COLLECTIVE BARGAINING UNDER DURESS Case Studies of Major U.S

LABOR AND EMPLOYMENT RELATIONS ASSOCIATION SERIES

COLLECTIVE BARGAINING UNDER DURESS Case Studies of Major U.S. Industries

Edited By Howard R. Stanger Ann C. Frost Paul F. Clark COLLECTIVE BARGAINING UNDER DURESS: Case Studies of Major U.S. Industries. Copyright © 2013 by the Labor and Employment Relations Association. Printed in the United States of America. All Rights Reserved. No part of the book may be used without written permission, except in the case of brief quotations embodied in critical articles and reviews.

First Edition ISBN 978-0-913447-06-2

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LABOR AND EMPLOYMENT RELATIONS ASSOCIATION University of Illinois at Urbana-Champaign School of Labor and Employment Relations 121 Labor and Employment Relations Building 504 East Armory Ave., MC-504 Champaign, IL 61820 Telephone: 217/333-0072 Fax: 217/265-5130 Websites: www.leraweb.org www.employmentpolicy.net E-mail: [email protected] CONTENTS

Introduction: Collective Bargaining Under Duress: Case Studies of Major U.S. Industries ...... 1 Ann C. Frost Chapter 1—Context, Process, and Outcomes of Collective Bargaining in the U.S. Airline Industry...... 9 Andrew von Nordenflycht and Jody Hoffer Gittell Chapter 2—Crisis and Recovery in the U.S. Auto Industry: Tumultuous Times for a Collective Bargaining Pacesetter...... 45 Harry C. Katz, John Paul MacDuffie, and Frits K. Pil Chapter 3—Hotels and Casinos: Collective Bargaining During a Decade of Instability...... 81 C. Jeffrey Waddoups and Vincent H. Eade Chapter 4—Health Care: Collective Bargaining’s Growing Role in a Time of Transition...... 115 Paul F. Clark Chapter 5—When Chickens Devoured Cows: Union Rebuilding in the Meat and Poultry Industry...... 161 Jeffrey Keefe and Mathias Bolton Chapter 6—Hard Times and Hard Bargaining in the Newspaper Industry...... 197 Howard R. Stanger Chapter 7—Public Sector Collective Bargaining: Tumultuous Times...... 251 Robert Hebdon, Joseph E. Slater, and Marick F. Masters Chapter 8—Professional Sports: A Tale of Conflict and Accord...... 293 James B. Dworkin and Richard A. Posthuma Chapter 9—Commentary: Union Practitioner Perspective...... 345 Iain Gold Chapter 10—Commentary: Management Perspective...... 353 Martin (Marty) J. Mulloy About the Contributors...... 361

Introduction Collective Bargaining Under Duress: Case Studies of Major U.S. Industries

Ann C. Frost Western University

For several decades, the Labor and Employment Relations Association (LERA; previously, the Industrial Relations Research Association) has periodically published research volumes that review the state of collective bargaining in the United States. The most recent volume was published in 2002. Since that time, the U.S. economy has experienced the greatest financial crisis since the Great Depression. Beginning in December 2007 and progressing to a full-blown crisis in the last quarter of 2008, the Great Recession was marked by high rates of unemployment, the near collapse of the banking sector, and the bankruptcy of a host of venerable firms. The economy reeled from bankruptcy to bankruptcy during 2009 and has only slowly recovered over the intervening years. Throughout this time, the labor movement has faced numerous challenges—among them, declining union membership, lackluster organizing performance, and difficulties at the bargaining table. The chapters in this volume highlight the state of collective bargaining during this period in eight different industries across both private and public sectors. The chapters document the struggles common throughout this period in new organizing, securing viable collective agreements for members after winning election, and protecting earlier hard-won gains in the face of increasingly aggressive employer opposition. Each chapter describes the state of competitive conditions and collective bargaining in its industry during the past decade. This introduction sets the larger context in which the parties found themselves during this period: the pre- and post-financial crisis economy, union organizing success over this period, the state of labor law reform, and the responses of the American labor movement as it tries to adapt.

THE UNION MOVEMENT RESPONDS As is well known, the American labor movement has been in decline since the 1950s and has been in precipitous decline since the early 1980s. From its peak of 28.3% in 1954 (Mayer 2004) and 20% in 1980 (U.S. BLS 2013), union membership in 2012 comprised just 11.3% of the workforce,

1 2 COLLECTIVE BARGAINING UNDER DURESS with only 6.6% of the private sector workforce being organized (U.S. BLS 2013). The drop in union membership over time can be attributed not only to changes in the economy as union-heavy manufacturing jobs have been lost (and their union status with them) and subsequently replaced by non-union service sector jobs but also to unions’ failures in the face of employer opposition to organize successfully or to negotiate first contracts in workplaces where they have successfully gained collective bargaining rights. Over the past decade, the American labor movement sought to reverse this tide with a two-pronged attack: backing the passage of the Employee Free Choice Act to reform what many consider outdated labor law and placing a renewed emphasis on union organizing with the formation and breakaway of Change to Win from the AFL-CIO. In 2005, seven unions broke away from the AFL-CIO to form the Change to Win Federation. The objective of the breakaway unions was to direct significantly more resources into new organizing, with the goal of bringing thousands of new workers into the union fold. The Change to Win unions were drawn largely from the service sector (and consequently represented a higher proportion of women, immigrants, and workers of color), where growth in union membership was perceived to exist. The traditional AFL-CIO–affiliated unions were seen to represent the old guard—relatively more privileged older, white, male manufacturing workers. Change to Win undertook a number of ambitious campaigns—efforts to organize farm workers and Walmart employees among them— but faced difficulties in achieving its goals of large-scale organizing; the right to affordable, quality health care for all workers; and the right to retirement security (Change to Win, no date). By 2009, two of the original coalition partners had left the new federation, while a third member returned to the AFL-CIO in 2010. Given the enormity of the organizing task and the economic and political climate that Change to Win has faced during its brief existence, it appears that its presence has made little progress in changing the fortunes of the American labor movement. In March 2009, at the same time that Change to Win was losing several of its founding member unions, the labor movement turned its attention to the passage of the Employee Free Choice Act (EFCA). The purpose of the EFCA was threefold: to allow union organizing without the need for a (often delayed) secret ballot election; to find ways to mediate and, if necessary, arbitrate a first contract within 90 days of a successful union election; and to impose more significant penalties on employers who commit unfair labor practices during an organizing drive. INTRODUCTION 3

The impetus for the EFCA came from the growing recognition that U.S. labor law was sorely outdated and no longer responsive to the needs of working Americans. Kochan and Ferguson (2008) analyzed the 22,000 National Labor Relations Board election filings occurring between 1999 and 2004 and reached four main conclusions. First, few units make it from the initial petition for a vote to a first contract—only 20% ever do, with only 12.9% reaching a first contract within a year of filing for election. Second, the presence of employer unfair labor practices reduces the chances of workers securing a first contract by 30%. Third, the presence of employer unfair labor practices reduces the chances of an election even being held by 25%. And fourth, even after a majority of workers vote for union representation, only 56% of those successfully certified bargaining units ever are able to negotiate a first contract (and only 38% of those do so within the first year). In 2007, Senator Ted Kennedy introduced the EFCA into the U.S. Senate after it had passed the House. The legislation fell short of the required 60 votes in that session. In 2009, despite Democrats holding a majority of Senate seats, the EFCA once again failed to gain the necessary 60 votes to be passed into law. Bipartisan opposition defeated the bill once more. Opponents cited the inclusion of card-check certification as the bill’s major flaw, claiming that without a secret ballot, election workers would be subject to union coercion and intimidation. As well, many opponents were uncomfortable with the imposition of first contracts in instances in which the parties could not come to agreement, fearing undue government intervention into a company’s affairs. Since its failure to be passed into law during the 111th Congress in 2009, the EFCA has lan- guished and the National Labor Relations Act remains unchanged.

THE FINANCIAL CRISIS AND ITS AFTERMATH Bailouts In 2007, in the wake of the bursting of the housing bubble, inklings of problems in the subprime mortgage market began to emerge. In June 2007, S&P and Moody’s Investor Services downgraded more than 100 bonds backed by subprime mortgages. In July of that year, the country’s largest subprime lender, Countrywide Financial, warned of “difficult conditions.” This continued for more than a year until, in September 2008, the entire edifice came crashing down. In the space of a few weeks, storied investment firms, including Lehman Brothers, Merrill Lynch, and Bear Stearns, collapsed, filed for bankruptcy, or were acquired by competitors for pennies on the dollar. The federal government stepped in to shore up Fannie Mae and Freddie Mac, the government-backed mortgage 4 COLLECTIVE BARGAINING UNDER DURESS providers that had been encouraged to expand and invest in complex mortgage-backed securities, including those comprised of subprime mortgages (Taylor 2009). In early October 2008, Congress passed the Economic Emergency Stabilization Act of 2008 in response to this unfolding crisis. One of the act’s key components was establishment of the Troubled Asset Relief Program (TARP), which provided billions of dollars to protect distressed assets. TARP initially pledged a total of $700 billion to several specific programs, including funds to prevent the collapse of the U.S. auto industry, to shore up and stabilize the financial services firm AIG, to help prevent foreclosures on family homes, and to stabilize the domestic banking industry during the crisis. In addition to providing funds, TARP provisions also sought to rein in the worst excesses in executive compensation. In particular, it sought to restrict the use of golden parachutes, required clawbacks of executive compensation paid out on the basis of inaccurate financial statements, and sought to end compensation practices that encouraged excessive risk taking (Burghart 2009). Despite these intentions, minimal action at the federal level has been taken to date to put these provisions into practice. Unemployment Beginning in the last quarter of 2008, unemployment in the United States began to rise. From its usual levels of 4.5% to 5% throughout the early 2000s, unemployment inched up in the last half of 2008 to nearly 7%. By October 2009, it hit 10% and persisted above 9.5% over the following year (U.S. BLS, “Seasonal Unemployment,” no date). The years 2011 and 2012 saw little improvement in the overall unemployment rate, with the jobless rate stubbornly remaining above 8% until the last quarter of 2012, when it came down to 7.9% (U.S. BLS, “Seasonal Unemployment,” no date). Not only were more people unemployed in the wake of the financial crisis, but they also remained unemployed longer. The numbers of people out of work for 15 weeks or longer more than tripled from early 2008 until the end of 2011 (U.S. BLS, “Seasonal Average,” no date). Valletta (2011) argues that this is due to the greater labor force attachment of women (who during earlier recessions simply left the labor force after becoming unemployed) and to greater wage dispersion that increases the time spent in search for a new, comparably paid job. At the same time, the number of discouraged workers doubled (and approached triple the levels in 2010) from their pre-crisis levels through 2012 (U.S. BLS, “Unadjusted Not In Labor Force,” no date). Implications for Collective Bargaining Against this backdrop, collective bargaining came under severe pressure in both private and public sectors. Chaison (2012) has termed it “ultra INTRODUCTION 5 concession bargaining” to distinguish it from the first wave of concession bargaining that occurred in the 1980s. In earlier 1980s-style concession bargaining, unions were in many cases asked to roll back wages and benefits but in exchange received guarantees that their plants would remain open or they were given seats on boards of directors. In this round of concessions, few such quid pro quos from employers were forthcoming. Employers were now more aggressive than in the 1980s, and unions were expected to concede with no promises of anything in return (Chaison 2012). Chapters in this volume by Andrew von Nordenflycht and Jody Hoffer Gittell on airlines and Jeffrey Keefe and Mathias Bolton on meatpacking elaborate on the experiences with both rounds of concessionary bargaining in those industries. The U.S. auto industry was one of the early casualties of the financial crisis. As the unemployment ranks swelled and consumer confidence fell, the auto industry was hard hit, and companies were pushed to the financial brink. The full story is told in the chapter by Harry Katz, John Paul MacDuffie, and Frits Pil in this volume. What became apparent was that the companies needed a leaner, lower-cost structure to compete with foreign producers as well as the non-union transplants in North America. Concession bargaining took over the auto sector once more, with a focus not only on wages but also on health care costs and pensions. As they have for decades, auto sector collective agreements became bellwethers for collective bargaining throughout the economy. The newspaper industry was similarly hard hit by the recession following the 2008 financial crisis. Howard Stanger’s chapter on newspapers in this volume documents the pressure on newspaper industry collective bargaining not only from reduced advertising revenue caused by the recession but also from changing reader preferences for online content that have destroyed the industry’s advertising-based business model. In particular, employers in industry after industry not only sought wage concessions (or at least freezes) but, with singular purpose, went after employee pensions, health care benefits, and other previously hard- won gains. Pension costs and liabilities have grown disproportionately over time. Poor assumptions about likely growth in the funds (over prediction of returns) coupled with demographic shifts (fewer younger workers to support older workers in retirement) have led to enormous liabilities in many pension plans (Monga 2012). Defined benefit plans (under which workers are guaranteed some percentage of income as an annual payout upon retirement) are being scrapped and replaced with defined contribution plans (under which the employer agrees to put in a certain amount each year but makes no promises about what will be there upon the worker’s retirement) or 401(k) plans into which the employee also contributes. In addition, older, more generous plans are being frozen and not 6 COLLECTIVE BARGAINING UNDER DURESS made available to new employees, resulting in two-tier pension systems in many firms. In their chapter on professional sports, James Dworkin and Richard Posthuma document the switch from a defined benefit to a defined -con tribution plan and the institution of a two-tier pension system in the case of NFL referees. The fights over changes (or elimination) of pension benefits have been bitter and hard fought. For many workers, the generous pension they were expecting was gained at the expense of wages they had foregone earlier. Many workers have been left with insufficient income for retirement. The other area in which employers have almost universally sought concessions is health care benefits. Like pensions, the cost of providing health care coverage to employees has skyrocketed over the past decade. At a time of stagnant wage growth and little or no inflation, employer- based health care premiums for family coverage rose 160% between 1999 and 2011 (AFL-CIO, no date). Employers, as a result, turned to unions at the bargaining table to force workers to pay an increasing share of those costs through higher deductibles, co-payments, and premiums. In some cases, employers simply stopped offering health care benefits at all. In most cases, unions and their members agreed to rollbacks in health care benefits. In other instances, they resisted. It was the rare strike over the past decade that did not have conflict over health care benefits, and who would pay for them, at its center. As the private sector economy remained mired in high unemployment and business conditions remained poor, municipal and state governments began to feel the pinch of lower tax revenues. Sensing that public opinion was on their side, state and local governments went after union contracts and, in some cases, the right to collective bargaining itself. State and local workers around the country faced the stark choice of layoffs or significantly reduced benefits, especially pensions (Chaison 2012). The public sector chapter in this volume by Robert Hebdon, Joseph Slater, and Marick Masters documents this process and its aftermath in detail. More than four years after the financial crisis, collective bargaining in the United States is still highly contentious and conflict ridden. Workers find themselves in increasingly precarious situations not only in terms of wages, health care, and pension benefits but also in terms of ongoing employment. This is true of workers in both private and public sectors.

CONCLUSION The volume’s title,Collective Bargaining Under Duress, sums up the state of collective bargaining in the eight industries covered in this volume. INTRODUCTION 7

New organizing remains extremely difficult, if not impossible, in most sectors. Employer opposition remains strong, and a lack of meaningful labor law reform has precluded any institutional support in the process. Unions face an uphill battle trying to convince workers, who view their current hold on any job as tenuous at best, that forming a union is in their best interest. The chapter by Jeffrey Waddoups and Vincent Eade shows how threats of outsourcing and an employer’s refusal to bargain ensure that unions make little or no headway in new organizing, even in non- mobile businesses such as hotels and casinos. The one exception may be in health care. In his chapter, Paul Clark documents the organizing success that has been ongoing for more than a decade in the health care sector, where union density has remained consistent. At the same time, where collective bargaining rights are in place, the bargaining relationship often no longer resembles “business as usual” but rather has turned into an employer assault on hard-won wages, health care benefits, and pensions. In such concession bargaining, there is often no quid pro quo offered to workers in return for givebacks. The plant may stay open, the jobs may remain for the moment, but the specter of a permanent shutdown or the outsourcing of some or all of the work is ever present. In the chapters that follow, a number of common themes appear. Among these are historically high unemployment levels, the failure of labor law to support new organizing or collective bargaining, and union strategies that cannot connect with workers outside traditional union strongholds— especially those employed in the new economy. Some glimmers of hope do emerge, though. These include new alternative ownership structures, the possibility of greater political clout at local and state levels of government to advance a more labor-friendly agenda, and continued hope for labor law reform at both the federal and state levels. Our hope is that the chapters here update our current knowledge of collective bargaining in the United States and bring about renewed discussion and debate about the importance of this institution to a democratic society and its implications for American workers.

REFERENCES AFL-CIO. No date. “Bargaining for Health Care.” Burghart, S. 2009. “Overcompensating Much? The Impact of Preemption on Emerging Federal and State Efforts to Limit Executive Compensation.”Columbia Business Law Review, Vol. 669, pp. 669–727. Chaison, G. 2012. The New Collective Bargaining. New York: Springer. Change to Win. No date. “Our Campaigns.” 8 COLLECTIVE BARGAINING UNDER DURESS

Kochan, T., and J.-P. Ferguson. 2008 (Mar.). “Sequential Failures in Workers’ Rights to Organize.” Cambridge, MA: MIT Sloan School of Management, Institute for Work and Employment Relations. Mayer, G. 2004 (Aug. 31). “Union Membership Trends in the United States.” Congressional Research Service, Key Workplace Documents, Cornell University, ILR School: Digital Commons@ILR. Monga, V. 2012 (Nov. 12). “Dealing with the Pension Deficit.”Wall Street Journal. Taylor, J. 2009. “The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong.” Working Paper 14631. Cambridge, MA: National Bureau of Economic Research. United States Bureau of Labor Statistics (U.S. BLS). 2013 (Jan. 23). “Union Members 2012.” United States Bureau of Labor Statistics (U.S. BLS). No date. “Seasonal Average Weeks Unemployed, 16 Years and Over. January 2003–February 2013.” United States Bureau of Labor Statistics (U.S. BLS). No date. “Seasonal Unemployment Rate, 16 Years and Over. January 2003–February 2013.” United States Bureau of Labor Statistics (U.S. BLS). No date. “Unadjusted Not in Labor Force, Searched for Work and Available, Discouraged Reasons for Not Currently Looking. January 2003–February 2013.” Valletta, R. 2011. “Rising Unemployment Duration in the United States: Composition or Behavior?” San Francisco, CA: Federal Reserve Bank of San Francisco. Chapter 1 Context, Process, and Outcomes of Collective Bargaining in the U.S. Airline Industry

Andrew von Nordenflycht Simon Fraser University Jody Hoffer Gittell Brandeis University

In LERA’s 2002 research volume, Collective Bargaining in the Private Sector, Nancy Brown Johnson concluded that, despite deregulation of the industry in 1978 that led some observers to predict a decline in unionization and wages because of increased competition, the airline industry remained highly unionized, wages had declined only slightly and were rising again by the late 1990s, and a fragmented but pervasive system of collective bargaining characterized the industry’s employment relationship. In other words, despite deregulatory turmoil and experimentations with alternative approaches to the employment relationship, by 2000 the industry had returned to traditional, conventional industrial relations (Johnson 2002). However, Johnson’s chapter concluded by raising the question of whether the economic crisis precipitated by the 9/11 terrorist attacks would change that stable structure of collective bargaining in the airline industry. The 9/11 attacks did precipitate an enormous economic crisis for U.S. airlines. Occurring when the airline industry was already moving into a downturn, the attacks led to an unprecedented drop in travel demand for several months: Revenues dropped by nearly 20% in the months after the attack, and a year later they remained approximately 12% below their pre-attack level. Failing to cover their substantial fixed costs, U.S. airlines lost a combined $9 billion in 2001 and continued to lose billions for several more years. Tough economic conditions continued through the decade. Most notably, oil prices sextupled from September 2001 through June 2008 and in 2012 remained four times higher than 2001 prices (IOGA 2013). And it was topped off by the Great Recession of 2008–2010. The solid line in Figure 1 shows the industry’s aggregate operating income. Because it excludes various write-offs and other accounting charges, aggregate operating income is a good measure of how tough or attractive

9 10 COLLECTIVE BARGAINING UNDER DURESS a year the industry had. Figure 1 indicates that the industry operated largely in the red from 2001 through 2005 and had only three good years in the next five. In the face of the post-9/11 crisis, U.S. airlines initiated massive restructuring efforts to reduce operating costs and fixed costs—layoffs, plane groundings, labor contract renegotiations, aircraft lease renegotiations, etc. The dashed line in Figure 1 shows the aggregate net income of the largest 15 airlines. This measure includes the enormous write-offs incurred in bankruptcies. We include this figure to highlight the tens of billions of dollars of shareholder value that were wiped out in restructuring, even after the industry had regained profitability on a day-to-day operating basis. The layoffs attendant to the restructuring led to a steep decline in the industry’s total employment level. The bars in Figure 1 show the industry’s total employment from 2000 to 2010, graphically illustrating the 22% decline from 2000 to 2005 in the wake of 9/11 restructuring, and then the slow decline thereafter as the industry has continued to face adverse economic conditions. This economic adversity and the restructuring to adapt to it have also led to significant corporate reorganization via bankruptcies and mergers.

FIGURE 1 U.S. Airline Industry Aggregate Profit and Employment, 2000–2010

Source: Employment and net income from MIT Airline Data Project (http://tinyurl.com/ldztd9y), based on Form 41 Schedule P10 and SEC 10K filings. Operating income from U.S. Bureau of Transportation Statistics. AIRLINE INDUSTRY 11

By 2005, four of the country’s largest airlines had declared bankruptcy (US Airways [twice], United, Northwest, Delta), as had 12 other airlines. American Airlines avoided bankruptcy in the initial post-9/11 period but eventually entered Chapter 11 in 2011. In conjunction with the bankruptcies, the largest U.S. airlines have merged. America West bought US Airways out of bankruptcy in 2005; Delta and Northwest merged while both were in bankruptcy in 2008; United, after emerging from bankruptcy, merged with Continental in 2010; Southwest acquired AirTran in 2010; and US Airways and American agreed to merge in early 2013. Thus, the nine largest airlines in 2001 (the eight previously mentioned plus Alaska Airlines, which has not participated in any mergers) are now only four. Against this backdrop of sustained economic difficulty and corporate restructuring, we again take up the question addressed in Johnson (2002): What is the state of collective bargaining in the U.S. airline industry circa 2012? Is collective bargaining dead? Is it declining? Or is it alive and well? To address these questions, we focus on three underlying questions. First, what is the level of union representation in 2012? How has that changed from the last report in 2002? And what is the likely future direction of unionization: growth, stability, or decline? Second, how well is the collective bargaining process working? In particular, we discuss the extent to which parties have been able to rely on collective bargaining without outside intervention, and the frequency of negotiation breakdowns in the form of strikes or other job actions. Third, what is the effectiveness of unions in protecting and enhancing members’ employment interests? We have already shown that employees and their unions have experienced substantial job loss. So the primary dimension we discuss in this chapter is compensation: What has happened to wage levels and benefits? A secondary dimension we discuss is employees’ voice in airline decision making. At the strategic level of decision making, there have been several notable instances of shared ownership in this industry’s history. So we address the current state and likely future of shared ownership in the industry. Finally, we discuss the role of high-quality relationships among managers, employers, and unions for airline productivity and service quality, and we comment on the challenges to and facilitators of building high-quality relationships in this industry. We also discuss the relationships between high-quality relationships and the effectiveness of collective bargaining. Before turning to these issues—the state of unionization, the negotiation process, wage and benefit outcomes, and shared ownership—we provide background on the competitive structure of the industry and the industry’s distinctive regulatory regime for labor relations. 12 COLLECTIVE BARGAINING UNDER DURESS

U.S. PASSENGER AIRLINE INDUSTRY STRUCTURE This chapter focuses exclusively on scheduled passenger airlines, excluding cargo airlines and charter airlines. Scheduled passenger service accounts for about 75% of industry revenue, while cargo accounts for about 20%, and charter accounts for the remaining 5%. Scheduled passenger airlines, also referred to as carriers in the United States, are commonly grouped into several categories. The primary categorization—the one used by the U.S. Department of Transportation in setting reporting requirements and publishing statistics—is size based. Major airlines are those with annual revenue greater than $1 billion. National airlines are those with revenue between $100 million and $1 billion, and airlines smaller than that are considered regional (U.S. BTS 2013). Table 1 lists the major and national airlines in 2013. A more informative categorization, however, is based on strategic position, making distinctions across airlines on the basis of how they compete, in particular their route network, levels of service, or both. In

TABLE 1 Major and National U.S. Scheduled Passenger Airlines in 2013 Majors Nationals AirTran Air Wisconsin Alaska Airlines Allegiant Air American Airlines Colgan American Eagle Comair Delta Air Lines Compass Frontier Airlines Executive Airlines Hawaiian Airlines ExpressJet Airlines Jet Blue Go Jet SkyWest Horizon Air Southwest Airlines Mesa Airlines United Airlines Mesaba Airlines US Airways Pinnacle PSA Republic Airlines Shuttle America Spirit Air Lines Sun Country Virgin America Source: U.S. Bureau of Transportation Statistics (http://tinyurl.com/pyeh8bs). AIRLINE INDUSTRY 13 this categorization, there are three main strategic positions. The familiar large airlines fall into the full-service segment, also known as network carriers. These airlines operate national hub-and-spoke networks and offer multiple classes of service on each plane. They target relatively price- insensitive business travelers, though they also serve many more leisure travelers to fill their planes. They have often been referred to as legacy carriers, because they are the industry’s oldest incumbent firms. The largest of these airlines operate to international destinations, but there are also full-service network airlines that operate at a regional level, such as Alaska Airlines and Hawaiian Airlines. A second segment is composed of low-cost carriers (LCCs). These airlines have lower operating costs and offer lower fares than the full-service carriers do. They target price-sensitive leisure travelers. One way they achieve lower costs is by operating more point-to-point route networks, rather than hub and spoke, enabling them to use fewer types of aircraft and achieve faster turnaround times on the ground. They also tend to be younger firms, with consequently lower labor costs stemming from a less senior workforce and less restrictive work rules—although Southwest, the largest low-cost carrier (and the largest U.S. carrier by number of passengers), has been operating since 1971. These segments are experiencing different growth prospects in the current environment, and the nature of the employment relationship varies across them, so it is important to keep this in mind when assessing the state of collective bargaining in the industry as a whole. Over the past decade, however, the distinction between these two segments has been decreasing. As we discuss in more detail later, almost all of the legacy carriers have shed their long-standing labor contracts while in bankruptcy, so the term “legacy” may ultimately fade from use. At the same time, LCC operations and networks have been increasing in complexity, and their workforce has been aging, which increases their costs. The merger between full-service US Airways and LCC America West in 2005, which we discuss later, represented an explicit blending of the two. For the purposes of this chapter, we continue to use this full-service/LCC distinction but acknowledge that it may continue to diminish. The third segment is composed of regional carriers (also known as commuter carriers). These airlines operate smaller types of aircraft— turboprops and regional jets—on shorter routes. Most have agreements with full-service carriers to be “feeder” operations for the full-service hubs—that is, the regional airlines operate service from small cities to the full-service carriers’ hubs, allowing passengers to connect to a wide range of destinations. Some of these regional airlines are subsidiaries of full- service airlines (e.g., American Eagle, Continental Express). But even those that are independent often operate under the brand of the full-service 14 COLLECTIVE BARGAINING UNDER DURESS partner (for instance, SkyWest operates flights under the United Express, Delta Connection, and US Airways Express brands). In this chapter, we concentrate on full-service and low-cost carriers because they have been the focus of our research over the past decade.

REGULATORY FRAMEWORK FOR U.S. AIRLINE–LABOR RELATIONS In contrast to labor relations in most other private sector industries, which are governed by the National Labor Relations Act (NLRA), labor relations in the U.S. airline industry are governed by the Railway Labor Act (RLA), a statute first enacted to cover railroads in 1926 and then extended to air transportation in 1934. The RLA has a number of provisions designed to protect the public from work stoppages that are part of collective bargaining in this industry. For this reason, and because proposals for reform of the RLA have surfaced from time to time, we outline the process in some detail here, based on the descriptions by von Nordenflycht and Kochan (2003) and Johnson (2002). One key difference from the NLRA is that under the RLA contracts do not have fixed expiration dates. Instead, they have “amendable” dates. After the amendable date, the provisions of the existing contract remain in effect until the parties reach a new agreement. New contract terms cannot be imposed unilaterally, and strikes or lockouts cannot be initiated until the parties have progressed through several steps that are regulated by the National Mediation Board (NMB). These steps are outlined as follows. If the parties cannot reach a contract agreement on their own, either side may apply for mediation services from the NMB. Once in mediation, negotiations continue until an agreement is reached or until the NMB declares an impasse. At that point, the NMB offers the option of voluntary binding arbitration. If either party rejects the offer of binding arbitration, the NMB “releases” the parties. Once released, the parties enter a 30-day cooling-off period, during which time the existing contract provisions remain in effect. At the end of the cooling-off period, if the parties have still not reached an agreement, the NMB chooses whether to let the parties engage in “self-help” (i.e., a strike by workers, or a lockout or unilateral imposition of new contract terms by management) or refer the case to a Presidential Emergency Board (PEB). The PEB, composed of three neutral experts appointed by the U.S. president, is allowed 30 days to deliberate and formulate a recommended settlement. After the PEB issues its recommendations, another 30-day cooling-off period begins. Finally, at the end of the second cooling-off period, the parties are free to engage in self-help. As a final recourse, after the expiration of the second cooling-off period, the president can refer the case to Congress, requesting that Congress legislate a settlement. AIRLINE INDUSTRY 15

In other words, once a contract becomes amendable, the parties are legally barred from self-help until the NMB releases them and the cooling- off period expires. Theoretically, the parties could be prevented from self-help indefinitely because the decision to release the parties while in mediation is at the discretion of the NMB. Even once the NMB releases the parties, there is then a minimum of 30 days and a maximum of 90 days (first cooling-off period, PEB, second cooling-off period) before the parties can engage in a strike or lockout. In accordance with the intent of the RLA, strikes have been relatively rare in the airline industry (notwithstanding their high visibility when they do occur). Moreover, strikes have also become less frequent over time. We discuss this incidence of strikes historically, and more recently, in a later section of this chapter. However, the cost of this avoidance of work stoppages is that the time required to reach agreement in the airline industry has been long relative to other industries. For industries covered by the National Labor Relations Act, one study concluded that 74% of contracts are settled before or within one month after the contract expiration date (Cutcher-Gershenfeld, Kochan, and Wells 1998). By contrast, in a study of airline labor contract negotiations from 1984 through 2002, von Nordenflycht and Kochan (2003) found that only 11% were settled within one month after the expiration date. A second notable difference between the NLRA and the RLA is that union representation under the RLA is craft based rather than workplace based. In other words, a given union will represent the employees in a specific occupation (e.g., pilots, mechanics) across all the sites of a single airline. This approach is in contrast to the NLRA framework of representing employees across all occupations but only at one specific site (e.g., a given airport). As we conjecture in the next section, the craft model may make it easier to unionize. The RLA has remained the regulatory framework for union representation and collective bargaining in the airline industry, and, as Johnson (2002) notes, there is little appetite on the part of management or labor to change it. Accordingly, there is no regulatory reason to predict any change in the level and nature of unionization. But has the aforementioned financial and corporate turmoil during the industry’s past decade led to any such change nonetheless?

