The Future of Unions in the Face of Global Competition ... And the Affordability of Retirement Benefits, Too

Many individuals and firms that compete locally don't have to compete globally.

Of course, neither do governments.

In "local" situations like these, there is no global competition. That makes things different, and that's not always a good thing. You see, competition keeps us sharp.

Some easily recognized examples of no global competition are local service providers such as hotels, restaurants, retailers, medical services, lawn care, post office operations, teachers, drivers' licensing and countless other local based operations or activities.

In this non-global environment, both private and public sector unions can and often do thrive. It's akin to monopolistic conditions.

On the other hand, U.S. based companies often become business losers when unions are present in a globally competitive endeavor.

Such as is the case with many U.S. based steel companies as detailed in Steelmaker Presses for 36% Pay Cut. This somewhat startling article lays out the difficult choices facing two global steel companies, their U.S. employees and the United Steelworkers union (USW) representing them:

"Top U.S. steelmakers, facing falling demand and profits, are pushing for steep concessions from the United Steelworkers of America in two new labor pacts for nearly 26,000 workers, union officials said. . . .

ArcelorMittal, the world's largest steelmaker and among the largest in the U.S., has told the union it wants to cut wages and benefits for all workers by more than $28 an hour, or 36%, from an average $77.40 in 2011 and eliminate retiree health care for anyone hired after Sept. 1. The steelmaker also wants the "unilateral right" to cut wages during periods of reduced operations and to schedule 32-hour work weeks.

For top domestic steelmaker U.S. Steel Corp which employs some 13,000 USW workers at 11 locations in the U.S., the biggest issues are rising health-care and pension costs for both active employees and retirees . . . . The current contracts between the USW and U.S. Steel and ArcelorMittal expire Aug. 31.

Negotiations on new four-year contracts with the two steelmakers are particularly tense as the firms seek concessions at a time of growing concern about job security and the fragile global economy. Stakes are high for both sides in the tight-margin steel industry, where workers remain among the best paid of all manufacturing sectors and where producers need to retain skilled employees while controlling costs. . . .

Union officials maintain that they possess the ultimate trump card—the right to strike—but labor experts say that leverage has shifted to owners, who are increasingly willing to close unprofitable operations or bring in replacement workers.

"The strike is a weapon of the past," said Gary Chaison, a professor of industrial relations at Clark University in Worcester, Mass. "This will really test the leadership of a union: What can you agree to that will still be approved by membership but will still be enough that jobs will be saved?"

The USW says Luxembourg-based ArcelorMittal had indicated it needs to cut $350 million per year in labor costs at the 12 U.S. plants covered by the agreement, totaling 12,544 workers. ArcelorMittal, which declined to comment on specifics in the contract proposal, said average wages and benefits, including retirement benefits, rose to $170,855 per USW-member employee in 2011 from $144,016 in 2008. . . .

In its 2011 annual report, U.S. Steel said as of Dec. 31 its "retiree medical and life insurance plans were underfunded by $2.7 billion and our pension plans were underfunded by $2.4 billion."

The USW's Mr. McCall said the union hasn't received firm numbers from U.S. Steel in terms of proposed concessions but said in an interview that the company hasn't made the same kind of demands as ArcelorMittal.

Profits for steelmakers have been hammered by slumping prices due to the European debt crisis, foreign imports from Asia and competition from nonunionized minimills like those operated by Charlotte, N.C.-based Nucor Corp. that make steel, less expensively, from scrap. . . .

Steelworkers remain among the highest paid of blue collars workers, even after concessionary contracts negotiated during past downturns. In 2011, the average cost of a unionized employee at ArcelorMittal USA was $77.40 per hour worked, compared to around $35 for an average U.S. manufacturing worker, the company says.

Charles Bradford, an analyst with Bradford Research Inc. said the larger integrated mills that make steel by melting raw materials, including iron ore and coal, need to cut production costs "or they just won't be able to compete," he says.

The last four-year contract was negotiated at a time when demand and prices were high. . . ."

