Labor Relations-B-Power

191

8

THE COMPLEX DYNAMICS OF NEGOTIATIONS

Chapter 8 examines the process by which unions and employers negotiate collective bargaining agreements, continuing the analysis of the middle (functional) level of labor relations activity. It includes an examination of the dynamics of negotiations and the factors that lead to strikes.

Negotiations and strikes are the most visible parts of a collective bargaining system. The pressures of a contract deadline and perhaps the threat of a strike focus attention and clarify how important each party feels about critical issues and about the need to either alter or preserve current practices. From time to time, negotiations may produce strikes. But negotiations are not independent of activities that occur over time at the workplace or at the strategic levels of the bargaining relationship. The strategies and tactics each side uses in negotiations are likely to refl ect the level of trust labor and management representatives have for each other at the outset of negotiations, and the results of negotiations will in turn affect the trust that carries over to the relationship of the parties during the term of the agreement. Thus, negotiations are a pivotal event that may reinforce or change the future relations of labor and management.

As we will see, many of the parties to collective bargaining today are attempting to bring a new approach to negotiations, often labeled interest-based bargaining or mutual-gains bargaining. 1 The new approaches seek to move away from more traditional positional bargaining as a way of increasing the potential for solving problems during negotiations. Thus, the negotiations process involves making choices over how to bargain and tactical decisions about how to conduct negotia- tions to best represent the parties’ separate and joint interests.

This chapter uses the framework developed by Richard Walton and Robert McKersie to compare and contrast these two approaches to negotiations. 2 The Walton and McKersie framework is particularly useful for identifying the wide variety of pressures on and competing interests of the negotiators during the negotiations process.

The Negotiations Process and Strikes

C o p y r i g h t 2 0 1 7 . I L R P r e s s .

A l l r i g h t s r e s e r v e d . M a y n o t b e r e p r o d u c e d i n a n y f o r m w i t h o u t p e r m i s s i o n f r o m t h e p u b l i s h e r , e x c e p t f a i r u s e s p e r m i t t e d u n d e r U . S . o r a p p l i c a b l e c o p y r i g h t l a w .

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192 Part III. The Functional Level of Labor Relations

THE FOUR SUBPROCESSES OF NEGOTIATIONS

Although Walton and McKersie originally developed their framework to describe and analyze the traditional positional approach to bargaining that was quite common in the 1950s and 1960s, their work also served as the theoretical basis for interest- based techniques that were developed in the 1980s. We will summarize their framework fi rst and then discuss how the dynamics of bargaining varies depending on the approach taken. Walton and McKersie argued that there are four sub- processes of bargaining in the negotiation of any collective bargaining agreement: distributive bargaining, integrative bargaining, intraorganizational bargaining, and attitudinal structuring. Each subprocess is analyzed below, as are the interrelations between the various subprocesses.

Distributive Bargaining

Distributive bargaining involves the aspects of negotiations in which one side ’ s gain is the other side ’ s loss. Distributive bargaining is win-or-lose, or zero-sum, bargaining. Examples of issues that most often are distributive in nature include wage rates and fringe benefi ts. Labor gains more income from a higher wage, while management gives up some profi t to pay the higher wage. 3 Similarly, workers lose when a fringe benefi t (e.g., paid vacation time) is reduced, while management gains higher profi ts with the reduction of paid vacation time.

These issues lead to confl icts across the bargaining table. Determination of how distributive issues are resolved involves the exercise of bargaining power. The union, for example, tries to convince management to agree to its request for a higher wage by threatening to strike if management does not give in to this demand. Meanwhile, management may threaten the union with a lockout to be followed by the hiring of replacement workers or with a plant closing if a strike were to occur and might also point out to the union that a wage increase would entail additional costs to the work force in the form of reductions in the number of employees. Thus, the components of bargaining power, strike leverage, and elasticity of demand for labor are the critical determinants of how distributive confl icts are resolved.

Distributive issues are at the center of the negotiation of a collective bargaining agreement, since disagreement about the distribution of labor ’ s product is at the core of labor-management relations. Nevertheless, it would be a mistake to lose sight of the fact that there are other dimensions to bargaining.

Integrative Bargaining

Integrative bargaining issues and processes are those in which a solution provides gains to both labor and management, leading to joint gain, or win-win bargaining. Labor and management both gain when they resolve problems that are impeding productivity and a company ’ s performance. If the productivity of the fi rm increases, the employees can benefi t in the form of higher compensation or shorter work hours while the fi rm can benefi t in the form of greater profi ts.

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The Negotiations Process and Strikes 193

Numerous issues at the workplace create opportunities for integrative gains. Work is rarely performed in the most productive way possible: cumbersome practices and outdated work rules often stand in the way of peak performance. Labor and management thus can improve the performance of a fi rm by addressing such practices and changing job classifi cations or seniority rules or in other ways creating procedures that promote high performance.

The introduction of new technology often creates an opportunity for integrative gains. The effective use of new technology can increase productivity, which can then provide rewards to both employees and the fi rm. Yet merely introducing new technology on the shop fl oor or in the offi ce does not necessarily lead to productivity increases. Typically, technology works best when it is accompanied by changes in work practices: the number of employees might have to be reduced, training programs might be necessary, and job assignments might need to be adjusted. Integrative bargaining entails the negotiations about how and to what extent productivity-enhancing work rule changes are made as a new technology is introduced.

Why is it that the parties do not automatically make integrative changes, since such changes hold the possibility of joint gain? In other words, why is integrative bargaining so diffi cult? The answer to this question touches on one of the key issues in industrial relations.

Why Integrative Bargaining Can Be So Diffi cult

Integrative bargaining is an ever-present and sometimes diffi cult component of the negotiations process for several reasons. For one thing, although integrative issues contain the possibility of joint gains for both sides, it is also true that both parties are confronted with the question of how to divide up any joint gain. In effect, any integrative bargain also prompts distributive bargaining, and the diffi culty in resolving the distributive issue can make integrative bargaining diffi cult.

Consider, for example, what happens when a new profi t sharing plan is introduced at a work site. If it is effectively introduced, the new plan offers the possibility of joint gains in income to both employees and the fi rm if the new plan stimulates the adoption of more effi cient work practices. Yet the parties involved cannot escape the fact that if productivity goes up when a profi t sharing plan is implemented, decisions must be made about how the increased income that technology makes possible will be divided. Thus, every integrative bargain prompts a distributive discussion. It can be diffi cult for the bargaining parties to agree on how to resolve the distributive issue (how to share the integrative gain). Thus, integrative solutions are sometimes blocked by labor and management ’ s disagreement over how they would divide up the gains that result from problem resolution.

Integrative Bargaining and Distributive Bargaining Involve Different Tactics

Integrative bargaining also can become diffi cult when the parties send confusing signals and mixed messages to each other. This confusion springs from the fact that integrative bargaining and distributive bargaining involve very different tactics

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194 Part III. The Functional Level of Labor Relations

and negotiating styles. Table 8.1 lists the different tactics used in distributive and integrative bargaining.

Because distributive bargaining concerns issues for which one side ’ s gain is the other side ’ s loss, negotiators often use specifi c tactics to increase their chances of doing well. They may overstate demands, withhold information, or project a stern and tough image. In contrast, effective integrative bargaining, involves identifying and solving problems. The tactics that are typically effective in this approach include the open exchange of information, listening to multiple voices, and sharing information. Distributive and integrative bargaining styles contrast sharply with each other.

The problem for both labor and management is that it is diffi cult to effectively use both distributive bargaining and integrative bargaining in the same negotiations. One side might settle into a distributive bargaining mode just at the moment when the other side is ready for integrative problem solving. And when the latter party confronts hard distributive tactics, it might become discouraged about the possibility of integrative bargaining, making it diffi cult for such bargaining ever to occur.

Another reason why integrative bargaining can be diffi cult is that the problems that impede productivity are not always obvious to the two parties, even when they agree about how to divide up the possible joint gains. The confl icts in these two bargaining styles makes negotiations hard enough, but there are two other subprocesses in the bargaining process to add to the mix.

Intraorganizational Bargaining

Intraorganizational bargaining occurs when there are different goals or prefer- ences within either side, either the union or management. Intraorganizational bargaining arises when the members of the union (or the union negotiating

Table 8.1 Tactics of distributive bargaining and integrative bargaining

Distributive tactics Integrative tactics

Issues Many issues Specifi c concerns Positions Overstate real position at outset

Make demands Focus on objectives No fi nal positions

Use of information

Information is power Hold it close Use selectively

Share information openly Treat information as data

Communication process

Controlled Single spokesperson Use of private caucuses to air

internal differences and discuss responses

Open Multiple voices Use of subcommittees

Interpersonal style

Hard bargaining Focused on own goals and interests Short run; not concerned about

long-term relations Low trust

Problem solving Concern for mutual goals Concerned about long-term relations High trust

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The Negotiations Process and Strikes 195

team) have different priorities about what the union should strive for during negotiations. Senior union members may prefer that the union focus its negotiating strategy around attainment of better pensions, whereas younger union members may prefer wage increases. Or the craft workers in the union might be in favor of restricting the use of outside contractors to maintain machinery in the plant, whereas production workers might be concerned with having safer conditions on the line.

Management may also have different preferences or opinions about what is feasible in negotiations. Corporate management, for example, may favor strict adherence to the seniority policies used in other plants of the company, whereas local plant managers may prefer to negotiate for a seniority procedure that has never been tried elsewhere in the company.

Intraorganizational confl ict also can occur when one or both of the parties bring insuffi cient decision-making authority to the bargaining table. Nothing is more frustrating to negotiators than to realize that they are engaging in surface bargaining —that is, bargaining with a representative who lacks the authority necessary to make commitments that will stick in his or her organization. For example, on either the management or union side a person who knows or has the authority to revise their respective side ’ s maximum offer (or maximum conces- sion) may not be present at the bargaining table. When a negotiator has inadequate decision-making power or authority, the probability of an impasse or a strike increases because the opponent may to a strike to force the real decision makers to the bargaining table. This source of impasse is especially prevalent in the public sector or the quasi-public sector, such as not-for-profi t hospitals.

Consider, for example, the severe intraorganizational confl ict that appeared in the dispute between a teachers’ union and a public school district that is described in Box 8.1 . This impasse was caused primarily by intramanagement confl icts. The union ’ s only recourse was to call an impasse, bring in a mediator, and put pressure on the school board to resolve its internal differences and get on with the negotiations.

This example illustrates that intraorganizational confl icts are not solely a union phenomenon. It is true that the organizational structure of unions makes it more diffi cult for them than for most managements to resolve internal power struggles. However, in fi rms where the locus of decision-making power is unclear or widely dispersed in management, open confl icts are likely to occur and carry over into the negotiations process.

Intraorganizational confl ict is common in the public sector because of its complex decision-making structures and numerous political constituencies. Another likely environment for intramanagement confl icts is multiemployer bargaining structures in industries where there is wide variation in the goals or fi nancial status of the employers.

Attitudinal Structuring

Negotiations often involve a lot of uncertainty. Uncertainty arises from the dif- fi culties the parties face in anticipating how much strike power they have and the complications involved in interpreting each other ’ s intentions.

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196 Part III. The Functional Level of Labor Relations

BOX 8.1 Intraorganizational Confl ict in a School District

Three years before the negotiations in question began, the teachers had engaged in a bitter strike. The school board president and two other members of the current board had been members of the board at the time of that strike and still bore extreme hostility toward the teachers. The attitudes of the other four members of the board were less antagonistic attitudes toward the teachers.

The board ’ s professional negotiator was also a carryover from the strike. The relationship between him and the union was one of mutual and extreme distrust and antagonism. Thus, as the new negotiations got under way, the board and the teachers were still locked in a hostile relationship.

Shortly before negotiations began, the board hired a new superintendent of schools. Repelled by the animosity between the teachers and the board, he sought to take a more conciliatory stance toward the union. Before long, bitter confrontations had developed between the board ’ s negotiator and the new superintendent.

