workplace, the acceptance of strikes has grown.
Although little systematic data are available on nurses’ strikes, a 2011
report noted that NNU affiliates threatened to strike in 18 separate nego-
147
tiations, affecting 46 hospitals. NNU officials attribute the increased use
of strikes and strike threats to growing management demands for concessions on health insurance coverage and premiums, sick time, and other
economic issues (Selvam 2012).10
The dynamics of strikes in health care differ from those in other
sectors because of a provision of the NLRA, mentioned earlier, that
requires labor organizations to give health care institutions an intent-tostrike notice not less than ten days before any work stoppage.
The ten-day notice requirement adds a strategic element to a labor
dispute between a nurses’ union and a health care facility. Most facilities
cannot care for their patients if a substantial portion of their RNs walk
off the job. This leaves them with two options—transfer their patients to
another facility or hire replacement nurses to take the place of the RNs
on strike. Both of these options impose significant financial costs on the
employer. If an employer transfers patients, it must absorb the cost of
finding facilities to take its patients, transporting them, and, when the
strike is settled, returning the patients to their facility. It also must
continue to meet any financial commitments related to the physical plant
and equipment (mortgage, loan, or bond payments), as well as commitments to nonstriking employees (salaries, health care premiums, pension
obligations, etc.). And the employer must continue to maintain the facility
so that it can return to operation in a short time. All of these steps occur
without the benefit of the revenue that the nursing home would normally
generate.
If an employer chooses to continue to operate during a labor dispute,
it will most likely have to use a nurse staffing agency that specializes in
providing replacement nurses. These agencies bring in out-of-town nurses
who are paid $50 to $65 an hour or more, well above the cost of the RNs
they are replacing. In addition, the health care facility must pay the housing, meal, and transportation costs of the replacement nurses, as well as
a significant fee to the staffing agency. The employer must also deal with
the long-term impact on its reputation and on its relationship with its
employees and patients, and it must assume liability for any problems that
arise from bringing in RNs new to its physical plant, procedures, and
medical staff (Maher 2006).
Agencies that supply RN replacements usually require hospitals to hire
their nurses for a minimum period (often five days). In a strategic move
to maximize the impact of a strike on the employer and minimize its
impact on its members, unions such as CNA have resorted to one-day
strikes. This strategy forces facilities to absorb the full costs of arranging
for a replacement workforce and then pay both the striking nurses who
return to work and the replacement workers who have a multi-day contract.
Some employers have chosen to staff their facility with replacement nurses
148
and lock out the striking nurses when they attempt to return to work.
They might do so for the duration of their commitment to the substitute
RNs (five days) or keep them on indefinitely to pressure the striking nurses
to agree to the employer’s contract terms (Maher 2006).
The Washington (DC) Hospital Center chose this strategy when the
NNU local representing its 1,600 RNs called a one-day strike on March
4, 2011. The center had previously made arrangements to replace the
nurses if they struck and immediately called in 600 strike substitutes. The
NNU nurses attempted to return to work the next day but were turned
away by the employer. They were allowed to return to work four days after
the strike (Sun 2011).
The center reportedly spent $6 million on the strike and subsequent
lockout. This included $3.5 million to hire the temporary nurses and cover
their transportation and lodging, $1.5 million in salaries for about 500
NNU members who crossed the picket line, and an additional $1 million
on increased security. A contract agreement that largely favored the union
was reached on March 10 (NNU 2011).
The one-day strike strategy has also been a part of a protracted dispute
between Sutter Health, a network of hospitals in Northern California,
and 4,500 RNs represented by CNA. Sutter and CNA began negotiations
in 2011. According to CNA, Sutter had been seeking concessions in a
number of areas, including sick pay, floating practices, health insurance
coverage, family medical leave, and overtime (CNA 2011). In response,
CNA staged five separate walkouts at seven Sutter hospitals between
September 2011 and July 2012. When the nurses attempted to return to
work after each one-day strike, Sutter brought in replacement nurses and
locked the RNs out for several days. In the course of the dispute, a patient
died as a result of a medical error made by a replacement nurse. This
incident heightened tensions between the parties and demonstrated the
potential costs of health care labor disputes (Baker 2011).
Another relatively new phenomenon related to health care labor
disputes that could have an effect in the future is greater interunion support and assistance. In January 2012, 4,000 members of the NUHW who
work for the Kaiser health system in California doing mental health and
optical work engaged in a one-day strike to protest proposed benefit cuts.
They were joined by 17,000 CNA nurses at Kaiser facilities, who walked
out in support of the NUHW workers. In addition, 650 members of
Stationary Engineers Local 39 who work as Kaiser facility maintenance
workers joined the sympathy strike. The walkout of nearly 22,000 Kaiser
workers was one the largest strikes by health care workers in U.S. history
and demonstrated the potential power a unified movement of health care
unions could have (Colliver 2012).
149
As with hospital strikes, little data are available on the frequency or length
of long-term care/nursing home walkouts. What is clear is that this sector
of the health care industry has struggled significantly since the mid-2000s.
The shortage of funding for this type of care has put unions on the defensive and deprived them of significant bargaining power. And when unions
do not have bargaining power, strikes are a very risky proposition.
One of the longest nursing home disputes in recent years involved both
a lockout and a strike. In late 2011, District 1199, New England Healthcare
Workers and HealthBridge, a company that operates nursing homes,
began negotiations on a contract that would cover nearly 600 workers at
six nursing facilities in Connecticut. Among issues in dispute were pay
raises, the company’s desire to replace a defined benefit pension plan with
a defined contribution 401(k) plan, a demand that employees pay a portion of the costs of their health insurance, and the union’s efforts to
establish staffing ratios (Lee 2012).
In December 2011, the company locked out employees at one of the
six facilities and threatened to do the same at the other facilities. After
nearly four months, HealthBridge lifted the lockout. Contentious negotiations continued into summer 2012. After the company imposed its final
offer, workers at five of the facilities went out on strike in July. Subsequently,
the union filed unfair labor practice charges alleging that the company
had not bargained in good faith. The NLRB upheld the charges (Dubé
2013).
The NLRB also asked the federal court to issue a Section 10(j) injunction “to restrain the company from engaging in violations of the Act
pending the board’s resolution of the unfair labor practice allegations”
(Dubé 2013:1). The court issued the injunction, finding that HealthBridge
had engaged in unfair labor practices. It also determined that the company
had prolonged the strike by refusing to rehire the strikers after they offered
to return to their jobs without conditions and ordered HealthBridge to
reinstate all the strikers. In addition, the court ordered the company “to
bargain in good faith with the union, rescind its unilateral changes, and
restore wages, benefits, and other terms and conditions of employment
that were in place in June 2012” (Dubé 2013:1).
THE FUTURE
As the proportion of the private sector workforce represented by unions
has declined over the years (in 2012 it was 6.6%), so has the importance
of collective bargaining to the functioning of the American economy.
Clearly, the list of industries in which collective bargaining plays a lesser
role today than it did 10 or 20 years ago is substantial. However, there
150
are a few exceptions to this trend. The most notable one is the U.S. health
care industry.
The U.S. health care industry has been going through a period of
tumultuous change over the past two decades. Collective bargaining has
been part of this change, and the growth of health care unions ensures
that it will be part of the industry’s future. The passage of the PPACA, also
known as ObamaCare, means that the health care environment will be
equally dynamic in the years to come. The future of collective bargaining
in health care will certainly be shaped by this changing environment.
Collective bargaining in the acute-care hospital sector is particularly
likely to be impacted by these changes. Most of the growth among health
care unions has involved RNs working in this sector. The rapid and steady
growth of the CNA/NNOC/NNU is the most significant development
in this area in the recent past. And with the inroads it has made in states
such as Florida, Kansas, Missouri, and Texas, where nurses’ unions had
not previously had much of a presence, there is every reason to believe
that CNA/NNOC/NNU’s growth will continue.
Two factors could greatly influence the pace at which nurse unionism
grows. One is the degree to which CNA/NNOC/NNU and the other
unions that represent RNs—NNF, NYSNA, and non-health care unions
such as AFT and AFSCME—move toward cooperation, and perhaps
consolidation, and away from competition. The other is the degree to
which nurses’ unions can find mutually beneficial ways to work with
unions representing other hospital employees (housekeeping, maintenance,
techs, and even physicians).
The CNA/NNOC/NNU has made remarkable strides in organizing,
in collective bargaining, and in legislative action over the past 15 years.
The union has been described as innovative and groundbreaking, as well
as arrogant and reckless. Within the labor movement, the union appears
to be equally proficient at creating allies and enemies. Ultimately, the
optimal situation for RNs in the American health care system would be
the creation of a single, united, and cohesive nurses’ union or, short of
that, a small number of unions that could work together effectively. The
numerous unions representing nurses now, and the philosophical, strategic,
and personal differences among them, make consolidation a great challenge. However, a move in that direction could have very significant
implications for collective bargaining in the hospital sector. In any case,
it is clear that if nurses’ unions are to create, formally or informally, a
more united front, leadership for this effort will likely come from CNA/
NNOC/NNU.
Although RNs are the largest occupation in the hospital sector, they are
not an island unto themselves. The remaining employees in that
sector—from maintenance, housing, and food service workers to
151
physicians—constitute a large and influential power bloc in their own
right. And although these groups have different priorities, if they can find
a way to work together, their combined resources and influence would
dwarf what they could individually muster.
Although collective bargaining is likely to play a bigger role in the
future for RNs working in acute-care hospitals, and possibly for many
other occupational groups, there is no reason to believe that this will be
the case for physicians. Physicians’ unions fly in the face of the culture of
the profession to a greater degree than in any other segment of the health
care industry, and any momentum they may have generated in the late
1990s seems to have entirely dissipated.
It is not yet clear what implications the passage of the PPACA will have
for health care unions and collective bargaining in the health care industry.
But it is possible that these unions, which were among the biggest advocates of health care reform, could find that reform makes their lives more
difficult at the bargaining table.
Cost reduction is at the heart of the PPACA. Health care unions have
argued that lower costs can be gained through cutting fat and by becoming more efficient. But with roughly 60% of a hospital’s budget going to
labor costs, it seems likely that any cost-reduction efforts will have to
target labor costs to some degree. Some observers have speculated that
unions might find themselves on the “horns of a dilemma” when the
reform effort they have championed puts downward pressure on labor
costs at the same time they are trying to win better pay and benefits at
the bargaining table (Kimzey and Johlie 2009).
Collective bargaining in the long-term care/nursing home sector is also
likely to be affected by the many changes the American health care system
is likely to undergo in the years ahead. What probably will not change is
this sector’s dependence on government funding. As pressure on the
Medicare, Medicaid, and state funding systems grows, it is hard to see
how unions will be able to generate much leverage at the bargaining table.
Unions that have entered into partnerships with the long-term care/nursing home industry may have little choice but to continue to work with
employers to advocate for greater funding with the knowledge that little,
if any, of that additional funding will end up in workers’ paychecks.
One bright spot for unions in the long-term care/nursing home sector
is the 2011 NLRB ruling in Specialty Healthcare that allows unions to
organize smaller units of workers at long-term care facilities. If the decision is not overturned on appeal, unions will be able to organize relatively
small groups of employees with common interests in a facility, thus getting
a toehold in a previously unorganized workplace. This presence should
make it easier for unions to organize additional units of workers in the
facility (Polli and Torrence 2011; Kaplan and Walsh 2012). 152
Regardless of what the future holds, health care is a vital and important
industry on a number of levels. Collective bargaining will continue to be
an important part of the acute-care hospitals and long-term care/nursing
home sectors of the industry. And although the American health care
system is certain to change and evolve in the years ahead, so will collective
bargaining in health care. For students of employment relations, this process
promises to be both fascinating and instructive.
ENDNOTES
In part, this was because the National Labor Relations Act did not extend protection
to employees of nonprofit hospitals until 1974, when an amendment was passed that gave
them collective bargaining rights.
2
There is a substantial public sector health care industry in the United States. This
includes hospitals and long-term care/nursing home facilities administered by an agency
of the local, state, or federal government. This chapter is largely limited to an examination
of collective bargaining in the private sector health care industry.
3
A third distinct sector of the health care industry is home health care. This includes
individuals, often elderly or disabled, who receive nursing care in their homes. It is a growing sector, with approximately seven million Americans receiving such care, but it is smaller
than the hospital and long-term care and nursing home sectors and is largely delivered by
local government agencies. For these reasons, it is not addressed in this chapter in any
detail.
4
Acute-care hospitals provide treatment for severe illness, disease, or trauma. They
are distinct from long-term care hospitals that provide ongoing treatment for elderly and
other types of disabled patients. Psychiatric hospitals are included in the latter category.
5
The membership and union density statistics in this section include both private
and public sector health care workers.
6
Clearly, although these categories do not describe union types as well as they once
did (i.e., many craft unions of the past have tended to move toward becoming more like
industrial unions, and many industrial unions now might more accurately be classified as
general unions), they still are somewhat helpful in describing labor organizations.
7
Although these workers are public employees, these elections were significant because
they establish a beachhead in a third sector of the health care industry in which unions
have not been particularly successful—home health care.
8
NYSNA continues as an independent statewide union. At 37,000 members, it is
one of the larger unions representing nurses. However, in recent years it has experienced
a great deal of internal discord that has left it isolated from the rest of the nurse labor
movement (Amber 2012a).
9
A lockout involves an employer refusing to allow employees to work in order to put
economic pressure on them in the course of negotiations. It is, essentially the employer’s
version of a strike.
10
Strikes by nurses are not an uncommon occurrence around the world. In the
1990s, nurses unions undertook strikes in Australia, Canada, Ireland, Israel, Japan, and
Portugal. Nurses’ strikes took place in New Zealand and Malawi in 2000, in Denmark
and Sweden in 2008, in Portugal in 2009, and in South Africa in 2010. In most of these
1
153
cases, strikes were either regional/provincial or national (Briskin 2011). American nurses
have traditionally been reluctant to strike, seeing such action as unprofessional and
jeopardizing patient care. This situation is beginning to change.
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Chapter 5
When Chickens Devoured Cows:
Union Rebuilding in the Meat
and Poultry Industry
Jeffrey Keefe
Rutgers University
Mathias Bolton
UNI Global Union
This chapter examines the current trends in collective bargaining in the
meat and poultry industry that are a direct consequence of the collapse
of the national bargaining structure in the American meat industry during
the 1980s. These trends were driven by the industry’s restructuring, which
led to the return to plant-level collective bargaining in beef, pork, and
poultry slaughter and processing. We argue that the driving force behind
the collapse and restructuring was the substitution of chicken for beef in
the American diet. The relatively high price of beef was no longer sustainable when it came into competition with poultry products that were less
costly, healthier, more convenient, and more malleable to further processing. The substitution of chicken for beef put wages back into competition
as consumers redefined market boundaries. Poultry processors were nonunion, paid low wages, and had a high-productivity growth production
system known as the broiler complex. The plants were located in the
union-hostile rural U.S. South and had grown their businesses using
African American labor in the southern Black Belt.
Prior research (Craypo 1994) found that the primary reason for the
collapse of industry bargaining was related to the Iowa Beef Processors
(IBP) revolution. IBP’s new practices, which allegedly contributed to
undermining industry bargaining, pre-dated the collapse by more than
a decade. IBP sold boxed cut beef instead of shipping carcasses; they built
plants in rural areas, often in right-to-work states, rather than urban rail
centers; and instead of accepting unions and pattern bargaining, IBP
resisted and developed its own enterprise wage standard. According to
this analysis, IBP was the first to combine each of those characteristics
into an aggressive operating strategy aimed at existing packers and practices, and by 1976, IBP was the most profitable producer and the nation’s
leading beef packer (Craypo 1994).
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162
No doubt, IBP was a potent anti-collective bargaining innovator; its
practices alone, however, cannot explain the collapse of industrywide
bargaining. IBP was one of only two profitable public red meat processors
during this transition period (1980s); the other was the pork processor,
Hormel. First, what distinguished IBP from the traditional beef processors
was that it invested in new facilities and new processes. The older industrywide bargaining firms that had dominated the beef and pork industry
since the 1920s—Armour, Swift, Cudahy, and Wilson—had been acquired
by conglomerates that focused on capturing cash flow obtained through
disinvestment not through investment and modernization. Second, while
IBP never invested in the rail-centered industry, the entire industry had
already exited the multi-storied railhead factories by 1960, some 20 years
before the collapse. Factories moved first to the Corn Belt and then beef
moved farther west to the High Plains. Third, boxed beef, developed by
Armour in the 1950s, added manufacturing jobs to the plants. Tasks
formerly performed in wholesale and retail establishments by unionized,
skilled journeyman butchers were performed in manufacturing plants by
semi-skilled meat cutters. Boxed beef increased overall plant employment.
IBP insisted on paying these meat cutters less than pattern wages, which
led to the first IBP strike in 1968. Four more IBP strikes would follow
through 1978. IBP resorted to replacement workers to continue to operate;
it won these strikes, and as it continued to grow, IBP opened its new plants
on a non-union basis.
Nevertheless, IBP’s militancy, which began in the 1960s, cannot explain
the breadth and depth of the 1980s descent that would produce a 40%
reduction in average real wages within a decade. Instead, wages for red
meat workers plunged toward those paid by the poultry processors; average red meat wages would settle with a 20% premium over poultry processor wages. The union wage effect would fall to 4% by the early 1990s
before rebounding to 13% today. The United Food and Commercial
Workers (UFCW) union, particularly after the Retail, Wholesale and
Department Store Union (RWDSU) merged into the UFCW, expanded
its organizing efforts in the poultry industry.
National industry bargaining structures, such as the one that existed
in meatpacking, were a legacy of World War II. They were established by
the National War Labor Board to prevent strikes, to restrain wage growth,
to resolve interest disputes that arose during the war effort, and to provide
the board with the information and the mechanism to adjudicate wage
equity disputes within an industry, particularly among the large oligopoly
employers. After the war, the federal government continued to encourage
the stability afforded by these bargaining structures, while taking a less
active role. The Korean War reinvigorated wage controls and government
involvement in collective bargaining. By 1953, however, the government’s
MEAT AND POULTRY INDUSTRY
163
policy shifted to neutrality on the issue of collective bargaining. During
the next two decades, many once-stable industries came under competitive
pressure either from foreign imports or technological innovations that
supplied substitutes for traditional industry products.
Managerial capitalism’s culture of relatively benign corporate
indifference toward collective bargaining evolved dramatically in the late
1970s into a new era that featured leveraged buyouts, an investor-value
focus, a neoliberal industrial and trade policy, and an identity-focused
employment policy that shifted the policy emphasis away from collective
action into the courts. After Reagan’s popular hard line response to the
air traffic controllers’ strike, the use of replacement workers to defeat
strikes and force concessions became socially acceptable, and manufacturing employers widely adopted the use of replacements. All these factors
combined to allow employers to rapidly eradicate the remnants of industrywide bargaining structures in most oligopoly industries in the United
States in the 1980s and to defeat strikes where unions and workers resisted
these changes. The industry-wide bargaining structures that emerged from
World War II, once the government had withdrawn its active support,
were poorly suited to the adaptation that was necessary to survive and to
evolve in a dynamic capitalist economy, even where industries remained
dominated by oligopolies.
By the 1980s, a consensus among scholars emerged that there was a
transformation under way in the American employment system that had
shifted the balance of power. Employers and their representatives (management) became the dominant actors in the new American employment
system, and they preferred to operate non-union wherever they could
(Kochan, Katz, and McKersie 1988). Unfortunately, the frame of research
analyses has not kept pace with this transformation and, all too often,
while acknowledging the transformation and management’s growing
dominance, studies tend to focus on a respective union’s response to recent
changes in collective bargaining without adequately explaining the economic and political sources of change driving management’s growing
dominance. We will try clarify the sources of the transformation and the
consequences for collective bargaining in the meat and poultry industry.
What makes this case of particular interest is that it is an American
manufacturing industry that is growing in both value added and employment. It has not been subject to a fundamental information technology
revolution nor to globalization in terms of off-shoring production, although
it does rely on immigration for a significant source of low-skilled labor.
It is an industry that successfully net exports a growing share of its output.
Nonetheless, ownership, profitability, supply prices, and product demand
remain unstable even though the industry is an oligopoly.
164
The instability of industry boundaries, whether they be domestic or
global, requires continual analysis. Labor and employment relations
researchers need to expand their research frameworks to evaluate the forces
shaping collective bargaining. For example, the executives in the meat
and poultry industry now speak of themselves as part of the global protein
industry, which includes red meat, poultry, fish, dairy, eggs, beans, and
nuts. What they believe is that while protein consumption is essential for
life and while they are profitable protein producers, there is always the
potential for one or another protein source to become a commercially
successful food that erodes their position. This framework, although
broader than pork or beef, however, is still too narrow because it focuses
only on horizontal sources of competition. We need to include a framework
that helps us understand where and why there is investment and employment growth. To do this, we must know what forces are shaping supply
chains and at what stages, which business units are capturing higher than
average levels of profitability, and where there is subpar financial performance, then link this analysis to labor market and employment system
alternatives.
We use a value system framework to analyze meat and poultry processing. Following Porter (1985), the larger interconnected system of enterprise
value chains form a “value system.” From this perspective, an industry’s
structure drives competition and profitability. A value system includes the
value chains of suppliers and their suppliers all the way back to the most
basic resources, and then forward to the industry itself—the distribution
channels for its products and the buyers extending through their buyers
to the ultimate consumer. In meat and poultry, it begins with the genetics
of animal breeding and plant biogenetics for animal feed and ends with
consumer purchases at supermarkets, Walmart supercenters and warehouse
clubs, cafeteria food services, and casual dining or quick-service
restaurants.
The value system, however, is much more than a supply chain. A value
analysis must examine the structural underpinnings of industry and firm
profitability. This approach must analyze why and where profits are produced and captured and the intensity of rivalry within an industry.
Above-average profitability allows some firms in an industry to retain
earnings and gain access to new investment resources at lower costs.
Conversely, poor profitability in a low-profit industry may cause a firm’s
investors to get their cash out of a business, often reflected in declining
share prices, higher interest rates on new debt, and rising yields on outstanding debt. Profit opportunities may encourage firms to integrate
horizontally, acquiring competitors, or vertically into industries that may
give firms opportunities to increase their profitability in more advantageous markets or to exit low-profit markets.
165
Industry structure and firm performance are shaped by the strength
of the five competitive forces [rivalry, customer power, supplier power,
potential entrants, and substitute products (Porter 1985)] that influence
an industry’s long-run profit potential because they determine how the
economic value is created by an industry and then how that value is
divided—whether it is retained by companies in the industry or is bargained away by customers and suppliers, limited by substitutes, or constrained by potential new entrants. Industry structure is constantly
undergoing modest adjustments, and occasionally it can change abruptly.
Shifts in structure can originate from outside an industry or from within,
and these shifts can boost the industry’s profit potential or reduce it. An
industry’s structure can be influenced by changes in technology, declining
prices of substitutes, changes in customer needs, implementation of government policy, or shocks to input prices.
We put profitability and financial decision making at the center of our
analysis of firm performance and industry structure. The evolution of an
industry, whether it grows or declines, is governed by financial assessments
by present or future investors of each business unit and each firm that is
a part of the industry. The basic structure of major U.S. industries is
oligopoly. This structure does not preclude intense competition and rivalry,
but it does not resemble anything similar to textbook perfect competition.
By contrast, it is somewhat less stable than Gereffi’s global value chain
(GVC) analysis would suggest. In his analysis, production activities are
sliced into pieces and dispersed throughout the world to smaller dependent
firms or contractors that are subject to tight integration and coordination
by lead firms through global supply chains (Gereffi 2005). His analysis
focuses on the various alternative relationships that exist between the
integrator and supplier whether they be market, modular, relational, captive, or hierarchies—not dissimilar to transaction-cost economics. One
shortcoming of the GVC perspective is that it does not adequately account
for the financial performance that animates relationships among the key
firms. Not all integrators are financially successful. The integrators are
often subject to rivalry, competition, pricing power of buyers and suppliers, and high expectations for their financial performance, which can
result in considerable ownership instability and difficulties in financing
of new investments. Nonetheless, Gereffi and colleagues have done a
systematic analysis of chicken (Gereffi, Lee, and Christian 2008), pork
(Lowe and Gereffi 2008), and beef (Lowe and Gereffi 2009) from a GVC
perspective. His work and the work of his colleagues and students provide
a clear analysis of the supply chains for chicken, pork, and beef, which
will not be replicated in this analysis. The reader is encouraged to review
this material.
166
Unions may want to use the value-stream analytical approach before
investing scarce resources in organizing, strikes, or comprehensive campaigns. Many unions in the United States have evolved into general unions
without any particular industry or occupational focus. Larger unions have
merged with dying unions with declining membership. In organizing,
they often respond to the “hot shop” for organizing opportunities. Aside
from not necessarily resulting in any increase in bargaining power, the
hottest shops are often those in failing firms or industries where employers
are cutting wages and driving employees to work harder to avoid bankruptcy or business shrinkage. While these workers seek unions to redress
their deteriorating employment conditions, the union is unable reverse
the root source of their concerns, a failing business. An alternative approach
for a union could be to refocus its efforts on organizing a value stream
that is growing, profitable, and not confronting imminent technological
obsolesce, where gaining bargaining power can result in improving compensation and worker control while building a sustainable growing union.
In this chapter, we apply this approach to analyze the meat and poultry
value stream—a series of industries in which the UFCW has organized
a multitude of bargaining units and has considerable membership in a
variety of stages of production and distribution.
In this chapter, we also
• Recount the collapse of industry-wide bargaining in the red meat
industry
• Review and evaluate the explanations for the decline of collective
bargaining in the meat industry
• Analyze the value stream of the contemporary meat processing
industry
• Review recent collective bargaining outcomes
• Discuss UFCW’s comprehensive campaign against Smithfield to
gain neutrality and to card-check in the world’s largest pork plant
and Smithfield’s Racketeer Influenced and Corrupt Organizations
Act (RICO) civil suit against the UFCW
Our analysis concludes with a discussion of whether unions still matter
in the meat and poultry processing industry and whether they can improve
workers’ terms and conditions of employment. Because of space constraints,
we cannot address a variety of important issues in this industry, including
immigrant labor, Fair Labor Standards Act lawsuits related to compensated
time for donning and doffing of protective gear and safety equipment,
health and safety, USDA regulation of meat processing, and antitrust
issues.
THE COLLAPSE OF THE RED MEAT INDUSTRY AND
INDUSTRY BARGAINING
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Between 1976 and 1993, U.S. per capita consumption of beef declined
by 32% while per capita consumption of chicken increased by 73%.
Between 1974 and 1980, beef packers’ output fell by 29%. The declining
demand for beef and consumers’ substitution of substantially lower-cost
chicken unleashed a ferocious industrial restructuring, a process in which
none of the major meatpackers survived as independent firms. The consequences for the main union, the UFCW, and its members were even
more dire. In the decade between 1978 and 1988, real wages in meat
products fell by 34%, while industry-wide union density declined from
46% to 19%. In the five-year period between 1979 and 1984, meatpacking
production worker employment declined by 21%, unionization declined
11%, and the union pay differential fell by half (Anderson, Doyle, and
Schwenk 1990). Between 1983 and 1988, industry union membership
fell by more than 40,000, declining by one third. Overall, meat processing
worker wages raced down toward those in the poultry processing industry
(Figure 1). The wage equations reported later in this chapter show that
poultry production worker wages remain 22% below those in red meatpacking and that the low-wage and the relatively high-productivity poultry
industry has become the standard setter of employment conditions for
the entire meat processing industry.
Real wages peaked in 1978 in red meat slaughter and processing at
$19.56 an hour, using 2002 dollars. Within a decade, they fell to $12.90
FIGURE 1
Real Wages of Production Workers in Red Meat and
Poultry Industries, 1972 to 2002 (in 2002 dollars)
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an hour, a one-third decline. Real wages bottomed out in 1996 at $11.26
per hour, a decline of 42%, and only 20% above the real wages of poultry
workers. This chart relies on historical industry data collected for the
Standard Industrial Classification system, which has now been replaced
by the North American Industry Classification system, which does not
provide the same level of detail for this industry.
This chapter challenges prior analyses that the demise of the red meat
industry bargaining structure and union decline in meat processing was
driven by competition from within beef processing. Instead it offers an
alternative analysis that the collapse of industry-wide bargaining arose
from competition between red meat and chicken processing—that
chickens devoured the cows. Consumer substitution of chicken for beef
brought unionized red meat workers into competition with non-union
poultry workers based largely in the old Black Belt South that earned half
the union wage and worked in an industry with faster productivity growth.
Getting this analysis right, we believe, opens the prospect for rebuilding
collective bargaining in the meat and poultry industry.
The Chicken Insurrection
Chicken became convenient substitute for beef beginning in the
mid-1970s because it was substantially less expensive and a more supple
meat for further processing. It was also considered a healthier alternative
to beef. The demand for table-cut beef declined as a staple of status and
consumption for the new postwar middle class; today, low-income consumers tend to eat more beef than other consumers do (Davis and Lin
2005). After 1974, a change in preferences led to the substitution of chicken
parts for table-cut beef (Eales and Unnevehr 1988), and the process of
dethroning of beef as the premier American meat commenced.
Although there remains a debate about what relative factors contributed
to the substitution of chicken for beef, there is no doubt that chicken
rapidly replaced beef in the American diet and surpassed per capita beef
consumption in 1993. One line of research concludes that the demand
for convenience contributed to poultry’s success rather than increased
health awareness (Anderson and Shugan 1991; Moen and Capps 1988).
Other research finds that the shift away from red meat consumption can
be explained by the relative prices between red meat and chicken (Chalfant
and Alston 1988), which do not rely on changes in preferences arising
from relative convenience, health concerns, or malleability for further
processing. Regardless of the weighting of these relative factors, their
combination increased the substitution of chicken for beef by consumers
and subjected beef sales to intense pricing pressure as it was losing market
share in the meat protein market.
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By way of contrast, pork, the other major red meat in the U.S.
consumer diet, did not suffer this same substitution effect, although it
too came under considerable price pressure. Pork, however, is sold to
consumers primarily as a prepared or processed meat in the form of bacon,
sausage, hot dogs, cured ham, lunch meats, and barbecue ribs. Approximately
79% of pork sales are processed or prepared meats (National Pork Board
2009), which is apparently more conducive to the modern American diet.
In contrast, beef is sold almost entirely as primal cuts and ground beef.
Pork withstood the onslaught of the chicken substitution effect more
readily because it was more adaptable to dietary trends and modern production techniques.
Beef Packing
By 1980, the original post–World War II Big Four Meatpackers—Armour,
Swift, Wilson, and Cudahy (the Beef Trust), the core companies in the
national industry bargaining structure—had disappeared as independent
businesses. They were first absorbed in the conglomeration movement and
then spun off in pieces in the disconglomeration restructurings and divestitures of the late 1970s and early 1980s. By 1980, a new generation of
manufacturers—IBP, MBPXL (formerly Missouri Beef and later Excel),
Dubuque, and Land O’Lakes—were the four largest steer and heifer
slaughterers, supplanting the original Big Four, who had moved steadily
away from packing and into processing and had refrained from new
investment in the packing industry while closing plants (Cappelli 1985).
The four new packers accounted for 36% of steer and heifer slaughter in
1980 (USDA GIPSA 1996). The decline in the production and consumption of beef in the late 1970s left the industry with excess slaughter capacity
that made consolidation a more attractive necessity and triggered a wave
of mergers and acquisitions lasting from 1977 to 1988 (Azzam and
Anderson 1996).
The beef-packing industry structure rapidly evolved through mergers,
plant acquisitions, and the building of new more productive large facilities. Cargill purchased MBPXL in 1979 and renamed it Excel; in 1983,
Cargill purchased a plant from Dugdale and acquired three Spencer Beef
plants owned by Land O’Lakes. ConAgra acquired 17 former Armour
plants in 1983 and in 1987 bought Monfort and Swift Independent Meat
Packing Company (SIPCO). By 1996, a new oligopoly of IBP, ConAgra,
and Cargill dominated steer and heifer slaughter and fabrication, as well
as pork slaughter and processing (Cattle Buyers Weekly 1996).
In 1974, 850 plants were large enough to be required to report to the
Grain Inspection Packers and Stockyards Administration (GIPSA). By
1997, the number of reporting plants fell by two thirds to 274 (USDA
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GIPSA 1996) as the core industry built larger new facilities and closed
older and smaller plants, and as marginal firms exited the industry. Plants
slaughtering 500,000 head or more per year accounted for 66% of total
beef slaughter in 1990 (Azzam and Anderson 1996). The Beef Trust
companies no longer dominated beef slaughter by the mid-1970s, when
per capita beef consumption had peaked. As new firms entered the industry
and others emerged, the four-firm concentration ratio for steer and heifer
slaughter rose from 25% in 1976 to 36% in 1980, 50% in 1985, 72% in
1990, and 80% in 1996 (USDA GIPSA 1996). In boxed beef production,
the four-firm concentration ratio was 62% in 1985, 79% in 1990, and
84% in 1996. While a new oligopoly emerged, ownership structures
continued to change.
THE EVOLUTION OF MEATPACKING COMPETITION AND THE
DEMISE OF NATIONAL BARGAINING
Meatpacking has a long and often romanticized history of unionism. The
Amalgamated Meat Cutters and Butcher Workmen (AFL) was founded
in 1897 and organized the immigrant workforce in Chicago packing
plants. They struck in 1904. The union’s internal dissension and lack of
discipline was quickly exposed as the employers brought in strikebreakers,
and the strike collapsed (Commons 1904; Brody 1964). Packinghouse
workers were militant, often walking off the job, but they found it difficult
to build a sustainable organization and negotiate contracts. The
Amalgamated, instead, focused its efforts on organizing butchers in the
retail and wholesale industry (Brody 1964) and smaller regional packers.
During World War I, the elimination of immigration, an increase in
demand for beef, and support from the War Labor Board allowed the
Amalgamated to organize and negotiate contracts in Chicago meatpacking. Once the war ended, however, the Beef Trust’s concessionary demands
were met with a strike that was defeated in 1922, destroying the
Amalgamated in Chicago meatpacking (Brody 1964).
The CIO established the Packinghouse Workers Organizing Committee
(PWOC) in 1937 that in 1940 secured its first major contract. In 1943,
PWOC became the United Packinghouse Workers of America (UPWA).
During World War II, the War Labor Board created an industry bargaining structure for the UPWA and the Amalgamated to negotiate contracts
with the major meatpackers. The strength of the UPWA was in Chicago,
while the Amalgamated had gained representation in regional and nonChicago meatpacking plants. In January 1946, the packers refused the
union’s wage demands, and a strike was called that was immediately
effective. Ten days into the strike, President Truman, still operating under
wartime emergency procedures, seized the plants and ordered work to
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resume. The unions refused to return to work, demanding that government guarantee enforcement of any settlement reached through a board
of inquiry. The Truman administration agreed, and the settlement provided
a wage increase and securely established a national bargaining structure
for the industry in the postwar period.
By the early 1960s, UPWA and the Amalgamated represented more
than 95% of hourly workers in beef and pork multi-plant packers outside
the South, as the industry moved out of Chicago to rural Corn Belt plants;
they negotiated nearly uniform changes in pattern master agreements
throughout the industry (Craypo 1994). Work stoppages involved individual companies that refused to follow the industry settlement pattern
(Craypo 1994). In 1968, the two unions merged, forming the Amalgamated
Meatcutters. Wages and conditions of employment, however, were not
identical among meatpacking firms and plants—they varied depending
on the industry’s history, regional structures, products, and production
volumes (Brody 1964; Craypo 1994). In the late 1970s, in an environment
of declining product demand, this structure facilitated further bargaining
decentralization: because many plant-level locals retained their own contracts, they readily departed from the master agreement to make wage
concessions to prevent layoffs and plant closings (Cappelli 1985).
On the employer side of bargaining, the corporate conglomeration
movement drastically changed the ownership structure of the Beef Trust
companies. Those companies would be further reshaped by the decline
of per capita beef consumption that began in 1975, the lack of total factor
productivity growth in beef production in the post–World War II period
(0.75% annual rate 1958 to 1980, although labor productivity rose 2.5%),
and the intense price competition emanating from consumers’ shift to
chicken. In 1970, the Greyhound Corporation, diversifying out of intercity
bus transportation, purchased Armour. Swift then transformed itself into
a holding company, Esmark, in 1973, making Swift a subsidiary and the
second largest beef packer. Wilson was acquired by LTV in 1976. It reemerged as a public company, Wilson Foods, in 1981, when LTV spun it
off as pork packer to shareholders. It was still the largest pork packer in
the industry. Cudahy had been dismantled in the 1970s after it was purchased by General Host in 1968 and eventually closed; it was then sold
off in a leveraged buyout to a management group that reopened four plants
without union representation at substantially lower wages. In 1981, IBP
was purchased by Occidental Petroleum Corporation, the energy conglomerate. During the next six years, as a wholly owned subsidiary of
Occidental, IBP, which was the only financially successful beef packer,
increased its revenues 53% and operating income 92%. IBP also added
8,000 employees and operating plants in four additional locations, making
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it the only thriving beef processor in this difficult restructuring period.
In 1987, Occidental Petroleum sold off 49% of its stock in IBP, but
Occidental remained IBP’s major shareholder.
In the early 1980s, old-line red meat processors were challenged by
stagnant productivity, obsolete plants, excess capacity, a relatively high
wage unionized labor force, and no plans to compete with the rise of
chicken as a substitute for beef. These firms, however, knew they needed
to reduce input and operating costs and decrease the supply of beef to the
market. To cut input costs, they shifted to larger and leaner animal breeds
and to larger feedlots, thus taking advantage of the declining costs of
corn, which fell 75% between 1975 and 1985. To reduce supply and
operating costs, they closed plants, consolidated ownership and restructured operations, and launched a brutal campaign to cut wages and benefits
and eliminate unions.
Wilson and Armour negotiated 44-month mid-term wage freezes at
$10.69 an hour in late 1981 under the threat of plant closures. Other packers soon got similar concessions in return for promises not to close plants
for 18 months (Craypo 1994). In 1982, Esmark closed Swift packing plants
and sold the assets to SIPCO, which reopened the plants without union
presentation and with wages $3 an hour below the master agreement of
$10.69 per hour. Greyhound closed 29 Amour plants and sold most of its
meatpacking operation to ConAgra in 1983, which reopened 17 plants
non-union. In 1980, Monfort, after suffering a substantial loss, closed its
main plant in Greeley, Colorado, and kept the plant shut for two years. It
reopened in March 1982 without union representation. In September 1994,
Greeley workers voted overwhelmingly in favor of union representation,
12 years after Monfort temporarily closed the Greeley plant.
Pork processing followed the same practices as the beef packers. LTV
spun off Wilson Foods, a pork packer, in 1981 and within less than two
years, it filed for bankruptcy. Wilson then terminated its master agreement
and cut wages to $6.50 an hour. In October 1981, Hygrade demanded a
$3 per hour pay cut in all Hygrade plants as a prerequisite for keeping its
Storm Lake, Iowa, plant open. The UFCW refused and the plant closed,
eliminating more than 500 union jobs. In April 1982, IBP bought the
Storm Lake facility, reopening it with a substantially reduced wage structure. The new IBP plant operated with 10% monthly turnover (Perry and
Kegley 1989). During the same period, IBP bought an Oscar Mayer plant
in Perry, Iowa, and reopened it with a starting wage of $5.80 an hour—
nearly $4 less than Oscar Mayer’s starting wage (Perry and Kegley 1989).
According to Craypo (1994), union decline in beef packing began with
the 1969 round of bargaining at IBP’s plant in Dakota City, Nebraska.
IBP opened the unit in 1966 and began producing boxed beef the follow-
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ing year. This new process eliminated the shipping of carcasses to wholesalers who used skilled butchers to partially disassemble the carcasses into
primal cuts for retail sales, then shipped the primal cuts to supermarkets
and butcher shops for further carving up for sale by unionized journeyman butchers. In the box beef process, beef carcasses are broken, boned,
and cut, then vacuum-packed in plastic in the slaughter plant and shipped
in boxes to retailers, largely eliminating the need for skilled butchers in
wholesale and retail distribution.
The union organized Dakota City in 1968, but IBP was adamant that
it would not accept the industry wage pattern. Indeed, workers struck for
several months to get a first contract and then had to settle for base wages
below industry averages and accept a differential between slaughter and
fabricating wages at the plant. Craypo (1994) concluded that this contract
began to put meatpacking labor back in competition and was the first
step toward destroying industry bargaining.
Four more rounds of bargaining at Dakota City between 1969 and
1986 completed the process of destroying the industry wage pattern,
according to Craypo (1994). Each round ended in a lengthy dispute,
ranging from 4 to 14 months. Each dispute arose from IBP’s refusal to
follow industry pattern settlements and its insistence on wage freezes or
cuts. In three of the five contract rounds, IBP locked out union workers
and in all five, it brought in replacement workers following the strike or
lockout. IBP was one of the earliest large employers to use replacements
consistently in labor disputes, beginning in 1969. In December 1986, the
fifth round of bargaining, another strike began; however, this strike was
settled seven months later as workers successfully resisted company demands
for wage concessions. By then, however, only three of IBP’s 14 plants were
unionized. In part, this settlement can be attributed to federal intervention. Democratic Representative Tom Lantos was conducting hearings
into safety problems in the meatpacking industry. An Occupational Safety
and Health Administration (OSHA) investigation demonstrated that IBP
management had lied in their congressional testimony. OSHA imposed
a $2.6 million fine on IBP that was reduced when the strike was settled
and a joint health safety process was established with the UFCW under
the supervision of OSHA (December 1996). The new agreement also
provided for neutrality and card-check at a new IBP plant.
Seventy percent of the meatpacking and 60% of the prepared meat
products workers were in plants with collective bargaining agreements
covering a majority of their production work force as of June 1984.
Nevertheless, relentless restructuring drove unionization to hit bottom
by 1987 at 75,760 members, a density of 19% (Hirsch and Macpherson
2003).
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EXPLANATIONS FOR THE DECLINE OF COLLECTIVE
BARGAINING IN THE MEAT INDUSTRY
Craypo (1994) concludes that the new oligopoly industry left the union
behind. All packers had to imitate IBP’s anti-union model because IBP
set the competitive standard and chose to operate union-free if possible
and, at a minimum, to avoid multi-plant, uniform contract settlements.
The new firms destroyed the balance of power inherent in postwar labor
relations, but the strategy they used to do so made the parties even greater
adversaries and essentially precluded labor–management cooperation. The
analysis presented in this chapter is not inconsistent with this assessment;
however, we argue that it is incomplete.
Other less complete explanations focus on the changing geography of
meatpacking with the shift to rural locations, the deskilling of the labor
process, the loss of the workers’ shop floor organization, and a shift from
the militant unionism of the United Packinghouse Workers Union
(UPWU) to the alleged business unionism of the UFCW. These analyses
focus on changes in which workers lost control over the pace and conditions of work, causing a loss in their bargaining power over working
conditions (Gabriel 2006; Horowitz 2002:35). Bruggeman and Brown
(2003) also suggest that the collapse of industrial unionism shifted labor
away from militant strategies toward the business unionism that arose
from the mergers between the UPWA and the Amalgamated Meat Cutters
(AMC) in 1968 and between the AMC and the Retail Clerks International
Union (RCIU) in 1979 to form the UFCW. They argue that these mergers
significantly diluted the union’s militant core of meatpackers and greatly
weakened the union’s ability to respond to the rise of IBP and its aggressive labor relations strategy. These assessments are inadequate or wrong
and do not advance our understanding of the basic shift in bargaining
power in this industry toward employer dominance. Unfortunately, neither
the loss nor gain in shop floor control nor workplace skills translate into
union bargaining power in a declining oligopoly industry in which jobs
and wages are being cut amidst plant closures, allowing employers to
whipsaw every local union. This literature also often confuses militancy
with bargaining power. There was no shortage of militancy in the red
meat industry during the 1980s; futile strikes were in abundance. However,
that militancy could not translate itself into bargaining power nor could
it reverse employers’ insistence on concessions. Instead, the defeated militant strikes demonstrated how much power and influence the union had
lost in the changing economics and structure of meat and poultry processing. More union militancy was not the answer to competition from the
non-union poultry industry.
The Hormel and the UFCW Local P-9 conflict further underscores this
point. Hormel was profitable throughout this period. It had one controlling
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shareholder, the Hormel Foundation, which was established in the 1950s
by the Hormel family for the improvement of the greater Austin, Minnesota,
community. A broad corporate campaign undertaken by Local P-9 was a
mismatch to this ownership structure, the strike was the wrong tactic to
confront a demand for concessions, a single plant contract battle was a
mismatch to deal with a multi-plant employer that was shifting to valueadded products, and the local’s effort to rewrite an entire collective bargaining agreement in a highly concessionary environment created an opportunity
for Hormel to revise the entire relationship; each of these elements combined
to defeat P-9. For all these reasons, the local should not have struck. There
is nothing romantic or heroic about losing a strike or getting a large numbers
of workers fired. Furthermore, this comprehensive failure contributed to
the meatpacker employers’ momentum and conviction that unions could
be defeated rather than accommodated. However, Hormel, a pork processor, was not the industry segment under the most pressure. Instead, that
segment was beef led by IBP.
While recognizing that IBP was the agent of change in beef meatpacking, we offer evidence that it was the competition emanating from
substitution of chicken for beef that was the driving force in the collapse
of red meat industry-wide bargaining. It was the economics of the meat
industry that underlay the transformation. One knows price competition
was intense because labor costs accounted for only 5% of the red meat
industry’s costs. The boundaries of competition, rivalry, substitution, and
entry were redefined in this period. If it had not been IBP, it would have
been some other low-cost packer that rose to dominance in the beef
industry. Between 1976 and 1998, beef ’s share of meat consumption
declined from 48% to 32%. Real beef prices fell by approximately 35%,
and beef cattle inventories declined 27%, from 45 million head to 33
million head.
The beef industry underwent widespread structural changes in attempts
to reverse this tidal wave of falling demand, including the consolidation
of ranching, cattle feeding, and meatpacking; elimination of collective
bargaining; and passage of the Beef Promotion and Research Act of 1985,
which introduced the government-sponsored beef checkoff to fund an
advertising program for beef (Ferrier and Lamb 2007). Plant sizes increased
sharply during the industry’s consolidation in the 1980s; the shift in plant
size distribution between 1977 and 1992 reduced processing costs by 28%
(MacDonald and Ollinger 2005). Complementary developments in cattle
feeding enabled the exploitation of new scale economies in meatpacking
by ensuring the necessary livestock volumes. The largest feedlots in Kansas,
Nebraska, Texas, and Colorado marketed one quarter of all fed cattle in
1974, nearly half (46%) by 1992, and well over half (57%) by 2002. As
production shifted to larger plants, the industry’s aggregate processing
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costs fell by 35% by 2002 (MacDonald and Ollinger 2005). These newly
built large plants on the High Plains recruited new, largely immigrant
workforces.
The Rise of the Broiler Complex
During World War II, the established poultry industry based on the
Delmarva Peninsula (Delaware, Maryland, and Virginia) exclusively supplied the U.S. military. This created an opportunity for other operators
to develop sales to the civilian domestic market. Broiler (chickens grown
for their meat are called broilers) production and slaughter capacity
expanded into the Black Belt South. With the mechanization and decline
of the cotton industry, chicken processing plants could rely almost exclusively on black labor. This use of black labor at wage rates lower than in
traditional plants kept down production costs in the new region and
allowed the industry to develop a unique structure.
In 1950, 95% of broiler farms operated independently, selling to the
market. By 1955, independent producers accounted for only 10% of total
broiler production. The market was replaced with the contracted growing
of chickens owned by processors. Feed companies became directly involved
in the broiler business by adding hatcheries, acquiring processors, and
building their own processing facilities. In the 1970s, corporate processors
replaced feed companies as the integrators of the broiler system. The
integrators operate broiler complexes where they control the vertical stages
of the broiler life cycle through direct ownership and production contracts
with broiler grow-out farms. Integrators, such as Tyson, breed their own
specialized parent stock, produce hatching eggs (often under contract),
hatch the eggs, and contract with growers to raise the chicks to slaughter
ready broilers (MacDonald 2008). The broiler complex is anchored by a
slaughter plant surrounded by contract grow-out farms that must operate
within 30 miles of the plant (Martinez 2000) because once grown to
slaughter weight, chickens do not travel well. As processors reduce the
radius of their broiler sources, many contract growers have no alternative
processors. In this monopsonistic relationship, the asset specificity of
broiler houses enables an integrator to pay the grow-out farmer lower
compensation rates (Vukina and Leegomonchai 2006a).
Broiler contracts are written by the integrator and offered to growers
on a take-it-or-leave-it basis. Broiler grow-out farmers are responsible for
constructing broiler houses according to the integrator’s specifications,
often costing two to three hundred thousand dollars each. Growers are
also responsible for labor, utility costs, clean-up costs, and disposal of any
dead birds. The integrator provides chicks, feed, medication, veterinarians,
and expert field services and decides on the volume of production, includ-
177
ing the rotation of flocks and the density of birds in a given house.
Production contracts set specific requirements that ensure uniformity and
quality standards for birds. The majority of contracts provide a base payment per pound and a bonus payment tied to the grower’s relative performance benchmarked against other local growers (Vukina and Leegomonchai
2006b). The typical payment by a processor to the grower is five cents per
bird (USDA ERS 2006).
