CHAPTER TWENTY-SIX
Union Flexibility
Why It’s Now a Must
WITHIN THE NEXT TWO YEARS the long-range course will be set for America’s smokestack labor. Will smokestack incomes and jobs continue to shrink—and perhaps even faster in good times when industry can raise money for automation? Or can employment be stabilized and real incomes be maintained, at least for a goodly majority? The decision will be made by smokestack labor itself and by its unions.
Productivity in the American smokestack industries needs to be improved considerably. But poor productivity is not the real villain. To be sure Toyota has far fewer workers on its payroll per car than does General Motors. But then Toyota buys twice as much—or more—from outside suppliers. When the figures are adjusted for this, it turns out that the Detroit-made car still requires fewer man-hours to be produced. But each of these man-hours costs GM about 50 percent more than it costs the Japanese. Yet Toyota in Nagoya or Mercedes in Stuttgart do not employ “cheap labor"; the total annual compensation package of the Japanese or West German worker is exactly the same as that of most American industrial workers outside of the smokestack industries, whether unionized or not—around $30,000 a year (1985 dollars), or $15 an hour, counting all fringes and benefits. But an hour worked in an integrated steel mill in the United States—at U.S. Steel, Bethlehem, or Armco, for instance—or at any other of the major smokestack industries costs $25: $15 in cash wages and another $10 in fringes and benefits—total compensation of $50,000 a year for a full-time worker. And no industry can overcome such a labor-cost disadvantage in a competitive market, no matter how much it increases productivity.
At the root of this—and actually a good deal more important than dollars and cents—are the basic assumptions underlying compensation in our smokestack industries. An assumption held as an article of faith, especially by lower-ranking union leaders, business agents, and local presidents, is that “big business” has oligopolic control of the market; that is, it can always, and practically without limit, pass on higher costs in the form of higher prices. The old delusion persists that “capitalists” pay wages out of “profits”—despite the fact that wages and salaries in a developed economy account for something like 85 percent of revenues and profits for at most 5 percent or 6 percent. Most labor leaders still see the work force as homogeneous and as composed of adult males who work full time and who are the sole breadwinners in their families. Finally, there is the firm belief that the value of a “benefit” is not determined by how much it does for the beneficiary, the employee, but by how much it costs the employer; if a given benefit costs the employer more it is automatically seen as a “gain for the working man” and a “union victory.” These assumptions were perhaps defensible thirty years ago when cash wages accounted for 90 percent of the compensation of the American worker and fringes were really that, no more than 6 percent or 7 percent, and when it was widely believed—by Eleanor Roosevelt, for instance—that married women would be out of the American labor force altogether by 1980. Today, however, these assumptions are inane and highly deleterious, above all, for the employee.
The first need of smokestack labor, most of the workers themselves would say, is the largest number of jobs, the slowest shrinkage rate, and the greatest employment continuity. The optimum would probably be a slowing down of the rate of job shrinkage to where, despite automation and structural changes in industry, it does not exceed the drop in the number of new entrants into the labor force who are available for traditional manual jobs in industry—a drop of around 30 percent in the next eight years as a result of the baby bust after 1960.
But this is almost certainly more than can actually be achieved. The second need of smokestack labor is thus for a cushion against the consequences of job shrinkage: that is, for provision for early retirement for older people and for retraining and placement of middle-aged ones.
Third would come the need for maximum income maintenance for smokestack workers.
And fourth, there is an urgent need to restructure benefits so that they meet the realities of today’s work force. We need to make sure that the beneficiary gets the most for the available benefit money.
Different people will rank these needs differently. But there will be little disagreement with the answers themselves. They do lead, however, to radically different and highly controversial compensation policies.