During the summer months, the superintendent held informal talks with the union president and together they worked out a tentative agreement on a contract settlement, subject to the approval of the board and the union membership. The board refused to approve the agreement, partly because of objections the board ’ s negotiator made. Throughout the course of the negotiations, the superintendent tried to persuade the board to dismiss the negotiator.

Because these events transpired over several months, the teachers pressured their union leaders to call an impasse and began to engage in slowdowns and other forms of job actions short of a strike. During the months that the superintendent and the school board ’ s negotiator were at loggerheads, each arranged separate meetings with union representatives, one trying to work through a mediator and the other trying to keep the mediator out of the process. Meanwhile, both the superintendent and union leaders were lobbying members of the board to obtain the swing vote necessary to win the power struggle.

Obviously, no progress was made in negotiations until the internal dispute was resolved. The superintendent ultimately emerged as the victor in the power struggle and the board dismissed its negotiator. The superintendent then brought in a new management negotiator with whom he could work, and a contract was successfully negotiated.

Source : One of the authors observed the events described in this box in the negotiations in a public school district in the northeastern United States.

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The Negotiations Process and Strikes 197

Negotiations also can be extremely emotional. The stakes involved are usually high, and the tactics often used in traditional negotiations—threats, bluffs, grand- standing for one ’ s constituents, exaggerated anger—are hardly conducive to building rapport among the parties to the process. Add to these the fact that any single round of negotiations typically is part of a larger and longer-term power struggle between parties separated by an inherent confl ict of interests. One can readily see why hostile attitudes can, and sometimes do, develop in a bargaining relationship and why they can constrain effective negotiations.

Consequently, attitudinal structuring (the degree of trust each side feels or develops toward the other side) is another subprocess in bargaining. If labor and management have a high degree of trust in one another, then it should be easier for the parties to engage in integrative bargaining, since trust can make it easier to identify problems and solutions. In contrast, interpersonal mistrust can make it diffi cult to move from initial bargaining positions to compromise settlements. Mistrust hampers communications between the parties and can lead both parties to hold back on concessions they might otherwise be willing to make. Obviously, intense hostility can get in the way of serious discussion of the substantive merits of the issues.

Labor and management can try to build trust by meeting prior to or during negotiations in forums that facilitate an open exchange of views and concerns. If union leaders and managers are working together to build trust, share information, develop employee participation processes, and consult on critical issues on an ongoing basis, the trust that develops from these activities may carry over to the negotiations process. Alternatively, actions that demonstrate a lack of trust to the rank and fi le, union leaders, or managers during the term of a contract will likely carry over to infl uence negotiations as well.

Personality traits of negotiators also play a role in building trust. Some personality traits, such as excessive authoritarianism, have been found to hinder the compromise that is necessary to bring about negotiated settlements. 4 A recent study showed, for example, that the negotiators’ “perspective-taking ability,” that is, their ability to see the other party ’ s point of view, increases the likelihood of a negotiated agreement. 5 Those who are philosophically opposed to unions, however, or those who are opposed to the role managers play in a capitalistic society may see bargaining issues as matters of great principle and thus fi nd compromise diffi cult. Acceptance of the legitimacy of the other side ’ s point of view can facilitate confl ict resolution. The absence of such acceptance in negotiations increases the probability of an impasse.

MANAGEMENT ’ S OBJECTIVES IN NEGOTIATIONS

The formation of management ’ s wage objectives (or targets) is a critical part of the negotiations process. Negotiators often have limits for bargaining, or the bottom-line terms they would accept short of taking a strike. The development of these wage targets is the heart of the internal management planning process that takes place before or during the early stages of negotiations.

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198 Part III. The Functional Level of Labor Relations

While wages are important to management, they are not the only critical issue a labor agreement addresses. However, how management creates targets for other bargaining issues occurs is not very different from the process it uses to create wage targets. Thus, the discussion that follows has general applicability.

Since top management is responsible for approving or authorizing any wage target in bargaining, the negotiating team must recommend targets that refl ect top management ’ s goals for the organization. If the negotiating team recommends a wage target that is too high, top management might reject the recommendations and the negotiating team would lose infl uence. On the other hand, these targets play a pivotal role in the negotiations process once they are established because they indicate the negotiator ’ s latitude for compromise.

Thus, the labor relations staff needs to develop bargaining targets that are realistic and achievable. The range of criteria that go into this decision-making process are discussed below. Management also must take the union ’ s preferences into account when setting targets for bargaining. Unless management is powerful enough to totally dominate bargaining, the management team must consider how acceptable its wage offer will be to the union.

THE UNION ’ S TARGETS

Unions will usually establish their own targets for wage bargaining. In setting those limits, union leaders employ two basic criteria for evaluating a proposed settlement: (1) the potential effects of the settlement on the real wages of the membership (the wage adjustment minus any increase in the cost of living); and (2) a comparison between the proposed settlement and settlements with other bargaining units or with other employees.

Comparisons with other units are important to unions for both economic and political reasons. Remember, the union ’ s economic goal is to take wages out of competition. This leads unions to favor wage increases that maintain pattern bargaining. Union leaders also face pressure from their members to compare their negotiating proposals with the settlements other unions have achieved with the settlements achieved by other unions. 6 Rank-and-fi le union members often evaluate their leaders by comparing their own settlement to settlements achieved by leaders of other unions or granted by other employers.

Comparisons are especially relevant when one or more rival unions might potentially challenge another union for the right to represent a group of employees. This has been an important consideration in bargaining among mechanics in the airline industry in recent years. Two different unions, the International Association of Machinists (IAM) and the Aircraft Mechanics Fraternal Association (AMFA), have been competing to represent these employees at various airlines.

A union will try to induce a company to accept a higher fi gure than it might otherwise do in the wage-setting portion of bargaining. A union ’ s bargaining power will determine the extent to which management takes the union ’ s preferences into account.

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The Negotiations Process and Strikes 199

Local Labor Market Comparisons

One factor an employer considers when setting its wage targets is the prevailing wage level in the local labor market. If the employer ignored the local labor market and allowed wages inside the fi rm to fall lower than wages at the other employment sites, high employee turnover might follow. Low wages also might produce a dissatisfi ed work force and diffi culty in recruiting workers with the skills needed to perform a job effectively. Conversely, setting wages too high relative to the local labor market invites an excess of qualifi ed job applicants and unnecessary costs.

This does not mean that the employer will try to pay the lowest wage possible that will attract workers to a given job. In the context of the local labor market, the employer must choose the quality of employees it wishes to hire. It must decide if increasing the wage level will attract employees of suffi ciently high quality and whether it will decrease indirect personnel costs (such as training, turnover, and supervision).

Labor market comparisons are more likely to be used in bargaining relationships where the union is weak. Where unions are strong, they will use their bargaining power to do better than the local labor market and gain what they consider to be a fair wage.

Product Market Factors

Product market comparisons play an increasingly important role in management decision making. The ability of current or potentially new competitors to compete on the basis of lower labor costs has been the dominant factor in management ’ s drive to hold down or reduce wages, particularly the wages of employees in entry-level and low-skill jobs. Threatening to outsource such work has also been an important part of management ’ s approach to negotiations in recent years.

The Firm ’ s Ability to Pay

The effects of wage adjustments on the profi ts of the fi rm also infl uence manage- ment ’ s wage target. Employers in the process of setting a target wage examine their ability to pay wage increases.

A union generally is reluctant to give a fi rm a lower settlement on ability-to-pay grounds unless the fi rm can demonstrate that a serious economic crisis would result otherwise. Union leaders and union members often must be convinced that their wage proposal would lead to considerable employment loss before they will agree to a lower settlement. For example, in 1979, it took the threat of bankruptcy plus government pressure to convince the UAW to agree to give Chrysler wage concessions below the level that had been set by pattern bargaining in the auto industry. Ability-to-pay considerations have become more important in recent years. In response to heightened competitive pressures, management has preferred to shift away from externally driven wage criteria in favor of criteria that connect wages more closely to the performance of a fi rm or its workers.

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200 Part III. The Functional Level of Labor Relations

Thus, management has tried to shift away from factors such as wages in the industry or increases in the cost of living and toward the fi rm ’ s ability to pay.

Internal Comparisons

Every negotiation is carefully watched by a fi rm ’ s other employees. Management must consider how a wage settlement might infl uence the expectations and demands of other employees in the fi rm regardless of whether those employees are represented by unions. Management, for example, often considers whether wage increases for unionized hourly workers will lead to pay increases for supervisors and other white-collar employees outside the bargaining unit. One reason manage- ment give pay increases to white-collar employees is such increases weaken these employees’ potential attraction to unionization.

The Dynamics of Management ’ s Decision-Making Process

So far we have painted a rather static picture of management ’ s decision making. Yet the actual process of decision making over the course of a bargaining cycle (from the pre-negotiation planning stage to the signing of the fi nal agreement) is a dynamic one. The process is replete with ambiguities over who has the authority to set policies, confl icts among decision makers over the appropriate weight to be attached to different goals, and power struggles among competing decision makers.

The process by which management establishes bargaining strategies involves extensive intraorganizational bargaining that is every bit as intense as the bargaining between the union and management. Because the successful resolution of internal differences is a prerequisite to a smoothly functioning bargaining process, it is important to understand how fi rms prepare for negotiations.

To provide a more complete picture of how management prepares for collective bargaining, Box 8.2 describes a typical case. This fi rm is preparing to negotiate a contract with the major bargaining unit in its largest manufacturing facility. The contract traditionally sets the pattern for the economic settlements with several smaller units at other locations.

Before negotiations (or very early in negotiations), the labor relations staff tries to predict as closely as possible what it will take to get a settlement. But ultimately the staff is ready at all times to revise its estimates based on new or better information about the union ’ s position as the negotiations proceed.

The case in Box 8.2 illustrates the diversity of interests that exists in the different levels of any modern company. It shows that the development of a company strategy for negotiations is a highly political process, one in which the different goals of various groups must ultimately be accommodated. Although the labor relations staff serves as a key participant in the development of the strategy, the concerns of operating management, fi nancial staff, and other interest groups in the corporation are also integral to any fi nal decision.

It is interesting to examine how preparations for traditional negotiations compare to preparation for an interest-based bargaining process. Box 8.3 draws on the experiences of the same fi rm as it prepared for a recent round of interest-based

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The Negotiations Process and Strikes 201

BOX 8.2 Management ’ s Preparations for Negotiations in a Typical Firm

Stage One: Input from the Plants

The fi rst step in the process of preparing for negotiations takes place at the plant level. 7 The plant labor relations staff holds meetings with plant supervisors to discuss problems they have experienced in administering the existing contract. From these discussions, the staff compiles a list of suggested contract changes. At the same time, the staff also conducts a systematic review of the grievances that have arisen under the current contract and collects information on local labor market conditions and on the wages in other fi rms in the community.

The staff then holds a meeting with the plant manager, who raises the industrial relations problems the company has confronted in the plant. The concerns of management are classifi ed into two groups: contractual problems and problems that should be addressed outside the negotiating process. In addition, the staff asks the plant manager to rank suggested contract changes based on their potential for making a signifi cant improvement in plant operations.

Stage Two: Input from Higher Levels of the Firm

Next, a series of meetings is held at the division level that involves the division labor relations staff, operations managers at the division level, and the corporate labor relations director and staff. From time to time, outside industrial relations consultants sit in on these division-level meetings. Here the concerns of the various plants are evaluated against two criteria: (1) the operational benefi ts expected from proposed contract changes; and (2) the likelihood that the desired changes can be achieved in the negotiations process.

The corporate labor relations staff plays a vital role in these division-level discussions, since the expected benefi ts of different contractual changes can be a matter of dispute across the various plants. In addition, the division labor relations staff is responsible for carefully examining the contract language that exists in the various local agreements for inconsistencies or problems that could be removed by clauses that refl ect corporate labor relations preferences. Sometimes the plant labor relations representatives object to changes suggested at the division level because they do not correspond to the priorities of the plant offi cials and because the existing “discrepancies” may be serving a useful purpose in the plant.