UNION REPRESENTATION Johnson (2002) reported that the airline industry was one of, if not the most, unionized industries in the private sector, with union density in 1997 estimated at 39.5%. In 2001, all of the major airlines had at least one union representing their pilots, and most had union representation of flight attendants and mechanics as well. 16 COLLECTIVE BARGAINING UNDER DURESS

Table 2 provides information on the representation status of each of the five major airline occupations (crafts) at the 18 largest U.S. airlines in 2012. A number of points can be drawn from this table and supplementary statistics. First, the industry’s level of unionization remains high in 2012. Only three of the 18 airlines have no union representation among their main employee groups. Half (nine) have at least four of the five major groups unionized. Estimates based on the Current Population Survey (CPS) show that the industry’s union density increased over the decade to 43% in 2011 (Hirsch 2013). Second, union representation is pervasive across all three industry segments. The first column in Table 2 indicates each airline’s segment (FS = full service; LC = low cost; R = regional). Even in the low- cost segment, only two of the seven airlines are non-union, which contrasts with conventional wisdom in the popular press that these airlines achieve their low costs in large part via non-union status. Third, representation remains fragmented, with employees represented by a variety of unions, even across the same carrier. To some degree, this is encouraged by the aforementioned craft-based representation within the RLA: three of the five crafts (pilots, flight attendants, and mechanics) have at least one union that represents members of that craft only—ALPA and APA, AFA-CWA, and AMFA, respectively (see Table 2 notes for full names of unions)—which means that they cannot organize all the employees at a given airline. In addition, multiple unions represent each craft. Although pilots and flight attendants each have a dominant union (ALPA and AFA- CWA), there are also other national and independent unions that represent these groups at a few carriers. The TWU, IBT, and IAM represent employees across all five occupations. Furthermore, bargaining by this multitude of unions continues to be conducted independently. There have been no new attempts at industry- wide bargaining. Even within a given airline, inter-union coordination for bargaining has been rare (Walsh 2001; Bamber, Gittell, Kochan, and von Nordenflycht 2009). This characteristic cannot be explained by the RLA: In the railroad industry, also governed by the RLA, bargaining sometimes occurs at the industry level. This lack of union coordination within and across carriers appears to be an industry-specific norm. Several factors may contribute to the maintenance of high levels of union representation, despite the cycles of competitive and financial turmoil the industry experiences. One possible method by which unionization in an industry might be reduced is through management attempts to remove existing unions. But such attempts have been few and unsuccessful. First, the principal opportunity to bust a union comes by hiring replacement workers during a strike. However, as we document later in more detail, strikes have been rare since deregulation because the RLA’s regulatory AIRLINE INDUSTRY 17

TABLE 2 Unions Representing Employees of the 18 Largest U.S. Airlines (mid-2012)* Mechanics and related Flight Ramp/fleet Clerical/ Segment Airline Pilots attendants Mechanics service agent FS Delta ALPA United/ FS ALPA AFA-CWA IBT IAM IAM Continental Vote FS American APA APFA TWU TWU pending LC Southwest SWAPA TWU AMFA TWU IAM IBT/ FS/LC US Airways USAPA AFA-CWA IAM IAM CWA LC JetBlue FS Alaska ALPA AFA-CWA AMFA IAM IAM LC AirTran** ALPA AFA-CWA AMFA IBT R SkyWest*** LC Frontier IBT AFA-CWA IBT FS Hawaiian ALPA AFA-CWA IAM IAM IAM R ExpressJet*** ALPA IAM IBT R American Eagle ALPA AFA-CWA TWU TWU LC Spirit ALPA AFA-CWA LC Virgin America R ASA*** ALPA AFA-CWA IAM R Republic IBT IBT IBT IBT LC Allegiant IBT TWU Sources: Airlines for America, individual airline SEC 10K filings. *In descending order of size, as measured by revenue passenger miles in 2011. **AirTran was acquired by Southwest in 2010. As AirTran employees convert into Southwest employees through the integration process, they will become represented by Southwest’s unions. ***SkyWest, ExpressJet, and ASA are all owned by SkyWest Holdings. AFA-CWA: Association of Flight Attendants–Communication Workers of America ALPA: Air Line Pilots Association AMFA: Aircraft Mechanics Fraternal Association APA: Allied Pilots Association APFA: Association of Professional Flight Attendants CWA: Communication Workers of America IAM: International Association of Machinists IBT: International Brotherhood of Teamsters SWAPA: Southwest Airlines’ Pilots Association TWU: Transport Workers Union USAPA: US Airline Pilots Association 18 COLLECTIVE BARGAINING UNDER DURESS framework is intended to avoid strikes and because airlines and unions both consider strikes to be extremely costly (Bamber, Gittell, Kochan, and von Nordenflycht 2009). Second, the main historical attempt to suppress unions in this manner, by Frank Lorenzo at Texas Air, was ultimately a disaster. Lorenzo’s tenure in the deregulated industry is the most noteworthy example of a union-containment or union-suppression strategy. Head of Texas International when the industry deregulated, he first founded a non-union subsidiary, New York Air. More notably, he acquired Continental Airlines in a hostile takeover in 1981 and, after failing to win major wage concessions, put the airline into bankruptcy to abrogate the labor contracts and reset wages at half of their existing levels. When the unions struck, he assembled a new non-union workforce. Lorenzo then acquired Eastern Airlines in 1986, and in addition to demanding large concessions, began transferring assets from Eastern to his other non-union airlines. Although Lorenzo reduced labor costs drastically at his airlines, their service quality also declined and profitability was infrequent. By 1991, all of his airlines were in bankruptcy and he was banned from the industry by a court ruling, suggesting that his approach not only was bitterly opposed by employees—Lorenzo’s airlines were the target of seven of the industry’s 13 strikes between 1982 and 1991—but also was not rewarded in the marketplace (Bamber, Gittell, Kochan, and von Nordenflycht 2009; Gittell, von Nordenflycht, and Kochan 2004). The other method by which an industry’s level of unionization might decline is by the growth of non-union competitors that win share away from the unionized firms. This situation has not occurred in the U.S. airline industry, for several reasons. First, U.S. airlines are protected from foreign “imports” (i.e., competition from foreign airlines on routes within the United States) because of federal law (the 1938 Civil Aeronautics Act) that requires airlines operating within the United States to be controlled by U.S. citizens, which includes having no more than 25% foreign ownership (Odoni 2009; U.S. GAO 2003). Second, few domestic airlines have been able to maintain non-union status, even new entrants. Table 3 shows the most successful start-up airlines since deregulation (defined as those that are now among the industry’s largest), in order of their age, along with the representation status of each craft as of 2012 or as of the year in which the firm was acquired. The information in the table suggests that new airlines almost inevitably become unionized, particularly among pilots and flight attendants. This relative ease of organizing may stem in part from the RLA’s craft-based representation, in that a union can appeal to the particular needs of only one occupation, rather than trying to organize employees of very disparate skills, wage levels, and backgrounds at a given worksite. AIRLINE INDUSTRY 19

TABLE 3 Union Representation at New-Entrant Airlines, by Airline Age Ramp/ Firm age Flight fleet Airline (years) Pilots attendants Mechanics service Agents Southwest 40 SWAPA TWU AMFA TWU IAM America West 22 ALPA AFA IBT TWU IBT (now US Airways) (at merger) 18 AirTran ALPA AFA IBT IBT (at merger) Frontier 18 FAPA AFA IBT

Allegiant 13 IBT TWU

JetBlue 12

Virgin America 4 Source: Individual airline SEC 10K filings.

Third, incumbent airlines that have become competitively and/or financially unviable have tended to reorganize under Chapter 11 bankruptcy rather than liquidating, thus preserving the union status of their share of the industry’s workforce. Non-Union Strategies Of course, Table 3 identifies three non-union airlines—JetBlue, SkyWest, and Virgin America—as well as Delta, where only the pilots are unionized. What explains these exceptions? Delta has remained non-union, with the exception of its pilots (and flight dispatchers), by following a union substitution approach to labor relations and a commitment-based approach to human resources. (For more detail on Delta, see Kaufman 2013, as well as Bamber, Gittell, Kochan, and von Nordenflycht 2009 and Gittell, von Nordenflycht, and Kochan 2004.) Delta’s original approach to the employment relationship was a paternalistic, corporate welfare approach that sought to preserve a strong “family” culture and included a promise of industry-leading wages and lifetime employment. In return, Delta gained strong employee commitment (as well as votes against unionization), which translated into superior customer service and operational flexibility that allowed Delta to outperform rival carriers (Kaufman 2013). The magnitude of employees’ commitment to Delta is often illustrated by the fact that employees jointly purchased a Boeing 767 to demonstrate their appreciation to the company for avoiding layoffs in the recession of the early 1980s. Delta’s employment strategy was severely tested in the mid-1990s, when an expensive acquisition came just before an industry downturn and 20 COLLECTIVE BARGAINING UNDER DURESS resulted in several years of large losses. Layoffs and wage cuts followed from 1994 through 1997, which undermined the implicit social contract with employees. Reduced morale was manifested in a noticeable decline in service quality as well as in unionization drives. As part of its attempt to preserve and restore its employment culture, Delta began some formal employee involvement programs (Kaufman 2003, 2013). Ultimately, employee goodwill was preserved enough to defeat this round of unionization drives. The post-9/11 period tested Delta’s non-union commitment model even more, as the airline went through bankruptcy restructuring—involving the large wage, benefit, and job cuts we describe later in this chapter—as well as a merger with Northwest Airlines, which added an almost equal number of employees long-accustomed to union representation. However, as Kaufman (2013) argues, the new management team that led Delta through bankruptcy, headed by Gerald Grinstein, made significant investments of managerial time into communicating with employees and made credible demonstrations that employee welfare was valued. Part of this involved embracing aspects of the employee involvement programs, both at the board and the workplace levels. Despite the concessions and the merger, the flight attendant, fleet service, and passenger service agent groups of the combined airline all voted against union representation in late 2010 (Mouawad 2010; NMB 2011). Interestingly, Kaufman points out that although Delta has maintained a higher level of employee commitment than rival airlines, the social contract underlying that commitment has shifted from the original paternalistic “family” approach, to a more modern “high-commitment work system”–like model based on mutual gains, in which formal employee involvement structures play a central role. Of note is that the promise of industry-leading wages has been replaced with a promise of industry average wages but with the opportunity to be industry leading if the airline performs well. In the end, though, Delta’s ability to remain largely non- union appears sustainable in the future. JetBlue and Virgin America are newer airlines, only 12 and 4 years old respectively. Based on the pattern in Table 3, we might expect the unionization of these airlines to occur eventually. However, JetBlue has expressed a strong desire to remain non-union and employs a range of human resources practices that foster employee commitment to the airline and weaken employee interest in union representation (Gittell and O’Reilly 2001). The success of this approach has seemingly been validated by recent representation votes: JetBlue pilots voted against unionization in 2009 and again in 2011, and no other crafts have filed for an election (Barinka and Schlangenstein 2011). At Virgin America, flight attendants voted against representation in 2011 (Carey 2011), but the carrier is very young; AIRLINE INDUSTRY 21 therefore, little can be said about the likelihood of its future representation status. (SkyWest, a regional carrier, falls outside the scope of this chapter, but it warrants investigation.) The Future of Representation The previous discussion indicates that an individual airline may be able to maintain non-union status. But the bigger picture of this section is that non-union status remains the exception rather than the norm, regardless of industry segment. There does not appear to be a trend toward lower rates of representation despite the poor performance of incumbent airlines and the bankruptcies and mergers of many airlines since 9/11. The factors facilitating representation remain in place: regulatory prohibitions against foreign competitors; reorganization rather than liquidation of failing incumbents; and, primarily, the relative ease of organizing under the RLA and/or in the particular culture of this industry and these occupations. And a recent regulatory change has, in theory, made organizing even easier. In June 2010, the NMB revised its election rules such that representation occurs when votes for representation are a majority of votes cast rather than of a majority of eligible employees (a rule change which was upheld in U.S. federal circuit court in 2011). In other words, after this ruling, employees who do not vote in a representation election are no longer counted as “no” votes. Thus, the state of union representation in the U.S. airline industry will likely remain stable. We conjecture about this future stability in more detail in the conclusion.

COLLECTIVE BARGAINING EFFECTIVENESS: NEGOTIATION BREAKDOWNS As noted in section on the RLA, negotiation periods tend to be long because of RLA provisions. But however long and protracted the bargaining process is, it generally reaches a privately negotiated outcome without any work stoppage. In other words, breakdowns in the negotiation process are rare. In this section, we discuss briefly the frequency of negotiation breakdowns in the form of strikes, NMB mediation and arbitration, and judicial contract abrogations. Strikes The frequency of strikes since deregulation has been much lower than before deregulation and has been decreasing during the deregulated era despite the occurrence of four major industry contractions (1981–1982, 1990–1992, 2001–2005, and 2008–2010), which led to demands for wage concessions. In a sample of 199 contract negotiations from 1982 through 2002, there were six strikes, representing just 3% of negotiations (von Nordenflycht and Kochan 2003). From 2002 through 2012, despite all the massive concessionary restructuring, there have been only two strikes 22 COLLECTIVE BARGAINING UNDER DURESS at passenger airlines (Northwest’s mechanics in 2005; Spirit’s pilots in 2010; four strikes have occurred at cargo carriers in this period) (NMB 2013). The increasing rarity of strikes is attributable not only to RLA procedures but also to the vastly increased costs of a strike since deregulation. Before deregulation, airlines organized a joint strike insurance fund in which other airlines compensated an airline that experienced a strike. This mutual-aid pact was nullified by the deregulating legislation in 1978. After deregulation, then, a struck airline not only didn’t receive compensation for lost business but also likely suffered greater losses as rivals (and entrants) were much freer to invade the struck carrier’s routes in the deregulated environment. Strikes have also been costly for unions and their members. The AMFA mechanics strike at Northwest Airlines in 2005 is a good example. Seeking to avert a bankruptcy filing, Northwest reached concession agreements with all its unions except AMFA. When the parties were released by the NMB, AMFA struck. Northwest responded by filing for bankruptcy, hiring replacement workers, and outsourcing big chunks of its maintenance work. Mechanics remained unrepresented through bankruptcy and the merger with Delta. No attempts have been made by AMFA or other mechanics unions to organize the combined group of mechanics. Since deregulation, both labor and management have generally concluded that strikes are very costly for both sides (Bamber, Gittell, Kochan, and von Nordenflycht 2009), which reduced their frequency. Mediation and Arbitration Under the RLA, either side of a labor contract negotiation can request mediation by the NMB. Also, if both parties agree, negotiations can be submitted to binding arbitration. In a study of some 200 airline labor contract negotiations from 1982 through 2001, von Nordenflycht and Kochan (2003) reported that half of the negotiations went into NMB- sponsored mediation, whereas only 3% went to arbitration. Thus, the parties almost never choose arbitration, preferring negotiated settlements, but they do rely heavily on mediation. So, although strikes are rare and negotiations are ultimately settled privately, government intervention (in the form of mediation) is frequently needed—or at least requested. Bankruptcy and Contract Abrogations Almost all of the concessions during the restructuring period were collectively bargained. Of course, most were also bargained under the threat of or in the process of bankruptcy. Among the full-service legacies, only American and Continental managed to renegotiate their labor contracts outside of bankruptcy. The other four failed to negotiate agreements with unions that staved off bankruptcy—and ultimately American joined them. AIRLINE INDUSTRY 23

In the bankruptcy restructuring, most of the final labor contracts were still negotiated settlements—although in these cases, unions were not in a strong position to avoid or mitigate concessions, because some carriers invoked the threat of liquidation as the alternative to acceptance of the carriers’ terms. In a few instances, though, unions and carriers failed to negotiate a settlement in the bankruptcy process, in which case the bankruptcy court judge abrogated the existing labor contract. Voided contracts included IAM (mechanics) at US Airways, APA (pilots) at American, and AMFA (mechanics) at United. Overall, in the face of legacy airlines’ financial difficulties and their large and repeated demands for concessions, collective bargaining avoided strikes, but it generally did not allow legacy airlines and their unions to escape bankruptcy. Within bankruptcy, however, collective bargaining produced negotiated settlements for the most part, with a few exceptions of failed negotiations for which judicial intervention allowed firms to impose employment terms unilaterally.

BARGAINING OUTCOMES: WAGES AND BENEFITS The airline industry has traditionally been characterized by both high levels of unionization and relatively high wages (Hirsch and Macpherson 2000; Johnson 2002; Hirsch 2007). Around 2000, for instance, pilots were one of the most highly paid occupations in the country (Johnson 2002). Research has shown that airline industry workers earn higher wages than non-airline industry workers of comparable experience and demographics, even after accounting for a decline of 10% to 20% in relative wage levels over the first two decades of deregulation—part of which is due to higher skill requirements and part of which is due to union representation (Cremieux 1996; Card 1998; Hirsch and Macpherson 2000). This can be seen in Table 4, which shows Hirsch’s (2007) estimates of hourly wages of airline workers—union and non-union—compared with wages of comparable non-airline workers, averaged over the period from 1995 through 2006. The top row shows that the industry-wide weighted average wage of $22.88 exceeds the comparison group average of $19.29. Controlling for a range of location, occupation, and individual characteristics, Hirsch estimates that this represented an 11.4% premium. Looking down the table, one sees that the wage differentials for the specific airline crafts (pilots, flight attendants, mechanics) are even higher. Hirsch also provides the CPS skill index, which shows that airline jobs are considered to require higher levels of skill than non-airline jobs held by individuals with similar demographic characteristics, which accounts for some of the wage difference. But when looking at hourly wages of unionized versus non-unionized airline workers, one sees that there is also a substantial union premium. 24 COLLECTIVE BARGAINING UNDER DURESS

TABLE 4 Hourly Wage Estimates, Airline vs. Non-Airline Employees, 1995–2006 Airline Workers All Union Non-union Comparison groups Industry Wage $22.88 $27.03 $19.68 $19.29 Skill index 1,274 1,241 1,299 1,282 Pilots Wage $43.09 $49.38 $30.86 $27.30 Skill index 2,225 2,225 2,225 1,864 Flight Attendants Wage $21.24 $22.09 $18.99 $15.56 Skill index 933 933 933 896 Mechanics Wage $23.73 $26.58 $20.84 $18.75 Skill index 1,577 1,578 1,577 1,204 Source: Hirsch (2007), based on U.S. Bureau of Labor Statistics Current Population Survey.

Given the maintenance of high levels of union representation since 2001, we might expect that industry wage levels would also remain relatively high over the past decade. However, many incumbent airlines underwent substantial restructuring to reduce costs in the wake of 9/11, including renegotiation of labor contracts. So what has happened to compensation and benefits in the industry? We first discuss the substantial concessions that accompanied the restructuring of legacy airlines in the first half of the decade, and then we discuss wage trends across the industry over the whole decade. “Legacy” Restructuring via Concessionary Contracts: The Case of US Airways From the perspective of employees at legacy full-service airlines, wages and benefits were substantially reduced during the first half of the decade. The financial distress the airlines suffered after 9/11, which ultimately led to bankruptcy restructuring for US Airways, United, Delta, Northwest, and American, forced unions to accept significant concessions in wages, benefits, and work rules. One of the most drastic restructurings via bankruptcy was that of US Airways. A brief history of US Airways offers a useful illustration of the magnitude of legacy restructuring in the United States (much of the material that follows is sourced from Bamber, Gittell, Kochan, and von Nordenflycht 2009). US Airways was founded in 1939 as All-American Airlines, ultimately changing its name to Alleghany Air in the 1950s and then USAir shortly AIRLINE INDUSTRY 25 after deregulation. At the time of deregulation, USAir was a large airline but had a regional focus. To establish itself as a national airline, USAir in 1987 acquired two other large airlines, PSA and Piedmont, but a difficult merger integration process left the airline with a cultural legacy of internal conflict. Through the 1990s, US Airways was roughly the sixth-largest airline in the United States. Its route network, though, was still more regionally concentrated than that of its large rivals. In particular, US Airways’ network included many short-haul flights around the central and eastern part of the country. These shorter routes contributed to one of US Airways’ key disadvantages through the 1990s: the highest unit costs in the industry. This unit cost position was also the result of a combination of high wage rates, work rules, and the adversarial workplace culture, which yielded the industry’s highest unit labor costs as well. The airline nonetheless survived because many of its routes not only had a large percentage of corporate passengers but also faced minimal competition, allowing US Airways to charge a price premium. The cost disadvantage generally outweighed the price advantage, however, and US Airways’ financial performance as a result was generally poor relative to its rivals. As shown in Figure 2, US Airways’ operating margin (operating income divided by revenue) was consistently below the industry median since the 1987 merger through 9/11. Post-9/11, US Airways was hit particularly hard. One of its hub airports, Reagan National Airport in Washington, DC, was closed for security reasons for a month after the attacks. In addition, new-entrant competition began encroaching into much of its territory, especially Southwest Airlines in Baltimore and Philadelphia. Not surprisingly, US Airways was an early candidate for bankruptcy, filing in the fall of 2002. The airline reached a concession agreement with its unions by late 2002. Subsequent operating results, however, were not positive and worsened by an increase in fuel prices. The airline had to ask the unions for a second round of wage and benefit cuts. After the majority owner made an explicit threat of liquidation, unions agreed to a second set of concessions. The airline exited bankruptcy in March 2003, but its operating results remained poor and the environment—namely jet fuel prices—worsened. In the fall of 2004, US Airways went back into bankruptcy and asked the unions for yet a third round of cuts. In addition to the threat of liquidation, the other source of bargaining leverage for the airline was the possibility of asking the bankruptcy judge to void the labor contracts if no agreement could be reached after good-faith efforts. Although the pilots and flight attendants eventually agreed to this third round of cuts, the mechanics did not and eventually had their contract voided by the presiding judge. 26 COLLECTIVE BARGAINING UNDER DURESS

FIGURE 2 US Airways vs. Major Airline Median Operating Income, 1989–2002

Source: MIT Airline Data Project, DOT Form 41 reports, SEC 10K reports.

After this contract voiding, US Airways and the mechanics agreed to the terms last proposed by the airline during negotiations. Over three rounds of concessions, employee wages were cut by 40% in some instances. Figure 3 illustrates the wage concessions using, flight attendant wage rates. The solid lines represent an estimated monthly pay, based on the contractual hourly rate and an estimated 75-hour month, for flight attendants with five years’ seniority and those with 14 years’ seniority (the highest pay rate); for example, in 2001, the most-senior flight attendants earned about $3,241 per month. The dashed lines represent these monthly wages as an index of monthly wages in 2001. After the concessions, in 2005, senior flight attendants were earning 13% less than they did in 2001, while those with five years of service earned 8% less. It is interesting to note that in the subsequent years, wages have climbed steadily, to the point that junior flight attendants earn more than they did in 2001, while senior flight attendants are back to 96% of 2001 rates. But although these flight attendants have seen their wage rates recover almost all of the concessions, they nonetheless experienced a decade of notably lower wages. Concessions on benefits were perhaps more substantial. In particular, all the defined benefit pensions were terminated and turned over to the government agency that backs up private pensions, the Pension Benefit AIRLINE INDUSTRY 27

FIGURE 3 US Airways Flight Attendant Monthly Wage Rates (in dollars) and as an index (2001 = 1.0), 2000–2012

Source: Airlines for America.

Guaranty Corporation (PBGC). This meant that existing employees would still receive some pension benefits, paid by the PBGC, but only up to a certain amount. In the case of the pilots, for example, the payouts would likely be one third of what the original plans would have provided. The concessions also included significant work rule changes, leading to employees working more hours per day and per month and allowing US Airways much more operational flexibility. The airline also won the right to outsource significantly more maintenance work and to use more regional jet aircraft, which tended to go with lower pay rates for pilots and other staff. The agreements included some quid pro quos that offered employees participation in the firm’s governance and financial performance. Unions were given the right to nominate four of the members of the board of directors. And employees had three mechanisms for financial participation: a grant of stock options, a profit-sharing program, and bonuses based on meeting various operational performance targets. After reaching these final concession agreements, in 2005 US Airways exited this second bankruptcy by working out a merger agreement with America West, one of the few surviving new-entrant airlines from the first wave of new entry in the early 1980s. Although America West was the acquirer, it adopted the US Airways name because of its greater 28 COLLECTIVE BARGAINING UNDER DURESS

brand recognition. The merger with America West ended employee representation on the board of directors. In essence, US Airways had gone from having the industry’s highest unit costs to having unit costs lower than all of its legacy rivals (see Figure 4 for the change from 1995 through 2010 in US Airways’ labor unit costs relative to the network carriers’ median). Although keeping US Airways alive and reaching the concession agreements was no small feat for the airline’s management and its unions, employees gave up a considerable amount in terms of expected future compensation and quality of work life in the process. The new merged airline has billed itself as the world’s largest low-fare airline. In 2006, US Airways even launched a bid to acquire Delta out of bankruptcy but was rebuffed. As of this writing in 2013, the boards of US Airways and American had agreed to merge (Mouawad 2013). Legacy Concessions Summary Table 5 illustrates key aspects of the concessionary labor agreements reached at the full-service legacy airlines. Cuts to wage rates ranged from 9% to 50%, depending on airline, occupation, and seniority. Benefits also were reduced, with the freezing or termination of defined benefit pension plans being particularly notable.

FIGURE 4 Labor Cost per Available Seat Mile: US Airways vs. Network Airline Median, 1995–2010

Source: MIT Airline Data Project via DOT Form 41 reports. AIRLINE INDUSTRY 29

TABLE 5 Comparison of Labor Contract Restructuring Outcomes, by End of 2006 Wage Board Amendable Airline Bankrupt cuts Pensions Variable pay seats date Stock options, 16%– profit sharing (15% American No Preserved No 4/08 23% over $500 M), performance bonus Stock options, profit 9% Frozen/ sharing (diminishing Continental No No 12/08 (pilots) converted % starting at 30%), performance bonus Equity, profit- Non- 30%– Delta sharing performance voting Yes 50% Terminated 12/09 (pilots) bonus, raises tied seat for to profits pilots Equity, profit 30%– sharing (15% over United Yes Terminated No 12/09 50% 10 M), performance bonus Equity, profit- 30%– US Airways Twice Terminated sharing performance No 12/09 50% bonus (pre-merger) Source: Bamber, Gittell, Kochan, and von Nordenflycht (2009).