First, a large part of the “wage” needs to be flexible instead of being fixed: It needs to be geared to performance, to profitability and productivity, with cash wages being larger, perhaps even much larger, in good years and lower, perhaps even much lower, in poor ones. This is perhaps the sharpest break with tradition, and one that management may resist as much as union leaders. Middle managers and supervisors, in particular, will be opposed; there is nothing they resent as much as a subordinate making more than they do. But labor has also traditionally accepted pay for productivity and profitability only as a “bonus” on top of a fixed wage and has altogether rejected the idea of cutting the fixed wage in bad times. “It is unfair to penalize workers for the lack of performance of their employers” has been a stock argument. But what is needed now—and what is now in the interest of the workers themselves—is adjustment to economic fluctuations through flexible wage costs rather than through unemployment; for adjustment through unemployment in the smokestack industries is likely not to be “cyclical” and temporary but structural and permanent. One-third of the cash wages in smokestack industries—the one-third that is in excess of the prevailing American industrial wage—might thus be considered flexible and contingent on performance (and in good years it might, then, greatly exceed one-third, of course). Wherever we have done something like this, for instance, at Lincoln Electric in Cleveland, the results have been substantially higher worker incomes over long periods of time and high employment stability.
And then, to satisfy the second need, labor incomes generated through productivity and profitability might be used to cushion job attrition, to provide early retirement pensions for older workers and retraining and placement monies for the middle-aged (younger workers under thirty are usually highly mobile and able to fend for themselves).
Benefits today are the same for everyone, old and young, men and women, married and unmarried. With a work force that has become as heterogeneous as ours, this means, however, that a substantial part of the benefit money is simply wasted: some estimates run as high as 40 cents out of every dollar. If both partners of a married couple work—and among the under-fifties this is the rule now—both today have full health insurance even though only one can collect reimbursement. The wife, even if working full time, does not commonly stay long enough in one place of employment to qualify for a pension—yet she is charged the full retirement-fund contribution, in addition to full Social Security of which, even if she outlives her husband, she’ll never get one penny back. The pension fund contribution and Social Security, however, already amount to more than a fifth of her cash wage—and with Social Security contributions set to go up sharply, will soon exceed a full quarter! But there is also the unmarried man around twenty-eight who at his age does far better by putting an extra 15 percent or 20 percent of his income into a retirement account rather than getting a higher and highly taxed cash wage. Conversely the same employee, twenty years later, at forty-eight and with children of college age, might greatly benefit by trading a smaller retirement contribution against a larger cash income, and so on. With benefits uniform and totally inflexible, the union, understandably, has to push to get every benefit for everyone. Each of the gains helps only a minority of the members but penalizes all of them by creating unemployment as the industry becomes progressively less able to compete. What smokestack labor needs—and what incidentally the Japanese have had all along—is a “total compensation package.” The total amount available per hour or per employee is fixed. But the individual employee can choose how much of the package should be cash income and how much benefits, and among benefits which of the available options provide the most real “benefit” to the individual according to his or her status in life and family-cycle. Whenever such flexible benefits have been introduced the result has been both a measurable increase in employee satisfaction, if not in real incomes, and a sharp cut in benefit costs, sometimes amounting to one-third or more.
Whenever I discuss these matters with union leaders, they nod and say, “You’re absolutely right; that’s what’s needed.” But then they immediately add: “But why should we stick out our necks and propose something so difficult, so novel, and so different from anything we’ve told our members all these years? We aren’t paid to look after the interest of the companies; management is.” But this is a total misreading of reality. The smokestack companies have alternatives. They can move labor-intensive work to the Third World—beginning with Mexico in our own backyard—where there is abundant low-cost manufacturing labor. They can automate—and technologically we now can easily multiply the speed of automation. But also unionization in the private sector of the American economy has now been going down steadily for thirty years and has already fallen to below the proportion of the labor force that was organized before the present mass-production unions were born in the big unionization wave of the New Deal—and there is no law of nature that demands unionization in smokestack industries. It is smokestack labor and its union leaders who have no choice. Either they take the initiative in developing new concepts and policies for wages and benefits, or they face rapid shrinkage and eventual disappearance of their jobs and with them of their unions. And isn’t the labor leader, in the famous phrase of the founder of our smokestack unions, John L. Lewis, “paid to look after the interests of his members”?
(1983)