The corporate labor relations staff works closely with the vice-president for fi nance to develop wage targets. Information on plant labor costs, corporate earnings, and the long-term fi nancial prospects of the company and the industry are built into the wage target the corporate staff ultimately recommends.

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202 Part III. The Functional Level of Labor Relations

Stage Three: Input from Research

A research subgroup in the labor relations staff of the company also conducts background research that is used in management ’ s preparations for negotiations. At least a year and a half before the opening of formal negotiations, the research staff begins to prepare the background information necessary for developing the company ’ s proposals.

The researchers use a database on the demographic characteristics of employees and analyze personnel statistics such as turnover, absentee, and grievance rates. They also monitor internal union developments, specifi cally resolutions the union has passed at its conventions, union publications, and union leaders’ statements about the upcoming negotiations. In addition, they survey plant managers for their views on their relations with the union and the problems they would like to see addressed in the negotiations. The staff also consults plant labor relations staff members to obtain their suggestions. This fi rm probably invests more resources and assigns more authority for bargaining preparation to its research staff than do most other corporations.

The research staff is ultimately responsible for putting together a summary report that goes to the vice-president of industrial relations and the corporate director of compensation. These executives then work with the manager of the research and planning department to develop targets for bargaining.

Stage Four: Final Preparations

The fi nal step in management ’ s preparation for negotiations is a meeting that includes the corporate labor relations staff, the chief executive offi cer, and the board of directors. At this meeting, the corporate labor relations director presents the proposed wage targets and other proposed contract changes for board approval and states the reasons for seeking the proposed changes. Sometimes this meeting does not take place until after the fi rst negotiations session with the union. The industrial relations director might prefer to wait until then because it may be useful to hear from the union before he or she makes a fi nal recommendation to top management. This helps the industrial relations director identify the relative importance the union is likely to give to pay issues and the intensity of the union ’ s concern about other areas of the contract.

One labor relations director described to us how he presents his recom- mendation to top management in this way:

I always number my proposed target settlements as proposed settlement target number 1. Someone once asked me what that meant. I said that this is what I think it will take to get a settlement but I number it because I may have to come back to you at some point with my proposed settlement number 2 or even my proposed settlement number 3, et cetera.

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The Negotiations Process and Strikes 203

BOX 8.3 Preparing for Interest-Based Bargaining: One Management-Side Bargainer ’ s Account

The shift to a new approach to negotiations was a gradual and natural outgrowth of our employee involvement (EI) process. We took some steps in this direction in negotiations 10 years ago and more in our most recent round of bargaining. All of us—union and management representatives—have been training in the EI problem-solving tools and we essentially asked each other: Why can ’ t we apply them in negotiations?

As in the past, we would keep a list of issues and problems that came up during the term of the agreement in a fi le and start preparations by reviewing this list and interviewing plant managers for their concerns. But this time, when we brought this material together and met with the top division executives, the director of industrial relations said he didn ’ t want to take a laundry list of issues into negotiations only to discard some or many of them. Instead, he asked his colleagues: “What are your critical problems? What are their root causes? What are the costs involved? If we can agree on these things, then let ’ s go into negotiations and fi x them.”

Paring the list down and agreeing on what we needed to achieve to solve our problems (which were severe at that particular time) involved tough internal discussions and negotiations. Eventually, the chief executive offi cer had to decide on a couple of key points since these could conceivably affect the long-term future of the operations and, if we took the hardest line being advocated by some managers, would jeopardize the future of the labor-management relationship.

As a result, we brought about eight or nine issues to the table and the union only brought 15 or 16. In the past we would have both had a lot more.

We had much smaller bargaining committees than in the past as well. We had one representative each from legal, fi nance, manufacturing, and labor relations, along with the industrial relations director who chaired the committee.

We set up a big round table for bargaining, in a room complete with fl ip charts and all the other supports needed for brainstorming and problem solving. In the actual negotiations, from time to time we brought in specialists with expertise on particular issues such as the way the transfer language in the contract actually worked. Instead of simply exchanging proposals and working from each other ’ s lists, we scheduled times to take up issues and problems. When we did so, we asked: Why is that a problem? Who ’ s affected? What might we do about it? How would it affect things? Can we live with the solutions proposed?

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204 Part III. The Functional Level of Labor Relations

We still had discipline at the table. We had chief spokespersons. In fact, we got very upset and disappointed when at one point the process broke down. When we started talking about overtime, we had already done some joint staff work looking at some pilot programs we had started in a couple of settings to let the union handle how overtime is distributed. This is always a big problem and headache for management, and [it is] a costly issue. The staff had pretty much agreed privately to extend the pilot approach to the whole bargaining unit, but when the issue came up for discussion, the manufacturing representative on our team said: “We ’ d never agree to that!” We read him the riot act later in private for springing this on us, but it essentially killed discussion of this issue, and we never did get the job done on this issue.

As we got into the tough economic issues, bargaining took on more traditional features. These were very tough and the union leaders needed to be able to demonstrate to their constituents [that] they squeezed us as hard as they could to get the best deal possible. We understood this.

Still, there was better communications, and we never worked past 8 p.m.

bargaining. While much of the background research and information gathering is similar, some of this is done jointly with the union. In this case, the problem- solving processes that had been put in place in the company-union relationship at the workplace provided the foundation for taking a problem-solving approach to negotiations.

UNIONS’ AND WORKERS’ PREPARATIONS FOR NEGOTIATIONS

This section reviews the common procedures unions and workers follow during the negotiation of a collective bargaining contract. This material parallels the discussion of the procedures used by management in preparing for negotiations described above.

The Role of the Union Negotiating Committee

The union is represented by a negotiating committee in negotiations with manage- ment. The makeup of the union negotiating committee varies across unions, although it typically includes some union offi cers, support staff (such as members of the local or the national union ’ s research staff or both), and elected worker representatives. Often the leaders of the union ’ s negotiating committee are the highest elected offi cers of the union that is covered by the collective bargaining agreement under negotiation. Some unions, such as local construction, hotel and restaurant, or trucking unions, tend to rely on hired business agents to lead their negotiations.

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The Negotiations Process and Strikes 205

The negotiating committee will meet several times before the start of negotia- tions to formulate the union ’ s list of demands and to begin to establish expecta- tions about what the union can win in negotiations. Before these meetings, the negotiating committee will solicit demands from union members, either directly through meetings called to discuss the upcoming negotiations or through polls. In the UAW, for example, elected representatives from the local unions meet in a convention and vote on bargaining resolutions during preparations for companywide bargaining. The UAW leadership also consults union members during the negotiation of plant contracts that supplement the companywide agreements.

A union negotiating committee typically also receives information and advice from the national union ’ s research staff during its preparations for bargaining. The information provided frequently covers the fi nancial perfor- mance of the company, forecasts the future performance of the company and the economy, and summarizes recent settlements in other unions or the pay improvements unorganized workers in the same city, fi rm, or industry have received.

Some unions, such as the Air Line Pilots Association (ALPA), do extensive research and analysis of economic developments in their industry and of the fi nancial situation of each company. Prior to entering negotiations, the ALPA research staff conducts extensive briefi ngs with the bargaining committee of an airline and in some cases, such as at Continental Airlines, meets with company representatives to compare fi nancial data and analysis. It is not uncommon for union and company research staff to share information with each other if for no other reason than to avoid debates over some of the basic facts each side needs to prepare their team for negotiations.

Many unions now use surveys, focus groups, and/or direct interviews with rank-and-fi le members to gather information about their concerns and their priorities for negotiations. This serves as a two-way communications process. It both provides data on the priorities of rank-and-fi le members and begins to engage the rank and fi le in the negotiations process by informing them of some of the issues that may come up.

Acquisition of Strike Authorization If an Impasse Is Reached

If the union comes to an impasse with management during the negotiations and is considering going on strike over unresolved disputes, two steps occur. In local contract negotiations, the union ’ s constitution typically requires the local to seek strike authorization from the national union. Strike approval is an important process because, among other things, it enables striking workers to receive strike benefi ts from the national union ’ s strike fund.

A union considering a strike will also typically poll its members. The strike vote serves a dual purpose: it tells the union leadership whether the union ’ s members support such an action and it helps rally the workers around the purpose of the strike.

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206 Part III. The Functional Level of Labor Relations

Contract Ratifi cation

When an agreement is reached between the union ’ s negotiating committee and management ’ s representatives, the union proceeds through its contract ratifi cation procedures. Here there is much variation in the exact procedures unions use. The fi rst step some unions take is to send a proposed agreement to a council made up of lower-level union offi cers. This council includes local union offi cers when a companywide agreement is negotiated (as in the steel and auto industries). Union constitutions typically also require that the workers covered by a negotiated agreement vote on any proposed settlement.

There are some notable exceptions to the normal pattern of union members voting on proposed contracts. But in the usual case, workers must approve contract settlements, often by majority vote. This sort of voting is an example of participatory democracy in this critical aspect of union decision making.

The Role of Union Leaders in Shaping Strategies

The actual bargaining demands of unions refl ect more than just an averaging of their members’ preferences. Several factors combine to produce the complex process by which union leaders arrive at their bargaining objectives.

First, in addition to considering the preferences of their members, union leaders must evaluate how likely it is that objectives can be attained. Unrealistic goals must be discarded during pre-negotiation planning sessions or early on in negotiations.

Second, union leaders must take into account the varying political infl uence of subgroups within the union. Older or more skilled workers, for example, may be more politically infl uential than other members. Thus, the objectives leaders ultimately select may refl ect some workers’ goals more than others.

Third, union leaders must also be concerned about the long-term survival of the union and must take steps to preserve those interests. However, there is always the risk that union leaders will emphasize union security at the expense of member preferences.

Finally, a central job for union leaders, like all leaders, is to lead! Union leaders must weigh strategic options, make decisions, and secure the ongoing support of their members for the decisions they make.

One of the keys to union leadership is effective internal communication. Union leaders need regular upward communication from the rank and fi le and from local union offi cers. Effective union leadership also requires that decision makers communicate their activities and decisions back to the members. Unions use such techniques as opinion surveys, satellite hookups, television advertising, and the Internet to communicate with their members. Indeed, the Internet is becoming a key resource in bargaining today. Union leaders are learning that they must develop the skill to use this tool to communicate with members, for it is certain that rival groups in the union will have those skills. In one case, ALPA found that the tentative wage agreement it had reached with Delta Airlines was criticized on a rival group ’ s website before the union team could even describe its terms to union members! Thus, the means of communication in unions and the role

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The Negotiations Process and Strikes 207

of communications in negotiations in general are changing rapidly in the age of the Internet.

THE CYCLE OF TRADITIONAL NEGOTIATIONS

Negotiations often proceed through a cycle in which the four subprocesses of bargaining emerge and interrelate. 8 A typical cycle for a traditional negotiations process is described below.

The Early Stages

In the initial stage of a traditional negotiation, the parties present their opening proposals. This stage often involves a larger number of people than will be involved in the negotiations of the fi nal agreement. The union, for example, may bring in representatives from various interest groups and several levels of the union hierarchy. These people participate in developing the initial proposals and later become involved in securing ratifi cation of any agreement. The involvement of all these different representatives can smooth the process of intraorganizational bargaining in the union.

The union then presents proposals that cover the entire range of its concerns. Some of the proposals will be of critical importance and will be at the heart of the discussions as the strike deadline approaches. Some are important but may be traded off at the last minute. Some may be translated into more specifi c demands at a later stage of bargaining or may be issues to which the union will assign a high priority in some future round of negotiations. Other issues are of low priority and will be dropped as negotiations proceed into the serious decision- making stages.

The Presentation of a Laundry List

The union ’ s presentation of a laundry list of issues serves several purposes. It allows union leaders to recognize different interest groups by at least mentioning their proposals. Some unrealistic demands will be aired, the problems underlying these demands can be explored, and the employer can then reject these demands. This process takes the pressure off union offi cers who might otherwise appear to have arbitrarily nixed some group ’ s pet proposal. In a laundry list, either side also could introduce issues that it hopes will be pursued in future negotiations.