As an illustration of the pattern of legacy wage rates over the past decade, Figure 5 documents the change in flight attendant wage rates (for the most-senior employees) at six legacy airlines from 2000 through 2012. Wages are indexed to 2002, which was the period just before concessions began being agreed on and implemented. Alaska and Continental did not negotiate wage concessions from flight attendants, apparently needing only wage freezes to weather the crises. The other four—three that went through bankruptcy early (US Airways, United, Delta) and American, which negotiated concessions outside of bankruptcy—experienced wage rate decreases ranging from 10% to 20% for senior flight attendants. Since the trough in 2005 and 2006, however, wage rates have steadily increased, reaching within 5% of the 2002 peak by 2012 (and, of course, 10% to 15% above 2002 levels for the two that avoided wage concessions). As illustrated in the US Airways case, one of the key outcomes that airlines achieved via bankruptcy was the reduction of obligations to retired and soon-to-be retired employees. In particular, this meant the termination of defined benefit pensions, which were turned over to the PBGC. For pilots at those legacy airlines, this transfer reduced their pension benefit by about 67%. In addition, medical insurance costs for retirees were eliminated or reduced. Thus, the “legacy” aspects of these airlines—the long-term cost obligations resulting from a long-operating employment system—were 30 COLLECTIVE BARGAINING UNDER DURESS

FIGURE 5 Flight Attendant Monthly Wage Index by Airline, 2001–2012

Source: Airlines for America. vastly reduced. Airlines that avoided bankruptcy retained the financial obligations to fund these pension and health care costs. The importance of shedding these legacy costs can be illustrated by the American Airlines bankruptcy filing in 2011. In 2003, American achieved what seemed to be a noteworthy accomplishment—it negotiated a concessionary contract with its unions without filing bankruptcy (Bamber, Gittell, Kochan, and von Nordenflycht 2009). But after its competitors all went through bankruptcy, American was left with high labor costs, in no small part because of the ongoing pension and retiree health insurance obligations (see Figure 4 for American’s unit labor costs relative to the network carrier median). Ultimately, American, too, resorted to bankruptcy to restructure these costs. Industry Wage Trends Although the legacy labor concessions over the first half of the decade were substantial, the overall picture for industry wages is not as starkly negative. For one thing, many newer entrants did not face the same mismatch between revenue and cost and so did not negotiate wage decreases. And as indicated in Figure 5, even several legacy airlines were able to restore competitiveness without resorting to concession demands. Furthermore, as further indicated in Figure 5, even the legacies that negotiated concessions nonetheless saw wage rates climb over the second half of the decade. AIRLINE INDUSTRY 31

Figure 6 shows the average wage and salary expense per employee from 2000 through 2010 at the 15 largest airlines in 2011. These estimates come from DOT Form 41 reports and are derived by dividing each airline’s total wage and salary bill by the airline’s number of full-time equivalents. The figure does show a modest decline in average compensation levels from 2002 through 2006—the period in which the full-service legacies were restructuring labor contracts. But then after 2006, average compensation has risen steadily through 2010. Breaking the industry average into specific segments reveals a somewhat surprising picture. Figure 7 breaks this overall average into three components: six large, full-service airlines (the legacies), six low-cost airlines (excluding Southwest), and Southwest by itself. Wages at the low-cost airlines—and especially at Southwest—have risen steadily over the past decade, in distinct contrast to the concessionary restructuring at the legacies. The growth in wages at these low-cost airlines coupled with the restructuring at the full-service airlines has significantly reduced the wage gap between these two segments. And even at the legacy full-service airlines, while the decline from 2002 through 2006 is more pronounced than is shown in Figure 6—about 10% overall—there has been a rise in wages since 2006, leaving average compensation in 2010 about 3% higher than in the previous peak in 2002.

FIGURE 6 Average Annual Wage and Salary Expense per Employee Across 15 Largest Airlines, 1995–2010

Source: MIT Airline Data Project, based on DOT Form 41 filings, Schedules P6 and P10. 32 COLLECTIVE BARGAINING UNDER DURESS

FIGURE 7 Full-Service vs. Low-Cost Average Wage and Salary Expense per Employee, 2000–2010

Source: MIT Airline Data Project, based on DOT Form 41 filings, Schedules P6 and P10.

So, although the headlines in the industry have focused on restructuring by legacy carriers and although employees and unions at these carriers experienced substantial concessions on wages and benefits, there have actually been substantial wage gains over the decade, particularly at the low-cost carriers, and even modest gains in recent years at the restructured legacies. With the defined benefit pension terminations at the legacies and increasing levels of employee contributions to health insurance coverage, it is likely, though, that the overall level of benefits has gone down. Contingent Compensation Another interesting outcome is that contingent pay, in multiple forms, has become standard. Employees of all the major legacy airlines have stock options or stock grants, a profit-sharing plan that pays out a percentage of profits above a threshold level, and bonuses related to operational performance benchmarks. At first look, these contingent compensation mechanisms might seem like a way to reduce the historical volatility of the industry’s labor relations AIRLINE INDUSTRY 33 by ensuring that employees will be rewarded when airline performance improves and by generally tying compensation to industry conditions rather than negotiating fixed wages that prove hard to adjust when the business cycle inevitably repeats. The amount of compensation involved, however, did not match the future wages that employees gave up in concessions. Pilots at the major legacy airlines, for example, were projected to receive between $5,000 and $15,000 each, depending on the airline, from profit-sharing programs in 2008. If we assume that the average pilot earned about $120,000 in 2001 before all the restructuring and eventually agreed to wage concessions averaging about 30%, this means he or she gave up some $36,000 per year. In addition, many had their pension benefits significantly reduced. Not surprisingly, as the concessionary labor contracts became amendable in 2008 and 2009, unions began talking of regaining lost wages and benefits as the only way to share in the airlines’ recovery, with no mention of any of the contingent pay mechanisms.

BARGAINING OUTCOMES: SHARED OWNERSHIP AND STRATEGIC VOICE Collective bargaining provides airline employees a greater voice not only in negotiating the terms of their employment relationship but also in some aspects of their airline’s strategy because labor negotiations and contracts can give unions rights to approve or oppose shifts in an airline’s route structure, fleet composition, or acquisitions. Beyond this, however, employees and/or unions at a number of U.S. airlines have at times enjoyed an even greater voice in the management of the airline in the form of representation on the airline’s board of directors. (Unless specifically cited, the information in this section comes from Bamber, Gittell, Kochan, and von Nordenflycht 2009 and Gittell, von Nordenflycht, and Kochan 2004.) The most common form of this representation came as one component of an employee stock ownership plan (ESOP). The distinctive characteristic of airline ESOPs is the combination of collective employee ownership of a significant share of the airline’s equity, with the right to collectively nominate some members of the airline’s board of directors. In this way, employees, usually via their unions, have had a formal voice in corporate decision making. United (from 1994 through 2002) is perhaps the most famous case of employee ownership of an airline, but there have been several other examples among legacy airlines since deregulation, including Western (1984), Eastern (1984), TWA (1992), and Northwest (1993). There have also been instances when board representation was negotiated independently of any formal ESOP, such as at US Airways during bankruptcy negotiations, as previously discussed. However, instances of board representation and employee ownership have had few positive effects on the labor–management relationship—in 34 COLLECTIVE BARGAINING UNDER DURESS fact, one might conclude that they exacerbate tensions in the bargaining process—and they have been short lived. In all the cases discussed, employee equity and board representation were essentially a quid pro quo for large wage concessions. Furthermore, without the concessions, five of the six airlines would have been facing an impending bankruptcy. Thus, employee equity and board seats have generally been adopted by struggling airlines and have been viewed by management and unions alike as a financial transaction and a necessary evil rather than an opportunity for partnership. Nonetheless, despite the less-than-ideal starting conditions, each of the airlines that adopted an ESOP experienced an initial burst of cooperation and improved labor relations (Wever 1995). For example, after adopting its ESOP, Eastern was heralded as a national example of how employee involvement at the workplace, more cooperative labor relations, and employee voice in strategic decision making could transform a failing company into one with a bright future (Petzinger 1996; Blasi and Gasaway 1995). But in each case, the newfound goodwill, which had fueled joint productivity improvements, dissipated as the parties came back to the negotiating table. Contract negotiations were as contentious and drawn out as ever—perhaps more so. This is most vividly illustrated by Northwest and United, the two airlines that survived long enough to negotiate a post-ESOP contract. At Northwest, the ESOP began in 1993, and the accompanying concessionary labor contracts became amendable in 1996. By 1998, two years after negotiations began, talks had progressed so well that the pilots went on strike for 14 days! But at least that contract was settled shortly afterward. Flight attendants did not settle for two more years (four years past the amendable date) and mechanics not for another three years (five years past the amendable date). At United, too, negotiations on contracts that opened in 1998 were long and were accompanied by job actions. United did not settle with its pilots until two years later, and only after pilots began refusing overtime assignments, which caused United to cancel five thousand flights per month between May and August 2000 Newsday( 2000). Then after the pilots settled, the mechanics launched a set of slowdowns (Carey 2001). After two more years, the mechanics negotiations went to a Presidential Emergency Board, whose recommended settlement was rejected by the rank and file before the parties eventually settled in 2002 (four years after talks began). Thus, employee ownership and/or board representation may actually lead to more difficulty in the collective bargaining relationship, perhaps because of expectations by employees of greater voice and control than ESOPs are intended to provide. At the end of the day, ESOPs and board representation were short lived, having been terminated either by merger or bankruptcy. Within two years AIRLINE INDUSTRY 35 of establishing their ESOPs, Western and Eastern were acquired (by Delta and Texas Air, respectively), and the acquisition ended the employee ownership and board representation. TWA’s also ended when American acquired TWA. US Airways’ employee board representation was terminated upon acquisition by America West. The ESOPs at United and Northwest ended when those airlines entered bankruptcy. The longest- lived was Northwest’s, from 1993 through 2005. As of 2012, no instances of formal employee or union board representation remained in place among the industry’s main airlines

QUALITY OF LABOR–MANAGEMENT RELATIONS AND EMPLOYEE RELATIONS In a study of U.S. major airlines over a 12-year period, Gittell, von Nordenflycht, and Kochan 2004 found that union representation was associated with higher employee wages, as well as higher aircraft productivity and operating margins; in other words, union representation during this period improved both worker outcomes and firm performance. Labor–management conflict in the form of strikes and arbitrations, however, was associated with lower service quality, reduced aircraft productivity, and reduced operating margins. In sum, union representation appeared to bring benefits for workers and their airlines, but it was counterbalanced by decreases in service quality, productivity, and financial performance when labor–management conflict occurred. From this, Gittell, von Nordenflycht, and Kochan (2004) argued that achieving positive outcomes for airline employees and airlines alike would require more than union representation—it would require high-quality labor–management relations. Additional research indicates that high-quality relationships between airlines and unions are associated with high-quality relationships at the workplace between employees and their managers—that is, high-quality employee relations (Gittell, von Nordenflycht, and Kochan 2004; Bamber, Gittell, Kochan, and von Nordenflycht 2009). Traditional zero-sum approaches presume that a high-quality relationship between employees and their managers threatens to displace or weaken the relationship between employees and their union representatives, and vice versa. Mutual- gains approaches assume the possibility that high-quality relationships between employees and their managers can coexist with or even contribute to high-quality labor–management relations. The Gittell, von Nordenflycht, and Kochan (2004) study identified several airlines with higher-quality employment relations than the industry norm—Delta Airlines until 1994; Continental Airlines, starting in 1994 under the leadership of Gordon Bethune, after a long period of highly contentious employment relations (see von Nordenflycht 2004); and Southwest Airlines for the entire 12-year 36 COLLECTIVE BARGAINING UNDER DURESS period of the study. Gittell, von Nordenflycht, and Kochan (2004) found that these instances of high-quality employment relations were positively associated with airline performance (service quality, labor productivity, aircraft productivity, operating margins) and employee outcomes (wages), over and above the impact of conflict (or lack thereof) in labor– management relations. Furthermore, airlines with high-quality employment relations also experienced shorter labor contract negotiations (Gittell, von Nordenflycht, and Kochan 2004). In other words, high-quality employee relations facilitated high-quality labor–management relations and more-efficient collective bargaining. Relational Coordination What are high-quality employment relations and how do they contribute to performance outcomes? According to organizational scholar Jane Dutton and her colleagues, the quality of relationships among organizational members is the basis for a life-enhancing work environment (Dutton 2003; Dutton and Heaphy 2003; Dutton and Ragins 2007). One important manifestation of high-quality work relationships is found in relational coordination, “a mutually reinforcing process of interaction between communication and relationships carried out for the purpose of task integration” (Gittell 2002:301). Relational coordination as developed by Gittell (2003, 2006) includes three dimensions of high-quality relationships—shared goals, shared knowledge, and mutual respect. In its focus on the relational dimensions of interaction, relational coordination is conceptually similar to other constructs of high-quality relationships such as heedful interrelating (Weick and Roberts 1993), respectful interacting (Vogus 2006), and respectful engagement (Dutton 2003). In sum, the high-quality relationships found in relational coordination increase an organization’s information-processing capacity by supporting high-quality communication among members who play distinct roles in the organizational division of labor, thus enabling the effective coordination of work. In a study of flight departures at American, Continental, United, and Southwest, relational coordination was measured among pilots, flight attendants, gate agents, ticket agents, operations agents, ramp agents, baggage agents, cargo agents, caterers, fuelers, mechanics, and cabin cleaners. The strength of relational coordination among these 12 employee groups was associated with faster turnaround times at the gate, fewer employees per passenger enplaned, fewer late departures, fewer lost bags, and fewer customer complaints. In sum, relational coordination was associated with higher productivity and improved customer service in the study of flight departures at those four airlines (Gittell 2001, 2003)—as shown in Figure 8—similar to the performance outcomes found in our 12-year study of the airline industry (Gittell, von Nordenflycht, and Kochan 2004). AIRLINE INDUSTRY 37

FIGURE 8 Relational Coordination and Flight Departure Performance

Source: Gittell (2001, 2003).

Building High-Quality Relationships in the Airlines What insights can be gleaned regarding the development of high-quality work relationships in the airline industry, based on an examination of case study evidence? The following represents a small portion of the findings shared in Gittell (2003). Leadership Relational coordination was higher in airlines whose leaders were perceived to be both caring and credible—leaders who cared about the airline and its employees and who could be trusted to say what they believed to be true. These leadership characteristics were helpful for building employee management relationships and employee relationships as well as labor– management partnerships, as observed at Southwest under the leadership of Herb Kelleher and Colleen Barrett, and later Gary Kelly and Laura Wright, and at Continental under the leadership of Gordon Bethune. Relational coordination was also higher in airlines with more supervisors per frontline employee, unexpectedly, but owing to the closer working relationships experienced between supervisors and frontline employees and the tendency to rely more on coaching and feedback rather than a directive approach to supervision. 38 COLLECTIVE BARGAINING UNDER DURESS

Performance Measurement Relational coordination was also higher in airlines that allowed a broader coding of flight delays or the ability of multiple employee groups to share accountability for delays. This shared accountability was associated with a more trusting relationship between supervisors and frontline employees, with a tendency to rely on coaching and feedback rather than punitive approaches, and with less blaming and finger pointing between frontline employees themselves. Conflict Resolution Relational coordination was higher in airlines that rewarded managers for proactive conflict resolution among employees, whether in the same or different occupational groups. The proactive use of conflict resolution appeared to create a culture of greater openness and problem solving, with fewer boundaries of resentment built up over time because of the lack of outlet for wrongful treatment. By improving the quality of workplace relationships, conflict resolution between groups of different power and status (say, pilots and flight attendants) can also contribute to psychological safety and the ability to speak up, thus enabling airline employees to learn from failures over time. For seven additional practices associated with high levels of relational coordination, see Gittell (2003).

CONCLUSION The goal of this chapter was to assess the state of collective bargaining in the airline industry circa 2012: Is collective bargaining dead or dying or is it alive and well? The conclusion is that collective bargaining is, for the most part, alive and well and that the nature of the employment relationships in the U.S. airline industry has not changed much since the last review in 2002. The industry’s unionization rate remains high—indeed, it has increased since 2002. Although a few large airlines have managed to maintain largely non-union status, they are rare exceptions. There is little to suggest that the level of unionization will change significantly in the foreseeable future. Even relatively young airlines tend to experience successful union organizing sooner rather than later, so new entry is not necessarily a large threat to unionization rates. Even if regulatory barriers to the entry of foreign- owned airlines into the U.S. domestic market were reduced, it is unclear whether it would be a big threat to unionization in the medium term because many large foreign airlines are also unionized. One possible threat might be in the international arena—that is, flights between countries. Full-service network airlines in the United States earn a substantial fraction of their profits from international flying. On these AIRLINE INDUSTRY 39 routes, they have traditionally faced competition from foreign carriers that are also unionized (e.g., British Airways, Lufthansa, Air France, JAL, Singapore, and Qantas). In the past decade, however, a few non-union airlines have made significant inroads into international flying, most notably Emirates. If non-union carriers proliferate on international routes, they may put important pressure on unionized U.S. carriers. In inter-Asian markets, for instance, the growth of several non-union international carriers (e.g., Air Asia, Tiger) has caused competitive problems for Qantas to the point where Qantas has sought to use its non-union LCC subsidiary (JetStar) to compete on some international routes (Bamber, Gittell, Kochan, and von Nordenflycht 2009). Our overall conclusion, though, is that unionization will remain high in the U.S. airline industry. Second, the collective bargaining process has largely operated successfully, with contracts being negotiated privately with few work stoppages, though with heavy reliance on the mediation services of the National Mediation Board. The exception is that airlines have used the leverage of bankruptcy reorganization—with its threat of contract abrogation and even liquidation—to get unions to agree to the concessions that the airlines felt necessary to remain competitive. In particular, it seems unlikely that the substantial reductions to pension benefits would have been negotiated outside of bankruptcy (as the American Airlines example illustrates). Nonetheless, the concessions were still largely negotiated rather than unilaterally imposed. The fact that airlines in financial difficulty resorted to bankruptcy to facilitate obtaining concessions, however, is little different from the previous two decades of deregulation. These concessions seemed to be the dominant feature of compensation outcomes for the first five years after 9/11. As we described, in addition to the loss of hundreds of thousands of jobs, employees at legacy network airlines also experienced wage cuts of up to 30%, as well as increases in hours of work, reductions in health insurance benefits, and terminations of defined benefit pension plans. However, wages kept increasing at the LCCs, and wages began increasing at the legacy network carriers in 2007. So, the overall picture of industry wages over an entire decade since 9/11 indicates a moderation in the first half but a return to rising wages in the second half. As the flight attendant contract data indicate, wage rates have risen to within 5% of the 2002 peak. Overall, the industry remains consistent with Hirsch’s (2007) characterization of airline wage determination: The airline industry has developed a compensation pattern in which its union workers “tax” potential profits following the onset of good times, but agree to moderate contractual pay increases or provide wage and benefit 40 COLLECTIVE BARGAINING UNDER DURESS

concessions following the onset of bad times. For many if not most airlines and their unions, this product market union wage cycle has been accompanied by a contentious labor relations environment with no small amount of distrust on all sides. … Because unions retain bargaining power at the major carriers, wages are likely to head upward as carriers’ financial health returns. Such wage levels may or may not be sustainable in the inevitable next downturn. (Hirsch 2007:1–2) Although wages have indeed appeared to follow this pattern, it seems unlikely that health and pension benefits will also return to previous levels because the increases in employee contributions to health insurance and the conversions of defined benefit to defined contribution pensions have occurred throughout the economy. Has anything changed in the airline employment relationship in the last decade? We would point to two changes. First, there has been a reduction in the instances of shared ownership and board-level voice. At some point between 2001 and 2005, employees and/or unions had official seats (some voting, some non-voting) on the board of directors at United, US Airways, Delta, and Northwest. Only the non-voting seats on the Delta board remain today. Although the industry has seen at least four instances of majority employee ownership of a major airline, none exists today. Bankruptcies and mergers have generally eliminated these unorthodox approaches to the employment relationship. These shared ownership (or shared governance) arrangements are often instituted in the context of concessionary contract negotiations—unions asking for a quid pro quo in exchange for wage cuts. Given that the industry’s large firms have just come out of a concessionary period without these arrangements, it seems unlikely that any will reappear soon. Second, there has been an increase in the magnitude and frequency of contingent compensation, even within collectively bargained contracts. Most large airlines now feature some form of monthly or quarterly bonuses if the airline achieves operational performance targets, as well as some form of profit sharing. In other words, employees are participating more directly in carriers’ financial performance but less in carriers’ strategic management. Finally, outside of collective bargaining, research seems to indicate that airlines can achieve operational advantages if they can establish and maintain higher-quality relationships—between managers and employees, management and unions, and among employees. But achieving such relationships is, apparently, much easier said than done. Delta and Southwest appear to retain above-average internal relationships. But American failed to achieve such an outcome, despite substantial effort AIRLINE INDUSTRY 41

(see Bamber, Gittell, Kochan, and von Nordenflycht 2009), and it is very unclear what will happen to Continental’s employment relationships now that it has merged with United. It will be interesting to see whether Delta and Southwest will remain outliers, whether they will be joined by others, or whether they will also revert to the more adversarial norm in the industry.

For much more information and analysis of the issues in this chapter, see Greg Bamber, Jody Hoffer Gittell, Thomas Kochan, and Andrew von Nordenflycht (2009),Up in the Air: How Airlines Can Improve Performance by Engaging Their Employees, Ithaca, NY: Cornell University Press. The authors of this chapter participate in an international research network sponsored by the Labor and Employment Relations Association’s Airline Industry Council. They acknowledge that this chapter draws on the work conducted by many others in the network. A series of articles from this network was published in 2009 in the International Journal of Human Resource Management.

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National Mediation Board (NMB). 2013. “Strike Report: U.S. Airlines.” Newsday. 2000 (Aug. 28). “United, Pilots Settle Up.” p. A4. Odoni, Amedeo. 2009. “The International Institutional and Regulatory Environment.” In Peter Belobaba, Amedeo Odoni, and Cynthia Barnhardt eds., The Global Airline Industry, West Sussex, UK: Wiley, pp. 19–46. Petzinger, Thomas, Jr. 1996.Hard Landing. New York: Random House. United States Bureau of Transportation Statistics (U.S. BTS). 2013. “Air Carrier Groupings.” United States General Accounting Office (U.S. GAO). 2003. “Foreign Investment in U.S. Airlines.” GAO document GAO-04-34R. Vogus, Timothy J. 2006. “What Is It About Relationships? A Behavioral Theory of Social Capital and Performance.” In Adrienne E. Eaton, ed., Proceedings of the 58th Annual Meeting of the Labor and Employment Relations Association. Champaign, IL: Labor and Employment Relations Association, pp. 164–73. von Nordenflycht, Andrew. 2004. “The Transformation of Authority at Continental Airlines.” Best Papers, Proceedings of the 2005 Annual Meeting of the Academy of Management. Briarcliff Manor, NY: Academy of Management. von Nordenflycht, Andrew, and Thomas A. Kochan. 2003. “Labor Contract Negotiations in the Airline Industry.” Monthly Labor Review, Vol. 7, pp. 18–28. Walsh, David J. 2001. “Continuity and Change in the Structure of Union Representation in the U.S. Airline Industry, 1969–1999.” In David Lewin and Bruce E. Kaufman, eds., New Research on Labor Relations and the Performance of University HR/IR Programs (Advances in Industrial and Labor Relations, Vol. 10). Bingley, UK: Emerald Group Publishing, pp. 1–29. Weick, Karl E., and Karlene H. Roberts. 1993. “Collective Mind in Organizations: Heedful Interrelating on Flight Decks.” Administrative Science Quarterly, Vol. 38, no. 3, pp. 357–81. Wever, Kirsten S. 1995. “Revisiting the Labor–Management Partnership at Western Airlines.” In Peter Cappelli, ed., Airline Labor Relations in the Global Era. Ithaca, NY: ILR Press. chapter 2 Crisis and Recovery in the U.S. Auto Industry: Tumultuous Times for a Collective Bargaining Pacesetter

Harry C. Katz Cornell University John Paul MacDuffie University of Pennsylvania Frits K. Pil University of Pittsburgh

The auto industry historically has played a prominent pacesetting role in American collective bargaining, introducing many now common features—multi-year contracts with cost-of-living-adjustment escalators and built-in annual real wage increases, supplementary unemployment benefits, “30 and out” pensions, quality of working life programs, and pattern bargaining.1 From the early 1980s on, automotive labor relations was again at the forefront in taking actions to modify this long-established model, under pressure from both foreign and domestic competitors and from new production methods often linked to team working and related innovative human resource practices. During these years, labor and management in the auto industry faced a combination of long-term structural factors and periodic sharp cyclical downturns. These pressures resulted in increased diversity and decentralization in collective bargaining outcomes at both company and factory levels and widespread experimentation with new work designs and human resource practices at the workplace. This led to debate within both union and management ranks about the best way to deal with these changes. Japanese, Korean, and European companies also became owners or co-owners (with American company partners) of assembly plants and auto companies in the United States. The fact that virtually all of the assembly plants that were solely owned by Japanese, Korean, or German companies operated without a union introduced the threat of non-union operations to what had been one of the few remaining fully unionized sectors in the American economy.

45 46 COLLECTIVE BARGAINING UNDER DURESS

Then in 2008 and 2009, a crisis of historic proportion hit the U.S. auto industry, particularly General Motors (GM), Ford, and Chrysler, which were already suffering from longer-term market share declines when the crisis arrived. GM and Chrysler went through bankruptcies they were able to escape from only with the help of bailout funds from the U.S. federal government. First facing massive layoffs and plant closings and then the threat of the potential liquidation of one or more of the U.S.- based producers, the United Auto Workers (UAW) agreed to unprecedented concessions that included the transfer of retiree health care liabilities to union-managed funds and a significantly lower-tier wage for new hires. Recent years have seen the recovery of profits and a modest rebound in employment at GM, Ford, and Chrysler. Meanwhile, many other changes have occurred within the U.S. auto sector, including a more prominent role for supplier companies and an increasingly large role for foreign-owned auto plants (that were also put into a vulnerable position during the financial crisis by their dependence on at-risk suppliers). Before we analyze recent developments in U.S. automotive industrial relations, we first review the industry’s distinctive and often innovative history of labor–management relations. In the next section, we describe the unions and the companies involved in automotive labor relations. Subsequent sections focus on the competitive and technological environment affecting the bargaining context for the U.S. automotive industry; the structure of collective bargaining; new developments in collective bargaining from 1979 to the present, with a particular emphasis on the past ten years; and a look at challenges confronting the industry going forward.

THE PARTIES The Unions The UAW is the primary union representing workers in the auto industry.2 The International Union of Electricians (IUE), which recently affiliated with the Communications Workers of America, also represents some hourly workers in the assembly firms (primarily in the electrical products plants of these firms). By the late 1940s, the UAW had organized all hourly workers in the companies that assembled cars and trucks.3 Until 1985, the UAW was an international union because it included Canadian autoworkers. In 1985, the Canadian autoworkers voted to secede, and a separation agreement was negotiated between the United States and Canadian parts of the UAW to form the Canadian Auto Workers. The UAW is a large and fairly centralized union. The internal structure of the union includes departments organized along company lines in the auto industry and an agricultural implements department. National union staff coordinates bargaining within each department and also assists in AUTOMOBILE INDUSTRY 47 the implementation of benefits, employee assistance, health and safety, and quality of working life programs. The central figure in the union over the postwar period was Walter Reuther, who along with his brothers was active in the union’s sit-down strikes and organizing efforts in the 1930s. Reuther served as president of the UAW from 1947 until his death in 1970. During his tenure, Reuther led a coalition (the Administrative Caucus) that dominated the national affairs of the union, and while he was alive, Reuther’s influence and imagination encouraged an innovative spirit within auto bargaining (Steiber 1962). Under Reuther’s guidance, the UAW also was very active in national and local politics and a strong supporter of the Democratic Party. Yet, even with the dominance of the Reuther coalition, the UAW historically has had strong democratic traditions. This was evident, for example in the 1980s and 1990s with the internal debates between Reuther’s Administrative Caucus, which explored new forms of work organization and experimented with union–management collaboration, and the more militant New Directions Movement, which espoused a return to more traditional forms of work organization. In 1996, the UAW, United Steel Workers (USW), and International Association of Machinists (IAM) announced plans to merge by 2001. Merger talks, however, stalled (with the IAM pulling out of the process) over disagreements concerning how union officials would be selected (elections versus appointment) and other matters (Bureau of National Affairs 2000). The UAW continues to be organized in three primary departments aligned with the main domestic companies, even following Chrysler’s acquisition by Daimler and then Fiat.4 When supplier firms spun off from GM, Ford, or Chrysler (Delphi from GM and Visteon from Ford), they were still covered by the UAW department for the parent company. The Companies The American assembly companies are commonly referred to as the Big Three—GM, Ford, and Chrysler. We will continue to use this term for consistency and simplicity, even though the creation in 2009 of Fiat– Chrysler means that the “Big Two-and-a-Half” would be more appropriate. More significantly, with growth in the number of foreign-owned auto plants and the increase in U.S. sales by the parent companies of those plants, the competitive situation in the U.S. market increasingly resembles that of Europe, in the sense that there is fierce competition among five or six original equipment manufacturers, each having 10% to 20% market share, rather than the dominance of domestic automakers that the term Big Three implies. The Big Three produce a number of car and truck parts, and they 48 COLLECTIVE BARGAINING UNDER DURESS

assemble those parts into final vehicles, although the extent to which the assemblers are vertically integrated (i.e., using parts produced in their own plants) varies. Overall, the trend across all the assemblers is toward much more disintegration (i.e., many fewer parts procured from fully owned suppliers, particularly since the spinoffs of Delphi and Visteon). The Big Three are completely unionized, and their national (companywide) collective bargaining agreements cover the companies’ final assembly and parts plants. Table 1 contains basic information about these companies. Since the early 1980s, there has been a steady stream of foreign investment in the form of U.S.-located assembly plants with Japanese (starting with Honda in 1982), German (BMW in 1994), and Korean (Hyundai in 2005) ownership, referred to in the industry and in this paper as the transplants. Table 2 contains summary information on these plants. Three of the transplants acquired union status by virtue of their joint venture arrangements with U.S. companies [NUMMI (GM–Toyota), Diamond Star (Chrysler–Mitsubishi), and Auto Alliance (Ford–Mazda)]. These

TABLE 1 U.S. Automotive Companies: North American Assembly Operations Assembly plants 2000 company U.S. Canada Mexico 2000 N. American vehicle production GM 21 3 3 5,631,771 Ford 16 3 2 4,669,253 Chrysler 11 3 3 2,972,355

Assembly plants 2005 company U.S. Canada Mexico 2005 N. American vehicle production GM 21 3 3 4,565,603 Ford 15 2 2 3,117,305 Chrysler 12 2 2 2,794,546

Assembly plants 2010 company U.S. Canada Mexico 2010 N. American vehicle production GM 11 3 3 2,565,616 Ford 10 2 2 2,328,278 Chrysler 6 2 2 1,571,662

Assembly plants 2011 company U.S. Canada Mexico 2011 N. American vehicle production GM 11 3 3 2,565,616 Ford 9 2 2 2,619,797 Chrysler 7 2 2 1,993,455 Sources: Automotive News Market Data Book, various issues; Ward’s Automotive Yearbook, various issues. AUTOMOBILE INDUSTRY 49 0 — 2011 37,083 Output Output 285,258 333,392 232,411 116,430 289,124 315,889 195,304 241,175 2010 90,814 29,375 Output Output 340,561 282,027 278,272 122,754 307,698 371,694 242,929 246,743 245,751 Continued, next page 2000 Output Output 451,367 377,275 344,076 326,823 107,431 221,975 183,739 123,553 107,651 225,723 208,676

