Mgmt 583

1. Mgmt 583 Chapter 8: The Environment of Bargaining Fall 2008

2. Mandatory Bargaining Issues • Bonuses • Discharge and discipline • Dues check-off clauses • Holiday pay • Hours • Management's rights clauses • Medical insurance • Promotions • Testing of employees • Vacation pay • Wages

3. Prohibited Bargaining Issues • Closed shops • Hot cargo clauses • Featherbedding • Wage differential based on membership

4. Permissive Bargaining Issues • Matching programs for charities • Strike settlement agreements • Changes in the BU • Healthcare benefits for retirees • Interest arbitration • Attaching union labels to products

5. Factors Affecting Bargaining Power • Degree of regulation in the industry • Foreign competition • Mergers, acquisitions, and divestment • Trends in labor-capital substitution • Labor as a derived demand

6. Union’s Interests • Satisfy the “median demands” of the BU • Different factions desire different ends. • Older v. younger workers. • Senior union members prefer higher wages over workforce stability. • Increased membership (Allan Carter) • Remain the BU’s bargaining representative.

7. Factors Affecting Bargaining Power • For management this means the ability to with stand a strike. • Timing • Size of finished goods inventories • Perishability of product • Level of technology (labor-capital mix) • Availability of strike replacements • Availability of substitute products

8. Factors Affecting Bargaining Power • Multiple locations & staggered contracts • Work can be shifted to non-striking plants. • Insure CBAs are not negotiated at the same time. • Integrated facilities • Diminish employer power. • Inland-Fisher-Guide plant in Anderson, IN in 1996 shut down most GM production for 4 to 7 days.

9. A.C. Pigou’s Bargaining Range Theory (1933) • The model considers management’s and the union’s initial offers and final offers (Management’s “sticking point” and the union’s “sticking point”)to predict whether an agreement can be reached. • Only if concessions/demands fall within the tolerance limits of the two parties will a resolution be possible.

10. A.C. Pigou’s Bargaining Range Theory Union’s Upper Limit Employer’s Sticking Point Range of Indetermin- ateness Tolerance Limits Union’s Stickling Point Employer’s Lower Limit

11. Critique of Economic Bargaining Models • Strengths: • Provide a means for understanding the bargaining process. • Focus attention to costing contracts. • Weaknesses: • Assumes rationality. • Over emphasis on maximizing short-term economic gain.

12. Critique of Economic Models • All costs are not known. • Costs cannot be accurately forecasted (better to develop a range). • Ignores noneconomic consequences (poisoned working relationships, need for power and lost trust, e.g.).

13. Employer Interests in Bargaining • Shareholder wealth. • Increased pressure from institutional investors. • Executives’ reward system is annual, not long range. • Labor costs must be controlled • Pressures of Global competition. • Productivity must increase faster than wages (a point lost on many unions). • Increased incentive to replace labor with capital to gain increased productivity.

14. Union Interests in Bargaining • Bargaining success is a determinant of whether local officers are re-elected • As previously mentioned, the ultimate goal is to remain the representative of the BU • Bargaining goals: • Higher wages • Increased membership (note that increased membership also increases bargaining power).

15. Factors Affecting Employer Bargaining Power • Employer power is a function of its ability to take a strike. • Timing • Avoid negotiation during peak production times. • Schedule negotiations before holidays. • Perishability of goods • Reduces employer power. • Nonperishable, safe inventory enhances employer power. • Finished goods inventories enhance employer power, however, JIT enhances productivity.

16. Factors Affecting Employer Bargaining Power • Technology • Capital intensive processes may be run by supervisors. • Caterpillar. • Availability of strike replacements • Are there sufficient KSA in you local labor market? • Just the threat of strike replacements may bring the union back to the table.

17. Factors Affecting Employer Bargaining Power • Multiple locations and staggered contracts. • Permits work to be shifted between plants. • Avoid having all production in “one basket.” • Availability of substitute products or services. • The fewer the greater the employer’s power. • Many alternative suppliers shift power to the union as this results in lost sales.

18. Factors Affecting Employer Bargaining Power • Integrated facilities – the employer’s Achilles heel. • A strike in a supplier operation will close the entire organization. • JIT is always advantageous to the union. • Example: the March 1996 GM/UAW strike. The Dayton brake plant (3200 striking workers) shut down 26 of 29 production facilities company wide and idled 178,000 workers for 18 days.

19. Factors Affecting Union Bargaining Power • Union power is a function of its ability to impose costs through strikes. • Obliviously anything that diminishes employer bargaining power enhances union power, and vice versa. • The union can enhance its bargaining power only if it can control labor supply or occupational practices (ALPA and airline safety standards, e.g.)