Presenting a long list of proposals and infl ated demands as a fi rst step might also be a useful way to camoufl age the real priorities of the union. Or a long list of proposals could be helpful in integrative bargaining by facilitating trades across issues.

Behavior of the Employer in the Early Phase

The behavior of employers at the outset of bargaining varies considerably. Some employers will present a set of proposals to counterbalance the union demands. Other employers will receive the union demands and promise a response at a future negotiating session. Many management representatives prefer to delay

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208 Part III. The Functional Level of Labor Relations

making any specifi c proposal on wages or other economic issues until well into the negotiations process. Because the wage issue can be emotional and divisive, management often tries to resolve nonwage issues fi rst.

Management may also initially try to camoufl age its bottom-line position, and it, too, may have unresolved internal differences at the start of negotiations. In some fi rms, a decision on the bottom line is not made until after the union offers its initial proposals and gives some preliminary indication of its priorities.

In the early stages, the speakers for each side will argue strongly and often emotionally for the objectives of their constituents to determine how strongly the opponent feels about the issues at stake. It should be no surprise that these initial stages are the forum for a good deal of grandstanding by both parties. Such grandstanding may also be a part of intraorganizational bargaining.

The Middle Stages of Negotiations

The middle stages of negotiations involve more serious consideration of various proposals. The most important tasks performed in the middle stages of bargaining are (1) developing an estimate of the relative priorities the other side attaches to the outstanding issues; (2) estimating the likelihood that an agreement can be reached without a strike; and (3) signaling to the other side which issues might be the subject of compromise at a later stage of the process.

Often the parties choose to divide the issues into economic and noneconomic issues. Separating issues into these categories may facilitate problem resolution and integrative bargaining. During these intermediate stages, any obstacles to a settlement may begin to surface.

The Final Stages of Negotiations

The fi nal stages of bargaining begin as the strike deadline approaches. At this point, the process both heats up and speeds up. Off-the-record discussions of the issues may take place between two individuals or small groups of representatives from both sides, perhaps with a mediator present. These discussions serve several purposes: they help representatives save face with their constituents, they allow each party to more fully clarify their positions, and they enable both sides to explore possible compromises. At this point the negotiators have a better idea of their opponent ’ s bottom-line positions and they may have private discussions over what it will take to reach a settlement. In these fi nal stages before a strike deadline, each party is seeking to convince the other of the credibility of its threat to strike or lockout. Each side also is trying to get the other side to change its bottom line to prevent a strike, and each party is trying to accurately predict the other side ’ s real positions on the issues to avoid backing into an unnecessary strike. At this stage, therefore, usually only a small number of decision makers is involved in the process.

Even if the key bargainers may agree on how a bargaining settlement could be reached, agreement is not yet assured. If the negotiators are unable to sell a settlement to their constituents, the agreement might still not be reached without reaching an impasse (see Chapter 9 ).

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The Negotiations Process and Strikes 209

INTEREST-BASED BARGAINING: AN ALTERNATIVE TO TRADITIONAL NEGOTIATIONS

The traditional approach to negotiations has often been criticized for its limited potential for solving problems. Critics view the dominance of distributive issues and tactics, the tendency of both sides to overstate demands, and the tactical use and withholding of information as ways that traditional bargaining reinforces rather than overcomes adversarial tendencies in labor-management relations. As an alternative, some researchers and a growing number of practitioners have suggested using interest-based or mutual-gains bargaining techniques.

Interest-based bargaining is essentially an effort to use integrative bargaining principles from the Walton and McKersie model in the negotiations process. This approach to bargaining was fi rst popularized by Fisher and Ury ’ s best-selling book on negotiations, Getting to Yes. In interest-based bargaining, parties are encouraged and trained to (1) focus on their underlying interests; (2) generate options for satisfying these interests; (3) work together to gather data and share the information they need to evaluate options; (4) evaluate the options against criteria that refl ect their interests; and (5) choose options that maximize their mutual interests.

Consider how using these principles alters the typical negotiations process described above. Instead of each party beginning bargaining with a laundry list of infl ated demands, each party separately produces a list of problems that need to be addressed in negotiations to address their core interests. In some cases, the parties may even frame the problems jointly by building on the reports of labor- management committees set up to collect data and study vexing problems such as safety and health hazards, the costs of quality of health insurance, and so forth. A subcommittee might then be formed to collect the additional information needed to generate options that the full negotiating teams can consider. Ideally, options are generated through brainstorming (a free-fl owing discussion in which members of a group are encouraged to generate ideas without committing themselves to a fi xed position and without criticizing the ideas others suggest). Analysis of the root causes of problems and extensive data sharing are also encouraged at this pre-bargaining or early stage of the negotiations process. As bargaining proceeds to a decision-making phase, each bargaining team develops standards or criteria to evaluate options. The goal then is to choose options that do the best job of serving the interests of both parties.

In theory, an interest-based process does not differentiate between distributive and integrative issues. Instead, by focusing on basic interests and problems that lie in the way of achieving those interests, the parties attempt to use problem-solving or integrative strategies to address the full range of concerns each party brings to the table. However, experience has shown that some issues are harder to resolve through pure interest-based techniques, since they do involve clear trade-offs. When such situations arise in interest-based negotiations, the parties may resort to more traditional tactics and thus mix the two approaches to negotiations.

Interest-based bargaining requires a high level of trust among the negotiators and between the negotiators and their principals and constituents. Thus, it is

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210 Part III. The Functional Level of Labor Relations

diffi cult to make this process work when there are signifi cant intraorganizational confl icts in one party or the other. How management bargainers in one company prepared for an interest-based approach to bargaining is described in Box 8.3 .

When should the parties consider using interest-based techniques and how should negotiators go about trying them out? Most experts agree that both negotiating teams need to be trained in these techniques well in advance of the start of negotiations. Some further recommend that in order to overcome con- stituents’ suspicion, rank-and-fi le union members and managers who are not on the negotiating team should participate in the training, in gathering data, and in the deliberations of subcommittees. Often a specially trained facilitator (as opposed to a traditional mediator) is also brought in to coach and assist the parties in interest-based negotiations.

While the record of interest-based bargaining to date is still modest and some cases of failure have been reported, it is clear that the growing complexity of the problems labor and management face are pressuring them to fi nd better ways to produce “win-win,” or mutual gains, solutions.

STRIKES

In recent years, the number of strikes have declined; they occur in only about 5 percent of all labor-management negotiations. But in many negotiations, the threat of a strike continues to play a key role in motivating the parties to move toward an agreement. We explore the role of the strike and the strike threat in this section.

How the Strike Threat Infl uences Negotiated Settlements

In negotiations, the bargaining parties are unlikely to settle on terms that differ substantially from whatever terms they think would settle a strike if one were to occur. Consequently, strikes are an important determinant of both parties’ bargaining power.

During negotiations, both labor and management negotiators formulate expecta- tions about what might happen if the negotiations were to reach an impasse and a strike were to follow. At the same time, both sides have a strong incentive to avoid a strike because both sides lose income during a strike.

During a strike, workers give up wages. They try to make up for those lost earnings by possibly taking a short-time job. Workers also turn to union strike benefi ts, the earnings of a spouse, or savings to support themselves and their families during a strike.

Firms lose profi ts during a strike. They try to decrease the amount of profi ts lost through tactics such as bringing in replacement workers for the strikers, making sales out of any available inventories, or shifting production to an alternative site. The fi rm relies on assets or the earnings from other lines of business to meet any fi nancial obligations (such as equipment expenses) during a strike. In service businesses such as airlines, where business lost during a strike cannot be made up through selling inventory or post-strike deliveries, strikes are especially costly.

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The Negotiations Process and Strikes 211

This is one reason why more extensive efforts are made to avoid strikes in these settings, as we will see when we discuss dispute resolution procedures and proposals for reform in the airline industry in the next chapter.

The Hicks Model of Strikes

The material below examines the role the strike threat plays in the negotiations process and identifi es the factors that lead to strikes. John R. Hicks developed a very insightful model for analyzing the role strike leverage plays in shaping negotiated outcomes. 9 Figure 8.1 diagrams the Hicks model of strikes. To simplify the discussion, assume that the parties are negotiating only over wages (or assume that all items in dispute can be reduced to monetary terms and represented by a simple wage).

In the Hicks model, bargainers form an expectation of what they would eventually agree to if there was a strike. In case A in Figure 8.1 , both parties expect that if there is a strike it will be ended with a wage settlement of w(es). If a strike occurs, however, both labor and management will absorb income losses during the strike. Workers will forgo earnings during the strike and management will lose profi ts because production has stopped.

Because they are aware of these potential income losses, the parties should be able to fi nd a negotiated wage settlement during the negotiations that they prefer over the wage settlement they would end up with at the end of a strike, w(es).

The income that management would lose during a strike would amount to an hourly wage cost to management of w(m). Because management expects a strike to end with a wage of w(es), they should be willing during negotiations to agree to a wage as high as the expected strike outcome plus the cost to management of the potential strike, or w(es) + w(m) .

Labor in this case also expects a strike to end with a wage of w(es). The income workers would lose during a strike would amount to an hourly wage cost to labor of w(u). Therefore, during negotiations, the workers should be willing to

Expected strike wage plus cost of strike to

management

Expected strike wage minus cost of strike to

union

Expected strike wage

Contract zone

Union’s expected strike wage

Union’s expected strike wage minus cost of strike to union

Management’s expected strike wage plus cost of strike to management Management’s expected strike wage

w(es) + w(m) w(esu)

w(es)

w

w(es) – w(u)

w(esu) – w(u)

w(esm) + w(m)

w(esm)

CASE A: A LARGE CONTRACT ZONE CASE B: NO CONTRACT ZONE

Figure 8.1. The Hicks model of strikes

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212 Part III. The Functional Level of Labor Relations

accept a wage as low as the expected strike outcome minus the hourly cost of the strike to labor, or w(es) − w(u) .

The difference between what management is willing to accept during negotiations and what labor is willing to accept during negotiations creates a contract zone of potential settlements. Both sides should prefer to reach settlements in the contract zone during negotiations rather than going on strike and ending up with the strike wage outcome and income losses during the strike.

It is, of course, possible that there is no contract zone. Case B in Figure 8.1 diagrams such a situation. In this case, management expects a very low wage if a strike were to occur w(esm), while the union expects a very high wage if a strike were to occur w(esu). Even in the face of the expected strike costs, w(m) and w(u), there is no contract zone because w(esuyes) − w(u) is greater than w(esm) + w(m) .

The important point that Hicks noted is that in this framework, there is no contract zone only if the parties have very different expectations of the strike outcome. The fact is that there is some true strike outcome. When the expectations of both labor and management diverge from the strike outcome, one or both of the parties makes miscalculations in their prediction of the strike outcome. When there is no contract zone, one or both of the parties must be excessively optimistic about what it thinks will settle a strike.

Hicks concluded that strikes occur only when one or both sides have miscal- culated. The key point is that since a strike imposes costs on both sides, it should be less attractive than a negotiated settlement.

Strikes can occur even when there is a contract zone, but in the Hicks framework this also requires miscalculation. Hicks argued that there may be situations where the settlement the parties anticipate is not located in the zone, even though a contract zone exists. This occurs because the parties are unable to fi nd the negotiated settlements they both would prefer over the strike outcome, because of bluffi ng or intransigence.

In the Hicks model, negotiators have great latitude to further the interests of their side. It is in management ’ s interest to reach a settlement at the lowest wage in the contract zone, and it is in labor ’ s interest to reach the highest wage settlement in the contract zone.

In addition, during negotiations it is in each side ’ s interest to attempt to change the other side ’ s expectation of the strike outcome. Management would like to convince labor that the potential strike outcome is a very low wage, and labor has an interest in convincing management that the potential strike outcome is a very high wage. The risk the parties face is that in their efforts to change the other side ’ s expectation of the potential strike outcome, they might engage in tactics (such as bluffi ng or threats) that result in miscalculations, a strike, and the loss of income.