The rapid improvements in breeding genetics, animal food, and
veterinary services; the increasing scale of chicken houses; and the automation of the slaughter process greatly improved productivity by steadily
reducing grow-out time to an average of eight weeks, increasing average
slaughter weight to 5.5 pounds, and greatly improving bird survival rates
(MacDonald 2008). Uniformity is set in feed, medication, and breeding,
and grow-out conditions to help standardize and automate the slaughter
process (Hennessy 2005). There are also large and extensive scale economies in poultry slaughter (Ollinger, MacDonald, and Madison 2005).
Processors have focused increasingly on product differentiation, through
further processing and brand labeling. By 1988, brand names accounted
for half of all supermarket sales of broilers, and brand-name broilers commanded a 14% premium over supermarket brands (Bugos 1992). In 2012,
47% of broilers were cut up and sold as parts, and 41% were sold as valueadded processed products, such as chicken franks, patties, nuggets, and
marinated products (National Chicken Council 2012). In 1978, only 8%
of chicken was sold after further processing. Then the food processing
revolution began (accompanied by the obesity epidemic). The chicken
processing revolution was announced with the introduction of Chicken
McNuggets in 1983 by McDonald’s. In 1980, McDonald’s sold no chicken;
by 2012, McDonalds sold more chicken than beef.
The Rise of Chicken and the Decline of Union Influence
Poultry processing firms based in the Southeast rarely faced significant
union organizing, and real wages in that industry have remained unchanged
for decades (Ollinger, MacDonald, and Madison 2000). As the boundaries
of product substitution shifted, the highly unionized workforce in red
meat, with union wages and benefits, began to compete with low-wage,
non-union labor in the broiler industry based in the rural Black Belt
South, who earned half their wages but had higher productivity growth.
Combined slaughter and processing production worker employment
in the red meat segment bottomed out in 1987 at 193,600. In 1986,
employment of poultry slaughter and processing workers surpassed employment in red meat slaughter and, in 1999, it matched production worker
employment in red meat slaughter and processing for the first time. Poultry
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slaughter and processing could no longer be considered an employment
backwater. Its steady growth in output and productivity allowed it to set
the terms of competition with beef. The real retail price of beef peaked
in 1979 and then fell by 38% in 1986. Both pork and chicken real retail
prices continue to decline, but real beef prices started to increase again
in 1999. Beef still faces a competitive price disadvantage with chicken
and to a lesser extent with pork. In 1986, chicken output overtook pork
output and, in 1994, it surpassed beef output. In 2011, pork output almost
equaled beef output. Beef output staged a modest growth spurt in 1999
that stalled by 2004.
Beef also has a productivity disadvantage. Over the entire period (1958
to 2005 NBER-CES series), red meat slaughter total factor productivity
grew at an annual rate of 0.05% and red meat processing increased at an
annual rate of 0.65%, while poultry slaughter and processing increased
at an annual rate of 2.22%. Beef unit labor costs have increased considerably, while poultry’s unit labor costs have not. Hog producers have progressively adopted the organization and techniques of the broiler complex
to improve productivity. Between 1987 and 2006, poultry labor productivity grew at an annual rate of 3.8%, while red meat grew at 0.2%, Poultry
has expanded its productivity and cost advantages over beef. What these
productivity, value-added, and output comparisons suggest is that poultry
growth has continued to improve its relative operating performance and
has laid a firm foundation for continued expansion.
THE VALUE STREAM OF MEAT PROCESSING: WHERE ARE
THE PROFITS?
Value-stream analysis seeks to identify where profits and rents in a supply
chain are captured. The value stream is identified with respect to a particular industry. Industry structure determines profit potential within an
industry (Porter 2008). The relevant industry for our analysis includes
red meat and poultry (NAIC 3116), an industry in which the products
can serve as effective substitutes. The industry’s main market segments
are dominated by oligopolies in beef, pork, chicken, and turkey, and three
larger industry-wide oligopoly firms: Tyson (chicken #1, pork #2, and
beef #1), JBS Swift [beef #3, pork #3, and chicken (Pilgrim’s Pride) #2],
and Cargill (beef #2, pork #5, and turkey #3). Smithfield, the largest pork
producer, in 2008 divested its beef and turkey holdings to focus on pork.
The other notable company among the leaders is Hormel, fourth among
pork packers and the second largest turkey processor. The industry has
increased consolidation and concentration, which is driven in part by the
strength of buyers in quick-service restaurants, casual dining chains,
food-service firms, and the supercenters, particularly Walmart, warehouse
clubs, and merged supermarket chains that compete on price, quality,
179
convenience, and taste. The other factor driving competition is the undifferentiated nature of many of the products the industry produces.
The industry faces a number of challenges. The falloff in demand
arising from the Great Recession affected most segments of the industry.
In the past five years, rising feed costs partly attributable to increases in
corn-based ethanol production and, more recently, drought, have adversely
affected the industry, particularly poultry, in which the then-largest producer, Pilgrim’s Pride, entered bankruptcy in 2008, followed by several
other processors, including Cagle’s and Allen Farms. Rivalry within the
industry remains intense. Most of the large companies have made substantial investments to differentiate themselves by integrating forward
into value-added food processing by further preparing their products to
market “ready to serve” prepared meats for either the home or food-service
establishments. Tyson, for example, recently established 41 test kitchens
as one of its basic research and development initiatives.
Some of the broiler companies, such as Sanderson Farms, Wayne Farms,
and Mountaire Farms, have focused on larger and heavier broilers, weighing about 7.5 pounds, raised for deboning. These firms have departed
from the conventional standard that the maximum weight of a broiler is
5.5 pounds because, above that weight, the rate of nutrient to meat conversion becomes less efficient and bird mortality rises; therefore, it has not
been historically profitable to grow heavy birds. These smaller companies
have relied on heavier birds for deboning of white meat that has produced
profitable performance through improved breeding, new medications,
and veterinarian services. Sanderson Farms shifted to larger birds in 1997
to avoid head-to-head competition with the larger companies, and it has
achieved superior profitability. The other firms following this strategy are
privately held and their profitability is therefore unknown, but they have
survived the Great Recession.
Table 1 provides four measures of profitability for publicly traded
companies by four-digit North American Industry Code for the decade
2002 to 2011. Following Porter (2008), we focus on the return on invested
capital. We use earnings before interest and taxes divided by average
invested capital less excess cash as the measure of return on investment
(ROI). This measure controls for differences in capital structure and tax
rates across companies and industries, making the return on invested
capital the most appropriate measure of profitability for value-stream
analysis. The average returns on invested capital vary greatly by industry
(Porter 2008). Table 1 is sorted and ranked by the return on invested
capital.
Over the past decade, among publicly traded companies, frozen and
refrigerated food processing led the value stream in profitability, followed
closely by retail distribution, in particular Walmart, which is reported
3111
3116
3252
3254
7221
3119
8123
4451
4462
4529
NAICS1
3114
—
3253
3115
7222
10-year profitability averages
Frozen food processing
Walmart
Agriculture chemicals
Food processing, dairy
Quick-service restaurants
Supercenters and
warehouses
Industrial chemicals
Pharmaceutical
Casual dining
Food processing, other
Food-service contractors
Supermarkets
Veterinary supply
Meat and poultry
processing
Animal food
ADM-Cargill
Tyson
Dow
Pfizer–Fort Dodge
Darden
Kraft
Aramark
Kroger
MWI Veterinary
Costco
Largest firm
Nestlé
Walmart
DuPont
Dean Foods
McDonald’s
5.9
5.0
14.2
21.4
10.2
10.8
6.7
4.9
3.9
5.9
EBITA2 margin (%)
18.4
7.4
17.9
—
11.7
5.3
3.7
5.2
7.0
5.7
5.4
3.2
5.0
4.5
6.3
ROA3 (%), net
9.88
8.6
7.4
11.9
6.4
TABLE 1
Value Stream for Meat and Poultry Processing
12.2
9.4
18.2
16.2
12.4
14.5
15.9
10.8
7.9
14.6
ROE4 (%), net
73.5
21.5
14.2
25.7
22.4
10.2
11.9
14.9
14.4
13.5
13.4
13.4
12.4
12.4
18.3
ROI5 (%), operating
25.2
21.8
21.5
18.6
18.4
180
Hormel
Sanderson
Tyson
Smithfield
Pilgrim’s Pride
Meat processing
3116
3116
3116
3116
3116
Rev 3116
Largest firm
ADM-Cargill
ADM-Cargill
Frozen Food Express
Pantry, Inc.
Sysco
Sources: Mergent Online, Compustat, IBIS World, and author’s calculations.
1
North American Industry Classification Code
2
Earnings before interest, taxes, and amortization
3
Return on assets
4
Return on equity
5
Return on investment
10-year profitability averages
Grain milling
Grain wholesaling
Refrigerated trucks
Meat stores
Wholesale distribution
NAICS1
3112
4245
4841
4471
4244
9.4
9.5
2.5
2.6
–1.1
4.156
5.591
ROA3 (%), net
5.3
5.3
4.8
1.2
2.0
10.2
8.2
4.3
5.3
3.1
EBITA2 margin (%)
5.9
5.9
5.9
3.3
4.4
TABLE 1 (CONTINUED)
Value Stream for Meat and Poultry Processing
6.971
16.9
14.1
6.0
7.2
–21.3
ROE4 (%), net
12.2
12.2
8.3
7.3
32.6
11.991
21.8
19.9
8.9
8.1
1.8
ROI5 (%), operating
10.2
10.2
10.1
9.3
8.4
181
182
separately. Agricultural chemical manufacturers, which include DuPont
and Monsanto and fertilizer manufacturer CF Industries, also earned
above-average profits. Other above-average performers include fast food,
particularly McDonald’s, casual-chain dining (Darden), and food-service
companies such as Aramark and Sodexo. On the other end of the profit
spectrum is the food distribution industry with companies such as Sysco
(but many others that went bankrupt and were restructured) and the
refrigerated trucking industry, such as Frozen Food Express.
Given the relatively high profitability of value-added food processing,
it is not surprising that firms in the below-average-profit meat and poultry
processing industry are trying to integrate forward into food processing
and develop close collaborative relations with retailers, whether they be
supercenters, supermarkets, fast food and casual dining restaurant chains,
or food-service contractors. The recent restructuring of the meat and
poultry processing industry exemplifies this trend toward forward integration into value-added food processing in pursuit of higher sustainable
profitability. Most of the benefits arising from the enormous advances in
productivity and cost reduction in the meat and poultry industry are being
captured farther down the corporate value stream and by lower food prices
for the final consumer.
To explain the challenges of the meat and poultry industry, we review
the changes in the pattern of ownership and investment. We begin by
examining the entry of JBS S.A. (a large Brazilian meat processor) into
the United States through acquisitions, ConAgra’s exit from meat processing, and the restructuring of Hormel Foods. In July 2007, JBS purchased
the U.S. beef processor Swift & Co. (now known as JBS Swift & Company),
then the third-largest U.S. beef processor, from ConAgra, which exited
meat processing to focus on its branded food processing business. Swift
accounted for 12.6% of the 2006 commercial slaughter (about 4.8 million
head) and had U.S. beef sales of $5.6 billion in 2006 (four U.S. plants).
In early 2008, JBS signed agreements to acquire the fourth- and fifthlargest U.S. beef-packing companies, National Beef Packing Company
and the Smithfield Beef Group. JBS’s share of the U.S. cattle slaughter
market increased to 19% with the Smithfield Beef acquisition. JBS also
acquired Five Rivers Ranch Cattle Feeding, which was part of the Smithfield
deal, making JBS the largest cattle feeder in the United States. The acquisition of National Beef would have given JBS Swift 30% of the cattle
slaughter market, and it was blocked by the Justice Department in February
2009 (Johnson 2009).
What set this chain of acquisitions in motion was ConAgra’s decision
to exit the lower-profit meat processing industry to focus on its assets in
the branded refrigerated and frozen food industry. ConAgra was one of
183
the second-generation major meat processors with its acquisitions in the
1980s. Poorly performing Smithfield Foods, restructured to focus on pork
processing and its prepared foods, shed all of its other meat processing
business units to JBS. The largest chicken processor, Pilgrim’s Pride, went
bankrupt after acquiring Gold Kist, a move that made it unable to adapt
to rising corn prices given its heavy debt load. In 2009, JBS acquired a
controlling interest (67%) in Pilgrim’s Pride and shut down excess and
obsolete capacity, making JBS the second-largest poultry processor.
Hormel Foods, the most stable and profitable meat processing corporation over the past 40 years, has emphasized the shift to manufacturing
branded, value-added consumer items rather than the commodity fresh
meat business. The company has three plants that slaughter hogs for
processing. A facilities manager, Quality Pork Processors, Inc. (QPP),
operates Hormel’s largest slaughter facility, in Austin, Minnesota. All of
the fresh meat QPP processes goes to Hormel, providing more than 50%
of Hormel’s fresh pork material needs. QPP currently employs more than
1,300 people to slaughter 19,000 hogs a day. QPP is a privately held
company started in 1989 by a retired, lifelong Hormel manager. Hormel
Foods also transformed its Rochelle, Illinois, plant from a hog slaughter
operation to a value-added product processing facility in 2002 as part of
its shift to processed food, and it has gone on to make a number of acquisitions to bolster its shift to value-added processed food products. In contrast
to Hormel’s value-added strategy, the largest meat processor, Tyson, had
a difficult decade after acquiring IBP, outbidding Smithfield. Although
becoming the largest meat processor in the world, Tyson’s profitability
(ROI) was substantially below the industry average.
DECENTRALIZED COLLECTIVE BARGAINING
In contrast to the post–World War II period, collective bargaining in the
meat and poultry industry is currently conducted mainly at the plant
level. In the past two decades, bargaining has occurred without visible
conflict or controversy. Nonetheless, intense clashes have occurred over
the enforcement of immigration policy and organizing new bargaining
units, particularly Smithfield’s Tar Heel plant discussed later in this
chapter. Table 2 shows the new large bargaining units that were recently
organized and achieved a first contract. The main method of gaining
union recognition as the majority representative has been the election. In
all but one case, Smithfield Tar Heel, the elections were conducted by the
National Labor Relations Board (NLRB). Three large election victories
for the UFCW occurred after JBS made its acquisitions in 2011 and 2012.
In the poultry industry, plants are smaller because they are locally based
within a broiler complex and for the most part are not covered by Bureau
of National Affairs (BNA) reporting.
184
Collective bargaining at the plant level yields a range of outcomes with
very little standardization. Contracts do not have common expiration
dates or common durations. Some contracts run for three, four, or five
years in the industry, as can be observed from the sample of contracts
reported in Table 3. Wages and wage increases also vary, but all increments
are negotiated in cents per hour adjustments. Chicken contracts pay two
to three dollars less per hour than either beef or pork. The only multi-plant
agreement in the industry is at Hormel, which covers 4,000 workers at
five plants. All the union plants offer employees health insurance, however,
with substantial employee contributions relative to their wages. Most
employers have also switched to defined contribution 401K with various
formulas for employer contributions. Nonetheless, Hormel has retained
its defined benefit pension plan that can also be found in several other
contracts in the industry.
Plant-level bargaining also yields a range of wage outcomes, even for
the same company. Figure 2 reports a sample of 2012 wages and scheduled
contractual increases for pork plants. These variations are somewhat
reminiscent of the community wage polices that large employers applied
prior to national collective bargaining agreements, in which they would
set wages according to local labor market conditions. However, many of
TABLE 2
Newly Organized Large Bargaining Units in the Meat and Poultry Industry
Employer
No. of
workers
Meat
Union
State
Year
bargained
Majority
AL
2012
NLRB election
Pilgrim’s Pride–
JBS
1,200
Poultry
RWDSU–
UFCW
JBS Packerland
1,100
Beef
UFCW
MI
2011
NLRB election
National Beef
Packing
2,600
Beef
UFCW
KS
2012
NLRB election
JBS Souderton
1,200
Beef
UFCW
PA
2011
NLRB election
Tyson Fresh Meats
1,177
Beef
UFCW
WA
2010
Card-check
Smithfield
5,000
Hog
UFCW
NC
2009
Non-NLRB
election
JBS Swift
1,100
Beef
UFCW
UT
2008
NLRB election
500
Beef
UFCW
MN
2007
NLRB election
MI
2002
NLRB election
PM Beef
Meatpacking
Plant
Choctaw Maid
RWDSU–
850
Poultry
Farms
UFCW
Source: Various BNA Daily Labor Reports.
401(k)
Pension
Employee
contribution:
$27.50
Employee
contribution:
$11 single,
$24 family
Defined
benefit
Base $13.20
Base $12.25
401(k)
Cents per hour
$1.40 over
term
2012
56 months
300
Cargill Meat
Solutions
Plant
Processing
plant
Cents per hour
$1.30 over
term
Source: UFCW Research Department.
Employee
contribution:
25%
Cents per hour
$1.55 over
term
Maximum
wages
Production
$16.55
Maintenance
$18.95
2012
2012
Health
insurance
Wages
3 years
54 months
Beef slaughter
2,400
Meat
JBS Swift
Plant
3,400
Beef slaughter
Bargaining unit
No. of workers
covered
Duration
Year bargained
Tyson Fresh
Meats
Plant
Average wage
$17.00
QPP base
$14.00
Employee
contribution:
$17 single, $35
family
Defined benefit
+ 401(k)
Base $14.50
$1.50 over term
Cents per hour
2011
4 years
4,000
Pork processing
Hormel
Multi-plant (5)
401(k)
Employee
contribution:
$14 single,
$34 family
Base $13.60
Cents per hour
$1.40 over
term
2011
4 years
2,050
Smithfield
2 plants
Pork
slaughter
Defined benefit
Employee contribution: 20%;
retiree health
insurance
Cents per hour
$1.20 over
term
$1,000 signing
bonus
2011
4 years
1,600
Kraft/Oscar
Mayer
Plant
Pork
processing
TABLE 3
Sample Contract Terms for Beef, Pork, and Chicken Contracts in 2012
401(k)
Employee
contribution:
$11 single, $31
family
Base $10.00
Frozen over term
2009
4 years
1,000
Tyson
Plant
Chicken
processing
401(k)
Employee
contribution:
25%
Base $9.86
Cents per hour
$1.00 over
term
2009
4 years
530
Pilgrim’s Pride
Plant
Chicken
processing
185
186
FIGURE 2
Sample of 2012 Pork Union Weighted Average Wages
and Scheduled Contract Increases
Source: UFCW Research Department.
the plants in rural areas not only must set wages in accordance with the
local labor market but also must able to attract workers from other areas
to ensure an adequate labor supply to replace employees who leave.
Among the average weighted wages reported in Figure 2, there is considerable variation. This variation can be attributed to the local labor
market, the supply of labor more generally, the seniority of the workforce,
and union bargaining power in setting wages and terms and conditions
of employment. Wages range from $12.50 to $14.70 per hour, with considerable variation in between, even within the same company. Local
plant-level bargaining has led to a sharp decrease in both wage levels and
the size of incremental wage adjustments.
Smithfield pays the highest wages at its Farmland facilities but pays
the lowest wages at its newly unionized Tar Heel plant.
COMPREHENSIVE CAMPAIGN: SMITHFIELD, IMMIGRANTS,
AND RICO
In 1994, Smithfield opened the largest hog slaughter plant in the world
in Tar Heel, North Carolina, population 67. The plant eventually employed
5,000 workers and slaughters up to 32,000 hogs a day. Although North
Carolina is not in the Corn Belt, the center of the hog industry, it was
187
particularly attractive place for Smithfield because the company wanted
to operate union-free. First, North Carolina has the lowest unionization
rate in the country and its business culture is well-known for encouraging
union-free business development. Second, North Carolina permitted a
large number of concentrated animal feed organizations (CAFOs), which
enable big farms to raise large numbers of hogs. These farms guarantee a
geographically proximate, year-round supply of hogs for the Tar Heel
plant. The main problem created by hog CAFOs is the massive amounts
of hog manure produced in its normal operation that requires treatment
and disposal to preserve clean water, which often brings these farms into
conflict with the U.S. EPA (Lowe and Gereffi 2008). Starting in 2000,
North Carolina ceased permitting new hog CAFOs because of the pollution they cause.
In December 2008, workers at the Smithfield Tar Heel plant voted to
be represented by the UFCW by a vote of 2,041 to 1,879. A new contract
was negotiated and ratified. This was the third vote at Tar Heel. The
UFCW’s early organizing attempts resulted in NLRB-supervised elections
in 1994 and 1997. The UFCW lost both NLRB elections. Smithfield
engaged in what have become typical employer unfair labor practices
during the election campaign period, including threatening employees
with plant closure, threatening pro-union employees with discipline,
interrogating employees about their attitudes toward the union, maintaining surveillance of employees distributing pro-union handbills, suspending
and firing pro-union employees, and even assaulting and arresting at least
one pro-union employee (Garden 2011). The NLRB ordered Smithfield
to reinstate with back pay those employees who had been wrongfully fired,
issued a cease-and-desist order, required Smithfield to provide the UFCW
with a list of names and addresses of current employees, and ordered
Smithfield to post notices. Smithfield appealed the NLRB’s decision. The
appeal process was not completed until 2006, which meant that the
board-ordered remedies were not implemented until nearly a dozen years
after the first election (Garden 2011).
During that time, Smithfield grew through acquisitions In 1997, it was
ranked the seventh-largest pork producer. By 2000, Smithfield was largest
pork producer; it was also the biggest hog raiser (Barboza 2000). Its
increased size, however, did not translate into improved profitability.
In 2005, Joe Hansen, president of the UFCW, announced initiation
of a comprehensive campaign against the financially vulnerable Smithfield
Foods. The union sought Smithfield’s neutrality during a union organizing drive and card-check, instead of another NLRB-sponsored election,
to demonstrate its majority representation status. In January 2007,
Immigration and Customs Enforcement (ICE) agents raided the Smithfield
188
pork plant in Tar Heel. On November 26, 2007, more than 500 Smithfield
employees walked out to protest the company’s decision to fire several
dozen immigrants who the company said had presented false Social
Security numbers when applying for a job. The walkout coincided with
the UFCW’s comprehensive campaign to unionize Smithfield workers,
about two thirds of whom were Hispanic immigrants. Worker discontent
stemmed not just from the recent firings but also from the speed of the
production line and widespread injuries (Greenhouse 2008). As a result
of the ICE raids and their fallout, Smithfield hired native American workers, mostly African Americans, to work in the plant to replace Hispanic
immigrants who left employment at Smithfield.
At the same time, the UFCW’s comprehensive campaign broadened
its focus to link to religious, civil rights, consumer advocacy, and human
rights organizations. The union produced campaign literature that criticized the Tar Heel plant’s safety record. The union, together with religious,
civil rights, immigrant rights, and consumer advocacy groups, organized
protests at grocery stores selling Smithfield products, some of which
stopped carrying those products. One protest group marched to the home
of the president of a store that sold Smithfield products to deliver a large
father’s day card, which was signed by the children of Smithfield workers
and stated that Smithfield workers were abused and mistreated. The
campaign attempted to convince Smithfield’s celebrity spokesperson, Paula
Deen, to end her relationship with Smithfield. They encouraged religious
bodies and city councils to boycott Smithfield or to pass resolutions condemning the company. The campaign sent letters criticizing the company
to financial analysts and organized a protest at Smithfield’s annual shareholders’ meetings. They also filed regulatory complaints and opposed
Smithfield’s regulatory applications, such as the company’s application
for a water permit, which would have allowed Smithfield to expand
operations at the Tar Heel plant (Garden 2011).
Smithfield responded to the UFCW’s campaign by filing a civil RICO
complaint alleging the union was engaged in extortion. According
to Smithfield, UFCW’s goal was to force Smithfield to voluntarily recognize the union as the bargaining unit’s representative, whether or not a
majority of Smithfield employees wanted the union’s representation (Garden
2011). The extortion was the UFCW’s comprehensive campaign, which
would continue until the company voluntarily recognized the union.
Smithfield’s complaint was scheduled for trial. On the eve of the trial, the
parties negotiated a settlement that permitted a fair election process for
the Tar Heel workers to decide whether they wanted UFCW
representation.
189
In December 2008, the UFCW won the election. Ironically, the 2007
immigration raids may have tipped the balance toward the union (Kammer
2009). Smithfield had to hire legal workers, and most of the new workers
were African Americans, who are among the strongest supporters of
unions. In contrast, many Hispanic workers were afraid of being seen as
union supporters because they feared deportation (Greenhouse 2008).
On July 1, 2009, the UFCW and Smithfield announced their first
contract covering the Tar Heel facility. A year later, an Associated Press
article reported that the parties were working together cooperatively and
had greatly reduced workplace injuries, voluntary turnover, terminations,
and absenteeism at the plant (Dalesio 2010). Approximately, two thirds
of the 32,000 employees in corporate parent Smithfield Foods’ pork division are now covered by union contracts (Dalesio 2010). Although the
UFCW eventually prevailed in its organizing drive, there remains enormous uncertainty about the boundaries of union speech in a comprehensive
campaign and the applicability of civil RICO suits alleging extortion,
which may deter union use of comprehensive campaigns.
DO UNIONS STILL MATTER IN MEAT AND POULTRY
PROCESSING?
In meatpacking, heightened competition, new entrants, declining unionization, bargaining decentralization, and hard bargaining on the part of
employers all contributed to the “meltdown” in bargaining power and a
fall in the union compensation effect. Belman and Voos (2004) estimated
that the union wage differential fell by 25 percentage points, from 29%
to 4%, in meatpacking between the late 1970s and the early 1990s, according to evidence based on Current Population Survey (CPS) data.
In our research, we examined the union impact on wages between 1990
and 2008 using the CPS Integrated Public Use Microdata Series (IPUMS)
March supplement. The industry includes both meat and poultry processing workers. The means are reported in Table 4. During this period, 19%
of the meat and poultry processing workers were union members. Some
88% of workers had a high school diploma or less. Women accounted for
39% of the workforce. The labor force was racially and ethnically diverse.
The workforce consisted of Hispanic employees (37%); white, non-Hispanic
(37%); African American (24%); and Asian (2%).
The average work week is 39 hours, weekly average earnings are $326
(using 2008 dollars), and annual income is $17,118, with 15% of workforce
earning wages that place them below the federal poverty line. Most of the
workers are employed by large firms; over half are employed by firms with
more than 1,000 employees. Employers provide 57% of the workforce with
health insurance, and 33% of employees participate in pension savings.
190
TABLE 4
Means from the 1990 to 2008 the Current Population
Survey Integrated Public Use Microdata March Supplement
for Meat and Poultry Processing
Variable
Union
Female
African American
Asian
Hispanic
Married
Veteran
Less than high school
High school
Some college
College
Weekly hours
Annual earnings
Weekly earnings
Below poverty line
Firm with 100–499 employees
Firm with 500–999 employees
Firm with more than 1,000 employees
Health insurance
Health insurance paid completely by employer
Health insurance paid partly by employer
Pension participation
Meat cutter
Production worker
Truck driver
Laborer/materials worker
Maintenance worker
Poultry
Years of experience
Note: CPS sample observations: 5,087.
Mean
19%
39%
24%
2%
37%
53%
6%
43%
45%
10%
2%
39
$17,118.78
$326.48
15%
16%
9%
53%
57%
8%
44%
32%
34%
28%
6%
24%
9%
49%
18
191
One third of the workforce are employed as meat cutters. Other workers
are employed in production worker occupations and materials moving.
Two of the better-paid occupations are truck driver and maintenance
worker. Educated adjusted work experience is 18 years. Poultry plants
account for 49% of employment, and red meat accounts for 51%. Poultry
industry employment is not a CPS variable; instead, it is derived by calculating the percentage of output in each state versus red meat output and
merged into the CPS sample as a critical control variable.
We estimated a standard wage equation using ordinary least squares
(OLS). The dependent variable is the natural log of the annual wages.
After we control for relative poultry output, demographics, work experience, educational level, hours, and occupation group, we find the union
wage effect was 13% during this period. Neither experience nor educational
attainment had much effect on earnings; however, the lack of a high school
degree carries a 14% penalty. The college premium is 6%. Poultry
(primarily located in the rural southeastern United States) pays 22% less
than red meat, all else equal. Women earn 15% less than men, African
American workers earn 10% less than white non-Hispanics, and Hispanic
employees earn 6% less than white non-Hispanics, all else equal. Truck
drivers earn on average 18% more than production workers, and the best
paid employees, maintenance workers, earn 35% more than production
workers, all else equal. In this period, overall real wage levels were
stagnant.
We then estimated probit equations to determine the likelihood that
an employee had employer-provided health insurance. We next estimated
OLS equations and cross checked those estimates with the probit results.
As expected, employees in the better-paid occupations were more able to
participate in health insurance. Surprisingly, being employed in poultry
increased the likelihood of participating in employer health insurance,
all else equal. Union membership, increased the likelihood of participating
in health insurance by 10%, all else equal. There has been a 2% annual
rate of decline of employee participation in employer-provided health
insurance in this industry for the past 20 years.
As with health insurance, we estimated probit equations to assess the
likelihood that an employee has an employer-provided pension. We then
estimated OLS equations and cross checked the estimates with the probit
results. As expected, employees in the better-paid occupations were more
able to participate in pensions. Asian employees were significantly more
likely to participate in a pension plan than any other racial or ethnic
group. Employees in large firms were more likely to participate in pension
plans. Union membership increased pension participation by 11%, all else
equal.
192
CONCLUSION: UNIONS STILL MATTER
According to our calculations, the median worker in the extended meat
and poultry food value stream earns an hourly median wage of $9.61 (less
than $20,000 per year for full-time work). Many of these workers receive
neither employer-provided health insurance nor pensions (U.S. BLS 2007,
2011 ). Ironically, there is tendency for profits to rise and the hourly wage
to fall the closer the value chain gets to the final consumer. Unionization
does change the terms and conditions of employment; however, its impact
could be magnified by greater unionization, which could establish the
structures that could shift bargaining power.
The UFCW represents almost a half million workers in the
supermarket–grocery industry and another 200,000 workers in the food
processing industry (of which about half are in meat and poultry processing), providing the union with a substantial base in the food value stream.
Nonetheless, many growing segments of this value stream remain almost
union-free, including such industries as agricultural chemicals, retail
supercenters, warehouse clubs, high-end supermarkets (Whole Foods,
Wegmans, and Publix), chains for casual dining, and quick-service restaurants. The union has supported a comprehensive campaign to pressure
Walmart, while it continues to rebuild its strength in the food processing
industry. With the entry of JBS into the meat and poultry industry, several
large plant recognition victories have produced contracts. In addition, the
UFCW has greatly expanded its efforts and recognition in the poultry
industry (Table 5).
Although the UFCW has addressed one source of instability in the meat
industry arising from competition from the poultry industry, bargaining
still takes place at the plant level as employers seek to take advantage of
labor market differences, demographic shifts, and other local vulnerabilities,
including local monopsony advantages. There is still considerable compensation variations among the union-represented workforces. With strikes
rendered almost completely ineffective as the result of employer use of
replacements, right-to-work legislation, high unemployment, and private
security forces, unions need to use softer power coupled with long-term
determination to exercise influence over compensation and working conditions. Cooperative relationships based on mutual respect and recognition
are not on the near-term agenda for the meat production industry, however.
Most employers in the industry, even those with good relationships with
their unions, resist unionization of their non-union facilities, making
multiple campaigns necessary to gain union recognition in this highturnover industry.
While highly visible comprehensive campaigns, such as the UFCW’s
Smithfield Tar Heel campaign, gain attention and recognition, most union
rebuilding goes on at the local level, out of sight, without the drama or
193
TABLE 5
Chicken Processing Plant Union Representation
Chicken plant (250+ workers)
Tyson
Pilgrim's Pride
Perdue
Sanderson Farms
Koch Foods
Wayne Farms
Mountaire Farms
House of Raeford
Foster Farms
Peco Foods
Market share (%)
22
17
7
5
5
4
4
3
4
3
UFCW representation (%)
33
31
0
23
63
68
33
75
53
20
Source: Watt Poultry Guide and UFCW Large Plants Database, December 2010.
the militancy often highlighted in the narratives of union building. In
part, the success or failure of union rebuilding is tied to whether employers
reassess the costs and benefits of their low-skill and high-turnover employment model and decide that constructing a more stable relationship with
their workforces and their representatives yields net benefits to the employer’s long-term survival and performance. By contrast, with production
worker unemployment averaging 9.5% over the past decade, ranging from
a low of 6.2% in 2007 to a high of 15.4% in 2009, it is difficult to anticipate any reason employers would change their low-wage and high-turnover
employment system. There are more than 10 million low-wage workers
employed in the food value stream from farm to checkout. Workers who
directly grow, process, sell, or serve food are mostly low paid, even though
many of them work for highly profitable firms.
In this chapter, we applied a relatively high-level value-stream analysis
to the meat and poultry industry to determine the appropriate analytical
boundaries of this industry. Our goal was to demonstrate that there has
evolved one meat and poultry value stream because each of these protein
sources can serve as substitutes, which means they need to be analyzed
together and organized conceptually and practically together. A more
appropriate level of analysis, for most labor and employment researchers,
would be the business unit—the basic operating division of a firm that
governs the operating relationships within an industry and is the basic
unit of profit generation. The business unit operates within an industry,
and research focus should be on an industry’s profitability and what forces
contribute to profitability, what forces are changing, and whether the
business unit can capture the value it creates. Firms may not be the
194
appropriate unit of analysis because many span multiple value streams,
confounding a profitability analysis.
Unions may want to use the value-stream analytical approach before
investing scarce resources in organizing, strikes, or comprehensive campaigns. A union could refocus its efforts on organizing a value stream that
is growing and profitable, where gaining bargaining power can result in
improved employee compensation and worker control, while building a
sustainable growing union. In this chapter, we applied this approach to
analyze the meat and poultry value stream, a series of industries in which
the UFCW has organized a multitude of bargaining units and has considerable membership in a variety of stages of production and
distribution.
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Chapter 6
Hard Times and Hard Bargaining in the
Newspaper Industry
Howard R. Stanger
Canisius College
Never before has the fundamental necessity and effectiveness of newspapers been so
greatly challenged—by the economy, an evolving readership base, and technology.
Though optimists would qualify this as a time for opportunity and suggest that
“united we stand, divided we fall,” recent decades have proven rather contentious,
with no shortage of infighting between publishers and the professionals they employ.
—Gretchen Peck (2011)
Since the late 1980s, daily and Sunday newspaper circulation has been
on a steady downward slide. This lost print readership has been amplified
by two recessions and the meteoric rise of the Internet after 2000 that
drew advertising dollars away from newspapers. Together, these secular
and cyclical forces have upended the traditional and profitable advertisingbased business model that sustained high monopoly profits for more than
a century. Faced with these threats, newspaper companies have engaged
in a variety of cost-cutting strategies to maintain profits and stock prices,
including pressing their unionized workforces for deep contract concessions at the bargaining table.
In response, unions have rallied their members and often their local
communities to protect the integrity of their contracts and in some cases
to preserve collective bargaining itself. Since 2000, newspaper unions
have lost thousands of members and made significant concessions, but
they also persisted in achieving successor contracts that preserved key
contractual features, endured ownership changes and bankruptcies, and
experimented with alternative ownership structures.
Although work stoppages have been limited, Editor & Publisher
correctly recognized that labor relations have since become more contentious. The Detroit strike in particular, produced “an intense confrontation
between the newspaper corporations (Gannett and Knight Ridder) and
the unions of their employees.” The resulting conflict “embodied the clash
of opposing models of workplace governance: the norms and rules of the
postwar labor accord (which featured collective bargaining), on the one
hand, and the rising post-1980 anti-union regime, on the other” (DLR
1/10/10; Rhomberg 2012:263, 267).
197
198
Although the Detroit strike set the tone for newspaper labor relations
in the United States in the new century, not all bargaining relationships
were as conflictual. However, an examination of labor relations since 2000
reveals a clear pattern of “hard bargaining in hard times.” To better
understand this, one must first understand the newspaper industry, the
rapidity with which the advertising-based business model collapsed after
2005, and the industry’s responses to it.
INTRODUCTION TO NEWSPAPERS
The newspaper industry is more than three centuries old and, after book
publishing, is the second-oldest mass media industry in the United States
(Picard 2004). At the turn of the 21st century, newspapers were valued
at $59 billion, when advertising and circulation revenues are combined.
By 2012, however, that number fell to about $34 billion, owing mainly
to the precipitous decline in advertising revenue, which has fallen for more
than six consecutive years (Picard 2004:109; PEJ 2012b, 2012c).
Newspapers—as part of a free press—play a critical government “watchdog” role and are essential to the preservation of American democracy.
The newspaper industry is the only one protected by the U.S. Constitution
and is often referred to as the Fourth Estate. Governments at all levels
currently provide more than $1 billion in subsidies to the news media
through tax policies, postal subsidies, and legal requirements. Federal tax,
antitrust, communications, and other policies continue to influence the
newspaper industry in direct and indirect ways (Kirchhoff 2010).
THE STRUCTURE OF THE NEWSPAPER INDUSTRY
Daily Newspapers
The daily newspaper industry is very fragmented and localized. Few
national newspapers (e.g., USA Today, the Wall Street Journal ) exist among
the more than 1,300 dailies. In recent decades, the number of dailies has
fallen from 1,611 in 1990 to 1,480 in 2000, to approximately 1,382 in
2011, the most recent year for which data exist. The number of dailies in
the United States peaked at 2,042 in 1920. Most newspapers are smallto-mid-sized with small average circulations—37,684 daily and 64,799
on Sunday. About 85% of the nation’s newspapers have daily circulations
below 50,000; only 3% exceed 250,000 (Picard 2004:109–110; Noam
2009:137; PEJ 2012c, PEJ 2013).
Until the early 2000s, the nation’s dailies were about evenly split
between morning and afternoon editions. Since then, morning papers
have come to dominate circulation, mainly as a result of conversions and
consolidations. The growth of the suburbs, changing work patterns, and
other factors have contributed to the decline of evening editions. Evening
papers, which are found mostly in small towns, comprised about a third
NEWSPAPER INDUSTRY
199
of daily circulation in 1990 but only slightly more than 10% in 2009
(Picard 2004:110; PEJ 2012c). The top 25 U.S. dailies by circulation are
shown in Table 1.
Paid weekday circulation peaked in 1987 at 62.8 million, while Sunday
circulation reached its apogee of 62.6 million in 1990. Since then, overall
circulation has declined, falling to 43.4 million by 2010. Sunday circulation has fallen by about the same percentage but has ticked upward in
the past two years (Morton 2010; PEJ 2012c).
Fewer people read daily newspapers today than they did in 1950,
despite a doubling of the population, mainly because older, avid readers
are dying off and not being replaced (Morton 2012; McChesney and
Nichols 2010). The percentage of adults in all demographic groups who
report that they read a newspaper the day before has fallen steadily since
1999, standing at just 23%, down 47% since 2000 (PEJ 2012c; PRC 2012).
Accounting for digital readership offers a more accurate picture of
circulation, especially for younger people. The six-month report ending
March 31, 2012, shows that people are consuming more news digitally
across multiple platforms. For the first time, the New York Times had more
digital subscribers (807,026) than print ones (779,731). The Wall Street
Journal had the second-highest digital subscription base with 552,288 but
led when both print and digital are included (Vega 2012; Sohn 2012).
However, ten of the nation’s largest 25 newspapers suffered declines even
when print and digital readership are accounted for (Mutter 5/2/12). By
late 2012, overall circulation had stabilized, but data show that although
paid digital accounts grew to 15.3% of circulation, up 5.5 percentage
points from a year earlier, print circulation continues to decline (PEJ
2013).
Newspaper Markets
Newspapers have traditionally sold two products: news to readers and
access to that audience to advertisers through advertising space. Until the
advent of the Internet, newspapers had monopolies in both local news
and advertising markets. Since then, their market power in advertising
has waned considerably. In the print newspaper segment, they remain
monopolistic, with roughly 99% of dailies existing as the sole daily published in the relevant market. With few exceptions, markets for most
papers are the retail trading zones in which they exist (Picard 2004:110;
Noam 2009:142; Shirky 2012:29). There are only about a dozen places
with competing dailies, mostly large metro areas such as Boston, Chicago,
Los Angeles, New York, and Washington (Schulhofer-Wohl and Garrido
2011:2).
Given the importance of news to democracy, Congress passed the
Newspaper Preservation Act (NPA) in 1970 to preserve newspapers in
Print
1,499,204
1,627,526
717,513
454,498
383,835
124,588
344,755
434,693
192,360
226,118
388,848
192,345
278,369
Newspaper name
Wall Street Journal
USA Today
New York Times
Los Angeles Times
New York Daily News
San Jose Mercury News
New York Post
Washington Post
Chicago Sun-Times
Denver Post
Chicago Tribune
Dallas Morning News
Newsday
114,620
64,788
23,112
176,446
70,932
27,535
178,113
43,318
146,605
151,577
896,352
86,307
794,594
Total digital
392,989
257,133
411,960
402,564
263,292
462,228
522,868
167,906
530,440
606,075
1,613,865
1,713,833
2,293,798
Total
excluding
branded
editions
—
152,997
—
10,105
169,163
—
—
362,093
5,435
35,294
—
—
—
Total branded
editions
392,989
410,130
411,960
412,669
432,455
462,228
522,868
529,999
535,875
641,369
1,613,865
1,713,833
2,293,798
Total average
circulation as of
9/30/12
TABLE 1
Average Circulation for the Top 25 U.S. Daily Newspapers, September 2012
404,542
409,642
425,370
353,115
389,352
507,465
512,067
527,568
605,677
572,998
1,150,589
1,784,242
2,096,169
–2.90
0.10
–3.20
16.90
11.10
–8.90
2.10
0.50
–11.50
11.90
40.30
–3.90
9.40
% change
Total average
circulation as of
9/30/11
200
218,334
184,474
234,475
193,729
219,509
160,578
274,783
129,363
180,919
209,083
125,722
Houston Chronicle
Tampa Bay Times
Newark Star-Ledger
Minneapolis Star Tribune
Philadelphia Inquirer
Cleveland Plain Dealer
Orange County Register
Arizona Republic
Las Vegas Review-Journal
Boston Globe
Oregonian
Honolulu Star-Advertiser
29,932
17,323
49,432
13,412
839
15,273
73,630
43,224
65,802
127,430
13,610
91,331
Total digital
155,654
226,406
230,351
142,775
275,622
175,851
293,139
236,953
300,277
311,904
231,944
325,814
69,319
2,193
—
109,399
—
109,237
—
59,474
—
—
81,059
—
Total branded
editions
224,973
228,599
230,351
252,174
275,622
285,088
293,139
296,427
300,277
311,904
313,003
325,814
Total average
circulation as of
9/30/12
Source: Audit Bureau of Circulations (preliminary figures as filed with the Audit Bureau of Circulations; subject to audit).
Print
234,483
Newspaper name
Total
excluding
branded
editions
TABLE 1(CONTINUED)
Average Circulation for the Top 25 U.S. Daily Newspapers, September 2012
178,082
242,784
205,939
213,078
292,838
270,809
243,299
331,132
298,147
210,586
240,024
369,710
Total average
circulation as of
9/30/11
26.30
–5.80
11.90
18.30
–5.90
5.30
20.50
–10.50
0.70
48.10
30.40
–11.90
% change
NEWSPAPER INDUSTRY
201
202
“economic distress” that might otherwise shut down and leave a market
with one editorial voice. The NPA permits two dailies to combine business
functions through a joint operating agreement (JOA) and negotiate a
mutually acceptable formula for splitting costs, revenues, and profits. In
passing the NPA, Congress gave greater weight to democratic concerns
than to monopoly pricing. A recent study supports the importance of
newspaper competition in public life. The closing of the Cincinnati Post
in 2007 (which left the larger JOA partner, the Cincinnati Enquirer, as
the sole regional newspaper) made municipal politics in northern Kentucky,
where the Post had dominated circulation, less competitive in terms of
incumbent advantage, voter turnout, campaign spending, and the number
of candidates for office (Schulhofer-Wohl and Garrido 2011).
JOAs have been formed in 27 cities, the earliest in Albuquerque in
1933, and the most recent in Denver in 2000, which ended in 2009 with
the closure of the Denver Post’s rival, the Rocky Mountain News. In 2001,
there were 12 JOAs in operation, but by 2012 only six remained. At best,
JOAs have delayed the inevitable demise of the smaller newspaper and
have generally failed to meet the NPA’s lofty goals (Picard 2007; Dirks,
Van Essen & Murray 2009; Pérez-Peña 2009a).
Over the course of the 20th century, the newspaper industry became
increasingly concentrated with the creation and growth of chain ownership. From 15% of all dailies in 1930, chains owned 32% by 1960 and
77% in 2000. In that year, the ten largest chains owned 18% of newspapers
and 40% of the market by circulation. Moreover, out-of-town
companies owned roughly 70% of newspapers (Dirks, Van Essen &
Murray 2005a; Noam 2009:139).
Newspaper merger activity increased in the 1980s and 1990s, part of
the long-term trend toward consolidation in this mature industry. Beginning
in the early 1990s, many acquisitions involved chains combining with
other chains to create geographic clusters designed to allow firms to
streamline operations, remove duplicative functions, and limit competition (Muehlfeld, Sahib, and van Witteloostuijn 2007). Clustering also
promises larger, more regional audiences to advertisers. In 1990, just 9%
of daily circulation and 19% of all dailies were part of a cluster. By 2000,
400 newspapers, or roughly 35% of all dailies, were part of 125 clusters.
By about 2005, 42.8% of all dailies operated in clusters of at least two
properties. The majority of clusters operate in rural areas with smaller
dailies, but in recent years, larger companies have added smaller suburban
properties (Stanger 2002:185; Martin 2003; Dirks, Van Essen & Murray
2005c; Noam 2009:139).
The Changing Nature of Newspaper Ownership
Beginning in the 1960s and 1970s, private family ownership gave way to
public corporate ownership, often because of inheritance tax implications.
203
NEWSPAPER INDUSTRY
From 850 family-owned papers in 1960, the ranks thinned to about 250
in 2002. The number of independents moved in the same direction (Neiva
1996; Moses 2002; Fitzgerald 2002:14; Dirks, Van Essen & Murray 2005b,
2007). In 2012, the five largest public companies in terms of total circulation included Gannett (4.90 million), the McClatchy Company (2.08
million), the New York Times Company (1.59 million), Lee Enterprises
(1.38 million), and GateHouse Media (839,292) (Table 2). MediaNews
Group, with 2.57 million in total circulation and 56 newspapers, would
rank second, but it is no longer a public company, while the private chain
Community Newspaper Holdings is ranked second overall in dailies (91)
and fourth overall in circulation (884,262) (PEJ 2012e).
Since 2000, however, newspaper ownership has trended back toward
private ownership. Publicly traded newspaper companies, however, still
dominate the market. In 2010, they accounted for 44.2% of industry
revenue and 24.8% of its dailies, while family-owned groups earned 7.5%
of total revenue and owned 21.1% of dailies. Independents owned 3.7%
of dailies but accounted for only 2.3% of revenue.
Over the past decade, a spate of bankruptcies of public companies,
acquisitions of undervalued properties, and conversions of public to private
ownership have catapulted lender-owned companies (banks, distresseddebt hedge funds, and other lenders) and private equity firms into significant
industry actors. Lender-owned companies have the second-largest share
TABLE 2
Public Companies: Number of Dailies (June 2012)
and Year-End Stock Prices, 2001–2011
Change in stock
price, 2001–2011
(%)
–80.12
Change from
peak value
(%)
–85.00
Company
Gannett
Number of
dailies
82
McClatchy
30
–95.01
–96.77
New York Times
3
–82.38
–84.99
GateHouse Media
79
–99.62
–99.68
News Corporation
12
35.76
–24.56
E.W. Scripps
12
–91.91
–94.98
A.H. Belo
4
–63.96
–63.96
Media General
1
–91.83
–94.34
Journal Communications
1
–74.19
–78.11
Lee Enterprises
52
–98.08
–98.54
Washington Post
2
–27.16
–61.67
Source: Yahoo! Finance, June 2012.
204
of revenue behind public companies, at 18.1%, and control 11.2% of
dailies. Private equity firms earned 2.3% of total revenue and owned 3.7%
of newspapers, equal to that of the independents (Dirks, Van Essen &
Murray 2007).
Figure 1 shows the number of newspaper transactions between 2001
and 2011. The peak years occurred between 2005 and 2007, just before
the Great Recession roiled the industry. Although the number of transactions peaked in 2005, the value of sales spiked in 2007 when 30 deals
involving 91 dailies worth $20 billion surpassed the old record set in 2000.
Two significant deals were real estate mogul Sam Zell’s acquisition of the
Tribune Company for $8.2 billion and News Corporation’s purchase of
Dow Jones.
After 2000, private groups began acquiring newspapers and media
companies. In 2006, McClatchy purchased the larger Knight Ridder
chain for $4.5 billion and $2 billion of its debt. McClatchy then spun off
12 of the 32 papers for $1.2 billion to an assortment of private buyers. In
general, the newspapers that McClatchy shed were larger metro newspapers
in slower-growing markets with lower profit margins and unionized
workforces (PEJ 2007; Dirks, Van Essen & Murray, Year-End Reports,
2000–2011).
Industry brokers Dirks, Van Essen & Murray refer to 2011 as “The
Year of the Big Deal” because 71 dailies traded hands, the most since
2007. Publicly traded Berkshire Hathaway (BH) went on a newspaperFIGURE 1
Number of Daily Newspapers Sold, 2001–2011
Source: Dirks, Van Essen & Murray (2011a).
