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Surprisingly little research on the long-run effects of union management cooperation has been reported. However, a recent study of several different types of union-management cooperation initiatives now begins to offer some evidence of the effects.

Large differences are apparent in the philosophies underlying cooperation projects. Scanlon and quality circle programs have the greatest participation, while Rucker and Impro-Share programs are mostly associated with economic incentives. The plans cannot substitute for good management, but where that does not exist, labor-management committees can be a springboard for progress. In the absence of management’s commitment to participation, Scanlon and other types of high-participation programs will fail. Critical factors for the ongoing success of the programs are the training and commitment of supervisors and the construction and understanding of the bonus formulas.

Companies and unions generally begin the programs to improve labor relations, to increase the amount of compensation available, and so on. Whatever the parties’ motives might be, they will influence the type of cooperation plan chosen. Gainsharing influences productivity more than labor-management committees or QWL programs. And no matter which method is chosen, it will not be necessary if traditional collective bargaining methods are successful. Companies and unions both appear to bargain rather than use cooperative alternatives unless difficulties arise in accomplishing their goals.

A study of cooperation in 23 sites found productivity improvements in 12 and no change in 10 others. In 16 of the sites, the subsequent experience enabled union members to earn bonuses supplementing what they would have earned solely as a result of collective bargaining. Evidence suggests bonus levels are directly influenced by the rate of suggestions generated by the employees. Employment levels are relatively unaffected by cooperative programs, and labor relations are seen as improved.

Finally, evidence suggests the productivity improvements are associated primarily with a one-shot increase rather than a long, steady improvement. And, the workplace intervention most likely to produce the productivity improvement appears to be the Scanlon plan.

By 1989, labor costs in Sweden, the Netherlands, and West Germany exceeded our own, and costs in France, Italy, and Japan were not far behind. Yet American imports of Toyotas from Japan, Volkswagens from Germany, and Volvos from Sweden grew as wages in those countries rose relative to American wages.

By comparison, European and Japanese wages were far below those in the United States in the 1950s, and yet American industry had no trouble marketing our products abroad. In fact, the main problem then was to bring our imports up to the level at which they roughly balanced our bountiful exports. Ironically, our position in the international marketplace deteriorated as wage levels in Europe and Japan began to rise closer to our own.

Clearly, then, cheap foreign labor need not serve as a crucial obstacle to U.S. sales abroad-as a “common sense” view of the matter suggests. In this chapter we will see what is wrong with that view.

Regulation of certain industries was a tradition in the United States for almost a century. The Interstate Commerce Act was passed in 1887 to regulate interstate rail freight rates. Congress intended to reduce or eliminate price discrimination between small and large shippers and to maintain an incentive for transportation companies to provide service to rural areas. Other industries have also been the focus of regulations regarding services and charges, including communications, banking, petroleum products and natural gas, electrical utilities, interstate trucking, and airlines. But over the past several years, federal regulation in many of these areas has been reduced or eliminated. The initial result has been the elimination of monopolies and the restoration of price competition.

Deregulation enabled new companies to enter these markets and created competition in wages between union and nonunion sectors of the industries. To this point, labor has been most affected by deregulation in trucking and air carriers in the areas of wages and employment.

The employer’s desired unit is often different than-but not necessarily diametrically opposite of-the union’s desired unit. It may prefer a unit in which the union is unlikely to win an election. If a craft union is organizing, the employer will generally favor a plant-wide unit. In some circumstances, the employer will seek to narrow the unit so that groups strongly in favor of the union will not lead to a majority among a variety of groups that marginally support management.

The firm also would like the unit configured so as to minimize the union’s bargaining power if it obtained recognition. Thus, management might desire functionally independent units, which would allow continued operations if a strike occurred. On the other hand, it would like to avoid fragmented units, which might require continuous bargaining due to different contract expiration dates and might result in conceding to excessive demands of single units to avoid a siege of rotating strikes among the unions.

The payroll tax may be thought of as an excise tax on the employment of labor. The U.S. payroll tax comes in two parts: half is levied on the employees (payroll deductions) and half on employers. A fundamental point, which people who have never studied economics often fail to grasp is that:

The incidence of a payroll tax is the same whether it is levied on employers or on employees.