Some of the Sources of Miscalculation

Negotiators may have expectations of the potential strike outcome that are different from those of their constituents. Orley Ashenfelter and George Johnson posited

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The Negotiations Process and Strikes 213

that strikes occur because union members have unrealistic expectations. 10 They argued that both management and union leaders have accurate expectations of the strike outcome, but union members are overly optimistic about what can be achieved in a strike. Under these conditions, strikes are a device to lower union members’ expectations. Although it is diffi cult to justify why union members alone have unrealistic expectations, the Ashenfelter and Johnson framework highlights that strikes may occur when union members and leaders have diverging expectations of the strike outcome.

Hicks ’ s model is a very useful starting point for analyzing the negotiations process. Building on his approach requires an understanding of the factors that infl uence the willingness and ability of either side to engage in a strike. These factors determine the wage the parties expect they will end up with at the end of a strike. The Hicks framework also suggests the need to uncover the factors that lead either side to be overly optimistic about a potential strike outcome or to miscalculate in other ways during negotiations.

The Behavioral Model of Strikes

Behavioral factors such as the degree to which labor is integrated into the sur- rounding community may be one source of miscalculation that leads to strikes. In a classic study, Clark Kerr and Abraham Siegel analyzed strike data across countries and industries and found that strike rates were consistently higher in certain industries such as mining and longshoring. 11 The authors proposed that behavioral factors peculiar to certain industries were at least partly responsible for the higher strike rates. This is known as the behavioral model of strikes. Workers in longshoring and mining often have their own subculture, they are distant from major population centers, and their work involves harsh physical labor. Kerr and Siegel argued that workers in these industries are comparatively poorly integrated into society and express their frustrations and isolation by instigating relatively frequent strikes.

In Hicks ’ s terminology, Kerr and Siegel identifi ed a set of factors—social and geographic isolation—that contribute to the likelihood of miscalculation in bargain- ing. Kerr and Siegel also emphasized that strike occurrence may have very little to do with the issues on the bargaining table.

Militancy as a Cause of Strikes

Strikes also may occur as a result of the militancy of a work force or a union. Marxist theorists have noted that there is a strong statistical association between strike frequency rates and the business cycle. Over time (and across countries), strikes tend to occur more frequently during business upturns. This association is diffi cult to explain with the Hicks model, which predicts that wage settlements should be higher during business upturns, but not strike frequency. 12

Marxist theorists argue that the fact that strikes occur more frequently when the economy is strong demonstrates that confl ict is a product of the bargaining power of labor. This bargaining power model of strikes focuses on the fact that strikes are typically initiated by the union and the work force. Thus, during

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214 Part III. The Functional Level of Labor Relations

periods when the union ’ s bargaining power is relatively weak, the union is less likely to press its demands and is less likely to resort to a strike when seeking more favorable contract terms.

The bargaining power thesis also recognizes that strikes are frequently initiated by workers on the shop fl oor who are upset by management ’ s actions or by offi cial union policy (these sorts of strikes often would be categorized as unauthor- ized, or wildcat, strikes). Workers are less likely to engage in this sort of shop-fl oor action when labor markets are slack and workers worry about the possibility of layoff.

Negotiations involve many issues, what will actually occur in a strike is highly uncertain, and labor negotiations typically occur repeatedly between the same parties. These factors make it extremely diffi cult to predict the settlement point or the causes of an impasse in any given negotiations.

STRIKE ACTIVITY

Strikes occur infrequently. The total work time lost due to strikes has averaged well below one-half of 1 percent per year. In 2015, there were twelve major work stoppages each involving 1,000 or more workers. Historically, strike rates have been higher than this in the United States. For instance, in 1971 there were 298 major work stoppages that involved a total of 2.5 million workers. 13 The low frequency of strikes is consistent with Hick ’ s prediction that both parties usually have strong incentives to avoid strikes. It also appears that the ability of unions to engage in a strike has declined in recent years as a result of increased international and domestic competition and decreasing union coverage in and across industries, lending support to the bargaining power thesis noted above.

Whereas strikes in other periods seemed to provide a positive return to union members, strikes in recent years have frequently appeared to be defensive weapons that unions fi ghting for their continued existence use only as a last resort. The strikes that did take place were often more hostile, violent, and emotional than the earlier strikes. Since the strikes were so bitter, they entailed greater costs to both sides, and, consequently, both labor and management had incentives to avoid their occurrence.

Many strikes in recent years occurred when labor and management could not agree on how to respond to the increasing cost of health care benefi ts. Many fi rms were seeking concessions in contract negotiations that would either require increased employee payments to cover health care cost increases or reductions in health care benefi ts. Box 8.4 describes how health care benefi t modifi cations have become a central issue at GE for both union and nonunion employees.

Another issue that has become extremely contentious in recent collective bargaining is the outsourcing of work. A recent strike at Verizon Communications (see Box 8.5 ) received a lot of attention because the unions at Verizon appear to have made gains in limiting management ’ s ability to outsource work.

Even though the strike weapon has had reduced potency for many unions in recent years, some unions (and employees) retained sizable strike leverage. The

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The Negotiations Process and Strikes 215

BOX 8.4 Health Care Benefi ts Are a Central Issue in Labor Relations at General Electric

Health care benefi ts for current and retired workers have been a central issue in recent labor relations at General Electric (GE). Events at GE are representative of the central role that issues related to health care have played in some labor-management relationships.

At the start of recent negotiations, GE requested signifi cant reductions in the health benefi ts its current unionized workers would receive. For a while, it looked as though this demand would lead to a strike. These negotiations involved unions that represent some of GE ’ s U.S. employees (the United Electrical, Radio and Machine Workers of America [UE], the International Union of Electronic, Electrical, Salaried, Machine, and Furniture Workers–Communications Workers of America [IUE-CWA], the United Auto Workers [UAW], the International Association of Machinists and Aerospace Workers [IAM], and the International Brotherhood of Electrical Workers [IBEW]). However, the parties compromised and on June 30, 2015, a four-year contract was ratifi ed with the UE and IUE-CWA, the unions that represent 12,780 GE employees. The new contract includes modest increases in employee premiums for health insurance, but over its four-year period, it provides about $15,000 more in compensation. Similar terms were later accepted in negotiations involving the other unions that represented other GE workers.

The new contracts did not, however, settle all disputes at GE concerning health care benefi ts. A federal district court decision issued on June 5, 2015, ruled that disgruntled GE non-union retirees (former executives and other white-collar employees) can proceed with claims that GE misled them about their post-retirement health benefi ts, which are slated to end in 2015. The retirees allege that GE ’ s summary of its health plan in 2012 misleadingly stated that the company “expects and intends” that retiree benefi ts would continue indefi nitely.

The leadership of the UE and others initially praised the four-year agree- ments mentioned above for protecting post-65 health care benefi ts for unionized GE retirees. But in July 2015, GE announced that it would unilaterally terminate health care benefi ts to former production workers and their spouses older than 65 who were eligible for Medicare. In response, a coalition of nine unions fi led a class-action suit seeking to reverse the cancellation of these health care benefi ts. The unions claimed that these benefi ts were vested and that GE ’ s termination of the benefi ts violated the collective bargaining agreements GE had with its unions.

Sources : Rhonda Smith, “UE, IUE-CWA Ratify Four-Year Contracts with General Electric for 12,780,” Daily Labor Report , July 1, 2015, A-10; “General Electric Can ’ t Dodge Allegations of Improperly Axing Retiree Health Benefi ts,” Daily Labor Report , June 8, 2015, A-3; and Carmen Castro-Pagan, “GE Hit with Class Action for Lifetime Health Benefi ts,” Daily Labor Report , November 13, 2015, A-10.

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216 Part III. The Functional Level of Labor Relations

BOX 8.5 Long Strike Ends at Verizon with Claims of Union Gains

According to the U.S. Bureau of Labor Statistics, 47,000 workers went out on strike in 2015 in the United States. This puts into perspective the magnitude of the 2016 strike at Verizon Communications, in which 40,000 workers (mostly customer service workers and technicians) participated in a strike that lasted six-and-a-half weeks. This strike was also noteworthy because the unions at Verizon made several important gains. This contrasts with the experiences of most striking workers since the mid-1990s.

The strike was organized by the two major unions that represent Verizon employees, the Communications Workers of America and the International Brotherhood of Electrical Workers. The strike followed months of contentious negotiations. Verizon ’ s current business model creates inherent diffi culties for its unionized workers. The company still maintains a large landline network, which is installed and serviced by unionized employees, while continually expanding its wireless services, which are serviced by nonunionized employees. Much of the company ’ s growth and current profi ts derive from its wireless business. The union members in the shrinking landline segment are threatened by Verizon ’ s perpetual efforts to decrease labor costs in the landline segment and focus its investments on the more profi table wireless services.

This tension framed the major disputes in contract negotiations. Although there were some disagreements about pension caps and health care coverage, the key source of the impasse was the company ’ s insistence on decreasing the proportion of customer service calls that would be handled by unionized employees. (Verizon outsources a signifi cant proportion of its customer service calls.) Obviously, this presented a major threat to union workers’ job security.

Despite Verizon ’ s initial claim that the strike would not affect its revenue signifi cantly, their chief fi nancial offi cer later admitted that the strike had led to a decreased capacity to provide installations, which in turn impeded company growth and lowered profi ts. The size of the strike, both in terms of numbers and national economic impact, prompted both the U.S. secretary of labor and the Federal Mediation and Conciliation Service to become involved.

Many observers felt that the settlement provided clear wins for the unions. The settlement included a higher wage increase (10 percent over four years) than the 6.5 percent increase Verizon had initially offered; the company withdrew its demand that it be allowed to cap pensions; and it withdrew a proposal to allow it to relocate employees anywhere on the grid for a period of two years. In return, the unions accepted the restructuring of some of the provisions in their health care plan. A compromise that benefi ted both sides was reached regarding the major issue, the redirecting of customer

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The Negotiations Process and Strikes 217

service calls. The company could redirect a greater proportion of the calls away from the initial region, but only to other unionized employees elsewhere on the grid, instead of to nonunionized workers in or out of the country. The union ’ s position was that as long as the work was being done by its members somewhere, they had no complaint, while the company claimed that this change allowed for greater effi ciency.

Another key union gain in the settlement was contract terms for seventy retail wireless workers in a handful of stores who more than a year earlier had voted for union representation. These are the fi rst Verizon customer service workers to gain the benefi t of a union contract, something Verizon wireless managers had been aggressively trying to prevent for years (see Chapter 6 ). It remains to be seen if this will lead to greater union success at organizing workers in other parts of Verizon ’ s wireless business and, more generally, whether the Verizon strike settlement will inspire other workers to be more aggressive in negotiations and during strikes.

Sources : Noam Scheiber, “Verizon Strike to End as Both Sides Claim Victories on Key Points ,” New York Times , May 30 2016, http://www.nytimes.com/2016/05/31/business/ verizon-reaches-tentative-deal-with-unions-to-end-strike.html ; United States Department of Labor, “Work Stoppages Summary,” Bureau of Labor Statistics, February 10, 2016, https://www.bls.gov/news.release/wkstp.nr0.htm .

players in the major sports in the United States (football, baseball, basketball, and hockey) are represented by unions, and, as Box 8.6 describes, there have been frequent strikes over the last twenty-fi ve years when negotiators for those unions and the respective leagues have reached impasse. It is not exactly clear why strikes are such a frequent occurrence in sports collective bargaining. Perhaps it is because players have high strike leverage that derives from the fact that there are no substitutes for superstar players. If this is the explanation for the high strike rate, then it provides an illustration of the militancy theory of strikes discussed above. Or perhaps strikes are so common in sports because both the team owners and the players are so inexperienced in labor relations and there is so much intraor- ganizational disagreement (between stars and utility players on the player side and between rich and fi nancially strapped teams on the owner side) that miscalculation if frequent during bargaining. If the latter explains the high strike rate, then it supports the miscalculation theory of strikes discussed above.