NEWSPAPER INDUSTRY
205
buying spree, purchasing 63—nearly all—newspapers from Media General
for $142 million. BH, which has owned the unionized Buffalo News since
1977 and has a stake in the Washington Post Company, folded Media
General’s papers into its BH Media Group. The BH Media Group had
already acquired, for $200 million, the Omaha World-Herald Company,
the last employee-owned company in the industry, with the state’s flagship
newspaper (the Omaha World-Herald), six other dailies, and a direct-mail
company (Mutter 6/1/11; Dirks, Van Essen & Murray 2011b). By the end
of June 2012, BH Media Group operated 67 newspapers. In early October
2012, Media General sold its last newspaper, the Tampa Tribune, to
California-based private equity firm Revolution Capital for $9.5 million,
its first newspaper purchase. Overall, 84 newspapers traded hands in 25
separate deals, surpassing 2011. Many buyers were privately held firms
(De La Merced 2012; Robertson 2012; News Inc. 2012b, 2012c, 2012e;
Beaujon 2012b; Dirks, Van Essen & Murray 2012).
Of the largest 25 newspapers by circulation, 16 are privately owned,
about half by hedge funds and private equity firms. Among the largest
ones are the Los Angeles Times (Tribune), the San Jose Mercury News (Alden
Global Capital), the Chicago Sun-Times (Wrapports), the Chicago Tribune
(Oaktree Capital Management and Angelo, Gordon & Co.), the Denver
Post (Alden Global Capital), the Houston Chronicle (Hearst), the Philadelphia
Inquirer and Philadelphia Daily News (Interstate General Media), and the
Minneapolis Star Tribune (Wayzata Investment Partners). Despite the
noticeable shift to private ownership, most of the largest newspapers
controlled by private groups still have bargaining relationships with unions.
ECONOMICS OF NEWSPAPERS
Revenue Sources and Trends
Traditionally, total revenue was split roughly 80/20 by advertising and
circulation. Other businesses such as printing and business services rounded
out the numbers. In recent years, owing to two recessions and especially
to the Internet, the newspaper industry’s print advertising revenue has
fallen six consecutive years, from a peak of $49.4 billion in 2005 to $22.5
billion in 2012, a drop of 54%. Classified ads have lost nearly three quarters
of their value since 2000. Print ad revenue now comprises 46% of total
industry revenues. By contrast, circulation revenue has declined much
more slowly, only about 10% since 2003, so that it now comprises roughly
27% of total revenue and is expected to grow even more. Digital ads make
up 11% of total revenue, while the remaining 16% is derived from new
and other sources (PEJ 2011, 2012a, 2012b, 2013; Edmonds 2013).
Newspaper advertising has four general segments. In order of relative
size, they are local retail, classified, national, and online, which is the
newest segment. The share of online revenue increased from 2.6% of total
206
industry advertising revenue in 2003, when the Newspaper Association
of America first began to track it, to 13.6% in 2012. However, this has
not been enough to offset losses of traditional advertising. In 2010, newspapers had 21.4% of total measured media advertising, down from 25%
in 2008. This share is expected to fall to 16.5% by 2014 (Collis, Olson,
and Furey 2010:5; PEJ 2012c; Mutter 1/7/13). The relative declining share
of total ad dollars continues a trend that had begun in the 1950s and
1960s with the growth of broadcast television and continued over subsequent decades with the rise of cable television and the Internet (Standard
& Poor’s 2012:13, 17; Mutter 10/29/12).
According to the IAB Internet Advertising Revenue Report (PWC/IAB
2013), Internet advertising revenue in the United States totaled $31.7
billion in 2011, an increase of 22% (6.8% for newspapers) over 2010. It
has grown to become second only to broadcast television, with newspapers
ranking fourth overall. Since 2002, Internet revenue has increased $25.7
billion, for a compound annual growth rate of 20.3%. In addition, mobile
advertising jumped 149% to $1.6 billion for the full year. Given the growth
in smartphone and tablet ownership, newspapers have been experimenting
with delivering content and advertising via these devices but have not yet
fared well (Doctor 2011b; PWC/IAB 2013:7, 11, 19, 20; PEJ 2012a;
O’Malley 2012; Walsh 2012).
Despite the rise in digital media advertising, newspapers lag behind other
media. Their share of the overall U.S. digital advertising market shrank to
the lowest level ever in the third quarter of 2012, with only 8%, a decline
from the previous low of 10% in 2011. In 2003, newspapers’ share was
16.7; as recently as 2007, it was 15%. Since 2005, newspapers have lost
$26.7 billion in print advertising revenue while netting only $1.2 billion
in new digital dollars (Mutter 4/9/12, 4/23/12, 12/20/12; Edmonds 2012).
Newspapers will continue to be pressured on the advertising front as
more and more Americans acquire broadband connections and pure-play
Internet giants like Google and Facebook seek to capture online ad segments such as the $20 billion local retail market. In addition, newspapers’
lucrative pre-print advertising business, which represents a quarter of the
remaining ad revenue worth $5.2 billion in 2011 and 70% of Sunday
revenue at the average newspaper, is under pressure on two fronts. First,
big-box retailers are themselves being pressured by Internet commerce
and have been shifting from more expensive print advertising to cheaper
and more targeted digital formats. Second, in August 2012, the U.S.
Postal Service, which has historically aided the industry, granted the
direct-marketing company Valassis Communications a discount up to
34% for shifting from newspaper inserts to direct mail (Morton 2010;
Nakashima 2012; Mutter 8/29/12). These trends in revenue do not bode
well for the newspaper industry, which had increased its dependence on
207
NEWSPAPER INDUSTRY
advertising (mainly classified) revenue during the second part of the 20th
century (Picard 2002).
Costs of Producing a Newspaper
Producing a traditional newspaper is highly labor intensive. On the cost
side, calculations vary, but most estimate labor to comprise 40% to 50%
of total expenses (Kirchhoff 2010:5).
Media economist Philip Meyer (2009:40) offers a cost breakdown as
a percentage of revenue for a typical 100,000-circulation newspaper in
2001, as shown in Table 3.
During the second half of the 20th century, publishers intently sought
to reduce the costs of producing a newspaper largely through automation,
notably the transition from metal-based “hot type” to computer-generated
“cold type.” By the end of the century, the craft unions lost most of their
members and merged into other unions (Neiva 1996; Stanger 2002).
In recent decades, companies have sought to reduce overall expenses,
especially in the newsroom. Newsroom staffing ratios (per 1,000 paid
circulation) have dropped double digits over the decade for both 50,000
(–20%) and 100,000 (–12.5%) circulation newspapers (Inland Press
Association 2000–2012). But these efforts to reduce costs have not solved
the problem of the industry’s broken business model, which has cut into
profits, reduced stock prices, and, in some cases, led to bankruptcy.
Declining Newspaper Profits and Stock Valuations
Despite its problems, the newspaper industry historically has been one of
the most profitable media segments and one of the most profitable of any
American industry. According to John Morton, average publicly traded
newspaper profit margins peaked at 22.7% in 2000 but have fallen by
about half since then, with net earnings margins averaging about 5%
(Morton 2009; PEJ 2012c).
TABLE 3
Cost of Producing a Newspaper
Cost
Revenue (millions, $)
Percentage of revenue
News–editorial
5.36
11.4
Advertising
4.00
9.4
Circulation
5.68
11.1
Production
3.99
8.0
Newsprint and ink
6.43
13.9
Administration and depreciation 12.43
25.4
Gross profit
10.98
20.8
Total
55.48
100.0
208
Industry consultant Alan Mutter notes that stock prices for the main
publicly traded newspaper companies sank 27% in 2011, while the larger
stock market was either flat or up slightly during this time (as previously
shown in Table 2). Newspaper stocks rebounded in 2012, with five of
nine public companies outpacing the broader market. Still, there was a
wide disparity in performance, and every stock ended 2012 at a fraction
of its 2006 closing price (Mutter 1/3/12, 1/2/13).
Moreover, shrinking revenues and high debt loads from previous
acquisitions led about a dozen newspaper companies to file for bankruptcy
protection between 2008 and 2011. Private investor groups, though,
purchased almost all of the bankrupt companies (Table 4).
NEWSPAPER COMPANIES RESPOND TO BUSINESS MODEL
CRISIS: FINDING NEW REVENUE AND CUTTING COSTS
As already discussed, the traditional 80/20 advertising to circulation
revenue split has become problematic in a business environment that has
seen classified ad revenue shrink to about 25% of what it was in 2000.
Most of the focus has been in the digital realm, but to date these efforts
have failed to compensate for declining print advertising revenue.
Nontraditional Revenue Streams
A recent Project for Excellence in Journalism survey shows the degree to
which newspapers have been experimenting with nontraditional revenue
sources. It found that although almost half of respondents were developing
new revenue sources, notably in business services, they were yielding only
modest amounts of revenue (PEJ 2012d). In some cases, newspapers also
are using their pressrooms as profit centers, printing for other newspapers
and businesses. The Dallas Morning News now derives 10% of its revenue
from contract printing. The Washington Post has developed a successful
events and newsletter business and recently launched a social media business. But in none of these cases are the outcomes anything more than
modest (PEJ 2012b). Other more extensive approaches are under way,
with varying degrees of success.
Monetizing Digital Operations
In late 2006, seven major newspaper companies with more than 213 daily
newspapers struck a deal with Yahoo and its HotJobs recruitment classified ad network to provide HotJobs with help-wanted ads and to create a
common platform using HotJobs technology for the newspapers’ employment sites. The Yahoo deal joined similar ones between Monster.com and
43 dailies, and CareerBuilder and 157 dailies (News Inc. 2006; Dirks,
Van Essen & Murray 2006).
Similarly, quadrantONE, formed in February 2008 by Gannett, Tribune,
Hearst, and the New York Times Company, enabled national digital display
NEWSPAPER INDUSTRY
209
TABLE 4
Newspaper Bankruptcies and New Ownership Patterns
Distressed company
Creative Loafing
(alternative weeklies)
Date of
bankruptcy
Sep. 2008
Exited
bankruptcy Current majority owner
Atalaya Capital Management
Aug. 2009 (hedge fund)
Tribune
Dec. 2008
Nov. 2012
Oaktree Capital Management,
Angelo Gordon (hedge funds)
and JPMorgan Chase (bank)
Star Tribune
Holdings
Jan. 2009
Sep. 2009
Wayzata Investment Partners
(private equity)
Philadelphia
Newspapers
Feb. 2009
Apr. 2010
Interstate General Media
(investor group)
Journal Register
Feb. 2009
and Sep.
2012
Aug. 2009
and Feb.
2013
Alden Global Capital (hedge
fund) and affiliate 21st CMH
Acquisition*
Sun-Times
Media Group
Mar. 2009
Oct. 2009
Wrapports
American Community
Newspapers
Apr. 2009
Jun. 2009
HPR Hemlock
Freedom
Communications
Sep. 2009
May 2010
2100 Trust (investor group)
Triple Crown Media
Sep. 2009
Dec. 2009
Triple Crown Media
MediaNews Group
Jan. 2010
2010
Alden Global Capital*
Morris
Communications
Jan. 2010
Mar. 2012
Morris Communications
Brown Publishing
Apr. 2010
Sep. 2010
Versa Capital Management
Lee Enterprises
Dec. 2011
Jan. 2012
Lee Enterprises (public)
Sources: Kirchhoff (2010); Who Owns the News Media (http://tinyurl.com/kt5t35d); company
websites; Hoover’s; News Inc. (2012a, 2013).
*The Journal Register Company and MediaNews executed an informal merger under which
Digital First Media manages both companies. Alden Global Capital, which purchased both
companies in 2011, continued to own both chains and Digital First (Benton 2011).
advertisers to reach a broader audience with a single purchase. Initially,
quadrantONE covered 174 websites in 27 of the nation’s largest 30 markets
and reached about 50 million unique visitors per month. By 2012,
quadrantONE reached more than 500 local news and information websites
nationwide. In February 2013, given the continuing challenges in advertising, the four founding companies closed quadrantONE to pursue different
strategies (News Inc. 2008, 2013; Standard & Poor’s 2012:18–19).
A second approach to monetizing digital operations began slowly at
select newspapers in the 1990s, including the Wall Street Journal and
smaller newspapers, when they began charging readers for Web-based
210
content (Sullivan 2003). Newspapers have begun experimenting with
different types of paid models, including monthly charges for access, daily
passes, micropayments, and bundled packages for print and online, as
well as a mixture of free and fee-based access. Companies are attempting
to achieve a delicate balance by maintaining print subscribers, who still
generate the bulk of the industry’s revenues, and capturing readers moving
rapidly into the digital realm (PEJ 2012b; Standard & Poor’s 2012:5).
The industry has been divided on this strategy, but after years of
inaction and encouraged by the success of the New York Times Company’s
metered model (in which viewers are charged for content after they reach
their monthly quota), which launched in March 2011, newspapers of all
sizes have instituted different types of paywalls. The growth in the number
of newspapers with some form of paywall has been dramatic over the last
year. At the end of 2011, for example, about 150 dailies charged for digital
content. By the end of 2012, however, more than 400 did. This represents
almost 30% of all dailies. Most of the major chains have instituted paywalls, including Gannett, which expects to earn $100 million annually
from subscriptions. But paywalls alone will not fix the industry’s broken
business model because a digital subscriber yields much less revenue than
a print subscriber—$200 per year versus about $730 (PEJ 2012b; Roberts
2012; Kafka 2012; News Inc. 2012f:1).
The third major and most comprehensive approach to monetizing
digital operations is referred to as “digital first,” an approach driven by
the movement of consumers of news online. By the end of 2010, 41% of
Americans said they got most of their national and international news
online, up from 17% in 2009 (Sterling 2011; PEJ 2012a).
The company at the forefront of this strategy is aptly named Digital
First Media, established in September 2011 by its owner, hedge fund
Alden Golden Capital. Digital First manages MediaNews Group and the
Journal Register Company and has operations in 18 states, more than
800 print and digital products, revenue exceeding $1.4 billion, and more
than 10,000 employees. Digital First outsources most operations other
than sales and editorial, focuses on the cost side, stresses digital sales over
print sales with incentives, and uses relationships with the community to
provide some of the content in their newspapers. Because Alden Golden
Capital has financial interests in ten newspaper chains, the digital first
strategy is likely to spread throughout the industry (Benton 2011; Hagey
and Feintzeig 2012). Other companies, such as Morris Communications,
Sun-Times Media Holdings, McClatchy, and Advance Publications have
embarked on this same strategy. Individual newspapers, too, have moved
resources, including newsroom personnel, to emphasize digital (Gibson
2011; Editor & Publisher 2011; Depp 2012; Marek 2012).
NEWSPAPER INDUSTRY
211
Despite these changes, newspapers must continue to cut costs, and many
have turned their attention to production: consolidating operations and
outsourcing, reducing delivery and print schedules, scaling back on news
coverage, demanding steep concessions from unions, and slashing jobs.
Cutting Jobs
Precise measures of job losses are difficult to establish, but three
different sources show similar patterns. The American Society of Newspaper
Editors (ASNE) has conducted an annual newsroom census since 1978.
Its data show that the number of professional full-time journalists peaked
in 1990 at 56,900 and stood at 56,400 in 2000. By 2012, however, newsroom employment fell to 38,000, a decline of approximately 33% since
2000, with the largest annual declines coming during and immediately
following the Great Recession between 2008 and 2009 (Figure 2). Not
shown in the figure but important to note are the 2,600 jobs lost between
2011 and 2012. Likewise, the number of minorities dipped to levels not
seen since 1990–1991 (ASNE, no date; ASNE 2012; Mutter 4/4/12). Data
from the Bureau of Labor Statistics’ Employment & Earnings series (Table
5) between 2000 and 2011 show total average industry employment
declined every year, from 445,000 in 2000 to 244, 600 in 2011, a 45%
drop. Less dramatic but still significant is the 25.2% decline in employment
for production workers between 2003 and 2011 (U.S. BLS 2000–2011).
FIGURE 2
Newsroom Employment, 2000–2012
Source: Pew Research Center, based on data from the American Society of News
Editors.
442.2
445.0
431.2
406.7
381.1
374.8
368.8
361.0
345.8
325.9
276.5
253.8
244.6
Data
year
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
195.9
203.1
221.0
258.7
273.1
279.7
264.6
262.0
261.9
133.2
142.0
148.3
146.9
Average no.
of production
workers
18.80
18.19
18.13
18.36
18.27
17.81
17.41
16.70
15.68
14.63
14.13
14.05
13.61
Average
hourly
earnings
17.02
16.81
16.56
16.15
15.67
15.32
15.27
15.05
14.63
14.61
14.17
13.53
13.17
18.22
18.19
18.43
18.59
19.21
19.26
19.44
19.28
18.58
17.73
17.40
17.79
17.81
Average hourly
earnings in real
wages (2010
dollars)
16.50
16.81
16.73
16.36
16.48
16.57
17.05
17.37
17.34
17.71
17.45
17.13
17.24
Average hourly earnings,
nondurable manufacturing
groups in real wages (2010
dollars)
1.10
1.08
1.10
1.14
1.17
1.16
1.14
1.11
1.07
1.00
1.00
1.04
1.03
Ratio of newspaper
to nondurable
manufacturing real
hourly wage
Source: U.S. Bureau of Labor Statistics, Employment & Earnings, 2000–2011. The BLS reclassified the industry after 2002, so year-to-year changes between 2000
and 2011 are impossible to calculate.
Average
no. of
employees
Average hourly
earnings,
nondurable
manufacturing
groups
TABLE 5
Employment and Earnings, Newspaper Industry, 2000–2011
212
NEWSPAPER INDUSTRY
213
In 2008, former St. Louis Post-Dispatch journalist Erica Smith created
a website called Paper Cuts to track buyouts and layoffs in the newspaper
industry, beginning in 2007. The number of cuts (generally underestimating total cuts, including jobs lost to attrition) can be seen in Table 6.
Consistent with ASNE data, the steepest employment declines occurred
in 2008 and 2009. The table also shows where the largest cuts took place
each year. Paper Cuts also tracks closings, and reports that about 200
newspapers have shut down since 2007, with most coming in 2009 and
2010.
Venerable newspapers were not immune to employment cuts over the
past decade. For example, in December 2012, the New York Times offered
management personnel a buyout, while newsroom employees received a
fourth buyout option in five years. The parent company cut 40% of its
workforce over the 2001–2011 period. In February 2012, the Washington
Post announced its fifth buyout to newsroom employees since 2003. The
Post’s newsroom has contracted 59% between late 2002 and the end of
2012, from 1,450 to about 600. Both newsrooms are unionized (DLR
11/13/02, 2/10/12, 2/15/12; Moos 2011; LRW 2/15/12, 2/10/12; Sass
2012a; Haughney 2012b).
Two of the largest media companies, McClatchy and Gannett, have
had multiple rounds of job reductions since 2006 to address declining
advertising revenue, high debt loads, and sagging stock prices. McClatchy,
the third-largest chain, whose workforce was roughly 5% unionized, cut
its total workforce by more than 53%, from 16,791 in 2006 to 7,800 at
TABLE 6
Job Cuts at Newspapers Since 2007
Year
Total
job cuts
2007*
2,293+
2008
15,993+
2009
14,825+
2010
2,920+
2011
4,142+
2012
1,850+
Largest cuts
Minneapolis Star Tribune (145), Harrisburg Patriot-News
(130), Detroit News and Detroit Free Press (110+), and San
Diego Union-Tribune (83)
Palm Beach Post (300), Los Angeles Times (100–150), Bay
Area News Group (107), Washington Post (100+), New York
Times (100), Chicago Tribune (100)
Orange County Register (919); 34 newspapers with at least
100 job cuts; 584 newspapers announced cuts
Honolulu Star-Advertiser (430); 202 newspapers announced
cuts
Eight Booth (Michigan) newspapers (Advance Publications)
(523+)
New Orleans Times-Picayune (201), Tampa Tribune (165),
Birmingham News (107), New Haven Register (105)
Source: Paper Cuts (http://newspaperlayoffs.com).
*Data for 2007 begin in June and end September 7, 2012.
214
the end of 2011 (GR 2/21/03; LRW 6/19/08; Turner 2011; Sass 2012c).
Gannett, the nation’s largest newspaper chain, known for its lean operations, has enacted multiple rounds of job cuts since 2007. At the end of
2011, it had 40% fewer employees than it had at the end of 2001 (31,000,
down from 51,500. Over the same period, employment at its U.S. publishing division shrank 47% (LRW 8/21/08; Pérez-Peña 2008c, 2009c; LRW
7/9/09; Peters 2011; Sass 2012c).
In addition to direct job cuts affecting both the news and business
sides, newspaper companies have employed a number of other cost-cutting
tactics that have impacted unionized and nonunionized jobs.
Other Cost-Cutting Strategies
The business strategy of geographic clustering discussed previously also
has impacted employment levels and the allocation of labor at major
newspaper companies. As discussed, some newspaper chains began consolidating copy editing and page design at regional facilities to generate
economies of scale. In the process, hundreds of jobs have been lost (News
Inc. 2012d).
As an example, the pioneer of clustering, MediaNews, which has been
aggressively building clusters since the 1990s, consolidated its Bay Area
News Group’s (BANG) news divisions under a single management group
in June 2011. In November 2011, it streamlined BANG by consolidating
six newspapers under the Contra Costa Times masthead. Another five
papers, including the 137-year-old Oakland Tribune, were “rebranded” as
the East Bay Tribune. One paper was eliminated. An estimated 120 jobs
(8%) were lost as a result, including 48 Guild-represented positions in the
newsroom. Most of the job losses will likely result from the closure of one
of its four regional printing plants, but about a quarter of unionized editorial jobs will disappear. Over the past ten years, Bay Area newspapers have
lost more than half their newsroom staff (Romenesko 2011; Doctor 2011a;
News Inc. 2011).
Newspapers also have outsourced circulation and printing to reduce
costs. The New York Times, for example, contracts with local papers to
deliver its national edition. Other companies contract out phone solicitations for new subscribers and customer service to call centers in the United
States and India. Still others have moved advertising design jobs to India
and have subcontracted routine business functions, such as payroll, to
outside vendors (PEJ 2009).
The outsourcing of printing is consistent with the move toward digital
operations. Until recently, the outsourcing of printing was limited to
smaller newspapers. In 2009, eight of McClatchy’s 30 newspapers were
printed in locations other than the cities they served, while Gannett has
outsourced printing at more than half its papers. Since 2004, more than
NEWSPAPER INDUSTRY
215
170 printing plants have been shuttered, with 50 closing between 2009
and June 2011 (PEJ 2010; News & Tech 2012).
Companies also have reduced the physical size of newspapers to save
newsprint and have scaled back delivery and printing schedules. Major
experiments began in Detroit and across Michigan in March 2009 when
the Detroit News and the Detroit Free Press changed their weekly home
delivery schedules from seven days to just Thursday, Friday, and Sunday
(Free Press only), days that account for 80 of advertising revenue. On the
other days, readers can buy smaller versions at stores, street boxes, and
newsstands. And some, such as the Christian Science Monitor, the Seattle
Post-Intelligencer, and the Ann Arbor News now publish only online (PérezPeña and Chapman 2009).
Advance Publications has led the way, moving print editions to online
format in many cities across the country, and caused an uproar when it
announced in May 2012 that in October 2012, the 175-year-old New
Orleans Times-Picayune would become the nation’s first major newspaper
to publish only thrice weekly. The company expects its affiliated website
to fill in the print void. Eighty-four of 173 newsroom positions were axed
in the transition. Advance’s Birmingham News lost 61 of its 102 newsroom
staff. These and other southern properties are non-union (Carr and
Haughney 2012; Robertson 2012).
Advance recently announced similar changes in the North. In January
2013, it moved to a thrice-weekly print schedule at the Syracuse (New
York) Post-Standard and the Harrisburg (Pennsylvania) Patriot-News. As
in New Orleans and Alabama, the papers merged their content with local
websites and announced 185 combined cuts jobs (Haughney 2012a; News
Inc. 2012e:2).
In November 2012, Advance hinted to readers that it may reduce the
daily publishing schedule at the Cleveland Plain Dealer, the only affected
property with a unionized newsroom. In response, with a grant from its
parent union, the local Guild initiated a multimedia campaign—“Save
the Plain Dealer”—to rally community support to save jobs and the
newspaper. In early December, the Guild signed a six-year contract extension that limited future layoffs and called for a pay raise to partially offset
recent double-digit wage concessions. In the near-term, the Plain Dealer
will cut 53 of 160 newsroom jobs beginning in summer 2013 and create
a new digital media company, and is expected trim home delivery to three
days a week (Sass 2012b; Haughney 2013; Moos 2012a).
These and other deep and widespread cuts in recent years have continued
cost-cutting efforts that preceded the 21st century. In addition to layoffs
and buyouts, which rose in the 1990s, companies have made fewer investments in news gathering by providing less coverage of local government
in the suburbs and remote cities, reducing state government coverage,
216
closing foreign and Washington bureaus, cutting specialty beats such as
religion and science, offering fewer features, and producing smaller business sections that used to be free-standing. In short, newspapers are
producing thinner papers with less space devoted to news. According to
the FCC, “In very real ways, the dramatic newspaper industry cutbacks
appear to have caused genuine harm to American citizens and local communities” and pose a serious threat to the Fourth Estate as severe cuts
drive away readers and advertisers and with them revenue and profit (PEJ
2010, 2012b).
LABOR RELATIONS
In the context of the industry’s broken business model, unions have
experienced hard times and hard bargaining.
The Unions
Two main international unions represent workers in the newspaper industry, the Communications Workers of America (CWA, AFL-CIO) and the
International Brotherhood of Teamsters (IBT, CTW). Both have multiple
divisions and represent other media workers. The CWA, formed in 1938
as a union for telephone workers, has a media sector that includes broadcasting, cable TV, publishing, and newspapers. Since 2001, the CWA’s
total membership has fallen 32%, from 701,150 to 479,318, while its media
unit has experienced a 38% decline, from 59,873 to 37,086 (CWA 2012,
unpublished data).
Since 1987, the CWA has absorbed three unions that represented
newspaper workers: the International Typographical Union (ITU) in
1987, the Independent Association of Publishers’ Employees (IAPE) (which
represents workers at Dow Jones, including those at the Wall Street Journal),
and The Newspaper Guild, both in 1997. Founded in 1933 as the American
Newspaper Guild to represent print journalists, the Guild represents
workers in a variety industries and occupations. In July 2012, it had
contracts with more than 70 U.S. newspapers, where it represents whitecollar print and online journalists, photographers, editors and editorial
assistants, and other newsroom employees. On the business side, the Guild
represents employees in sales, advertising, marketing, circulation, distribution, accounting, and others. Former ITU members work as typographers,
press operators, mailers, and maintenance workers.
Guild membership has been adversely impacted by the newspaper
industry’s difficulties and more general factors that have been affecting
American unions. Since 2000, the Guild has lost more than 28% of its
membership, reporting 23,282 members at the end of 2010 (Newspaper
Guild website; Newspaper Guild, Sector Conference Proceedings,
2000–2011).
NEWSPAPER INDUSTRY
217
The IBT was formed in 1903 to represent wagon drivers and related
occupations. In 2005, it left the AFL-CIO to join the Change to Win
federation. The IBT is one of the largest labor unions in the United States,
with 1,246,255 members in 2012, down from slightly more than 1.4
million in 2000. The IBT has two printing and publishing-related divisions—the Graphic Communications Conference (GCC), which has
about 60,000 workers in 206 locals, and the Newspaper, Magazine and
Electronic Media Conference (Newspaper Division), which has roughly
8,000 members in 180 bargaining units. The largest Newspaper Division
units are in Akron, Boston, Chicago, Columbus, Denver, Detroit,
Milwaukee, Philadelphia, Pittsburgh, and Seattle.
Workers represented by the GCC and Newspaper Division workers
work primarily as drivers, circulation and district managers, mailers, press
operators, and designers. The GCC also represents newsroom employees
at the Santa Barbara News-Press and (Long Island) Newsday. In general,
workers in these two divisions have complementary skills, enabling them
to cooperate with each other. For example, they formally coordinate
bargaining at the Baltimore Sun, the Detroit Free Press and Detroit News,
the Pittsburgh Post-Gazette, Newsday, the Blade (Toledo, Ohio), and in
some cases, the Seattle Times (represented by the Teamsters).
The GCC became an autonomous conference within the IBT on January
1, 2005, after the Graphic Communications International Union (GCIU)
voted to merge with the larger IBT. At the time, the GCIU had 60,000
U.S. members in 160 locals, but it had lost 30,000 members since 1998
and 100,000 since 1983, the year it was created by merger. In 2009, the
Teamsters also added the New York–based Newspaper and Mail Deliverers’
Union (NMDU), which formed in 1901. The NMDU has a long history
representing drivers in the New York City area and is now known as
Teamsters Local 1901 (DLR 12/16/04, 2/26/09; GC 2007:8).
Union Density
Similar to overall private sector unionization trends, the newspaper
industry has become less unionized since 2000, continuing a downward
path that began in the 1980s. Using three-year moving averages to account
for small sample size, Table 7 shows newspaper industry union membership has dropped 52.5%, while density fell 26.7% between 2000 and
2011. Union weakness also is reflected in median starting salaries that
were $3,000 less than for non-union journalists (UnionStats.com; Becker,
Vlad, and Kalpen 2012:7, Charts 40 and 41). A possible explanation may
be that newer media, which are less likely to be unionized, command
higher wages than traditional newspaper work.
218
TABLE 7
Union Membership in the Newspaper Industry,
2000–2011 (Three-Year Moving Averages)
Year
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
No. of union
members
46,086
44,725
58,672
49,239
46,196
61,940
50,060
46,396
38,858
29,204
23,619
18,142
Three-year
moving
average
—
49,828
50,879
51,369
52,458
52,732
52,799
45,105
38,153
30,560
23.655
—
Density
rate (%)
9.9
9.4
12.2
11.5
10.1
12.6
11.4
11.3
10.3
8.4
8.1
6.8
Three-year
moving
average (%)
—
10.5
11.0
11.3
11.4
11.4
11.8
11.0
10.0
8.9
7.7
—
Private sector
density rate (%)
9.0
9.0
8.6
8.2
7.9
7.8
7.4
7.5
7.6
7.2
6.9
6.9
Source: UnionStats.com (www.unionstats.com); author’s calculations.
Organizing New Members
Growing membership through National Labor Relations Board (NLRB)
representation elections has been problematic for unions for decades as
they contend with stiff management resistance and ineffectual legal
enforcement. Newspaper unions also have had little success adding new
units since 2000 (Table 8). The decline is most evident after 2007; newspaper unions have not won an election since 2009, when the Guild prevailed
in continuing to represent 32 employees at the Gannett-owned Appleton
(Wisconsin) Post-Crescent (Bloomberg BNA Plus, NLRB Election Results,
Newspaper Industry, 2000–2012).
California (Un)Cool
Some of the most difficult union organizing has occurred in California,
following bargaining conflicts in newspapers across the state in the 1990s
over the introduction of merit pay (Stanger 2002). Just as in Detroit
(Rhomberg 2012), recent labor conflict in the Golden State spilled over
into the community as workers and unions met stiff management resistance. A few cases illustrate the challenges workers face when attempting
to form—and sometimes maintain—unions.
Conflict at the San Diego Union-Tribune (U-T ) began in the aftermath
of the merger of the morning Union and afternoon Tribune in 1992 that
created a local monopoly. At the time, the Copley family owned the U-T.
Following the merger, the company began overhauling its operations and
NEWSPAPER INDUSTRY
219
TABLE 8
NLRB Elections Held: Newspapers, 2000–2012
Year
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Representation elections
% of total
representation
Number
elections
30
17
24
13
22
12
22
12
19
11
16
9
12
7
4
2
15
8
7
4
3
2
5
3
—
—
Decertification elections
% of total
decertification
Number
elections
9
18
7
14
4
8
2
4
8
16
7
14
7
14
3
6
1
2
1
2
0
1
2
1
2
Source: Bloomberg BNA Plus, NLRB Election Results, Newspaper Industry,
2000–2012.
hired a new president and CEO who had successfully reorganized operations and labor relations at some Tribune Company properties, often
sparking strikes. The company also employed the anti-union law firm of
King & Ballow. Together, they sought to extirpate unions from the newspaper. By 1993, after two successful decertification elections, six units
retained precarious footholds. In 1998, the Guild, the largest unit, was
decertified by a vote of 406 to 378, leaving only Teamster and GCIU
units. The GCIU’s pressroom workers’ contract expired in 1992, but the
company had little intention of settling with the union. After ten years
and more than 100 meetings with the company, a five-year boycott featuring a “Stinky the Skunk” mascot, the imposition of the company’s final
offer in 1999, and the involvement of prominent citizens from religious,
labor, and business groups, the GCIU prevailed. The city’s longest dispute
resulted in a three-year contract that covered about 150 press operators.
Workers won reduced contributions to health insurance, which rose dramatically over the years, and a guaranteed 35-hour workweek. They
reluctantly agreed, however, to accept merit raises and production bonuses
instead of annual wage increases (DLR 8/7/02; Horwitz 2007).
Election activity followed the GCIU settlement. In May 2003, the
GCIU lost an election to represent packaging and maintenance workers
by a vote of 64 to 122, and another one in 2004, but emerged victorious
220
a third time in June 2005 when the now GCC/IBT won the right to
represent 190 workers who do inserts, bundling, and truck loading for
distribution. GCC president George Tedeschi commented on the victory:
“These workers went up against very tough management for years but
fought to achieve their goal” (Bloomberg BNA Plus, NLRB Election
Results, Newspaper Industry, 2000–2012; GC 2005:1). In August 2005,
however, the GCC/IBT lost an election to represent building maintenance
employees (Bloomberg BNA Plus, NLRB Election Results, Newspaper
Industry, 2000–2012).
In nearby Los Angeles, the GCIU failed to organize the Tribune
Company’s Los Angeles Times pressroom workers, losing the July 2002
election by a vote of 123 to 210. Five years later, concerned about job loss,
the lack of pressroom investment, and other issues, pressroom workers
voted for the GCC/IBT 140 to 131. At the time, there were 288 employees
in a single unit, a significant decline from over the more than 700 employees
in three pressrooms almost a decade before. Cuts had been prevalent since
the Tribune Company purchased the Times in 2000. The
GraphiCommunicator noted that the outcome was a “rare victory for
organized labor” (Bloomberg BNA Plus, NLRB Election Results,
Newspaper Industry, 2000–2012; 2007:3).
The GCC/IBT victory at the Times, just as in San Diego, did not end
the strained labor relations; management tried to limit the union’s effectiveness and dislodge it completely. A decertification drive emerged about the
time the first contract was set to expire, in spring 2011. After a tough campaign, the GCC/IBT retained the right to represent 130 pressroom workers.
It then endured eight months of hard bargaining to achieve a decent second
contract, which workers approved by a 2:1 margin. (GC 2012:5).
Los Angeles also was the site of a decade-long conflict at the Chinese
Daily News that dated to 2001 when The Newspaper Guild won an election 78 to 63 to represent almost all the paper’s employees. In September
2005, under continuous harassment by management and up against a
million-dollar anti-union campaign to delay negotiations, workers voted
to decertify the Guild, 52 to 92. Soon after, however, the NLRB retroactively applied rules it had adopted in December 2004 to the 2001 vote,
leading the Guild Reporter to exclaim, “The Chinese Daily News is now
being characterized as a poster child for NLRB ineffectiveness in fulfilling
its original purpose of safeguarding workers’ rights” (GR 10/21/05:3). The
dispute continued in the courts until January 2007 when a federal jury
awarded the workers $2.5 million dollars in unpaid wages for overtime
and breaks dating to 2004 (GR 1/26/07:1). It was not until September
2010 that a federal appeals court affirmed a $5 million judgment. In
between the two awards, the company was assessed additional fines for
NEWSPAPER INDUSTRY
221
wage and hour violations (DLR 9/28/10). Despite the court victory, workers at the Chinese Daily News remain non-union.
Another contentious case involved the GCC/IBT beginning in July
2006 at the Santa Barbara News-Press when eight prominent journalists
left the paper alleging that owner and co-publisher Wendy McCaw, who
purchased the paper in 2000, interfered with editorial content and favored
her friends and business associates. After a three-month campaign, newsroom employees voted 33 to 6 for GCC/IBT representation. In the early
1990s, the Guild unit was decertified after an intense anti-union campaign
by the former owner, the New York Times Company (GC 2006:11).
The case bounced through the legal system until late 2012 when a
conservative-leaning U.S. Court of Appeals for the District of Columbia
vacated an NLRB decision that the publisher engaged in unfair labor
practices after employees sought to control editorial content and appealed
to the larger community to cancel their subscriptions. In overruling the
NLRB, the court upheld the publisher’s First Amendment rights of editorial control and the firing of the eight journalists (DLR 1/2/13).
Sometimes organizing occurred in response to an employer’s business
strategy and desire to escape collective bargaining, as MediaNews Group’s
(MNG) clustering strategy in Northern California demonstrates. In 2006,
MNG purchased almost all the dailies and weeklies surrounding San
Francisco and announced on August 13, 2007, that it would no longer
recognize the Northern California Newspaper Guild as the bargaining
agent at the Oakland Tribune and four other newspapers that were part
of MNG’s Alameda Newspaper Group. MediaNews consolidated these
properties with two non-union ones to create the Bay Area News Group–
East Bay (BANG–EB). As a result, it argued that union members comprised
a minority of the newly consolidated editorial group, so it no longer had
a duty to bargain. In response, the local sought an injunction to block
the withdrawal of recognition and filed an unfair labor practice (ULP)
charge. In a protest letter to management, a local union officer wrote:
“Your citing numbers and percentages don’t mask what I consider to be
a blatant attempt to destroy a 20-year tradition of progressive labor relations in the East Bay news industry” (GR 8/17/07:3). In reality, the labor
relationship had been problematic from the start. Although workers had
voted for Guild representation in 1987, they did not get a first contract
until 1998 (GR 8/17/07:3).
Over the past two decades during which it grew by acquisitions,
privately held MNG came to employ more Guild members than any other
newspaper company. Two Northern California locals combined efforts
to organize BANG–EB workers by launching an unprecedented workplace
and community outreach campaign, “One Big BANG: One Guild
222
Universe,” that included a mobilization drive funded by the CWA Strategic
Industry Fund (GR 10/19/07:1).
Their efforts paid off: On June 13, 2008, workers voted 104 to 92 for
the Guild to represent 237 bargaining unit members at BANG–EB’s
newly consolidated property. According to the Guild Reporter, the campaign “delivered the most significant new-unit organizing win for the
Guild in at least 20 years.” The win came in the face of an intense antiunion campaign. The Guild called for tempered celebration because of
the “sobering prospect of tough bargaining with MediaNews Group.” It
moved fast, however, to form an alliance with the powerful East Bay
Teamster Local 853, which had contracts with MNG in the region. The
company quickly responded by laying off 13% of the bargaining unit,
about a dozen other editorial managers, and others. The union filed ULP
charges for retaliation (GR 6/20/08:1, 3; 7/18/08:1).
Amidst the recognition election, former Newspaper Guild secretary–
treasurer Bernie Lunzer, who had just won the first contested Newspaper
Guild presidential election in more than a decade, exclaimed at the CWA’s
convention: “Against heavy odds these brave people scored one of the
most significant organizing victories at a U.S. paper in years. This victory
is giving us renewed hope and dynamic new models to consider as we
move forward” (DLR 6/30/08).
After more than a year of negotiations during the Great Recession,
BANG–EB Guild members overwhelmingly ratified their first contract.
The 18-month pact provided basic job protections, grievance arbitration,
guaranteed severance and overtime rights, and a wage floor, typical of
Guild contracts. The local unit’s chair, Sara Steffens, who was one of 29
employees laid off during the successful organizing drive, noted: “We
didn’t get everything we wanted, but we think this proposal is a strong
starting point to build our future relationship with the company” (CWA
News 2009d:9).
The organizing victory at BANG–EB was significant and partially
mitigated the losses of two relatively large units in San Diego (1998) and
at the Eagle-Tribune (2006) in the Andover, Massachusetts, region and
smaller unit at the Advance-owned Harrisburg (Pennsylvania) PatriotNews, in June 2006, which marked the end of 72 years of Guild representation in the newsroom. The decertification vote in Harrisburg came
20 years after the craft workers decertified their unions. Guild members
were induced to leave the union by management’s demand that members
pay 30% of their health care premiums, while non-union employees paid
nothing. The company also earmarked reasonable pension and 401(k)
plans for non-union employees only (Bloomberg BNA Plus, NLRB Election
Results, Newspaper Industry, 2000–2012; GR 6/16/06:3).
NEWSPAPER INDUSTRY
223
Organizing Carriers: A Nightmare on Elm Street?
There have been hundreds of cases before the courts and eight before the
NLRB in the past 20 years dealing with the legal status of newspaper
carriers and haulers. Roughly 95%of newspaper carriers are adults and
classified as independent contractors, but unions still attempt to organize
them because, as former Guild national organizer Eric Geist argued,
“Newspaper carriers are among the worst-treated workers in the country.
I would say … we get calls from carriers at least once a month asking for
help” (Fitzgerald 2001a). To the industry, the prospect of unionized carriers led Editor & Publisher to title an article “Unionized Paper Carriers:
A Nightmare on Elm St.?” (Fitzgerald 2001b).
Four notable cases occurred after 2000 that supported publishers’
claims that carriers and haulers are independent contractors and ineligible
for union protection. The governing case involved Teamsters Local 460,
which attempted to organize 400 carriers at the St. Joseph (Missouri)
News-Press. Initially, an administrative law judge ruled that newspapers
are in the business of gathering news and manufacturing newspapers—not
delivering them, as the employer contended. Then, in a 2-to-1 Republicanmajority decision, the NLRB ruled on August 2005 that News-Press carriers
and haulers were independent contractors, consistent with the board’s
Dial-a-Mattress (1998) ruling. In her dissent, Democrat NLRB appointee
Wilma Liebman argued that the carriers were economically dependent
on their employers and that the majority chose to apply a “rigid, outdated
version of the common law agency test.” She argued that, as newer types
of employment relationships have emerged, the distinction between an
employee and an independent contractor have blurred, the NLRB “must
ensure that the rights guaranteed by the Act do not erode for workers
(what) Congress intended to protect” (St. Joseph News-Press v. Teamsters
Union Local 460, 345 NLRB No. 31 2005:474, 487).
As in other industries, newspaper unions continue to experience difficulties at the bargaining table, including from the bargaining structure,
which is often an artifact from another era.
Bargaining Structure: Advantage Employers
The legacy of family ownership, a decentralized industry, and multiple
craft unions created bargaining units that were and still remain narrow
and decentralized. This structure has since become woefully out of balance
in an industry that is consolidated, centralized, and dominated by large
chains and media companies. Unions have attempted to compensate for
bargaining structure disadvantages by coordinating bargaining efforts
through “unity councils” that can bring together in the larger cities more
than a dozen units. For example, there are more than 600 unionized
workers in 15 bargaining units at the Buffalo News (Buffalo News Bargaining
Status 2012, unpublished).
224
There are some exceptions to decentralized structures. At News
Corporation’s Dow Jones unit, the IAPE/Guild represents more than
1,700 reporters; copy editors; IT employees; and sales, professional,
administrative, production, and support staff, and negotiates a single
national agreement that covers more than 50 locations (DLR 3/22/10).
At BANG–EB, the Pacific Media Workers Guild (PMWG) represents
about 175 editorial employees at the company’s nine newspapers under a
single labor agreement. In Philadelphia, the Guild bargains a single contract covering two dailies and a related website (Newspaper Guild, Contract
Settlement Reports and Summaries, January 2010).
As with organizing, labor law has impeded the ability of unions to
centralize bargaining units to match employer power because such a
demand is “permissive.” Moreover, decades of interunion rivalries have
prevented the development of a single media union capable of dealing
with large media corporations (Stanger 2002). These disadvantages have
made it hard for unions to fare well at the bargaining table where management has intensified its demands for steep concessions.
HARD BARGAINING: THE NEW NORMAL
Work stoppages have been rare after 2000, but labor conflict has been
steady, manifesting itself mainly in contentious and protracted negotiations, often with the use of outside counsel who specialize in hardball
tactics. Since the 1940s, publishers have been streamlining the production
process, often stirring up conflict in the process. Although publishers
generally succeeded by the 1970s, they continue to streamline other parts
of the organization, such as delivery and editorial (Barwis 1981; Neiva
1996; Tracy 2008).
In 2002, after Eugene (Oregon) Register-Guard hired attorney L. Michael
Zinser, who demanded a “management-rights bargaining waiver” that
would have rendered the Guild local irrelevant, the Guild condemned the
privately owned company for transforming “a once idyllic workplace into
a rancorous ‘us vs. them’ environment” (GR 10/18/02:3).
In 2004, the Scripps-owned Commercial Appeal (Memphis), one of
three southern U.S. papers represented by the Guild, also hired Zinser,
who demanded deep concessions in pay, work rules, and elsewhere. Bernie
Lunzer, secretary-treasurer of the national Guild at the time, blasted
Scripps, noting, “The expenses and actions of this notorious union buster
[Zinser] are well outside the norm” and jeopardized the previously stable
labor relationship that the Guild described as “sleepy” (GR 4/15/05:3,
2/17/06:3). A short time later, the company hired a new publisher who
had recently defeated a Guild organizing drive at a group of community
weeklies in St. Louis. He joined Zinser in negotiations that had entered
their third year (GR 11/18/05:2). Negotiations dragged on for almost
NEWSPAPER INDUSTRY
225
seven years until 2010 when the Memphis Guild voted 43 to 7 (out of a
unit of 208) to accept a three-year concessionary contract. According to
local president Daniel Connolly, “It became clear in recent months that
the company absolutely wanted the right to fire everyone and outsource
everything. No amount of other concessions would sway them” (Editor
& Publisher 2010). The union reluctantly accepted the company’s final
offer, which included a wage freeze for all except employees at top scale,
unlimited outsourcing and layoffs, and a permanent pension freeze
(Newspaper Guild, Contract Settlement Reports and Summaries,
December 2010). Scripps took a similar hardball approach at its Knoxville
News Sentinel, where after 30 months of bargaining, the Guild settled on
a concessionary deal, in mid-2008, that also included merit pay for the
first time (GR 6/20/08:2).
Arkansas-based Stephens Group hired Zinser in 2005 to negotiate on
its behalf at its only unionized property, the (Hilo) Hawaii Tribune-Herald,
which had a reputation for poor labor relations. Once again, Zinser,
according to the Guild, made utterly unacceptable contract proposals,
refused to modify them in subsequent “bargaining,” and instead haggled
over minutiae that stretched the bargaining process into years (GR
11/18/05:5).
In early 2008, the NLRB upheld 12 of the 13 ULPs against the
company. Still, the union accepted the company’s final offer for a two-year
contract in 2010 after the company terminated the contract in 2009 and
threatened impasse. The contract included minimal raises (the first since
2002) and some minor gains, but it also contained significant concessions,
including subcontracting, a broad management rights clause, and elimination of the dues deduction. Overall, the union’s role at the paper was
greatly circumscribed (GR 3/21/08:3; Newspaper Guild, Contract
Settlement Reports and Summaries, December 2010).
At the Rochester (New York) Democrat and Chronicle, the Guild chastised owner Gannett for its anti-union tactics, including trying to decertify
the union and demanding large concessions. After 16 years, the Guild
finally won a contract (GR 2/27/04:1, 7/18/08:2, 8/15/08:1). It took 25
years, however, for the Dayton Guild to reach a contract with the Coxowned Dayton Daily News. The Dayton Guild was organized in 1986 as
an independent union and signed a three-year contract that expired in
1989. It worked without an agreement until 2012. The Guild referred to
the company as “aggressive … from the outset” (Newspaper Guild 2012b).
One major industry work stoppage occurred in Toledo—and almost
in Pittsburgh—after the Block family, owners of both the Blade and the
Pittsburgh Post-Gazette, hired the law firm of King & Ballow in 2006.
King & Ballow, like Zinser, has a reputation for hardball negotiation
tactics and union-busting. In Toledo, King & Ballow negotiated with the
226
Guild and unions that made up the Toledo Council of Newspaper Unions.
After having accepted a three-year wage freeze in the previous contract,
Toledo Guild members faced demands for a 19% pay cut, higher payments
for health care, unlimited outsourcing, the loss of seniority rights, and
the most onerous demand, a broad management rights clause that would
negate the role of the union at the Blade (GR 4/14/06:3).
In October 2006, the company suspended dental and vision benefits
and locked out five of the seven production unions affiliated with the
Teamsters and CWA. The unions filed ULP charges and protested publicly.
In Pittsburgh, the company’s weak financial condition—$23 million
worth of losses since 2003 and four consecutive years in the red—led it
to take a hard line against its six unions. In 2004, the local Guild unit
returned $6 million in concessions but blamed management incompetence
for continued losses. A Chicago-based attorney bargained on behalf of
the Post-Gazette (GR 8/18/06:1; 10/13/06:1, 5).
In March 2007, as the lockout of 215 production workers in Toledo
entered its sixth month, the unions representing 1,042 workers at the
Pittsburgh Post-Gazette reached agreements with management. The
Pittsburgh Newspaper Unions Unity Council, which represented 11 of
the 14 units at the paper, agreed to make “enormous financial sacrifices”
to assist the ailing newspaper and the Blocks, who have owned the paper
since 1927 and, who the union noted, made sacrifices to preserve many
jobs in 1992. The 39-month contracts provided more than $27 million a
year in concessions, including wage and pension freezes, diversion of current wages to pay for health care, and roughly 150 job cuts, hitting the
Teamsters the most heavily (DLR 2/13/07, 2/27/07).