A simple numerical example will illustrate why this is so. Consider an employee earning $100 a day with a 16 percent payroll tax that is shared equally between the employer and the employee, as under our present law. How much does it cost the firm to hire this worker? It costs $100 in wages paid to the worker plus $8 in taxes paid to the government, for a total of $108 a day. How much does the worker receive? He gets S100 in wages paid by the employer less $8 deducted and sent to the government, or $92 a day. The difference between wages paid and wages received is $108 - S92 = $16, the amount of the tax. . Now suppose Congress tries to “shift” the burden of the tax entirely onto firms by raising the employer’s tax to $16 while lowering the employee’s tax to zero. At first, the daily wage is fixed at $100, so firms’ total labor costs (including tax) rise to $116 per day and workers’ net income rises to $100 per day. Congress seems to have achieved its goal.

But the achievement is fleeting, for this is not an equilibrium situation. With the daily cost of labor at S116 for firms, the quantity of labor demanded will be less than when labor cost only $108 per day. Similarly, with take-home pay up to $100 for workers, the quantity of labor supplied will be more than when the after-tax wage was only $92. There will therefore be a surplus of labor on the market (an excess of quantity supplied over quantity demanded), and this surplus will put downward pressure on wages.

How far will wages have to fall? It is easy to see that an after-tax wage of $92 will restore equilibrium. If daily take-home pay is $92, labor will cost firms $108 per day, just as it did before the tax change. So they will demand the same quantity as they did when the payroll tax was shared. Similarly, workers will receive the same $92 net wage as they did previously; so quantity supplied will be the same as it was before the tax change. Thus, in the end, the market will completely frustrate the intent of Congress.

The payroll tax is an excellent example of a case in which Congress, misled by the flypaper theory of incidence, thinks it is “taxing firms” when it raises the employer’s share and “taxing workers” when it raises the employee’s share. In truth, who is really paying depends on the incidence of the tax. But no lasting difference results from a change in the employee’s and the employer’s shares.

Who, then, really bears the burden of the payroll tax? Like any excise tax, the incidence of the payroll tax depends on the elasticities of the supply and demand schedules. In the case of labor supply, there is a large body of empirical evidence pointing to the conclusion that the quantity of labor supplied is not very responsive to price for most population groups. The supply curve is almost vertical. The result is that workers as a group are able to shift little of the burden of the payroll tax.

But employers can shift it in most cases. Firms view their share of the payroll tax as an additional cost of using labor. So when payroll taxes go up, firms try to substitute cheaper factors of production (capital) for labor wherever they can. This reduces the quantity of labor demanded, lowering the wage received by workers. And this is how market forces shift part of the tax burden from firms to workers.

To the extent that the supply curve of labor has some positive slope, the quantity of labor supplied will fall when the wage goes down, and in this way workers can shift some of the burden back onto firms. But the firms, in turn, can shift that burden onto consumers by raising their prices. Prices in competitive markets generally rise when costs (like labor costs) increase. It is doubtful, therefore, that firms bear much of the burden of the payroll tax. Here, the flypaper theory of incidence could not be further from the truth. Even though the tax is collected by the firm, it is really borne by workers and consumers.

The negotiation of a labor agreement is of critical importance to both parties. The agreement will govern the relationship between them for a definite contractual period. For the employer, the contract will have cost impacts and constrain management decision making. For the union, it will spell out the rights of union members in their employment relationships.

Why does a contract emerge in the form that it does? How do the parties prepare for bargaining? What influences do the rank and file or the various functional areas within an organization have on the demands made in the negotiations? How does each group organize for bargaining? What constitutes success or failure in negotiations? What sequence of activities usually takes place during negotiations?

Examine the activities preceding the negotiations themselves, from both union and management perspectives. Then we examine the theory and tactics of the negotiating process. The steps necessary for agreement and ratification are covered. Finally, management’s assessment of bargaining is examined.