Collective bargaining in baseball is noteworthy because it is the union that has pushed for increased reliance on the market to set players’ salaries, while team owners want greater revenue sharing between teams (to promote competitive balance) and limited player movement (to limit players’ salaries). For example, baseball players won free agency in 1975 through a decision of a grievance arbitrator, which helped produce a sharp rise in players’ salaries. See Box 9.3 for

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218 Part III. The Functional Level of Labor Relations

BOX 8.6 Frequent Strikes in Professional Sports

There have been frequent strikes when representatives of U.S. players and owners have reached an impasse in their collective bargaining over the last twenty-fi ve years. For example, a National Basketball Association (NBA) players’ strike in the fall of 1998 led to the cancellation of much of their season as players and owners squared off in a prolonged dispute that centered on the terms of the NBA ’ s free agency system and how the two sides would divide the increasing revenue of the NBA.

Strikes can be initiated by management in sports, just as in other sectors. This sort of impasse is referred to as a lockout. A lockout occurred in the National Hockey League (NHL) that led to the cancellation of the 2004–2005 NHL season. The NHL players and team owners disagreed about how to set players’ salaries. NHL hockey fi nally resumed in the 2005–2006 season after a salary cap and other new procedures were added to the NHL ’ s collective bargaining agreement.

Collective bargaining in sports hasn ’ t always led to a strike. For example, in August 2002, baseball players and team owners settled contract negotiations without resorting to a strike. Apparently, both players and owners feared that a strike at that point would particularly upset fans and potentially lead to long-term damage to the game (and their own incomes). Fans had a strong negative reaction to the 1994 baseball strike, which had led to the cancellation of that year ’ s World Series, and in 2002 both labor and manage- ment feared even greater damaging effects if another strike occurred.

Sources : Robert C. Berry, William B. Gould, and Paul D. Staudohar, Labor Relations in Professional Sports (Dover, Mass.: Auburn House, 1986); Alex Remington, “Lockouts, Strikes and Labor Politics in Professional Sports,” Footnote 1 , June 5, 2013, http:// footnote1.com/lockouts-strikes-and-labor-politics-in-pro-sports/ .

a description of the salary arbitration procedure now used to set baseball players’ salaries.

Professional sports is an example of a sector where, perhaps surprisingly, collective bargaining is playing an increasingly visible role because of the publicity surrounding player conduct. In recent years, there has been much controversy surrounding the penalties assessed on players, including some long suspensions, in response to accusations that the players were using banned performance-enhancing drugs or were perpetrators of domestic violence. Box 8.7 describes the central role of the grievance procedure that is included in the various sports league ’ s collective bargain- ing agreements in recent cases where league commissioners have punished various players.

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The Negotiations Process and Strikes 219

BOX 8.7 The Role of Collective Bargaining in Settling Disputes about Drug Use and Personal Conduct in Professional Sports

In some ways, the collective bargaining agreements that regulate all four major sports in the United States (football, baseball, basketball, and hockey) are similar to other labor agreements: they cover the same issues of wages, benefi ts, and work rules. However, because of the celebrity status of athletes and other factors, sports bargaining agreements feature personal conduct and drug abuse policies that are paired with interesting enforcement mechanisms.

To understand how these policies are implemented, it is important to understand the structure of professional sports leagues in the United States. Each individual team, which employs and pays its players, is part of a respective league and is subject to league rules and discipline. Typically, owners or team representatives vote on or in other ways have infl uence on the policies the league adopts. However, personal conduct matters and the specifi c disciplinary actions taken against players are determined by the commissioner of each league, who serves at the pleasure of the owners.

Each of the four major sports leagues in the United States have detailed drug policies. These cover both recreational drugs and performance-enhancing drugs. For example, as of 2015, Major League Baseball had recognized and banned seventy-four performance-enhancing substances. The league and players’ associations often have similar views on the regulation of performance- enhancing drugs and about the regulation of other drugs. They also agree about penalties for players who perpetrate domestic violence. Thus, there is a lot of common ground in the positions of players and the leagues. In the NFL in 2015, for example, forty-nine players were suspended for violating the drug policy. The suspensions ranged from a single game to the entire season based on the number of times players had failed drug tests in the past.

The leagues’ personal conduct policies are far less structured. The leagues have a long list of many types of personal conduct violations. Players who violate these rules create a lot more news and negative publicity than other employees would. Several major events in the last few years have generated national news and outrage. This was caused both by the events themselves and the responses of the leagues.

In most cases, there are no specifi c guidelines regarding the appropriate penalties for specifi c events, so it typically the commissioner ’ s discretion determines the penalty. In 2015, eleven NFL players were suspended because they had violated the league ’ s personal conduct policy. The suspensions ranged from one game to six, which is almost half a season. Probably the most publicized case was a domestic violence complaint against former Texas Ravens running back Ray Rice. Rice allegedly knocked his wife unconscious in a casino elevator and was eventually brought before the commissioner. He was suspended for the fi rst two games of the season.

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220 Part III. The Functional Level of Labor Relations

Then a video of the incident surfaced and caused national outrage over what now seemed like a lax penalty. The league responded by suspending Rice indefi nitely, but Rice argued that he had been punished twice for the same incident, which isn ’ t allowed under the NFL ’ s agreement. Eventually, the Rice suspension was amended to a year, but no team has signed the former all-pro since the incident.

Players often appeal both drug and personal conduction violations through the grievance procedure in their collective bargaining agreements. The players can use the legal system to appeal disciplinary actions. Perhaps the most controversial court involvement in a player suspension is the recent case involving New England Patriot quarterback Tom Brady. This case, which concerns accusations that Brady knew about and/or obstructed an investigation into a plot to defl ate footballs used in the 2015 American Football Conference championship game, illustrates the critical role the specifi c language in a collective bargaining agreement can play. In this case, the language in the parties’ collective bargaining agreement proved decisive, and a three-judge panel of the United States Court of Appeals upheld NFL Commissioner Goodell ’ s four-game suspension of Brady in a decision issued on April 25, 2015. The Second Circuit Court of Appeals affi rmed that Goodell had broad discretion to suspend players according to the collective bargaining agreement with the players’ union.

Interestingly, in their decision, the judges admitted that they did not consider the underlying facts of the case, including the science of football defl ation, but instead looked solely at whether Goodell, as arbitrator, had acted in the spirit of the collective bargaining agreement. The court concluded, “We hold that the commissioner properly exercised this broad discretion under the collective bargaining agreement and that his procedural rulings were properly grounded in that agreement and did not deprive Brady of fundamental fairness.”

The judges went on to say that despite the protestations of Brady and the NFL Players Association, Goodell was merely acting on the powers the league and the union had agreed to in their labor contracts, the latest of which was signed in 2011. The judges acknowledged that the management- union pact in which the person who penalizes players (the league commis- sioner) also listens to appeals of those penalties might be unconventional, but they would not get in the way of a long-standing and transparent contract. The court stated, “In their collective bargaining agreement, the players and the league mutually decided many years ago that the commissioner should investigate possible rule violations, should impose appropriate sanctions, and may preside at arbitrations challenging his discipline.”

Sources : Ken Belson, “N.F.L. Wins Appeal, and Tom Brady Has Little Recourse,” New York Times , April 25, 2016, http://www.nytimes.com/2016/04/26/sports/tom-brady- defl ategate-new-england-patriots-suspension-reinstated.html?emc = eta1 .

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The Negotiations Process and Strikes 221

The Role of Replacements for Striking Workers

One of the most controversial strike issues is whether a fi rm will hire temporary or permanent replacements when workers go on strike. Under U.S. labor law, management has the right to hire temporary replacements and can hire permanent replacements if it notifi es the union and the newly hired employees that it is doing so. The threat of hiring permanent replacements, therefore, is often taken as a signal of management ’ s intent to bargain hard and even to eliminate the union if it goes on strike.

Alternative Collective Strike-Like Actions

As the traditional strike leverage of unions has declined as management has threatened to use permanent replacements, outsourcing, or other tactics, unions in recent years have more frequently used other forms of collective action to increase their bargaining leverage. The sickout by Detroit public school teachers described in Box 8.8 is one example of this sort of strike-like action.

THE ROLE OF MANAGEMENT AND UNION STRATEGIES ON NEGOTIATIONS

Management strategies have a major effect on the negotiations process and on the likelihood of a strike. For one thing, management ’ s investment and product decisions affect its bargaining power and negotiations strategies. For example, whether management chooses a low-cost, high-volume product strategy instead of a high-quality, high-innovation strategy shapes the extent to which the employer is concerned with lowering wage costs. In addition, a company ’ s human resource strategy affects negotiations, particularly in terms of how that strategy affects the attitudes of employees.

Union strategies also affect the course of collective bargaining. Whether and how a union seeks support from community groups or other unions in an effort to pressure a particular employer often become critical issues in labor negotiations.

The recent evolution of collective bargaining in three cases—auto company- UAW, Boeing-IAM, and U.S. postal service (USPS) bargaining with the three unions that represent its employees—illustrate the dynamics of bargaining.

Negotiations between Auto Companies and the UAW

In the fall of 2015, the UAW reached contract settlements with each of the Big Three auto companies (GM, Ford, and Fiat-owned Chrysler) where the union represents all blue-collar workers. The three contracts gave contract gains to the UAW that refl ected both economic recovery in the auto industry and the effects of that recovery on the union ’ s bargaining power. The 2015 contracts also refl ect the strategic decision of the UAW to use their renewed strength to reverse some of the effects of concessions the union had made during the 2008 fi nancial crisis. A key feature of the 2015–2019 collective bargaining agreements is that they provided substantial wage increases to lower-tier (“in-progression”) workers and

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222 Part III. The Functional Level of Labor Relations

BOX 8.8 Mass Sickout by Teachers Closes Detroit Public Schools

Most of Detroit ’ s public schools (64 out of 100 schools in the city) closed on January 11, 2015, in the face of a “sickout” by teachers who protested what they called unsafe, crumbling, vermin-infested, and inadequately staffed buildings and the failure of state lawmakers to agree on a plan to rescue a system teetering on the edge of insolvency. Because of the school closings, 31,000 of the 46,000 students in the district missed a day of instruction, which cost the district more than $1 million in state funding based on attendance.

The Detroit school district is beleaguered. It consistently has had the lowest test scores among large school districts in the United States. The district has lost more than two-thirds of its enrollment in fi ve years, which has led to the closing of many of its schools. The district has been running large defi cits, including $1.3 billion in unfunded retiree benefi ts and hundreds of millions of dollars in other obligations.

Before the strike, teachers had been staging periodic smaller-scale sickouts for a month. The sickouts, which the Detroit Federation of Teachers did not endorse, were organized by Steve Conn, who was ousted in August 2015 as president of the union but still has an ardent following in the union. Mr. Conn had been an activist in the union at odds with other union leaders—and the district administration—until February 2015, when teachers elected him president. Seven months later, the union ’ s executive board removed him over charges of misconduct.

Events in the Detroit public schools illustrate the important role that a collective pressure tactic can play. The political infi ghting in the teachers’ union also illustrates intra-organizational differences.

Source : Richard Perez-Pena, “ ‘Sickout’ by Detroit Teachers Closes Most Public Schools,” New York Times , January 11, 2016, https://www.nytimes.com/2016/01/12/us/sickout- by-detroit-teachers-closes-most-public-schools.html .

wage increases to upper-tier (“traditional”) autoworkers. To understand the strategic choices the UAW made and the how recent increases in the union ’ s bargaining power contributed to these recent contract gains, it is helpful to review the prior diffi culties of labor and management in the auto industry.