Despite the settlement in Pittsburgh, the Toledo unions continued
their community protests and boycotts into late May, when the Guild
ratified a new contract, ending more than a year of conflict at the Blade.
The deal, along with similar ones ratified a week earlier by the six unions,
provided $15 million in labor concessions over the three-year term ending
May 31, 2010. The 300-plus Guild unit was the largest of seven. The
concessionary deal called for reduced wages for employees at top scale, a
new lower tier for new hires, higher health insurance premium shares, a
commission-only pay plan for advertising sales representatives, a longer
workday, and two fewer personal days. The Guild also agreed to almost
a dozen buyouts and layoffs in addition to 27 jobs cut earlier in the month.
All replacement workers vacated their jobs when locked out employees
returned to work in June (DLR 5/31/07).
Besides the Seattle strike early in the decade, the only other strike
occurred in Youngstown, Ohio, on November 16, 2004, when 180 Guild
members struck the Vindicator for nine months. The family-owned
Vindicator had been losing money over the previous seven years and
NEWSPAPER INDUSTRY
227
demanded economic and work-rule concessions. The company continued
to publish the paper during the strike while the union launched the Valley
Voice to cover local issues, including the strike. After rejecting an offer in
July by an 85 to 17 vote, Youngstown Newspaper Guild members voted
50 to 41 to approve a three-year contract almost identical to the one they
rejected a week earlier. The contract contained small annual wage increases,
signing bonuses, and concessions related to job security and the use of
freelance reporters (DLR 7/29/05, 8/5/05).
Aside from these more significant work stoppages, small units engaged
in limited strikes of very short duration at the Portsmouth Daily Times,
the New York Post, and the San Francisco Chronicle (Bloomberg BNA Plus,
Work Stoppages Reports, 2000–2012).
HARD TIMES: BARGAINING THROUGH OWNERSHIP
CHANGES, BANKRUPTCY, AND THREATS OF CLOSURE
Newspaper unions also experienced difficult bargaining conditions when
companies declared bankruptcy, changed ownership, or threatened closure.
In all cases, the unions maintained bargaining relationships, but they
made deep and wide concessions to preserve jobs and the viability of the
newspaper. Table 9 provides an overview of bargaining under financial
strains.
Tribune Company
The experience at the Tribune Company’s Baltimore Sun and (Long Island)
Newsday shows the challenges of bargaining through the uncertainty of
ownership changes and bankruptcy. In 2000, Tribune paid $8.3 billion
for the Times Mirror Company. Tribune management was known for
hard-line labor relations and had begun training strikebreakers from its
non-union facilities during the 2003 round of bargaining with the Guild
at the Baltimore Sun, the company’s largest Guild-represented paper at
the time, with about 630 employees. There were five other unions at the
Sun, but overall, Tribune’s workforce was less than 20% unionized.
Tribune demanded extensive concessions from the Guild and offered
members a $1,000 signing bonus as a quid pro quo. The Guild initiated a
public campaign against Tribune but eventually agreed to a four-year
contract that included small wage increases, a merit-pay plan, outsourcing,
and the reassignment of employees to lower-paying jobs. A local union
officer called Tribune “a really vicious, vicious, company” that never deviated from its original bargaining position (GR 6/13/03:1, 8;
7/11/03:1–2).
In 2007, the Guild signed a “status quo” contract for its smaller,
500-member unit, which was down from 630 in 2003 owing to attrition
and four years of buyouts (LRW 6/21/07). A year later, real estate mogul
228
TABLE 9
Bargaining Under Financial Strains
Company and
newspapers
Main
union(s)
Business conditions
Tribune
(Baltimore Sun
and Newsday)
Guild at Sun
and GCC/
IBT at
Newsday
Bankruptcy (2008–
2012); Cablevision
purchases Newsday
in 2008
Sun-Times
(Chicago
Sun-Times)
Guild, others
Bankruptcy (2009);
ownership changes
Avista
(Minneapolis
Star Tribune)
Guild,
Teamsters,
others
Ownership changes
(2007, 2009);
bankruptcy (2009)
Guild,
Teamsters,
others
Bankruptcy (2009);
five ownership
changes in six years
Three-year contract in 2010
follows bankruptcy. Concessions continue. Two-year deals
in early 2013.
Guild
Threat of closure
(2009)
Two concessionary bargaining
rounds. Globe remains open and
under same ownership.
Guild
Threat of closure
Two concessionary contracts in
2009 and 2010 save paper.
Guild,
Teamsters,
Drivers
Threat of closure
or sale
Concessionary contracts in
2008 keeps papers open and
under same ownership.
Philadelphia
Newspapers
(Inquirer,
Daily News,
Philly.com)
New York
Times (Boston
Globe)
Hearst (San
Francisco
Chronicle)
Advance (StarLedger, Times of
Trenton)
Outcomes
Three-year concessionary
contract extension at the
Baltimore Sun in 2011; threeyear concessionary contract
at Newsday that cut pay and
benefits. Union limits more
onerous demands.
Three-year concessionary
contract that cut pay and weakened seniority; loss of pension
and training for new media.
First contracts signed during
wave of bankruptcy. Many
concessions; Guild gets profit
sharing.
Sam Zell purchased Tribune but soon pushed the company into bankruptcy because of high debt incurred from the purchase and the decline
in advertising revenue.
Wary of conflict, the Guild agreed to extend the 2007 deal, in March
2011, for another three years. The union won a small raise and the possibility of performance-based raises. Pensions were frozen for current employees,
while new employees would be eligible only for the 401(k), to which the
employer agreed to increase contributions. The union also received the
right to represent business-side Web workers, including designers and
videographers, who joined Web content employees already in the unit. The
Guild unit continued to shrink: between 2000 and the contract renewal
date, membership fell from 800 to 225, a 72% decrease (DLR 3/15/11).
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229
At the Tribune’s Newsday, the six GCC/Teamster units that represented
about 2,000 full- and part-time employees reached a four-year concessionary
contract in January 2006—the first contract since 1995—and avoided a
long and expensive fight. The pact contained lump-sum and wage increases,
replacement of the pension plan with a 401(k) plan, outsourced delivery in
Queens, some reduced vacation time, and 60 job cuts, mainly press operators and drivers. The union won signing bonuses, improved dispute resolution
language, and preserved 100 jobs that were slated for cuts. Despite the
concessions, the GCC believed it negotiated a strong contract (DLR 1/10/06;
Newspaper, Magazine & Electronic Media News 2008:1, 3).
In May 2008, Cablevision Systems purchased Newsday from Tribune.
Two years later, it demanded from the GCC’s six units and 1,100 employees
(down by half since 2006 owing to buyouts and layoffs) double-digit pay
cuts, longer hours, and less overtime. In exchange, Cablevision offered to
contribute 3% of base salary to employees’ 401(k) accounts beginning in
2012 (DLR 1/11/10). With the support of the IBT, the local rejected
management’s offer 473 to 10. In response, management drastically cut
severance pay, which was provided for in the employee handbook. GCC
president George Tedeschi demanded that Cablevision share its financial
records with the union and admonished it for overpaying for Newsday at
a time when the newspaper business was in a downturn and the Long
Island economy was poor (DLR 1/26/10).
In June 2010, after seven months of negotiations, two contract rejections, and company threats to declare impasse and impose conditions,
the union accepted a new three-year contract that cut wages between 5%
and 10% (for drivers). Given industry turmoil and Tribune’s recent bankruptcy, the union got an “acceptable deal.” It staved off demands for a
longer workweek, the elimination of seniority in the newsroom, outsourcing of transportation, and increased pressroom flexibility. According to
the local president, “Officers of the union did the best they could without
Newsday trying to dismantle the union” (DLR 6/30/10).
Sun-Times Media Group
On March 31, 2009, the Sun-Times Media Group, owner of the Chicago
Sun-Times and other nearby properties, became the fifth newspaper publisher to declare bankruptcy. All had Guild units (GR March/April 2009:2).
In September, members of the Chicago Newspaper Guild voted 83 to 22
to reject a three-year contract that would have cut pay by 15%, reduced
benefits, and removed seniority provisions to appease a prospective buyer
who refused to assume the underfunded pension plan. The Chicago Guild’s
executive director argued that the demands “would have gutted the
contract.” At the time, employees were working under a 15% pay cut that
they could take as unpaid furloughs to mitigate the pain.
230
There were 18 bargaining units at the Sun-Times, but management did
not make the same demands on the craft unions, only the Guild, which
represented workers at five of the Sun-Times Media Group’s community
newspapers and about 400 of its 600-plus unionized workforce. Three
other Guild units rejected the company’s demand. The Guild was also
involved in “effects bargaining” at a production unit slated for shut down
(DLR 9/22/09).
On October 8, 2009, a bankruptcy court judge approved the sale of the
company to a private investor group, STMG Holdings, led by local banker
James Tyree, for $25 million ($20 million in liabilities). STMG was the sole
bidder on the company, reflecting the poor state of the newspaper industry.
A day before the court ruling, the Sun-Times Guild unit voted 89 to 29 to
accept a three-year concessionary contract. Other Guild units followed.
The new deal codified the 15% pay and benefits cut but gave employees
choice in arriving at that amount. Seven current underfunded pension
plans were frozen and transferred to the Pension Benefit Guaranty
Corporation in August 2010. A 401(k) plan replaced the pension plan. The
Guild also agreed to remove seniority for determining layoffs, bumping
rights, transfers, and other actions, but the new contract “built fences
around it to deal with problems,” such as grievances and just-cause requirements. Employees won training opportunities in new media to keep their
skills current—a clause that the Guild has been building into other
contracts—and a decent severance package (DLR 10/9/09, 8/12/10).
Minneapolis Star Tribune
Multiple ownership changes and bankruptcy also affected union
workers at the Minneapolis Star Tribune beginning in 2007 when New
York City–based private equity firm Avista purchased the paper from
McClatchy for $530 million, about half of what the Cowles family sold
it ($1.2 billion) to McClatchy for in 1998. Avista had no prior newspaper
publishing experience. Before the sale, the Star Tribune was McClatchy’s
flagship newspaper (Lisheron 2012). In May 2007, following the departure
of 24 employees, Avista announced 145 more job cuts, which preceded
an announcement that up to 100 newsroom employees would be reassigned and some of their beats eliminated. After the layoffs, newsroom
staffing dropped almost 15%, from 340 to 290.
In July 2008, the Guild ratified a three-year contract, 210 to 27, that
cut $20 million (or 19% over three years) in expenses. Concessions included
a wage freeze (with small increases to follow), higher health care payments,
and the elimination of six newsroom positions. The Guild won training
resources and, for the first time, buyout offers with contractual severance
payments before layoffs occurred. In another first, reporters and photographers could be assigned to use multimedia equipment, provided the
company made training and equipment available. The company made
NEWSPAPER INDUSTRY
231
even harsher demands on drivers and mailer, press operator, and other
units (GR 5/19/07:5, 8/15/08:3; Minnesota Newspaper Guild 2008).
The Star Tribune’s parent company operated under bankruptcy
protection between January and September 2009. In May 2009, the Guild
signed a mid-term bankruptcy agreement with Avista that promised an
additional $5 million in savings through its expiration in July 2011. The
Minnesota Newspaper Guild said it had the “dubious distinction of being
the first Guild unit in the country to ratify contract concessions in the
recent spate of newspaper company bankruptcies” (Minnesota Newspaper
Guild 2009). The Guild was one of ten units that agreed to mid-term
deals. Among the notable concessions were deep wage cuts, the elimination of shift differential and daily overtime, the phasing out of the night
differential, two days of unpaid furlough in 2009 and 2010, reduced
severance packages, and the freeing of the pension plan. Future company
contributions would be paid into each employee’s cash balance plan
account.
The most controversial part of the deal, according to the Minneapolis
Guild, was the revision of the security clause for layoffs, whereby the Guild
agreed to an increase in the number of classifications for layoff purposes
from 13 to 18, which was less than the company’s demand for 25. For the
first time, the company could exempt up to 12 employees from layoff,
with no more than 20% from a single job classification. In exchange, the
Guild negotiated a profit-sharing plan that would distribute cash at 10%
over cash flow above $5 million (Minnesota Newspaper Guild 2009).
Soon after exiting bankruptcy under new private ownership in late
2009, the Star Tribune announced it would cut an additional 100 jobs,
including 30 in the newsroom by year’s end. The newsroom cuts were two
to three times as many as the Guild expected, but they would be buyouts
not layoffs (GR November/December 2009:2).
In August 2011, after 11 hard bargaining sessions, the Guild voted to
extend the contract through January 31, 2013. This was the first round
of bargaining since the paper exited bankruptcy (GR Fall 2011:4). Local
union executive officer Mike Bucsko stated that Guild members took pay
cuts averaging 8% during bankruptcy, some as much as 14%, and have
not had a wage increase since 2008. The profit-sharing checks over the
past two years totaled about $2,000, far short of the roughly $6,000 in
concessions a year per employee (Mike Bucsko, personal communication,
10/10/12).
By mid-2012, the company had exited bankruptcy, reduced its debt
load, and grown customer-based revenue to 45% of total revenue, well
above the industry norm. Despite extensive concessions and newsroom
staffing cuts from 400 in 2006 to 260 in 2012, morale has been improving
(Ackermann 2011; Ellis 2012; Lisheron 2012).
232
Philadelphia Newspapers
The experience in Philadelphia, while similar to Minneapolis in terms of
bankruptcy, ownership changes, and steep labor concessions, differed in
the extent of ownership instability. The company Philadelphia Newspapers
has had five owners over the past six years and continues to struggle
financially. Late in 2012, the company demanded $28 million in concessions from the unions while the contracts were in effect.
In May 2006, McClatchy sold Philadelphia Newspapers to Philadelphia
Media Holdings (PMH), led by local advertising executive Brian Tierney,
for $562 million. The purchase covered the broadsheet Philadelphia
Inquirer, the tabloid Philadelphia Daily News, and the online site
philly.com. The properties continued to be managed by Philadelphia
Newspapers. The deal transitioned the company from a public company,
which it had been since Knight Newspapers purchased it in 1969, to a
private concern. Knight Ridder, formerly Knight Newspapers, sold the
company to McClatchy in 2006 for $4.5 billion (Saba 2006a, 2006b;
Moos 2012b).
The 2006 bargaining round, the first under PMH, was highly
contentious. The Guild was the last holdout of the ten units and the only
unit not in the Philadelphia Council of Newspaper Unions, which negotiated the economic package and contract length. The individual units
worked out the non-economic issues. In early December, more than 1,000
drivers, building service workers, press operators, paper handlers, and
other groups signed new deals. The Guild, which represented 900 editorial
and business employees, negotiated economic issues separately and remained
at loggerheads with the company over wage and pension issues.
On December 18, the Philadelphia Guild ratified a tentative three-year
deal, 498 to 69, that averted a threatened strike. The contract contained
small pay increases that were offset by higher health care contributions,
amounting to “virtually a three-year freeze.” The contract also established
a joint pension board to merge the pension with a multi-employer plan
and infuse it with a $4 million contribution to various retirement plans.
Afterward, the employer would no longer match employee contributions.
The Guild set the economic pattern for the other units (DLR 12/11/06,
12/14/06, 12/20/06).
Concessionary labor agreements were not enough to offset revenue
declines and a heavy debt burden, leading the company into bankruptcy
in February 2009. On August 24, 2010, Philadelphia Guild members
voted 287 to 38 to approve another three-year concessionary labor contract
with the new owner, PN Purchaser Company (called Philadelphia Media
Network after bankruptcy), scheduled to go into effect when the transaction was finalized. The new contract contained wage cuts and unpaid
NEWSPAPER INDUSTRY
233
furloughs amounting to a 6% pay cut, no layoffs for a year, a new 401(k)
plan with an employer match, a second-tier wage scale for new hires, and
longer hours. The Guild won the right to represent 26 employees at
philly.com and the possibility of future profit sharing that could go into
effect in third year of the contract. The Guild unit had been reduced by
about half—to about 500—since the last contract. Counting the value
of concessions and attrition, the 2010 Guild payroll was $6 million less
than the 2009 payroll.
The main creditors of the bankrupt company assumed ownership in
late September 2010, bidding $105 million in cash and $139 million
overall, a substantial discount to the $562 purchase price in 2006. The
new company was controlled by hedge funds Angelo Gordon & Company
and Alden Capital Management, and the bank Credit Suisse (DLR 8/25/10;
Plambeck 2010).
By early 2012, the new owners were looking to sell the company, and
in February, they announced 37 buyouts and layoffs, and a restructuring
that would merge all three properties into a single newsroom in a new
office building. The Inquirer and Daily News have shared ownership and
an office building since the late 1950s but maintained separate newsrooms
as part of their local rivalry (Chozick and Carr 2012; Armstrong 2012).
On April 2, a group of local investors operating as Interstate General
Media (IGM) purchased the Philadelphia Media Network for $55 million,
the fifth sale in six years. The price was a 60% discount to the 2010 price,
and a 90% discount to what Tierney’s group paid in 2006, reflecting
continuing industry weakness (Adams 2012; Launder 2012).
In August, IGM notified the Philadelphia Guild that it needed $28
million in mid-contract concessions to offset a $16 million decline in
revenue for the first half of 2012. The company targeted $8 million from
the Guild through wage cuts up to 13%. A local Guild officer responded
to the company’s demands: “We understand that revenue is down, but
also question why a group of successful local businessmen did not anticipate this possibility when they bought the company in April and pledged
to invest ‘patient capital’ and revitalize the Inquirer, Daily News, and
philly.com” (Beaujon 2012a).
In early February 2013, faced with the threat of asset sales or
liquidation, the Philadelphia Guild voted 200 to 35 to accept a two-year
contract that cut wages by 2.5%, continued ten unpaid furlough days per
year, and returned $7.1 million to IGM. In exchange, the company
offered the prospect of profit sharing in the second year of the contract
and agreed to keep the papers publishing daily through 2014. The Guild
was the largest unit and the last of the 11 unions to ratify concessionary
contracts with IGM (Armstrong 2013a, 2013b; LRW 2/13/13).
234
Threatened Closures
In addition to dealing with bankruptcy and ownership changes,
newspaper unions bargained concessionary contracts to save a handful of
metropolitan newspapers from closure, such as the Boston Globe, San
Francisco Chronicle, Newark Star-Ledger, and its sister, the Times of Trenton.
The Boston Globe
In Boston, there were four challenging and concessionary rounds of bargaining that transpired after 2000, including one in 2009 that addressed
the threat of closure at the New York Times Company’s Boston Globe.
During the contract in effect since 2006, the fortunes of both the industry
and the Globe worsened (DLR 12/15/06). The Times Company, which
spent an industry record-setting $1.1 billion to buy the Globe in 1993,
said the Globe lost $50 million in 2008 and was expected to lose $85
million in 2009. In April 2009, the company demanded $20 million in
labor concessions, $10 million of which targeted the Guild, in order to
save the 187-year-old newspaper. Seven units bargained on behalf of 1,300
employees, with roughly 700 in the Guild unit, the paper’s largest. Although
the six other unions agreed to concessions, the Guild refused to reopen
the 2006 contract, contending that, while it was sympathetic to the Globe’s
plight, it lost 78 members to layoffs and buyouts in March 2009 and
almost 400 over the past few years. In late April, the Guild launched an
online petition to save the Globe, which it called a “community asset …
necessary to the character of the city of Boston and indeed the entire New
England region” (DLR 5/5/09).
In May 2009, negotiators reached a tentative deal that was designed
to save $10 million in labor costs, including the elimination of lifetime
job guarantees for 190 Guild-represented employees. The other units also
agreed to eliminate 240 positions that were protected by lifetime job
security clauses negotiated in the early 1990s. But in June, Guild members
rejected this deal, 277 to 265, prompting management to immediately
declare impasse and impose a 23% wage cut. In addition, the Globe laid
off 17% of its management staff, cut their pay 5%, and degraded some of
their benefits (DLR 5/7/09, 6/10/09, 6/15/09).
On July 20, Guild members voted 366 to 179 to accept a deeply concessionary contract, the last of seven signed during that round. The deal
extended the old contract through the end of 2010 and contained a 5.94%
wage cut, five unpaid furlough days, the loss of three paid days off, new
overtime rules, the end of banked vacation, the elimination of company
pension contributions and 401(k) matches, cuts to retiree and current
employee health plans, and the elimination of lifetime job security and
other benefits (DLR 7/22/09).
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235
One Guild contract has followed the 2009 agreement and, for the first
time, offered the possibility for profit sharing. At signing, the size of the
Globe’s Guild unit had fallen to 573 from 1,150 in 2004, a decline of 50%
(Newspaper Guild, Contract Settlement Reports and Summaries, March
2011).
Unable to sell the Globe in 2009, the New York Times Company
instead it sold its regional newspaper group for $143 million in 2011 and
its final stake in the Fenway Sports Group, owner of the Boston Red Sox
baseball club, for $63 million in May 2012. In late August 2012, it sold
its About.com unit for $300 million to IAC/Interactive, after acquiring
it in 2005 for $410 million. In late February 2013, the Times Company
announced its intention to sell its New England Media Group, which
includes the Globe, the Worcester Telegram & Gazette, and other assets to
concentrate on the Times brand (Vega 2012; News Inc. 2012g; Chozick
and Haughney 2013).
San Francisco Chronicle
In January 2005, the Hearst-owned San Francisco Chronicle hired
publisher Frank Vega in advance of contract negotiations with the 900person Guild unit. Known as “Darth Vega” for his hard-line negotiations
tactics when he ran the Detroit Newspaper Agency during the 1995 strike,
Vega was determined to pare the workforce and exact concessions from
the unions. The local Guild executive officer predicted a loss of 10% of
the unit’s jobs and “a lot of hard bargaining between now and the conclusion of these talks” (GR 4/15/05:3). He was right: Vega hired a security
firm and made other preparations for a work stoppage. In an internal
company memo, Vega wrote, “We intend to publish and distribute the
Chronicle no matter what” (GR 6/17/05:3, 8/12/05:1).
The recently expired contract was concluded after a two-week strike
and extended in 1997 through 2005. In 2000, Hearst sold the San Francisco
Examiner and bought the Chronicle for $600 million. To maintain labor
peace, it agreed to keep both staffs employed at the Chronicle, but after
losing more than $60 million in 2004, it demanded concessions from its
five unions. According to the Guild, Vega sought to divide the unions,
but they agreed not to ratify any agreements until all had contracts, a
pledge that they had in place for more than 40 years.
Faced with a publisher determined to exact concessions to stanch large
financial losses, the Northern California Media Guild accepted a “terrible”
five-year concessionary contract that included the loss of 120 jobs through
buyouts, immediate pay cuts up to 44% for a significant group of
employees and 11% increases for others, the end of paid time off, the loss
of 45 reclassified jobs, elimination of the evergreen clause, and elimination
236
of the right to honor picket lines without disciplinary retaliation. The
Guild won a one-time $2.3 million payment for the health and welfare
trust and $5 million for the pension plan. Three other units later signed
concessionary deals (GR 8/12/05:1, 5; DLR 7/26/05, 7/29/05).
The financial fortunes of the Chronicle worsened by 2009, leading the
company to seek additional concessions to avoid its sale or closure. Hearst
claimed the newspaper lost about $1 million a week in 2008 and had
negative profits every year since 2001, when industry profit margins
exceeded 20%. Hearst blamed the previous owner’s 35-year JOA with the
smaller Examiner and a tough newspaper market. From 2003 to 2008,
the Chronicle lost a third of its circulation, one of the steepest declines in
the industry. The 2009 contract included vacation and sick leave reductions, a longer workday, a weaker arbitration clause, and the end of seniority
protections against job loss. A year later, the Guild ratified a two-year
contract, 88 to 13, which included modest gains and no concessions. A
local union officer remarked on this contract: “Overall, it’s the first step
ahead for the Chronicle membership since 2005” and contains “gains
unmatched by virtually any other Newspaper Guild unit in the country
in 2010.” The contract covered only 250 employees, down 72% from 2005
(Pérez-Peña 2009b; DLR 12/14/10).
Star-Ledger and the Times of Trenton
On the east coast, Advance Publications’ Star-Ledger, New Jersey’s largest
newspaper, and its smaller sister paper, the Times of Trenton, teetered on
the verge of closure or sale before the onset of the Great Recession. In late
July 2008, Advance informed its unions that it needed to eliminate at least
20% of the newspapers’ staffs and accept additional concessions to stay
afloat. The Star-Ledger’s daily circulation had fallen 34% from 1990 to
early 2008. The company claimed it needed more than 300 employees to
take buyouts in Newark. Roughly 250 of the paper’s 1,000 employees were
unionized. Advance stated that both papers would lose about $40 million
in 2008 on top of the steady stream of losses they experienced for years.
Advance’s New Jersey properties had been hit harder by the severe downturn
in advertising revenue than its other papers across the country.
Prior to this announcement, Advance won work-rule, wage, and
staffing (via buyouts) concessions from unions in Newark and Trenton.
In late September, three months before the January 5, 2009, deadline to
sell or close the paper, Teamster mailers, the largest unit at the Star-Ledger
with 400 employees, voted 183 to 18 to accept 100 buyouts and a threeyear wage freeze. In early October, the 90-person NMDU agreed to a
wage freeze and other concessions, including 20 buyouts. The ratification
vote of 161 to 6 included members employed at other companies, as permitted under the union’s rules. Given the precarious financial state of the
NEWSPAPER INDUSTRY
237
industry and the dearth of potential buyers, 230 non-union workers, more
than the targeted number, accepted buyouts. The editorial staff in Newark
was reduced by 40% and shrunk from 11 to 4 in Trenton. With these
labor contracts and the non-union buyouts, Advance retained ownership
of these two properties (Pérez-Peña 2008a, 2008b; Strupp 2008a, 2008b).
Summary of Bargaining Trends and Outcomes Since
the Great Recession
The extent of wage, benefit, work-rule, employment, and other
concessions at the newspapers discussed in this section reflect unfavorable
industry conditions that began before 2000 but have since have been
amplified by the effects of the Internet and the Great Recession. Newspaper
companies have attempted to preserve monopoly profits by cutting costs
and making larger investments in digital operations with only limited
success and with significant reductions in journalism quality.
For about two decades, unions have been pressured to make
concessions, but in recent years employers have asked for wider and deeper
concessions. For example, companies sought to remove seniority as the
basis for layoffs and other personnel decisions, consolidate multiple job
classifications into a single journalist job classification, and freeze or
eliminate defined benefit pension plans in favor of 401(k) plans or enter
into multi-employer pension plans with less onerous funding requirements.
Employers have also demanded staffing cuts even when profitable. Deep
staffing cuts since 2000, especially since 2007, have hurt the Guild’s
effectiveness in protecting its members by reducing the union’s membership by 28% and by depleting local leadership ranks (GR 9/10/08:3).
Employer demands for concessions accelerated in the wake of
company bankruptcies in early 2009 (GR January/February 2009:5).
Although concessions were steeper at financially troubled properties, few,
if any, bargaining units across the country did not make concessions.
Between October 2011 and the end of 2012, the Guild signed about
40 agreements on behalf of 32 locals representing more than 2,000
employees in the United States and Canada. With few exceptions, these
contracts have included pay, benefits, and job cuts; wage freezes; and
unpaid furloughs. Between the summer of 2012 and the end of 2013, the
Guild will renegotiate 48 contracts (Newspaper Guild 2012a). In advance
of these negotiations, the Guild convened a special 13-member blue-ribbon
panel “to develop strategies that local bargaining units can use to strengthen
their positions in negotiations” (GR Summer 2012:3). Whatever strategies
emerge from this panel, Guild, Teamster, and other newspaper unions
will continue to face a difficult bargaining environment years into the
future as the industry continues its shakeout and tries to find a viable
business model.
238
In a rare example of good news, in mid-November 2012, after 21
months of negotiations and public protests, the New York Guild ratified
by a vote of 521 to 64 a five-year contract that covered 1,100 employees.
The deal includes a 6% pay increase over five years, new annual incentive
bonuses, a new hybrid pension that preserves the defined benefit plan,
higher employer contributions for health care, a new two-tier severance
benefit, and a merger of print and digital operations into a single unit.
Guild president Bill O’Meara attributed the good contract in the face of
management’s demands for concessions to a “level of engagement and
activism … that has been greater than anything I’ve seen in my 24 years
at the Guild” (LRW 11/21/12).
THE FUTURE OF NEWSPAPER UNIONS AND COLLECTIVE
BARGAINING
Improved bargaining prospects will emerge only from changes in labor
and media law and policy that create a more favorable climate for workers
and unions. Such changes are not likely in the short run, however, so unions
must work harder to improve their prospects using old and new
strategies.
Organizing Prospects for Newspaper Unions
The newspaper industry, like much of the private sector, is virtually nonunion, with exceptions at the larger metro newspapers. Although organizing
poses formidable challenges, union growth can come from organizing
non-union newspapers and by additional mergers of local and national
unions. The history of union mergers in the industry is mixed at best, and
prospects for a single, large media union, while necessary, face major
obstacles (Stanger 2002).
The clustering and consolidation of operations, however, enables unions
to focus scarce resources on a concentrated geography instead of spreading
them thinly across geographically dispersed operations. The Guild’s successes in organizing workers at BANG–EB in 2008 and in Dayton in
2012 might offer a blueprint for future organizing success.
Geography is not an issue in the digital realm, where staffs are small
and limited mainly to editorial employees. The Newspaper Guild conducted
its first online-only organizing drive in 2008 at the nonprofit, progressiveleaning website, Truthout. The St. Louis Newspaper Guild (now the
United Media Guild) conducted the drive electronically and by card-check
and successfully organized the 15-member unit (Timothy Schick, personal
communication, 9/18/12). But not all progressive websites welcome unions.
In July 2011, in an NLRB-directed election, workers voted 7 to 5 for
the PMWG to represent them at the Bay Citizen, a San Francisco–area
digital-only investigative operation launched in May 2010 with a $5 mil-
NEWSPAPER INDUSTRY
239
lion grant the to fill the void in case the San Francisco Chronicle closed.
The Bay Citizen partnered with the New York Times to deliver content to
Times subscribers in the Bay Area and formed relationships with other
news organizations and the Berkeley Graduate School of Journalism. In
May 2012, it merged with the 70-person, non-union Center for Investigative
Reporting (CIR), the longest-running nonprofit investigative news operation in the nation, founded in 1977 (Bay Citizen website).
After the merger, CIR management argued that the Guild no longer
represented a majority of workers and called for a new election. The Guild
lost the July 2012 election in a 10 to 11 vote. Timothy Schick, Guild
administrative director, reported that the biggest obstacle faced by local
organizers was a “startup mentality,” whereby workers viewed themselves
as partners with management, building a new type of organization from
the ground up (Timothy Schick, personal communication, 9/18/12). This
mindset is common among employees of these new, mainly tax-exempt,
digital-only ventures with small staffs, uncertain financing, and workplace
cultures different from those of traditional newsrooms (see Enda 2012
and Anderson 2012 for more on nonprofit journalism). Organizing newspapers’ legacy print and digital operations and the new online-only operations remains essential to the survival of newspaper unions in the future,
but there are other avenues for unions to pursue.
Alternative Ownership Arrangements: Hits, Misses, and
Future Prospects
Newspaper unions have a long history of establishing strike newspapers, as
they did recently with the Detroit Sunday Journal, a weekly publication that
existed for four years and reached a peak circulation of 300,000 in its first
year (Rhomberg 2012:199, 247). Although such newspapers generally shut
down at the conclusion of the dispute, the Citizens’ Voice (Wilkes-Barre,
Pennsylvania) continues to operate since its founding in 1978.
Starting a union-run print newspaper is not prudent under current
conditions, but establishing digital-only publications supported by international unions and labor federations, private foundations, employees,
paywalls, or membership subscriptions could fill market niches and might
survive under the right conditions.
Since 2005, The Newspaper Guild has explored other forms of
alternative ownership models such as the purchase of newspapers; employee
stock ownership plans (ESOPs), the creation of low-profit, limited liability
companies (L3Cs); and worker-owned cooperatives. Some of these models
have been implemented, but others have failed to gain traction. With
supportive public policies, alternative forms of ownership could give
newspaper unions another mode of representation.
240
The biggest attempt at direct union purchase occurred in late 2005
after Knight Ridder put itself and 32 newspapers up for sale. The Newspaper
Guild joined Gannett, MediaNews, McClatchy, and at least nine private
equity firms as bidders on parts of Knight Ridder. The Guild, which
represented employees at nine papers, hired Ownership Associates and
Duff & Phelps Securities to explore ownership potential and created a
holding company called Value Plus Media to house acquired properties.
The Guild proposed a combination of “worker-friendly” private equity
concerns and a Subchapter S corporation, a type of ESOP, to operate on
a tax-free basis. Knight Ridder stated early on that it was not interested
in selling individual properties (Seelye and Sorkin 2006; GR 1/20/06:1).
In mid-February 2006, the Guild received backing from the unionfriendly investment firm Yucaipa Companies, founded in 1986 by supermarket billionaire Ron Burkle (GR 2/17/06:1–2). In March, however,
McClatchy successfully bid on Knight Ridder’s 32 newspapers but put
eight unionized properties up for sale. The Guild coveted the eight unionized papers and had Yucaipa’s backing. Other prospective buyers expressed
interest in the former Knight Ridder properties (GR 3/17/06:1–2, 5/19/06:1,
5). By July, all papers were sold to private concerns, shutting out both the
Guild and Yucaipa (GR 6/16/06:1–2, 7/21/06:3, 8/18/06:1).
The Guild has long decried private equity’s reputation for slashing labor
costs at newly acquired newspapers, so when MediaNews and other purchasers of former Knight Ridder newspapers made significant job cuts,
the Guild called for a “day of action” in December 2006 to protest the
loss of 34,000 newspaper jobs since the beginning of 2001 (GR 10/13/06:1,
12/8/06:1–3).
Unable to purchase newspapers outright, the Guild has had more
success in getting an equity stake. In June 2009, the Blethen family, owner
of the Seattle Times Company, sold its three Maine newspapers to an
investment group headed by Richard Connor. The sale included the
Portland Press Herald/Maine Sunday Telegram and properties in Waterville
and Augusta. At the time, the Guild represented about 350 employees at
the Portland and Waterville newspapers (GR 11/19/08:3; Mapes 2009).
Connor’s group teamed up with a Dallas-based private equity firm that
co-owned the Times Leader. The company, Maine Today Media, demanded
concessions, including the reduction of 100 of 500 total jobs, to return
the newspapers to profitability. The final sale was delayed until the Portland
Guild won a successor clause in the contract.
After more than a year of negotiations, the Portland Guild voted 161
to 19 to accept a new contract that included a 10% pay cut, a two-year
wage freeze, the suspension of 401(k) payments, a pension freeze, and
buyouts. In return, it received a 15% ownership stake, via an ESOP, in
NEWSPAPER INDUSTRY
241
Maine Today Media, two seats on the new board of directors (the other
unions received a single seat), and joint labor–management committees
to improve the quality of journalism and to develop a new business model.
The vote, the Guild declared, “marks the first time in recent history that
U.S. newspaper workers have had a say in taking an ownership position
in a company that employs them” (GR May/June 2009b:1, 4; July/October
2009:7; Mapes 2009).
The ESOP succeeded in preventing bankruptcy at the time—no small
feat. In fall 2011, after months of tough bargaining and a company threat
to declare bankruptcy, Guild members ratified an 18-month contract that
“struck a responsible balance between their needs and the survival of the
Portland Press Herald/Maine Sunday Telegram,” according to the Guild
Reporter. During that time, Maine Today ousted Connor and promised
to upgrade technology and provide training to Guild members to work
with digital technology. Within a few weeks, the local faced a threat from
a new investor who the Guild feared would shred the contract. Instead,
Guild leaders found a prospective owner, Donald Sussman, a progressive
businessman married to a Maine congresswoman who had deep roots in
Maine. In February 2012, Sussman and the Maine Today board, including union representatives, reached a deal: In exchange for a multi-milliondollar loan, the Portland Guild would retain its equity stake and board
seats. The newspapers also won complete editorial independence. Portland
Guild vice president Greg Kesich was pleased: “We expect to have a voice
in important strategic decisions in the company’s future” (GR Spring
2012:1, 4).
These new arrangements, according to Guild president Bernie Lunzer,
show that the “newspaper industry is more than a business and more than
a job to our members. It’s a calling. Members are not only fighting for
their jobs, they’re fighting to ensure that their communities and our larger
democracy continue to benefit from newsrooms full of skilled and seasoned
civic watchdogs who know how to dig for the truth” (CWA News 2009b:6).
Thomas Jefferson and James Madison expressed similar beliefs about the
essentiality of a free press in a democratic polity. Their efforts made the
press the only industry protected by the U.S. Constitution (McChesney
and Nichols 2010).
With newspapers’ civic roles threatened by falling profits and
editorial cutbacks, Maryland Senator Ben Cardin (D) sponsored the
Newspaper Revitalization Act (2009) to allow newspapers to operate as
non-profits, under 501(c)(3), for educational purposes, similar to public
broadcasting. Cardin’s bill targeted local newspapers to preserve independent and investigative journalism as a bulwark against corruption and
other threats to democracy (Cardin 2009). The Newspaper Guild also
242
supported a related bill, the Program-Related Investment Promotion Act,
which would have enabled newspapers to operate as L3Cs (GR July/
October 2009:5). Both bills failed, but L3Cs remain a viable option.
Low-profit, limited liability companies blend for-profit and nonprofit
elements into a hybrid structure designed to attract private investments
and philanthropic capital in organizations that are primarily charitable.
Unlike a charity, however, L3Cs can distribute after-tax profits to owners
or investors. In April 2008, Vermont became the first of nine states to
recognize the L3C as an official legal structure. The IRS is considering
federal tax code changes to make them federally permissible (Chan 2008;
interSector Partners 2012).
The Newspaper Guild and the Peoria Newspaper Guild, which
represented 100 employees (with the CWA Printing Sector representing
another 30) at GateHouse Media’s Journal Star, explored the possibility
of purchasing the paper from the debt-ridden company and creating an
L3C beginning in late 2008. Employees preferred local ownership, with
which it had experience. From the mid-1980s until 1996, the Journal Star
had operated as an ESOP. Although the Guild was optimistic that legislation would enable unions to buy and convert the Journal Star to an L3C
in 2009, and do likewise at the Minneapolis Star Tribune, both have
retained traditional ownership (CWA News 2009c:6; Fitzgerald 2009).
In 2009, in Puerto Rico, 90 locked-out Guild-represented employees
from the defunct San Juan Star, which had operated for 49 years, established the Puerto Rico Daily Sun as a worker-owned newspaper. The Daily
Sun, currently the island’s only English-language newspaper, is run by
Cooperativa Prensa Unida, part of an $8.5 billion cooperative. All Daily
Sun employees—and some U.S.-based Guild and CWA members—purchased shares valued at $800 in the new venture. The newspaper launched
a website with aid from the Guild and CWA. The Daily Sun prints seven
days a week and celebrated its third anniversary in 2012 (CWA News
2009a:7; GR November/December 2009:6; Puerto Rico Daily Sun).
These and other forms of alternative ownership arrangements (see
McChesney and Nichols 2010 and Pickard, Stearns, and Aaron 2009 for
more on public policies) could save troubled newspapers and provide
workers and unions with a voice in strategy and operations, but by themselves they will not be enough to reverse the decline of newspaper unions.
Until the combination of a viable business model, more effective union
strategies, and favorable public policies emerge, unions will continue to
experience hard times and hard bargaining.
NEWSPAPER INDUSTRY
243
ACKNOWLEDGMENT
I would like to thank Melanie Janiszewski (doctoral student, Cornell ILR)
for her assistance in collecting and tabulating data.
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Chapter 7
Public Sector Collective Bargaining:
Tumultuous Times
Robert Hebdon
McGill University
Joseph E. Slater
University of Toledo
Marick F. Masters
Wayne State University
Before 2008, public sector labor relations might best be described as
“business as usual.” Union density levels were stable, wage and benefit
levels more or less in line with the private sector, privatization was at
average levels, and strike rates were at relatively low levels. This apparent
stability in relations changed dramatically after 2008 with the start of
the Great Recession. This recession was unique because it was coupled
with a financial meltdown that resulted in exploding deficits and debt
as demand for services grew (Stiglitz 2010). The pre-recession stability
quickly turned into crisis as public employee compensation and services
came under attack and collective bargaining itself was challenged in
several states (Saltzman 2012).
This chapter documents the changes in the economic, financial, legal,
and political environments at all three levels of government: local, state,
and federal. Considering the vastness of these changes, a complete
chronicle is beyond our scope. We have chosen instead to highlight the
legislative battles and offer special focuses on the federal sector and the
state of Wisconsin. Wisconsin may not be fully generalizable as a case,
but it has all of the key elements of the story. We contend that the future
directions of collective bargaining in the public sector may well be found
in the Wisconsin story—for example, in terms of the limits of political
attacks on collective bargaining.
THE ORIGIN AND STRUCTURE OF PUBLIC
SECTOR BARGAINING
The National Labor Relations Act of 1935 excluded all federal, state, and
local government employers from collective bargaining coverage (29 U.S.C.
§ 152). Thus, without national guidelines, collective bargaining emerged
251
252
on a rather piecemeal basis by state and federal governments. The first
state to formalize collective bargaining for its employees was Wisconsin
in 1959. The federal government provided a weaker system of bargaining
later in 1962 when President Kennedy signed Executive Order 10988. It
provided no right to strike and prohibited bargaining on wages and benefits. Following these early developments, a number of states passed laws
covering some or all state and local public employees. The state laws fall
into four categories:
• Single comprehensive law covering multiple occupations: District
of Columbia, Florida, Hawaii, Iowa, Massachusetts, Minnesota,
Montana, New Hampshire, New Jersey, New Mexico, New York,
Ohio, Oregon
• A law for each occupation: Alaska, California, Connecticut, Delaware,
Illinois, Kansas, Maine, Michigan, Nebraska, Pennsylvania, South
Dakota, Vermont, Washington, Wisconsin
• A law for some occupations: Alabama, Georgia, Idaho, Indiana,
Kentucky, Maryland, Missouri, Oklahoma, Rhode Island, Tennessee,
Nevada, Utah, Texas, Wyoming
• No law: Arizona1, Arkansas, Colorado, Louisiana, Mississippi, North
Carolina, North Dakota, South Carolina, Virginia, West Virginia
North Carolina, a state in the fourth category, explicitly bans
collective bargaining and has received considerable attention from the
International Labour Organization (ILO). The ILO, a tripartite agency of
the United Nations, applied international standards on freedom of
association to the North Carolina ban in a case involving the United Electrical
Workers and the state. Here are some excerpts from their decision:
In conclusion, the [ILO] Committee [on Freedom of
Association] emphasizes that the right to bargain freely
with employers, including the government in its quality
of employer, with respect to conditions of work of public
employees … constitutes an essential element in freedom
of association, and trade unions should have the right,
through collective bargaining or other lawful means, to
seek to improve the living and working conditions of those
whom the trade unions represent. The public authorities
should refrain from any interference which would restrict
this right or impede the lawful exercise thereof …
The Committee requests the [United States] Government
to promote the establishment of a collective bargaining
framework in the public sector in North Carolina—with
the participation of representatives of the state and local
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253
administration and public employees’ trade unions, and
the technical assistance of the [ILO] Office if so desired—
and to take steps aimed at bringing the state legislation,
in particular through the repeal of NCGS § 95-989598, into conformity with the freedom of association
principles, thus ensuring the effective recognition of the
right of collective bargaining throughout the country’s
territory. The Committee requests to be kept informed
of developments in this respect. (ILO 2005; see also
Compa 2012)
The ILO has followed up their decision on several occasions since 2007,
but at the time of writing this chapter, North Carolina has failed to implement its recommendations.
Until 2011, changes in the law governing collective bargaining were
infrequent, and collective bargaining received little attention in the media
and by academics. Next, we describe this period of relative stability.
THE CALM BEFORE THE STORM
Union Density
Overall, public sector union density remained remarkably constant from
36.8% in 2001 to 37.0% in 2011 (Table 1). To the extent that union
density measures influence and power, then, in the aggregate, unionization
was not affected by downsizing, privatization, and other actions that may
have weakened public sector unions during this period. Within the three
levels of government, however, there was evidence of a small shift. At the
federal level, union density declined from 31.5% to 28.1% over the period,
while it increased slightly at the state and local levels. We will present
more on federal sector developments later.
Work Stoppages
The Bureau of Labor Statistics (BLS) provides only limited information
about strikes, restricting its sample to work stoppages of 1,000 or more
workers and lasting at least one shift. Moreover, its definition of a work
stoppage does not distinguish between strikes and lockouts. Figure 1
shows the dramatic decline in the number of strikes and lockouts that
occurred between the 1970s and 1990s and the decade after 2000. The
same trend could have been shown if time lost because of work stoppages
was summed by decade. The decline in strikes is a widely reported phenomenon throughout the industrialized world (see Bamber, Lansbury,
and Wailes 2011).
Because our focus is on the public sector, we were able to break out a
category, state and local government, from the work stoppage raw data
254
provided by the BLS. Figure 2 shows the overall state and local government
and private sector totals from 2003 through 2011. State and local government strikes and lockouts increased over the period 2003 through 2007,
but the numbers were still relatively small, reaching a peak level of nine in
TABLE 1
U.S. Public Sector Union Density and Coverage, 2001–2011
Year
2001
2002
2003
2004
Public sector
totals (%)
Density Coverage
36.8
41.4
37.3
41.5
37.2
41.5
36.4
40.7
Federal (%)
Density Coverage
31.5
36.9
32.2
37.3
30.9
36.8
29.9
35.0
State (%)
Density Coverage
30.5
34.8
31.0
35.0
30.3
34.2
30.7
34.3
Local (%)
Density Coverage
41.9
46.4
42.3
46.2
42.6
46.7
41.3
45.8
2005
36.5
40.5
27.8
33.1
31.3
35.0
41.9
45.8
2006
2007
2008
2009
36.2
35.9
36.8
37.4
40.1
39.8
40.7
41.1
28.4
26.8
28.1
28.0
33.7
31.5
33.0
33.2
30.2
30.4
31.6
32.2
33.6
34.0
35.1
35.3
41.9
41.8
42.2
43.3
45.7
45.6
46.1
46.8
2010
36.2
40.0
26.8
31.4
31.1
34.6
42.3
45.9
2011
37.0
40.7
28.1
33.2
31.5
35.0
43.2
46.6
Source: U.S. Bureau of Labor Statistics, News Release, January 23, 2012, Table 2. <http://tinyurl.
com/27c4z5>
FIGURE 1
Average Annual Major Work Stoppages, 1971–2010, by Decade
Source: U.S. Bureau of Labor Statistics, News Release, Major Work Stoppages in 2010,
Chart 1. <http://tinyurl.com/n7vo4xf>
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255
FIGURE 2
Major Work Stoppages, 2003–2011
Source: Compiled from U.S. Bureau of Labor Statistics, Major Work Stoppages (Annual
2003–2011).
2007. However, after the arrival of the recession, public sector strikes
immediately declined to three, two, four, and one from 2008 to 2011. This
trend is consistent with the procyclical nature of strikes identified in the
private sector and suggests that the public sector is affected in a similar
manner (Harrison and Stewart 1989; Campolieti, Hebdon, and Hyatt
2005).
Working Conditions
As a measure of working conditions and perhaps another measure of
conflict for public sector employees, we examine illness and injury rates.
The BLS began reporting injury and illness rates for public sector state and
local workers in 2008. In 2010, the BLS reported rates for approximately
18.4 million state and local government workers—for example, police
protection and fire protection. According to the BLS (2010) and as illustrated in Figure 3,
approximately 820,300 injury and illness cases were
reported among state and local government workers
combined in 2010, resulting in a rate of 5.7 cases per
100 full-time workers—significantly higher than the
rate among private industry workers (3.5 cases per 100
workers), and relatively unchanged from the rate (5.8
cases) reported among these public sector workers in
2009. Nearly 4 in 5 injuries and illnesses reported in the
public sector occurred among local government workers
in 2010, resulting in an injury and illness rate of 6.1 cases
per 100 full-time workers—significantly higher than the
4.6 cases per 100 full-time workers in state government.
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FIGURE 3
Injury and Illness Rates, Private and Public Sectors
Source: U.S. Bureau of Labor Statistics, News Release, Workplace Injuries and Illnesses,
2010, Chart 3. <http://tinyurl.com/3zzyww7>
TRC = total recordable cases
DART = days away from work, job transfer, or restriction cases
DAFW = days away from work cases
DJTR = days of job transfer or restriction-only cases
ORC = other recordable cases
The BLS also provides data showing injuries and illnesses that caused
days away from work. These data are broken down by occupation and
public and private sectors. In each of the occupational categories that
include laborers, janitors, maids, landscapers, and maintenance, state and
local government employees had higher incidence rates in 2010 than the
same categories of private sector employees (Figure 4). Thus, public sector
employees tend to have higher rates than their private sector counterparts,
and local government employees had higher rates than state employees.
Wage and Benefit Levels
Wage and benefits levels (i.e., total compensation) are the outcomes of
market forces, and, where unions exist, the collective bargaining process.
