The Wall Street Journal, April 4, 2008, Friday

The Wall Street Journal

April 4, 2008, Friday

The Wall Street Journal

Unions Find the Economy Is Tough on Bargaining
By KRIS MAHER
April 4, 2008; Page B4

The struggling labor movement is facing another headwind: a souring economy that is creating what some experts say is the toughest bargaining environment in at least a decade.

Companies, squeezed by a weakening economy and higher costs, are asking unions to renegotiate contracts earlier than before. And workers are reluctant to go on strike -- a key bargaining chip -- for fear of losing pay and work amid weak job and housing markets.

• The News: Companies are asking unions to renegotiate contracts earlier than before, realizing negotiations will be long and tough.
• Background: A souring economy that is creating what some experts say is the toughest bargaining environment in a decade.
• Outlook: Experts say eroding negotiating power is one result.."Definitely it is the most difficult bargaining environment in the last 10 years," said David Lipsky, a professor at Cornell University's School of Industrial and Labor Relations. "The business cycle only exacerbates the problems that unions face."

While unions today represent just 12% of the U.S. work force, including public-sector workers, the impact of union contracts on other workers and the economy is significant. Often, union workers are concentrated in certain parts of the country, so entire regions could suffer from lower consumer spending and lost revenue. Lower union wages in certain industries could eventually lead to lower wages for nonunion workers in that industry as well.

"There is a significant spillover effect in the sense that [nonunion] companies will try to emulate the union wage and benefits to avoid unions and compete for workers," says Marick Masters, a labor expert at the University of Pittsburgh.

Both unions and companies are agreeing to open contracts early because they realize that negotiations will be long and tough. Union frustrations over bargaining are running particularly high in the airline sector, where carriers are battling steep fuel-price increases. Jim Little, president of the Transport Workers Union, said contract talks with AMR Corp.'s American Airlines, where the union represents 26,000 maintenance and ground workers, are "getting nowhere."


Union members took cuts of more than 30% in pay and benefits in 2003 to help keep the airline out of bankruptcy protection, but the company wants more cuts, Mr. Little said. "The first thing they wanted to do is take away the retiree medical," Mr. Little said. "I get tired of hearing about the impact of rising fuel costs on the carriers. Everybody we represent is facing the same thing."

American's flight-attendant union, which is set to open talks at the end of April, Tuesday distributed badges to its 19,000 members demanding that the airline's top five executives decline their bonuses this year or resign. "It seems like every chance they get they take something away from us," said Laura Glading, president of the Association of Professional Flight Attendants.

Susan Gordon, an American Airlines spokeswoman, said the "skyrocketing rise in the price of oil and the weakening economy" are factoring into current negotiations. She denied that the company wants to eliminate retiree medical benefits. She also declined to comment on the flight attendant's campaign but said executive compensation is based on strict performance criteria.

Meanwhile, high commodity costs prompted Wells' Dairy Inc., a closely held ice-cream maker in Le Mars, Iowa, to ask 1,500 workers to reopen a contract in February. The company has said it wanted to trim several million dollars in overtime and incentive-pay costs. "In 2007, we saw record high prices in all ingredient costs," said spokesman Dave Smetter. Members of the United Dairy Workers agreed to reopen the contract, but subsequently refused to accept the cuts. Talks will resume in the fall, said Mr. Smetter. A union official couldn't be reached to comment.

Some cuts being sought are so severe that unions say they have no choice but to go on strike. About 3,600 United Auto Workers at American Axle & Manufacturing Holdings Inc. went on strike Feb. 26 after the company sought to cut hourly pay to $14 an hour from $28. Union members are receiving $200 per week in strike assistance from the union. American Axle said it needed those concessions to make it competitive with rivals. "We must obtain a market-competitive cost structure in the U.S.," said a company official.

Experts say that eroding negotiating power has begun to show up in government statistics that show total compensation for union workers growing at a lower rate than for nonunion workers, reversing a historic trend. Last year, costs for total compensation paid to union workers grew 2%, compared with 3.2% for nonunion workers, according to the Bureau of Labor Statistics. "It could be that individual unions are losing their bargaining power," said Elizabeth Ashack, an economist with BLS.

Not all unions are being forced to make deep concessions. On Tuesday, 23,000 grocery workers in the Washington and Baltimore area approved a contract that included a $1.50-an-hour raise over four years and kept health-care benefits for existing employees.

"We did very well," said Jim Lowthers, president of United Food and Commercial Workers local 400. The union did make some concessions: $5 a week health-care co-pays for new hires and some cuts to retiree benefits. Harry Burton, lead negotiator for Safeway Inc. and Giant, a unit of Netherlands based Royal Ahold NV, said the employers viewed the contract as balanced. "The economy is playing a role on both sides of the table. It's more difficult to reach a balanced deal."

Write to Kris Maher at kris.maher@wsj.com