The bargaining power of the UAW declined sharply beginning in the 1980s due in part to the growing proportion of U.S. auto production that was taking place in nonunion “transplants” (assembly plants in the United States owned by foreign-based auto companies). Transplant workers produced over 40 percent of cars and trucks assembled in the United States. Although the UAW has launched various organizing drives in unorganized transplants in recent years, none of these

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The Negotiations Process and Strikes 223

drives has been successful. The UAW ’ s efforts to organize the Volkswagen plant in Tennessee have been particularly noteworthy. The UAW launched extensive efforts to organize that plant with the support of Volkswagen management, which declared that it was neutral toward union organizing. To the union ’ s disappoint- ment, a majority of workers did not vote in favor of union representation, although the union continues to try to organize the plant.

The UAW ’ s bargaining power had also been negatively affected by the fact that imported cars and trucks had captured a growing share of vehicle sales. Imports accounted for a growing share of the U.S. market, rising from a postwar low of 5 percent in 1955. The proportion of imports surged in the 1980s, then declined in the 1990s as Japanese, Korean, and German companies increased their North American production capacity. Then the import share rose again, and it is now more than 50 percent.

As import and transplant vehicle sales increased, the total bargaining power of labor and management at the Big Three auto companies decreased. In addition, the relative bargaining power of the UAW was weakened by the ease by which the companies could move production offshore and the erosion of strike leverage due to excessive production capacity during the industry ’ s periodic sharp cyclical downturns.

The fringe benefi t package in the Big Three–UAW collective bargaining contracts came under particular pressure as the popular press and corporate managers criticized the “legacy costs” associated with pensions and retiree health. These costs were high in part due to the large number of retirees relative to the number of active workers, given the decreases that had occurred in the size of the Big Three work forces. The legacy costs in the U.S. auto industry were identifi ed as the key source of the competitive cost disadvantage the Big Three faced vis-à-vis the transplant companies. The latter were advantaged by more limited benefi t plans, younger current work forces, and very few retirees.

Economic pressures on labor and management at the Big Three became especially severe during the 2008 fi nancial crisis as sales and then production of autos plummeted. By June 2009, two of the Big Three American car manufacturers (GM and Chrysler) had fi led for bankruptcy and had emerged as new companies with signifi cant government ownership. Shortly thereafter, Fiat became a co-owner of Chrysler. Ford managed to avoid similar bankruptcy and government ownership only because it had arranged large private loans before the fi nancial collapse. Under pressure from the U.S. government to bring labor costs to the lower levels found in the transplants and fearing the potential liquidation of GM and Chrysler, the UAW agreed to unprecedented concessions. These concessions included a lower wage for new hires ($14 per hour compared to the $28 per hour received by previously hired UAW workers).

When labor and management entered company-level collective bargaining in the fall of 2015, the economic environment had rebounded and auto sales and company profi ts were up. The fall 2015 contracts refl ected the corresponding increases in labor and management ’ s total power and auto management ’ s desire to avoid potentially disruptive and costly strikes. The 2015 contracts stipulated

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224 Part III. The Functional Level of Labor Relations

that over an eight-year period, the hourly wage of lower-tier workers would increase from $19 to $29, which was close to the $32 hourly wage “traditional” workers earned. And although the fringe benefi ts package for lower-tier workers was worth signifi cantly less than the benefi ts traditional workers received (whose benefi t package costs the companies $25 per hour and includes “30 and out” defi ned benefi t pensions), the 2015 contracts also improved the health care and other benefi ts lower-tier workers received. The lower-tier work force now amounts to 45 percent, 20 percent and 28 percent, respectively, of the Chrysler, GM and Ford work forces. Other provisions of the 2015 contracts that helped win the support of upper-tier workers were base wage increase of 3 percent in both the fi rst and third years of the new contracts and 4 percent lump sum bonuses in the second and fourth years of the contracts. In addition, sizeable “signing bonuses” were gained ($8,000 per worker at GM) and there were also improvements in various fringe benefi ts for traditional workers.

Although UAW members and leaders were very pleased with the gains won in their 2015 contracts, they continued to be disturbed by the amount of work moving out of the United States to countries that had lower labor costs. (The fact that the 2015 contract gains gave the Big Three increased incentives for such movement is an illustration of the wage-employment trade-off.) See Box 8.9 for a discussion of the UAW ’ s complaints about the movement of work abroad.

Labor Relations Involving the Boeing Corporation and the IAM

Labor relations at The Boeing Company are interesting because Boeing has been so economically successful and because for many years the company ’ s white- and blue-collar work forces used collective bargaining to share in Boeing ’ s success. At the same time, there has been much recent acrimony in Boeing ’ s labor- management relationship and strategic maneuvers by Boeing management that might eventually severely reduce the bargaining power of the unions that represent Boeing ’ s employees.

Boeing manufactures commercial aircraft including wide-body planes such as the Dreamliner, the 747, and the new 777. Boeing has 45 percent of the world ’ s commercial jet market and is a sizeable defense contractor. Its only signifi cant competitor in the commercial wide-body plane market is Airbus, a European-based consortium. The production of wide-body planes is highly profi table and contributes much to Boeing ’ s stature as the largest exporting company in the United States by dollar volume. Much of Boeing ’ s wide-body plane production is concentrated in the Seattle metropolitan area, where machinists represented by the IAW manufacture key parts and assemble planes. Unusually for a U.S. private sector employer, many of Boeing ’ s professional employees—engineers and middle-level managers—are represented by a union, the Society of Professional Engineering Employees in Aerospace (SPEEA).

Over the years, both blue- and white-collar employees at Boeing have used collective bargaining to gain favorable wages and a variety of fringe benefi ts. These gains illustrate the unions’ relative power (due in large part to its strike

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The Negotiations Process and Strikes 225

BOX 8.9 UAW President Complains about Work Leaving the United States

Three months after the United Auto Workers ratifi ed new four-year agree- ments with Detroit-area automakers in early 2016, UAW president Dennis Williams accused the auto companies of shifting signifi cant car production to low-wage countries such as Mexico and China. The new agreements, discussed above in the text, provided substantial wage increases, particularly to newly hired auto workers in the United States, but also allowed the auto companies to move production.

Williams believes that the companies are making ample profi ts from auto production in the United States. However, he says, “The fact of the matter is, companies continue to run to low-wage countries.” In 2016, Fiat Chrysler announced that it will stop making its Dodge Dart compact and Chrysler 200 in the United States and Ford said that it will stop building its Focus compact in Michigan and move that work to Mexico. (Mexican autoworkers earned $8.24 an hour in 2013, compared with the $37.62 U.S. autoworkers earned that same year.) Williams also complained about GM ’ s announcement that it intends to import the Buick Envision SUV from China. (Williams said that union members have nicknamed that vehicle the “Invasion.”) He also argued that the carmakers should be loyal American taxpayers because the U.S. government had bailed out GM and Chrysler in 2009 (see text above).

However, the auto companies have continued to make sizeable investments outside the United States. In April 2016, Ford announced that it would invest $1.6 billion in a new small-car factory in Mexico, which drew additional criticism from the president of the UAW. Ford noted in response that it has been manufacturing cars in Mexico since 1925 and that from 2011 to 2015, it had invested more than $10 billion in the United States and added 25,000 jobs in the United States.

Source : David Welch, “UAW President Bemoans Work Moving to Mexico,” Daily Labor Report , February 5, 2016, A-3; Keith Naughton, “Ford Plan for Mexico Plant Draws Trump-Like Barb from UAW,” Daily Labor Report , April 5, 2016, A-7.

leverage) and the high total power it derives from Boeing ’ s strong market positon and solid profi ts. Frequent strikes have occurred over the past twenty-fi ve years as part of contract negotiations at Boeing, including a 58-day strike in 2008.

In the winter of 2011 , after Boeing and the IAM had reached an impasse in their negotiation of a new multiyear contract covering Seattle-area work, IAM members rejected a proposed settlement. After the national offi ces of the IAM intervened and ordered a second vote, Boeing workers voted to accept a new

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226 Part III. The Functional Level of Labor Relations

four-year contract. Although the company had all along agreed to provide sizeable wage increases and lump-sum signing bonuses, many Boeing workers apparently were upset that the company was demanding that the company ’ s defi ned benefi t pension plan be replaced with a defi ned contribution plan. As discussed in Chapter 8, in recent years many unions have grudgingly accepted such a switch, but Boeing workers were emboldened by the company ’ s fi nancial strength and their bargaining leverage.

The contract terms that workers eventually accepted included Boeing ’ s com- mitment to produce a future generation of wide-body planes, the 777, in the Seattle area. Apparently, this guarantee of future investments and the implied employment that would follow helped mollify enough workers to generate a majority vote in favor of the revised offer. Perhaps, in addition, Boeing workers worried that a continuing contract impasse might lead Boeing to accelerate the development of production capacity at the nonunion Boeing plant in Charleston, North Carolina, or at other nonunion U.S. or international sites.

Labor relations were infl amed again in May 2014 when a top Boeing executive essentially said that unless workers at Boeing ’ s Seattle plants reduced their propensity to strike, Boeing would move its production to other parts of the United States and the world. The NLRB general counsel began an investigation when the IAM fi led an unfair labor practice complaint over that statement that claimed that it was inconsistent with the right to strike enshrined in the NLRA. Eventually, the IAM dropped its NLRB complaint after Boeing management agreed to make various investments in Seattle-area plants.

In 2009, to expand its production capacity so it could meet a large back order for its popular Dreamliner wide-body plane and to gain greater relative power in their labor negotiations, Boeing transformed a former small-scale airline parts plant into a Dreamliner assembly complex in Charleston, South Carolina. Although the IAM has tried to organize that plant, to date they have not succeeded, and in April 2015, it called off a scheduled representation election, apparently because of weak employee support for unionization.

In March 2016, Boeing announced plans to cut 4,000 jobs from its commercial airplanes division as part of an effort to reduce costs in the face of intense competi- tion from the Airbus Group, which also manufactures wide-body airplanes. Boeing earned a record $96 billion in 2015, but that fi gure was a 13 percent decrease from earnings of the previous year. Although the company was employing 161,400 employees at the end of 2015, the size of its work force had decreased for the third consecutive year. 14

Labor Relations at the U.S. Postal Service

Labor relations at the United States Postal Service (USPS) are an interesting case not only because of the large number of employees affected but also because the postal service is an industry facing massive technological change and intense competition. The 500,000 employees who work for the USPS are represented by four unions—the American Postal Workers Union (APWU), the National Association of Letter Carriers (NALC), the National Rural Letter Carriers

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The Negotiations Process and Strikes 227

Association (NRLCA), and the National Postal Mail Handlers Union (NPMHU). In addition to representing the individuals who sort and deliver the mail, these unions represent clerks, mechanics, vehicle drivers, custodians, and some administrators.

The Internet has led to major shifts in the demand for postal services. On the one hand, the Internet has led to declines in the volume of regular (fi rst class) mail, which has led to sharp declines in USPS revenue. At the same time, the increased commerce that is taking place over the Internet has increased the volume of package deliveries, although a host of private companies, such as UPS, FedEx, and DHL, compete with the USPS for this package business.

The USPS is also undergoing a regulatory transition as it is being transformed from a public enterprise, which had been heavily regulated by the U.S. Congress, to a quasi-private enterprise, which is now expected to survive without government subsidies. Yet Congress still regulates key aspects of USPS business such as the price of stamps and the commitment to delivery service in costly rural areas. The fi nancial pressure that has followed this regulatory shift has led the management of the USPS to look for ways to cut operational costs and to seek concessions from the unions who represent postal workers.

The USPS bargains using standard-looking collective bargaining agreements with the various unions, but it does so under rules that Congress has set that make strikes illegal and state that if the parties reach impasse in contract negotiations either side can request binding arbitration. In recent years, the parties have often made use of binding interest arbitration to set new contract terms. In the 2011 round of collective bargaining, the APWU and the USPS negotiated a four-and- a-half-year contract. However, the other unions and the USPS went to impasse and chose to make use of binding arbitration. The arbitrators (a three-person panel) then issued awards that closely followed the terms of the 2011–2016 APWU-USPS contract. Interestingly, the 2011 arbitration award for the NRLC also introduced a lower (by 10 percent) starting wage for new hires and lowered (by 20 percent) the starting wage of so-called noncareer part-time employees.