Thus, when compared with private sector compensation, they provide a
partial indicator of the performance of the institution of collective bargaining. After 2008, the issue of public sector compensation became the
pretext for an assault on public sector compensation, jobs, unions, and
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FIGURE 4
Incidence Rates of Injuries and Illnesses with Days Away from Work for
Selected Occupations with High Case Counts by Ownership, 2010*
Source: U.S. Bureau of Labor Statistics, News Release, Nonfatal Occupational
Injuries and Illnesses Requiring Days Away from Work, 2010, Chart A. <http://
tinyurl.com/kemu6sg>
*These occupations had at least 1% of the days away from work cases in their
respective ownerships.
the institution of collective bargaining. Sadly, the rigorous research on
this topic was largely ignored as the rhetoric of the political debate escalated
out of control.
The evidence on the private–public compensation differential both at
the start of the recession in 2008 and the substantial work conducted
since was unequivocal. Public sector employees are generally not overpaid
relative to their private sector counterparts (Keefe 2012; Lewin, Kochan,
and Keefe 2012; Bender and Heywood 2012).
Using the most current and comprehensive data, Keefe (2012) thoroughly tackles the controversial methodological and data issues that have
plagued public–private wage and benefit comparisons over the years. First,
his estimates are conservative because they exclude a control for unionization. He notes:
Union status was omitted from this study and earnings
comparisons, since it has been a focal point of the compensation controversy. This means that, in essence, we are
statistically comparing unionized public sector workers with
all private-sector workers—both union and nonunion—
rather than with their union counterparts. Unionized
private-sector workers have both better pay and higher
benefits, of course, so our standard of comparison is very
conservative. (p. 7)
Second, in the earnings equations, he controls for education, experience, hours of work, organizational size, gender, race, ethnicity, and disability. He reveals that public sector (state and local) workers are more
258
highly educated on average, with 54% of public sector workers holding
at least a four-year college degree compared with 35% of private sector
workers. These college-educated public sector workers were paid 25% less
than their private sector counterparts. When benefits were included in
the comparisons, the differential fell to 20%—still substantial. Keefe
(2012) suggests, therefore, that the size of the differential may create
opportunities for cost saving by reviewing professional contracting out.
We examine the research on this question in the next section on public
sector restructuring.
Finally, he addresses the thorny question of defined benefit versus
defined contribution pensions and associated funding issues. After a
thorough examination of debates over the aggregate size of state and local
government pension deficits, he concludes that “in most states, a modest
increase in funding and sensible changes to pension eligibility and benefits
should be sufficient to remedy underfunding” (p. 8).
Overall, he concludes,
the data reveal that on a per-hour basis, public employees
are slightly undercompensated when compared to similar private-sector employees … full-time state and local
employees are, on average, undercompensated by 5.6%.
The public employee compensation penalty is smaller for
local government employees (4.1%) than state government workers (8.3%). (p. 4)
Public Sector Downsizing and Restructuring
Largely for financial and budgetary reasons, governments of developed
countries have attempted to achieve economies in the provision of public
services. These trends, which have been prevalent since the 1980s, can be
divided into two categories (Osborne and Gaebler 1992; Hebdon and
Kirkpatrick 2005). The first is downsizing or reducing the size and scope
of public services. Second is the trend to reform the management of these
services by adopting private sector or market-oriented approaches and
methods.
Downsizing
Reductions in the size of public service employment rarely involve layoffs
or dismissals. Cuts are more likely to have indirect effects such as hiring
freezes or not replacing employees who quit or retire. Whatever the method
used, if there has been widespread use of these measures, the effects should
show up in total public sector employment statistics.
Using public sector employment as a proportion of the labor force, we
begin with a comparative look at the numbers. The direct workforce in
public services (as a proportion of total employment) remains considerably
PUBLIC SECTOR
259
larger in some countries than in others. In Sweden, for example, the public
sector accounted for 26.2% of total employment in 2008, while in France
the figure was 21.9%. By contrast, the percentage size of the share of the
public sector in total employment in 2008 was much lower in the United
States (14.6%), the United Kingdom (17.4%), Canada (16.5%), Greece
(7.9%), Spain (12.3%), and Germany (9.6%) (OECD 2011:38). In addition, the proportion showed only a slight decrease over the period from
2000 to 2008 in the United States, from 14.8% to 14.6%. Over the same
period, the OECD average of 34 countries also dropped marginally from
15.2% to 15.0%. Thus, there is no indication of significant change in
public sector employment at least up to 2008 (for the recession period
after 2008, see Dewan 2012).
The BLS provides data on the two categories of federal government
employment and state and local government employment. Over the period
2000 to 2010, the federal government gained 103,000 jobs, and state and
local government gained 1,588,000 (U.S. BLS 2010). Thus, whether as a
proportion of total employment or by industry category, there is no evidence that public sector restraint policies have reduced employment.
Management Reform
A new public management (NPM) has emerged that promotes the adoption of various market and private sector business practices. There is a
debate in the public administration literature about the pervasiveness of
NPM. On the one hand, it is argued that there is a convergence of NPM
reforms in the United States and Europe (Gualmini 2008), while others
challenge the existence of an NPM paradigm (Goldfinch and Wallis 2010).
Here are some typical examples of NPM (Gualmini 2008; Goldfinch and
Wallis 2010):
• A move from a focus on process and input reporting to outputs,
outcomes, or results, and the reporting of such
• Decentralized structures with smaller, multiple, and often singlepurpose agencies and putatively flexible and innovative staff replacing
highly centralized bureaucracies
• Motivation of public servants based on financial incentives rather
than professional ethos or duty, with contracts, particularly written
ones, being a key part of this process
• Greater autonomy to agency managers, including decision-making
power on human resources and IT and other operational matters
• Internal and external market or quasi-market mechanisms to imitate
market competition, including the widespread use of competitive
mechanisms, written contracts, contracting out, and ultimately
privatization
• A customer focus, sometime defined primarily in market terms, for
the provision of public services
260
• Professional, union, and operational group influence severely
curtailed, with such groups often characterized as “rent seeking”
interests, excluded from decision making
We provide evidence of one of the most prevalent elements of NPM—
privatization. The most common form of privatization is contracting
services to the private sector (Brudney, Fernandez, Ryu, and Wright 2005).
For an account of this phenomenon during the Great Recession, see
Dannin (2012).
Contracting Out to the Private Sector
There are no publicly collected data on contracting out, but the International
Cities and Counties Management Association (ICMA) conducts periodic
surveys of alternative service delivery at the local level of government. The
2002–2003 survey includes service-delivery questions for 67 defined
municipal services. This survey shows that local governments provide
fewer of the 67 services, but delivery by public employees was still the
most prevalent (44%) and remained stable from the previous survey in
1997. An examination of the results of ICMA surveys over the periods
1992 through 1996 and 1997 through 2002 reveal that contracting out
was also stable over the period, at 27% of all service delivery (Hefetz and
Warner 2007:557).
It was previously revealed that college-educated private sector employees
are more than 20% better compensated than similarly educated state and
local public sector workers (Keefe 2012). This gap might create cost saving
opportunities by reviewing professional contracts. Indeed, public administration researchers have discovered a significant contracting back in
(labeled “reverse contracting”) phenomenon of previously privatized
services at the local level of government. One study found that from 1992
through 1997, new contracting was used in 18% and reverse contracting
in 11% of the cities in the sample but, surprisingly, in the subsequent
survey period (1997 through 2002), new contracting was 12% and reverse
contracting 18% (Hefetz and Warner 2007). A Canadian study that
replicated the 2002–2003 ICMA study also revealed both high levels of
privatized services as a proportion of all services provided (26.6%) and
significant cases of new reverse privatization or contracting back in (28%
of cities) (Hebdon and Jalette 2008).
Union Responses to Privatization
Most privatization studies either ignore unionization or include a dummy
variable indicating whether the city workers were unionized. One exception was a study that examined various union strategies when confronted
with membership losses owing to contracting out proposals. It found that
PUBLIC SECTOR
261
union strategies included not reacting or supporting the proposal,
engaging in collective action, attempting arbitration and litigation, negotiating to reduce adverse effects, suggesting alternatives to privatization,
or combinations of these strategies. Though unionized cities attracted a
greater number of new privatization proposals, unions effectively rejected
them—the most successful strategy being to suggest alternatives. Conversely,
initiating strikes and other industrial actions were not as effective. Cities
in which multiple strategies were adopted had lower long-term privatization rates. The authors suggest that their results support a pragmatic view
of union–management relations illustrating how unions and city managers
found mutually acceptable alternatives to privatization or adjustment
policies (Jalette and Hebdon 2012).
THE STORM
Economic/Financial
The Great Recession produced the worst budget crisis at the state and local
levels of government since the Great Depression of the 1930s (Freeman
and Han 2012). State governments, for example, were directly affected in
two ways. First, tax revenues declined in 2009 by 8.5%, back to 2006 levels
(Pece, Lee, and Higgins 2011). Second, expenditures on welfare, health,
and unemployment insurance increased dramatically as demand for services
exploded. For example, 2009 unemployment insurance increased 86%
over 2008 levels (Pece, Lee, and Higgins 2011). The result was that at least
37 states had substantial budget deficits. As Keefe (2012) explains:
Several governors have identified excessive public employee
compensation as a major cause of their states’ fiscal duress,
including New York, New Jersey, California, Wisconsin,
Michigan, Ohio, Iowa, and Indiana. The remedies they
propose include public employee pay freezes, benefits
reductions, privatization, major revisions to the rules of
collective bargaining, the elimination of collective bargaining and constitutional amendments to limit pay increases,
each as a necessary antidote to the public employee overpayment malady. (p. 239)
Political and Backlash
The 2010 midterm elections saw a significant shift in favor of the Republican
party and the emergence of the Libertarian tea party faction. Emboldened
by the defeat of Democrats during those elections, several Republican
governors used their budgetary crises to attack public employee compensation, unions, and collective bargaining. This type of attack was not new,
262
but its scope and the national attention it received was (Freeman and Han
2012; Malin 2012). Freeman and Han (2012) document the scope of the
attempted changes:
There were 733 bills in 42 states relating to public
employee unions, 140 bills relating to union dues/agency
fees, 55 bills on political activities and contributions, 171
bills for public safety employees, and additional bills in
other categories making a total of 1707 bills in 50 states.
The majority of these bills in most states were designed
to weaken unions and their collective bargaining rights.
(p. 393)
After an analysis of such factors as debt-to-state gross domestic product,
deficits, and the existence of collective bargaining laws, Freeman and Han
(2012) found that the main cause of the budgetary problems was the
recession and that unions gave sizable wage and benefit concessions to
deal with the crisis. The authors conclude that the attacks were motivated
by political opportunism and ideological opposition to collective bargaining (Freeman and Han 2012; see also Keefe 2012).
Social Context
The debate about public sector bargaining took place against a background
of declining private sector unionization and growing inequality in both
in the labor force and society. Conservative attacks on public sector compensation have relied on what conservatives perceive as private sector
workers’ envy of better wages, health, and retirement benefits of public
sector workers (Freeman and Han 2012).
Despite union decline, however, public support for unions had remained
stable for more than 70 years, according to the Gallup organization (Gallup
2012). Support declined, however, in 2009 to an all-time low of 48%,
perhaps owing to the GM and Chrysler bailouts and the sense that autoworker contracts contributed to their difficulties. More recently, union
support increased to 52% but has yet to reach the historic 60% of the
previous 70 years (Gallup 2012).
The surprising support for collective bargaining both in Wisconsin and
in national polls may have something to do with growing inequality in
America. As a measure of inequality, the OECD reports Gini coefficients
after taxes and transfers for 34 developed countries (OECD 2012). The
OECD data confirm that inequality as measured by Gini coefficients for
the working age population grew steadily from the mid-1970s to the late
2000s. Of the 34 countries in the OECD study, the United States had
the fourth highest inequality index.2
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263
Legal/Legislative
Although public sector labor statutes change much more frequently than
private sector labor statutes, 2011 was the most significant year in this
regard for at least several decades. The changes (or, in the case of Ohio,
the attempted change) that have continued into 2012 are summarized
below. In this list, Ohio is first, because it was one of the most far-reaching
attempts to cripple bargaining rights. The remaining state laws, all still
quite significant, are listed in alphabetical order. In all instances, these
laws either restricted or eliminated collective bargaining rights of public
employees. Wisconsin will be discussed in the next section as part of our
special focus.
This section is limited to laws on collective bargaining. It does not
include laws that cut pension benefits for public workers, although from
2010 to 2011, 41 states enacted significant changes to their public sector
pension statutes. The changes in pension laws all resulted in reduced
benefits and/or reduced coverage. Moreover, public sector pension benefits
and formulas are rarely a legal subject of bargaining for public sector
unions. Rather, in almost all jurisdictions, pension benefits and formulas
for public employees are set by a separate statute and are not subject to
union negotiations (Slater 2012a). This section also does not cover recently
passed laws in states which do not permit collective bargaining that limit
or bar payroll deductions for organizations that engage in political activity
(a move clearly aimed at unions; see, e.g., Alabama Act 2010).
We discuss Ohio and provide a summary of changes in the other states
in an appendix to this chapter.
Ohio
In 1983, Ohio enacted a public sector labor law applicable to most public
employees; it even allows most public workers to strike (Ohio Statutes
2011a). In 2011, Governor John Kasich signed Senate Bill 5 (S.B. 5), a
bill designed to profoundly alter this law (Ohio Statutes 2011b).
Ohio law permits recently enacted legislation to be put on hold pending
a voter referendum on whether to reject the law, if enough signatures are
gathered requesting such action. Pursuant to this procedure, S.B. 5 was
put on hold pending a voter referendum in November 2011, and in that
referendum, the voters soundly rejected S.B. 5 (the vote was approximately
61% to 39%; Slater 2012b).
Notably, S.B. 5 was nearly as radical as Act 10 in Wisconsin. Among
other things, S.B. 5 would have eliminated collective bargaining rights for
certain employees, including, at least, most college and university faculty,
lower-level supervisors in police and fire departments, and employees of
charter schools (Ohio Statutes 2011b).
264
Senate Bill 5 also would have imposed right-to-work rules and barred
public employers from agreeing to provide payroll deductions for any
contributions to a political action committee without written authorization from the individual employee. It also would have greatly restricted
the scope of bargaining and made a number of other changes restricting
or eliminating union rights (Ohio Statutes 2011b).
For employees who could bargain, S.B. 5 would have eliminated both
the right to strike for those who have that right (all covered employees
with the exception of police, fire, and a few other small categories) and
the right to binding-interest arbitration at impasse for employees who
cannot strike. Instead, the parties would have been left to mediation and
fact finding, and if those did not lead to an agreement, the governing
legislative body could have, essentially, simply chosen to adopt the employer’s final offer. Specifically, if the nonbinding mediation and fact finding
did not produce an agreement—and the fact finder’s report could have
been rejected by either the employer or a majority of the union—then the
governing legislative body (often the employer itself) would have had the
option of choosing the employer’s final offer (Ohio Statutes 2011b).
It added various additional restrictions to the impasse procedure, all
favoring the employer. Even within the negotiating and fact-finding process, S.B. 5 would have required that, in determining the employer’s ability
to pay (a statutory factor that fact finders had to consider under pre-existing
law as well), only the financial status of the public employer at the time
of negotiations could be considered; future potential revenue increases
from levies and bonds could not be (Ohio Statutes 2011b). Also, under
S.B. 5, for certain employers (not the state or state universities), if the
legislative body selected the last best offer that cost more and the CFO of
the legislative body did not determine whether sufficient funds existed to
cover the contract, the last best offers could have been submitted to the
voters (Ohio Statutes 2011b).
Other States
Legislative changes designed to weaken union collective bargaining rights
are summarized for several states in the appendix. Changes tend to focus
on a particular sector (schools, local government, state, etc.) and such
issues as interest arbitration and union security.
The Federal Sector
A distinctive legal system governs federal sector (nonpostal) labor–
management relations. Title VII of the 1978 Civil Service Reform Act
(the Federal Service Labor–Management Relations Statute, FSLMRS)
covers employees in the general schedule and wage grade parts of the
civilian federal sector. (A separate statute, the Postal Reorganization Act
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265
of 1970, applies to the U.S. Postal Service and allows for relatively broader
union rights.) Essentially codifying a pre-existing string of executive orders
emanating from President Kennedy’s 1962 January Executive Order 10988,
the FSLMRS tilts the balance of power between the parties decidedly to
the advantage of management. It grants employees the right to unionize
and bargain collectively but denies them the opportunity to negotiate
over major economic issues. The FSLMRS also forbids strikes and union
security agreements, such as the agency shop. In addition, it enumerates
a potent list of managerial rights. In setting policy in the area, Congress
and the executive branch have preserved policymakers’ prerogatives regarding budgeting and staffing.
Notwithstanding these limitations, most employees in the federal
service have opted for union recognition (for brief discussions of the evolution of federal sector labor policy, see Masters and Albright 2003 and
Masters, Albright, and Eplion 2006). Union representation grew rapidly
after the 1962 presidential order and rose to peak levels of slightly more
than 60% of the nonpostal civilian sector by the mid- to late 1970s, since
which time it has remained more or less steady. This relatively high level
of density; however, does not translate into a commensurate level of union
power at the bargaining table.
In fact, labor’s lack of real bargaining power, coupled with a widely
held perception that management often did not listen or exploited its
advantageous position, produced growing dissatisfaction with the labor
relations system. To a certain extent, the ill-fated 1981 strike led by the
Professional Air Traffic Controllers Organization (PATCO) epitomized
a much broader sense of disenchantment felt throughout the federal service,
particularly among employees and their union representatives.
Compounding this discontent, because unions were denied the right to
negotiate union security agreements, they more often than not confronted
enormous free-riding problems. Federal-employee unions often represented
units in which far less than half of the employees chose to pay dues (Masters
and Atkin 1989, 1990). The resulting lack of financial resources further
hindered the unions’ capacities to service bargaining units.
Despite labor’s relative weakness in the federal system, labor–
management relations still stirs political passions that resemble those
currently surrounding labor–management relations in many state and
localities, where unions have relatively more power in terms of bargaining
rights. In fact, the administration of President George W. Bush deliberately
stirred those passions, hoping to gain political capital from a frontal assault
on unions in the federal service. Its attack reflected a deep-rooted managerial ethos that gained traction from the tragic events of 9/11. The very
legitimacy of union representation came into question, particularly in the
266
vast areas of the federal government dealing with national and homeland
security. Labor–management relations in federal service became a political
lightning rod, foretelling the broader attack on unions after the tea party–
inspired sweep of the Republicans in the 2010 congressional and state
elections.
Backdrop: Clinton, Reinvention, and Partnership
President Bill Clinton entered office in January 1993 facing three pressing
deficits: economic, budgetary, and public confidence in government (Kettl
1994). Many pundits believed that the last deficit approached crisis proportions. To address the confidence issue, President Clinton charged Vice
President Al Gore to lead a National Performance Review (NPR) to
reinvent government (National Performance Review Report 1993; see
Table 2 for a time line on key federal labor relations developments between
1993 and 2012). The NPR borrowed heavily from the emerging NPM
philosophy, which espoused transplanting best business practices to improve
government. One of those practices the NPR (1993) discovered sorely
lacking in the federal service was labor–management cooperation. Instead,
the NPR found a pervasive and largely dysfunctional adversarial labor–
management climate. Without a dramatic transformation in the labor
climate, government could not possibly reinvent itself to become cost
effective and customer oriented.
To address this problem, the NPR recommended that the president
establish a government-wide labor–management partnership program,
which President Clinton did on October 1, 1993, through Executive Order
12871. The order required each federal agency with a bargaining unit to
establish a labor–management partnership to “involve employees and
their union representatives as full partners with management representatives to identify problems and craft solutions to better serve the agency’s
customers and mission.” Another union-empowering change made it
mandatory for agencies to negotiate over so-called “permissive” items,
which include, under § 7106(b)(1) of the FSLMRS, determining the
numbers, types, and grades of employees assigned to an organizational
subdivision and work projects, as well as the technology, methods, and
means of performing work.
Agencies rapidly implemented partnerships and began the process of
involving unions in pre-decisional bargaining to improve labor relations,
working conditions, and agency performance. Most agencies complied
with the partnership mandate, at least in a nominal sense, but there was
considerable reluctance to bargain (b)(1) items in a meaningful fashion.
The overall record of impact of the partnership experiment was mixed.
Identifying and measuring resulting improvements in agency performance
often proved problematic. Nonetheless, several studies have identified
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267
TABLE 2
Time Line of Key Federal Sector Labor Relations Developments, 1993–2012
Date
Development
September 1993
National Performance Review issues from Red Tape to
Results: Creating a Government That Works Better and
Costs Less
October 1, 1993
Executive Order 12871
February 17, 2001
November 14, 2001
Aviation Transportation and Security Act
November 25, 2002
Department of Homeland Security Act
March 2003
Transportation Security Administration Memo
November 24, 2003
National Defense Authorization Act for fiscal year 2004
June 27, 2006
National Treasury Employees Union v. Chertoff, U.S. Court
of Appeals, District of Columbia Circuit, Nos. 05-5436,
05-5437
September 3, 2006
Federal Aviation Administration imposes work rule
changes
May 18, 2007
American Federation of Government Employees v. Gates,
United States Court of Appeals, District of Columbia
Circuit, No. 06-5113
August 13, 2009
Federal Aviation Administration and National Air Traffic
Controllers Association reach agreement
October 29, 2009
National Defense Authorization Act for fiscal year 2010
December 2009
November 12, 2010
Federal Labor Relations Authority decision on
Transportation Security Administration union election
February 4, 2011
Transportation Security Administration administrator’s
decision
June 29, 2011
American Federation of Government Employees certified
as exclusive union at Transportation Security Administration
February 6, 2012
FAA Modernization and Reform Act
August 2, 2012
American Federation of Government Employees and
Transportation Security Administration reach labor
agreement
268
positive effects on the labor–management relations climate, reduced
grievance and arbitrations, and brought cost savings in selected agencies,
often as a result of fewer litigated disputes between the parties (Masters
2001; Masters, Albright, and Eplion 2006; U.S. OPM 2000).
Although it produced mixed or often unclear results (perhaps
“unmeasured” is the better term), the partnerships nevertheless sent a
powerful message. The Clinton mandate established labor–management
relations as a central part of the broader reinvention initiative. Thus,
Executive Order 12871 elevated the organizational significance of labor–
management relations to management. A much wider swath of managers
became involved in dealing with unions on a broader range of issues, and
often on a much more positive note. Many partnership councils became
deeply involved in organizational projects, such a restructuring, in which
the parties established an ongoing dialogue. If the parties were willing
(and not infrequently, at least one of them was reluctant or distrustful),
they had an opportunity to contribute to improving agency performance
while simultaneously improving the labor relations climate.
The Bush Years
Successive Democratic and Republican administrations from President
Kennedy to President Clinton have basically accepted the framework of
limited union rights in the federal service. The election of George W. Bush
in 2000, however, ushered in a new chapter in federal labor–management
relations. Within a month after taking office, President Bush issued
Executive Order 13203, which rescinded Clinton’s partnership mandate.
He tore a page directly from a January 2001 report issued by the Heritage
Foundation titled “Taking Charge of Federal Personnel” in which the
authors declared that “the new President will need to revoke President
Clinton’s executive order and demonstrate from the outset that his approach
to reforming the federal bureaucracy will emphasize political responsibility
and accountability to the taxpayer” (Moffit, Nesterczuk, and Devine
2001:4).
A further indication of the Bush administration’s approach toward
federal sector labor–management relations surfaced in the President’s
Management Agenda, issued in August 2001 through the Office of
Management and Budget (U.S. OMB 2001). One of the cornerstones of
the agenda involved promoting “freedom to manage.” The OMB declared
that “federal managers are greatly limited in how they can use available
financial and human resources to manage programs; they lack much of
the discretion given to their private sector counterparts to do what it takes
to get the job done” (U.S. OMB 2001:5). The agenda urged the strategic
management of human capital and acceleration of competitive sourcing
or outsourcing of government functions and personnel, but it stood deaf-
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269
eningly silent on the matter of union representation and labor–
management collaboration.
Coupled with the rescission of the partnership mandate, the freedomto-manage initiative sent a clear message. Partnership may die on the vine,
but managerial rights need to expand, and unions have no place in the
process of managing and engaging the workforce. As Elie Wiesel said, the
opposite of love is not hate but indifference—and the attitude toward
unions was precisely indifferent.
TSA, DHA, and DOD
The tragic events of 9/11, however, provided an unfortunately rich opportunity for the Bush administration to advance its agenda to a whole new
level and marginalize unions in the process. Urgent demands to federalize
airport screeners started right after the terrorist attacks. In the process of
enacting the Aviation Transportation and Security Act (ATSA) of 2001,
the administration insisted on managerial flexibility to establish a new
labor relations policy covering airport screeners. Signed into law in
November 2001, the ATSA granted the agency head such latitude, which
was exercised by Admiral James Loy, head of the newly created
Transportation Security Agency (TSA). In a March 2003 memorandum,
Loy stated in relevant part with respect to Transportation Security Officers
(TSOs): “In light of their critical national security responsibilities, [TSOs]
shall not, as a term or condition of their employment, be entitled to engage
in collective bargaining or be represented for the purpose of engaging in
such bargaining by any representative organization.” The policy maxim
arose that union rights were incompatible with national security.
A second wheel of the federal government’s organizational response to
9/11 involved creating the Department of Homeland Security (DHS),
which the Bush administration agreed to under considerable congressional
prodding. In enacting DHS, the administration aggressively resisted
granting DHS employees (many of which would come from the 22 agencies with already existing bargaining units) collective bargaining rights.
An impasse resulted that was effectively broken by the 2002 midterm
elections. The compromise required merely that the new secretary of DHS,
with the director of the Office of Personnel Management (OPM), establish
a new personnel system that would “ensure that employees may organize,
[and] bargain collectively.” No specifics followed. Those specifics came in
a set of final implementation regulations imposed in February 2005. The
new DHS labor program sharply shrunk bargaining rights from those
afforded under the FSLMRS. It expanded the scope of managerial rights,
significantly narrowed the scope of bargaining, and created an in-house
board to administer the labor relations program. The logic behind this
program was that even the limited rights granted unions under the
270
FSLMRS were incompatible with the managerial flexibilities (writ
“freedom to manage”) essential to operation agencies with a homeland
security mission.
While the DHS approach to labor–management relations covering
about 170,000 employees in 22 existing agencies (including the recently
formed TSA) was unfolding, the Department of Defense (DOD) launched
a strikingly similar effort as part of its Fiscal Year 2004 National Defense
Authorization Act, which was enacted in November 2003. DOD proposed
granting its secretary and the director of OPM the authority to create a
new National Security Personnel System (NSPS) that would introduce
more managerial flexibilities á la DHS, based on the logic that collective
bargaining introduced unacceptable rigidities into staffing and managing
in an agency with a security mission. At the time, DOD employed about
650,000 civilians, a majority of whom were represented by unions. DOD
and OPM issued the final regulations for NSPS in November 2005. The
new labor relations system closely resembled the one adopted for DHS.
It expanded the sphere of managerial rights, narrowed the scope of bargaining, and established an in-house board to administer the program.
In short, by the end of 2005, the Bush administration had effectively
taken 823,000 of the 1.83 million civilian workers and put them under
new labor relations systems. In so doing, it had eliminated collective
bargaining rights for one group (TSOs). For the other DHS employees
and the DOD workforce, managerial rights were expanded and the scope
of bargaining narrowed. The Bush administration had gone a long way
toward fulfilling the objective of granting greater freedom to manage.
FAA and NATCA
The disastrous (from the union perspective) PATCO strike of 1981, which
caused 11,000 air traffic controllers to lose their jobs, has emerged as a
turning point in the litany of modern American labor relations. McCartin
(2011:361) has argued that “while the PATCO strike did not cause American
labor’s decline, it acted as a powerful catalyst that magnified the effects
of the multiple problems that upset American unions.” Many have felt
that President Reagan’s coup de grâce against the strikers gave implicit
license for employers to deal harshly when their workers struck.
PATCO was rapidly decertified as permitted under the FSLMRS, but
it did not take long for a new union of air traffic controllers to emerge.
The National Air Traffic Controllers Association (NATCA) won exclusive
recognition in 1987. For whatever reason, air traffic controllers have an
expressed need for union representation. The FAA has never been known
to lack controller–management tensions.
In the mid-1990s, Congress took steps to modernize the FAA’s personnel
system, which actually set precedent for the Bush administration's subse-
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271
quent efforts, though with far different consequences for union rights. To
introduce more flexibility into personnel, Congress passed legislation in
1995 that required the FAA to develop a new personnel system (Shimabukuro
2008), which the FAA administrator did in early 1996. Later in 1996,
Congress amended the program by creating a new dispute resolution
procedure that required mediation of the disputed items by the Federal
Mediation and Consultation Service (FMCS). If mediation did not produce
mutual agreement, Congress gave the FAA administrator the power to
impose new contractual terms, unless it objected. In the process of revamping the personnel system, unions in the FAA acquired the right to negotiate
over selected economic items, an enviable anomaly in the federal service.
The FAA and NATCA entered a tense set of negotiations during the
Bush administration, against the backdrop of recurring calls to commercialize or privatize the air traffic control function. After months of negotiating, the FAA declared an impasse. And in September 2006, the
administrator of the FAA chose to exercise the authority to implement
unilaterally a new contract, which changed work rules and reportedly
reduced the starting pay of new controllers by 30%. Congress chose not
to override the FAA’s decision.
It took more than three additional years for the FAA and NATCA to
reach a new agreement, which occurred in August 2009, after mediation.
The head of NATCA declared this “a new day between the FAA and the
air traffic controllers as we move forward with a spirit of cooperation.”
From that point forward, the NATCA’s attention turned more toward
congressional funding of the FAA and creating a “fairer” dispute resolution procedure that would provide for binding arbitration.
The Unions Respond: Litigation and Political Action
The major federal-employee unions, which often have competed among
workers for bargaining rights, entered into an ad hoc alliance to challenge
the Bush attacks. They carved two main paths to wage proverbial battle:
litigation and political action. To a remarkable degree, their efforts proved
fruitful. The primary union actors in this more or less concerted effort
involved the three largest unions in terms of bargaining recognition in
the federal service: the American Federation of Government Employees
(AFGE), National Treasury Employee Union (NTEU), and National
Federation of Federal Employees (NFFE, which had affiliated with the
International Association of Machinists, IAM, in the late 1990s). Given
its relatively narrow jurisdiction confined to FAA, NATCA focused mainly,
but by no means exclusively, on matters pertaining to that agency.
As a result of the their efforts in litigation and political activism aimed
at securing union representation of TSOs, the AFGE and TSA reached
their first collective bargaining agreement in August 2012.
272
To wage aggressive campaigns, particularly on the political front, the
unions had to amass large sums of money. Political clout, rightly or
wrongly, does not come cheaply in a city (Washington, DC) where billions
are spent each year to influence lawmakers.
To give some insight into how much the main federal-employee unions
have spent in politics over the past several years, we report two sets of data:
(1) contributions to federal candidates, parties, and other political action
committees (PACs), and (2) lobbying and electioneering expenditures. The
first set of data is from the Center for Repressive Politics (CRP), and it
includes the money unions contribute from their own PACs, contributions
made by individuals affiliated with the unions as officers or employees,
and treasury-based income that can be contributed to certain political
entities, such as Super-PACs. The second set is from the unions’ annual
financial disclosure forms (LM-2) filed with the Department of Labor
(DOL) and available online. Since 2005, DOL has required the reporting
of political expenditures from treasury-based income on such forms.
Table 3 reports the federal-employee unions’ contributions (from PACs,
individuals, and treasury-based income) to federal candidates, parties, and
other PACs. It reveals a sizable increase in contributions over the past seven
election cycles, though 2012 data are not complete at this date. Despite
the fact that 2012 data have not been fully reported, NATCA’s contributions have increased more than fourfold between 2000 and the most recent
cycle to nearly $3.3 million. To put this number into a different perspective, NATCA’s contributions in 2012 amounted to about $202 per union
member. Between 2000 and 2012, AFGE’s contributions rose by more
than 57%, to nearly $1 million. Parenthetically, as an affiliate of the IAM,
the NFFE has relied on its parent affiliate to perform this role.
Table 4 reports the amount of money unions spend from their treasurybased income on lobbying and electioneering (it does not include political
money unions raise from their members on a voluntary basis to contribute
to candidates through PACs). It reveals that AFGE has increased its political expenditures from $4.8 million to more than $6 million over the
period between 2005 and 2011. Although spending relatively small
amounts, NFFE’s expenditures have notably increased.
The Obama Program
Federal-employee unions had high hopes for the future when President
Obama was elected and the Democrats retained control of Congress in
2008. They lobbied intensely for restoration of some sort of partnershiptype executive order. They also hoped to secure a rescission of Admiral
Loy’s policy regarding TSOs’ collective bargaining rights. In addition,
the unions wanted to ensure the demise of the NSPS program and the
adoption of a new dispute resolution procedure at the FAA.
273
PUBLIC SECTOR
TABLE 3
Major Federal Union Contributions to Federal
Candidates, Parties, and Outside PACs, 2000–2012
Union
Election cycle
AFGE
NATCA
NFFE
NTEU
2000
$586, 277
$ 782,525
—
$474,755
2002
718,405
1,099,100
—
517,700
2004
721,700
1,444,900
—
574,575
2006
688,369
2,160,570
—
563,160
2008
896,720
2,487,033
—
604,190
2010
990,030
2,303,550
—
601,950
2012*
923,590
3,239,570
—
407,662
*Incomplete data from 2012 election cycle as of the date of this writing.
TABLE 4
Major Federal Union Political Expenditures, 2005–2011 (LM-2 Reports)
Union
Year
AFGE
NATCA
NFFE
NTEU
2005
$4,803,494
$1,809,408
$ 42,506
$2,225,619
2006
4,780,544
1,401,078
109,310
1,674,366
2007
5,022,036
1,340,884
101,798
1,792,748
2008
4,243,172
3,288,631
138,270
2,093,571
2009
4,330,761
1,938,679
186,449
1,998,241
2010
6,238,937
2,285,252
206,060
1,774,071
2011
6,046,061
1,671,252
237,150
1,828,427
For the most part, the Obama administration has responded favorably.
It encouraged Congress to terminate NSPS, which occurred in 2009.
Obama’s TSA director also reversed Admiral Loy’s ban on TSO collective
bargaining. In December 2009, President Obama issued Executive Order
13522 “Creating Labor–Management Forums to Improve the Delivery
of Government Services.” Executive Order 13522 declares that its purpose
“is to establish a cooperative and productive form of labor–management
relations throughout the executive branch” by requiring agencies to
establish labor–management forums that would “allow employees and
their union representatives to have pre-decisional involvement in all
workplace matters to the fullest extent practicable, without regard to
274
whether those matters are negotiable subjects of bargaining.” The order
also created a tripartite (labor, management, neutral) National Council
on Federal Labor–Management Relations (the Council) to provide guidance in establishing forums and ensure that they focus on identifying and
measuring ways to improve governmental performance as well as the
labor–management climate, which had obviously deteriorated under the
Bush years (National Council Report 2012).Shortly after its inception,
the Council adopted a set of guiding principles for labor–management
forums (Masters, Merchant, and Tobias 2010). It has also focused extensively on identifying metrics so that forums can evaluate their impacts,
as required under the order.
One aspect of the order, however, proved very disappointing to the
unions. Unlike Clinton’s Executive Order 12871, the Obama mandate
did not require the negotiation of the so-called permissive (b)(1) items.
Instead, it required that (b)(1) pilots be established and evaluated. The
Council established 12 such pilots covering about 14,000 employees, each
of which has submitted periodic updates over 17 months. As required,
the Council reported to the president on the results of the pilots. In its
May 2012 report, however, it “determined that challenges remain with
regard to evaluating bargaining over permissive subjects” and therefore it
planned to extend the duration and scope of the pilots before rendering
any judgments. Simply put, data on actual results and impacts were too
parsimonious to permit meaningful conclusions.
During the Obama years, however, the most overarching concern has
stemmed from the federal budget deficit. Federal employees’ pay has been
frozen for more than two years, and continual concerns about reductions
in force have existed. Interestingly, despite the Bush administration’s
strong push for competitive sourcing, overall nonpostal employment rose
from 1.7 million in fiscal year 2001 to more than 1.9 million in fiscal year
2009. The number of federal employees has hovered in the range of 2.1
million since 2010, though declining very slightly most recently.
Over the past decade and some more, each of the major federal-employee
unions has experienced membership growth, though NFFE’s has been
uneven (Table 5). AFGE’s membership has climbed by about 46% and
NTEU’s grew nearly 14%.
Wrap-Up
Federal sector labor–management relations underwent a full 360-degree
circle in the past 20 years. In 1993, President Clinton embraced and
empowered federal-employee unions in an effort to transform labor–
management relations into a positive force for reinvention. The governmentwide partnership experiment pushed the needle forward, particularly with
regard to improving what had been a widely adversarial labor relations
climate. In this context, even efforts to introduce managerial flexibility,
275
PUBLIC SECTOR
TABLE 5
Major Federal Union Membership 2000–2012
Union
Year
AFGE
NATCA
NFFE
NTEU
2001
198,453
12,645
7,528
74,306
2006
229,248
14,571
6,055
77,707
2011
289,023
16,042
7,674
84,548
such as those undertaken at the FAA, were done to expand rather than
weaken the voice of unions.
This experiment, however, proved short-lived because it was quickly
aborted by the Bush administration in early 2001. In hindsight, this action
represented the first shot across the bow. The President’s Management
Agenda, which came a few months later, sent another signal, though not
one so loud. That agenda set as one of its major objectives promoting the
freedom to manage, and it stood completely silent on the role of unions
in government.
The tragedy of 9/11 provided a wide opening for the administration to
take its managerial agenda to a new level. In creating the TSA and DHS,
the administration insisted on having the authority to craft new personnel
systems, including the labor–management program. At TSA, this meant
denying the TSOs the right to collective bargaining. At DHS, it meant
delimiting the voice of unions far beyond the already circumscribed scope
of influence allowed under the FSLMRS. On the heels of DHS, the
administration sought similar restrictions at DOD. By 2005, the Bush
administration had succeeded in retrenching the bargaining power of
unions to the greatest extent possible on the basis that unionism and collective bargaining were fundamentally incompatible with national and
homeland security.
Federal-employee unions mounted vigorous legal and political
campaigns to reverse these major policy setbacks. They made substantial
inroads through their efforts. The election of President Obama in 2008,
along with the re-election of a Democratic-controlled Congress, accelerated
the demise of the Bush program. By 2011, the unions had succeeded in
terminating the labor relations programs at DHS and DOD, allowing for
the representation of TSOs, and reintroducing a labor–management
cooperation initiative throughout the federal service. NATCA eventually
won its drive for binding arbitration.
In the past decade, federal-employee unions have defeated the
argument that collective bargaining cannot coexist with national and
homeland security. With the re-election of President Obama in 2012, they
have set the stage for the advancement of the labor–management forum
276
program and (b)(1) piloting. Yet, falling off the fiscal cliff looms over everyone
as an ominous cloud whose ramifications remain unfathomable.
THE WISCONSIN CASE
Introduction
Wisconsin was the first state to formalize collective bargaining, in 1959.
One of the contributing factors to the rise of unions was the influx of
youth and minorities into the public service. Identifying with the civil
rights and anti-Vietnam war movements, they demanded social justice
and the wage gains of their private sector counterparts (Kearney 2008).
It was both appropriate—and yet ironic—that the battleground over
public sector bargaining would center on Wisconsin where it had arguably
begun some 52 years earlier.
Legislative History
Before 2011, Wisconsin had two fairly similar public sector labor statutes,
one covering local and county government employees and the other state
employees (Wisconsin Statutes 2012a: § 111.70 and 111.81, respectively).
The former was initially enacted in 1959.
The Budget Repair Bill, Act 10, signed by Governor Scott Walker in
2011, made huge changes to these laws, although it exempted employees
in “protective occupations,” mainly police and fire (Wisconsin Statutes
2012b). Sections § 265, 279, and 280 eliminated collective bargaining
rights entirely for some employees, such as University of Wisconsin (UW)
system employees, employees of the UW Hospitals and Clinics Authority,
and certain home care and child care providers. Section 315 limits the
scope of bargaining to bargaining over a percentage of total “base wages,”
and even this sole permissible topic was limited to an increase no greater
than the percentage change in the consumer price index. The act expressly
excluded from bargaining overtime, premium pay, merit pay, performance
pay, supplemental pay, and pay progressions. No other issues can be
negotiated. Section 169 bars collective bargaining on any other topic even
if the employer is willing to engage in it.
Section 234 bars interest arbitration for all public employees (again,
except for the public safety employees who are generally excluded from
the new statute’s provisions). Interest arbitration is a method to resolve
bargaining impasses that is frequently used in U.S. public sector labor
law. It is meant to substitute for strikes, which are barred for all government employees, even in the majority of states that permit public sector
collective bargaining. Interest arbitration is often the final step in a series
of statutorily mandated impasse processes (often including mediation and
fact finding). Interest arbitration involves an arbitrator (or sometimes an
arbitration panel) deciding on the substantive terms of the provisions of
PUBLIC SECTOR
277
a labor contract that are at impasse, using criteria set out by the relevant
public sector labor statute (Malin, Hodges, and Slater 2010). Although
the new Wisconsin law does away with interest arbitration, it does not
provide a specific replacement procedure to resolve bargaining impasses.
Act 10 also imposed an unprecedented mandatory recertification system
that requires every public sector union to face a recertification election
every year, whether or not any employee requests one. Also, under this
system, a union is recertified only if 51% of the employees in the collective
bargaining unit—not merely those voting—voted for recertification
(Wisconsin Statutes 2012a: § 111.70(4)(d)(2)(a)). The bill also limits the
duration of collective bargaining agreements to one year (Wisconsin
Statutes 2012a: § 111.70(4)(cm)(8m)).
The law also makes Wisconsin a right-to-work jurisdiction by making
union security clauses in collective bargaining agreements illegal (Wisconsin
Statutes 2012b: § 219). Further, the law makes it illegal for an employer
to agree to automatic dues deductions, even for employees who voluntarily
wish to pay dues (Wisconsin Statutes 2012b: § 227).
However, there has been a recent development regarding this law,
especially as to the recertification and dues check-off provisions. On March
30, 2012, a federal district court struck down those two parts of Act 10,
while upholding the rest of it. The case, Wisconsin Education Association
Council [WEAC] v. Walker (2012), upheld most of Act 10 against an equal
protection challenge. For most provisions of the law, the court held, the
state had a rational basis to distinguish nonpublic safety employees from
public safety officials—notably, rational concerns that public safety
employees would be needed if the other public employees went out on
strike (even though such strikes would have been illegal under Wisconsin
law).
But, in a victory for the union side, the WEAC decision enjoined the
recertification provision and the bar on dues check-off on both equal
protection and First Amendment grounds. The court found no connection
between the Walker administration’s purported justification for treating
these two groups of public employees differently for such purposes. There
was no rational basis for this distinction—at least none that did not raise
serious First Amendment concerns. The court noted that “public safety
employees” disproportionately supported the Republican governor, Scott
Walker. Indeed, the court at least strongly implied that the Walker administration passed these provisions as political payback for the public safety
unions that supported Walker in the 2010 election (Bologna 2012a). On
April 9, 2012, the attorney general of Wisconsin, J.B. Van Hollen, filed
with the 7th Circuit an appeal of the substance and a motion to stay the
injunction pending the appeal. This motion remains pending as of this
278
writing (Bologna 2012b). Apart from the stay, the substance of the WEAC
decision will certainly be adjudicated by higher courts.
Here is a summary of Act 10’s elements:
• It prohibited negotiations on pensions, health care, and working
conditions.
• It allowed bargaining on wages only for wage increases at or below
the inflation rate.
• It shifted the burden of paying for pensions and health care benefits
from the government to workers, raising employee contributions
toward pensions and health care premiums by huge amounts.
• It required public sector unions to win an annual vote to maintain
union certification, prohibited them from collecting union dues
through automatic payroll deduction, and allowed members to opt
out of paying any union dues or fees when they wished to do so.
• Finally, the bill required agencies to discharge any state employee who
“participates in a strike, work stoppage, sit-down, stay in, slowdown,
or other concerted activities to interrupt the operations or services
of state government, including … mass resignations or sick calls.”
(State of Wisconsin, Act 10, 2011, Feb. 15)
The Political Attack
In November 2010, Scott Walker was elected governor of Wisconsin with
a majority in both the state assembly and senate. The stage was set for a
battle with state employees who had failed to conclude negotiations in
the previous summer with the Democratic administration. It is worth
noting that various public employee unions had made “large concessions”
during summer 2010, but the contracts had not been approved by the
Democratic-controlled state legislature (Sernatinger 2010:48).
Walker received a powerful mandate but arrived with a problem.
Republicans had argued that Wisconsin was broke during the campaign—
only to find a surplus of $120 million. According to Sernatinger
(2010:49),“Walker and the Republican government wasted no time paying
over $140 million to special interest groups in January through tax deductions, credits, and reclassifications” (see also One Wisconsin Now 2011).
After creating a budget deficit, Walker introduced the Budget Repair
Bill on February 11, 2011. In the state where formal collective bargaining
began for public employees in 1959, Wisconsin became the first state to
end collective bargaining.
The annual union election requirement is particularly draconian in at
least two ways. First, a union must win 51% (which is more than the 50%
plus one majority requirement of the NLRB) of the entire bargaining unit
so that abstainers are counted as “no” votes. Second, if a union fails to
obtain the required 51%, it is decertified at the end of the collective agreement and cannot reapply for a year.
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The act exempted public safety employees from the restrictions—police
officers, firefighters, and state police. Because protecting citizens is one of
the few legitimate purposes of government recognized by Libertarians,
this exemption is not surprising.
Thus, despite the willingness of public sector unions to make concessions and accommodate most of his demands (Sernatinger 2010; Freeman
and Han 2012), Walker insisted on legislation designed to weaken unions
and emasculate the institution of collective bargaining. The stage was set
for confrontation.
Union Responses
Finding themselves at the center of a political struggle for collective
bargaining, unions and their allies adopted strategies that included industrial action, political maneuvering, legal action, and demonstrations. An
estimated 1,000 teachers protested the Repair Bill by calling in sick on
February 16, 2011 (Epstein 2011). Job actions were effective at getting
public attention but were difficult to sustain and ran the risk of losing
public support. Labor and its allies soon realized, somewhat surprisingly,
that there was widespread support for their cause. Planned marches and
demonstrations ranged between 25,000 and 100,000 supporters. These
demonstrations brought national attention to the plight of public sector
workers and in the process exposed the extreme agenda of the tea party
Republicans. They also invigorated the labor movement and their allies in
a manner reminiscent of the 1960s. They came out in huge numbers, young
and old, in the middle of winter to protest the loss of collective bargaining
rights by public sector unions. Both national and statewide polls showed
substantial support for their cause. For example, a Gallup poll in February
2011 showed 61% would oppose a law in their states similar to Walker’s
Wisconsin bill, 33% would favor such a law and, in Wisconsin, 56% to
71% of residents said the state should not take away collective bargaining
rights of public sector workers if workers were willing to pay more for health
and retirement benefits (see Table 4 in Freeman and Han 2012).
Politically, the strategy was to try to block the passage of the Repair
Bill by sending 14 Democratic state senators to Illinois to prevent the
legislature from achieving a quorum (Secunda 2012). This strategy worked
for a while until the Republicans removed the quorum requirement by
eliminating fiscal items in a revised bill introduced on March 9, 2011
(Donegan 2010). This action prompted a legal challenge to the bill that
was initially successful at the Dane County circuit court level but was
eventually upheld by the state Supreme Court in a 4 to 3 decision on June
15, 2011 (Zebley 2011).
Unions and their supporters gained sufficient signatures for the state
to hold recall elections for the legislators in summer 2011. The Republicans
280
retaliated by petitioning to recall two Democratic legislators. If the
Democrats won three Republican seats and held their own, they would
gain a majority in the state senate. The voters recalled two Republicans
and re-elected the Democrats. In winter 2011, unions and their allies had
gathered enough signatures to force a recall election of Governor Walker.
On June 8, 2012, Walker was easily re-elected as governor, and Act 10
restricting public sector collective bargaining remained unchanged.
The Backlash: An Overreach by the Right?
There is sufficient evidence to show that the assault on collective bargaining by the conservative right went beyond what was supportable by public
opinion. There was widespread public support for concessions from public
employees but not for the removal of collective bargaining rights. By
contrast, the re-election of Walker also demonstrates the limitations of
political action by public sector unions and their allies. The story, however,
is different in Ohio where the legislation taking away bargaining rights
was defeated in a referendum.
CONCLUSION
Public employees bore the brunt of a political attack on the American
minimalist version of the welfare state. The conservative right took advantage of an opportunity to try to remove an obstacle standing in the way
of further reductions in the size of government—collective bargaining.
They have succeeded in weakening laws covering negotiations, arbitration,
and union security in several states. Largely because of its fragmented legal
structure, however, we argue that collective bargaining has survived.
More important perhaps, the political attack on public employees and
their unions awakened a sleeping giant. Unions and their allies were
surprised and emboldened by the mass support for their cause in the sheer
size of demonstrations and the wide popular backing for the institution
of collective bargaining. Finally, the Wisconsin battles paved the way for
the Occupy Wall Street movement of 2011 that placed income inequality
on the national scene and on the policy agenda of the United States.