4,315 6,700 4,600 3,500 1,300 4,300 6,900 2,775 2,230 1,315 in 2010 Closed* Estimated employment 1982 1983 1984 1986 1987 1988 1988 1988 1989 1989 1989 startup Production Production TABLE 2 TABLE Normal, IL Normal, Smyrna, TN Smyrna, Alliston, ON Lafayette, IN Lafayette, Fremont, CA Fremont, Plant location Plant Ingersoll, ON Ingersoll, Flat Rock, MI Rock, Flat ; company websites. ; company websites. Marysville, OH Cambridge, ON Georgetown, KY Georgetown, East Liberty, OH East Liberty, Nissan 100% Nissan Toyota 100% Toyota 100% Toyota Honda 100% Honda 100% Honda 100% Honda Mitsubishi 100% Mitsubishi Company ownership Automotive News Market Data Book Data Market News Automotive GM 50%; Toyota 50% Toyota GM 50%; GM 50%; Suzuki 50% 3 GM 50%; Suzuki Ford 50%; Mazda 50%** 50%; Mazda Ford Fuji Hvy. Ind. 50%; Isuzu 50% 50%; Isuzu Ind. Hvy. Fuji , various issues; , various Japanese, German, and Korean Automobile Assembly Plants (Transplants) Based in the United States and Canada States in the United Based (Transplants) Assembly Plants Automobile and Korean German, Japanese, Automotive News Automotive NUMMI closed in 2010 after GM withdrew from the joint venture during its bankruptcy proceedings and Toyota declined to purchase GM’s equity share. GM’s declined to purchase Toyota during its bankruptcy and proceedings the joint venture from NUMMI closed in 2010 after GM withdrew In 2009, GM took 100% ownership of this plant. 2009, GM took 100% ownership In In 2012, Ford took 100% ownership of this plant. took 100% ownership 2012, Ford In Company name of America Mfg. Honda Mfg. USA Motor Nissan Mfg. Inc. Motor United New Canada Mfg. Honda International AutoAlliance Mfg. Motor Mitsubishi Mfg. (Canada) Motor Toyota Mfg. (KY) Motor Toyota CAMI Inc. of America Mfg. Honda Inc. Auto Subaru-Isuzu Sources: * ** *** 50 COLLECTIVE BARGAINING UNDER DURESS 2011 2,358 81,554 32,259 Output Output 277,074 127,273 248,659 264,324 229,502 147,645 342,162 282,316 — — 2010 95,116 Output Output 157,703 125,393 243,992 272,082 228,954 150,098 300,500 153,665 — — — — — — — — 2000 38,665 80,005 Output Output 129,724

4,600 4,000 4,600 4,300 4,100 2,000 3,000 2,500 2,000 2,000 2,000 in 2010 Estimated employment 1994 1997 1998 2001 2003 2003 2005 2009 2010 2011 2011 startup Production Production Vance, AL Vance, Lincoln, AL Canton, MS Princeton, IN Princeton, Plant location Plant ; company websites. ; company websites. Greensburg, IN Greensburg, West Point, GA Point, West San Antonio, TX Antonio, San Montgomery, AL Montgomery, Spartanburg, NC Spartanburg, Blue Springs, MS Springs, Blue Chattanooga, TN Chattanooga, TABLE 2 TABLE (CONTINUED) VW 100% BMW 100% Nissan 100% Nissan Toyota 100% Toyota 100% Toyota 100% Toyota Honda 100% Honda 100% Honda Hyundai 100% Hyundai 100% Hyundai Daimler-Benz 100% Daimler-Benz Company ownership Automotive News Market Data Book Data Market News Automotive - , various issues; , various Japanese, German, and Korean Automobile Assembly Plants (Transplants) Based in the United States and Canada States in the United Based (Transplants) Assembly Plants Automobile and Korean German, Japanese, Automotive News Automotive NUMMI closed in 2010 after GM withdrew from the joint venture during its bankruptcy proceedings and Toyota declined to purchase GM’s equity share. GM’s declined to purchase Toyota during its bankruptcy and proceedings the joint venture from NUMMI closed in 2010 after GM withdrew In 2009, GM took 100% ownership of this plant. 2009, GM took 100% ownership In In 2012, Ford took 100% ownership of this plant. took 100% ownership 2012, Ford In Company name BMW Mfg. Corp. U.S. Mercedes-Benz Mfg. (IN) Motor Toyota Mfg. of Alabama Honda America US North Nissan Mfg. Inc. Texas Mfg. Motor Toyota Mfg. Ala Motor Hyundai bama Mfg. Georgia Kia Motors LLC Mfg. of Indiana, Honda Mfg. (MS) Motor Toyota Volkswagen Sources: * ** *** AUTOMOBILE INDUSTRY 51 arrangements have been somewhat fluid; they have been altered at two of these plants since they opened, and NUMMI closed in 2010.5 In the three decades since the first Japanese transplant was located in the United States, the penetration of Japanese producers has been dramatic. As of 2012, 15 Japanese car factories operate in North America. In addition to the Japanese facilities, two German transplants started production in the 1990s—BMW in Spartanburg, North Carolina; and Mercedes- Benz in Vance, Alabama. Volkswagen opened the third German transplant facility in Chattanooga, Tennessee, in 2011, returning to the U.S. for the first time since its failed effort at a converted Chrysler plant in Westmoreland, Pennsylvania, which closed in 1988. Hyundai and Kia established their own facilities in Alabama and Georgia, respectively, bringing the total number of foreign-owned factories to 20. Overall, transplant production doubled from approximately two million units in 1990 to more than four million in 2011. Because of the growth in transplant production, the geography of automotive production has shifted. The initial Japanese transplants in the 1980s were located close to the I-75 interstate highway in states near (or just south of) the Great Lakes Region (Illinois, Indiana, Kentucky, Michigan, Ohio, and Tennessee) in proximity to the bulk of the Big Three’s facilities. However, since 1994, foreign firms have been choosing locations farther south, albeit still close to I-75 to facilitate supply chain logistics, in Alabama (Mercedes-Benz, Honda, Hyundai), Georgia (Kia), Mississippi (Nissan and Toyota), and Texas (Toyota), as well as further investment in Tennessee (Nissan, Volkswagen). Although Ford, GM, and Chrysler all had factories in that region, many of those factories have since closed; also now closed are all Big Three assembly plants on the East and West Coasts. Overall, although the east–west dispersion of automotive manufacturing was dramatically reduced, north–south dispersion was greatly increased such that many new foreign-owned plants are located far from areas with substantial histories of unionization. This combination of geographical separation and location in historically non-union states poses substantive challenges for the UAW’s efforts to organize the newer transplants. Although the UAW has launched various organizing drives in unorganized transplants in recent years, none of these drives has come close to being successful. The UAW, for example, tried to unionize Nissan workers in Tennessee in 1997, and then again in 2001, but soundly lost both representation elections (receiving only 32% of the vote in the 2001 election) (Bureau of National Affairs 2001). Despite these losses, UAW efforts to organize the transplants continue. In the case of Nissan, the UAW shifted its focus to the newer Mississippi plant, trying (unsuccessfully) to unionize the facility in 2005 and 2007. As a result of the employment and market share declines occurring at 52 COLLECTIVE BARGAINING UNDER DURESS the Big Three and the union’s inability to organize the transplants and many of the independent supplier companies (described more fully later), UAW membership has declined significantly. In 1979, the UAW’s membership peaked at 1,527,858 members. The union had 654,657 members as recently as 2004. As of 2011, the UAW had 380,719 members, a reduction of 75% over 33 years (Bureau of National Affairs 2012).

THE BARGAINING CONTEXT The Competitive Environment From 1946 until 1979, the auto industry in the United States was on a prosperous growth path, even in the face of the industry’s periodic sharp cyclical swings. Over those years, domestic production of cars and trucks increased from 5 million to 13 million vehicles. This economic environment was conducive to steady improvements and general stability in labor relations. Three environmental factors were critical—growth in domestic auto sales, a low level of imported vehicle sales, and a high degree of unionization. Yet, in the early 1980s, labor and management that had grown accustomed to long-run growth in total vehicle sales and profits were confronted by a number of fundamental changes in the auto market. One important aspect of the change was an increase in international competition in the form of increased vehicle imports. The level of imports increased steadily during the 1960s and 1970s from a postwar low of 5% in 1955; surged during the 1980s; declined in the 1990s as Japanese, Korean, and German companies increased their North American production capacity; and rose again as the sales of foreign models only available as imports grew. The market share of these foreign automakers, based on sales of both imported and locally manufactured products, has increased steadily from less than 10% of the market in the mid-1960s to more than 50% today. As shown in Table 3, the North American market share of the Big Three plummeted from close to 70% at the turn of this century to 47% in 2011, with a large chunk of the lost market share going to Japanese and other transplants. Sizable cyclical swings buffeted the auto industry from the early 1980s through the arrival of the new millennium. The industry experienced a sharp downturn in the early 1980s, a sales rebound in the late 1980s, another downturn in the early 1990s, and a sales/profit recovery in the mid- and late 1990s. Following the attacks of 9/11/2001, automotive sales helped lead an economic recovery, spurred by extensive sales incentives, driving the U.S. industry to record annual sales of nearly 17 million in 2005. During these swings, industry employment rose and fell along with vehicle sales and production. Then in 2008 and 2009, the U.S. auto industry was hit with its biggest downturn ever as a consequence of the AUTOMOBILE INDUSTRY 53

TABLE 3 U.S. New Vehicle Sales of American Automakers, Japanese Transplants and Imports, and Total Imports, 1991–2011 (in 1,000s) American automakers Japanese Other Total transplants transplants Japanese Total Year Sales sales (%) production production imports sales imports sales 1991 8,672 70 1,312 19 1,862 2,567 1992 9,279 72 1,438 17 1,698 2,337 1993 10,247 73 1,644 15 1,575 2,158 1994 10,998 73 1,921 73 1,597 2,145 1995 10,764 73 2,036 100 1,337 1,908 1996 10,990 72 2,310 130 1,127 1,714 1997 10,788 71 2,301 147 1,271 1,947 1998 10,93 70 2,409 243 1,310 2,036 1999 11,731 69 2,586 293 1,500 2,494 2000 11,582 67 2,818 337 1,619 2,868 2001 11,042 65 2,922 325 1,659 3,079 2002 10,598 63 2,882 297 1,772 3,292 2003 10,281 62 3,071 266 1,737 3,310 2004 10,135 60 3,483 209 1,677 3,395 2005 9,868 58 3,735 294 1,743 3,402 2006 9,060 55 3,627 441 2,146 3,692 2007 8,402 52 3,744 487 2,223 3,753 2008 6,346 48 3,241 423 2,043 3,375 2009 4,656 45 2,764 413 1,484 2,721 2010 5,228 45 3,454 737 1,403 2,669 2011 5,996 47 3,020 1,029 1,433 2,792 Sources: Ward’s Automotive Yearbook, various issues; Automotive News Data Center. financial crisis. Total car and truck production in the United States plummeted from 10.8 million in 2007 to 8.7 million in 2008 and ended at a low of 5.8 million in 2009. By 2011, the production levels were back to the 10.8 million of 2007, but close to 40% of that now represents foreign transplant production. Also significant for collective bargaining in recent years has been the formation of more extensive linkages between the assembler companies and their parts suppliers. Most assemblers dramatically reduced the number 54 COLLECTIVE BARGAINING UNDER DURESS of their parts suppliers and initiated longer-term contracts with the select group of suppliers that remained. In the late 1990s, GM and Ford spun off their internal parts plants into separate companies, Delphi and Visteon, respectively. Other first-tier suppliers have also grown through merger and acquisition, forming (along with the Big Three spinoffs) a new class of mega-supplier capable of designing, building, and handling the complex logistics for major modules or subsystems of the vehicle. These mega- suppliers are primarily non-union, with some exceptions, although the UAW is devoting considerable organizing resources to change this situation. The collective bargaining implications of these spinoffs and the emergence of the mega-suppliers are discussed later in this chapter. Partially as a result of the spinoff of supplier divisions but also as a result of a strong trend in the direction of outsourcing, employment at supplier plants has increased dramatically since the 1980s, at the expense of employment at vehicle assembly plants. Auto parts employment grew 61% from 1980 to 2000, while over the same period, employment fell just 3% at auto assembly plants (Katz, MacDuffie, and Pil 2002). However, the ratio of assembly production workers to supplier production workers dropped steadily over this period, from 0.94 (1980) to 0.57 (2000), with further decline to 0.39 by 2012. Interestingly, this shift in employment has not been accompanied by a commensurate closing of the gap between auto assembler and parts sector wages, as shown in Table 4. The pressure on wages from the non-union parts sector, which is now larger than the unionized sector, is the primary reason behind this persistent differential (the difference in benefits received by workers in the assembly and parts sectors, although difficult to quantify, are likely much larger). Plant-Level Performance Differentials In the face of heightened competition, the Big Three and the UAW made substantial changes in their industrial relations practices from the early 1980s on. An important force for change was the perception that Japanese- owned plants, both in Japan and in the United States, had substantial productivity and quality advantages over the typical Big Three plant because of their use of lean production, a system developed by Toyota and used to varying degrees by all Japanese companies. Lean production is described as combining a different way of thinking about production goals (quality and productivity as mutually attainable, not a trade-off) with new production methods aimed at boosting efficiency through the elimination of waste (reducing buffers through just-in-time inventory systems; “building in” rather than “inspecting in” quality) and human resource practices aimed at motivating workers and developing their skills (work teams; job rotation; problem-solving groups; increased AUTOMOBILE INDUSTRY 55 9.83 9.93 9.62 9.53 9.02 8.65 10.94 10.91 11.08 10.48 wage ($) Parts real real Parts 15.15 15.13 14.97 14.33 14.11 13.50 12.93 13.51 12.39 12.24 wage ($) Assembly real Assembly real CPI 184.500 191.000 197.600 201.500 210.177 212.425 216.330 218.803 226.230 229.815 publications 20.19 20.84 21.90 21.11 20.66 21.09 20.82 20.85 20.40 19.89 wage ($) Parts hourly Parts Employment and Earnings Employment 693,100 682,700 658,200 640,800 597,000 517,000 421,800 443,500 453,900 470,200 All employees Parts employment Parts , U.S. Department of Labor, Bureau of Labor Statistics, previous year’s year’s previous of Labor Statistics, Bureau , U.S. Department of Labor,

TABLE 4 TABLE , month of May’s data. , month of May’s 556,300 552,700 540,400 517,500 482,400 403,900 326,300 343,300 349,700 356,900 employees Production Employment and Earnings Employment

Employment and Earnings Employment 27.96 28.90 29.59 28.87 29.65 28.67 27.97 29.55 28.02 28.13 Assembly hourly wage ($) Employment and Wage Data for US Auto Assembly and Parts Sectors, 2003–2012 Sectors, Assembly and Parts for US Auto Data Wage and Employment 277,000 268,300 250,000 234,400 223,000 186,900 139,900 138,100 165,500 172,500 All employees Assembly employment

227,800 219,100 201,400 187,600 179,300 146,000 109,600 109,300 131,600 138,400 employees Production Production 2003–2006 data can be found online at http://fraser.stlouisfed.org; 2007–2012 data can be found in 2003–2006 data can be found online at http://fraser.stlouisfed.org; data CPI data; 2012: May CPI 2003–2011: November Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Sources and notes: Sources refer to SIC 3714 (NAICS 3363). refer to SIC 3711 (NAICS 3361), while the parts data The assembly data issues of and hourly wage data: January 2003–2011 Employment data. November issue of and hourly wage data: June 2012 Employment data can be found at http://tinyurl.com/rdx83a CPI CPI numbers. by the Wage columns Parts Wage and by dividing the Assembly are derived real wage figures The 56 COLLECTIVE BARGAINING UNDER DURESS worker training; performance-based bonus pay; reduction of status barriers) (Womack, Jones, and Roos 1990; MacDuffie 1995). Underpinning the entire system is the idea of kaizen, or continuous improvement in production processes and in productivity and quality outcomes. According to this model, buffer reduction reveals production problems and creates the pressure to solve them. This gives management an incentive to develop worker skill and motivation and to encourage extensive worker participation in the improvement process; workers in turn may be willing to participate if they perceive this activity as contributing to their employment security through achieving better quality and productivity and if it improves their job design and boosts pride in their work. The identification of lean production as the source of Japanese competitive advantage represented an important shift away from Japan-specific explanations based on factors such as lower wage rates, longer working hours, cooperative enterprise unions, lifetime employment, and cultural differences. Data from M.I.T.’s International Assembly Plant Study indicated that the transplants, using American workers, engineers, managers and (at some plants) union officials, achieved performance results, in terms of both productivity and quality, that matched or surpassed most American plants (Krafcik and MacDuffie 1989; Pil and MacDuffie 1999).6 Furthermore, the source of the transplants’ performance advantage appeared to be their implementation of lean production methods very similar to those used in plants in Japan (Shimada and MacDuffie 1987; Florida and Kenney 1993). However, these practices have been adapted to the U.S. context (Pil and MacDuffie 1999). This view of lean production has been challenged on two points. Some researchers question whether lean production is indeed a distinctive paradigm with performance advantages, pointing to industry- and company- level statistics on inventory levels and financial performance that show only modest variation across U.S. and Japanese companies (Williams, Haslam, Johal, and Williams 1994). According to these researchers, any Japanese or transplant cost advantages are due to lower wages in the various tiers of the supply system.7 Other accounts of the transplants develop a broader critique of lean production, arguing that it is dependent on sweating workers through a faster work pace, rigid job standardization, intensive peer pressure for higher work effort within teams, and continual stress from the lack of buffers and from kaizen efforts to remove work content from jobs (Parker and Slaughter 1988; Babson 1995). Overall, the data show that while the idea of lean production as a new production paradigm capable of superior performance has taken hold strongly among corporate management at the U.S. companies, the implementation of lean production at U.S. plants has been relatively slow, and it varies for different aspects of this system. Most quickly adopted have AUTOMOBILE INDUSTRY 57 been lean production policies on the reduction of buffers. The pace of implementation of new human resource practices has been slower, particularly in cases where new work structures such as teams are being implemented at existing plants. In recent analyses, we have shown that automakers can attain productivity levels of under 18 hours per vehicle and decent quality at their assembly plants using what we term an efficient mass production approach. These productivity levels are on par with those of factories that recently adopted lean manufacturing practices, and quality levels of 40 defects per 100 vehicles are approaching the average of 30 defects per 100 vehicles attained by experienced lean factories. The main hallmark of this approach rests in reducing inventory levels, increasing automation levels, and reducing buffers (MacDuffie et al. 2013). However, a further important prerequisite is a great reduction in product variety at each plant, which includes reducing engine and transmission variations and limiting color options. Efficient mass production plants thus achieve productivity through lower manufacturing complexity but in turn may lack the capabilities for handling high levels of product variety and the flexibility to adjust production mix when demand shifts. This choice may have competitive implications where these plants compete with more fully flexible, high variety plants in the United States and elsewhere. The fact that many U.S. assembly plants fall into this efficient mass production category also calls into question past predictions that the industry would largely converge on the Toyota/lean production prototype. One of the key performance criteria that companies will have to deal with in years ahead, as noted previously, is organizational flexibility to deal with production variability. As more content shifts out of assembly factories through outsourcing, and as efforts continue to increase the responsiveness of manufacturing to customer demand through build-to- order initiatives, flexibility in terms of production volumes will become increasingly important. Vehicle sales vary dramatically during the course of the year, and the current solution of maintaining between one and two months of finished goods inventory in the distribution system is under increasing cost and competitive pressures as customers seek more custom- ized products. Although increased sales incentives and other tools can be used to even out customer demand during the course of the year, another avenue is to increase manufacturing flexibility (Holweg and Pil 2001, 2004). Currently, plants face very high fixed costs, and per-unit costs increase dramatically as production volumes drop. Indeed, it costs the average North American plant 84% of full-capacity costs to run at half-capacity production levels for a week. It is slightly cheaper to produce at half capacity for a full year, but doing so still costs almost 77% of full-capacity costs. Labor represents 58 COLLECTIVE BARGAINING UNDER DURESS an important source of rigidity in reducing production (overcapacity situations are typically handled with overtime), and layoffs seem to be the primary solution. This is true, even for some of the transplants; for example, the Mitsubishi–UAW contract for the Normal, Illinois, plant had an explicit no-layoff provision. There are few provisions in place, either at transplants or at the Big Three, to alter labor levels in response to shifts in demand. During the auto sales boom of the 1990s, that was not a big issue because plants often ran close to full capacity. However, the Big Three were slow to make the investments necessary to adjust production mix or volume at their North American plants to deal with demand volatility and shifting customer preferences. Right up until the massive sales downturn in 2008 and 2009, these automakers had some factories running extensive overtime, while others were operating well under capacity. Even after restructuring and dealing with overcapacity problems, the Big Three still have a long way to go to be as flexible, both technologically and in terms of the organization and workforce, as their competitors. Various experiments in production flexibility are under way overseas. These include the banking of hours when labor demand is low and using those hours at a later date without incurring overtime. The models now in vogue in Europe typically limit the number of hours that can be banked or withdrawn in any one time period, specify the length of time that banked hours can be held, and provide an agreed-upon compensatory payment if no work-hour reductions follow a period of overtime.8 In contrast, the Big Three auto companies, like other large U.S. manufacturing firms, have little flexibility in altering their labor use during the course of the year (short of layoffs). Most of management’s efforts are centered on increasing capacity utilization rather than managing reductions in demand. The most common approaches are to run plants for three shifts or to use three crews of workers to run two shifts six or seven days a week. These issues warrant attention because production (and labor relations) flexibility may emerge as a key source of international comparative advantage (or disadvantage) in the years ahead. Mergers and Co-Production Consolidation between the auto assembly companies, including mergers and co-production agreements, became a strong trend around the globe in the late 1990s. Ford—already the owner of Jaguar and Aston Martin and with a controlling equity share of Mazda—bought Volvo and Land Rover. GM purchased the 50% of Saab that it did not already own; increased its equity stakes in Isuzu, Suzuki, and Fiat; and purchased AUTOMOBILE INDUSTRY 59

Daewoo out of bankruptcy in 2001. In Europe, French-based Renault purchased a controlling equity stake in Nissan and Samsung, and Germany- based Volkswagen bought Bentley, with BMW claiming the Rolls-Royce brand. In Korea, Hyundai took over Kia and became by far the dominant firm in both domestic and export sales. Daimler-Benz also increased its stake in Mitsubishi, leaving Honda and Toyota as the only two fully independent Japanese automakers. Even Honda and Toyota, while asserting their independence, became more intertwined with the fate of other firms, with Honda beginning to sell engines to GM and Toyota, embarking on a joint venture plant and product in Europe with Peugeot, and taking a small (under 10%) stake in Subaru. All of those firms remained unionized in their home countries throughout this period of consolidation, although the foreign firms with assembly plants in the United States remained non-union. Despite the initial enthusiasm for consolidation, things rapidly fell apart for the Big Three when the auto market collapsed in 2008. Ford was forced to divest its ownership of Aston Martin, Jaguar, Volvo, and Land Rover, as well as most of its stake in Mazda. GM had to abandon Saab (which disappeared after bankruptcy) and divest its stakes in Fiat, Isuzu, and Suzuki. Both GM and Chrysler were forced into bankruptcy. GM re-emerged as a stand-alone entity. Chrysler, in contrast, emerged initially as a new entity jointly owned by Fiat, the U.S. and Canadian governments, and the UAW’s retirement health care trust, a voluntary employee beneficiary association (VEBA). After several months, Fiat purchased the government stake and then started purchasing shares from the VEBA, effectively becoming Chrysler’s largest owner. We will discuss the implications of the crisis in more depth later in this chapter. However, it left the Big Three with few of the global partners they had entered into relationships with only a decade or so earlier. And in the process of ratio- nalization, in-house brands were not spared, with the crisis-driven restructuring causing the elimination of Saturn, Pontiac, and Oldsmobile for GM, Mercury for Ford, and Plymouth for Chrysler.

THE STRUCTURE OF COLLECTIVE BARGAINING Pattern Bargaining Prior to 1979, the U.S. auto bargaining structure involved very strong pattern-following within and across the auto companies. From the early 1980s on, however, the degree of pattern-following has declined across the Big Three, and cross-company variation has increased with the entry and then growth of the transplants. In the traditional bargaining structure that prevailed at the Big Three, 60 COLLECTIVE BARGAINING UNDER DURESS compensation is set by national, company-specific, multi-year agreements (from 1955 to 1999, they were for three years; the most recent, four years). Some work rules such as overtime administration, employee transfer rights, and seniority guidelines are also set in the national contracts. Local unions, in turn, negotiate plant-level agreements, which supplement the national agreements. These local agreements define work rules such as the form of the seniority ladder, job characteristics, job bidding and transfer rights, health and safety standards, production standards, and an array of other rules that guide shop-floor production. The local agreements do not regulate wages or fringe benefits, which are set in the national contract. Some indirect influences on wage determination, however, do occur at the plant level in the definition and modification of job classifications provided through the local agreements. Local bargaining over work rules allows for the expression of local preferences and some adjustment to local conditions. In this system, the grievance procedure with binding third-party arbitration serves as the end point of contract administration, although disputes concerning production standards, new job rates, and health and safety issues are not resolved through recourse to arbitration. The influence of the agreements reached in the auto assembly firms has traditionally extended out to the auto supplier sector and beyond. The UAW, for example, has used the auto assembly agreements as a pattern setter in their negotiations in the agricultural implements industry. Other unions, especially those linked to auto production, such as the rubber industry, also looked to the contracts in the auto assembly firms as pattern setters. From the early 1950s until the late 1970s, the extent of inter- industry pattern-following varied somewhat over time, but generally it continued at a high level. In the 1980s, the pattern-leading role of the Big Three settlements declined (Budd 1992). The Bargaining Process: Wage Rules and Fringe Benefit Determination From 1948 until 1980, formulaic mechanisms were used to set wage levels in collective bargaining agreements in the Big Three.9 The formulaic wage-setting mechanisms traditionally included in the contracts were an annual improvement factor (AIF) that after the mid-1960s amounted to 3% per year, and a cost-of-living adjustment (COLA) escalator that often provided full or close to full cost-of-living protection. The importance of these formulaic mechanisms was that they provided continuity in wage determination over time and across the assembly companies at any given point in time. The continuity over time was provided by the fact that, except for minor adjustments, the formula mechanisms rigidly set wages from 1948 until 1979 among the Big Three companies.10 Continuity across the industry was provided by intercompany AUTOMOBILE INDUSTRY 61 pattern-following and by the fact that in the plants covered by the company agreements, the national contract wage was not modified in local bargaining. Along with increases in real hourly earnings, autoworkers received steady improvements in their fringe benefit package. A number of these fringe benefit advances such as supplementary unemployment benefits, “30 and out” pensions, and paid personnel holidays were innovations that eventually spread to the auto supplier firms and to a number of other industries. Over the postwar period, fringe benefits became a larger share of total worker compensation. Job Control Unionism At both national and shop-floor levels, the labor relations system in the Big Three traditionally relied on contractually defined procedures to regulate disagreements between labor and management. The contractual regulation of these procedures was heavily focused on “job control.”11 Wages were explicitly tied to jobs and not to worker characteristics. In addition, much of the detail within the contract concerns the specification of an elaborate job classification system with much attention paid to the exact requirements of each job and to seniority rights that were tied to a job ladder guiding promotions, transfers, and layoffs (Piore 1982). From the late 1940s until the late 1970s, the application of wage rules and job control unionism produced steadily rising real compensation to autoworkers and long-term growth in auto employment and production. With limited import penetration in auto sales, this was a bargaining process in which the geographic bounds of union organization closely matched the relevant product market. The consistency the bargaining process had with the economic environment was one of the primary factors contributing to the system’s attractiveness to both labor and management. Important political functions for labor and management also were served by the stability and continuity in the auto negotiation processes.