{NOTE: Add to all of the above the simple fact that China has a glut of excess steel making capacity, and the problem for steel companies, their employees and the USW union becomes real clear. They either find a way to be competitive by addressing their existential issues, or they go out of business.}

Now let's look a little more broadly. Unions' Past May Hold Key to Their Future has this to say about the general picture:

"Organized labor is in free fall. The number of workers who belong to a union has plummeted about 20 percent over the last decade. Only 8 percent of all workers are unionized. And leading labor activists are wringing their hands over the seemingly inevitable death of a movement unable to cope with technological change. . . .

Today, fewer than one in 14 private sector workers belongs to a union, half the portion of 15 years ago. Where unions matter most — fighting for workers’ share of the spoils of economic growth — they lost the battle long ago. Despite soaring worker productivity, the typical American worker takes home today only 2 percent more than a quarter of a century ago, after adjusting for inflation. . . . 

Only about one in five Americans say they trust unions, according to polling by Gallup, the same share that trust banks or big business. And unions’ once impressive political clout has been overwhelmed by a wave of corporate money. Their biggest campaign this spring, trying to remove Gov. Scott Walker of Wisconsin from office after he rolled back collective bargaining rights for state employees, ended last month in ignominious defeat.

But this reading of history misses a fundamental part of the story. Notably, it underplays the impact of globalization, which intensified competition and spurred businesses to slash labor costs. And it ignores technology, which changed the nature of work. . . .

. . . no model of labor relations can last forever. . . . as long as the United States remained largely a closed economy . . . unions roughly ensured that working standards improved uniformly across many industrial sectors. If they negotiated higher wages or better working conditions at one airline or car company, others quickly followed — even nonunion shops, which hoped to appease workers and prevent them from voting for a union. . . .

Perhaps most important, globalization exposed America’s industrial-era titans to more intense competition. The emergence of powerful rivals overseas, where labor was cheap and unions scarce, made it more difficult for companies to improve wages and working conditions without becoming less competitive. And corporations, especially new high-tech companies that arose in southern states where labor law made it tougher to organize, turned against unions as albatrosses around their necks.

Unsurprisingly, a majority of unionized workers today are employed by the government, the last sector of the economy that is largely protected from foreign competition. . . .

In (the distant future), labor organizations will probably look as different as our current unions look when compared with the guilds of 80 years ago. Today’s strongest unions — of autoworkers and airline pilots — could easily be the weakest, decimated by international competition. Unions may well be strongest in hospitals, hotels and other businesses not exposed to international trade.

Union leaders understand this — to a point. They are slowly beginning to experiment with new models of organization. Time is not on their side, however. If they fail to embrace radical change, in 80 years unions may not be around at all." 

My Take

Structural change is coming to the American work place. Where global competition exists, it's already here. And for the rest of the nation, it's on its way.

Pension and health care benefits may prove to be the tipping point leading to a national recognition of the the reality that only a globally competitive private sector can make for a prosperous and fully employed American work force.

While U.S. companies must be able to stand toe-to-toe with global competitors, we don't need to match their low wages dollar-for-dollar to do so. Productivity and work rules, along with end market proximity, will go a long way to offset the wage advantages in low labor cost countries such as China, Mexico and elsewhere.

That said, we can't afford to continue to grant public sector workers pensions and health care benefits that we once were, but no longer are, able to afford to give to private sector unions in the auto, steel and similar industries. At least not without introducing wholesale changes which will greatly enhance our private sector's worldwide competitive posture.

Ignoring global realities won't make them go away. It will only help to make our goods and services uncompetitive globally.

That we can't afford. Productivity and prosperity are linked. Output depends on the number of workers, the number of hours worked and the amount of good quality output per hour worked. It's that simple.

Unions must adapt or cease to exist in the private sector. As presently constituted, they should simply cease to be a part of the public sector.

Simply stated, we can't afford to bear the costs of an unproductive work force, either in the private or public sectors.

Thanks. Bob.