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APPENDIX: LEGISLATIVE CHANGES BY STATE
Idaho
Summary
• Fact finding eliminated
• One-year agreements
• When agreement expires, the terms also expire
• Time limit on negotiations; otherwise school board imposes settlement
Legislative Changes
Idaho enacted SB 1108, which limits collective bargaining by teachers to
“compensation” (defined, in § 17, essentially, as wages and benefits, including insurance, leave time, and sick leave).
Section 22 of the law eliminates mandatory fact finding. Fact finding
is another process commonly used in U.S. public sector labor laws to help
resolve bargaining impasses, typically after mediation and before interest
arbitration. In fact finding, an individual fact finder (or sometimes a panel)
investigates and makes findings regarding facts relevant to the issues at
impasse (e.g., the public employer’s budget and resources and what comparable public employees are paid in comparable jurisdictions) (Malin,
Hodges, and Slater 2010). Now that Idaho has eliminated fact finding,
only mediation remains, and even that is limited. Under § 20 of the new
law, if the parties have not reached agreement, they are permitted but not
required to enter into mediation.
Section 22 also limits collective bargaining agreements to one year and
prohibits “evergreen” clauses.3 Section 20 provides that if the parties have
not reached an agreement by June 10, the school board will unilaterally
set the terms of employment for the coming school year.
Illinois
Summary
• Length of school day and year not mandatory subjects
• Right to strike limited
Legislative Changes
In S.B. 7, § 10, Illinois amended its Educational Labor Relations Act such
that in the Chicago public schools, the length of the school day and school
year are permissive, not mandatory, subjects of bargaining. In other words,
public employers need only negotiate about such issues if the employer
wishes (they are not obligated to do so), and the union may not strike or
invoke any impasse resolution procedures (mediation, fact finding, or
interest arbitration) over such issues.
282
This law also made minor adjustments to the right to strike for most
public education employees and imposed more significant restrictions on
the right for Chicago public school employees.
Under § 13(b)(2), for schools other than Chicago schools, if the parties
have not agreed within 45 days of the start of the school year, the Illinois
Educational Labor Relations Board must invoke mediation. After 15 days
of mediation, either party is allowed to declare an impasse. Seven days
after that, each party must submit its final offer. Seven days later, the
offers are made public. No strike is allowed until at least 14 days after
publication of the final offer.
Under § 13(b)(2.10), for Chicago schools, if mediation fails to produce
an agreement after a reasonable period of time, either party has a right to
fact finding. If this does not produce a settlement within 75 days, the fact
finder will issue a private report with recommendations. The parties have
up to 15 days to accept or reject the recommendations. If the recommendations are rejected, then they are made public. The union cannot strike
until 30 days after the publication of the recommendations and even then
cannot strike unless at least 75% of the bargaining unit authorizes the
strike.
Indiana
Summary
• Scope of bargaining limited to wages and benefits for teachers
• Right to work bars all union security
Legislative Changes
Indiana Senate Enrolled Act No. 575 limits the scope of bargaining for
teachers to wages and benefits. Specifically, § 14 limits bargaining to salary, wages, and certain fringe benefits. The law explicitly bars negotiating
over practically all other subjects. For example, § 15 expressly bars negotiations over a wide variety of subjects, including the school calendar and
criteria for teacher evaluation and dismissal.
Even as to wages and benefits, § 13 forbids contracts that would put a
school district in a deficit. Although the bill does state that the parties
shall discuss issues such as curriculum, textbooks, evaluations, promotions,
demotions, student discipline, and class size, § 18 explicitly adds that
collective bargaining agreements cannot contain any agreements on any
of these topics.
Further, although the new statute allows union contracts to have
grievance procedures, § 17 eliminates the authorization in the previous
law for binding arbitration as part of the grievance procedure. Section 6
also repeals the provision in the previous law that authorized unions and
employers to arbitrate teacher dismissals.
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In 2012, Indiana enacted a right-to-work law (barring all forms of
union security clauses) that applies to the public sector (Schneider and
Sikich 2012).
Massachusetts
Summary
• A procedure for local government to reduce health care costs without
bargaining
Legislative Changes
Chapter 69 of the Acts of 2011 makes it easier for local government
employers in Massachusetts to make changes in health insurance. Under
the new law, the governing body lists its proposed changes along with
estimated cost savings and proof of the savings. It then notifies each
bargaining unit and a retiree representative. The retiree representative and
the bargaining unit representatives form a public employee committee
that bargains with the employer for up to 30 days. After 30 days, the
matter is submitted to a tripartite committee which, within 10 days, can
approve the employer’s proposed changes, reject them, or remand for
additional information. The committee’s decision is final.
Michigan
Summary
• A public sector version of a bankruptcy process whereby collective
agreements can be amended or terminated.
• Scope of bargaining is restricted for teachers.
Legislative Changes
Michigan enacted the Local Government and School District Fiscal
Accountability Act (2011 Michigan Act 4), which allows the governor to
appoint an emergency manager for local governments experiencing a
financial emergency. The manager can reject, modify, or terminate any
terms of contracts with public sector unions. This law has proven quite
controversial. Local city governments within the state (controlled by
Democrats) protest that the Republican governor Rick Snyder is essentially
taking over what should rightfully be locally controlled decisions—or
extorting concessions by threatening to do so.4 On May 22, 2012, a court
of appeals in Michigan upheld this act against a challenge that it violated
Michigan’s open meetings law (Pluta 2012).
A separate law, Michigan Public Act 103, limited the scope of bargaining for public school employees. Among other things, educational employers
and employees cannot bargain over placement of teachers, reductions in
force and recalls, performance evaluation systems, the content and
implementation of policies regarding employee discharge or discipline, and
284
how performance evaluation is used to determine employee
compensation.
In March 2012, Michigan enacted a law providing that union dues for
teachers and other public school employees in Michigan can no longer be
collected through payroll deductions. The law also requires unions to file
independent audits of expenditures for collective bargaining, contract
administration, and grievance adjustment with the Michigan Employment
Relations Commission, which must publish the audits on its website.5
Also in March 2012, in a separate bill, Michigan barred organizing by
graduate assistants at Michigan public universities.6 This law passed both
houses of the Michigan legislature on party lines.
The bill on graduate assistant organizing, has, however, been the subject
of some recent litigation. On April 2, 2012, a judge in Michigan issued
a temporary injunction against this bill (and several others) on grounds
relating to the procedure used in the Michigan legislature to pass it
(Livengood and Kozlowski 2012). But then on April 9, a court of appeals
stayed the injunction pending an appeal. Thus, the ultimate fate of this
law is unknown as of this writing.
Also, on April 10, 2012, Michigan passed a law, S.B. 1018 (P.A. 76),
that blocks home-based caregivers from representation by public sector
unions. Specifically, the law changes the definition of a public employee
to exclude anyone who receives a government subsidy for private employment. It was designed to end dues collection by the Service Employees
International Union (SEIU), which had (since 2066) been acting as the
bargaining representative for home health aides who care for people receiving Medicaid benefits. The Michigan Department of Community Health
pays those workers.7
Nebraska
Summary
• Restrictions on interest arbitration
Legislative Changes
Legislative Bill 397 changed Nebraska’s interest arbitration rules to be
more favorable to public employers. In Nebraska, interest arbitration is
performed by the Commission of Industrial Relations (CIR), not by private
arbitrators.
The new Nebraska law provides detailed criteria for selecting the group
of “comparable” communities for interest arbitrations. Also, it mandates
that if the employer pays compensation between 98% and 102% of the
average of the comparable communities, then the CIR must leave compensation as it is. If the employer’s compensation is below 98% of the
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average, then the CIR must order it raised to 98%; if it is above 102%,
the CIR must order it lowered to 102%. The targets are reduced to 95%
to 100% during periods of recession (defined as two consecutive quarters
in which the state’s net sales and use taxes, and individual and corporate
income tax receipts, are below those of the prior year).
Nevada
Summary
• Collective bargaining is removed from supervisors, doctors, and
lawyers
• Reopeners for fiscal emergencies
Legislative Changes
Nevada enacted S.B. 98. Sections 5 and 6 of this law to reduce the number
of public employee supervisors eligible for collective bargaining. They also
eliminate collective bargaining rights for doctors and lawyers
Also, § 7(2)(w) of this law mandates that labor contracts contain clauses
that would reopen such contracts during fiscal emergencies.
This law applies to local governments only because state employees in
Nevada do not have collective bargaining rights.
New Hampshire
Summary
• Removed card-check recognition
Legislative Changes
New Hampshire enacted S.B. 1, which eliminates the requirement that
the terms of a collective bargaining agreement automatically continue if
an impasse is not resolved at time the agreement expires.
It also enacted H.B. 589, which repealed a 2007 state law that provided
for mandatory card-check recognition—that is, mandatory union certification when a majority of the employees in a bargaining unit sign cards
indicating they want a specific union to represent them.
Readers may recall that such a provision was very controversial in the
United States when the Employee Free Choice Act (EFCA) was being
debated; EFCA would have applied mandatory card-check recognition
to private sector unions under the NLRA. Less well-known is the fact
that a number of states had already adopted mandatory card-check recognition in their public sector laws (California, Illinois, Massachusetts,
New Hampshire, New Jersey, New York, and Oregon; Malin, Hodges,
and Slater 2010:412). New Hampshire, however, has now repealed this
rule.
286
New Jersey
Summary
• Wage controls and arbitration restrictions
• Health care benefits removed from bargaining
Legislative Changes
In late December 2010, New Jersey adopted New Jersey Laws 2010, Chapter
105. This law capped wage increases at 2% for New Jersey police and
firefighter arbitration awards for contracts expiring between January 1,
2011, and April 1, 2014. This cap on base salaries expires on April 1, 2014.
Arguably more important, this law placed serious restrictions on interest
arbitrators. Arbitrators are now randomly selected (as opposed to the
previous process of mutual selection); arbitrator compensation is limited
to $1,000 per day and $7,500 per case; arbitrators must issue awards within
45 days of a request for interest arbitration (prior law allowed 120 days);
and, quite significantly, arbitrators will be penalized $1,000 per day for
failing to issue an award. Also, the arbitrator’s award may be appealed to
the state’s Public Employment Relations Commission, which must decide
the appeal within 30 days.
In 2011, in New Jersey Public Law, Chapter 78, the state suspended
bargaining over health care benefits for four years while a new statute,
which will control the issue, is phased in. The new law sets a sliding scale
of mandatory employee contributions to health care plans, and it calls for
a state committee to design two public sector health care plans: one for
education employees and one for other public employees.
Oklahoma
Summary
• Collective bargaining made discretionary for cities
Legislative Changes
In H.B. 1593, Oklahoma repealed the Oklahoma Municipal Employee
Collective Bargaining Act, a 2004 law that had required cities with populations of at least 35,000 to bargain collectively with unions. The repeal
leaves the decision of whether or not to bargain with a union to discretion
of individual cities.
As in Wisconsin, however, this change does not affect police and
firefighters, who, in Oklahoma, are covered by a separate statute.
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287
Tennessee
Summary
• Collective bargaining removed for teachers
Legislative Changes
In the Professional Educators Collaborative Conferencing Act of 2011
(Tenn. Pub. Ch. No. 378), Tennessee repealed the Educational Professional
Negotiations Act, a 1974 law that had authorized collective bargaining
for public school teachers.
Under the new act, teachers are now permitted only “collaborative
conferencing.” Under § 49-5-605(b)(1), (2), and (4) of this law, teachers
now are represented by groups that receive 15% or more of the votes in a
confidential poll rather than by a particular union. This is an especially
intriguing provision in that it rejects the “exclusive, majority representative” Wagner Act model ubiquitous in public and private sector labor law
in the United States.
Crucially, though, the bill does not provide for “collective bargaining
rights” because that term has been traditionally understood. Specifically,
§ 49-5-608(a) of the new Tennessee law mandates “collaborative conferencing” on issues including salaries, benefits other than retirement benefits,
working conditions, grievance procedures, leave, and payroll deductions.
However, § 49-5-609(d) also states that the parties are not required to
reach agreement on any of these issues and adds that if no agreement is
reached, the school board will set terms and conditions of employment
through school board policy.
Further, § 49-5-608(b) of the law also specifically prohibits collaborative conferencing on a number of issues: differential pay plans, incentive
compensation, expenditure of grants or awards, evaluations, staffing and
assignment decisions, and payroll deductions for political activities.
ENDNOTES
A meet and confer executive order was implemented in 2008.
Only Chile, Mexico, and Portugal had higher Gini coefficients than the United
States.
3
An evergreen clause is a term in a collective bargaining agreement providing that
when the agreement expires, the terms of the agreement remain in effect until it is renegotiated.
4
See, for example, stories and columns at the Huffington Post <http://tinyurl.
com/7dp9vzhr>.
5
H.B. 4929, now P.A. 53.
6
H.B. 4246, now P.A. 45.
7
Nora Macaluso, “Michigan Governor Signs Bill Ending Union Representation for
Home Care Givers” 69 DLR (BNA) A-10 (2012).
1
2
288
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Chapter 8
Professional Sports:
A Tale of Conflict and Accord
James B. Dworkin
Purdue University North Central
Richard A. Posthuma
University of Texas at El Paso
Professional sports are a big part of American culture. Whether
attending a game of one of the four major pro sports—basketball, baseball,
football, and hockey—watching sports on television, reading about last
night’s contest in the newspaper, or buying apparel to support a
favorite team, a very large segment of the population interacts in some
way with the sports industry.
Most people, including the casual sports fan, recognize that along with
scores of games involving their favorite teams, newspapers, magazines,
blogs, Twitter, Facebook, and other media are replete with coverage of
labor relations events in professional sports. In fact, the American public
probably knows more about collective bargaining in the four major pro
sports than in any other industry.
Whether it be a dispute over mandatory thigh and knee pads for
National Football League players, the firing of Major League Baseball
arbitrator Shayam Das after he overturned player Ryan Braun’s drug
suspension, the continued building and opening of new ball parks, a
record number of professional baseball players (14) earning more than
$20 million during the 2012 season, the billions of dollars of licensed
merchandise sales in all four major sports, or the recent controversy over
the use of replacement referees in the National Football League, labor
news seems to constantly compete with the on-the-field aspects of professional sports. This chapter covers the major issues involved in collective
bargaining during the past ten years in professional baseball, football,
basketball, and hockey. A final section will discuss the future of labor–
management relations in this high-profile industry.
THE INDUSTRY
Most industries have unique institutional circumstances that influence
how they operate, and the professional sports industry is no exception.
293
294
One factor is the high-profile nature of the industry. In addition,
professional sports wield enormous market control in the sectors in which
they operate. Professional sports also exercise more control over the allocation and use of their employees (the players) than any other industry.
Finally, the professional sports industry requires teams to cooperate so
that everyone may survive and prosper. Each of these features is discussed
in the following sections.
PUBLIC ATTENTION TO PROFESSIONAL SPORTS
Why are Americans and people around the world so fascinated with
professional sports? U.S. professional sports have huge yearly revenues—
$9 billion in the National Football League (NFL), $7 billion in Major
League Baseball (MLB), $3.8 billion in the National Basketball Association
(NBA), and $2.9 billion in the National Hockey League (NHL). Yet these
revenues pale in comparison to the revenues produced by major U.S.
companies (e.g., Exxon’s fiscal year revenue in 2011 was $496 billion,
Walmart’s revenues were $447 billion, and General Motors had $150
billion in revenues). Thus, it’s not the size of the industry that generates
so much attention (Quirk and Fort 1999; Fort 2000) but other factors.
First, many people grow up actively participating in a variety of
recreational sports. People can relate to professional athletes more easily
than they can relate to workers assembling a car or inventing new software
for a high-technology company. The media fuel vicarious participation
in the sports industry by keeping us constantly informed of the daily
events in each major sport. It’s true that many people also watch the
activity of the New York Stock Exchange and the NASDAQ as a daily
routine. Yet during the important formative years of one’s youth, few
children traded stocks and bonds; most, however, actively participated in
some sport at some time (Little League baseball, youth soccer, etc.).
Second, professional sports teams are a source of community pride.
People are proud of their teams and come to identify with their players
and their successes or failures. The Dodgers left Brooklyn for Los Angeles
in the 1950s, yet even today, people in Brooklyn still talk about Walter
O’Malley moving the team to the West Coast.
Third, competition on the playing field is captivating. One of the
alluring aspects of professional sports is the fascination surrounding games
with uncertain outcomes. With the possible exception of Los Angeles
Dodger fans, who are notorious for arriving late and leaving early, a close
contest typically has fans glued to their seats until the final out or until
the clock ticks off the last second of play.
Fourth, sports teams provide a model for teams in the workplace. Often,
managers seek to emulate the team model to manage their workplaces.
They try to assemble a winning team, to facilitate cooperation among
PROFESSIONAL SPORTS
295
team members, and to celebrate successes when their teams win out over
the competition (Katz 2001).
THE INDUSTRY WIELDS STRONG MARKET CONTROL
The professional sports industry is unique in the degree to which it is able
to exercise market control. Much of this control centers on the exclusivity
of geographic franchises. Through bylaws and rules, sports leagues control
which teams operate in which markets, when teams can relocate, where
they can relocate, and when new franchises can enter the market. By contrast, in the retail industry, Walmart may open a new store, and one of its
competitors is free to locate nearby. There are no restrictions on this kind
of competitive activity. This control over team movements and team location provides the professional sports industry with power not possessed by
any other industry. This power allows team owners to make demands on
cities for new, economically viable stadiums paid for by local taxpayers.
To balk at such a request is to risk losing a team, a risk many cities are
unwilling to take. Often, other host cities wait in the wings, offering enticing packages to existing teams that are considering franchise relocation.
Each professional sports league operates teams only in those markets
(cities) in which it chooses to enter. No competition is permitted. Challenges
to this market control have arisen when rival leagues were formed. But
generally, those challenges had little or no long-term impact. One exception was the American Basketball Association, which prospered for several
years and had several of its better teams absorbed by the NBA (Naismith
1996; Gould 1998). In all other sports, the success of one team or league
has not had much impact on the attendance of other leagues.
CONTROL OVER ALLOCATION AND USE OF PLAYERS
Professional sports have unique control over new player talent entering
the league. This control is exercised via a number of rules and regulations
governing the drafting of rookie players. Actually, until the player unionization movement took hold, teams were able to control their players over
their entire careers through what economists refer to as monopsony power
(one buyer and many sellers). This control was enforced through the reserve
clause in each player contract (Staudohar 2012c). Players were “reserved”
to one team in perpetuity. This control has been challenged and weakened
over the years. The players in all professional sports have finally achieved
a modicum of control over their careers through a series of collective
bargaining agreements. Yet it is still as true today as it was 100 years ago
that the leagues and teams have vast power over entering talent through
the rookie draft procedures. Players are still owned by their teams for the
early to mid-portions of their careers.
296
COMPETITION AND COOPERATION
The economics of professional sports leagues is peculiar (Neale 1964).
Leagues operate by a set of rules whereby the teams within a league
cooperate to prosper and survive. Teams use a set of common playing
rules (instant replay, strike zone, three-point shot, penalties for slashing)
and enforcement mechanisms. Yet cooperation also entails agreeing to
league rules about franchise relocation and the allocation of television
revenues. The agreed-on gate and television revenue-sharing arrangements
vary across leagues, from complete revenue sharing in football to a more
complicated and problematic system of partial revenue sharing employed
in baseball.
This cooperation is in juxtaposition to the ongoing competition among
the teams. Teams compete to win but also to make profits, often at the
expense of other teams in the league. Competition among teams within
a league is essential, but too much economic competition could kill the
golden goose. This results in an industry that requires a moderate degree
of competitive balance to enable all teams to share in the success of the
industry (Sherony, Haupert, and Knowles 2001).
Many of the woes facing baseball continue to stem from “small-market
versus big-market teams” competitive issues. Can a small-market team
such as Milwaukee, with limited local TV and radio dollars, really compete
with a large-market franchise such as the New York Yankees? The Yankees
might earn as much as $100 million per season in local TV and broadcast
rights. The large-market teams generate large revenues that can be used
to buy the best players. Therefore, the leagues struggle with supporting
smaller markets to ensure that a reasonable level of competition
continues.
THE PARTIES
Within this industry, several key parties exert significant influence—the
leagues, the teams, the players and their unions, and the government.
Each of these parties is discussed in turn (Dunlop 1993; Aaron and
Wheeler 1991).
Employer Groups—The Leagues
Professional sports leagues in hockey, football, basketball, and baseball
engage in many functions, such as determining schedules; arranging for
referees, umpires, and other game officials; interpreting rules; and handing
out discipline. Besides these crucial functions, however, all leagues impose
strict policies and codes on all member teams that limit economic competition. By limiting competition among league teams and restricting
entry into the league by newer teams, these cartel organizations are better
able to maximize profits. The league grants each member team what is
referred to as an exclusive territorial franchise. Although the concept varies
297
PROFESSIONAL SPORTS
from league to league, it generally means that a team in a specific location
has a monopoly over that area. No other teams are permitted to operate
in that territory. However, several very large metropolitan areas do possess
multiple teams in a single sport.
In addition, once a team is situated in a particular location, movement
to another location is not permitted without a supermajority of support
from all league teams (e.g., 75% in the NFL). Table 1 presents a summary
of the number of franchise moves in each league since the 1950s. The data
suggest that there is only about one franchise relocation per year (Quirk
and Fort 1999). Many franchises move to communities that offer them
economically viable stadiums financed by cities and citizens. However,
many more teams threaten to move than actually do. Often, just the threat
of moving results in local support for a new arena or stadium.
The league’s restriction on entry of new teams has led to threats of new
or rival leagues. These include such ill-fated ventures as the World Hockey
Association, the World Football League, the Mexican League in baseball,
and others. Yet it’s hard to find examples of successful rival leagues. The
rival leagues have a big disadvantage because of lack of resources, poor
player talent, and inadequate playing facilities. Nonetheless, there have
been a few successes, such as the American League in baseball, the American
Football League (AFL), and, of course, the American Basketball Association
(ABA) (who can forget the red, white, and blue ball?). The most curious
thing about these successful rival leagues is the way the competition was
resolved. In each case, the competing leagues were merged or assimilated
into the existing league. These combinations reestablished the former
monopoly powers of the pre-merged league. In essence, after competition
the leagues were right back where they started, as anticompetitive, profitmaximizing cartels.
TABLE 1
Franchise Relocations by Sport, 1950s to Present
Decade
Baseball
Football
Basketball
Hockey
Total
1950s
5
0
4
0
9
1960s
4
2
5
0
11
1970s
2
0
7
3
12
1980s
0
3
2
2
7
1990s–present
1
4
1
4
10
Totals
12
9
19
9
49
Sources: League guides; Quirk and Fort (1999).
Note: The most recent franchise relocations are as follows:
NFL 1997: Houston Oilers become Tennessee Titans (Nashville)
NBA 2001: Vancouver Grizzlies become Memphis Grizzlies
NBA 2002: Charlotte Hornets become New Orleans Hornets
MLB 2005: Montreal Expos become Washington Nationals (D.C.)
NHL 1997: Hartford Whalers become Raleigh Hurricanes
298
The story of the ABA is an interesting example. In terms of player salaries, the ABA could do two things. The ABA’s first approach was to hire
college stars for big money. The NBA teams, however, could pay higher
salaries. The ABA’s second approach was to encourage established NBA
players to switch leagues. Some players did jump leagues, but most players
were able to reap the benefits of interleague competition by merely threatening to jump leagues. As Koppett (1998) and others have pointed out,
interleague rivalry was not in their best interests. The result was a minimerger in which the NBA accepted several of the ABA’s strongest
franchises.
Individual Employers—The Teams
Although the leagues play a crucial role in establishing market power and
in rule-making/enforcement procedures, the major employers in the
professional sports industry are the teams within the leagues.
Team ownership has changed significantly over the years. Early owners
tended to be former players who accumulated enough capital to get into
the management side of the game. For example, in football, the Chicago
Bears were owned and coached by former player George Halas, and the
Green Bay Packers were owned and coached by former player Curly
Lambeau. A more recent example is Michael Jordan and the Washington
Wizards basketball team. However, the days of former players as owners
have mostly passed into history.
Today, owners tend to be billionaire business tycoons such as Mark
Cuban (Dallas Mavericks), Rich DeVos (Orlando Magic), Jerry Jones
(Dallas Cowboys), Paul Allen (Seattle Seahawks), Peter Angelos (Baltimore
Orioles), Fred Wilpon, (New York Mets) and Geoff, Andrew, and Justin
Molson (Montréal Canadians). Although some argue about the profitability of these team franchises, the value of a franchise is illustrated by
its selling price. In today’s market, the least expensive pro sports franchise
sells for close to $100 million. This is much more than prices paid for
even the most elite teams in the recent past. However, the recession of the
mid-2000s has dampened franchise selling prices, at least for the short
term. Table 2 gives a few examples of the recent selling prices for teams.
It should be noted that some franchise values have increased enormously,
while teams such as the Charlotte Bobcats (NBA) and the Tampa Bay
Lightning (NHL) have seen flat or even decreased values.
In the past, profitability was a primary goal of most franchises. However,
for today’s millionaire and billionaire owners, it’s not clear that profitability
is the primary objective. Owning a team may be more of a rich person’s
hobby. Just as a big-game hunter spends extravagantly to bag an exotic
animal, today’s team owners want winning teams, even if it means sometimes operating at a net loss. It is quite possible to spend huge sums of
PROFESSIONAL SPORTS
299
TABLE 2
Examples of Team Sales Prices
Price*
(year last sold)
Previous sales
price (year)
Baseball
$250M (1998)
$97.8M (1989)
Football
$250M (1998)
$100M (1991)
Philadelphia 76ers
Basketball
$12M (1996)
$12M (1981)
Edmonton Oilers
Hockey
Charlotte Bobcats
Basketball
Chicago Cubs
Tampa Bay Lightning
Miami Dolphins
Team
Sport
Texas Rangers
Minnesota Vikings
$8M (1998)
$7.5M (1979)*
$275M (2010)
$250M (2002)
Baseball
$84M (2009)
$20.5M (1981)
Hockey
$100–150M (2010)
$200M (2008)
Football
$1.1B (2009)
$138 M (1995)
Sources: Quirk and Fort (1992, 1999); Sandomir and Belson (2010).
*Fee paid for entry into league.
money to acquire players just to win a championship. Consider the case
of Wayne Huizenga of Blockbuster Video. His Florida Marlins won the
1997 World Series after Huizenga spent millions of dollars to hire the
best talent. Having accomplished that goal, the championship club was
dismantled, and it finished last in the very next season.
High player salaries do not guarantee team success. Table 3 illustrates
how team salaries are related to team winning percentages for the highest- and lowest-paying teams in each professional sport. The results are
quite revealing and interesting. In basketball, the highest-paying L.A.
Lakers had a winning percentage of .621 (third highest), while the lowestpaying Houston Rockets had a winning percentage of .515, putting them
in ninth place. Not surprisingly, in baseball, the highest-paying New York
Yankees had the third-highest winning percentage at .586, while the San
Diego Padres came in 19th place out of 30 teams with a winning percentage of .469. The biggest surprise is in the NFL, where the highest-paying
Kansas City Chiefs were tied for last place in terms of winning percentage,
at .125, while the lowest-paying Indianapolis Colts made the playoffs with
a winning percentage of .688, which put them sixth highest among all
NFL teams. In the NHL, it makes more sense to talk about points earned
rather than winning percentages. The highest-paying Philadelphia Flyers
earned 103 points, which placed them sixth among the 30 NHL teams,
while the lowest-paying New York Islanders only earned 79 points, which
put them in 27th place among all NHL teams. Although paying large
salaries may lead to more wins, the above data demonstrate that the relationship between high salaries and superior team performance is not a
certainty in today’s world.
300
TABLE 3
Player Salaries and Team Success
Average player salary
Basketball
$5.2M
Highest team
average salary
L.A. Lakers
$6.7M
Lowest team average
salary
Winning percentage,
highest
Winning percentage,
lowest
Houston
Rockets
$3.2M
Baseball
$3.3M
New York
Yankees
$6.18M
San Diego
Padres
$1.93M
Football
$1.1M
Kansas City
Chiefs
$2.42.M
Indianapolis
Colts
$1.52M
Hockey
$2.4M
Philadelphia
Flyers
$2.73M
New York
Islanders
$1.34M
.621 (3)
.586 (3)
.125 (29)
103 (6)
.515 (9)
.469 (19)
.688 (6)
(79) (27)
Source: Kercheval (2013).
Notes:
Major League Baseball team salaries are for the 2012 season.
National Basketball Association team salaries are for the 2012–2013 season.
National Hockey League salaries are for the 2011–2012 season.
National Football League salaries are for the 2012 season.
Winning percentage in MLB, NBA, and NFL is the percentage of regular-season games won.
For the NHL, the measure used is the number of points earned.
Numbers following winning percentage and points indicate rank in league.
The big question is whether team owners today are in it just for the fun
or to make money. Table 4 presents data on team value and operating
income in each of the four sports covered in this chapter. As shown in
Table 4, owning a major league team may or may not be a profitable
endeavor. In each league, the highest-valued and the lowest-valued teams
are listed, along with operating revenue in 2012. The variance in both
team value and operating revenue from team to team is quite large. In
the NFL, the Dallas Cowboys are valued at $2.1 billion, while Jacksonville
is valued much lower, at $770 million. Not all teams are profitable, though.
The lowest-valued team in the NBA (Milwaukee Bucks) and in the NHL
(St. Louis Blues) report a negative operating income in the most recent
season. Some lower-valued teams such as the Pittsburgh Pirates in baseball
have been very adept at making money while losing more games than
they win, season after season. The Pirates’ recent record in 2012 constituted
their 20th consecutive losing season!
The Unions and the Players
Much has been written about the history of player unionization in professional team sports (Dworkin 1981). Players have overcome relatively
oppressive conditions and a monopsonistic labor market in which each
player was owned—in perpetuity—by the club for which he played. The
result of a monopsonistic labor market was control of player salaries. In
the early years, collective bargaining did not exist, and individual salary
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PROFESSIONAL SPORTS
TABLE 4
Team Value and Operating Income, 2012
Team
Dallas Cowboys
Jacksonville Jaguars
New York Yankees
Oakland Athletics
L.A. Lakers
Milwaukee Bucks
Toronto Maple Leafs
St. Louis Blues
Team value
$2.1B
$770M
$1.8B
$327M
$900M
$268M
$1.0B
$130M
Operating income
$226M
$29.6M
$10.0M
$14.6M
$24.3M
$–7.6M
$81.9M
$–10.0M
Sources: “Forbes Releases” (2013); Ozanian (2011, 2012, 2013).
Note: Team value is defined as the value of the team based on its current stadium deal without
deduction for debt. Operating income is defined as earnings before interest, taxes, depreciation,
and amortization.
negotiations were typically not very successful. A player seeking a higher
salary had few options. He could not threaten to play for another team
in his own league. In the absence of a rival league, he could not threaten
to jump to the other league. He could threaten to hold out for more money,
but in so doing, he faced a situation of severe resource imbalance. His
team had a much greater ability to withstand his holdout because the
team had far greater resources. Finally, a player could always quit the game
and go into another (probably less lucrative) occupation. Players were in
a difficult position. Collective bargaining has changed the players’ labor
market fortunes.
Probably one of the most interesting differences between labor relations
in professional sports and that of other industries covered in this book is
that wage bargaining in the sports industry occurs at two levels. Through
collective bargaining, the players’ union and league management set
minimum salaries for players with fewer years of service. These minimum
salaries set the floor for the important individual negotiations that go on
between each player and his club.
Today, most players employ agents to negotiate their individual
contracts. The high salaries that have resulted are legendary. Table 5
illustrates just how high salaries have become, listing two of the highestpaid athletes in each sport. Nevertheless, although certain player salaries
are high, there is a lot of variation between the highest- and lowest-paid
players. Most teams have a few players earning the professional minimum
(NFL $325,000, MLB $480,000, NBA $457,000, NHL $500,000), while
the team superstars can earn more than $20 million for a single season.
There is also a lot of variance between the highest average team salary and
the lowest average team salary, as demonstrated earlier.
302
Two questions immediately come to mind. Are these players worth the
money? And how did salaries get this high? Economic theory suggests
that a club would be willing to pay a player the extra amount of revenue
he would bring in for the club. This extra revenue might come in the form
of greater ticket revenue, better TV contracts, and more team merchandise
sales. Extremely popular superstars such as Peyton Manning, Albert Pujols,
Kobe Bryant, and Sidney Crosby can add real magic to their teams’ economic fortunes. The trick for each team is to balance these highly paid
superstars with the remaining roster of “bargain basement” athletes and
still have a club that can compete for a championship.
Under the labor market systems that existed in the past, players had
severely restricted opportunities. Player reserve clauses gave the player’s
current team the right to require that the player sign with them again
when his contract expired. In negotiation terminology, a player did not
have a very good “BATNA,” or best alternative to a negotiated agreement
(Lewicki, Saunders, and Minton 1997). If a player could not play for
another team, no other team could bid for his services. Perhaps his BATNA
was to work at J.C. Penney for $30,000. This would not be a very
attractive alternative for the player, who would probably sign again with
the same team for a relatively low salary.
But by now, in the year 2013, all players in all sports enjoy free agency
and in some cases salary arbitration, as well. These factors have significantly
improved players’ BATNAs and enabled them to negotiate for much
higher salaries. These improved alternatives are a direct result of the
collective bargaining process. Through negotiations, the players have
significantly curtailed the labor market restrictions they faced for so long.
The case of baseball illustrates the two most important changes the
players have gained: free agency and salary arbitration. For example, if
the current club offers the player $2.3 million, his best alternative may be
TABLE 5
Highest-Paid Currently Active Players by Professional Sport
Player
Alex Rodriguez, New York Yankees
Albert Pujols, California Angels
Rashard Lewis, Orlando Magic
Kobe Bryant, L.A. Lakers
Calvin Johnson, Detroit Lions
Larry Fitzgerald, Arizona Cardinals
Alexander Ovechkin, Washington Capitals
Didney Crosby, Pittsburgh Penguins
Source: Compiled by authors.
Sport
Baseball
Baseball
Basketball
Basketball
Football
Football
Hockey
Hockey
Average yearly salary
$27.5M
$24.0M
$21.0M
$19.48M
$16.5M
$15.0M
$9.5M
$8.7M
PROFESSIONAL SPORTS
303
to go the route of free agency and be paid $2.8 million by another team.
Free agency, or even the threat of negotiating with another team, has made
the labor market for players much more competitive. In baseball, salary
arbitration has been a second major alternative available to players earlier
in their careers. If the player is not able to obtain a satisfactory salary
through negotiation, he may invoke binding arbitration and have his
salary determined by an independent third-party arbitrator.
To summarize, all professional athletes today in baseball, basketball,
football, and hockey are represented by a union—their players’ association.
The union negotiates over a traditional set of labor–management issues,
such as minimum wages, hours of work, and other terms and conditions
of employment. Players typically employ agents to negotiate their individual
salaries. The unions have largely been responsible for the major gains players
have seen in compensation over the years because of free agency and salary
arbitration provisions in collective bargaining agreements. These basic
structural changes to the players’ labor market have altered the game
tremendously. However, although player unions have had a significant
influence, we cannot ignore the role that government has had. It is to this
final party in the system that we now turn our attention.
The Government
State, local, and federal government policies have profoundly affected all
professional sports leagues (Abrams 1998; Quirk and Fort 1999; Dworkin
1981). Relationships between individual players and team owners are
governed by contract principles because virtually all players sign a standard
player contract.
A critical factor for small-market franchises is the generation of sufficient
revenues to meet skyrocketing player payroll costs. One way to generate
more revenue is through new stadium facilities that include lucrative
skybox arrangements. In fact, it is possible to decrease the total number
of stadium seats while increasing revenues through the construction of
more economically viable arenas. In addition, teams with expiring stadium
or arena leases put pressure on local and state officials, threatening to
relocate unless “better” facilities are built. Quirk and Fort (1999) relate
the story of the $210 million baseball stadium built for the Baltimore
Orioles, Camden Yards. As Hamilton (1997) and Kahn (1992) have
demonstrated, Camden Yards has been a great success for the Orioles,
making them one of the most profitable baseball franchises since the
stadium opened in 1992. Interestingly though, the stadium authority
running the facility loses almost $10 million per year. It’s the taxpayers
in the state of Maryland who pay the tab.
Like Camden Yards, most recently built stadiums and arenas are single
sport in nature and are publicly financed. These financing arrangements
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are negotiated with local and sometimes state officials. Often the citizens
get involved through the public referendum process. The bottom line from
the labor relations perspective is that the revenue-generating aspects of new
playing facilities provide player unions and player agents the opportunity
to demand a larger share of an increasing revenue pie. As a result, the
players’ unions must be sensitive to the public relations aspects of their
sport so that public support is maintained. In the decade of the 1990s
alone, at least 40 different cities built or were in the process of building
new facilities (Jozsa and Guthrie 1999).
Table 6 summarizes stadium building in MLB to demonstrate the
magnitude of the stadium phenomenon. Of the 30 MLB teams, 14 play
in facilities built after the year 2000. The two newest stadiums are played
in by the Minnesota Twins (2010) and the Miami Marlins (2012).
The federal government has also been an important factor in
professional sports labor relations. Most of this involvement has centered
on the applicability of federal antitrust statutes to the various professional
sports (Abrams 1998; Waller, Cohen, and Finkelman 1995; Blair and
Haynes 2012). Going back to the Federal Baseball Club Supreme Court
decision in 1922, baseball has been exempted from antitrust law coverage
(Federal Baseball Club v. National League 1922). Congress held many
hearings over the years to address baseball’s exemption, but it was not
until 1998 that a major change occurred. That year, Congress passed, and
President Bill Clinton, signed the Curt Flood Act (Curt Flood Act 1998;
Curtis C. Flood v. Bowie K. Kuhn 1972). The statute was named in honor
of a famous baseball player who sat out one year in 1970 to avoid the
restrictions of the player reserve clause (Flood and Carter 1970). The
statute amended the nation’s antitrust law to remove the exemption that
baseball had enjoyed. However, the statute removed only the exemption
as it applied to issues “directly relating to or affecting employment of
major league baseball players” (Curt Flood Act 1998). In other respects,
baseball continues to be exempted from the antitrust laws.
Other professional sports have not enjoyed baseball’s antitrust exemption
(Dworkin 1987). However, Congress also acted on antitrust issues involving other professional sports. Although the inaction of Congress strengthened market power in baseball, its action strengthened the league’s market
power in football and basketball. Congress exempted football from antitrust
laws when the NFL and AFL merged. The same approach was employed
during the NBA–ABA merger negotiations. However, Congress has not
done much to improve the market power of players in any sport. As noted
previously, that has been accomplished through the collective bargaining
process.
Thus, the legal system, local and state politics, and the U.S. Congress
have been important factors affecting labor relations in professional team
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305
TABLE 6
Current Major League Baseball Stadiums
Date opened
Before 1962
No. of
stadiums
2
1960s
3
1970s
1980s
1990s
1
1
9
2000–present
14
Locations
Chicago Cubs (Wrigley Field, 1914)
Boston Red Sox (Fenway Park, 1912)
L.A. Dodgers (Dodger Stadium, 1962)
California Angels (Angels Stadium, 1966)
Oakland Athletics (Alameda County Coliseum, 1966)
Kansas City Royals (Kauffman Stadium, 1973)
Toronto Blue Jays (Rogers Center, 989)
Colorado Rockies
Atlanta Braves
Arizona Diamondbacks
Texas Rangers
Seattle Mariners
Baltimore Orioles
Cleveland Indians
Chicago White Sox
Tampa Bay Rays
New York Yankees
St. Louis Cardinals
Philadelphia Phillies
Sand Diego Padres
Cincinnati Reds
New York Mets
San Francisco Giants
Milwaukee Brewers
Washington Nationals
Detroit Tigers
Houston Astros
Minnesota Twins
Pittsburgh Pirates
Miami Marlins
sports. Much of the activity herein has taken place at the local level. No
major federal statutes regulate the sports industry overall. Of course, this
industry is covered by other federal statutes, much the same as is all commerce in the United States.
WORKERS AND LABOR MARKETS
Each of the professional sports teams and leagues covered in this
chapter employs several types of personnel. At the league level, we find
managerial employees associated with conducting the business of the
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sport, ancillary personnel, and game officials. At the team level, the basic
types of employees are managerial (club officials); other employees involved
in such things as ticket sales, promotions, concessions, and so on; and, of
course, the players themselves. The two groups of employees most involved
in labor relations issues have been the officials and players.
Officials
There have been several collective bargaining events involving sports
officials, including the recent NFL referees’ lockout that is covered in
more detail later in this chapter. A noteworthy earlier event involving
officials was the boggled attempt at a strike—of sorts—by baseball umpires
in 1999. A little background sets the stage for this event. Officials belong
to unions for the purpose of collective bargaining with the respective
leagues. The baseball umpires formed the Major League Umpires Association
(MLUA) in 1978. Over the years, the umpires engaged in several job
actions (1979, 1984, 1991), and the leagues imposed a lockout in 1995.
The precipitating factor for the 1999 umpires’ job action was the incident
involving Roberto Alomar, of the Baltimore Orioles, and umpire John
Hirschbeck, on September 27, 1996. Alomar spit in Hirschbeck’s face after
he ejected Alomar from the game for arguing a third-strike call. Umpires
were enraged by the light, five-day suspension meted out to Alomar by
then–American League president Gene Budig. Further incensing the umpires
was the decision by MLB to hire Sandy Alderson as executive vice president
of baseball operations. Alderson’s responsibilities would include labor relations dealings with the umpires group. Power and authority would thus be
consolidated in one person compared with the older approach in which
each league president (National League, Len Coleman; American League,
Gene Budig) dealt with labor matters separately. Umpires were also riled
about baseball wanting the rulebook “high” strike to be called. Management
was also pressing to change the post-season work rules, whereby 75% of all
umpires had been guaranteed post-season work. This system was better for
the umpires than were the arrangements used in hockey, football, and
basketball, in which only the highest graded officials in the regular season
were entitled to work in the post-season.
What happened next was absolutely amazing. The collective bargaining
agreement (CBA) was set to expire on December 31, 1999. Because the
season would be over, the union realized that an effective strike could not
occur when the contract expired. In a serious tactical mistake, MLUA
executive director Richie Phillips persuaded 55 umpires to resign on
September 2, 1999. This would mean they would not work the last weeks
of the regular season or in the playoffs.
This tactic was designed to pressure MLB to accede to the terms of a
new collective bargaining contract that would be favorable for the umpires.
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307
The strategy failed badly on two counts. First, baseball was ready with a
supply of talented replacement umpires. Second, the umpires’ union did
not have the solidarity of purpose necessary to pull off an action of this
sort successfully. Compare this approach with what occurred with the
replacement NFL referees in 2012.
Many of the umpires who resigned later rescinded their resignations.
Although 55% of the National League umpires rescinded their resignation
and were rehired, only 36% of the American League umpires followed
suit—and fan support was running strongly against the umpires and in
favor of MLB.
The leagues hired 25 replacement umpires. Twenty-two umpires had
their resignations accepted by the two leagues. The umpires’ union tried
several things to get jobs back for its members who had resigned. A suit in
the U.S. District Court in Philadelphia to acquire a court order allowing
umpires to rescind their resignations was unsuccessful. Another unsuccessful ploy was an unfair labor practice claim filed against MLB, contending significant changes in terms and conditions of employment by shifting
authority over umpires from league presidents to the commissioner’s office.
Both the unfair labor practice charge and the lawsuit were later dropped.
For 22 lost jobs, all the union obtained in the final settlement was a
split of the $1.36 million post-season bonus among all umpires, whether
still working or not. The union also received the right to arbitrate the issue
of whether the terminated umpires were treated in a discriminatory or
recriminatory fashion.
In November 1999, the umpires voted in an election, supervised by
the National Labor Relations Board, to decertify their union and replace
it with a new one, the World Umpires Association. Their first president
was John Hirschbeck, and the executive director was player-agent Ron
Shapiro. Thus ended one of the most abortive job action attempts ever
witnessed in professional sports. In addition, the positions of American
League and National League president were eliminated in favor of the
consolidation of power in the office of the commissioner. The strike zone
was also enlarged. The final chapter to this bizarre event was written when
arbitrator Alan Symonette ordered MLB to rehire 9 of the 22 umpires
who had been terminated in 1999. The terminations of the other 13
umpires who had resigned and later rescinded their resignations were
upheld (Dworkin and Staudohar 2002).
Recently, much more research has looked at professional sport referees.
One example is the study by Frick (2012), which examines career duration
of individual referees in German Soccer. It is heartening to see that the
empirical findings suggest that career length is primarily determined by
individual referee performance. It is expected that issues such as the selection of referees, career duration, and wages will be the subjects of future
308
research and will cover other European football leagues, as well as referees
in major professional sports in the United States.
Professional Athletes
The professional athletes who play the games have been studied in terms
of their education and skills, their compensation, and racial and demographic issues. Each of these topics is discussed in the following
sections.
Education and Skills
Most talent in baseball and hockey is developed through extensive minor
league systems. Some players in these two sports come into the minors
(or majors) after completing a college career. But for the most part, baseball
and hockey players tend to be high school–educated, with some college.
By contrast, in basketball and football, far more players finish four years
of college eligibility before entering the professional ranks. Colleges serve
as the minor league training grounds for both basketball and football
players. These two sports do not have an extensive system of minor league
franchises. Thus, on average, education levels are higher for basketball
and football players than for hockey and baseball players.
In terms of skill level, major league players have incredible and unusual
talents (Sullivan 1992; Marburger 1997).
This small number of athletes with incredible skills generates large
earnings. By contrast, officials earn only a fraction of the million dollar
salaries of the players. Yet there are a lot more people who have the necessary skills to become umpires than there are people who can become
players. Fewer people possess the necessary traits to enable them to become
professional athletes. Those who do possess such skills are therefore appropriately compensated for their scarce skills and talents. Perhaps some of
the on-field tension between umpires and players described earlier in this
chapter can be attributed to jealousy or animosity over these pay
differentials.
Compensation
The earnings of professional athletes are illustrated by the empirical data
in Tables 3 and 5. Salaries have soared since restrictive labor market
practices of the past have been abolished. Researchers have continued to
study aspects of player remuneration in recent years.
In one study focusing on NBA player salaries, Osborne (2012) looked
at the issue of whether the NBA increasingly relies on foreign players to
drive down wages for domestic players. Empirical evidence showed little
or no support for the contention that foreign players have driven down
the wages of domestic players in the NBA.
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309
The impact of salary caps and luxury taxes has been examined by
Coates and Frick (2012). These two topics are viewed as special cases of
a more general policy on player compensation and club spending. Starting
with the first salary cap in the NBA in 1983, the NFL followed in 1993
and then the NHL instituted a rookie salary cap in 1995, followed by an
all-inclusive salary cap in 2005. A basic finding is that these caps have
had no impact on winning percentage or league competitive balance. As
Sheehan (1996) had concluded earlier, Coates and Frick also maintain
that there is no evidence that a salary cap actually works.
Finally, a recent study by Kahane (2012) has looked at salary
dispersion in the NHL. Looking at the competing theoretical predictions
of the tournament and fairness approaches, Kahane’s empirical results
support the fairness model. As opposed to the tournament model in which
greater performance is projected to occur because of greater salary rewards,
the support for the fairness model suggests that wide variation in player
salaries may indeed cause players to feel unfairly compensated relative to
their peers. It will be interesting to see whether these results are replicable
across other sports.
Race and Demographics
Demographics and racial discrimination in the labor market for
professional athletes have also generated much attention in the literature.
Much of the useful writing on this topic has been done by Lawrence Kahn
(2000). The data reveal that in the 1990s, about 30% of baseball players
were black, and Hispanics represented another large racial group in that
sport. In the NFL, blacks made up 65% of the player rosters, while in the
NBA this figure was as high as 80% (Staudohar 1996). Indeed, much
progress has been made compared with the pre–Jackie Robinson era in
baseball and other professional sports. Many black and Hispanic athletes
are among the highest paid in the cohort group. More recently in baseball,
the number of black players has once again dropped to alarmingly low
levels. In other jobs, such as managerial and front office positions, minorities have not fared as well (Zimbalist 1992; Fizel, Gustafson, and Hadley
1996).
Many authors have addressed the question of racial discrimination,
and a review of the literature suggests some conclusions. There have been
studies in baseball, basketball, football, and hockey (Christiano 1986,
1988; Dey 1997; Jones and Walsh 1988; Kahn 1992; Lavoie 2000; Longley
2000). Gary Becker (1957) suggested partitioning discrimination into
three types: employer, co-worker, and customer. For example, some baseball
teams exhibited employer discrimination by being very slow to bring black
ballplayers to the major leagues. Teams quick to employ blacks typically
had greater success on the field of play. Co-worker discrimination was
310
exhibited when certain white players threatened to strike or not play
against or with black players. Customer discrimination was exemplified
by threatening letters to great players such as Jackie Robinson and later
Hank Aaron (Tygiel 1983; Aaron and Wheeler 1991).
The empirical evidence on salary discrimination has been striking. In
basketball, Kahn and Sherer (1988) showed whites received 25% higher
salaries, controlling for productivity. Hamilton (1997) also found some
evidence of racial discrimination in the 1994–1995 NBA season but only
for star players. By way of contrast, recent empirical work has not found
much evidence of salary discrimination against minorities in baseball,
hockey, or football (Kahn 2000).