DEVELOPMENTS IN COLLECTIVE BARGAINING FROM THE EARLY 1980S ON Wages As import share rose in the 1980s and economic recession took hold, the total bargaining power of labor and management at the Big Three auto companies declined, and the contracts negotiated in the early 1980s reflected this power decline. In addition, the relative bargaining power of the UAW was weakened by such factors as the rise in imports, the ease by which the companies could move production offshore, and the erosion of strike leverage resulting from excessive production capacity. In collective bargaining at the Big Three, the wage rules traditionally 62 COLLECTIVE BARGAINING UNDER DURESS used to set wage levels were modified significantly, first as part of efforts to avoid bankruptcy at Chrysler in 1979 and 1980. In agreements reached at the Big Three after 1979, the traditional formulaic wage rules were replaced by lump sum increases, periodic base pay increases, and profit sharing.12 With respect to fringe benefits, the agreements reached at the Big Three after 1979 included a number of concessions. The introduction of profit sharing received much attention in the press, particularly in light of the traditional pattern-setting role the auto assemblers have played in American collective bargaining. The payouts of the profit- sharing plans adopted in the Big Three from 1983 on have varied substantially, in large part because of differences in the financial performance of the companies. The profit-sharing payouts between 1983 and 2012 at Ford, GM, and Chrysler, respectively, totaled $61,790, $32,171, and $51,385 (Table 5). From 2001 until 2009, as shown in the table, profit-sharing payouts were either nil or insignificant. With the recovery of the Big Three over the past two years, significant payouts returned. The level of the payouts and the variation in profit-sharing payouts received by workers across companies were the source of some controversy within the workforce and the UAW. Meanwhile, the companies were concerned about the possibility of unusually large profit-sharing payouts in the future as a result of their strong financial recovery. This led to serious focus on the profit-sharing plans in fall 2011 bargaining and substantial modifications of the various plans in the contracts negotiated and signed at that time. Income and Employment Security Programs The contracts at the Big Three after 1979 also included a number of new income and job security programs—programs that were induced by the layoffs and plant closings occurring at the Big Three. These programs include guaranteed income stream benefits, joint national employee development and training programs at each company funded by company contributions, and jobs bank programs protecting workers displaced by causes unrelated to the market (i.e., sales).13 A worker’s seniority heavily influenced the level and duration of benefits he or she received in these programs, although the specific benefit criteria varied across the programs. Big Three contracts from 1990 on provided extensive additions to the income security package. A significant new element in these contracts was the provision that workers could not be laid off for more than 36 weeks whatever the cause. The contracts also include guaranteed employment levels at each Big Three plant. The companies agreed to replace workers at rates that depend on whether a plant is above or below its employment target and the cause of any employment declines. The basic guarantee was that for every two workers that leave because of attrition, AUTOMOBILE INDUSTRY 63 TABLE 5 Big Three Average Worker Profit-Sharing Checks, 1983–2012 Year Ford ($) GM ($) Chrysler ($) 1983 402 605 0 1984 1,993 515 0 1985 1,262 329 0 1986 2,177 0 500** 1987 3,762 0 500** 1988 2,874 242 725 1989 1,025 50 0 1990 0 0 0 1991 0 0 0 1992 0 0 425 1993 1,350 0 4,300 1994 4,000 550 8,000 1995 1,700 800 3,200 1996 1,800 300 7,900 1997 4,400 750 4,600 1998 200 6,100 7,400 1999 8,000 1,775 8,100 2000 6,700 800 375 2001 0 0 0 2002 160* 940 460 2003 195 170 0 2004 0 195 1,500 2005 0 0 650 2006 0 0 0 2007 0 0 0 2008 0 0 0 2009 450 0 0 2010 5,000 4,300 750*** 2011 6,200 7,000 1,500 2012 8,300 6,750 2,250 TOTAL 61,790 32,171 51,385 Sources: Unpublished table prepared by the UAW Research Department, February 8, 1995; various news stories in the Daily Labor Report, Bureau of National Affairs; and the 2007 Chrysler Media Briefing Book. *Ford made this payment despite losing $980 million. **Chrysler workers received a $500 contractual payment not tied to profits. ***Chrysler workers received $750 despite Chrysler’s not earning a profit after interest expenses and restructuring obligations.

64 COLLECTIVE BARGAINING UNDER DURESS one new worker was to be hired. A key factor that loomed in the background that influenced the work- ings of the employment guarantees and the companies’ efforts to improve productivity was the fact that the workforces at all of the Big Three had substantial seniority because there had been limited new hiring among these firms since 1979. All of these trends intensified significantly after 2001 as the influence of the Big Three and the UAW over labor relations in the U.S. auto industry declined. The beginning of the new century saw the Big Three face declining market share coupled with the failure of the UAW to organize the transplants or make significant inroads into organizing the non-union independent supplier plants. Market share declines along with steady productivity increases led to sizeable declines in employment levels at the Big Three firms and a weakening of the historic role the UAW had played as a pattern setter in the wider auto sector and general U.S. labor market. The UAW agreed to massive redundancies in the companies’ workforces from October 2005 through 2009 that were achieved largely through voluntary severance and early retirement plans. For example, internal data from Ford reveal that the number of hourly workers at Ford fell from 102,907 in 2000 to 40,274 in 2009.14 It is revealing that, although the UAW was agreeing to pay concessions, the union still had a sizeable amount of relative bargaining power, despite facing a sharp decline in employment levels and deterioration in the financial strength of the Big Three (and associated declines in the union’s total bargaining power). The union’s relative power derived from the weakened financial state of the Big Three made the companies especially vulnerable to strike threats, which if exercised would likely have led to their collapse. The UAW used this relative bargaining power to negotiate extensive severance and retirement options for its now largely aged workforce. Especially noteworthy were the changes made to medical care benefits during the 2007–2009 crisis. In their 2007 company-level collective bargaining agreements at GM, Ford, and Chrysler, under the pressure of significant layoffs and plant closings and facing the threat of potential corporate bankruptcies, the UAW accepted the creation of VEBAs to fund retiree health benefits. A VEBA is a form of trust fund whose sole purpose is to provide employee benefits. In December 2009, for example, Ford transferred all retiree health care liabilities to the UAW Retiree Medical Benefits trust (a VEBA), paying a total of $14.8 billion as part of this transfer. The creation of VEBAs for retiree medical benefits also helped clarify and solidify the auto companies’ financial situations by removing the retiree health obligation from their financial books. VEBAs also put AUTOMOBILE INDUSTRY 65 authority for benefit levels in the hands of boards made up of a combination of UAW appointees and outside trustees. Furthermore, the stock transfers associated with funding of VEBAs gave the UAW significant ownership stakes in GM and Chrysler. The benefit package in the Big Three–UAW collective bargaining contracts came under particular pressure as the legacy costs associated with pensions and retiree health care were criticized in the popular press as well as by corporate managers. These costs were high in part because the large number of retirees relative to active workers, given the declines that had occurred in the size of the Big Three workforces. (It is worth noting that pensions and retiree health plans are part of the private benefit system that prevails in the United States, in contrast to the more public provision of these benefits common to many other countries.) The U.S. auto legacy costs were criticized 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 benefit plans, younger current workforces, and very few retirees. Internal data from the Ford Motor Company showed total average hourly labor costs of $58.12 in 2010, including a base hourly wage of $29.11, overtime costs of $3.36 per worker hour, and fringe benefit costs of $25.64 per worked hour. Ford also claimed that the amortized costs of the Ford VEBA added an additional $12 per hour to average hourly labor costs. In contrast, Ford internal data suggested that the base average hourly earnings at the transplants was between $24.70 and $29.72 per hour in 2009 and that the cost of fringe benefits paid to the transplants’ hourly workers in the United States averaged $13.50 to $18.29 on an hourly basis.

THE BANKRUPTCY AND GOVERNMENT BAILOUT OF GM AND CHRYSLER The global financial crisis of 2007 through 2009 led to even more dramatic changes in the profile of the U.S. automobile industry. The crisis amounted to a “perfect storm” in that the effects of ongoing structural changes in the auto sector (Big Three market share declines and the growth of transplants and non-union suppliers) were exacerbated by a sharp cyclical downturn in auto sales that itself was greatly intensified by the credit crisis affecting the United States. The credit crisis had particularly large effects on auto sales, which plummeted because of the increased role that car loan securitization had come to play in auto purchases and the sudden collapse of securitization markets that came with the U.S. housing market collapse. As shown in Table 4, employment in the auto sector (NAICS 3361 and 3363, all employees) fell from 970,100 in 2003 to a low of 561,700 in 2009 (a decline of 42%). The employment losses at the Big Three were even larger and were associated with massive profit losses at 66 COLLECTIVE BARGAINING UNDER DURESS the three companies. For example, Ford lost, respectively, $17.0 billion, $5.0 billion, and $11.8 billion in 2006, 2007, and 2008. Meanwhile, GM suffered an even greater loss of $38.7 billion in 2007. By June 2009, two of the Big Three American car manufacturers (GM and Chrysler) had filed for bankruptcy and emerged as new companies with significant government ownership. In addition, Fiat became a co- owner of Chrysler. Ford managed to avoid similar bankruptcy and government ownership because it had arranged large private loans before the financial collapse. Ford raised $23.5 billion in liquidity, consisting of $18.5 billion of secured debt, which was backed by virtually all of the company’s domestic assets, and $5 billion of unsecured debt. 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 “non-core” hires ($14 per hour versus the $28 per hour received by then current UAW workers), the end to the much maligned jobs banks, a pay freeze for current workers, and six-year collective bargaining agreements that included no-strike and binding interest arbitration provisions.15 The no-strike and binding interest arbitration provisions came as part of the legislation authorizing the Troubled Asset Recovery Program (TARP) bailout of GM and Chrysler. The language approved by the U.S. Congress and accepted by the companies and the UAW reads: Upon expiration of the 2007 agreement, the parties will enter into a new National Collective Bargaining agreement which will continue in full force and effect until September 14, 2015. Unresolved issues remaining at the end of negotiations on the 2011 renewal of the 2007 Agreement shall be resolved through binding arbitration with wage and benefit improvements to be based upon General Motors maintaining an all-in hourly labor cost comparable to its U.S. competitors, including transplant automotive manufacturers. (UAW General Motors Settlement Agreement, Addendum to 2007 GM–UAW National Agreement, p. 6) Interestingly, in November 2009, workers at Ford rejected tentative contract modifications that would have included similar no-strike and interest arbitration provisions. A revised 2007–2011 Ford–UAW contract that excluded those two terms was eventually accepted by the Ford workforce. When the new lower entry tier was created in the company-level AUTOMOBILE INDUSTRY 67 collective bargaining agreements in 2007, the lower tier was limited to so-called non-core jobs (and three specific job classifications). This restriction did not last long. As stipulated in the contract modifications negotiated in spring 2009 at each of the three companies, all new hires from that point on are being hired into the lower pay tier. Furthermore, the UAW agreed to allow certain other workers who would otherwise work at the regular base pay rate (and receive the regular expansive fringe benefit package) to be transferred to the lower-tier pay level. For example, the May 2009 modifications to the 2007 UAW–GM agreement included language stating, “It is understood that the compact and small car segment is extremely competitive and in order for the company to consider investing in producing such vehicles in the U.S., innovative labor agreement provisions will have to be put in place so that such production can be done profitably under what may be extremely challenging market conditions” (Bureau of National Affairs 2010). Making use of this language, at the GM Orion assembly plant, a number of current workers on layoff status were called back to work on the assembly of a new small car (the Aveo) at the lower-tier pay level.16 Although the UAW obviously values the hiring (or recall) of workers, it faces a difficult choice regarding how far it is willing to accept employment at the lower tier of pay. For one thing, as the use of the lower tier of pay spreads, it is ever more difficult for the union to defend the higher pay tier or bargaining in subsequent rounds of negotiations for increases to regular-tier worker wages.17 Potentially even more worrisome for the UAW is the fact that the creation of a growing lower tier of workers creates intense political pressures inside the union, especially within local unions if lower-tier workers become a sizeable share of the workforce.18 The Increase in Diversity and Decentralization The pay concessions and the move to contingent compensation schemes that tied wages to company performance increased the variation in employment conditions across the auto assembly companies. The profit-sharing payments received by workers at the Big Three from 1983 to 2011, listed in Table 5, were one aspect of this variation. In addition, sizeable pay variation was created through the addition of the unionized transplants and the wage and benefit policies at the non-union transplants. Sizeable variation also now appears in the work practices used in unionized auto assembly plants because work rules and work organization have been modified in different ways and at a varied pace across auto assembly plants. The threat of increased employment loss resulting from increased foreign sourcing of vehicles, plant closings resulting from excess capacity, and outsourcing of certain operations, all created pressure to lower costs 68 COLLECTIVE BARGAINING UNDER DURESS and improve product quality. Ultimately, the pressure for increased inter- plant work rule divergence came from the same source as the pressure for intercompany pay variation—the fear that even greater losses in employment would result if previous policies were maintained. Companies often used investment decisions as explicit leverage for these changes, a strategy that unions perceived as whipsawing (i.e., forcing plants to compete against each other through concessions). The traditional work system in assembly plants involved numerous job classifications, a very heavy and highly structured role for seniority rights in job assignments (transfers, promotions, shift preferences etc.), and a clear separation in the responsibilities of workers and managerial employees. The team-based approach, in contrast, provides greater and broader responsibilities to the blue-collar workforce, in many instances involving workers in production decisions, and in some cases, even in basic business decisions. The core of this approach is the work team, typically led by an hourly team coordinator. As the use of teams has spread, the number of supervisors has been reduced and the role of the remaining supervisors has shifted to a coaching and facilitating role (although discipline did remain a key function of supervision). The pace at which this team-based approach has spread varies across the Big Three. GM was the first automaker to experiment extensively with this approach in the 1970s by using initially non-union strategy plants in the South as a testing ground for the concept. In the early 1980s, GM started spreading the team approach in its northern assembly plants. By the late 1980s, GM management often made use of a team approach a necessary precondition for the survival of what were then often redundant facilities. Ford and Chrysler were more gradual in their implementation of the team-based approach in part because neither was building new assembly plants in the 1980s and 1990s (and thus did not have the opportunity to experiment in greenfield sites) and in part because the GM experience of introducing teams in existing (brownfield) plants had not always worked out so well (Katz, Kochan, and Keefe 1987). Yet from the early 1990s on, even at a number of Ford and Chrysler assembly plants, management was pressuring the union and workforce to move to a team-based approach. Both Ford and Chrysler management began pushing what they referred to as modern operating agreements (MOAs), which included teams, reduced job classifications, and weakened seniority rights. MOAs were often negotiated at a time when corporate decisions were being made about investment in a new product or new technology for a given plant; some were approved only under the threat of plant closure. The provisions of MOAs were negotiated centrally by the company and the UAW and then approved locally, creating some tensions AUTOMOBILE INDUSTRY 69 between the national and local unions. Despite these varied and often difficult founding conditions, however, evidence from the Chrysler MOA plants suggests that as workers gained experience working in teams, the majority became quite positive about these work reforms. Ultimately, the actual experience of working under the MOA work reforms was more important in shaping worker responses than the forcing strategy used during implementation to overcome the barrier of workers’ negative preconceptions (Hunter, MacDuffie, and Doucet 2002). Substantial variation is now widespread in how teams and other features of this approach are actually being implemented. A number of the Big Three plants do not implement teams or small group activities to any noticeable extent. Furthermore, in team plants, there is wide variety in the procedures used to select team leaders and the role that hourly team members exert in that selection process. The existence of teamwork organization is part of a deepening of worker involvement in managerial roles and activities. Yet, in many other ways not directly linked to teams per se, workers and union officials are playing an increasing role in plant operations and other business decisions. In broad terms, these activities blur the lines between the roles that workers and managers exercise in the production process. This blurring occurs, for example, when workers serve on a task force to solve a specific production problem, and it also occurs when workers become members of the many types of joint committees that are now typically a key part of each plant’s administrative structure (e.g., committees on in-sourcing, quality, scrap reduction, and energy savings). In some Big Three assembly plants, union officers now meet regularly with plant managers as business issues or crises arise, and in some cases, this participation extends to involvement in the preparation of a plant’s long-term business plans. In recent analyses with international assembly plant data that include North American plants, we have found that the voice workers provide through team-based mechanisms can substitute for the voice provided through the union local. This counters the perceived notion that union and team-based voice complement one another and suggests another potential risk for the UAW in team plants (Kim, MacDuffie, and Pil 2010). The most extensive participatory labor–management relationship in the auto industry (and perhaps the most extensive anywhere) occurred at the Saturn Corporation (Rubinstein and Kochan 2001). As early as 1982, GM undertook an extensive study of the small car segment and concluded that it needed to undertake a substantively new approach to its products and manufacturing model, as well as its labor relations, if it was going to be competitive. GM and the UAW decided to explore the issue in a joint effort, ultimately resulting in the creation of the Saturn Corporation in 70 COLLECTIVE BARGAINING UNDER DURESS

1987 and the opening of the Saturn plant in Spring Hill, Tennessee. Billed as “a different kind of company, a different kind of car,” Saturn served as the test bed for a number of innovations, ranging from its no-haggle pricing to its space-frame product technology to process technology such as its lost-foam engine casting process (Pil and Rubinstein 1998). Most intriguing, however, was Saturn’s innovative labor–management relationship. Centered on a consensus decision-making process, it included a partnering arrangement whereby the UAW was involved not just in supplier selection and dealer approval but also in the day-to-day management of the Saturn operations. Every supervisor (called a module advisor) had a union counterpart. At the top level of Saturn was a Strategic Advisory Committee that engaged in long-run business planning and included the president of the UAW local union. Unfortunately, plagued by sales declines and a lack of attractive new models and facing a national union and corporate leadership that were not committed to radical labor relations change, Saturn did not survive the 2007–2009 financial crisis. Despite the general pattern of diversity and decentralization, new corporate-level initiatives beginning in the mid-1990s attempted to standardize the production system across plants around the world. This trend differs from a past in which production systems varied widely across facilities, depending on history, product line, vintage of technology, nature of labor relations, and the inclinations of particular managers and union officials. One factor, as noted previously, is the influence of lean production, which most auto companies have seized on as their model for manufacturing. But a more universal impulse derives from the high level of complexity and volatility affecting many modern manufacturing operations and therefore the goal of reducing process variance while also establishing a clear basis for evaluating the impact of changes in production methods. Standardization becomes an important step in both internal learning processes and in the transfer of learning across settings. The most prominent examples of this trend can be found at Ford and Chrysler. Following their MOA initiatives, which were carried out jointly with the UAW but affected only a small number of assembly plants, both companies by the late 1990s chose to promote a common production system, modeled closely on the Toyota Production System, throughout all of their North American plants; these were called the Ford Production System and the Chrysler Operating System. General Motors has been attempting a replication strategy, with new plants in China, Poland, Argentina, and Brazil all modeled on their successful implementation of lean production at Eisenach in the former East Germany. Mercedes-Benz has been much influenced by the success of its new plant in the United States, which was set up from the start to operate under lean production, and its managers now speak of implementing a common production AUTOMOBILE INDUSTRY 71 system, modeled on Toyota, that will be applied in its German factories as well. The historical record suggests that such efforts at standardization often fail to achieve anything more than partial diffusion. This trend is also directly counter to the pattern of diversity and decentralization observed for industrial relations and collective bargaining. But it is worth noting that a logic now exists for automakers to undertake careful efforts to coordinate production globally, particularly for products built on common platforms, and that efforts to transfer knowledge across plants are far more extensive and sophisticated that in the past. Indeed, in recovering from the industry crisis, Ford and GM are both emphasizing not just North American uniformity in production systems but the goal of global consistency in initial implementation and in diffusion of any solutions found to production problems. This logic could certainly affect corporate strategies for industrial relations in such areas as work organization, pay and benefits, and dispute resolution. Union responses could thus have a more determinant effect on whether the standardization of production systems, is achieved even partially. Variation in employment relations has increased in the auto parts sector generally in a manner similar to developments in the assembly sector. At the same time, a number of factors differ in these two sectors, in part because of differences in the timing and intensity of non-union employment growth. Before they were split off into separate companies, the internal parts operations of GM, Ford, and Chrysler had been the largest producers in the auto parts industry. Prior to the spinoff of Delphi and Visteon, Big Three company negotiators frequently had complained about the competitive pressures confronting the internal parts plants and had expressed the desire to create separate lower-tier pay rates for these operations. The UAW successfully had resisted these demands, but it was less successful in constraining the outsourcing of parts production and the negotiation of work rule concessions. In line with the Big Three–UAW bargaining structure, there were separate local (often plant) agreements at the internal parts operations, and from the early 1980s on, major concessions were negotiated in the work practices at the internal parts plants. To improve their ability to sell auto parts to a range of customers and for bargaining leverage vis-à-vis the UAW, in May 1999, GM formally spun off its parts subsidiary, Delphi Automotive Systems, against the wishes of the UAW.19 The formal terms of the spinoff initially provided that Delphi workers were covered under the same terms of the GM–UAW national agreement. Then in 1999, a separate Delphi–UAW national contract was negotiated. The 1999–2003 Delphi–UAW agreement closely mirrored the GM–UAW agreement for the 45,000 workers at Delphi’s 72 COLLECTIVE BARGAINING UNDER DURESS

U.S. plants and provided that wages, layoff benefits, pensions, health care, and other benefits were to be on par with the GM–UAW national contract. The Delphi contract also included a mirror card-check union recognition clause that was important to the UAW, given the fact that some of Delphi’s plants were non-union and the possibility of future acquisition by Delphi of non-union operations. Interestingly, the UAW negotiated even more-favorable terms with Ford when Visteon Corporation (employing 23,500 hourly workers in the United States) was spun off. The 1999 Ford–UAW contract provided lifetime coverage under Ford–UAW contracts for existing employees of Visteon (these employees continued to be formally paid by Ford). The 2004 contract negotiations between suppliers and the UAW led to dramatic wage reductions for new workers, bringing salaries for this cadre of employees more in line with wages offered at non-union suppliers. But cost challenges remained. Delphi went bankrupt in 2005. Meanwhile, Ford reabsorbed a large portion of Visteon and associated employees that same year in an effort to keep Visteon afloat. Even that was not enough, and Visteon entered bankruptcy in 2010. It recently re-emerged with just more than 25,000 employees—less than a third of what it had in 1998. Declining Unionization of Independent Auto Suppliers Because the growth of non-union competition has become such a significant factor in the independent auto parts sector, it is worth examining how non-union growth has occurred. The independent (non–Big Three) parts companies that produce auto parts but do not assemble those parts into final vehicles were heavily, although never completely, organized with a lag behind the unionization of the Big Three. The percentage of the supplier plants with a majority of their workers covered by a collective bargaining agreement rose from 50% to 55% in 1940 to 95% in 1957, and unionization then produced a substantial rise in the earnings of organized workers.20 Union coverage in the independent parts plants, however, fell substantially from the mid-1970s on (Katz and Darbishire 2000:43–44). The fall in unionization has been a major cause of the decline in the earnings of workers in the independent parts firms relative to the earnings of workers in auto assembly plants. Relative earnings declines occurred earlier, and have been much greater, in small firms. These earnings declines are probably linked to the fact that unionization declines were particularly large in small auto supplier firms. The push for concessions at the independent parts firms from the early 1980s on was exacerbated by the fact that independent parts firms faced all the pressures that were impinging on the auto assemblers, lacked the financial resources of the assemblers, and faced greater low-wage domestic AUTOMOBILE INDUSTRY 73 non‑union competition. Even in the face of a set of common pressures, substantial diversity emerged in the employment relations strategies pursued by independent parts firms—diversity influenced by business and union strategies and the degree to which new investments, or the lack thereof, gave management an interest in work reorganization and/or bargaining leverage. The Recovery of the Big Three from 2010 On The managed bankruptcy of GM and Chrysler with support provided by federal TARP funds helped those companies recover, as did the slow but significant broader economic recovery. In addition, GM, Chrysler, and Ford successfully launched a number of new products. This approach contributed to strong vehicle sales, which involved some growth in market share relative to foreign imports and the transplants. The sales recovery in turn led to solid financial returns at the Big Three. As shown in Table 5, this recovery led to the reintroducton of large profit-sharing payouts for Big Three autoworkers. As auto sales rose, so did auto sector employment, to 642,700 in 2012 (a rise of 14% from the 2009 low), as shown in Table 4. Although this increase in employment was significant, it is important to note that auto sector employment remains far below previous levels. It is also noteworthy that the average hourly wage of autoworkers continued to fall, declining from $29.65 in 2007 to $28.13 in 2012 (Table 4). Contributing to this fall was the hiring of workers at the lower pay tier at the Big Three. Fall 2011 bargaining at the Big Three led to collective bargaining settlements that included large lump-sum payments for regular workers but no base pay or normal cost-of-living-adjustment increases (Hobbs 2011). Notably, the size of these lump sums varied across the three companies in line with differences in the financial performance of the three companies. For example, Ford workers received a contract ratification bonus of $6,000 and annual inflation protection bonuses of $1,500, while at GM, the ratification bonus was $5,000 and the inflation bonuses were $1,000. The 2011 contracts did provide significant pay increases to the lower- tier workers. Under the new four-year contract, pay for lower-tier workers can rise by 2015 to a maximum of $19.28 per hour by the end of the contract. Because regular (higher-tier) workers did not receive any base pay increases in the contracts negotiated in fall 2011, this agreement promised to narrow somewhat the pay differential between lower-tier and regular workers. The 2011 contracts also provided sizeable investment and product placement commitments from the companies. This is another part of the UAW’s efforts to ensure that employment growth would follow at the Big 74 COLLECTIVE BARGAINING UNDER DURESS

Three. As in 2007 and 2009, the company-level contracts negotiated in 2011 also included large early retirement buyouts for current workers. Furthermore, the GM–UAW and Chrysler–UAW 2011 contracts were settled through negotiations and, as a result, the interest arbitration impasse procedure provided in the 2009 TARP provisions did not come into play. New Organizing The UAW has been seriously challenged by the decline occurring in the percentage of the auto workforce that is organized. This decline has been particularly steep in the independent auto parts sector, but the increasing share of non-union (transplant) auto assembly plants is also emerging as a key threat to the union’s power. The UAW has used card-check and election neutrality provisions to assist its organizing activities. GM and Ford, for example, agreed to accept card-check recognition within their operations and those of any subsidiaries. The UAW has recently intensified its efforts to organize one or more of the foreign transplants. UAW President Bob King appointed Richard Bensinger as the acting director of the UAW’s organizing department, and Bensinger expanded the staff involved in organizing efforts currently under way at a number of the transplants. Apparently, King and Bensinger also made overtures to some of the parent owners of transplants, seeking their agreement to adhere to a set of ethical principles as a way to defuse the animosity that normally appears in organizing efforts (Bureau of National Affairs 2011).21 The UAW also increased organizing campaigns focused on organizing workers outside the auto sector. The UAW, for example, has had great success organizing table-games dealers and other Detroit casino workers and has been aggressively conducting organizing drives among university graduate teaching assistants and workers in the health care sector (Bureau of National Affairs 1999).

A LOOK TO THE FUTURE The events of recent years confirm that a key determinant of the future course of auto labor relations will be the strength of the U.S. economy, given the heavy influence the business cycle exerts on auto sales and labor’s bargaining power. It also remains to be seen how Fiat–Chrysler performs, as well as the consequences of the current European overcapacity problem for further international mergers and consolidation. Experience suggests that the latter exerts mixed effects on labor’s bargaining power, reducing labor’s power by enhancing outsourcing opportunities and providing whipsaw advantages to ever-larger corporate behemoths, yet it potentially benefits labor through the advantages that industry consolidation exerts on labor and management’s total power by generating oligopoly-based AUTOMOBILE INDUSTRY 75 economic rents. A number of long-term structural challenges also confront the UAW and autoworkers (and, obviously, auto management as well, given the interactive nature of labor relations). A particularly critical issue is whether the UAW (or other unions) will find a way to reverse the sizeable growth in non-union employment occurring in both auto parts and auto assembly operations. As this chapter described, although the Big Three remain fully organized, the auto sector is increasingly unorganized. The UAW has had only limited success organizing in the independent parts sector, even as the union increasingly relies on state-of-the-art organizing techniques. In the assembly sector, the abject failure experienced in recent UAW organizing at the transplants is foreboding. Union strength is also waning in the auto sector because of the heightened opportunities assembly and parts companies have to outsource production, especially because so much of any outsourced work tends to go to non-union (and low-wage) domestic or international sites. Although the UAW has benefited from the fact that just-in-time and other lean production methods have produced pressure for production concentration, and hence the absence of long-predicted U.S. de-industrialization in this sector, the fact or threat of outsourcing continues to weaken the union. This chapter also reported on the substantial shrinkage occurring in employment at the Big Three companies even after their recent financial recovery. Given that the Big Three were the high payers and pattern setters in the auto industry, these developments do not bode well for the future bargaining power of the UAW. The creation of a lower tier of workers in the Big Three who earn significantly lower wages and fringe benefits compared with regular workers has created political and strategic issues for the UAW. Will the UAW continue to press for a narrowing of the pay differential between lower-tier and regular workers and even at some point create a step/seniority-based promotion ladder that guarantees access to regular pay for lower-tier workers? Although the UAW would clearly desire such a resolution to the two-tier wage issue, it is unclear whether it will have the bargaining power to achieve this objective. What is more certain is that as the share of lower-tier workers grows, political tensions are likely to build, especially at shop-floor and local union levels. Although the unionized component of the automotive sector struggles to rediscover its footing after the dramatic bankruptcies of not just Chrysler and GM but also of the two largest unionized suppliers, intensified competition from transplant facilities will continue to put pressure on both the UAW and the Big Three. The Big Three have increased their factory- level flexibility to some extent (although a flexibility gap with the transplants remains) and have eliminated a large number of factories that were under- 76 COLLECTIVE BARGAINING UNDER DURESS performing. However, volumes have shrunk to the point at which pressure from non-union competitors operating in the domestic market will certainly alter the nature of collective bargaining in the years to come. Whatever the course of economic developments, it is clear that there will be much to be learned from the ongoing evolution of the auto industry. Although the influence of the Big Three and the UAW may decline, the auto sector remains a sizable employer and a source of revealing information concerning the evolution of production practices and industrial relations.