Consider the following questions:

1. How do both management and union prepare for negotiations?

2. How are negotiating teams constituted for bargaining?

3. What processes are usually involved in presenting and responding to demands in collective bargaining negotiations?

4. How are agreements reached, and what processes are necessary to obtain approval by the union rank and file for ratification?

Except for initial contracts and unusual financial conditions, the timing of bargaining activities is largely determined by the expiration of a previous contract and the law. Under the law, if either party desires to modify the agreement at its expiration, it must give the other at least 60 days’ notice. In all negotiations, initial or otherwise, the parties are required to meet at reasonable times to bargain.

The payroll tax may be thought of as an excise tax on the employment of labor. The U.S. payroll tax comes in two parts: half is levied on the employees (payroll deductions) and half on employers. A fundamental point, which people who have never studied economics often fail to grasp is that:

The incidence of a payroll tax is the same whether it is levied on employers or on employees.

A simple numerical example will illustrate why this is so. Consider an employee earning $100 a day with a 16 percent payroll tax that is shared equally between the employer and the employee, as under our present law. How much does it cost the firm to hire this worker? It costs $100 in wages paid to the worker plus $8 in taxes paid to the government, for a total of $108 a day. How much does the worker receive? He gets S100 in wages paid by the employer less $8 deducted and sent to the government, or $92 a day. The difference between wages paid and wages received is $108 - S92 = $16, the amount of the tax. . Now suppose Congress tries to “shift” the burden of the tax entirely onto firms by raising the employer’s tax to $16 while lowering the employee’s tax to zero. At first, the daily wage is fixed at $100, so firms’ total labor costs (including tax) rise to $116 per day and workers’ net income rises to $100 per day. Congress seems to have achieved its goal.

But the achievement is fleeting, for this is not an equilibrium situation. With the daily cost of labor at S116 for firms, the quantity of labor demanded will be less than when labor cost only $108 per day. Similarly, with take-home pay up to $100 for workers, the quantity of labor supplied will be more than when the after-tax wage was only $92. There will therefore be a surplus of labor on the market (an excess of quantity supplied over quantity demanded), and this surplus will put downward pressure on wages.

How far will wages have to fall? It is easy to see that an after-tax wage of $92 will restore equilibrium. If daily take-home pay is $92, labor will cost firms $108 per day, just as it did before the tax change. So they will demand the same quantity as they did when the payroll tax was shared. Similarly, workers will receive the same $92 net wage as they did previously; so quantity supplied will be the same as it was before the tax change. Thus, in the end, the market will completely frustrate the intent of Congress.

The payroll tax is an excellent example of a case in which Congress, misled by the flypaper theory of incidence, thinks it is “taxing firms” when it raises the employer’s share and “taxing workers” when it raises the employee’s share. In truth, who is really paying depends on the incidence of the tax. But no lasting difference results from a change in the employee’s and the employer’s shares.

Who, then, really bears the burden of the payroll tax? Like any excise tax, the incidence of the payroll tax depends on the elasticities of the supply and demand schedules. In the case of labor supply, there is a large body of empirical evidence pointing to the conclusion that the quantity of labor supplied is not very responsive to price for most population groups. The supply curve is almost vertical, like that shown in Figure 33-8. The result is that workers as a group are able to shift little of the burden of the payroll tax.

But employers can shift it in most cases. Firms view their share of the payroll tax as an additional cost of using labor. So when payroll taxes go up, firms try to substitute cheaper factors of production (capital) for labor wherever they can. This reduces the quantity of labor demanded, lowering the wage received by workers. And this is how market forces shift part of the tax burden from firms to workers.

To the extent that the supply curve of labor has some positive slope, the quantity of labor supplied will fall when the wage goes down, and in this way workers can shift some of the burden back onto firms. But the firms, in turn, can shift that burden onto consumers by raising their prices. Prices in competitive markets generally rise when costs (like labor costs) increase. It is doubtful, therefore, that firms bear much of the burden of the payroll tax. Here, the flypaper theory of incidence could not be further from the truth. Even though the tax is collected by the firm, it is really borne by workers and consumers.

