MGT 441 Module 4 Lecture Notes Wage and Non-Wage Issues

Transcription

1 MGT 441 Module 4 Lecture Notes Wage and Non-Wage Issues Wage issues in bargaining: The union movement has always argued that wealth is ultimately created by labor, in all its forms, and that the distribution of income is excessively unequal. Unionization aims to increase the power of workers to increase their share of the firm s revenue. Private sector employers are ultimately interested in maximizing shareholder value. They would also prefer the greatest possible flexibility in structuring their operations, including the mobility of capital. Income inequality is also a component of the equity demand. Unequal distributions exist where different workers in different jobs earn different pay. From a union standpoint, excessive inequality would be related to differences between production workers, professionals, and executives that are larger than members can justify. For the union, inequality suggests there may be an opportunity to redistribute income from higher to lower-level jobs. Income inequality has increased substantially since the 1980s. Reduced union coverage is a major contributor to income inequality. Ability to pay is also related to the proportion of labor costs in a company s total costs. Generally, unions believe that the lower a firm s labor intensity (i.e., the lower the share of costs going to labor), the greater its ability to pay. Standard-of-living issues also arise with unions beliefs that their members purchasing power needs improvement for them to enjoy higher qualities of goods and services, such as owning a home rather than renting. The inclusion of cost-of-living adjustments (COLAs) increased rapidly during the 1970s when inflation was high and employers were interested in longer contracts. While COLAs exist, pay levels within the contract period are tied to changes in the consumer price index (CPI). Unions prefer to include them in the base before the current contract expires because if inflation were high, an extremely large increase would be needed to bring the base up to a real-income standard equivalent to that earned at the end of the expiring contract. Job evaluation determines the relative position of jobs within a pay structure. The procedure has several steps and requires decision-making rules that must be negotiated. The jobs to be evaluated must be specified (usually jobs covered by the contract). Jobs must be analyzed to determine the behaviors required and/or the traits or skills necessary to perform the job. Of the behaviors or traits identified, those that vary across jobs and are agreed to be of value to the employer are grouped into compensable factors. Pay level and pay form: Pay components not received in cash are received as either insurance or deferred compensation. Insurance typically includes hospital and medical coverage, life, disability, and dental benefits. Nonmonetary wage forms have advantages and disadvantages. For the employee, the benefit of the form depends

2 partly on usage. When the company directly purchases medical insurance, the value is not reported as income to the recipient. Employers are increasingly concerned about the form of pay for all employees because contracts often specify the amounts of insurance coverage rather than employer contributions. Health care, pensions, and retiree health care benefits have been the most contentious items in contract negotiations since the beginning of the 2000 decade. There is substantially more complexity and uncertainty surrounding benefits than there is for cash compensation. Unionization fixes wages for the unionized employer. High levels of unionization and pattern bargaining within an industry decrease competition among employers. The general conclusion from studies of the effects of unionization concludes that the wages of represented employees are significantly higher than employees in similar nonunion employers, with a recent study finding a 21.5 percent differential. Unionization has a greater effect on wages in concentrated industries where there is less competition. Union workers are paid better than nonunion workers, on average, in virtually every industry where organized labor exists. Wage premiums do not come without a cost to labor, however. Industries having the highest union wage premiums had the greatest employment decreases during the 1970s. Unions have greater effects for employees who have less education and shorter tenure, nonwhite, younger or older than the average worker, males, Southerners, transport operatives, or laborers than other members of their groups who are not unionized. Nonwage issues in bargaining: Wage and nonwage issues are not completely separable. Both have economic consequences for the employer. Nonwage issues are important to both union members and employers. For employers, the length of the contract, the design of work, and the scope of management rights clauses are important. Work design involves determining what tasks, duties, and responsibilities (TDRs) are bundled together and assigned to a particular employee. Jobs can be characterized as narrow or broad. Narrow jobs have a relatively small number of duties assigned to them, broad jobs a relatively large number. Relatively deep jobs require substantial skill sophistication, while the skills for shallow jobs are relatively simple to acquire and use. The design of work is very important to both employers and unions and has evolved substantially over time. Near the beginning of the 20th century, interest in efficiency began to increase. Industrial engineering was in its infancy. Frederick Taylor introduced scientific management to design work in the most efficient way possible given the capital equipment in use. The work design also included a hierarchical organizational and supervisory structure in which rank-and-file workers had no say in the workplace. Henry Ford s work design transformed the automobile industry in the early decades of the 20th century. Major innovations included the development of close manufacturing