ENDNOTES 1 30-and-out pensions provide that workers can retire and receive pension benefits after 30 years of service no matter what their age. 2 For an analysis of the internal political operation of the UAW, see Steiber (1962). 3 For lively accounts of the early history of the UAW, see Reuther (1976) and Howe and Widick (1949). An interesting account of the UAW during World War II is provided in Lichtenstein (1982). 4 Chrysler was acquired by Daimler and became a wholly owned subsidiary in 1998. In 2007, Daimler sold an 80% stake in Chrysler to Cerberus Capital. In April 2009, Chrysler filed for bankruptcy. It emerged from bankruptcy as a new entity, owned by Fiat, the U.S. and Canadian governments, and the UAW’s retirement health care trust. In 2011, Fiat purchased the stakes held by the U.S. and Canadian governments. 5 Mitsubishi bought out Chrysler’s share of Diamond Star in 1995. The NUMMI plant closed in June 2010 after GM, during its bankruptcy proceedings, decided it could no longer maintain its 50% ownership share and Toyota declined to buy out GM’s share; a small area in the NUMMI facility is now being used to build Tesla electric vehicles. In September 2012, Ford retook full management control of the AutoAlliance plant when Mazda ceased producing vehicles in the United States, renaming the plant the Ford Flat Rock Assembly Plant. Outside the U.S., GM and Suzuki had a unionized joint venture plant, CAMI, in Ingersoll, Ontario; GM took full control of this plant in 2009, and in 2012, Suzuki announced that it would no longer sell vehicles in North America. 6 This research used a methodology for productivity that adjusts for differences in vertical integration, product size, option content, and absenteeism to ensure comparabil- ity across plants. Quality data are derived from J.D. Power’s Initial Quality Survey, adjusted to include only those defects that the assembly plant has some control over. 7 Williams, Haslam, Johal, and Williams (1994) claim that performance differentials observed in M.I.T.’s International Assembly Plant Study are not valid because such plant- level comparisons cannot be made accurately. However, their own case rests on shaky empirical evidence, including national industry data that include car and truck producers as well as suppliers, and company data that are unadjusted for vertical integration, among other problems. 8 This is very different from the jobs bank included in Big Three contracts with the UAW from the 1970s on. While originally designed to protect workers displaced by technological change and give them rights to bid on jobs elsewhere in the company, persistent year-after-year declines in market share at these companies meant no realistic AUTOMOBILE INDUSTRY 77 prospect of redeploying those being paid under this provision while not working. GM and Chrysler dropped this provision as part of the bankruptcy-related negotiations, and Ford did the same. 9 The history of wage setting in the U.S. auto industry is discussed in more detail in Katz (1985). 10 A chronology of postwar bargaining in the U.S. auto industry is in Bureau of National Affairs (various years) and U.S. Department of Labor (1969). 11 Job control unionism is not synonymous with business unionism. The latter refers to the political philosophy of the labor movement. There are labor movements, such as those in Japan, that could be characterized as business unionist but not job control oriented. 12 See Katz (1985 and 1988) for descriptions of early and mid-1980s bargaining. 13 These and other job and income security programs are described more fully in Katz (1985 and 1988). 14 For example, see Bureau of National Affairs (2008) for a description of the expanded attrition program at GM. 15 The lower-tier hires also received significantly lower fringe benefits, including a cash-balance defined contribution pension and much more limited health care benefits. 16 Another key part of the 2009 contract modifications was terms that allowed the companies to contribute stock in lieu of much of their cash obligation to the newly created VEBA funds. 17 The UAW did constrain the potential number of lower-tier workers as it negotiated caps on the share of each company’s workforce that could be employed at the lower tier (the cap was first set at 20% at GM in 2007 and then expanded to 25% in the 2009 contract renegotiation). 18 For a discussion of political tensions between lower- and higher-tier workers with reference to experiences in other U.S. industries, see Chaison (2009). 19 Chrysler had reduced its vertical integration with much less fanfare in the early 1980s during its earlier brush with bankruptcy. 20 Mean earnings in the supplier firms relative to earnings in assembly firms rose from 87.5% to 95.3% from 1940 to 1957 (Katz 1988). 21 Bensinger had been the director of the Organizing Institute launched at the AFL- CIO during John Sweeney’s presidency and later had developed an ethical principle–based approach to organizing in tandem with a former president of Bethlehem Steel, Richard Schubert.

REFERENCES Babson, Steve, ed. 1995. Lean Work: Empowerment and Exploitation in the Global Auto Industry. Detroit: Wayne State University Press. Budd, John W. 1992. “The Determinants and Extent of UAW Pattern Bargaining.”Industrial and Labor Relations Review, Vol. 45, no. 3, pp. 523–39. Bureau of National Affairs. Various years. “Collective Bargaining Negotiations and Contracts: Wage Patterns.” Washington, DC. Bureau of National Affairs. 1999 (Aug. 18). “UAW Drawing New Members from Outside Manufacturing Industries.” Daily Labor Report, p. C-8. Bureau of National Affairs. 2000 (Sep. 14). “Failed Bid for Mega-Industrial Union Linked 78 COLLECTIVE BARGAINING UNDER DURESS

to Differences Among Three Parties.”Daily Labor Report, p. C-1. Bureau of National Affairs. 2001 (Oct. 5). “Workers at Nissan Plant Overwhelmingly Reject Union Representation.” Daily Labor Report, p. A-1. Bureau of National Affairs. 2008 (Feb. 13). “GM Offers New Special Attrition Program to All 74,000 UAW-Represented Employees.” Daily Labor Report, p. A-2. Bureau of National Affairs. 2010. (Oct. 12). “GM’s Orion Assembly to Recall Workers on Two-Tier Wages for Aveo Production.” Daily Labor Report, p. A-16. Bureau of National Affairs. 2011 (Feb. 2). “UAW’s King Says Talks with ‘Transplants’ Continuing, with Support from Other Unions.” Daily Labor Report, p. A-12. Bureau of National Affairs. 2012 (Apr. 3). “UAW Membership Grew in 2011 by 4,000 Members.” Daily Labor Report, p. A-15. Chaison, Gary. 2009. “Two-Tiered Wage Settlements and the Legitimacy of American Unions.” Proceedings of the 13th World Congress of the International Industrial Relations Association. Sydney, Australia. Florida, Richard, and Martin Kenney. 1993. Beyond Mass Production: The Japanese System and Its Transfer to the U.S. New York: Oxford University Press. Hobbs, Susan R. 2011 (Nov. 20). “UAW Members Ratify Ford Contract Following GM Pattern Plus Richer Bonuses.” Daily Labor Report, p. A-1. Holweg, Matthias, and Frits K. Pil. 2001. “Successful Build-to-Order Strategies Start with the Customer.” Sloan Management Review, Vol. 43, no. 1, pp. 74–83. Holweg, Matthias, and Frits K. Pil. 2004. The Second Century: Reconnecting Customer and Value Chain Through Build-to-Order. Cambridge: MIT Press. Howe, Irving, and B.J. Widick. 1949. The UAW and Walter Reuther. New York: Random House. Hunter, Larry W., John Paul MacDuffie, and Lorna Doucet. 2002. “What Makes Teams Take? Employee Reactions to Work Reorganization.” Industrial and Labor Relations Review, Vol. 55, no. 3 (April), pp. 448–72. Katz, Harry C. 1985. Shifting Gears: Changing Labor Relations in the U.S. Automobile Industry. Cambridge: MIT Press. Katz, Harry C. 1988. “Automobiles.” In D. Lipsky and C. Donn, eds., Collective Bargaining in American Industry. Lexington, MA: D.C. Heath, pp. 13–54. Katz, Harry C., and Owen Darbishire. 2000. Converging Divergences: Worldwide Changes in Employment Systems. Ithaca, NY: Cornell University Press. Katz, Harry C., John Paul MacDuffie, and Frits K. Pil. 2002. “Autos: Continuity and Change in Collective Bargaining.” In Paul F. Clark, John Thomas Delaney, and Ann C. Frost, eds., Collective Bargaining in the Private Sector. Champaign, IL: Industrial Relations Research Association, pp. 55–90. Katz, Harry C., Thomas A. Kochan, and Jeffrey H. Keefe. 1987. “Industrial Relations Performance and Productivity in the U.S. Automobile Industry.” Brookings Papers on Economic Activity 3, pp. 685–715. AUTOMOBILE INDUSTRY 79

Kim, Jaewon, John Paul MacDuffie, and Frits K. Pil. 2010. “Employee Voice and Organizational Performance.” Human Relations, Vol. 63, no. 3, pp. 371–94. Krafcik, John F., and John Paul MacDuffie. 1989. “Explaining High Performance Manufacturing: The International Assembly Plant Study.” Working paper, International Motor Vehicle Program, MIT. Lichtenstein, Nelson. 1982. Labor’s War at Home. London: Cambridge University Press. MacDuffie, John Paul. 1995. “Human Resource Bundles and Manufacturing Performance: Organizational Logic and Flexible Production Systems in the World Auto Industry.” Industrial and Labor Relations Review, Vol. 48, no. 2, pp. 197–221. MacDuffie, John Paul, Bruce Kogut, Frits K. Pil, and Charles Ragin. 2013. “Competition Among Systems of Complements: Learning Among Prototypes and the Race to Keep Up.” Working paper. Parker, Mike, and Jane Slaughter. 1988. Choosing Sides: Unions and the Team Concept. Boston: South End Press. Pil, Frits K., and John Paul MacDuffie. 1999. “What Makes Transplants Thrive: Managing the Transfer of ‘Best Practice’ at Japanese Auto Plants in North America.” Journal of World Business, Vol. 34, no. 4, pp. 372–91. Pil, Frits K., and Saul Rubinstein. 1998. “Saturn: A Different Kind of Company?” In Robert Boyer, Elsie Charron, Ulrich Jurgens, and Steven Tolliday, eds., Between Imitation and Innovation: The Transfer and Hybridization of Productive Models in the International Automobile Industry. London: Oxford University Press, pp. 361–73. Piore, Michael J. 1982. “American Labor and the Industrial Crisis.” Challenge, Vol. 25, March–April, pp. 5–11. Reuther, Victor G. 1976. The Brothers Reuther and the Story of the UAW: A Memoir. Boston: Houghton Mifflin. Rubinstein, Saul, and Thomas Kochan. 2001.Learning from Saturn: Possibilities for Corporate Governance and Employee Relations. Ithaca, NY: ILR Press. Shimada, Haruo, and John Paul MacDuffie. 1987. “Industrial Relations and ‘Humanware’: Japanese Investments in Automobile Manufacturing in the United States.” Working paper, Sloan School of Management, MIT. Stieber, Jack. 1962. Governing the UAW. New York: Wiley. United States. Department of Labor. 1969. Wage Chronology—General Motors Corporation, 1939–68. Bulletin 1532, Bureau of Labor Statistics. Washington, DC: GPO. Williams, Karel, Colin Haslam, Sukhdev Johal, and John Williams. 1994. Cars: Analysis, History, Cases. Providence, RI: Berghahn Books. Womack, James P., Dan Jones, and Dan Roos. 1990. The Machine That Changed the World. New York: Rawson Associates.

Chapter 3 Hotels and Casinos: Collective Bargaining During a Decade of Instability

C. Jeffrey Waddoups Vincent H. Eade University of Nevada, Las Vegas

Over the past decade, economic instability and institutional change have altered the collective bargaining landscape in the American hot The occupancy rate and other two measures of financial health (ADR and RevPAR) closely track each other and further illustrate the negative fallout from the Great Recession. In the year 2000, before the recession and the 9/11 attacks, ADR registered $110.53, which is adjusted for inflation to 2011 dollars using the Consumer Price Index. By 2003, the ADR had fallen by 8.6% to $101.03. It recovered robustly during the period 2004 through 2007, reaching a peak of $113.15 in 2007. The effect of the financial crisis and Great Recession manifested itself in the precipitous fall between 2008 and 2009, when the ADR dropped by 8.3% from $112.16 in 2008 to $102.81. As an indication of the continued depressed state of the industry, ADR in 2011, registering at $101.71, remains below the level of 2009 (Smith Travel Research 2012). Another indicator of the financial health of the lodging sector, RevPAR, takes into account occupancy, price, and the overall supply of rooms. Table 1 reveals an abrupt decline in RevPAR from the year 2000 to 2003, moving from $69.84 to $59.79. After recovering between the years 2004 and 2007 and reaching a peak of $71.10 in 2007, RevPAR plunged again during the financial crisis and accompanying Great Recession. It fell from $67.10 in 2008 to $56.11 in 2009, a 16.4% decline. Although RevPAR recovered somewhat in 2011, reaching $61.02, it remains well off its peak measures from the years 2000 and 2007 (Smith Travel Research 2012). Indeed, the fall in RevPAR reflects both negative supply and demand conditions. The overbuilding of the mid-2000s significantly increased supply (available rooms), while the recession reduced the demand for travel accommodations (and therefore occupancy and daily rental rates) as employers sought to cut costs and individuals reduced their travel budgets in response to lower incomes. As the financial indicators would suggest, the 2000s was a dismal decade from the perspective of profits for the lodging sector. In an interesting analysis of long-term profitability, Woodworth and Mandelbaum 81 82 COLLECTIVE BARGAINING UNDER DURESS

TABLE 1 Economic Indicators of the U.S. Lodging Industry, 2000–2011 (in 2011 U.S. Dollars) Year Occupancy (%) ADR ($)* RevPAR ($)** 2000 63.2 110.53 69.84 2001 59.7 106.14 63.36 2002 59.0 103.16 60.88 2003 59.2 101.03 59.79 2004 61.3 102.60 62.87 2005 63.0 104.81 66.07 2006 63.2 109.10 68.91 2007 62.8 113.15 71.10 2008 59.8 112.16 67.10 2009 54.6 102.81 56.11 2010 57.5 101.10 58.15 2011 60.0 101.71 61.02 Source: Smith Travel Research (2012). *ADR is defined as the average daily room rate. **RevPAR is defined as revenue per available room.

(2010) found that the 2000s was worse than every other decade since modern statistics have been gathered, including the 1930s. Using data from PFK-Hospitality Research’s Trends in the Hotel Industry database, they computed the compound annual growth rate of profits in the decades from the 1930s to the 2000s. The compound annual growth rate in the 2000s was measured at an astonishing –5.1% compared with the growth rates that were positive in all other decades, even the 1930s. The rates in Figure 1 indicate that during the 1930s, profits grew at a very slow 0.4%, with similarly slow growth also occurring in the 1950s and 1960s. On the other hand, profits grew robustly during the 1970s and 1990s. Although the major indicators of health in the lodging sector tend to be moving off the lows experienced in 2009, they are still far from their peaks in the mid-2000s. Such conditions suggest that there will likely be little investment in new lodging capacity in the next several years, and they also portend difficult rounds of bargaining as the important labor agreements in the industry expire during persistent economic hard times for the industry. The economic performance of the casino sector is becoming increasingly important to the national economy and the economies of many states. According to the American Gaming Association (AGA) (2012), commercial casinos and tribal casinos are located in all but 12 states.1 Commercial casinos, defined as land-based or riverboat casinos, in 2011 were located in 22 states. The AGA reported that commercial casinos HOTELS AND CASINOS 83

FIGURE 1 Compound Growth Rate of Profits in Lodging Industry During Various Decades

Source: Woodworth and Mandelbaum (2010). generated $35.6 billion in revenue, were responsible for 339,000 jobs, and paid 7.9 billion in taxes. Table 2 provides a state-by-state breakdown of the revenues, employment, and taxes paid as reported by the AGA (2012). Notice that Nevada, by far, generates the most spending and employment from its casino operations, but the exceedingly low tax rate translates into a surprisingly low level of tax revenue. Table 3 provides data on commercial casino revenue over time. It shows that revenues grew steadily after the recession of the early 2000s until it reached a peak of approximately $40.3 billion in inflation-adjusted 2011 dollars. Revenue then dropped off considerably as a result of the financial crisis and Great Recession. In spite of the technical end to the recession, the stagnant economy and falling household incomes have kept revenues at relatively depressed levels (AGA 2012). Tribal gaming is rapidly approaching commercial gaming in terms of size and employment. The National Indian Gaming Association (NIGA) (2011) reports that as of 2010, 237 tribes ran gaming operations in 28 states and generated 27.2 billion in total revenue. NIGA’s economic impact study (2009:7) found that as of 2009, Indian gaming accounted for 204,000 direct jobs and $2.4 billion in state taxes, revenue sharing, and regulatory payments (2009:7). The revenue stream consists of state income, sales and excise taxes, regulatory payments, and revenue sharing pursuant to tribal–state compacts. Tribal gaming in the 2000s grew significantly 84 COLLECTIVE BARGAINING UNDER DURESS

TABLE 2 Consumer Spending (Millions of Dollars), Employment, and Tax Revenue (Millions of Dollars): Commercial Casinos in 2011 by State State Spending ($) Employment ($) Tax revenue ($) Nevada 10,700.00 174,381 865.25 New Jersey 3,320.00 34,145 277.60 Pennsylvania 3,020.00 13,050 1,456.00 Indiana 2,720.00 14,079 846.37 Louisiana 2,370.00 17,207 573.19 Mississippi 2,240.00 23,721 274.42 Missouri 1,810.00 10,435 484.83 Illinois 1,480.00 7,911 489.42 Iowa 1,420.00 9,384 321.53 Michigan 1,420.00 7,303 320.67 New York 1,260.00 3,465 593.40 West Virginia 958.70 4,528 406.46 Colorado 750.11 9,263 102.17 Delaware 552.37 2,730 230.16 Rhode Island* 512.86 — 308.71 Florida 381.72 2,601 143.60 New Mexico 248.92 1,423 64.72 Maryland 155.71 290 89.53 Oklahoma 106.23 905 18.30 South Dakota 100.90 1,512 16.36 Maine 59.45 364 29.06 Kansas** 48.48 303 9.48 Total 35,635.45 339,000 7,921.23 Source: American Gaming Association, 2012 State Survey of Gaming Entertainment. *One or more properties declined to participate in the survey. **Based on 2010 data. more rapidly than gaming in commercial casinos. Table 3 shows that revenue increased from $18.4 billion in 2002 to $28.3 billion by 2007, as measured in constant 2011 dollars. Just as the Great Recession negatively affected the financial conditions of the lodging industry, it also reduced revenues for casino operators. As Table 3 indicates, commercial casinos’ inflation-adjusted revenues peaked in 2007 at roughly $40.7 billion. Revenues plummeted in response to the financial crisis and ensuing recession, falling by 11.8% to $35.9 billion in 2009 and staying roughly flat since then. Indeed, unlike the hotel industry, the commercial casino sector has failed to recover any of its recession- induced losses (AGA 2012). HOTELS AND CASINOS 85

TABLE 3 Revenue of U.S. Commercial and Tribal Casinos in Billions of U.S. Dollars (2002–2011) Year Commercial ($) Tribal ($) 2002 35.09 18.38 2003 35.10 20.53 2004 37.11 23.22 2005 37.74 26.03 2006 39.35 27.78 2007 40.71 28.32 2008 37.84 27.89 2009 35.94 27.78 2010 35.68 27.33 2011 35.64 27.20 Sources: American Gaming Association, 2012 State Survey of Gaming Entertainment; National Indian Gaming Commission (2012).

Tribal casinos also experienced reduced revenue in 2008 as a result of the financial crisis and Great Recession. That year also marked the first year-over-year fall in revenue since tribal gaming commenced operations in 1988. The fall in revenues, however, was relatively mild compared with that of commercial casinos, as Table 3 demonstrates. The peak of $28.3 billion in 2007 was followed by only a 1.4% decline to $27.9 billion in 2008. Revenue has continued to decline slightly since then, which is likely a reflection of the stagnant economy, persistently high unemployment rates, and falling household incomes. Similar to commercial casinos—and unlike the lodging sector—as of 2009, tribal casinos have not experienced any recovery in revenues with the technical end to the recession.

PATTERNS OF COLLECTIVE BARGAINING AMONG EMPLOYERS Lodging Although analysts have segmented the industry along a number of dimensions, one useful characterization of the sector is a division of establishments into segments by price and quality of service. Using a price–quality schema, some industry analysts have developed a three- segment structure: (1) upscale and luxury, (2) mid-scale, and (3) economy and budget (see, e.g., Kalnins 2006; Waddoups and Eade 2002). Typically, upscale and luxury and many mid-scale properties are relatively large and are often located in urban centers as convention hotels or in tourist destinations as resort hotels. They cater to business and convention travelers 86 COLLECTIVE BARGAINING UNDER DURESS and middle- to upper-income tourists, who are less price conscious than their counterparts who patronize economy or budget establishments, but also expect higher levels of service. The establishments in the economy and budget categories, usually much smaller, tend to be located in suburban or roadside locations—although they may also operate in urban areas—and attract customers who are less interested in high levels of service and are more sensitive to price. The existence of collective bargaining often depends on a property’s location within the three-tiered segment structure. Most hotel unionism is found in larger urban hotels in the full-service and upscale segments or in mid-scale establishments. The union that generally represents hotel workers, UNITE HERE, has its largest local affiliates in large urban areas and tourist destinations such as Las Vegas, New York, San Francisco, Honolulu, and Atlantic City. Unionization is more likely to be found in the top two segments for a number of reasons. First, the size of establishments provides economies of scale to union activities, from organizing to contract administration, which make representing workers at larger establishments more cost effective. Second, upper tier hotels tend to agglomerate in urban centers, which provide additional economies of scale to union activity and also provide the union with an incentive to organize all or most of the competing properties in the relevant submarket. Union leaders have long recognized that additional bargaining power can be obtained if most or all of the competitors in a given market are unionized, essentially taking wages and working conditions out of competition. With wages and working conditions removed from competition, firms compete by providing higher-quality products and services rather than by cutting wages and benefits. Third, compared with lower-segment establishments, upper-segment establishments must deliver higher-quality service, which places a premium on a stable and more highly trained workforce. Empirical evidence leaves no doubt that a unionized workforce has lower turnover rates (Freeman and Medoff 1984). To the extent that employment relations in unionized firms leads to lower turnover rates, accumulation of firm- and industry- specific human capital is encouraged. Workers with greater amounts of human capital are more productive and thus have the capacity to more effectively deliver high-quality service. To the extent that such reasoning applies to hotels, then collective bargaining may be more consistent with building and maintaining the kind of workforces required in upscale and full-service properties compared with the economy and budget segment. Consequently, employers might be less likely to resist union activities, and higher union wages and benefits become more economically viable based on higher productivity and lower recruitment and training costs (associated with lower turnover). HOTELS AND CASINOS 87

On the other hand, location and market considerations appear to present obstacles to unionization in the economy and budget segment. First, smaller, more geographically dispersed establishments, often located outside urban centers, likely require hotel unions to spend more resources per potential member to organize. This makes representation of workers in such establishments less cost effective. Unions are less likely to expend scarce resources in areas where organizing and representation activities may be not be viable. Second, because customers of economy and budget properties tend to expect low prices rather than high levels of service, keeping costs and prices down becomes managements’ major imperative. Productivity related to lower turnover and the accompanying human capital accumulation thus become relatively less important in lower-segment properties. Consequently, employment relationships in a unionized environment are less consistent with maintaining a workforce compatible with a lower-tier segment’s operations, suggesting a greater incentive to remain union-free. Although the segment in which the property competes partially determines patterns of collective bargaining, such patterns are also a function of geography. Hotels in urban centers in the South and in some locations in the Mountain West, despite being in the more heavily unionized upper segment of the industry, remain largely non-union. At the same time, union coverage among hotel workers is quite prevalent— although certainly not universal—in the upper-segment hotels located in urban centers of the Northeast and Midwest. Region-specific customs of managerial and perhaps worker resistance—or indifference—to unionization, therefore, must also be recognized as determinants of the observed patterns of unionization. Casinos As was evident from the discussion of economic performance, casino industry analysis generally differentiates commercial casinos, which are land based and on riverboats, from tribal casinos. The commercial casino segment may be further subdivided into operations that are connected with a lodging facility, such as casinos in Nevada, where gaming laws mandate that full-service casinos have at least 200 hotel rooms, and stand- alone commercial casinos, including most casinos on riverboats along the Mississippi River in Iowa, Illinois, Missouri, Mississippi, and Louisiana. Of course, in a number of locations—for example, Biloxi and Tunica, Mississippi— riverboat casinos are associated with large destination resort hotels, and lodging services are also found in a number of other locations throughout the United States where tribal casinos operate. Commercial casinos are also emerging in newer jurisdictions, notably, Pennsylvania, 88 COLLECTIVE BARGAINING UNDER DURESS which now has 14 casinos with gaming revenue in 2012 that surpassed New Jersey, moving it into second place behind Nevada. As with the lodging sector, researchers have employed a segmentation structure to describe the casino industry. The National Gaming Impact Study Commission (NGISC) (1998:7–8) reported on research conducted by the National Opinion Research Council (NORC), which surveyed casinos for the commission’s report. The NORC divided casinos into three segments: (1) the top 25 casinos based on revenue (almost all of which are part of destination resorts); (2) other commercial casinos including, but not limited to, riverboats; and (3) tribal casinos. It must be noted that NORC’s segmentation scheme is not entirely consistent with the organization of the casino sector. For example, there is little doubt that most of the top 25 revenue-generating casinos are indeed correctly classified as resort destination properties; however, other casinos not listed in the top segment may also be appropriately classified as destination resorts. Classification problems notwithstanding, casinos in the resort segment offer a much greater variety of gambling products, ranging from sophisticated sports books to highly specialized state-of-the-art slot machines to a wide variety of table games. In addition, they provide other nongambling amenities such as high-quality shows, fine dining, health spas, and other forms of recreation. Although the NORC report does not mention the physical location of the 25 responding properties in the top segment, it stated that 21 of the 25 were unionized and tended to offer better and higher-quality jobs relative to casinos in the other two segments (NGISC 1998:7–8). Because most of NORC’s top-segment properties are unionized, it can be inferred that a large majority are either located in Las Vegas or Atlantic City. Any other top-segment casinos outside Las Vegas and Atlantic City would have been non-union at the time (e.g., Foxwoods Resort in Connecticut may have been on the list). In casinos connected to resort hotels, the prospect for unionization is generally tied to the union status of the hotel to which it is connected. A major exception to this generalization recently emerged at the Foxwoods Resort, where the dealers and the UAW recently signed a collective bargaining contract with the casino operators. The other workers at Foxwoods remain without union representation. Generally, for nondealer casino workers, the same unions that represent hotel workers also represent casino workers. For example, housekeepers in a typical unionized Las Vegas hotel and cocktail servers in the hotel’s casino are part of the same bargaining unit, which is represented by UNITE HERE’s Culinary Union Local 226. However, in non-union resort destination hotel-casinos on the Las Vegas Strip (e.g., The Venetian), neither hotel nor casino workers are unionized. Other commercial casinos HOTELS AND CASINOS 89 operating outside the top segment of the market in Atlantic City, Las Vegas, and Reno may or may not be unionized. However, where there are unions, they almost always represent both casino and hotel workers. On the other end of the size spectrum, smaller commercial casinos such as in Colorado and South Dakota, riverboat casinos in the Midwest and South, and nearly all tribal casinos have gambling operations that are more limited than those of the top segment. Not only are there fewer gambling products available, but there are also usually lower betting limits and fewer nongambling amenities, such as shows and fine dining. Moreover, as was indicated in Table 2, in the case of commercial casinos, higher tax rates are levied (at least compared with Nevada). In addition, casinos located outside tourist areas are more likely to attract local residents as customers so that in some cases lodging establishments are not connected with casinos. Where lodging does exist, the establishments are generally smaller and less likely to be in the full-service or luxury segments of the industry. Like their lodging counterparts, location and size of casinos affect unionization. Remotely located and smaller casinos that are not tourist destinations tend to attract customers interested in lower-stakes betting. Casino customers’ demand for lower-stakes games limits the potential revenue and ultimately the potential productivity of casino workers, where productivity is defined as revenue per employee hour. Establishments that generate low levels of revenue per employee may be less able to pay union- scale wages and benefits, and thus may more strongly resist union organizing efforts. Furthermore, because of the isolation and smaller scale of operations, unions are likely to find organizing casino workers less cost effective. In the case of tribal casinos, another difficulty for unions has been tribal sovereignty and the resulting inability of federal labor laws to protect workers’ rights to organize and bargain collectively (NGISC 1998). The federal government recognizes 565 Indian tribes, providing each with some level of independence from the regulations promulgated and enforced by the U.S. government.2 The Indian Gaming Regulatory Act, a consequence of tribal sovereignty, was passed in 1988 and paved the way for tribes to begin operating casinos on tribal land (Gordon 2010). The law, however, required that tribes who desired to operate Class 3 casinos must establish a compact with the surrounding state, which allowed the state some power in regulating the casino operations and also allowed for revenue sharing. Class 3 casinos permit table games and slot machines that are common in contemporary commercial casinos. Class 2 gaming includes bingo and certain other nonbanked games. Of the 565 federally recognized tribes, 233 operate Class 2 or Class 3 casinos in 28 states. 90 COLLECTIVE BARGAINING UNDER DURESS

An important issue of tribal sovereignty is the applicability of labor laws such as the National Labor Relations Act (NLRA), which provide certain well-defined rights for workers to organize and bargain collectively. Of course, to the extent that such rights have not applied to enterprises operated by Indian tribes, the ability of workers to unionize was necessarily limited. The relative paucity of union activity in tribal casinos suggests that perhaps the lack of legal protection, among other impediments, has made it difficult for workers to obtain union recognition and for unions to successfully organize workers (Gordon 2010). Against this backdrop, an interesting case emerged in California, where, uniquely, the gaming compact states that tribes must allow workers to organize and bargain collectively along the lines of the NLRA. In 1998, the Communication Workers of America (CWA) signed the first collective bargaining agreement with the Viejas Band of Kumeyaay Indians operating a casino outside of San Diego (Gordon 2010). The agreement was controversial in a jurisdictional sense, because the UNITE HERE union argued that it had jurisdiction over organizing casino workers. In 1999, the CWA then attempted to organize workers in another casino operated by the San Manuel Band of Mission Indians, who operated a casino on their reservation near San Bernardino, California. UNITE HERE officials, also making a bid to represent the workers, complained that the casino operators were favoring the CWA by allowing them to park a trailer as their organizing headquarters on casino property without extending the same opportunity to them (Gordon 2010). Differential treatment of the two unions bidding for worker support would be considered a violation of the NLRA, and given that the California compact called for NLRA-like regulation of collective bargaining, UNITE HERE filed a complaint with the National Labor Relations Board (NLRB). The NLRB in 2004 claimed jurisdiction in the case and ordered the tribe to cease favoring the CWA. The ruling was appealed to federal court, which sided with the NLRB in a precedent-setting ruling in 2007, finding that because a majority of workers and patrons are not members of the tribe, the workplace was under the jurisdiction of NLRA. The ruling also held that because Native American tribes did not traditionally operate casinos, the gaming operations were not government-run enterprises, as they had been previously classified, but were to be considered as for-profit corporations (Gordon 2010:5). By defining tribal casinos as for-profit corporations and confirming jurisdiction of the NLRA, the court through the San Manuel decision weakened tribal sovereignty and made it easier for unions to organize workers. Indeed, the recent unionization of casino dealers at the Foxwoods Resort is likely a direct manifestation of San Manuel (Gordon 2010:7). The decision is certainly troubling for tribal casino operators, who would HOTELS AND CASINOS 91 prefer not to be subject to laws that generally apply to U.S. commercial operations.