20. Factors Affecting Union Bargaining Power • Union power is higher when: • Significant barriers to entry exist for new employers. • Industrial concentration is high (oligopolies) • Foreign competition is low. • High union coverage in the industry by a dominant union (airlines, e.g.). • Portability of worker KSA between industries. • Union exerts control over the external labor supply (craft).

21. Single employer Bargaining Structures • One local negotiates a CBA with a single employer, Usually at a single location.

22. Single UnitBargaining Structure Bargaining Unit/Local Employer A

23. Multiemployer Bargaining Structures • A local negotiate a CBA with several employers in the same geographic area. • Common in retail/wholesale trades, grocery stores. • Allows large numbers of relatively small employers to achieve uniform labor costs in theory passing labor costs to the customer without affecting competitive structure). • The dark side: large companies in the region with a greater ability to pay can afford to grant concessions that smaller competitors can ill afford.

24. MultiemployerBargaining Structure Bargaining Unit/Local Employer A Employer B Employer C

25. Bargaining Structures • Industry-wide bargaining • All employers with in a single industry. • Common in interstate trucking. • Operates similarly to multiemployer bargaining, but ignores local conditions. • National/local bargaining • Contracts are negotiated on both the company-wide and local level (paper/pulp wood industry). • Company-wide: wages and benefits (guaranteeing uniformity). • Locally: work rules and permissive issues.

26. Industry WideBargaining Structure National/International Employer A Employer B Employer C Local Local Local

27. Bargaining Structures • Multicraft (wide-area) bargaining • Though it appears similar to multiemployer, each craft has its own separate contract (not united into a single contract). • Typical to craft locals within the construction industry. • Usually encompasses a large geographic area, but not nation-wide (IBEW, e.g.).

28. Bargaining Structures • Pattern bargaining • The modus operendi for the automobile industry. • Process: • Contracts are staggered among employers. • The dominant union (UAW) concentrates all of its efforts on the CBA with the first major employer in the industry • Union holds a hard line for its initial demands • Once a contract is ratified, the remaining employers will be held to the same concessions.

29. Bargaining Structures • Coordinated bargaining • When two or more unions represent the employees of the same employer and negotiate separate CBAs. • BUs and contracts are separate, but the CBAs are scheduled to be negotiated simultaneously. • The objective to get comparable concessions and CBAs. • In some cases union negotiators may sit in on each others bargaining sessions.

30. Coordinated Bargaining Bargaining Unit A Bargaining Unit B Employer A Two Separate/Independent CBAs Negotiated Simultaneously

31. Bargaining Structures • Coalition bargaining • When two or more unions actually combine bargaining teams. • BUs and contracts are separate, but negotiate identical CBAs. • Example: GE and the International Brotherhood of Electrical Workers (IBEW) and International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers (IUE)* *In October 2000 the IUE merged with the Communications Workers of America (CWA).

32. Coalition Bargaining Bargaining Unit A Bargaining Unit B Employer A Two Separate/Identical CBAs Negotiated Simultaneously

33. Bargaining Structures • Craft Unions within an Employer • When employees’ BUs are organized by craft, employers must bargain individual CBAs with each. • The common method in the airline industry • Mechanics • Pilots • Flight attendants. • Some BUs have more bargaining power than others. • It is not uncommon for one BU to cross the picket lines of another. • Northwest Airlines mechanics (Aircraft Mechanics Fraternal Association) strike of August 2005 (ended Nov 2006). • Professional Flight Attendants Association have voted to strike. At the time of the strike Northwest had already eliminated over 5000 jobs.

34. Bargaining Structures • Some BUs have more bargaining power than others. • It is not uncommon for one BU to cross the picket lines of another. • Northwest Airlines mechanics (Aircraft Mechanics Fraternal Association) strike of August 2005 (ended November 6, 2006). • Neither the IAM, ALPA, nor the Professional Flight Attendants Association honored the AMFA’s picket lines. • At the time of the strike Northwest had already eliminated over 1600 jobs.

35. Bargaining Structures • Conglomerate and Multinational bargaining • Conglomerates often deal with different unions in different industries. • Issues vary on an industry by industry basis. • Multinationals enjoy great bargaining power. • US labor laws do not apply to off shore facilities. • Work may be transferred to offshore facilities. • Not all profits are tied to a single national market.

36. Bargaining Patterns Employer Union Is Employer large? Are There Many Competitors? Are Employers Rep by One Union? Yes No Single Unit Bargaining No No Yes Yes Multiemployer Bargaining Several Competitors? Comparable Cost Structures? Yes No Yes Industrywide Bargaining No Coordinated Bargaining

37. Determinants of Bargaining Outcomes Economic Factors •Competitive pressures •Labor intensity Organizational Context •Bargaining structure • BU size • Geographic locations •Industry unionization Bargaining Power • Strategic Position •Importance of issues CBA Outcomes Sociodemographic Factors • Education • Gender • Ethnicity Legal Environment