Discrimination can also be looked at from other angles. Are black
players drafted based on their talent levels? Do they receive the same kinds
of marketing endorsements and commercial opportunities as similarly situated white players? What about assignment discrimination? There is some
evidence that most quarterbacks are white. Of course, quarterbacks on
average are the highest-paid NFL players. Hoose (1989) documented how
positional or assignment discrimination is prevalent in professional sports.
Finally, a word about tenure, or what might be called retention
discrimination. Are minority ballplayers likely to have shorter careers than
their white counterparts, all things being equal? All professional athletes
tend to have short playing careers. This limited length of career heightens
the importance of (1) earning as much as possible during one’s playing
career and (2) having a college degree or marketable skills for that inevitable moment when one’s career ends. Empirical evidence suggests exit
discrimination against black athletes. One study (Jiobu 1988) found that
black players in baseball had significantly higher exit rates than their white
counterparts. Hoang and Rascher (1999) reported similar empirical findings for black NBA players. In an occupation in which career length is
short to begin with, a loss of two years because of the color of one’s skin
can have major economic consequences.
A recent essay by Walters (2012) reviewed the issue of prejudice in
MLB from the late 1880s until the current day. Kahn’s (2012) empirical
study covered discrimination in the NBA in the areas of salary, hiring,
and retention and from the standpoint of the customer. The racial pay
gap exhibited in the 1980s has declined, and similar decreases were found
for hiring and retention discrimination. Kahn also found a decline in
customer discrimination since the 1980s. Basketball, the sport employing
the largest percentage of black athletes (80% in the 1980s) has seen progress
in terms of less evidence of discrimination against minorities.
The recent evidence on discrimination in the NHL has been reviewed
by Longley (2012). The NHL comprises 20% American players, almost
all of whom are white. There are very few players of African descent in
PROFESSIONAL SPORTS
311
the NHL, so the discrimination studied in the NHL has focused more
on national origin and ethnicity. The treatment of French Canadians,
Europeans, and Americans varies widely across studies. Empirical studies
of both salary discrimination and entry discrimination have suffered from
lack of a clear method for evaluating the defensive skills of players. Much
more research will be required to determine whether discrimination exists
in the NHL, and if it does exist, the causes. As Longley points out,
although there has been an influx of European players into the NHL,
there are no European general managers and only two short-tenured
European head coaches. Finding solutions to these examples of possible
discrimination in the NHL would require additional study.
In summary, there is evidence that minorities have progressed a long
way in the field of professional sports. Many blacks and other minorities
earn huge salaries as professional athletes. The evidence on salary discrimination suggests that the problem of lower salaries for blacks has
subsided considerably. Other more subtle aspects of discrimination still
must be addressed. There seems to be fairly strong evidence of discrimination against blacks in areas such as position assignment, tenure, and even
fan racial preferences. Until black and white athletes are treated
equitably on all of these dimensions, the professional sports industry will
still have to wrestle with the problem of racial bias.
DEVELOPMENTS IN PROFESSIONAL BASEBALL
In 2002, the average baseball player earned $2,383,235 per season (CBS
Sports 2012). This represents a phenomenal achievement since the inception of collective bargaining in baseball in 1968 and the demise of the
former monopsonistic labor market that had existed in the sport since the
beginning of the professional game. By the 2012 season, the average salary
for a professional baseball player was $3,440,000, an increase of 44% over
ten years (CBS Sports 2012).
Since 2002, MLB and the Major League Baseball Players Association
(MLBPA) have negotiated three “basic agreements,” one covering 2002–
2007, a second running from 2007–2011, and most recently, a rather
remarkable five-year basic agreement that guarantees baseball will be
played through the 2016 season. This agreement means that even though
baseball has seen no fewer than eight strikes or lockouts in the past 45
years, the sport is guaranteed relative labor peace and continuous play on
the field for an uninterrupted 21 seasons. Collective bargaining in professional sports is a complex process
involving complicated compensation, benefits, employment relations, and
working conditions issues. For example, the 2007–2011 MLB–MLBPA
basic agreement is 229 pages long; the provisions of the Joint Drug
Prevention and Treatment Program cover another 55 pages. Although it
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will not be possible to examine all recent developments in labor–
management relations in professional baseball, this section will touch on
three key areas: (1) the impact on fans, (2) competitive balance, and (3)
drug testing and player safety.
Impact on Fans
Few things related to professional sports are as devastating to a
dedicated fan as a work stoppage. The owners and the players’ union have
ensured that a strike or lockout will not deprive fans of baseball through
the 2016 season. Given the history of strife between owners and players,
this is a remarkable achievement. When owners and players do have a
dispute, such as in the Ryan Braun case mentioned earlier, the parties
have agreed to resolve their differences using an internal grievance arbitration procedure that will allow play to continue while such disputes are
resolved.
Baseball is the only major professional sport to successfully reach a
labor deal without a work stoppage in recent years. Indeed, in 2011, fans
faced the possibility of lockouts or stoppages in each of the major professional sports. As indicated in Table 7, the NFL went through an off-season
lockout in 2011 prior to reaching a new contract. NFL referees were also
locked out and replaced prior to an eventual settlement being reached. A
lockout in professional basketball delayed the NBA season until Christmas
and led to a year in which only 66 games were played. And the NHL
lockout of 2012, which shortened the season to 48 games, marked the
fourth such shutdown since 1992, a record that included the 2004–2005
lockout over the salary cap issue that led to the loss of the entire season.
This history of labor disputes makes the settlement between MLB and
MLBPA without a work stoppage that much more impressive. One of the
primary explanations for this peaceful negotiation may be that baseball
is the only one of the four sports without a salary cap. Baseball fans have
certainly benefited from this unique aspect of baseball’s collective
bargaining relationship.
In the course of this turmoil in labor–management relations, a very
useful set of fan-friendly recommendations for MLB’s new collective
bargaining agreement were set out by McDonnell (2011). The author’s
five recommendations for the new agreement are summarized in Table 8.
The 2011 baseball settlement, in fact, included a number of these fanfriendly provisions, including
• The wildcard play has been extended to include an additional team
in each league. The two wildcard teams in each league compete in
a one-game playoff to determine which club advances. This provision has generated a substantial amount of enthusiasm among fans.
PROFESSIONAL SPORTS
313
TABLE 7
Recent Collective Bargaining Agreement Expiration Dates and Results
Sport
Baseball
Basketball
Football
Expiration date
December 11, 2011
June 30, 2011
March 3, 2011
Hockey
September 15, 2012
Result
Five-year deal
Shortened season to 66 games from 82
2011 off-season lockout; ten-year deal
Shortened season to 48 games from 82;
contract runs through 2021–2022 season,
but either side can opt out of the deal after
eight years
TABLE 8
Five Recommendations
Area
Revenue sharing
Competitive balance tax
First-year player draft
Team debt
Extended playoffs
Recommendation
Remain intact but clarify penalties for violations
Remain intact to support balance and player benefits
Move toward international draft
Clubs fulfill all financial obligations
One-game wildcard playoffs; winning teams have homefield advantage
Source: McDonnell (2011).
• The idea of the team with the higher winning percentage obtaining
home-field advantage is preserved except for one season, 2012. Even
in 2012, the team with the best record hosted three games out of the
initial five-game series. However, because of a lack of travel dates,
for one season only the team in each case with the lower winning
percentage hosted the first two games at its home field, followed by
the next three games, if necessary, at the site of the team with the
higher winning percentage in the regular season. This one-season
aberration will be corrected in 2013 so that future first-round series
will feature the familiar 2, 2, 1 playoff format with travel dates.
• The All-Star Game will continue to be meaningful in that the winning
league will have home-field advantage in the World Series. Much like
the controversy that has surrounded the designated hitter for years,
this is another controversy with good arguments on both sides, destined to be the topic of many future discussions and disagreements.
• The two leagues will finally be balanced in 2013 as the Houston
Astros move to the American League West Division. Baseball fans
love interleague games, which will in the future be scheduled all
314
season long instead of just during narrow specified periods. In the
2013 season, for the first time ever, baseball’s first professional team,
the Cincinnati Reds, played their opening home series against an
American League team, the California Angels (McDonnell 2011).
There are other fan-friendly items in the new basic agreement that will
likely turn out to be popular with fans across America. In truth, baseball
has kept its fans in mind by resolving the terms of the new basic agreement without the necessity of a strike or a lockout—and by incorporating
fan-friendly provisions that can only increase the popularity of America’s
game.
Competitive Balance
The evidence suggests that baseball has been reasonably successful in
ensuring competitive balance among its teams. The concern in this area
has always been that the large-market teams dominate baseball because
they are able to spend so much on player salaries compared with their
small-market counterparts. To help evaluate this hypothesis, Table 9
includes the 2012 payrolls for all 30 MLB teams; it also indicates which
ten clubs made the playoffs in the 2012 season.
Although 5 of the top 15 payroll clubs made it to the post-season in
2012, 5 of the lowest 15 payroll clubs also made post-season play. Note
that the team with the highest payroll, the New York Yankees, finished
in first place in the American League East Division with a record of 95–67.
The team with the second lowest payroll, the Oakland Athletics, won the
American League West Division on the last day of the season and entered
the playoffs with a final season record of 94–68. The $142 million difference between the payrolls of the Yankees and the Athletics is larger than
the total payroll of all but four teams.
It is also worth noting that both high-payroll and low-payroll clubs
made the playoffs in 2012. Table 10 depicts this phenomenon in yet
another way—by dividing teams into higher- and lower- payroll categories
(top 15 vs. bottom 15) and playoff and nonplayoff categories. The table
suggests that being a large-market/large-payroll team does not guarantee
a spot in the playoffs. Large-market/large-payroll teams such as Philadelphia,
Boston, and the Los Angeles Angels had mixed success despite large
payrolls. None of these teams made it to post-season play. By contrast,
teams in smaller markets with lower payrolls such as Washington,
Cincinnati, and Baltimore had great success and made the playoffs.
Much to their credit, negotiators in MLB kept their eye on the issue
of competitive balance when finalizing the basic agreement. By 2016, the
top 15 large-market teams will not be eligible for revenue sharing, on the
basis that they do not need the additional revenue. 315
PROFESSIONAL SPORTS
TABLE 9
2012 Payroll Rankings and Playoff Status
Rank
Playoff status
Winning
percentage
New York Yankees/$197,962,289
1
Yes
.586
Philadelphia Phillies/$174,588,938
2
.500
Boston Red Sox/$173,186,617
3
.426
Los Angeles Angels/$154,485,166
4
Detroit Tigers/$132,300,000
5
Yes
.543
Texas Rangers/$120,510,974
6
Yes, wildcard
.574
Miami Marlins/$118,078,000
7
San Francisco Giants/$117,620,683
8
Yes
.580
St. Louis Cardinals/$110,300,862
9
Yes, wildcard
.543
Milwaukee Brewers/$97,653,944
10
.512
Chicago White Sox/$96,919,500
11
.525
Los Angeles Dodgers/$95/143,575
12
.531
Minnesota Twins/$94,085,000
13
.407
New York Mets/$93,353,983
14
.457
Chicago Cubs/$88,197,033
15
.377
Atlanta Braves/$83,309,942
16
Yes, wildcard
.580
Cincinnati Reds/$83,309,942
17
Yes
.599
Seattle Mariners/$81,978,100
18
Baltimore Orioles/$81,428,999
19
Yes, wildcard
.574
Washington Nationals/$81,336,143
20
Yes
.605
Cleveland Indians/$78,430,300
21
.420
Colorado Rockies/$78,069,571
22
.395
Toronto Blue Jays/$75,489,200
23
.451
Arizona Diamondbacks/$74,284,833
24
.500
Tampa Bay Rays/$64,173,500
25
.556
Pittsburgh Pirates/$63,431,999
26
.488
Kansas City Royals/$60,916,225
27
.444
Houston Astros/$60,651,000
28
Oakland Athletics/$55,372,500
29
San Diego Padres/$55,244,700
30
Club/payroll
.549
.426
.463
.340
Yes
.580
.469
316
TABLE 10
Does Big Spending Work?
Playoff bound
Homeward bound
High payroll
Yankees
Tigers
Rangers
Giants
Cardinals
Phillies
Red Sox
Angels
Marlins
Cubs
Brewers
White Sox
Dodgers
Twins
Mets
Low payroll
Braves
Reds
Orioles
Nationals
Athletics
Mariners
Indians
Rockies
Blue Jays
Padres
Diamondbacks
Rays
Pirates
Royals
Astros
The luxury taxes on extremely high payrolls will remain in place in
2012 and 2013, but it will increase to $189 million for seasons 2014
through 2016. Tax rates on teams that exceed the threshold for the fourth
time will go up to 50%, which is consistent with the recommendation of
McDonnell (2011). Article XXIII of the 2012 basic agreement deals with
the competitive balance tax, while Article XXIV describes the revenue
sharing plan. These provisions will help ensure that competitive balance
remains a concern of all the parties in baseball.
Drug Testing and Player Safety
The use of performance-enhancing drugs has been an issue at the forefront
of all of the professional sports, and all parties remain concerned about
it. As mentioned earlier, the previous basic agreement in baseball contained
a 55-page Joint Drug Prevention and Treatment Program. The new basic
agreement calls for all players to be subjected to blood testing for the
presence of human-growth hormone “for reasonable cause” at any time
during the year. Every player is tested in the spring and all players are
subject to random, unannounced testing; the testing began after the
conclusion of the 2012 season.
The owners and players also continue to be very concerned about player
safety. Attachment 36 of the basic agreement deals with the assessment
and management of player concussions. The basic agreement includes a
provision for neurocognitive baseline testing during spring training for
each player and immediate on-the-field evaluation of any player with a
PROFESSIONAL SPORTS
317
high risk of concussion involved in an incident during a game. Any sign
of a possible concussion leads to removal of the player from the game.
Another new development is establishment of a seven-day disabled list
solely for the placement of players who suffer concussions. Before a player
can return to active status a “Concussion Return to Play Form” must be
submitted.
Evidence of the seriousness with which the owners and players are taking
this matter is the language found in paragraph 8 of Attachment 36:
The Parties will mutually agree upon a report to be compiled annually by the epidemiologist that will provide a
summary of concussion activity for the preceding season,
including the number of events, the circumstances attendant thereto, and the results of any treatment programs.
Within 30 days of the issuance of the report, the Parties
shall meet to discuss the report’s contents and to review the
functioning of the protocols and procedures established
by this agreement. (Collective Bargaining Agreement
Between MLB and the MLBPA, 2012–2016)
Although some may see this development as just one more statistic in
a vast array of such numbers in baseball, attention to the safety and security
of professional baseball players is seen as a very positive development, which
can lead to better future outcomes. This critical attention to drug abuse
and concussion activity among professional athletes also should serve as a
sober reminder of how important it is to feature and promote safety for
younger participants in baseball and other recreational activities.
DEVELOPMENTS IN PROFESSIONAL FOOTBALL
In recent years, collective bargaining in professional football has been
significantly more contentious than in baseball. Like the game itself, the
process of collective bargaining in football during the 2000s left the parties with significant bumps and bruises. But the parties have persevered
and survived.
As noted earlier, the previous NFL–NFLPA collective bargaining
agreement (2006–2012) expired on March 3, 2011. On March 11, the
NFL locked out the players (Staudohar 2012b). The lockout continued
through July 25, 2011, as the parties wrangled over how to share the
approximately $9 billion of revenues generated per year. It was a happy
scene when NFL Commissioner Roger Goodall and National Football
League Players Association (NFLPA) Executive Director DeMaurice
Smith assured fans on July 25, 2011, that football was back.
The agreement reached was a historic ten-year deal of some 300 pages
that covered a myriad of topics (Collective Bargaining Agreement Between
318
the NFL and NFLPA, August 4, 2011). This last-minute agreement meant
that only one exhibition game was lost, the Hall of Fame game in Canton,
Ohio, which had been scheduled for August 7. The
parties were able to keep the entire pre-season and regular season intact,
something that did not occur in the most recent negotiations in either
basketball or hockey.
This section focuses on three of the most important items of bargaining
included in the talks: (1) the division of revenues, (2) the safety and welfare
of the players, and (3) the “other” lockout in football involving the NFL
and its referees union, the National Football League Referees Association
(NFLRA).
Division of Revenues
At the heart of the 2011 NFL–NFLPA negotiations was the issue of how
the revenues generated by the league and the players should be divided.
In the 1989 negotiations, the players voluntarily engaged in a strategic
“decertification.” By dissolving their union, the NFLPA created a situation
whereby individual players could sue the NFL. As a result, the players
won free agency rights that would greatly benefit players for years to come.
In the 2011 dispute, a similar decertification action was taken by the
players in an effort to block the lockout.
Players on each team voted unanimously in fall 2010 to renounce collective bargaining rights (decertify their union) if the previous collective
bargaining agreement was not extended. Both parties lobbied Congress
in an attempt to reinforce their positions. The NFL wanted the freedom
to institute the lockout while the NFLPA stressed the potential $160 million in lost revenue for each NFL city were a lockout to be imposed. The
NFL had a guaranteed $4 billion from TV contracts in 2011 regardless
of whether any games were played or not. Federal Judge David Doty ruled
on March 1, 2011, that the NFL actions were to “advance its own interests
and harm the interests of the players” (Associated Press 2011).
As noted earlier, the owners did impose a lockout on March 11, 2011.
After decertification, ten NFL players—including prominent quarterbacks
Tom Brady, Drew Brees, and Peyton Manning—filed a suit to halt the
lockout. U.S. District Judge Susan Nelson invalidated the lockout on
April 25, 2011, ordering the NFL to open up operations. After other legal
maneuvers, the lockout was affirmed as being legitimate by the Eighth
Circuit Court of Appeals on July 8, 2011 (Florio 2011).
Although the league had thoroughly prepared contingency plans that
would have allowed for a shortened season resulting from a prolonged
lockout, this strategy was never implemented. As noted earlier, on July
25, 2011, the new collective bargaining agreement was approved, and it
became effective on August 4, 2011, after player ratification. The single
on-the-field cancelation caused by the 2011 lockout was the Pro Football
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Hall of Fame Game that was to have been played between the Chicago
Bears and the St. Louis Rams.
These 2011 talks featured the intervention of a federal mediator, the
possibility of a lost season, a threat to cancel the 2012 Super Bowl, and
the lawsuit filed by Tom Brady, Drew Brees, Peyton Manning, and seven
other players in an effort to halt the lockout (Kahane and Shmanske 2012).
The basic disagreement between the 32 teams in the NFL and the players
centered on division of the estimated $9 billion in revenue received by
the league each year. In the past, the owners took the first $1 billion and
then divided the remaining revenue, with the players receiving 59% and
the owners 41% (Collective Bargaining Agreement Between the NFL and
NFLPA 2006–2012).
In the 2011 negotiations, the owners came to the bargaining table
united in the belief that the 59% of the league revenue the players were
receiving was too high. As pointed out by Fenn (2012), players in the NFL
do not have guaranteed contracts as are typical in other sports. Instead,
NFL players tend to receive much larger signing bonuses. The NFL has
used these upfront payments in lieu of the longer guaranteed contracts
found in MLB, the NBA and the NHL.
In professional football, bargaining between the single buyer of labor
(NFL) and the single seller (NFLPA) is referred to by economists as a
bilateral monopoly. Theory predicts that the winner in such a negotiation
tends to be the party with the greater bargaining power. As Fenn points
out, the NFL is the single employer of elite players, but the use of replacement players is possible. However, the poor performance of replacement
players during the NFLPA’s 1987 strike makes it much harder to argue
that one side has a bargaining power advantage over the other. In fact,
the relative equality of power between the NFL and NFLPA is one of the
factors that have made it difficult to settle their disputes.
Table 11 presents revenue data, as well as the number of players employed
and the number of teams in each of the four major professional sports.
Although the number of teams per league is fairly consistent, revenues
and the number of players vary widely. The huge revenues generated by
the NFL and its players are a big target for both sides.
TABLE 11
Professional Sports Revenues, Teams, and Players
Professional sport
Football
Baseball
Basketball
Hockey
Revenues
$9 billion
$7 billion
$4 billion
$3.3 billion
Teams
32
30
30
30
Number of players
1,620
1,200
450
690
320
One of the key mechanisms for resolving the differences over the distribution of revenue between the NFL and the NFLPA was a concept
called a salary cap. As mentioned earlier, salary caps were retained in the
new agreement. The 2011 season salary cap per team was set at $142.4
million. However, the issue of whether teams must spend all or most of
their salary cap limit was left unresolved. Players are quite concerned
about this issue because a cap may have little or no meaning if clubs regularly elect to economize and stress profits over wins. This concern seems
to have been resolved to some extent by an agreement covering what
percentage of the salary cap must be spent.
The settlement between the owners and players included a commitment
to spend 99% of the salary cap for seasons 2011 and 2012. For the
remaining years of the basic agreement (2013–2020), each team agreed
to spend at least 89% of the cap (Collective Bargaining Agreement Between
the NFL and NFLPA, August 4, 2011).
The formula for setting these season-by-season salary caps is based on
a new model featuring the concept of “all revenue.” Players under this
new model will receive 55% of national media revenues, 40% of local
club revenues, and 45% of revenues from NFL Ventures (the venture
capital arm of the NFL). The parties also agreed that the players’ share of
all revenue would average no less than 47% over the ten years of the basic
agreement. Finally, minimum salaries were increased in every year of the
agreement (Collective Bargaining Agreement Between the NFL and
NFLPA, August 4, 2011).
Although the revenue split favored owners 53% to 47%, collective
bargaining always involves trade-offs between economic issues and noneconomic issues. In the case of the 2011 negotiations, the NFLPA was
able to win a number of significant concessions involving player safety
and welfare.
Player Safety, Health, and Welfare Issues
Of the four major professional sports, football and hockey feature the
most body-to-body contact. Such contact inevitably increases the risk of
injury. NFL careers tend to be short, averaging five years (this varies a lot
by position played) owing to a variety of factors. The primary reason is
career-ending injuries (“NFL Injuries Report” 2012). Given this situation,
the safety, health, and welfare of players is a high priority of the NFLPA.
The emphasis on these issues is sometimes in direct conflict with the
owners’ interest in generating more revenue, as well as with coaches’ interest in extensive practice, training, and the desire to win more games. The
2012 playoff game incident involving Robert Griffin III is a recent real-life
example of this conflict (Saraceno 2013). Griffin entered the Redskins
playoff game with the Seahawks with an already injured knee, only to be
PROFESSIONAL SPORTS
321
hurt again in the first quarter. Football teams sometimes like to distinguish
between being injured versus being hurt!
In bargaining terminology, player safety, health, and welfare should
be seen as an integrative issue (Walton and McKersie 1965)—that is, an
issue in which both parties’ interests align and from which both parties
benefit. This is because healthy players compete better on the field and
lead to winning seasons. A winning team leads to greater fan interest and
a better chance to win a championship, the goal of all franchises. In addition, player injuries result in additional costs for owners in the form of
medical costs, lost productivity, and the costs of substitute players. In the
most recent negotiations, some player safety issues were handled as integrative issues, while others were treated as distributive issues (i.e., zero-sum
issues in which gains made by one side are seen as losses by the other).
Among gains sought by the union in the area of player safety was a
reduction in off-season training programs. Players saw these programs as
onerous and excessive and argued that they greatly increased the likelihood of injury. On that basis, they were able to win a five-week reduction
in such programs, limits to on-field practice time and contact practices
in both the pre-season and regular season, and increases in the number
of days off for players. This latter concession was viewed by the players as
particularly important because it takes even a well-conditioned athlete at
least a couple days to recover from a Sunday football contest.
One of the highest-profile issues that owners brought to the bargaining
table in 2011 was a proposal to increase the number of regular season
games from 16 to 18. Although owners saw this as an economic issue,
because more games mean more revenues, the union viewed it as a player
safety issue. The players prevailed on this issue, at least in the short run;
the final agreement maintained a 16-game regular season and a 4-game
pre-season until 2013. Any future increase to the number of regular-season
contests will have to be agreed to by both parties through the bargaining
process (Collective Bargaining Agreement Between the NFL and NFLPA,
August 4, 2011).
In terms of player welfare, several new items were negotiated. Among
them was a $50 million joint fund that was established for medical research,
health care, and charity-related expenses. The players also were able to
negotiate the right to maintain their current medical plan during their
post-career years. Injured players will receive additional salary coverage
protection of $1 million for the year after a career-ending injury and up
to $500,000 in the second year after such an injury (Collective Bargaining
Agreement Between the NFL and NFLPA, August 4, 2011).
Additional changes were agreed to with regard to disability plans, the
so-called 88 Plan, college completion and career transition, and the Player
Care Plan. The 88 Plan assists players vested under the NFL Player
322
Retirement Plan. The 88 Plan is designed specifically to assist former
players diagnosed with dementia by paying the cost of medical and custodial care for eligible former NFL players. The NFL Career Transition
Program is the only such program found in professional sports. This
program is held at Georgia Tech University and is designed to assist former
NFL athletes advance to their next career. Although 80% of NFL players
possess a college degree, those who do not are encouraged to pursue
completion of a degree. And finally, the NFL Player Care Foundation is
an independent organization assisting retired players in improving all
aspects of their life after playing football (NFL Player Care Foundation).
One final area addressed in negotiations involved the welfare of retired
players. The interests of current employees are almost always the highest
priorities of union negotiators. Over the past decade, unions have sometimes agreed to two-tier contracts, which provide lesser terms for employees
hired after the ratification of the contract, in return for better terms for
current employees. In the case of the NFLPA–NFL talks, much attention
was focused on former players. This was, in part, driven by high-profile
media stories of former players who failed to manage their finances wisely
and ended up bankrupt and, in some cases, homeless. Recognizing that
salaries of professional football players of earlier generations were not
nearly as lucrative as they are today, the two parties agreed to provide
additional funding of up to $1 billion over the next 20 years for improved
retiree benefits (Collective Bargaining Agreement Between the NFL and
NFLPA, August 4, 2011).
Of particular significance was the focus on the pensions of players who
had retired prior to 1993. The league and the union jointly set up a socalled Legacy Fund of $620 million to enhance pension funds for players
who retired nearly two decades earlier (Collective Bargaining Agreement
Between the NFL and NFLPA, August 4, 2011).
Compared with past years, the attention paid by both sides to the
concepts of player safety and welfare is a very positive development. Future
players will benefit greatly because of these provisions, both in terms of
playing the game and in their off-the-field lives. These provisions will also
result in significant improvements in the work environment and personal
lives of current players. Finally, former NFL players can celebrate the
increased attention paid to their welfare through the establishment of the
Legacy Fund. These safety and welfare provisions are good for the game
of football and should be applauded as a product of good faith negotiations between the owners and the players.
The Other Lockout in Professional Football—The Referees
Although the focus of fan interest is the teams and players, the 2012
lockout of the NFL referees sheds much light on the vital importance of
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high-quality officiating. The lockout lasted 116 days, from June 4 through
September 27 (Jessop 2012). A previous lockout in 2001 had affected only
the pre-season. This second lockout extended three full weeks into the
regular season, with the replacement referees turning in an uneven performance. Initially, the NFL’s use of replacement officials worked reasonably well, but things came to a head with a widely viewed Monday night
football game between Green Bay and Seattle on September 24. A disputed
call on the game’s final play gave the Seattle Seahawks a very controversial
victory over the hugely popular Green Bay Packers (Associated Press 2012).
As the game was played over and over on ESPN, other sports shows, and
on YouTube, the fan backlash grew. This fan reaction raised concerns about
the integrity of the game (Gregory 2012). Particularly intense was the criticism from fantasy football participants and people who gamble on games.
This negative publicity significantly raised the cost of disagreement for the
NFL (Chamberlain and Kuhn 1965). The league recognized the increasing
strength of the union’s position and a settlement followed quickly, putting
the regular referees back on the field for the fourth week of the season. Table
12 details the major issues that were part of the settlement (Collective
Bargaining Agreement Between the NFL and NFLRA, August 4, 2011).
As can be seen in Table 12, a longer contract length of eight years has
benefits for both parties. Referees have the clear knowledge that they cannot be locked out through the 2019 season, and the NFL enjoys the peace
and financial certainty of a longer contract and high-quality referees.
In terms of compensation, the 2011 salary of $149,000 increases to
$173,000 in 2013 and to $205,000 in the final year of the contract.
In evaluating this salary, it is important to keep in mind that referees
typically have other full-time careers during the regular workweek (“NFL,
NFLRA Reach” 2012).
The sticking point in these negotiations was pensions. The existing
system was a defined benefit plan through which a referee, upon retirement, was guaranteed a specific amount of dollars based on the number
of years worked. The NFL wished to terminate this older plan and move
to a defined contribution plan, such as a 401(k). The outcome was a compromise between the two systems and can be seen as a victory for the
TABLE 12
NFL and NFLRA Agreement Basics
Issue
Contract length
Salaries
Pensions
Performance reviews
Resolution
Eight years
37.5% increase over eight years
Hybrid model
Will occur
Who prevailed?
Both parties
Referees
NFL
NFL
Source: Collective Bargaining Agreement Between the NFL and NFLRA 2011.
324
NFL. Current referees stay on their defined benefit plan until 2016 or
when they have achieved 20 years of service. The plan is then frozen and
will be eliminated. New referees hired after the starting date of the 2012
collective bargaining agreement will be on a defined contribution plan,
the specific details of which are unclear.
Another contentious issue in 2012 was the performance evaluation
system for the referees. Several changes were agreed to in this area. Although
the details of this new performance evaluation system are not known at
the time of writing this chapter, an increased emphasis on evaluating the
performance of officials has been established.
One other change made by the referees’ union involved the employment
status of officials. Prior to the 2012 negotiations, referees were employed
by the league on a part-time basis. Beginning in 2013, the NFL will hire
full-time referees, with certain referees employed to train new referees as
well as to officiate games.
Like most negotiations, it appears that in the 2012 talks between the
NFL and the officials’ union, each party was able to secure some of the
things it wanted to include or change in the agreement. This, and the fact
that well-qualified and trained professional referees resumed their on-thefield work and will continue to do so uninterrupted through the 2019
season (Armstrong 2012) suggests that in this case the collective process
functioned reasonably well.
To summarize, collective bargaining has resulted in two new agreements in professional football. The NFL and the NFLRA have agreed to
new contract terms, summarized in Table 12, which guarantee labor peace
and quality officiating through the 2019 season. The other major labor
agreement, between the NFL and the NFLPA, also guarantees ten years
of football without the interruptions of lockouts or strikes. This deal
featured an agreement on the division of revenues, with 53% going to the
owners and 47% going to the players, along with several key safety, health,
and welfare gains by the players. As is typically true in collective bargaining, each party got some of what it wanted and had to make real concessions in other areas.
DEVELOPMENTS IN PROFESSIONAL BASKETBALL
With the exception of professional hockey, the most intense labor–
management conflict in recent years occurred in professional basketball.
Professional basketball is no stranger to labor disputes and work stoppages.
In 1998–1999, a total of 437 games were canceled, and play did not resume
until early February with a 52-game schedule in place of the regular
82-game season (Staudohar 1996). The most recent talks, conducted in
2011, were almost equally contentious.
PROFESSIONAL SPORTS
325
The 2011 negotiations followed a familiar pattern, including the decertification of the players’ union, federal antitrust lawsuits, and indeed, a
shortened season. In the lockout of 2011, the season did not begin until
Christmas Day of 2011, with a reduction in total games to 66 (Staudohar
2012a).
This discussion of recent developments in collective bargaining in
professional basketball focuses on three specific issues—fan impact, the
salary cap, and revenue sharing.
The final 2011 collective bargaining agreement between the basketball
owners and players addressed an exceptionally large range of issues. Table
13 provides a comparison of the most critical issues in the 2005 and 2011
agreements (Collective Bargaining Agreement Between the NBA and
NBAPA, December 2011). As the table suggests, the 2011 settlement
seems to have favored the owners.
The final agreement was for ten years, a longer than normal period that
would seem to benefit all parties involved, including fans. However, the
promise of ten years of labor peace is qualified by the fact that the contract
includes an opt-out provision that either side can exercise after six years
(Collective Bargaining Agreement Between the NBA and NBAPA,
December 2011). It is useful to note that the 2011 negotiations and lockout
occurred as the result of the owners opting out of an existing contract.
There is little doubt that a similar opt-out decision could be made again
in 2017, perhaps this time by the players.
Revenue, and how it would be split among the parties, was also a major
issue in these negotiations. The agreement reduced the player’s share of
TABLE 13
Key NBA–NBAPA Collective Bargaining Agreement Terms
Item
Contract length
Revenues
Escrow
2005
Seven years (2011 opt-out)
57% BRI* to players
8% in 2010–2011
Amnesty
One player salary not
counted toward luxury tax
Revenue sharing
Some distribution
Team salaries
75% of cap
Luxury tax
$1 paid for every $1 above
threshold
2011
Ten years (with 2017 opt-out)
51.15% BRI to players
10% per season
One player waived prior to any
season—salary not counted
toward luxury tax or salary cap
Revenue sharing tripled
85% 2011–2012, 2012–2013;
90% thereafter
Incremental taxes and penalties
for repeat offenders
Sources: Collective Bargaining Agreement Between the NBA and NBAPA, December 2011;
Collective Bargaining Agreement Between the NBA and NBAPA, July 2005.
*Basketball-related income.
326
revenue from 57% to 51% (Collective Bargaining Agreement Between
the NBA and NBAPA, December 2011). This represents a substantial
improvement for the owners, who had collectively lost more than $300
million in each of the past three seasons.
The 2011 basic agreement also tripled revenue sharing so that smallmarket teams will continue to benefit from the luxury tax. As in football,
basketball players wanted some certainty as to the percentage of their
salary cap the owners would have to spend each season. The players did
make progress under this concept, but the reality is that spending less
than the cap had not occurred often in the past. The raising of the salary
floor also guaranteed that more money would be spent on player salaries
December 2011).
Finally, like the NFL, NBA teams exceeding the spending cap for salaries will face high “luxury” taxes, with higher penalties for repeat offenders
December 2011). Whether this type of “soft cap” will work more effectively
than a “hard cap” is uncertain. The NBA has never been able to achieve
a hard cap through negotiations and thus has settled for the concept of
the soft cap with heavier penalties.
Although the owners and players have negotiated highly technical
provisions in several of the areas mentioned previously, one item conspicuously missing from the 2011 basic agreement is a concern of many fans—the
cost of attending a game. The cost of a product or service itself is rarely
the subject of labor negotiations; however, both parties certainly need to
be aware of the impact of the decisions they make at the bargaining table
on the customers who purchase their product or service. This area of fan
cost is prominent in all professional sports.
Impact on Basketball Fans
Tables 14 and 15 present the most recent data on the Fan Cost Index
(FCI) for the four major professional sports. The FCI represents the average cost for a family of four to attend a regular-season game (post-season
games are significantly more expensive). The FCI includes four averageprice game tickets, two small beers, four small soft drinks, four hot dogs,
parking, two game programs, and two of the least expensive, adult-size
adjustable caps. Whether the FCI actually represents what average fans
spend to attend a game or not, it does, like the market basket used to
calculate changes in the Consumer Price Index, provide a way to compare
fan costs across sports.
The FCI for an NBA game, although less expensive than the costs for
an NHL or NFL game, is still reasonably high, which suggests that it is
quite expensive for an average fan to bring his or her family to an NBA
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TABLE 14
Fan Cost Index
Sport
Baseball
Basketball
Hockey
Football
FCI average
$207.68
301.06
328.81
427.42
Season
2012
2011
2011
2011
Sources: Fan Cost Experience; Team Marketing Report.
TABLE 15
Range of Fan Cost Index By Sport
Sport
Baseball
Basketball
Hockey
Football
High
$336.99, Boston Red Sox
$608.78, New York Knicks
$626.45, Toronto Maple Leafs
$628.90, New York Jets
Low
$145.94, Arizona Diamondbacks
$192.80, Memphis Grizzlies
$223.78, Dallas Stars
$319.06, Jacksonville Jaguars
Sources: Fan Cost Experience; Team Marketing Report.
game. Table 15 shows the highest and lowest FCIs per sport and, again,
the NBA’s FCI range, although high, is less expensive than those of football
and hockey but more expensive than baseball.
The FCI is sometimes evident in a given sport. For example, not all
stadiums are full for every game. An increasing percentage of fans in all
sports are made up of those able to afford luxury boxes. The ability of the
average fan to bring his or her family to a game remains a concern for
professional teams. This raises the issue of the extent to which owners and
players keep their fans in mind when negotiating collective bargaining
agreements that virtually guarantee that certain teams will be profitable
and also provide for ever-increasing player salaries. There appears to be
little evidence that owners and players will consider including fan-friendly
provisions in collective bargaining contracts in basketball or other professional sports. It appears more likely that the FCI for all professional sports
will only increase in the years ahead.
Salary Cap and Luxury Tax
As already discussed, professional basketball has a soft salary cap. This
feature is a by-product of compromise through collective bargaining.
Although the owners prefer a hard cap, the players prefer a situation more
similar to professional baseball, which does not have a salary cap. When
the two sides are faced with such diverse positions, the way to eventual
agreement is through compromise. In basketball, the compromise reached
has had a big cost in terms of lockouts and games lost.
328
As noted by many labor economists, elements of the labor markets for
professional athletes have been discussed in the literature as far back as
the 1950s (Rottenberg 1956). One of the most interesting market-related
issues is the salary cap. Sports featuring such caps typically also specify
luxury taxes or penalties for clubs exceeding the cap maximum. Several
types of caps can exist, including those on maximum salaries for rookies
or players with a certain number of years of major league experience. Team
salary caps can also be negotiated, as has been the case in several sports.
An excellent summary of salary caps and luxury taxes is found in Coates
and Frick (2012). As these authors note, basketball instituted the first
salary cap in 1983. Football and hockey soon followed. As previously
mentioned, baseball continues to operate without a salary cap. Simply
put, through collective bargaining the parties agree on how to define
revenues and how much of these revenues, however defined, will go toward
player salaries. For 2005–2006 through 2011–2012, NBA players received
57% of basketball-related income. In general terms, the salary cap is
determined by dividing 57% of total league revenue by the number of
teams in the league, which is 30 (Collective Bargaining Agreement Between
the NBA and NBAPA, December 2011).
There are many issues surrounding salary caps, and both players and
clubs have to be wary of the implications of these provisions. These issues
include exactly what revenues will be shared, what aspects of player compensation are counted in determining the salary cap, how the luxury tax
is calculated, how the luxury tax revenues are distributed, and how rookie
salaries are determined and whether they count toward the tax. Although
salary caps and luxury taxes were intended to hold down salaries and
increase the parity of play in the league, the evidence in support of these
contentions is spotty at best. The NBA has a soft salary cap, which means
numerous exceptions (one is referred to as the Larry Bird exception) regularly allow clubs to have salary-spending levels above the agreed-on cap.
As noted earlier, the NFL’s cap is of the harder variety. In the NBA, it
is typical for 24 or more of the 30 teams in the league to be above the cap
in any particular season. Take, for example, the 2009–2010 NBA season
in which 28 of the 30 franchises exceeded the league salary cap for that
year, which was $57.7 million. Many teams saw salary spending that was
so excessive that luxury tax payments were incurred.
The evidence is pretty clear that a soft cap does not effectively diminish
teams’ appetites for highly paid players (take, for example, the Miami
Heat roster in recent years). As long as teams face a soft cap and modest
penalties for exceeding the cap, clubs will continue to overspend. The
most recent collective bargaining agreement attempts to address this issue
by imposing higher taxes on repeat offenders (Collective Bargaining
PROFESSIONAL SPORTS
329
Agreement Between the NBA and NBAPA, December 2011). Only time
will tell how this newer approach will work. Finally, the evidence on the impact of the salary cap on games won is
also mixed. Competitive balance in the NBA does not seem to be any
greater since the cap and the luxury tax have been in effect. Earlier in this
chapter, it was noted that baseball has no team salary cap but does invoke
penalties on very high-spending teams. This approach appears to have
had some impact in promoting competitive balance. In basketball, as
Sheehan (1996) stated more than 15 years ago, there is no evidence that
a salary cap actually works.
Small-Market Franchises and Player Location Decisions
Like other professional sports, the NBA has both large-market and smallmarket franchises. Teams operating in small markets, such as the Memphis
Grizzlies or Indiana Pacers, may have income of around $300,000 per
game, although a large-market team such as the Los Angeles Lakers may
bring in revenues of close to $2 million for every game (Smith 2012). As
noted previously, a soft salary cap such as the one imposed in the NBA
does not have much impact on the teams operating in very large
markets.
The dollars brought in by local TV revenues may be on the order of
15 to 1: $150 million per season for large-market teams and just $10 million for those in small markets (Sherman 2011). The issue of how the
smaller-market teams can remain competitive, both in the labor market
and in league standings (wins and losses), is a difficult one. The newly
agreed-on collective bargaining agreement took a step in the direction of
aiding smaller-market teams (Richards 2012).
As mentioned, the two sides agreed to a new revenue division of 51%
to 49%, from a split of 57% and 43% in the preceding collective bargaining agreement. This change means that small-market teams will receive
an additional $270 million that in previous years would have gone to the
players (Collective Bargaining Agreement Between the NBA and NBAPA,
December 2011).
It has been observed that the impact of the shorter season in 2011–2012
on the small-market city of Indianapolis was not terribly significant. The
few pre-season and home games lost surely did hurt local restaurants,
hotels, bars, and the like. But Indianapolis also played host that season
to both the first Big Ten football championship and the Super Bowl.
Actually, when no games are played, another big loser is state government. This impact is illustrated by the data presented in Table 16 on the
recent decision made by LeBron James to sign with the Miami Heat. As
the table clearly illustrates, because James signed with a Florida team, he
avoided paying a significant amount in state taxes (Florida has no state
330
TABLE 16
Did LeBron James Make the Right Choice?
Team
New Jersey Nets
New York Knicks
Miami Heat
LA Clippers
Cleveland Cavaliers
Chicago Bulls
State taxes ($96 million/five-year contract)
$10.32 million
$12.34 million
No state taxes
$10.12 million
$5.6 million
$2.87 million
Source: Kopkin (2012).
income tax, although when players are on the road their wages are taxed
according to the state and local taxes in effect in that location). Clearly,
free agents in the NBA can benefit by relocating to tax-free states. In fact,
recent research has shown that teams located in high tax states have less
success in recruiting and signing the most talented free agent players
(Merchak 2010).
Although the collective bargaining agreement has made strides toward
ameliorating some of the challenges faced by small-market teams, there is
nothing in the labor agreement that addresses the impact of high state and
local tax rates on player movement. It will be interesting to see whether
the parties attempt to mitigate this problem through the collective bargaining process and how they would do so.
DEVELOPMENTS IN PROFESSIONAL HOCKEY
Writing in 2002, the authors of this chapter predicted that “labor peace
in the NHL may be short-lived” (Dworkin and Posthuma 2002:253). The
authors went on to say that “many people believe that when the current
contract expires in September 2004 the entire NHL season may be lost
to yet another labor dispute.” In fact, the entire 2004–2005 NHL season
was lost because of a lockout (Brady 2011).
NHL Commissioner Gary Bettman has held his position since the
1993 season. In 1994, a labor–management dispute cost the parties half
their season. However, even after the settlement, severe financial problems
remained in professional hockey. One particular problem was that, much
like MLB, team payrolls varied widely (USA Today 2011). So it seemed
like déjà vu all over again at midnight on September 16, 2012, when the
NHL became the third professional sport in 18 months to lock out its
players. That was the fourth NHL shutdown since 1992. The most famous
and damaging shutdown was the 2004–2005 lockout. The key issue in
those negotiations was the salary cap (Staudohar 2005).
PROFESSIONAL SPORTS
331
Previous Collective Bargaining Agreement
Table 17 recaps the previous four labor disputes between the NHL and
the NHLPA.
The 2004–2005 lockout was the first and only time that a professional
sport in the United States had lost an entire season because of a labor
dispute. For the second time, no Stanley Cup was awarded—the first
being in 1919 because of the widespread flu epidemic that followed World
War I (Staudohar 2005).
The final deal reached after this monumental 301-day lockout produced
a formal agreement covering 457 pages. As noted earlier, it was this sixyear agreement that expired and led to the 2012–2013 lockout. The
agreement ran six years through the 2010–2011 season. The NHLPA had
the option to extend this contract for an additional season, 2011–2012,
an option that they did decide to exercise (Staudohar 2005). Had they
not exercised the option, the 2012–2013 lockout would very likely have
played out one year earlier. Table 18 highlights the major features of the
2005 agreement.
As indicated in Table 18, the agreement contained a salary cap. Individual
club payrolls were not permitted to be below the set minimum or above
the maximum level (Staudohar 2005). Without the possibility of lavish
payroll spending as in baseball, no luxury tax was necessary in the NHL.
So, for the first time, players faced a salary cap system.
In previous years, some teams had spent up to $80 million on payroll,
while at the lower end, other teams had payrolls of barely $20 million
(USA Today 2011). This vast disparity is what led the NHL to hold out
for the cap the parties eventually agreed on. As previously noted, the NHL
and the NHLPA agreed on a hard cap. Teams were not permitted to
TABLE 17
Previous Hockey Labor Disputes
Season
1992–1993
1994–1995
2004–2005
2012–2013
Result
Player strike
30 games postponed
103-day lockout
468 games canceled
301-day lockout
Entire season lost
Lockout began September 16, 2012
625 canceled games
Settlement on January 6, 2013
48-game season
Sources: Kercheval (2013); Collective Bargaining Agreement Between the NHL and NHLPA,
January 12, 2013.
332
TABLE 18
Major Components of July 22, 2005, NHL–NHLPA Collective Bargaining Agreement
Term
Contract length
Revenue share to players
Club payrolls/salary caps
Salaries
Revenue sharing
Luxury tax
Outcome
Six years
One-year extension option for NHLPA
< $2.2 Billion (54%)
$2.2–2.4 Billion (55%)
$2.4–2.7 Billion (56%)
> $2.7 Billion (57%)
$21.5–$39 Million
Maximum: $7.8 million
Minimum: Increased to $525,000 in 2011–2012
For clubs in bottom 15 in league revenues and
smaller markets (< 2.5 million TV households)
None
Source: Collective Bargaining Agreement Between the NHL and NHLPA, July 22, 2005–
September 15, 2011.
exceed agreed-on spending levels. Along with this salary cap agreement,
players also saw a 24% cutback to existing contracts and, in exchange,
received 57% of hockey-related revenues, if revenue exceeded $3.3 billion
(a regular occurrence in recent seasons) (Collective Bargaining Agreement
Between the NHL and NHLPA July 22, 2005–September 15, 2011).
The players believed they had made major concessions to get this larger
share of hockey-related revenues and thus were very reluctant to give in
to the lower number. As might be expected, the owners thought that 57%
was too high and insisted on reducing the players’ share to between 47%
and 49%. Table 19 demonstrates the impact of reducing the players’ share
of revenues to 47% from 57%. And despite the fact that the 2005
agreement contained many other terms agreed on in areas such as
performance bonuses, Olympic participation, free agency, entry-level
players, and the entry draft and salary arbitration, the divergent views on
the revenue share were at the heart of the lockout (Staudohar 2005).
2012 Negotiations
The NHL and the NHLPA began their most recent round of bargaining
in late June 2012. After two and a half months of negotiations, the owners
locked out the players on September 16. Normally, in a strike or lockout,
bargaining continues in an effort to move the process forward. However,
this was not the case in the 2012 talks. The differences between the parties
seemed so significant that there appeared to be little hope that the gap
could be bridged in the short term (Staudohar 2013).
As the weeks passed, the parties watched as key milestones in the NHL
season were lost. First, the pre-season was canceled, then the opening of
333
PROFESSIONAL SPORTS
TABLE 19
Revenue Sharing Examples
Players’ share
57%
47%
57%
47%
Total revenues
$3.3 billion
3.3 billion
5.0 billion
5.0 billion
Players get
$1.88 billion
1.55 billion
2.85 billion
2.35 billion
Sources: Collective Bargaining Agreement Between the NHL and the NHLPA, July 22, 2005–
September 15, 2011; Collective Bargaining Agreement Between the NHL and the NHLPA,
January 12, 2013.
the season on October 11. Later in the fall, the internationally televised
New Year’s Day outdoor game between the Detroit Red Wings and the
Toronto Maple Leafs at the 115,000-seat University of Michigan Stadium
in Ann Arbor was canceled. In November, the NHL announced that its
annual All-Star Game, to be hosted in the small-market home of the
Columbus Blue Jackets on January 27, 2013, would not be played. As in
other professional sports, the small-market Columbus franchise struggles
financially. A chance to host an NHL All-Star contest would have been
a big boost to that franchise (Staudohar 2013). During a lockout, financial losses mount up on both sides. Players do
not receive their salaries, and the teams lose income from ticket, concession, and merchandise sales, as well as from television. According to
Deputy Commissioner Bill Daly, the NHL estimated that it lost around
$100 million from the cancelation of the pre-season alone. Many other
businesses located near NHL stadiums also suffered losses. Without games,
fans do not stay at hotels or eat out at restaurants before or after games.
As each day passed, these losses continued to mount (Staudohar 2013).
One particularly problematic aspect of the 2012 dispute was that both
the NHL and the NHLPA had experience in season-long disputes in the
past. Both sides were very well prepared going into the lockout. The
executive director of the NHLPA is Donald Fehr, and the players’ association special counsel is his brother, Steve Fehr. Both have significant
experience in labor relations in the professional sports arena. Donald Fehr
formerly served as the executive director for the baseball players union
and before that had worked alongside Marvin Miller, the first executive
director of the MLBPA (Goldstein 2012). As mentioned earlier, NHL
Commissioner Bettman had been through an entire season lockout in
2004–2005. Both sides seemed to be prepared for a long struggle (Collective
Bargaining Agreement Between the NHL and NHLPA, July 22, 2005–
September 15, 2011).