PATTERNS OF COLLECTIVE BARGAINING: THE UNIONS Several unions represent lodging and casino workers based primarily on occupation. UNITE HERE is the primary international union that represents workers associated with food and beverage and cleaning service occupations. According to the UNITE HERE website, the union represents some 265,000 workers in the United States and Canada. The largest concentration of UNITE HERE members is in Las Vegas, where the two local affiliates (Culinary Union Local 226 and Bartenders Local 165) claim more than 60,000 members. The union also has large locals in Honolulu, Los Angeles, New York, Atlantic City, San Francisco, and Washington, DC. Alongside UNITE HERE locals are other unions representing different classes of front-line workers in the industry. For example, the Teamsters (IBT) represents warehouse and transportation workers, as well as front- desk workers, in many of the hotel-casino properties in Las Vegas; Operating Engineers (IUOE) represents workers who manage and maintain the physical plant; and the Stagehands (IATSE) represent staging workers and audio visual technicians.3 In addition, skilled trades often provide representation for workers who provide construction and maintenance work at large properties on an ongoing basis. A growing number of casino dealers are also gaining union representation. The UAW represents dealers in Detroit and Connecticut, while the TWU represents roughly 1,000 dealers at The Wynn and Caesars Palace in Las Vegas. New organizing over the past decade has occurred in both the hotel and casino sectors. A substantial increase in the number of unionized hotel-casino workers occurred along the Las Vegas Strip with the opening of properties connected with the City Center project in 2008 and 2009. As previously mentioned, union organizing has been less prevalent in tribal casinos. Along with the Viejas tribal casino in Palm Springs, California, and the dealers at the Foxwoods casino, the Rumsey Rancheria tribe of Wintun Indians that operate the Cache Creek Casino in Northern California signed an agreement with the UNITE HERE local to represent casino workers in 2003 (Bailey 2003). Bargaining Units in Hotels and Casinos Because the pattern of union representation varies in unionized lodging and casino establishments, one would also expect the occupational composition of bargaining units to vary. Indeed, in some cases, UNITE HERE locals have “wall-to-wall” representation in hotels such as the New Yorker Hotel in Manhattan (Waddoups and Eade 2002). In other cases, especially 92 COLLECTIVE BARGAINING UNDER DURESS among larger properties, several unions represent workers according to their occupations. Table 4 lists a number of major occupational categories in hotels and casinos and corresponding unions that often represent them. Table 4 indicates that food and beverage preparation, serving, baggage handling, and housekeeping are generally in UNITE HERE locals. The IBT often represent front-desk personnel, PBX operators, valet parkers, warehouse workers, window washers, and small-equipment operators. Workers maintaining the physical plant, such as heating, air conditioning, and ventilation equipment, tend to be in IUOE bargaining units. The IATSE often represents stagehands and technical workers serving conven- tions and shows. Workers skilled in the building and construction trades employed in-house, such as carpenters, electricians, and painters, tend to be represented by their respective craft unions (Waddoups and Eade 2002). Dealers and Unions Dealers operate table games such as roulette, poker, craps, blackjack and baccarat. In the past, dealers in U.S. casinos have not been represented by a union. This changed, however, when the casino industry began operations in Detroit in 1994 and the UAW won bargaining rights and a contract for dealers. Since then, additional pockets of unionism among dealers have emerged. The UAW, after several years of struggle, organized dealers in four properties in Atlantic City—the Trump Plaza, Tropicana Resort and Casino, Bally’s Atlantic City, and Caesars Atlantic City. In January 2010, the UAW negotiated a contract for more than 3,000 dealers TABLE 4 Occupational Composition of Bargaining Units in Typical Resort Hotel-Casino (by Union)* UNITE-HERE IBT IUOE IATSE Food preparation Front desk Maintenance Staging staff Kitchen sanitation Telephone operators Heating and air conditioning Audio/visual Dining room Valet parkers Ventilation Bell desk Warehouse Housekeeping Equipment operators Servers Window washers Bartenders Bar backs

Carpenters IBEW Painters UAW/TWU Construction Electrical Painters Casino dealers** Repair Paper hangers *Hotel workers are also represented by the International Longshore and Warehouse Union in Hawaii. **Dealers in Detroit, at Caesars Palace and The Wynn in Las Vegas, at several properties in Atlantic City, and at the Foxwoods Resort in Connecticut currently collectively bargain. HOTELS AND CASINOS 93 at the Foxwoods Resort. Additional unionization of dealers may be on the horizon in Atlantic City, with the UAW targeting the new Revel Casino (Associated Press 2012). Dealers have also unionized in Las Vegas. At The Wynn Resort, dealers were angered by a new tip-sharing policy adopted by management in 2006, whereby tips earned by the dealers would be shared with supervisors. After a long struggle, the TWU Local 721 eventually negotiated a ten-year contract with The Wynn Resort, which, interestingly, kept a modified version of the tip-sharing arrangement in place. The groundbreaking agreement, ratified in November 2010, was the first major labor contract for dealers in Las Vegas. Two years later, in July 2012, the TWU Local 721 and Caesars signed a labor agreement, which became the second contract between dealers and a Las Vegas casino (Green 2012). The relatively slow movement to collective bargaining by dealers in the United States remains a curious phenomenon. In contrast to those in the United States, casino dealers are likely to be unionized in Canada, France, Belgium, Australia, and Spain, among other nations, which generally have a longer tradition of collective bargaining. Before the notable successes in Atlantic City and Las Vegas, several attempts to organize dealers in Nevada over the past 40 years were unsuccessful (Campbell 1989). A number of factors explain why dealers in United States generally have not unionized. First, employer opposition plays a key role. Casino employers’ argue that “at-will” employment for dealers helps them to keep games honest. If dealers are suspected of running dishonest games, they must be removed quickly to avoid serious financial damage. Due process procedures in labor agreements could allow cheating to continue, rendering companies vulnerable to unacceptable financial risk (Frey and Carns 1987). Second, dealers’ own perceptions of their jobs may be a factor. Many dealers at smaller properties see the occupation as a short-term job of less than five years. Thus, job protections provided by a union contract hold less value for them. Third, the work itself complicates union organizing. In some cases, dealers work part-time dealing games and part-time supervising them. The ambiguous position between management and front-line workers not only complicates the formation of traditional bargaining units, but it also increases dealers’ affinity with management (Frey and Carns 1987). Fourth, affinity with management may also originate from the path dealers have traditionally followed to obtain increasingly lucrative jobs over time. Upward economic and occupational mobility has typically required “juice” (network human capital) with managers in the industry (Binkley 2001). To the extent that dealers perceive support of a union as a threat to the “juice” that got them their jobs and that will be necessary to obtain better jobs, they may not support unionization (Frey and Carns 94 COLLECTIVE BARGAINING UNDER DURESS

1987). More recently, as the industry has expanded, corporate-style human resource policies are gradually replacing the traditional system of patron- age and “juice.” Unions have become more attractive to dealers, resulting in an increase in the incidence of collective bargaining. As major properties gain experience with collective bargaining and unions become more adept at representing dealers, additional union organizing among dealers is likely to emerge. Organizing Strategy with Neutrality Agreements and Card-Checks UNITE HERE has earned a reputation for aggressively organizing new properties without the NLRB election machinery. From the perspective of UNITE HERE, intense resistance by employers using techniques such as captive-audience meetings and long legal delays, as well as alleged retaliation against union activists, combine to make the NLRB election process ineffective as a means to secure recognition (Hurd 2008). Union elections are also particularly problematic from the union’s perspective because of high turnover rates in the industry. Under current labor law, union certification elections can be delayed for years. Long delays coupled with high turnover rates mean that there may be very few workers who initiated the unionization effort remaining with the employer by the time an election occurs. Indeed, total separations data from the Bureau of Labor Statistics (2012) show that after construction, the sectors of leisure and hospitality, and accommodation and food services register the second and third highest rate of job separations. In place of elections, the UNITE HERE has adopted strategies that include intensive organizing among workers within establishments while attempting to secure neutrality agreements from employers. Although neutrality agreements take different forms, they typically contain language that provides union organizers access to employers’ facilities, along with agreements by employers not to campaign against the union, card-check recognition, arbitration of first contracts, and accretion clauses that extend the employer’s neutrality for purposes of organizing to other properties that may be acquired or built by the company. The union commonly agrees not to picket or disrupt business as the organization drive proceeds (Hurd 2007; Sherwyn, Eigen, and Wagner 2006). Not only are neutrality agreements enforceable in federal court, but UNITE HERE’s recent experiences have also demonstrated that they increase the probability that a union will obtain NLRB certification. Such results appear to be generalizable according to Eaton and Kriesky (2001), who examined outcomes of 170 union organizing drives and found that when a neutrality agreement was in place, unions won recognition 78.2% of the time compared with a 46.0% win rate when elections were held. HOTELS AND CASINOS 95

UNITE HERE has used various methods to secure neutrality agreements. A particularly interesting case occurred in the summer of 2006 with the Hotel Workers Rising campaign, which publicized, among other things, high injury rates among hotel maids.4 At the same time, through a coordinated strategy of signing short contracts or having workers continue to work without a contract (for two years in the case of San Francisco), UNITE HERE secured common contract expiration dates in major large-city convention and upscale hotel markets. Thus, in the summer of 2006, unionized hotel workers in Boston, Chicago, Honolulu, Los Angeles, New York, San Francisco, and Toronto—seven of the top convention cities in North America—were working without contracts. The simultaneous expiration was a particular threat to hotel chains because unions could coordinate job actions across major convention and tourist venues. If only one location was in negotiations and a union-led job action occurred, some of the negative consequences could be absorbed by sister hotels in other cities. However, with hotels in so many major markets simultaneously in negotiations, the potential negative consequence of job actions became magnified. With the help of the added bargaining power derived from simultaneous expirations and a booming economy, leaders of UNITE HERE secured favorable contract terms without strikes, which included national neutrality agreements with Hilton and Starwood in specified markets (Hurd 2008; Sherwyn, Eigen, and Wagner 2006). According to public statements by Bruce Raynor—then president of the union—the strategy led to 6,000 additional workers on the union rolls (Hurd 2007). In 2012, UNITE HERE engaged in an international boycott of most Hyatt properties around the world. These aggressive tactics can be seen, in part, as a continuation of the strategy to secure neutrality agreements from Hyatt in similar way that they were secured from Hilton and Starwood (Stangler 2012). In Las Vegas, the largest hotel-casino market in the United States, virtually all new organizing has relied on employer neutrality and card- check recognition. For example, three new properties connected with the City Center project in the heart of the Las Vegas Strip, which was completed in 2008, were covered under the accretion clause in the contract between MGM Grand Corporation and the Culinary Local 226 (the UNITE HERE affiliate in Las Vegas).5 The Cosmopolitan, another major property adjacent to City Center, signed a stand-alone neutrality agreement with the union. Local 226 continues its long-running struggle for a neutrality agreement with Station Casinos, which currently operates a chain of off-Strip hotel-casinos in the Las Vegas area (Coolican 2012). Other strategies to obtain neutrality agreements have also been employed in the past. In Jacksonville, Florida, the AFL-CIO invested funds from its Building Investment Trust (BIT) in the Jacksonville Hilton and Towers. 96 COLLECTIVE BARGAINING UNDER DURESS

In exchange for the financing, the hotel signed a neutrality agreement. The Hyatt Regency Philadelphia at Penn’s Landing also signed a neutrality agreement after receiving financing from the AFL-CIO’s BIT funds (HERE 1999:14). Failed Merger Between UNITE and HERE The previous decade witnessed a historic merger on February 25, 2004, between UNITE and HERE. UNITE, a union with 180,000 workers, owned the Amalgamated Bank and a $70 million building as its headquarters in Manhattan. It faced a shrinking base of workers to organize, as technology replaced textile workers and many remaining jobs were outsourced to overseas operations. The union was led Bruce Raynor, who orchestrated the 17-year battle with J.P. Stevens to organize 3,500 workers in the South, a battle that inspired the film Norma Rae. HERE was led by John Wilhelm, a progressive labor leader known for aggressively organizing hotel, gaming, and restaurant workers. The union had a large and growing pool of workers to organize, but it lacked the financial resources to support such an effort on a scale that was desired. Thus, merger of the two unions into UNITE HERE appeared to be a good strategy to form a larger, well-financed union focused on organizing less-skilled workers. In the newly merged union, Raynor took the role of general president and Wilhelm the role of president of the hospitality workers section, with the two men sharing decision-making authority (Greenhouse 2004). This arrangement of essentially having co-presidents was a novel, and largely unprecedented, approach to union leadership. Difficulties in merging the two organizations caused the relationship to deteriorate steadily to the point that by March 2009, Raynor declared the merger failed and called for the union to split (Greenhouse 2009). In May 2009, Raynor announced his resignation from the union presidency and formed a new union called Workers United, which was composed of roughly 100,000 workers, most of who were formerly UNITE members. Raynor and Workers United joined the Service Employees International Union (SEIU). A point of controversy in the split centered on which union—UNITE HERE or Workers United, SEIU—would maintain control of the Amalgamated Bank and the office building that housed UNITE HERE’s headquarters (Greenhouse 2009). The dispute was settled in July 2010 with the Amalgamated Bank going to Workers United, SEIU and UNITE HERE maintaining ownership of the Manhattan headquarters. Jurisdictional matters were also settled. UNITE HERE was to retain jurisdiction over organization of food service workers in stadiums, convention centers, businesses, airports, and airline caterers. SEIU would organize food service workers at health care facilities, prisons, and government buildings (Greenhouse 2010). HOTELS AND CASINOS 97

It is difficult to quantify the damage the internecine battles battle between Workers United, SEIU and UNITE HERE inflicted on the latter’s efforts to organize workers in the casino/hotel industry; however, the transition of leadership in UNITE HERE appears to have stabilized the union. In November 2012, John Wilhelm retired as president of UNITE HERE and D. Taylor, the former national vice president of UNITE HERE and secretary-treasurer of the Culinary Union Local 226 headquartered in Las Vegas, was formally elected to the presidency. In his new capacity, Taylor is likely to focus on issues surrounding union organizing and expansion within the hospitality industry using the Las Vegas union experience as a reference point. Other national issues of concern will be the economy’s impact on union members, health care, card-checks, and immigration reform. Taylor will still be involved in contract negotiations in the near future with many Las Vegas casinos as a significant number of collective bargaining agreements expire in 2013 (Stutz 2012).

ISSUES IN ORGANIZATION AND BARGAINING Labor–Management Cooperation and Conflict The creation and success of labor–management cooperation programs often depend on the maturity of the relationship between the two parties. Because some hotel markets have experienced collective bargaining for decades, a level of trust has evolved that serves as a foundation for cooperation. A notable example of labor–management cooperation is the jointly operated Culinary Academy of Las Vegas (CALV).6 The UNITE HERE local in the Las Vegas and 26 Strip hotel-casino properties established a training trust to support the CALV, which is financed by a payment of $.04 per bargaining unit worker hour. CALV’s program trains potential and incumbent workers who want entry-level jobs, or to upgrade their skills in cooking and serving. The curriculum also includes courses in life skills and English as a second language. Signatory properties have access to the pool of trained workers who graduate from the academy. Moreover, signatory hotels can also request programs that are tailored to meet their specific needs.7 CALV’s training programs have continued to evolve. In summer 2011, CALV moved operations to a new state-of-the-art building. Suggestive of its high-quality training and output, it recently won an exclusive contract to provide catering services to the Smith Center, a new upscale fine arts venue in downtown Las Vegas. The Working for America Institute—an organization affiliated with the AFL-CIO that researches and highlights innovative, high-road, partnerships among labor organizations, employers, and community groups—singled out the CALV partnership as a model of labor–management cooperation (Working for America Institute 2001). 98 COLLECTIVE BARGAINING UNDER DURESS

There is also a history of conflict in labor–management relations in the hotel industry, which, given the remarkably difficult economic conditions of the present time, threatens to re-emerge as major contracts expire. Examples of this conflictual relationship are the major strikes in Las Vegas in 1984 and New York in 1985. The proximate cause for the 67-day strike in Las Vegas was a demand by properties that newly hired or transferred workers be paid 80% of the contractually bargained rate for workers with less than a year of experience in an occupation. The union eventually agreed to the demand. The local hotel industry and its unions were both battered by the strike in which replacement workers were used to keep some of the Strip and downtown properties operating. In addition, picket-line violence, decertifications, and substantial membership losses weakened the union. Similarly, hotels in New York in 1985 were able to continue operating during the citywide strike. One hundred sixty-five properties were struck by 25,000 union members in the 26-day walkout in New York City. As in Las Vegas, a central issue was a lower starting wage (75% of union scale) for workers in their first year. To the surprise of union leaders, the strike failed to shut down the industry; nevertheless, workers obtained wage and benefit increases in exchange for more flexible job classification systems and the lower wage for first year workers (Cobble and Merrill 1994). The 1980s was generally an era of substantial union decline. The outcome of these strikes was a weaker union and many lost members. In fact, a similar strike in Reno several years earlier left the hotel and casino industries virtually union-free (Taylor 2001). Isolated incidents of strikes, boycotts, and other labor unrest, however, have affected some hotel and casino properties. One example was the protracted strike at the Frontier Hotel and Gambling Hall in Las Vegas in 1991. After the employer cut wages and payments to unions’ health, welfare, and pension funds, 550 workers from five unions walked out in an unfair labor practice strike. By the time it ended in 1998, the strike had become the longest in U.S. history. Although no union workers crossed the picket line, the company continued to operate with replacement workers. The strike was finally resolved after the property was sold and the new employer recognized the union. An estimated 300 of the original strikers returned to work at the “New Frontier Hotel and Casino” (Berns 1998). Overt conflict has also arisen when properties on Las Vegas’s highly unionized Strip have attempted to open and operate non-union. The MGM Grand opened in December 1993 without agreeing to remain neutral or to recognize a card-check procedure. The union protested with informational pickets and by leafleting customers. A free-speech issue arose when the hotel-casino, which also owned the sidewalk surrounding the property, asserted its property rights to remove the protesters from the sidewalk as trespassers. HOTELS AND CASINOS 99

A similar controversy arose at the 3,000-room Venetian Hotel and Casino on the Strip. The company claimed that sidewalks in front of property were privately owned and therefore not available for demonstrators to protest the company’s anti-union stance. In a federal court ruling, however, sidewalks owned by hotel properties were judged to be areas in which free speech—including union activities—is protected (United States Court of Appeals, Ninth District 2001). The ruling did not end the controversy over the access of union protesters to public and quasi-public walkways. In 2003, a group of roughly 1,000 union protesters was demonstrating on a temporary walkway in front of the Venetian Casino. Audiotaped and posted messages warned protesters that they were trespassing on private property. After the demonstrators refused to leave the walkway, security personnel placed a union agent under citizen’s arrest and called the police to issue trespass citations. The union filed an unfair labor practice complaint with the NLRB, which ruled that quasi-public walkways were available for union demonstrators to protest and that the actions of the company violated Section 8a(1) of the NLRA (Ross 2010). Conflict over health and safety issues also emerged during the first decade of the 2000s. Dangerous working conditions affecting housekeepers in particular have become the focus of a worldwide boycott of the Hyatt chain (Hoover 2012). The boycott received declarations of public support from the National Organization for Women and the National Football League Players Association, among other organizations. Findings from a study of working conditions affecting front-line hotel workers underlie UNITE HERE’s action. A study of a randomly selected group of unionized hotels from five chains found that hotel workers were significantly more likely to report occupational injuries—particularly acute musculoskeletal injuries—than their counterparts in other service-sector employment (Buchanan et al. 2009). Financially supported by UNITE HERE, the study is based on data gathered from Occupational Safety and Health Administration (OSHA) injury logs on the incidence and nature of injuries between the years 2003 and 2005. The results, published in the American Journal of Industrial Medicine, indicate that Hispanic housekeepers were particularly vulnerable to occupational injuries compared with workers in other occupations and ethnicities. The research also reports statistically significant differences in rates of injuries between hotel chains, a finding that suggests that, even among unionized firms, employer-specific policies can ameliorate or exacerbate health and safety outcomes. UNITE HERE seized on the results of the study to bring public pressure to bear on the Hyatt Corporation, which was found to have the worst injury record of the five chosen chains represented in the sample. 100 COLLECTIVE BARGAINING UNDER DURESS

WORKERS AND LABOR MARKETS IN HOTELS AND CASINOS The workforce of the lodging industry includes a large proportion of relatively unskilled service workers. Without union coverage, such employees are often paid poverty-level wages and receive few benefits (Waddoups 2001a). Indeed, employment in many front-line hotel and motel jobs fits the profile of “nonstandard” work—part-time, contingent, and/or lacking in affordable fringe benefits—according to the definition of Carré, Ferber, Golden, and Herzenberg (2000). In this section, we use Current Population Survey (CPS) data on travel accommodation workers to establish union density, compare characteristics of union and non-union workers, estimate differentials in union and non-union wages, and investigate the incidence and determinants of health insurance and pension coverage. Union Density, Worker Characteristics, and Union Effects on Compensation Collective bargaining is closely connected with higher real wages for workers in both union and non-union establishments in a given location. For example, in research on Nevada’s hotel and casino industries, Waddoups (1999a, 2001b) compared median wages of a number of occupations that were highly unionized in Las Vegas with identical occupations in Reno, which were largely non-union. The comparison highlighted a marked difference in the wage structure of hotel-casino firms in the two regions. Median wages for less-skilled service jobs in Las Vegas were found to be more than 40% higher than those of their counterparts in Reno. When the union/non-union differentials were estimated using multiple regression analysis to account for the possibility of product market differences between Las Vegas and Reno, the differential fell to a still significant 24% (Waddoups 2000). In addition, wage inequality between managerial and front-line workers in the hotel-casino sector was found to be significantly lower in the highly unionized Las Vegas compared with Reno (Waddoups 2002b). To see how unions affect wages in the United States more broadly, we gathered data on travel accommodation workers from the CPS-ORG files from the years between 2005 and 2011.8 Such data are commonly used in the literature to estimate union densities and union/non-union wage differentials. The results in Table 5 show that union coverage is significantly lower in the accommodation sector than in the labor force as a whole (7.9% compared with 13.0%) and that union densities in that sector have been drifting downward over the period, from 9. 6% covered in 2005 to 7.9% in 2011. Table 6 presents the summary statistics of selected worker characteristics in the union and non-union sectors. The results indicate that, compared with the non-union sector, unionized workers are less likely to be female and more likely to be older, married, Hispanic, and non-U.S. citizens. They are also more likely to live in a city with a population of one million HOTELS AND CASINOS 101

TABLE 5 Union Densities: All Workers and Accommodation Workers by Year All Accommodation Year Member (%) Covered (%) Member (%) Covered (%) 2005 12.5 13.7 9.0 9.6 2006 12.0 13.1 9.8 10.6 2007 12.1 13.3 8.2 9.2 2008 12.5 13.8 8.3 8.6 2009 12.3 13.6 8.4 9.0 2010 11.9 13.1 8.4 9.0 2011 11.8 13.0 7.2 7.9 Source: Current Population Survey, Outgoing Rotation Files.

TABLE 6 Selected Characteristics: Travel Accommodation Workers in the United States Covered by union Not covered by contract union contract Standard Standard Characteristic Mean deviation Mean deviation Hourly wage 16.44 6.15 14.18 10.18 Age 44.0 12.3 39.15 13.6 High school 0.419 — 0.341 — Some college 0.182 — 0.219 — Bachelor’s degree 0.102 — 0.146 — Graduate degree 0.007 — 0.023 — Female 0.509 — 0.611 — Married 0.596 — 0.489 — African American 0.123 — 0.104 — Hispanic 0.312 — 0.215 — Noncitizen 0.230 — 0.168 — Does not reside in 0.248 — 0.393 — MSA* CBSA:** 250,000– 0.163 — 0.168 — 1,000,000 CBSA 1,000,000– 0.465 — 0.348 — 7,000,000 CBSA: 7,000,000+ 0.125 0.091 Union city*** 0.544 — 0.148 — Number in sample 609 4804 — Source: Current Population Survey, Outgoing Rotation Files. * MSA: Metropolitan statistical area. **CBSA: Core-based statistical area. ***Union cities were determined based on union densities in the accommodation sector over the 2005–2011 period. The cities include Atlantic City, Detroit, Honolulu, New York, Las Vegas, and San Francisco. 102 COLLECTIVE BARGAINING UNDER DURESS or greater, and more than half of union-covered workers reside in one of the six major metropolitan areas designated a “union city.” The results also suggest that education beyond high school is negatively correlated with the probability of union membership or coverage. On average, union- covered workers earn $2.28 more per hour than their non-union counterparts ($16.44 compared with $14.16), which amounts to an unadjusted premium of 16%. Using standard OLS regression techniques in which the natural log of earnings is regressed on union status, human capital, and other characteristics, we computed union/non-union differentials for various educational, demographic, and geographic groups of lodging workers. The coefficient for union coverage in the earnings equation was used to compute the union/ non-union wage differential for each group. Results in Table 7 indicate that union coverage provides a substantially higher premium for less- educated workers. Workers with no high school education earn a 24% premium compared with college-educated workers, who experience no union wage effect. Union coverage also appears to be especially useful in providing a wage premium for workers who are female, Hispanic, non-U.S. citizens, and African American. Results in Table 7 also show that union-covered workers who reside in small metropolitan areas enjoy a substantial wage premium compared with their counterparts in large areas. Interestingly, in cities that are highly unionized, the union wage premium is substantially lower than in cities where there is less of a union presence. The pattern among hotel workers is consistent with a threat effect raising wages of non-union workers, and it seems to conform to what Belman and Voos (1993) argued for “local labor market industries” more generally. They demonstrated the pattern using workers in grocery stores. The evidence on accommodation workers presented in Table 7 indicates that the union wage premium has declined over the period, from 15.0% in 2005 to 8.5% in 2011. Such findings could be a result of diminished bargaining power of union workers as the recession and stagnant economy continues to put downward pressure on their wages relative to that of their non-union counterparts. The finding is something of a puzzle, however, because labor agreements often prevent unionized workers’ wages from falling during slow economic times, while wages of non-union workers, left unprotected by contracts, are more likely to fall or stagnate. More research to address this issue would be useful. Results from the CPS indicate that high levels of occupational segregation based on race and gender continue to characterize occupational structure in the lodging industry. For example, Table 8 shows that, although females make up 59.9% of production workers, they represent 90% of maids and 81% of cashiers. Similarly, only 22% of transport workers and HOTELS AND CASINOS 103

TABLE 7 Predicted Union/Non-Union Differential for Travel Accommodation Workers by Selected Characteristics* Characteristic Differential (%) t-statistic Average 14.8 4.53 No high school 29.6 5.26 High school 21.1 5.64 Some college 6.3 1.02 Associate’s degree 16.1 1.74 Bachelor's degree 1.5 0.08 Male 11.5 2.25 Female 16.2 4.00 Not married 18.5 5.07 Married 12.5 4.69 White 9.4 3.42 African American 16.7 2.03 Hispanic 23.5 6.91 Noncitizen 21.6 5.56 Union city** 8.0 3.15 Non-union city 20.1 5.92 Small CBSA*** 29.2 7.03 CBSA 250,000–1,000,000 5.5 1.25 CBSA 1,000,000–5,000,000 8.0 2.96 CBSA 5,000,000+ 12.2 1.26 Interviewed in 2005 17.5 3.69 Interviewed in 2011 7.5 1.30 Source: Coefficients estimated using linear probability models and data from the Current Population Survey, Outgoing Rotation Files (2005–2011). *Wage-allocated workers were not included. **Union cities were determined based on union densities in the accommodation sector over the 2005–2011 period. The cities include Atlantic City, Detroit, Honolulu, New York, Las Vegas, and San Francisco. ***CBSA: Core-based statistical area. protective services workers are female. The table also shows that noncitizen, Hispanic, and African American workers tend to be disproportionately over-represented as guest room attendants and janitors, while being under-represented as managers and business, finance, and accounting analysts. Access to employer-sponsored health insurance and pensions represents other important elements of compensation. Summary statistics taken from the March CPS (Table 9) show that accommodation workers are 104 COLLECTIVE BARGAINING UNDER DURESS

TABLE 8 Employment by Selected Occupations and Demographics Characteristics Female Hispanic Black Non-citizen Selected occupations (%) (%) (%) (%) Managers 58.7 13.01 5.6 3.7 Business/finance/accounting 71.8 7.4 6.0 7.4 Protective services 21.5 11.2 10.3 5.2 Chef/cook/food prep 34.8 28.4 14.7 20.1 Cashiers 81.5 29.6 5.6 12.9 Administration 77.1 15.9 13.7 8.8 Food service 59.5 23.3 8.6 14.2 Bartenders 42.6 9.2 6.9 8.0 Entertainment 28.6 3.6 0 14.3 Maintenance and repair 1.3 22.8 2.5 12.7 Janitors 12.3 30.3 11.6 32.1 Maids 90.6 37.3 15.6 36.3 Laundry/dry cleaners 75.6 25.5 15.3 11.6 Porter, bellhop, concierge 21.7 23.2 13.1 11.6 Gaming service 58.1 8.1 5.4 13.5 Cage workers 88.9 11.1 22.2 11.1 Front desk clerks 69.6 12.6 10.5 4.2 Transport 22.1 31.7 13.4 20.7 All production 58.3 26.3 13.3 19.2 All accommodation 59.9 22.6 10.6 17.5 All workers 49.8 11.7 9.3 7.6 Source: Author’s calculations using data from the Current Population Survey, Outgoing Rotation Files (2005–2011) on workers employed in the accommodation industry.