If challenges to elections are filed and the board finds the alleged activity occurred and interfered with the employees’ ability to make a reasoned choice, the election will be set aside and rerun. If the violations are trivial, the board proceeds to issue a certification of the results.

Bargaining orders: In some cases, the board considers a party’s improper actions to be so coercive that the inherent strength of the opposition is eroded. For example, assume a majority of employees sign authorization cards and attend union-organizing meetings. Also assume that the employer threatens cutbacks in the operation, possible plant closings, or strikes over bargaining issues if the union wins, and that it interrogates employees. Then, when the election is held, the union loses and charges that the employer’s inflammatory and threatening statements undermined an actual union majority. The board may remedy the situation through a bargaining order, requiring the employer to recognize and negotiate with the union. The reasoning behind this remedial approach is that the union would have won if not for the employer’s illegal conduct.

The early 1980s was not the only period in U.S. economic history during which employees made wage concessions, but it was the first period since the Great Depression in which significant numbers of employees across several industries conceded economic gains. It was also the first time significant numbers of employees represented by industrial unions were required to give back past negotiated gains. The pervasiveness of the concessions is revealed in the cross section of those made by the middle of 1982.

Some of the concessions resulted from economic problems encountered by employers, but others were made because of advances in technology that radically altered the way in which products or services are produced. For example, changes in the printing industry have drastically lowered skill requirements for many occupations, enabling newly formed organizations to quickly hire and train employees to run sophisticated equipment, thus undercutting the costs of established firms. Wholesale wage concessions and the introduction of new equipment were necessary for older firms to remain competitive.

However, where employees have made concessions for employers to recapture their abilities to compete, some companies (for example, U.S. Steel) have chosen to invest the savings in other industries. In others, high profit levels partially related to wage cutbacks and to other efficiencies have led to historic profit records (for example, autos). Perceived imbalances in compensation practices reflected in large executive bonuses could indicate future militant union action.

Finally, unions have very little bargaining power to avoid concessions in some situations. A good example is the Greyhound bus line negotiations in late 1983. While the company could capitalize in the short run on the high unemployment rate of qualified drivers to hire strike replacements, it could also make the credible threat of selling off its intercity bus operations, which could not meet investment targets the rest of the corporation felt appropriate. The labor contracts offered by a less well-financed successor might have been lower than what Greyhound was willing to offer. And, in fact, Greyhound has divested itself of its interstate bus operations.

But these concessions may have been gained at a price. Employees might be expected to demonstrate low commitment to their employers and to take advantage of future bargaining power opportunities when and if the economic situation is to their benefit. This issue bears close watching as the labor surpluses of the early 1980s turn to likely labor shortages in the early 1990s. Evidence may already support this proposition, as auto workers have been able to return to pattern agreements with the negotiation of the 1988 UAW-Chrysler agreement.

Job evaluation determines the relative position of jobs within an organization. The procedure has several steps and requires judgment processes that must be negotiated. In general, job evaluation includes the following steps: (1) the jobs to be evaluated must be specified (usually the jobs covered by the contract); (2) jobs must be analyzed to determine the behaviors required to be performed and/or the traits or skills necessary to perform the job; (3) of the behaviors or traits identified, those that vary across jobs and are agreed to be of value to the employer are grouped into compensable factors; (4) for program evaluation purposes, each factor is clearly defined, and different levels of involvement for each factor are determined (degrees); (5) point values are assigned to factors and degrees within a factor; (6) job evaluation manuals used to apply the method are written; (7) all jobs are rated.

Job evaluation normally requires either (1) joint cooperation between union and management through formation of a bilateral committee that determines compensable factors and their relative inclusion in bargaining unit jobs or (2) negotiating the point-pay relationship to apply to evaluations completed by management. Advantages associated with a well-designed and -administered job evaluation system include (1) the reduction of compression in wage differentials if increases are given as a percentage of the total points assigned to the job and (2) the ease with which new jobs can be slotted into an existing pay structure. The primary disadvantage is the requirement for initial agreement between union and management on the identification, definition, and point assignments associated with compensable factors.