334
Settlement and Aftermath
Just when it appeared that fans of the NHL might have to suffer through
their second entire season cancelation because of a lockout, the NHL and
NHLPA announced a tentative accord on a new collective bargaining
agreement that would save a portion of the 2012–2013 season. This
announced deal came on the 113th day of the lockout after 625 games
had been canceled (Kercheval 2013). Apparently, the deal was struck at
4:40 a.m. on January 6, 2013, between NHL Commissioner Gary Bettman
and NHLPA Executive Director Donald Fehr after a 16-hour bargaining
session. The NHL had earlier announced the need to settle by January
11, 2013, if there was going to be enough time for a one-week training
camp to be followed by a shortened 48-game season. A typical NHL
season has 82 regular-season games followed by the playoffs, which
eventually lead to the Stanley Cup championship. This new agreement
meant that the Stanley Cup was awarded in 2013, an event that did not
occur after the loss of the entire 2004–2005 season because of a previous
lockout. The lockout was officially lifted on January 6, 2012, after the
new deal was announced. The NHL ratified the contract on January 9,
followed by NHLPA ratification on January 12.
Three basic elements of this new agreement (Collective Bargaining
Agreement Between the NHL and NHLPA, January 12, 2013) can be
summarized as follows:
• The two sides agreed to split the $3.3 billion in league revenues at
50% for the players and 50% for the owners. The previous agreement
featured a 57% share for the players of what started as a much lower
base of $2.2 billion in the 2003–2004 season. This new division of
revenues favors the NHL.
• The new agreement has a term of ten years with either side able to
opt out after eight years. Both sides benefit from this longer agreement because stability for the long term was a high priority. Fans
will no doubt enjoy not having to worry about another lockout for
close to a decade.
• The salary cap for 2012–2013 was set at a prorated $70.2 million
and $64.3 million in 2013–2014. The floor was set at $44 million
in both seasons. The deal also puts a seven-year limit on player contracts, but teams are able to re-sign their own players for eight years.
Players received a defined benefit pension plan for the initial time,
and minimum salaries will increase to $750,000 by the 2021–2022
season from the $525,000 level they are set at in 2012–2013. These
developments tend to favor the players.
An important aspect of this settlement was the involvement of federal
mediator Scott Beckenbaugh, who also has mediated negotiations in Major
PROFESSIONAL SPORTS
335
League Soccer, the NFL, the NBA, and the 2004–2005 NHL talks. Federal
Mediation and Conciliation Service director George Cohen stated that
“fans throughout North America will have the opportunity to return to a
favorite pastime and thousands of working men and women and small
businesses will no longer be deprived of their livelihoods” (Sports Illustrated
2013). Cohen made the important point that these negotiations were not
only about millionaire owners and players—many other people have careers
and labor market opportunities that rely principally on NHL games being
played. Those people are able to resume their careers or restart their businesses and won’t have to worry about another labor dispute for a long time.
It is too early to tell which side prevailed in the negotiations. One might
easily wonder why it took so long to reach a settlement that clearly looks
like it could have been agreed on much earlier. Indeed, there really was
no new ground broken in this latest settlement. Why did it take so long?
Players had indicated much earlier that they were willing to take a lower
percentage of the revenues—which they did! It is interesting to compare
the relative lack of passion from hockey fans for the return of the game
during the lockout with the din made by the NFL fans even with the
threat of a canceled pre-season game. Moreover, recall the uprising from
the use of NFL replacement referees that ultimately led to a swift settlement. Maybe the point is that hockey fans miss hockey but not as much
as football fans would miss football.
And although it is tempting to give the owners the edge over the players
in the NHL settlement (Elliott 2013), the overall picture remains rather
cloudy. The NHL got the salary cap, entry-level salary restrictions, and
revenue-sharing changes that will create better cost certainty. But the players
received the right to seven-year contract limits, a good pension plan, and a
maximum 55% variance in the year-to-year value of contracts.
Both sides made some concessions they probably did not want to make
and indeed had not intended to make. As noted earlier, instead of focusing
on whether the owners or players won, it is easy to say who the losers were
in the entire affair—the fans, the small-business owners, and the employees
of the arenas and the NHL who suffered during the lockout. Will the fans
return? As has been the case in the past in other sports, the answer is a
tentative yes, made quite a bit stronger by the length of the new
contract.
Thus, the NHL and the NHLPA became the fourth and final pair of
negotiators to settle in this latest round of collective bargaining negotiations in the four major team sports. It is usually a dangerous business to
declare winners and losers. But in hockey, as in baseball, basketball, and
football, there are some positive signs from lengthy agreements in all four
sports that should benefit all parties who were at the bargaining table and
others who want the games to go on.
336
CONCLUSIONS AND THE FUTURE
Famous baseball player and worldly philosopher Yogi Berra reputedly once
said, “Prediction is difficult—especially about the future.” And so it is
with some trepidation that this chapter concludes with a brief summary
of some possible future scenarios. The discussion of collective bargaining
in the four major professional sports in North America can be summarized
around the following points.
The period 2011–2012 witnessed the expiration of the CBAs in each
sport (Table 7). The negotiations that ensued produced a tumultuous year,
yet, in each case, the collective bargaining process once again worked and
led to eventual accords.
Baseball was the only sport to settle on a new CBA without any work
stoppage. Football and basketball featured short lockouts, with the NBA
season actually being shortened to 66 games. The NHL season also featured a lockout that reduced the season to 48 games. Football referees
were also locked out, but after three weeks of using replacement referees,
a settlement was finalized in time for the Thursday night football game
on September 27, 2012.
A key feature in the three sports featuring lockouts was the ongoing
provision of a salary cap. Baseball, alone, has no salary cap. Its record of
peaceful labor relations over the past 21 seasons is remarkable. The lack
of a salary cap arguably provides more flexibility in baseball negotiations
and has contributed to the stability of the relationship between the parties
in this sport.
Player safety has emerged as a major factor in ongoing negotiations
(Barrett 2013). This safety consciousness, especially in football, has gradually trickled down to much lower age levels. Today there is much more
interest in head injuries and helmet safety. The seriousness of concussions
and other brain injuries will continue to be studied and will be a key
subject of future collective bargaining sessions (Belson 2012).
Internationalization of the four professional sports has continued to
be a major focus. Although baseball has only one Canadian team (since
the loss of the Montréal franchise), there are many signs that suggest the
world market will be a much bigger factor in future years for the professional sports covered in this chapter (Friedman 2005, 2008). Professional
games will continue to be played in foreign countries, perhaps in increasing numbers. In some of the sports, international leagues already serve as
minor league training grounds for future professional athletes not quite
yet ready for the center stage. The possibilities for merchandise sales on
an international scale are enormous. It is possible that several of the professional sports covered in this chapter will feature international teams in
countries other than Canada in the not too distant future. The professional
PROFESSIONAL SPORTS
337
sport that appears most likely to establish another non-U.S.–based team
is baseball.
Although fan interest in the four major professional sports continues
to be very high, the increasing costs of attending a game, one measure of
which is the FCI, looms as a potential problem. Simply put, it is now very
expensive for even a middle class family to attend a professional game at
the local ballpark, arena, or stadium. The popularity of baseball and
football on television is evidence of this situation. Fans regularly watch
games at a local bar or at home with friends. The growing popularity of
lower-cost college or minor league games also may be driven, at least in
part, by cost (Gitter and Rhoads 2011; Brennan 2010). Minor league
baseball games are very popular for family outings because of easy access,
nearby parking, competitive games, and perhaps most important, reasonably priced tickets and concessions. Professional teams and leagues need
to think about ways to bring the average fan back so that games are
attended by more than the very wealthy.
A distinction running across all four professional sports is the major
labor market differences seen in today’s relatively free and open player
market compared with the former monopsonistic market faced by players
in the past. As described earlier in this chapter, and in many other works
on the professional athletes’ labor market, players have benefited greatly
by using collective bargaining to eliminate most of the former market
restrictions they faced since before the late 19th century. Much of the
current strife between owners and players revolves around the constant
pressure on both parties to either “dial up” or “dial down” these labor
market restrictions. A good example of this is the salary cap issue featured
in basketball, hockey, and football.
Discussions over salary caps and the appropriate division of revenues
between owners and players have led to lockouts in the recent rounds of
negotiations, first in football, then in basketball, and finally in hockey.
The salary cap is a very controversial topic that goes right to the heart of
the disagreement between owners and players: who should get the largest
portion of the revenues produced by the game? Of course, there is general
agreement that both owners and players should share in these revenues,
but the key question then becomes how much should each party receive?
There is no easy answer to this question.
There would, of course, be no games without the players. But it is
equally true that there would be no games without owners who have the
resources and managerial expertise to establish leagues, teams, television
contracts, and minor leagues. This is an old question that has deep roots
in each of the four professional sports, as evidenced by the long history
of conflict between players and owners.
338
From the earliest days of professional baseball in the late 1800s, when
the owners completely controlled player markets and when superstar
players such as John Montgomery Ward asked, “Is the Baseball Player a
Chattel?”(Ward 1887), professional sports have come a long way to today’s
labor market compromises. In the end, the recent strife over salary caps
and revenue sharing is just the modern version of the age-old question of
how to divide game revenues fairly between the two parties. This question
will not go away. It will almost certainly always be a feature of future
collective bargaining negotiations between owners and players (“Greed v
Pride” 2012).
The United States Postal Service issued a postal stamp in the year 1975
that featured the process of collective bargaining with the quote, “Out of
conflict … accord.” This is a good way to summarize the labor–management
relations situation in professional sports. A monopsonistic labor market in
each sport, which led to huge conflict, has given way, in each case, to an
accord featuring a much freer and open player labor market. Much the same
can be said for many of the divisive issues that have existed and, in many
cases, still separate owners and players at the bargaining table. Even with
the trauma experienced along the way, the process of collective bargaining
has served the parties reasonably well. For this reason, it will most likely
continue to play an important role for many years into the future. In the
final analysis, the conclusion reached by the authors in a previous edited
volume on collective bargaining (Clark, Delaney and Frost 2002) is still
valid today:
The bottom line is that the future of the industry looks
challenging, but there are many opportunities for mutually beneficial gains. Union–management relationships
in baseball, basketball, football and hockey are maturing.
With age hopefully will come the wisdom and the ability
to focus on the big picture to achieve equitable solutions
for all parties. Let us hope that in the case of the professional sports industry, out of conflict shall come eventual
accord. (Dworkin and Posthuma 2002)
Nothing witnessed in the past ten years regarding collective bargaining
in the four major professional sports has changed this fundamental conclusion. At times, things have been difficult (and, in some cases, dire),
and building good relationships has continued to be very challenging.
Yet, through it all, whenever conflict has arisen, it has eventually been
followed by accord. That is the way collective bargaining is supposed to
work. That is indeed the way it has worked in the arena of professional
sports.
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339
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Chapter 9
Commentary: Union
Practitioner Perspective
Iain Gold
International Brotherhood of Teamsters
It would be irresponsible to comment on the state of collective bargaining
over the past ten years without commenting on the “state of the unions.”
This means addressing union density and the economic environment in
which bargaining took place, the latter of which was book-ended by a
recession and culminated in the Great Recession.
In 2012, union density fell to 11.3% of the workforce—its lowest level
since 1916 (Greenhouse 2013). Even worse, the private sector rate of 6.6%
in 2012 masks the 11.3% low point in 1916 because of the non-existent
levels of public sector members in the early 1900s.
It is not my intent or purpose to reflect on the key reasons why density
is dropping (others have written extensively on it), and it is pretty clear that
a number of factors are the cause. But what’s even clearer is that declining
union density has not abated, and prospects are not good for the necessary
public policy changes to reverse it.1
In discussing collective bargaining over the past ten years, I draw from
the chapters in this research volume and my experiences at the International
Brotherhood of Teamsters. I then discuss what the next ten years of bargaining might look like if there are very few changes in worker attitudes
or in policy at the federal level. Finally, I offer some thoughts on a few
key developments that may alter the landscape.
THE PAST TEN YEARS
What do the past ten years tell us? The 2000 downturn and then the
Great Recession created a negative economic environment that challenged
virtually every business in every part of the economy. To assess the scope
of the negative impact, it is more instructive to look at sectors of the
economy to help develop the narrative.
On one end of the spectrum, the U.S. auto industry led by the “Big
Three” (Ford, General Motors, and Chrysler) is an example of an industry
hardest hit by the macroeconomic environment, as evidenced by the highly
public bankruptcies and near failure of both General Motors and Chrysler
in 2009. As noted in Chapter 2 of this volume, auto industry employment
fell by 43%, from 970,100 in 2003 to 561,700 in 2009. The lack of
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purchasing power, inability to access credit, and greatly diminished demand
for cars caused sales to fall to historic lows. Union density was already
falling as transplants took market share from the Big Three and accelerated with its restructurings.
That same credit crunch and lack of disposable income meant people
were traveling less, so the airline and hotel/casino industries were negatively
affected (see Chapter 1 and Chapter 3 of this volume). Airlines, a systemic
boom or bust industry, experienced multiple bankruptcies and consolidations over the past ten years, and employment dropped from 450,000
workers in 2000 to 350,000 in 2010. Union density in the airline industry
remains relatively high at 43%.
Hotels (especially those with casinos), however, depend on a traveling
public willing to spend money. The industry saw its growth stunted during
this period, but overall employment stayed roughly the same. Union
density, however, declined from 9% in 2000 to 7% in 2012.
The newspaper industry has been facing technological changes that
challenge its existing business models, as discussed in Chapter 6 of this
volume. Those changes, which resulted in declining circulation and
advertising revenue, were already wreaking havoc on the financial condition of newspapers, and most were further stressed by a bad economy.
The industry, like many others, continues to face widespread bankruptcies,
consolidation, and employment decline. Annual revenue declined from
$59 billion in 2000 to $34 billion in 2012, employment fell from 455,000
in 2000 to 244,000 in 2011, and union density fell from almost 10% in
2000 to 6.8% in 2011.
In the public sector (Chapter 7 of this volume), the Great Recession
produced a huge drop in revenues for public entities that at the same time
faced an increase in demands for services. The resulting budget strains
created the environment for laissez-faire–oriented politicians to target
public sector workers as a source for savings. The extreme examples are
the attempted stripping of public sector collective bargaining rights in
Wisconsin and Ohio.
Health care faces different industry dynamics and, as such, collective
bargaining was not as directly impacted by the recessions. The major
dynamic in health care is federal policy (the Affordable Care Act), combined with rising costs and changing demographics. Employment in this
sector is growing, and union presence in the hospital sector is keeping
pace with growth (see Chapter 4 of this volume).
Teamster members in aforementioned industries faced similar experiences. Those in the auto industry saw two companies that transport new
cars to dealers file for bankruptcy—one liquidated, another back in
bankruptcy a second time (“Chapter 22” in bankruptcy jargon), and two
other companies merged. In the airline industry, mergers and bankrupt-
UNION COMMENTARY
347
cies have set the tone in bargaining and representation issues. In the
trucking industry, the Great Recession exposed the weakness of the
less-than-truckload sector’s largest company, YRCW, a debt-laden carrier
that grew in mid-2000s when borrowing money was cheap. In 2003, when
Yellow bought the second-largest player, Roadway, they had a combined
55,000 employees. By 2011, when the company eventually restructured
as a result of the Great Recession, it was less than half the size and smaller
than either Yellow or Roadway was at the time of the merger.
Bargaining in the context of bankruptcy in difficult economic times
presents challenges distinct from those of traditional collective bargaining.
In extreme cases, the absolute need of the business to save costs to survive
drives economic concessions. Unions then need to figure out how best to
preserve jobs and benefits, ensure that new management will run the
business better, and make sure workers share in the upside if the company
does successfully recover. For members to approve a package, they must
have confidence in the “restructured” company and believe that the concessions are necessary and will help improve the business. In addition,
they need to see that all constituents are making similar sacrifices and
that management will not squander the savings and end back up in
bankruptcy.
In the extreme examples from the airline, auto, and trucking industries,
the economic concessions came in the form of “hard” dollars from layoffs,
reduced wages, reduced or eliminated defined benefit pension plans,
and/or reduced health care costs, and in the form of “soft” dollars in the
form of relaxed work rules. It is important first to verify that the savings
are needed. It is incumbent on the union to perform the necessary due
diligence to understand the scope of the company’s business problems,
what it takes to fix them, and whether there will be a viable business going
forward if concessions are granted. To do this, the union must have access
to the same type of financial advice that other key constituents have in
the process, and union leadership has to be able to stand in front of their
members and give them the straight story about the prospects of
survival.
If there is a path to a viable business after a potential restructuring,
then in exchange for the economic concessions, unions can facilitate the
overall restructuring by demanding that other stakeholders, senior lenders,
bond holders, equity holders, management, and non-union workers all
contribute to the restructuring, which is a Teamster core principle—
a concept we call equality of sacrifice.
A second core principle is management accountability, which requires
changes in the management team that got the company into its current
financial predicament and usually includes a new board of directors,
often with representatives nominated by the unions. These conditions are
348
critical to existing union members, who often have no confidence in the
management team in place, and if left untouched, will squander any
savings generated by contractual changes. (If management problems are
not addressed, members are less likely to vote to approve a proposed
contract.)
A third core principle is bargaining unit participation in any upside.
If the company restructures, the union must be able to show members
that they have an ability to benefit economically when things go well.
Upside participation can come in different forms—restoration, or “snapping back,” of concessions; and recouping wage or benefit cuts in the form
of profit sharing (General Motors and Chrysler), outright equity (stock
in the newly reorganized company (YRCW, American Airlines), or a
combination of those options.
If the pieces fall into place—meaning that union members believe
there is a need to make the sacrifices; if they see other constituents (management, non-union workers, lenders) sharing in the sacrifice; if management, old and new, is being held accountable; and if there is a mechanism
that, if the company performs well, they have some ability to recoup or
offset some of the sacrifices they make—then the contract has a decent
chance of being ratified. These companies will have the opportunity to
see if the restructuring works. If union members are not convinced that
these changes will occur, then the package will be rejected, leading to
liquidation and the loss of jobs.
Thus, in the past ten years, the economic environment greatly shaped
the collective bargaining experience of many industries—difficult economic
times and financially troubled industries lead to challenges for collective
bargaining. The impact of the Great Recession varied because some industries were already transforming (newspapers, meatpacking; see Chapter 5
and Chapter 6 of this volume), but in general, union density in industries
discussed declined as employment fell and unionized employers restructured
(reduced employment), merged, or went out of business.
THE NEXT TEN YEARS
If you do not change direction, you may end up where you are heading.
—Gautama Buddha
Where will the labor movement be in ten years if nothing changes? In
terms of absolute numbers of union members in the United States, there
were 14.3 million members in 2012. Although there has been a slight
decline, the number has been holding steady. The peak was 20.1 million
union members in 1979 and was 17 million at the height of union density
in the United States in 1954. In 2002, the number of union members was
UNION COMMENTARY
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16.1 million. The trend suggests there will be some further erosion over
the next ten years, which could be partially offset by an improved economy
(Mayer 2004). If the trend holds, the labor movement would still comprise
more than 12 million union members.
We can look to the most recent union density data for clues and a few
nuggets of good news. Union membership increased among non-white
workers: in 2012, unions gained 156,000 new Latino members, 82,000
new black members, and 45,000 new Asian members (Miles 2013). The
growing percentage of the Hispanic portion of the labor force—expected
to reach 18% by 2018 (U.S. BLS 2012) and 29% of the population by
2050 (Pabst 2011)—could be a source of added union members.
Union membership also increased in some states—most notably
California, where membership was up 110,000 (Schmitt, Jones, and Sanes
2013). Where state or regional politics are supportive of workers’ rights,
unions should be able to maintain their current position in terms of
absolute numbers in both the private and public sectors. Therefore, it
appears that over the next ten years, unions can continue to tread water
in “stronghold” states, based on current trends and status quo political
conditions.
Within states, union membership is often concentrated in urban areas,
and one can envision the ability of unions to maintain membership and
relative density in core urban areas. For example, in large cities (Chicago,
Los Angeles, New York, San Francisco, and Seattle), unions have a strong
presence and are involved in innovative campaigns. Harold Meyerson, in
an article titled “What Happens If Labor Dies,” points to successful
campaigns “waged by workers and their allies in liberal cities” and cites
the community group Los Angeles Alliance for a New Economy (LAANE)
as the laboratory to transform Los Angeles into a “labor-friendly” city
through mobilization of the vast immigrant community. The architects
of transforming Los Angeles into a labor city were the late Miguel Contreras,
leader of the Los Angeles County of Federation of Labor; his wife, Maria
Elena Dorazo; and LAANE founder Madeline Janis (Meyerson 2012).
The political power harnessed by LAANE has been used to support policies that require payment of living wages, inclusion of local hire agreements,
and card-check provisions on projects involving public funds in the city
of Los Angeles.
So, over the next ten years, it’s not implausible that sheer numbers of
union members, pockets (in industries and geographic areas) of relative
strength, and growing minority populations with higher tendencies to join
unions can mitigate trends of declining numbers and density. In terms of
collective bargaining, pressure will continue on the overall compensation
package but be focused even more on pension and health care structure
and costs (especially with the passage of the Affordable Care Act).
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SPARKS THAT MAY CAUSE CHANGES
There’s something happening here. What it is ain’t exactly clear …
—Buffalo Springfield, “For What It’s Worth”
What’s clear is that workers or unions aren’t likely to stay the course.
Although there likely will not be any new federal legislation to address
the inadequacies of our labor laws, workers, their organizations, and their
allies are not going to wait for those policy changes and, in fact, are
increasingly taking matters into their own hands.
Scott Walker’s anti-public sector collective bargaining law in Wisconsin,
closely followed by a similar bill in Ohio in early 2011, put workers into
motion. The response from all unions—private and public sector alike—
was to rally and not let the threats to the existence of unions go unchallenged. This response to the “war on workers” was further amplified by
Occupy Wall Street, which spawned similar “Occupies” in hundreds of
other cities and solidified the 1% and 99% frame as an issue in the 2012
presidential election.
In 2012, workers employed by Walmart contractors initiated a strike
at a warehouse in Los Angeles’ sprawling warehouse hub in the Inland
Empire and went on a 60-mile march to Los Angeles City Hall, protesting
work conditions. That strike was followed by one at a dedicated Walmart
facility in Elwood, Illinois—another concentrated warehouse hub, south
of Chicago. Weeks later, Walmart retail workers initiated strikes at dozens
of retail stores around the country, demanding to be treated with respect.
Many of those workers are affiliated with OUR Walmart, an innovative
new organization supported by the United Food and Commercial Workers
International Union (UFCW). Then, on Black Friday 2012, Walmart
workers and their allies demonstrated at more than a thousand Walmart
stores in support of striking retail workers, all in the name of fair treatment for Walmart workers.
Retail food workers in New York City and retail workers along Chicago’s
Golden Mile also took to the streets in late 2012. These one-day strikes
showed that workers at the bottom of the “food chain” are so marginalized that they have little to lose and are willing to take action even if it
means losing their jobs.
Many unions are embracing militant action and supporting workers
who are prepared to strike or otherwise fight for better treatment. In 2005,
a central theme in the formation of Change to Win was increasing resources
to run innovative, comprehensive campaigns in an effort to organize more
workers in targeted industries. Not that they had the all the answers, but
the unions that split off to form Change to Win pledged to try different
UNION COMMENTARY
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ways to alter the direction they were headed. There have been successes
(Smithfield for UFCW and school bus drivers for the Teamsters, to name
two) but not on a scale that has altered overall union density. These unions
continue to evolve their strategies and, in addition to running organizing
campaigns, are major supporters of the worker movements previously
described.
The willingness to develop new strategies seems to be growing across
the labor movement. Reports coming from the February 2013 AFL-CIO
executive council meetings indicate that the Federation and its affiliates
are prepared to move in a different direction. In speaking with reporters
after an executive council session at which “growth and innovation” were
the topic of conversation, AFL-CIO president Rich Trumka said, “We’ve
been talking about the crisis that we’re in and the fact that we need to
change.” AFSCME president Lee Saunders added, “I think we have to
be creative. I think we have got to work with organizations that are concerned about the plight of workers whether they are a union or not.” What
strategies come out of the AFL-CIO or its affiliates remains to be seen,
but at least the recognition for innovation and discussion about change
have reached a new level of seriousness (Palmer 2013).
Will the spark generated from the most exploited and disenfranchised
workers in our economy catch more broadly to other sectors of the workforce? Will unions and their members continue to push back on states’
attacks on public sector bargaining laws and on the private sector through
right-to-work initiatives? Will the Occupy movement continue to help
broaden the narrative of what’s wrong with our economy and lend support
to the increasing militancy that workers are demonstrating a willingness
to embrace? With immigration reform front and center on the political
agenda, how will immigrants on a path to citizenship (or if reform fails,
on a path to further frustration) affect these movements?
Although the doomsayers predict the demise of the labor movement
and the relevancy of unions, there are too many wildfires to imagine that
something is not emerging. And, as it does, these workers’ movements
should be able to dramatically shape and possibly transform collective
bargaining in low-wage industries over the next ten years.
The views expressed are the author’s and do not necessarily reflect the views
of the International Brotherhood of Teamsters.
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ENDNOTES
For a recent discussion, see Warner, Kris, “Protecting Fundamental Labor Rights:
Lessons from Canada for the United States,” August 2012, Center for Economic Policy
Research.
1
REFERENCES
Greenhouse, Steven. 2013 (Jan. 23). “Share of the Work Force in Union Falls to a 97-Year
Low, 11.3%.” New York Times. <http://tinyurl.com/ljuhe8r>
Mayer, Gerald. 2004 (Aug.). “Union Membership Trends in the United States.” Congressional
Research Service. <http://tinyurl.com/chlong>
Meyerson, Harold. 2012 (Sep. 13). “If Labor Dies, What’s Next?” The American Prospect.
<http://tinyurl.com/924yz3w>
Miles, Kathleen. 2013 (Jan. 25). “Unions Gain Latino Members, Could Be Unions’ Saving
Grace.” Huffington Post.com. <http://tinyurl.com/ajf7nt4>
Pabst, Georgia. 2011(Mar. 31). “Report: Hispanic Workforce Growing.” JSOnline.com.
<http://tinyurl.com/mbwfagu>
Palmer, Anna. 2013 (Feb. 28). “AFL-CIO Enters Survivor Mode.” Politico.com. <http://
tinyurl.com/kpzz7c4>
Schmitt, John, Janelle Jones, and Milla Sanes. 2013 (Jan.). “State Union Membership,
2012.” Center for Economic and Policy Research, Washington, DC. <http://tinyurl.
com/mqpexop>
United States Bureau of Labor Statistics (U.S. BLS). 2012 (Aug.).“ Labor Force Characteristics
by Race and Ethnicity, 2011.” <http://tinyurl.com/maqtdt7>
Chapter 10
Commentary:
Management Perspective
Martin (Marty) J. Mulloy
Ford Motor Company
Over the past ten years, globalization of the automotive industry has
rapidly accelerated. The development of automotive manufacturing in
countries that were formerly absent from the market, such as China, Korea,
Russia, and India, has resulted in an increasing number of new entries into
the global automotive market. Free trade agreements have opened up
markets that were previously closed, providing opportunities for companies
to introduce new export products, thereby challenging domestic manufacturers and the unions that represent these employees. In the United
States, these changes have had a profound impact on domestic automotive
manufacturers—the combination of an economic downturn, reduced
domestic market share as a result of shifting consumer interests influenced
by rising oil prices, lower margins and increasing legacy costs resulted in
the bankruptcies of automotive giants, and the near collapse of Ford Motor
Company. These economic changes forced the need for drastic modifications to the traditional negotiations process between the domestic automotive companies (GM, Chrysler, Ford Motor Company) and the United
Auto Workers (UAW). This chapter outlines a perspective of the changes
that have occurred in collective bargaining and the resulting impact on
the domestic automotive companies and the UAW.
BARGAINING PROCESS CHANGES
Traditionally, negotiations between the UAW and the domestic
automotive industry focused on protecting and increasing compensation,
benefits, and job security. The approach was pattern bargaining among
the domestic automotive industry. Years of traditional bargaining resulted
in the domestic automotive industry being approximately $30 above the
competitive labor cost of the transplants (fully fringed rate of $75 versus
$45). This labor cost disparity contributed to eroding market share, overcapacity of manufacturing facilities, and the elimination of more than
100,000 UAW jobs, in addition to thousands of salaried positions.
The economic landscape prompted the need for a radical change in the
traditional bargaining process. The tried and true methods of the past
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had failed, and a new approach to collective bargaining was required to
support the shared goal of survival. The following is a discussion of the
key elements of this new bargaining process at Ford Motor Company.
From Position to Interest-Based Bargaining
In the past, it was not uncommon for Ford and the UAW to engage in a
position-based bargaining process, in which both sides would come to
the bargaining table committed to a position and use coercive forms of
power in a limited amount of discussion, thus agreeing to items that were
not optimal for either party. With the changing business environment,
which brought significant challenges to both parties, it was evident that
Ford and the UAW would be better served by adopting a more interestbased approach to bargaining.
This approach allowed the company and the union to approach
bargaining priorities in more of a joint problem-solving manner, in which
issues and problems could be discussed in a collaborative, open, and honest
way; solutions could be constructed in the best interest of all parties; and
the parties jointly owned implementation of the agreement they had
reached. Using this process allowed the union to operate in a proactive
manner and secure a greater voice in the business. Joint problem solving
was the only way that both parties could secure the outcomes that were
required to remain competitive.
Transparency of Information
Traditionally, the companies held confidential data close to the vest. The
UAW, assuming the worst intentions, leveraged the companies to negotiate
the best deal they could achieve for their members. The new strategy was
to regularly share core financial and operating information with the
UAW—not just when formal bargaining occurs. The sharing of key business metrics has become ingrained in the way we do business, not only
with the UAW leadership but also with our employees, and it helps
solidify the joint partnership. Rather than solely discussing what the
company has decided to do and the impact of these decisions, our discussions now include potential alternatives and a candid discussion of options
and methods to achieve mutual objectives.
This approach allows the union to draw its own conclusions on the
state of the business—not just take the company’s word. This strategy has
changed the dynamics of the relationship. More than ever, the UAW has
a greater voice in the decisions that affect the collective future of its members and the Ford Motor Company. Educating all stakeholders on the
business will continue to be critical in the future. It is expected that social
media will play a huge role in connecting with employees and helping to
understand their needs. Finding a way to manage the impact of social
MANAGEMENT PERSPECTIVE
355
media will be important for both the company and the union in order to
gain successful ratification of future negotiations.
Senior Executive Participation
In previous years, the vast majority of the UAW’s engagement with senior
company representatives was limited to Labor Affairs staff. This was
particularly true during formal bargaining. In support of the new bargaining process, we engaged the company’s senior executives in sharing the
intricacies of the business. Before bargaining began, we scheduled meetings with senior UAW officials and senior management, which included
our chairman, CEO, CFO, and other senior executives, to share their
respective bargaining interests. This had two beneficial results—better
information to the union leadership and an improved relationship built
on trust. While Labor Affairs managed the process and orchestrated the
negotiations, engagement of the operating leadership was essential to
settlement of a competitive agreement.
Continuous Improvement—Living Agreement
Another shift in the bargaining approach has been the frequency and timing of “re-opening” the agreement. Traditionally, contracts were negotiated
a couple months before expiration of the current contract. In the past few
years, it has not been uncommon for contracts to be re-opened for midcontract bargaining. This became necessary to combat the weakening of
the auto industry and to attend to the competitive challenges that threatened the viability of the industry. Re-opening contracts was done not only
at the national level but also at the local plant level. Locally, management
and local union leadership worked on negotiating competitive operating
agreements (COAs) or modern operating agreements (MOAs) that strove
to achieve business results with a focus on manufacturing best-in-class
products and improving worker safety and employee morale. While the
UAW understood that change was necessary and that changes were required
to current contracts, they had to approach the bargaining process in a very
strategic manner in an effort to maintain the hearts and minds of their
union members—and ultimately win ratification.
KEY WAGE AND BENEFIT BARGAINING ISSUES
Globalization and the fragile state of the U.S. economy changed the nature
of bargaining. There was no longer a labor monopoly, and gone were the
days when the domestic automotive oligopoly could pass along price
increases to consumers that resulted from generous contract wage and
benefit increases. A choice needed to be made—we could either continue
to shrink our manufacturing footprint in the United States and outsource
to emerging countries with competitive labor rates or we could face up to
356
the grim realities and address the core of our problems. Thankfully, we
engaged in bargaining that addressed our lack of economic competitiveness and structured an agreement that provides an opportunity for market
and job growth. The following sections provide an overview of changes
that have occurred in economic bargaining.
Pensions
Pensions have always been an element of bargaining, and bargaining has
generally focused on the amount of increase to the plan—not whether
there was going to be an increase. With falling rates of return, underfunded
plans, and increased regulations such as the Pension Protection Act,
employers are forced to negotiate alternatives to retaining what has already
been negotiated and avoid placing additional demands on the pension
plan. One alternative has been a shift from defined benefit plans to defined
contribution plans. Under a defined contribution plan, the employee is
given the benefit directly and is responsible for investment of the funds.
While this transition has focused on new employees, the real cost burden
lies with the legacy employees. Efforts to buy out existing retired salaried
employees from the defined benefit plan are underway.
Wage Increases
Historically, the outcome of wage negotiations between the UAW and the
domestic manufacturers consisted of cost-plus agreements, which included
general wage increases, cost of living allowances, lump sum increases, and
profit sharing. Most recently, the structure of wage packages has moved
away from base increases and was modified to reflect the competitive level
of the market and tied to delivering the business metrics. While there still
is a labor cost gap between plants owned by U.S. and non-U.S. auto companies, significant improvements have been achieved.
Health Care
Without question, health care costs have escalated faster than any other
component of labor cost. What makes this particularly challenging is that
it is the most difficult to manage. Cost shifting is simple enough, but
bending the curve of health care costs and addressing the fundamentals
of health care economics is a challenge for both the private and public
sectors. Left unabated, health care costs will continue to become a greater
portion of the total labor cost equation, leaving less room for the company
and union to negotiate direct compensation provisions. Alternatively,
employers and unions must identify new ways to reduce the costs of health
care or be forced to shift the costs to employees (higher premiums, co-pays,
and deductibles).
A significant action taken by the domestic automotive industry and
the UAW was to move retiree health care from a company-paid benefit
357
to a trust fund (known as a voluntary employee beneficiary association).
The UAW Retiree Medical Benefits Trust (the Trust) was launched in
2010 with a mission to provide the retiree population with coverage that
preserves core benefits and assets of the Trust. The Trust is controlled and
managed by the union. The ownership and interest to protect retiree health
care benefits has increased awareness of the UAW about the importance
of managing the escalation of health care costs and the need to implement
innovative cost-management initiatives.
Multi-Tier Wage Structure
The concept of newly hired employees gradually growing into a matured
labor rate is an element that has recently been introduced in automotive
labor contracts. The use of a multi-tier wage rate helps the company achieve
a competitive blended wage rate. This is particularly true where the labor
rates of existing employees are substantially above the market competition.
It is anticipated that the use of multi-tier labor will continue as long as
there is a labor cost gap between the employer and the existing competitive labor rate.
Job Security
For years, the labor agreement strapped the company with guaranteed
employment numbers as a penalty for outsourcing uncompetitive work.
This approach essentially created an artificial jobs bank that was not
sustainable. Through interest-based bargaining, the joint parties negotiated a job security program focused on investment commitments that are
based on competitive labor costs, job placement, and temporary income
security. There is a much better understanding and appreciation today
about what constitutes real job security. The number of employees on
layoff is almost zero today, and the company estimates an additional
12,000 new jobs by 2015.
CHANGES IN MANPOWER UTILIZATION
To maximize the efficiency of operations, corporations implemented
Frederick Taylor’s principles of scientific management (commonly referred
to as Taylorism). Taylorism is a production efficiency methodology that
breaks every action, job, or task into small and simple segments that can
be easily analyzed and taught. The application of these principles resulted
in the highly structured lines of demarcation in hourly employment job
assignments. While the approach achieved high levels of output, it unfortunately limited the level of contribution the majority of employees made
to the enterprise and lowered job satisfaction. As foreign competitors
continued to capture market share in the United States, American manufacturers had to rethink their strategies for eliminating waste and staying
viable. The move for Ford was to go from mass production to lean produc-
358
tion. The following sections discuss changes to manpower utilization that
have been addressed at the bargaining table and that continue to evolve.
Skilled Trades Lines of Demarcation
As a devoted fundamentalist adheres to the literal interpretation of sacred
scripture, so too does a skilled trade craftsman adhere to the precise
elements within the lines of demarcation carefully transcribed in the master
and local agreements. In most cases, this devotion to the craft and rigidity
to past practices and contractual agreements underutilized employees and
suboptimized the overall organization for the benefit of a few. Unfortunately,
the waste has resulted in American jobs lost to foreign competitors. Today,
we have worked with organized labor to address these inefficiencies and
reduce lines of demarcation to allow employees to work up to their personal
capability. Workers in the skilled trades are broadening their skills across
different trades, and “non-skilled” production employees are developing
the ability to complete semi-skilled assignments to improve production
throughput and productivity. While some employees receive an increase
to their base wage associated with the expanded role, the broadened skill
set is intended to create higher levels of personal job satisfaction and greater
manpower utilization for everyone.
Team Leaders
Taylorism adheres to the principle that management plans and supervises,
while hourly employees execute the tasks prescribed by their boss. Today,
we are in the process of re-engineering our organizational structure and
redefining roles and responsibilities. The traditional factory line supervisors are being retrained and transformed into process coaches whose role
is to build team leader and team member capabilities and coach to the
operating standards. Team leaders remain as members of the union and
are covered under the collective bargaining agreement. Team leaders must
pass an assessment process to be selected and are trained in both technical
and leadership skills. These team leaders are responsible for safety, quality,
and delivery objectives through standardized work and keeping the line
running safely and smoothly while producing quality parts. It would be
very difficult for an outsider to distinguish team leaders from members
of management.
Key to these change efforts is engagement of the entire workforce in the
continuous improvement of the enterprise, including safety, quality,
delivery, cost, people, maintenance, and environment. In essence, it is the
culmination of what many unions originally sought to achieve—personal
359
recognition and dignity for every employee. Given the progress made to
date, knowledge-based work system initiatives are expected to expand in
the future.
OUTLOOK FOR COLLECTIVE BARGAINING—
THE NEXT TEN YEARS
The combination of an increasing number of global competitors, new
product offerings in the United States, and the stress to fund legacy
obligations will ensure that there will be challenges facing collective
bargaining in both the private and public sector over the next ten years.
Essentially the “economic pie” has become smaller—the margin of waste
has shrunk, and we are faced with making difficult decisions to maintain
our private capital and public-level solvency.
Since Franklin Roosevelt’s signing of the National Labor Relations Act
in 1935, there has been only one significant policy change—the TaftHartley Act of 1947. The last contemplated change was the Employee Free
Choice Act, but it was scuttled by the Obama administration when it was
determined that conservative Democrats would not support the bill.
Although our labor laws have changed marginally over the years, the
macroeconomics of the world have changed dramatically—and will only
accelerate in the future. Organizations such as the World Trade
Organization, which regulates trade and tariffs worldwide, will continue
to demand that nations around the world adhere to free trade policies.
Thus, it is becoming more difficult for nations, industries, and unions to
hide from Adam Smith’s metaphor of the invisible hand.
As emerging nations around the world continue to develop the
infrastructure to support global trade, Western democracies that have
high labor costs will continue to be under intense pressure to compete
with emerging market countries that have a significant labor cost
advantage. The right strategy for high-cost industries is to collectively,
with their labor unions, recognize the challenges they face and to engage
in interest-based discussions on how to reduce their costs to maintain
competitiveness. Enough manufacturing jobs have been lost in America
by the inability of the parties to rationally negotiate competitive agreements. The benefits to society of having management and labor construct
competitive labor agreements cannot be overstated, as Ford Motor Company
and the UAW have demonstrated. Our states and cities desperately need
these jobs to support the economic infrastructure of our communities.
The multiplier effect at one Ford assembly plant job creates nine jobs in
the community.
As we have seen in years past, changes in the economic and political
landscape will require companies, states, local municipalities, and unions
360
to modify their bargaining strategies. Bargaining over the next ten years
will require honest and open dialogue, with the interests of key stakeholders
at the forefront. Faced with reality, tough choices and interest-based problem
solving will be required.
The views expressed in this chapter are the author’s and are not representative
of Ford Motor Company.
ABOUT THE CONTRIBUTORS
Mathias Bolton was the director of corporate affairs and research for the
RWDSU Council of the United Food and Commercial Workers Union in North
America. One of his primary responsibilities at the RWDSU was in the poultry
sector, where he participated in organizing drives, collective bargaining, and
building strategic alliances with poultry worker unions around the world in
response to the rise of global protein companies. Before that, Bolton was a rankand-file union activist for year years. He currently works for UNI Global Union
in Nyon, Switzerland, and resides in Geneva.
Paul F. Clark is director and professor in the School of Labor
and Employment Relations at Pennsylvania State University. His research has
focused on collective bargaining in the coal, steel, and health care industries;
union administration, structure, and government; and union member commitment and participation. Clark is the author, editor, or co-editor of five books,
including this research volume.
James B. Dworkin is chancellor and professor of management at Purdue
North Central. He has taught negotiations and dispute resolution and collective
bargaining and labor relations courses at the undergraduate, master’s, executive
master’s and Ph.D. levels. He has served as an arbitrator, mediator, and fact-finder
for a variety of labor–management disputes in the public and private sectors of
the economy. Dworkin has published more than 50 articles and two books in
the field of industrial and labor relations.
Vincent H. Eade is a professor in the William F. Harrah College of Hotel
Administration at the University of Nevada, Las Vegas. He teaches and does
research in the areas of human resource management, employment law, and
employee–employer relations. Before joining the faculty at UNLV, Eade worked
in the Las Vegas hotel/casino industry, spending the majority of his time in labor
relations and personnel administration.
Ann C. Frost is an associate professor of organizational behavior at the
Richard Ivey School of Business, Western University. Before joining the school
in 1995, Frost was a doctoral fellow at the Center for Industrial Competitiveness
at the University of Massachusetts, Lowell. Frost’s research and publications
have focused on the role of local unions in workplace restructuring, restructuring
in the steel and health care industries, and changes in low-wage work and careers.
Jody Hoffer Gittell is a professor of management at Brandeis University’s
Heller School for Social Policy and Management. Her research explores how
coordination by front-line workers contributes to quality and efficiency outcomes
in service settings. She has developed a theory of relational coordination, proposing that work is most effectively coordinated through relationships of shared
goals, shared knowledge, and mutual respect, and demonstrating how organizations can support relational coordination through the design of their work
361
362
systems. Gittell is the author or co-author of dozens of articles and chapters and
several books, including The Southwest Airlines Way: Using the Power of Relationships
to Achieve High Performance, and Up in the Air: How the Airlines Can Improve
Performance by Engaging Their Employees.
Iain Gold is the director of the International Brotherhood of Teamsters
Strategic Research and Campaigns Department. He has worked in research
capacities for several unions, including the United Food and Commercial Workers
International Union, AFSCME, and the AFL-CIO. Gold was a LERA board
member from 2009–2012 and has served in various capacities for the organization’s Washington, D.C. chapter, including president in 2003–2004.
Robert Hebdon is a professor of industrial relations in the Organizational
Behaviour Area of the Desautels Faculty of Management at McGill University
and serves as associate dean of students. His first career, with the Ontario Public
Service Employees Union Research and Collective Bargaining Department,
spanned 24 years in the research and collective bargaining department. His
research interests are in the areas of public sector labor relations, workplace
conflict, privatization, and labor rights as human rights. Hebdon has published
widely in those fields in such journals as Industrial and Labor Relations Review,
Berkeley Journal of Industrial Relations, Advances in Industrial and Labor Relations,
Relations Industrielles, and American Economic Review.
Harry C. Katz is the Kenneth F. Kahn Dean and the Jack Sheinkman
Professor of Collective Bargaining at the School of Industrial and Labor Relations,
Cornell University. His research focuses on new structures for labor–management relationships. Katz is the author of several books, including Shifting Gears:
Changing Labor Relations in the U.S. Automobile Industry, The Transformation of
American Industrial Relations, Converging Divergences: Worldwide Changes in
Employment Systems, and the widely used textbook, An Introduction to Collective
Bargaining and Industrial Relations.
Jeffrey H. Keefe is an associate professor in the School of Management and
Labor Relations at Rutgers University. He conducts research on labor markets,
human resources, and labor–management relations to inform public policy.
Presently, he is analyzing state and local government public employee compensation, employment levels, and dispute resolution, particularly interest arbitration,
health benefits, and pensions. He recently completed a multi-year study, funded
by the Alfred P. Sloan Foundation, of changing labor, employment, and work
practices in the telecommunications industry. Keefe also is a research associate
at the Economic Policy Institute and former director of telecommunications
policy research at EPI.
John Paul MacDuffie is an associate professor of management at the Wharton
School, University of Pennsylvania, and director of the International Motor
Vehicle Program. His research examines the diffusion of lean, or flexible, production as an alternative to mass production; the impact of human resource systems
and work organization on economic performance; and collaborative problem
solving within and across firms. MacDuffie is a member of the Industry Studies
ABOUT THE CONTRIBUTORS
363
Association board of directors, the Federal Reserve Bank’s Automotive Experts
Group, and the World Economic Forum’s Automotive Industry Council.
Marick F. Masters is currently director of Labor@Wayne at Wayne State
University, where he is a professor of business and adjunct professor of political
science. Labor@Wayne includes the Labor Studies Center, Douglas A. Fraser
Center for Workplace Issues, the undergraduate labor studies major, and the
master of arts program in employment and labor relations. His research and
teaching interests are in conflict resolution, negotiations, labor–management
cooperation, public sector labor–management relations, union finances, and
unions in politics. Masters has published more than one hundred articles and
two books: The Complete Guide to Conflict Resolution in the Workplace and Unions
at the Crossroads.
Martin (Marty) J. Mulloy is known as one of the leading national automotive labor experts and is the vice president, Labor Affairs, Ford Motor Company.
In his role at Ford, Mulloy oversees labor policy and negotiations covering the
Ford’s approximately 117,000 hourly employees around the world. He has
responsibility for Ford’s collective bargaining with unions worldwide. He was
chief spokesperson and led the Ford negotiating team during 2007, 2009, and
2011 contract negotiations with the United Auto Workers union.
Frits K. Pil is a professor at the Katz Graduate School of Business and a
research scientist at the Learning Research and Development Center at the
University of Pittsburgh. His research focuses on organizational learning. His
most recent studies examine the interplay between human and social capital;
innovation in relation to product, process, and organizational structure; and the
broader dynamics of organizational learning and value creation. Recent press
cites about Pil’s work have appeared in the Wall Street Journal, Financial Times,
Automotive News, Harvard Business Review, and The Economist.
Richard A. Posthuma is the Ellis and Susan Mayfield Professor of Management
in the College of Business Administration at the University of Texas at El Paso.
He has published on many topics, including conflict management, staffing,
high-performance work practices, justice, and international/cross-cultural issues.
Posthuma is editor of the International Journal of Conflict Management. He also
has extensive work experience in human resource management.
Joseph Slater is the Eugene N. Balk Professor of Law and Values at the
University of Toledo College of Law. He has published numerous books and
articles on labor and employment law, especially in the area of public sector labor
law. He is a member of the Labor Law Group, an invitation-only group of labor
and employment law scholars, and of the Employment Policy Research Network,
an invitation-only group of scholars specializing in labor and employment relations, affiliated with LERA. Among Slater’s many publications are Modern Labor
Law in the Public and Private Sectors: Cases and Materials, Public Sector Employment:
Cases and Materials (2nd ed., with Marty Malin and Ann Hodges), and Public
Workers: Government Employee Unions, the Law, and the State, 1900–62.
364
Howard R. Stanger is a professor in the Department of Management at
Canisius College, where he also holds an affiliated appointment in history. His
published research on the printing and newspaper publishing industries covers
both historical and contemporary labor relations topics. He has also authored
articles on Buffalo’s Larkin Company (1875–1942) that address various aspects
of the company’s employment and business history. In 2002, Stanger published
a chapter on newspapers in the Industrial Relations Research Association’s
Collective Bargaining in the Private Sector, and, since 2006, has co-chaired LERA’s
Collective Bargaining Interest Group.
Andrew von Nordenflycht is associate professor of strategy at Simon Fraser
University’s Beedie School of Business. He researches governance and management of human capital–intensive firms, especially professional services and
airlines. He is a co-author of Up in the Air: How the Airlines Can Improve
Performance by Engaging Their Employees and has published articles in leading
industrial relations and management journals, including Industrial and Labor
Relations Review, Academy of Management Journal, Academy of Management
Review, and Organization Science.
C. Jeffrey Waddoups is a professor in the Economics Department at the
University of Nevada, Las Vegas, where he teaches courses in labor economics,
macroeconomics, health economics, and statistics. He has published articles on
several topics in labor economics and industrial relations, including collective
bargaining in the hospitality and gaming industries, the incidence and determinants of job training, the impact of responsible contracting policies on construction
costs, and public subsidies to low-wage employers through uncompensated
medical care costs.

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