In the next bargaining round, in July 2016, an arbitrator set the terms of the APWU ’ s 2015–2018 contract after that union had negotiated to impasse with the USPS. This 40-month agreement provided a base pay increase of 3.8 percent and continued a no-layoff provision for career employees. Infl uenced by the USPS ’ s demand, the arbitrator gradually reduced the USPS share of employee health insurance premiums (by 1 percent per year, from 75 percent to 73 percent). The arbitrator made clear in his 50-page arbitration award that he was heavily infl uenced by the principle of pay comparability and by the collective bargaining agreement the NRLCA and the USPS negotiated in 2015.

Political lobbying also plays a critical role on postal service business strategies and labor relations. For example, the four postal unions have periodically lobbied Congress in an effort to block USPS proposals to close some post offi ces and eliminate Saturday delivery of fi rst-class mail. Meanwhile, the four unions and the USPS have made joint efforts to get Congress to relax current rules that require the current funding of the health care costs of future retirees. 15

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228 Part III. The Functional Level of Labor Relations

CULTURAL ISSUES IN NEGOTIATIONS

Given the increased internationalization of the U.S. economy and the heightened role multinational corporations play, it is important to consider the role of cultural differences in negotiations. Cultural differences can affect the course of negotiations and can make settlement more diffi cult when people from different parts of the world negotiate with each other. One study found that agreements took longer and were less likely to be reached when Chinese and Americans negotiated with each other than when the negotiating pairs came from the same country. Chinese negotiators tended to put a higher emphasis on process considerations and preferred to allocate more time to building relationships with their negotiating counterparts, whereas American negotiators wanted to move more quickly to discussion of the substantive issues involved. Paying attention to these cultural differences and their effects on negotiating style is critical to the success of cross-cultural negotiations. 16

Jeanne Brett provides a comprehensive assessment of the role cultural issues can play in negotiations. 17 Below we provide a summary of the fi ndings in Brett ’ s research on negotiating globally.

It is fi rst important to defi ne culture. Culture is the distinct character of a social group that emerges from the patterned ways people in that group interact socially.

It is valuable to have a “cultural interpreter,” someone who not only knows the language but also can interpret the body language and the strategic behavior being exhibited across the negotiating table. The presence of such a person can help negotiators avoid mistakes and correctly interpret the behavior and signals of their negotiating partners. A cultural expert can also help negotiators understand the cultural context of the negotiation, for example, the institutional environment in which the negotiation is embedded.

One key thing to avoid is confusing a cultural prototype (a central tendency) with a cultural stereotype (the idea that everyone in a culture is the same; that there is no distribution around the mean). This is inappropriate because there is always variation in a culture.

Two key elements of cultures that are particularly important for negotiations are the degree to which a culture values collectivism over individualism and the degree to which a culture values egalitarianism over hierarchy. In individualist cultures, social, economic, and legal institutions promote the autonomy of individu- als, reward individual accomplishment, and protect individual rights. In collective cultures, institutions promote the interdependency of individuals with the others in their families, fi rms, and communities by emphasizing social obligations. In a collectivist culture, individual accomplishment refl ects back on others with whom the individual is interdependent. Legal institutions support collective interests above individual interests.

When a negotiator comes from a culture that highly values individualism, that may affect his or her interests, goals, and strategic choices. For example, indi- vidualistic cultures promote and condone self-interest, which may be refl ected in a negotiator ’ s preference for confrontation and/or face saving. In hierarchical cultures, social status determines social power and social power generally transfers

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The Negotiations Process and Strikes 229

across situations. For example, in hierarchical cultures, social inferiors are expected to defer to social superiors, who have an obligation to look out for the well-being of lower-status parties. No such obligations exist in egalitarian cultures. In egalitarian cultures, social boundaries are more permeable and social status may be both short-lived and variable across situations.

Western cultures, especially Northern European nations, tend to be egalitarian. As you move south from North America to Central and South America, culture tends to be more hierarchical. Asian cultures are usually classifi ed as hierarchical.

Norms (i.e., standards of appropriate behavior) regarding directness or indirectness of communication are also important when negotiating globally. When people communicate indirectly, for example, the same words take on different meanings depending on the context in which they are spoken. Cultures favoring indirect communication tend to be collectivist in nature. People in direct-communication cultures, in contrast, understand each other because they share a vocabulary. Direct-communication cultures also tend to be individualistic.

Research does not support the idea that negotiators from some cultures primarily use integrative strategies and those in other cultures primarily use distributive strategies. Research also shows that there is a substantial variation in cultures in the ability to use integrative strategies.

Summary

The structures and processes of negotiations vary considerably across countries, refl ecting differences in the stage of development of labor law, the ideologies and strategies of employers and labor organizations, shifting bargaining power, and national cultures and institutions. While most well-developed labor relations systems seek to regularize negotiations processes as a way of limiting strike activity, breakdowns in negotiations still generate strikes from time to time.

Once it is clear that a negotiations process is called for, the parties need to develop skills and abilities to adapt negotiations practices as conditions change over time. These skills and abilities include:

• Separating distributive (confl icting) issues from integrative issues (those where the parties share common goals) and using modern negotiations tools to avoid miscalculating each other ’ s bottom lines on distributive issues and missing opportunities to pursue their shared interests in integrative issues.

• Building positive, constructive relationships with counterpart negotiators to generate trust in each other ’ s statements as negotiations proceed toward either an agreement or an impasse.

• Adapting the structure of bargaining as competitive conditions and or the mix of employers or unions change over time.

• Exploring new ways to negotiate, such as using interest-based bargaining processes or using other ways of improving problem solving in negotiations.

• Building ongoing processes for implementing and administering agreements reached in negotiations and for resolving disputes during the term of the agreement.

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230 Part III. The Functional Level of Labor Relations

• Recognizing and appropriately adapting to any cultural issues that might be prevalent in a negotiation.

In summary, negotiations processes are the central activity at what we refer to as the middle tier of the three-tiered labor relations framework introduced in Chapter 1 . They need to be supported and complemented by effective mediation and arbitration or other dispute resolution processes, topics we turn to in the next chapter.

Discussion Questions

1. Describe the four subprocesses of negotiations according to Walton and McKersie.

2. What are the key aspects of the three stages of a typical negotiations cycle? 3. Describe the Hicks model of strikes. 4. Describe how management strategy infl uenced the course of a recent negotia-

tion or strike. 5. How do traditional bargaining and interest-based bargaining differ?

Related Web Sites

Boeing workers: www.boeingworkers.com

UAW auto bargaining: https://uaw.org/uaw-auto-bargaining

USPS labor relations: https://about.usps.com/manuals/elm/html/elmapdx_009.htm

Suggested Supplemental Readings

Clark , Paul , Ann Frost , and Howard Stranger , eds . Contemporary Collective Bargaining in the Private Sector . Champaign, Ill. : Industrial Relations Research Association , 2013 .

Fisher , Roger , and William Ury . Getting to Yes: Negotiating Agreement without Giving In . New York : Penguin Books , 1981 .

Rosenblum , Jonathan D. Copper Crucible: How the Arizona Miners’ Strike of 1983 Recast Labor- Management Relations in America . Ithaca, N.Y. : ILR Press , 1995 .

Walton , Richard E. , and Robert B. McKersie . A Behavioral Theory of Labor Negotiations . New York : McGraw-Hill , 1965 .

Walton , Richard E. , Joel Cutcher-Gershenfeld , and Robert B. McKersie . Strategic Negotiations: A Theory of Change in Labor-Management Relations . Boston : Harvard Business School Press , 1994 .

Notes

1. See Edward Cohen-Rosenthal and Cynthia Burton, Mutual Gains: A Guide to Union-Management Cooperation (Boston: Pitman, 1987); Roger Fisher and William Ury, Getting to Yes (Boston: Houghton

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The Negotiations Process and Strikes 231

Miffl in, 1981); and Richard E. Walton, Joel Cutcher-Gershenfeld, and Robert B. McKersie, Strategic Negotiations: A Theory of Change in Labor-Management Relations (Boston: Harvard Business School Press, 1994).

2. Richard E. Walton and Robert McKersie, A Behavioral Theory of Labor Negotiations (New York: McGraw-Hill, 1965).

3. It is, of course, possible that there is some joint gain associated with a higher wage rate if labor productivity increases when wages are raised. This might result from the greater motivation workers feel when their pay goes up or from the fact that the fi rm can recruit better-qualifi ed workers when it offers a higher wage. We ignore such considerations in the text discussion.

4. For evidence on the role of personality traits in bargaining, see Jeffrey Z. Rubin and Bert T. Brown, The Social Psychology of Bargaining and Negotiations (New York: Academic Press, 1975), 1583–1596; and Max Bazerman, Judgement in Managerial Decision Making (New York: John Wiley, 1986).

5. Margaret A. Neale and Max H. Bazerman, “The Role of Perspective-Taking Ability in Negotiating under Different Forms of Arbitration,” Industrial and Labor Relations Review 36 (April 1983): 378–388.

6. Arthur M. Ross, Trade Union Wage Policy (Berkeley: University of California Press, 1948), 45–74.

7. This case is a real fi rm we encountered in our fi eld work. The fi rm preferred not to be identifi ed by name.

8. This cycle is discussed in Carl M. Stevens, Strategy and Collective Bargaining Negotiations, (New York: McGraw-Hill, 1963), 41–46.

9. John R. Hicks, The Theory of Wages (New York: Macmillan, 1932), chapter 2 . 10. Orley Ashenfelter and George E. Johnson, “Bargaining Theory, Trade Unions, and Industrial

Strike Activity,” American Economic Review 59 (March 1969): 35–49. 11. Clark Kerr and Abraham Siegel, “The Inter-Industry Propensity to Strike,” in Industrial

Confl ict, ed. Arthur Kornhauser, Robert Dubin, and Arthur M. Ross (New York: McGraw-Hill, 1954), 189–212.

12. Economists have also constructed models that involve “asymmetric information” to explain strike occurrence. These models rely on the notion that management knows the profi tability of the fi rm, whereas the union must guess profi tability and use wage offers to get the fi rm to reveal its true profi tability. See, for example, Joseph S. Tracy, “An Investigation into the Determinants of U.S. Strike Activity,” American Economic Review 76 (June 1986): 423–436.

13. Bureau of Labor Statistics, U.S. Department of Labor, “Major Work Stoppages in 2015,” News Release USDL-16-0272, February 10, 2016, Table 1, https://www.bls.gov/news.release/ pdf/wkstp.pdf .

14. Paul Shukovsky, “IAM Members Approve by Wide Margin Contract with Boeing Offering Job Security,” Daily Labor Report , December 8, 2011, A-1, Paul Shukovsky, “IAM Members Agree to End Pensions to Ensure Boeing Doesn ’ t Move Jobs Away,” Daily Labor Report , January 6, 2014, AA-1; Julie Johnson and Tyrone Richardson, “Boeing to Cut 4,000 Jobs from Commercial Airplane Unit,” Daily Labor Report , March 30, 2016, A-5.

15. “APWU Members Vote to Ratify Contract; Will Raise Wages by 3.5% over Term,” Daily Labor Report , May 11, 2011, A-11; Louise C. LaBrecque, “Arbitration Panel Issues 4.5 Year Contract Covering U.S. Postal Service, Letter Carriers,” Daily Labor Report , January 17, 2013, A-5; “We Have a New Contract,” APWU news article 140–2016, July 8, 2016, www.apwu.org/news/web- news-article/we-have-new-union-contract .

16. Anne Liu, Leigh, Ray Friedman, Bruce Barry, Michel Gelfand, and Zhi-Xue Zhang, “The Dynamics of Consensus Building in Intracultural and Intercultural Negotiations,” Administrative Science Quarterly 57 no. 2 (2012): 269–304.

17. Jeanne Brett, Negotiating Globally , 2nd ed. (New York: John Wiley and Sons, 2007).

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