3 tolerances enabling interchangeable parts and the introduction of the assembly line, requiring employees to perform relatively few steps in the production process. Ford introduced a darker aspect to the Tayloristic assembly-line approach, an internal security force to monitor employee effort and to quickly identify pockets of malcontents in the workforce. Employers are frequently faced with a need to change how work is accomplished. The cause of the need for change may come from outside the organization or they may be caused by factors within the organization. Successful changes often required reorienting the labor-management relationship toward a more cooperative approach and incorporating productivity-based gain sharing programs. Taken together, these changes in organizational and work design are components of so-called high performance work organizations, or HPWO. Firms that implement HPWOs have higher productivity and financial performance and higher wage levels. Companies that had introduced HPWOs by 1992 had greater layoffs by 1997 than those that hadn t. One study of the construction industry found restrictive work rules increase labor costs by about 5 percent. However, building trade unions appear willing to give up 5 percent in wages to increase staffing levels by 3 percent. Thus, it is in the median voter s interest to concede wages to get more employment since most work is for a relatively short period with a single contractor, followed by returning to the union for the next referral. Hours of work: A 40 hour week is typical in most contracts, and employers resist any reductions strongly. Unionized workers work fewer hours than nonunion workers in more heavily unionized sectors of the economy, but full time schedules are more likely in unionized sectors, although mandatory overtime in some unionized sectors, particularly autos and telecommunications, has been the subject of intense negotiations and strikes. Length of contracts: Employers try to avoid one-year contracts because they believe short contracts lead to more strikes and contract administration problems, lower employee morale, and higher and more unpredictable labor costs. Longer-term contracts are more difficult to negotiate, especially if economic environments are changing. Renegotiating long term contracts was found to be harder when global competition was great; where capacity utilization, the firm s product prices, and number of vacant positions substantially varied during the contract period; where buyer or seller concentration in the industry was high among larger employers; and during periods of high inflation. Union and management rights: Contracts specify the union s representation rights. The typical reserved rights for management include the right to subcontract work that could be performed by the bargaining unit, to assign bargaining-unit work to supervisors in emergencies or to train new employees, to introduce technological changes to improve

4 efficiency, and to determine criteria for plant shutdowns or relocations. When management does not reserve these rights, the union is entitled to bargain during the course of the contract if changes involving job security occur. Discipline and discharge: Most contracts specify employees can be discharged or disciplined for just cause. Specific grounds in discipline and discharge clauses most often cover: intoxication, dishonesty or theft, incompetence or failure to meet work standards, insubordination, unauthorized absence, misconduct, failure to obey safety rules, violations of leave provisions, or general violations of company rules. The employer must be consistent in the way discipline is metered out if it is to successfully defend its disciplinary actions from grievances. Grievance and arbitration; strikes and lockouts: Grievance procedures usually specify who receives a grievance, the right of employees to representation at various steps in the process, the path a grievance follows if it cannot be resolved by the parties when it is filed, and the time limits at each step before some action is required. Most contracts specify that when parties cannot agree on the disposition of a grievance, a neutral third party will arbitrate the dispute and render a decision binding on both parties. High grievance rates are associated with decreased productivity. While low morale might be a hypothesized cause, productivity decreases also occur because employees and supervisors are involved in grievance processing rather than production. Union security: Because the union is the exclusive representative of employees in the bargaining unit, it desires that they be required to join and pay dues for the representational services the union renders on their behalf. Closed shop requires employers to hire only union members. Although this requirement is illegal, a contract clause can require the employer to offer the union an opportunity to fill vacant assignments. Union shop requires any bargaining-unit employee employed with the firm for a specific time not less than 30 days, 7 days in construction to become a union member (to the extent of paying dues) as a condition of continued employment. Agency shop requires any bargaining-unit employee who is not a union member to pay a service fee to the union for its representation activities. Many contracts specify layoffs on the basis of departmental seniority; some permit bumping, whereby a senior employee is entitled to displace a junior employee in another department or job as long as the senior employee is qualified for it. In almost 60 percent of the contracts surveyed in a recent sample, seniority was the sole provision for determining layoff or job retention rights during cutbacks. In another 30 percent of the contracts, seniority was the determining factor if the individual was qualified for the remaining jobs. Lower skilled workers prefer union jobs; thus for lower-skilled jobs, a unionized employer will have a larger pool from which to select. Among the unemployed, those with higher asking pay requirements, women, minorities, and former union members are more likely to wait for a union job opening, but this tendency is inversely related to the

5 unemployment levels and the duration of individual unemployment. Minorities are a higher proportion of new hires in unionized as compared to nonunion organizations.