TABLE 9 Proportion of Travel Accommodation Workers with Employer-Sponsored Health Insurance and Pension Plan Coverage Accommodation industry All industries Employer-Sponsored Health Insurance available 0.499 0.557 Employer pays all or part 0.473 0.535 Average contribution $4,156.62 $5,497.09

Pension Plan Employer offers pension 0.458 0.556 Total pension participation 0.305 0.457 Employee take-up rate 0.666 0.813 Total 6,658 571,672 Source: Author’s calculations using March Current Population Survey data (2005–2011). HOTELS AND CASINOS 105 less likely to report employer-sponsored insurance coverage than workers in general (49.9% compared with 55.7%) and that employers’ average contribution is lower. Similarly, compared with the typical worker in the United States, workers in accommodation are less likely to be offered a pension and less likely to participate in a pension plan that is offered. To isolate the factors that affect probability of health insurance being offered and paid for by employers, we estimated a linear probability model in which the dependent variable is the probability of employment-sponsored health insurance. Selected results are listed in Table 10. The variables controlling for age and education are positively correlated with the avail- ability of health insurance, all other things being equal. The results also demonstrate that the probability of health insurance coverage increases

TABLE 10 Probability That Health Insurance Is Paid for by Employer: Linear Probability Model Health insurance paid Variable* Coefficient t-statistic Age 0.030 12.67 Age2*100 –0.003 –10.05 High school 0.079 5.06 Some college 0.100 5.43 Associate’s degree 0.125 5.29 Bachelor’s degree 0.192 9.32 Female –0.037 –3.00 Hispanic –0.013 –0.87 African American 0.006 0.33 Non-citizen 0.015 0.92 Employer size 10–99 0.105 4.72 Employer size 100–499 0.258 10.93 Employer size 500–999 0.322 11.11 Employer size 1,000+ 0.298 14.59 Union city** 0.234 15.26 Constant –0.512 –9.61 Number of observations 6658 Adjusted R-squared 0.2416 Source: Data from the March Current Population Survey (2005–2011). *A series of regional, occupational, and year dummies were included as control variables in the equation. **Union cities were determined based on union densities in the accommodation sector over the 2005–2011 period. The cities include Atlantic City, Detroit, Honolulu, New York, Las Vegas, and San Francisco. 106 COLLECTIVE BARGAINING UNDER DURESS with employer size and increases substantially for workers employed in a “union city.” Although it is not surprising, it appears that accommodation workers in highly unionized cities are more likely to have employment- sponsored health insurance than their counterparts elsewhere, even after controlling for many common characteristics that affect the incidence of health insurance coverage. Another linear probability model was used to estimate the probability that accommodation workers had an employer-sponsored pension available to them. A second model was then estimated to determine the probability that workers participated in the pension plan if it were available. As with the results on the probability of health insurance, the findings in Table 11 indicate that age and education are positively correlated to the probability that a pension plan is offered. The results also suggest that female and Hispanic workers are less likely to have access to a pension. Residing in

TABLE 11 Probability of Travel Accommodation Workers Being Covered by a Pension: Linear Probability Model Pension available Participation, if available Variable* Coefficient t-statistic Coefficient t-statistic Age 0.014 5.87 0.044 11.38 Age 2*100 0.004 –5.10 –0.040 –10.03 High school 0.067 4.31 0.113 4.35 Some college 0.085 4.57 0.122 4.11 Associate’s degree 0.138 5.75 0.127 3.60 Bachelor’s degree 0.161 7.70 0.178 5.74 Female –0.042 –3.14 –0.015 –0.86 Married 0.017 1.45 0.057 3.28 Hispanic –0.057 –4.11 –0.035 –1.67 African American 0.009 0.50 –0.038 –1.48 Employer size 10–99 0.105 4.66 0.059 0.96 Employer size 100–499 0.299 12.47 0.052 0.87 Employer size 500–999 0.382 13.00 0.086 1.36 Employer size 1,000+ 0.427 20.60 0.070 1.23 Union city** 0.146 9.56 0.144 7.10 Number of observations 6658 3053 R-squared 0.2161 0.1949 Source: Data from the March Current Population Survey (2005–2011). *A series of regional, occupational, and year dummies were also included as control variables in the equations. **Union cities were determined based on union densities in the accommodation sector over the 2005–2011 period. The cities include Atlantic City, Detroit, Honolulu, New York, Las Vegas, and San Francisco. HOTELS AND CASINOS 107 a “union city” adds 14.6 percentage points to the probability a pension plan is offered. Employer size is the most significant determinant of such a probability, however, with workers progressively more likely to have access to pensions as the size of the firm increases. Compensation in Casinos Data from the CPS allow estimates of the effects of unions on wages for accommodation workers. Similar data, unfortunately, are not available for casino workers. We instead used data from Wage Watch, Inc., a company that produces proprietary occupational wage surveys, one of which focuses specifically on casino employers. Table 12 contains median occupational wages for common casino occupations in Las Vegas and the midwestern United States, including Illinois (six properties), Louisiana (two properties), Minnesota (one property), Missouri (three properties), and Oklahoma (one property). The median wage is substantially higher for occupations in Las Vegas compared with the same occupations in Midwest casinos. The difference is especially large in tipped occupations. For example, cocktail servers in Las Vegas earn 112% more than their counterparts in the Midwest do. Similarly large premiums accompany occupations such as bartender and restaurant server. If tips were added to these wages, the premiums would probably fall somewhat. Occupations that are not tipped, but which generally are covered under a union contract in Las Vegas, are also quite large. Restaurant cashiers and line cooks in Las Vegas, for example, earn 71% and 48% more, respectively, than their counterparts in midwestern casinos. The median wage for Las Vegas as reported in Table 12 for such occupations is roughly consistent with the union wage (see Waddoups 1999a and Waddoups 2001b). Similarly, the lack of unions in the Midwest casinos means that the median wage there is consistent with a non-union wage. Not surprisingly, occupations that are not unionized in either location are those with the smallest wage differential between Las Vegas and the Midwest. For example, casino dealers, cage cashiers, and surveillance operators earn more in Las Vegas, but the differential tends to be smaller. The pattern of results in Table 12 is suggestive of a Las Vegas effect, where casino occupations in general pay higher wages, but the results also indicate a significant union effect. Unfortunately, the data are not complete enough to make a definitive estimate of a union premium for casino workers that would be analogous to our estimate for accommodation workers in the CPS. The union benefits package for casino workers is widely viewed to be particularly generous for workers in larger jurisdictions such as Las Vegas and Atlantic City. Large non-union casinos in Las Vegas and other locations within Nevada and elsewhere also offer standard benefits packages to workers that are characteristic of most large employers. Unfortunately, 108 COLLECTIVE BARGAINING UNDER DURESS

0.76 0.79 0.71 1.12 0.48 0.14 0.11 0.68 0.19 0.36 0.23 0.72 Difference (%) Difference 67 228 166 560 401 518 381 629 205 199 329 2738 # of workers 9 7 11 11 12 11 12 12 13 12 13 11 # of properties Central United States* Central United 8.49 9.14 9.98 5.61 7.25 6.63 5.77 11.00 13.08 12.06 17.38 15.38 Median wage ($) Median

TABLE 12 TABLE 599 746 861 269 276 587 2156 2942 1651 1537 1934 10265 # of workers 29 41 28 47 25 34 43 29 32 35 32 23 Las Vegas Vegas Las # of properties 8.25 9.92 14.95 16.33 17.10 11.88 16.27 14.55 11.11 14.32 23.63 18.91 Median wage ($) Median

Median Wages for Selected Casino Occupations in Las Vegas and the Central United States for 2011 States and the Central United Vegas in Las Casino Occupations for Selected Wages Median Occupation back Bar Bartender cashier Restaurant Cocktail server Line cook Casino dealer Cage cashier server Restaurant floorperson Slot technician Slot operator Surveillance Valet Source: Wage Watch Casino Wage Survey, 2011. Survey, Wage Casino Watch Wage Source: (one property), (six properties), Louisiana (two properties), Minnesota located in Illinois that contribute data are States the central United *Casinos from or tribal casinos. are commercial properties information about whether the is no definitive (one property). There properties), and Oklahoma (three Missouri gaming, commercial mostly have Louisiana and Missouri gaming, commercial only has Illinois however, (2012), Association Gaming American the to According commercial States primarily originate from United the central from reported here only tribal gaming. Thus, the numbers have and Oklahoma and Minnesota casinos. HOTELS AND CASINOS 109 evidence of the existence of employer-sponsored insurance for workers in emerging, largely non-union, casino markets is limited. Our previous research drew on more complete occupational wage surveys, which were available for the year 2000 (Waddoups and Eade 2002:169–70). The surveys qualitatively described casino workers’ access to, and participation in, fringe benefits programs. At that time, full-time workers (40 hours or more per week) on all riverboat casinos were offered employer-sponsored health insurance of some kind. Of the 21 respondents operating riverboat casinos, 11 reported offering health insurance to part-timers (24 to 32 hours per week). The types of plans differed substantially among respondents, as did the percentages of workers who were reported to have participated. The incidence of health insurance offered to workers on tribal casinos was found to be very similar to that of riverboat casinos (Waddoups and Eade 2002:169–70). Of the 44 casinos responding, all but one offered some sort of health insurance package to its full-time workers (again defined as 40 hours per week). Only 24 employers offered insurance to part-timers (defined in this case from 20 through 33 hours per week). As with the riverboat casinos, a range of coverage plans were offered both within and across firms, and the rates of worker participation also varied substantially by property and plan type. And similar to riverboat properties, no information about the percentage of workers who qualified for insurance was reported. Although it is likely that similar patterns of employer-sponsored coverage exist in casinos now, no hard evidence exists to support the assertion. As is the case for health insurance benefits, little data are available about the incidence and characteristics of pension plans for front-line casino workers. Waddoups and Eade (2002), however, reported that as of 2000, all responding riverboat casinos offered 401(k) pension plans and all included some kind of employer match. It was not specified, however, whether part-time workers were eligible to participate nor was the rate at which employees participated given. Also as of 2000, Waddoups and Eade (2002) found that tribal casinos were less likely than casinos on riverboats to offer pension plans. Thirty- seven of the 44 tribal casinos represented in the data reported offering a 401(k) pension plan, most with some kind of employer-matching scheme. The other seven did not report offering a pension. No information was given on whether part-timers are eligible to participate in the program or to receive the matching contribution. In addition, no numbers were available on the proportion of workers who actually participate in the pension plans.

CONCLUSION: THE FUTURE OF COLLECTIVE BARGAINING Prospects for the expansion of collective bargaining in the lodging sector do not appear promising. The slowly recovering economy accompanying 110 COLLECTIVE BARGAINING UNDER DURESS the Great Recession has compromised the financial health of many lodging properties. Unless there is a significant turnaround in their financial prospects, non-union employers will likely be very resistant to unionism, while unionized employers may be more likely to seek to reduce costs and restore profitability through hard bargaining. Given the gloomy financial situation, not only will lodging firms be less likely to agree to wage and benefit increases, but they will most likely hold out for give-backs. Such conditions have the potential to create a tumultuous environment for labor relations in this industry when the parties enter bargaining again when the contracts expire. It seems unlikely that we will see the kind of unrest experienced in the 1980s, however, as the costs of such large-scale job actions proved to be quite high for both unions and employers. Over the past decade, a substantial portion of the expansion in the incidence of collective bargaining among hotel and casino workers has occurred as newly constructed properties fell under accretion clauses establishing employer neutrality and card-check determination of majority status (e.g., the City Center development on the Las Vegas Strip). The sluggish economy and overbuilding that occurred during the 2000s, however, suggests that fewer new properties will be built that could con- ceivably be covered under such clauses. If growth in union membership in this industry is to occur, it will have to come from some other source. As we have documented above, leaders of UNITE HERE have developed aggressive strategies to secure neutrality agreements from major employers by finding new pressure points and novel sources of bargaining power. We expect this activity to continue over the next decade. The same stagnant economic conditions facing hotels also affects casinos, which suggests that currently non-union casinos also will likely be more resistant to collective bargaining than would otherwise be the case. And currently unionized casinos will try to drive harder bargains as new rounds of negotiations begin. A potentially new source of unionism in casinos, however, may come from the dealers at major properties. The UAW has represented dealers since gaming arrived in Detroit in the mid-1990s and has since organized several bargaining units of dealers in Atlantic City and at Foxwoods in Connecticut. At the same time, the TWU has won two notable victories on the Las Vegas Strip. Although dealers traditionally have not organized as readily as other casino workers, indications are that this may be changing. As major employers become accustomed to operating with unionized dealers, employer resistance to dealer unionism may dissipate somewhat. Additionally, as non-union dealers see the benefits of collective bargaining, they may be more likely to embrace unions as a way to gain greater control HOTELS AND CASINOS 111 over their work lives. In Detroit, unionism among dealers is clearly established and will surely persist over the next decade. Dealer unionism also has a good chance of expanding in Atlantic City, where the culture is much more accepting of unions than in Las Vegas, where dealers have been slower to embrace collective bargaining and employers have been more resistant. Tribal casinos are another potential source of expansion in unionism. Tribal sovereignty and the resulting lack of protection afforded by the NLRA was one of the primary reasons that unions could not make much headway in tribal casinos. The 2007 San Manuel decision defined tribal casinos as business enterprises and brought many of them under the jurisdiction of the NLRA. This will likely open them up for union organizing, which would not have occurred in the past. As a result, it is likely that there will be more union organizing activity in tribal casinos in the next decade.

ENDNOTES 1 According to the AGA, the following 12 states do not have commercial or tribal casinos, although they might have racetrack casinos: Arkansas, Georgia, Hawaii, Kentucky, Massachusetts, New Hampshire, Ohio, South Carolina, Tennessee, Utah, Vermont, and Virginia. 2 Gordon (2010) provides a thorough discussion of the legal infrastructure underlying the ability of Indian tribes to operate casinos. 3 Hotels and casinos generally have food, liquor, and dry goods warehouses. Such items are typically received by warehouse workers, who receive, store, inventory, and issue the goods. 4 The union’s report, Creating Luxury, Enduring Pain, by June Moriarty (2006), found that the trend toward larger beds and multiple oversized pillows was associated with a notable rise in work-related injuries among members of the housekeeping staff. 5 The Aria, Vdara, and Mandarin Oriental are covered under the accretion clause through the MGM contract. The Cosmopolitan is covered under a stand-alone neutrality agreement (Taylor 2012). 6 Hospitality training academies are also found in New York, Los Angeles, and Boston (Taylor 2012). 7 Waddoups (2002a) provides additional detail on the labor relations history and economic conditions surrounding the origin of the CALV. 8 Waddoups (1999b) conducted similar research using CPS data from the 1990s.

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Waddoups, C.J. 2002a. “The Union–Management Training Partnerships in the Hotel Industry.” In Kemble, P., ed., Workforce Development and the New Unionism. Washington, DC: New Economy Information Service, pp. 115–31. Waddoups, C.J. 2002b. “Wage Inequality and Collective Bargaining: Hotels and Casinos in Nevada.” Journal of Economic Issues, Vol. 36, no. 3, pp. 617–34. Waddoups, C.J., and V.H. Eade. 2002. “Hotels and Casinos: Collective Bargaining During a Decade of Expansion.” In P.F. Clark, J.T. Delaney, and A.C. Frost, eds., Collective Bargaining in the Private Sector. Champaign, IL: Industrial Relations Research Association, pp. 137–77. Woodworth, M.R., and R. Mandelbaum. 2010. “Seventy-Five Years of U.S. Hotel Revenues, Expenses and Profits.” Cornell Hotel and Restaurant Administration Quarterly, Vol. 51, no. 1, pp. 20–26. Working for America Institute. 2001. “Community Partnerships: Building Good Jobs in Strong Communities.” AFL-CIO. Chapter 4 Health Care: Collective Bargaining’s Growing Role in a Time of Transition

paul f. clark Penn State University

The U.S. health care industry plays a critical role in our society. Almost everyone will use the services of this industry at some point, and many will do so at the most critical moments in their lives. For that reason, most people have a stake in the American health care system. And because health care is a labor-intensive industry that has an above-average level of union density, collective bargaining in health care has relevance for every American. In addition, the health care industry plays a very important role in the economic life of the United States. It is a large and growing segment of the American economy. In 2010, national health expenditures in the United States totaled 2.6 trillion dollars, up from 1.4 trillion in 2000. By 2020, this is expected to increase to 4.6 trillion. Health care costs represented 18% of the nation’s gross domestic product (GDP) in 2010. By 2020, those costs are predicted to account for 40% of GDP (U.S. Centers for Medicare and Medicaid Services 2012). The industry is also one of the leading employers in the United States. In 2010, roughly 14 million people worked in health care–related jobs (Figure 1). By 2020, that number is projected to grow to 18.3 million (AHA 2012; AHCA 2010). Most important, the U.S. health care industry is an industry in crisis and in transition. At the heart of this crisis are rising health care costs, increasing pressures on public and private budgets, changing demographics, and accelerating scientific and technological advances. It is in transition as a result of the health care reform process and the passage of the Patient Protection and Affordable Care Act of 2010 (PPACA). Since the late 1990s, managed care has been the most common framework for the delivery of health care in the United States. Managed care is a market-based approach to the delivery of health care services that includes a number of cost-control strategies such as pre-payment arrangements and pre-admission authorizations. Health maintenance organizations (HMOs) and preferred provider organizations (PPOs) serve as the primary vehicles for delivering managed care (NCSL 2012).

115 116 COLLECTIVE BARGAINING UNDER DURESS

FIGURE 1 Health Spending Per Capita, United States, 2000 to 2012, Selected Years

Source: Centers for Medicare and Medicaid Services (CMAS), Office of the Actuary, National Health Expenditure Data, 2012 release.

In many respects, managed care and its manifestations have adversely affected health care employees, resulting in increased unionization. Collective bargaining in this industry, particularly for professional employees in the private sector, gained momentum later than most other industries.1 However, driven by the implementation of managed care, collective bargaining is fast becoming an important part of our health care system, and the evidence suggests that there is significant potential for this process in this industry in the years ahead. This chapter examines the parties, the practices, and the challenges involved in collective bargaining in the U.S. private sector health care industry.2 Particular attention will be given to the two largest segments of the industry—the acute-care hospital sector and the long-term care/ nursing home sector.3 And although this chapter touches on the status of the entire range of employees working in the industry, the relationship between employers and the largest group of employees responsible for providing patient care—registered nurses (RNs)—will be given particular attention. Because managed care influences every aspect of health care today, the impact of this phenomenon on the employment relationship serves as the framework for this discussion. HEALTH CARE INDUSTRY 117

THE HEALTH CARE INDUSTRY The two most significant sectors of the private U.S. health care industry, in terms of expenditures and numbers of patients and employees, are the acute-care hospital sector (including medical centers and clinics) and the long-term care/nursing home sector.4 The Private Acute-Care Hospital Sector The private hospital sector of the U.S. health care industry is made up of two types of acute-care facilities. The majority of hospitals are not-for- profit community hospitals; the remainder are privately owned, for-profit, hospitals. As Table 1 indicates, in 2010 there were 2,904 not-for-profit community hospitals and 1,013 for-profit hospitals (AHA 2012). Not-for-profit community hospitals are defined as hospitals that reinvest any leftover monies rather than distributing such funds to individuals or groups. These hospitals are usually built and financed by citizens’ or religious groups, with money for constructing facilities coming from individuals, charities, the sale of tax-exempt bonds, and government grants. Most have 100 to 300 beds, with urban hospitals often having considerably more and rural hospitals sometimes having as few as 25 to 50. Traditionally, such hospitals serve a limited geographic area and are administered by a board composed of citizens from the area (Raffel and Raffel 1997). For-profit hospitals constitute the second type of hospital. These hospitals are usually owned by corporations, and, each year, they distribute profits to their shareholders. The states with the most for-profit hospitals are Texas and Florida. Many are part of national chains, the largest of which are HCA (with 140 hospitals and 31,000 beds in 2009) and Community Health Systems (with 111 hospitals and 13,210 beds, also in 2009) (“Largest for-Profit Hospital Chains” 2011).

TABLE 1 Private Acute-Care Hospitals and Long-Term Care/ Nursing Home Facilities in the U.S., 1995–2010 1995 2000 2010 Total private acute-care hospitals 5,794 4,915 4,995 Total not-for-profit acute-care hospitals 3,092 3,003 2,904 Total for-profit acute-care hospitals 752 771 1,013 Acute care hospitals in a system 1,990 2,217 2,941 Acute care hospitals in a network 1,178 1,327 1,508 Total private long-term care/nursing homes 15,300 16,715 15,669 Sources: AHA (2012), AHCA (2010). 118 COLLECTIVE BARGAINING UNDER DURESS

Because of mergers and closings, the total number of private hospitals has fallen since 1995 from 5,794 to 4,995 in 2010 (AHA 2012). At the same time, the hospital sector has seen the growth of hospital “systems” and “networks.” According to the American Hospital Association (AHA), a multi-hospital system “is two or more hospitals owned, leased, sponsored, or contract managed by a central organization” (AHA 2013). A single, freestanding hospital may be categorized as a system if it owns or leases nonhospital pre-acute or post-acute health care organizations (clinics, rehabilitation facilities, or nursing homes). The AHA defines a network as “a group of hospitals, physicians, other providers, insurers, and/or community agencies that work together to coordinate and deliver a broad spectrum of services to their community” (AHA 2013). Based on these definitions, network participation does not preclude system affiliation, nor does system affiliation preclude network participation. Of the 4,995 private hospitals registered with the AHA in 2010, 2,941 were affiliated with a system and 1,508 were part of a network. These numbers represent an increase from 1995, when 1,990 such hospitals were system affiliated and 1,178 were associated with a network (AHA 2012). In 2010, U.S. hospitals employed 4,599,752 full-time equivalent employees. This was up from 3,911,412 employees in 2000 and 3,415,622 employees in 1990. The largest single occupational group working in hospitals is RNs. The number of full-time equivalent nurses’ positions in U.S. hospitals has grown from 809,900 in 1990 to 957,600 in 2000 to 1,293,900 in 2010. Likewise, the number of full-time equivalent physicians positions in U.S. hospitals has increased from 615,421 in 1990 to 813,770 in 2000 to 985,375 in 2010 (Table 2) (AHA 2012). The Long-Term Care/Nursing Home Sector As of June 2013, there were 15,666 certified long-term care/nursing home facilities in the United States with 1,378,360 patients. This was down from 16,486 facilities and 1,456,990 patients in 2002 (AHCA 2012). The majority of these facilities are traditional nursing homes that care for the elderly; however, the number also includes Alzheimer’s, AIDs, hospice, and other special care facilities. The average number of beds per facility is 107. Six percent of these facilities are hospital-based; the remainder are separate facilities. Sixty-nine percent are for-profit operations, 25% are not-for-profit, and 6% are government-operated (AHCA 2013). The growth of large corporate chains is even more prevalent in long- term care than among acute-care hospitals. The largest chains include Golden Living (304 facilities in 21 states), HCR ManorCare (279 facilities in 30 states), Life Care Centers of America (231 facilities in 28 states), and Kindred Health Care (226 facilities in 30 states) (LaPorte 2012). HEALTH CARE INDUSTRY 119

TABLE 2 Employment in Private Acute Care Hospitals and Long- Term Care/Nursing Home Facilities in the U.S., 1990–2010 1990 2000 2010 Total private acute-care hospital employees 3,415,622 3,911,412 4,599,752 Registered nurses 809,900 957,600 1,293,900 Physicians 615,421 813,770 985,375 Total private long-term care/nursing home n.a. 1,380,000* 1,823,000*,** employees Registered nurses n.a. 1,380,000* 1,823,000*,** Sources: AHA (2012), U.S. BLS (2003). *Direct care workers only (RNs, LPNs, nurses’ aides). **Projected.

In 2009, 4.7 million people worked in long-term care and nursing home facilities. The demographics of the United States indicate that more people are living longer and that the elderly population (the group most needing long-term care/nursing home services) is growing. In 2008, approximately 38.8 million Americans were 65 or older. By 2030, that number will increase to 72 million. This suggests that there will be significant growth in the number of people employed in the long-term care/ nursing home sector in the decades ahead (AHCA 2010).

THE INDUSTRY IN TRANSITION The U.S. health care system, as previously described, is in the midst of a period of transition and transformation. Central to these changes are the increasing cost of health care and the rapidly evolving ways in which health care services are delivered and financed. The reforms that have been introduced over the past 20 years, particularly managed care, have had a significant impact on employees in the industry and have led to considerable dissatisfaction among the health care workforce. It remains to be seen what the impact of the Patient Protection and Affordable Care Act of 2010 will be in this regard. As discussed earlier, health care expenditures have risen significantly in the United States over the past decade. One of the most significant factors contributing to the increased cost of health care is the development and expanded use of more expensive, state-of-the-art medical technologies and drugs (KaiserEDU.com 2013). The aging of the U.S. population is another significant factor. In 1980, 11.3% of the U.S. population was age 65 or older. In 2010, that figure increased to 13%. By 2020, this age group is expected to make up 16.1% of the population (Administration on Aging 2013). As the number and percentage of Americans over 65 years of age increase, per capita health 120 COLLECTIVE BARGAINING UNDER DURESS care costs rise significantly. People in this age group are much more likely than their younger counterparts to suffer from chronic illnesses and their complications. Consequently, they have more frequent and longer hospital stays and higher surgical rates. In addition, the elderly are treated more aggressively in the U.S. health care system than in many other countries, resulting in longer life expectancies. As life expectancies have increased, so has the need for long-term care. These factors have pushed, and will continue to push, the costs of health care in the United States rapidly upward (Raffel and Raffel 1997; CHWS 2006). The increasing pressure on the budgets of public and private health care institutions has its origins in the enactment of Medicare and Medicaid in 1965. These programs spurred a rapid growth in demand for, and use of, health care services. One of the results was an unprecedented increase in the cost of care and the share of the nation’s resources that it consumed. Between 1970 and 1980, the inflation rate for health care was double the overall Consumer Price Index (CPI). This spurred the drive for new approaches to the delivery and financing of both acute and long-term care (Wunderlich, Sloan, and Davis 1996). Hospitals In the 1950s and 1960s, hospital care in the United States was delivered on a fee-for-service basis. Patients receiving treatment in hospitals either paid for these services themselves or submitted their bills to an insurance company that paid them in full or in part. However, as costs rose, the main providers of health insurance—employers and insurance companies—began to look for new, cost-effective approaches to providing care (Knight 1998). The pro-market policies of the Reagan administration created a favorable climate in the 1980s in which these approaches could flourish (Budrys 1997). The system that developed to address these issues was managed care. The past three decades have seen managed care, and managed care organizations such as HMOs, come to dominate the health care system in the United States. As mentioned earlier, managed care is a market-based approach to the delivery of health care services that includes a number of cost-control strategies such as pre-payment arrangements and pre-admission authorizations. HMOs and PPOs have served as the primary vehicles for delivering managed care (NCSL 2012). By the 1990s, HMOs and managed care were increasingly penetrating the health care market. Between 1988 and 2011, HMO enrollment grew from 20 million to 70 million (MCOL 2012). When combined with other programs such as PPOs and high-deductible health plans (HDHPs), roughly 210 million Americans were covered by some form of managed care plan in 2010. This growth has significantly influenced the structure of the industry and the manner HEALTH CARE INDUSTRY 121 in which health care services are delivered. The consolidation of hospitals and health care systems through closings and mergers and the reorganization of work within these facilities were two of the products of market- driven health care reforms (Dranove, Simon, and White 2002). The widespread closings and mergers were efforts to take advantage of economies of scale and strengthen providers’ positions in the health care marketplace. Hospital closures reduce the number of excess hospital beds and lead to cost savings by permitting the remaining hospitals to spread costs over a wider patient base. Mergers are pursued either to eliminate competitors or to expand services. Ultimately, cost containment is the driving force behind market-driven reforms such as closures and mergers (Wunderlich, Sloan, and Davis 1996; Covington 2012). Personnel costs make up the largest expense in hospital budgets, and any effort to reduce costs in these institutions would have to involve labor costs. Because nurses represent the largest group within most hospitals’ personnel budgets, RNs were one of the groups most affected by the introduction of managed care (Kangas, Kee, and McKee-Waddle 1999). A number of studies found that nurses’ jobs were negatively impacted by hospitals mergers (Armstrong-Stassen, Cameron, Mantler, and Horsbaug 2001). They were also affected by the restructuring and downsizing of hospital staffs. As the number of nurses was reduced, the remaining nurses were required to take care of more patients (Corey-Lisle, Tarzian, Cohen, and Trinkoff 1999). Also, because managed care called for hospitals to admit only “the sickest patients for the shortest possible stays” (Sochalski and Aiken 1999:1), RNs reported that patient acuity (how sick a patient is) rose significantly. Accordingly, the patients under the care of nurses required greater attention. The result significantly increased workloads for nurses, reduced the satisfaction they received from their work, and increased the stress they felt on the job (Corey-Lisle, Tarzian, Cohen, and Trinkoff 1999; Sochalski and Aiken 1999). A study by Clark, Clark, Day, and Shea (2001) found that restructuring also had a negative effect on nurses’ perception of the climate for patient care in their hospitals. In that study, nurses who experienced job restructuring judged their ability to provide quality patient care more negatively than nurses who had not experienced these changes. These studies suggested that for many nurses “hospitals [had] become lousy places to work” (Jaklevic and Lovern 2000:48). This has been cited as one of the reasons for a nurse shortage that began in the late 1990s and continued into the first decade of the new century. The shortage was particularly significant in the acute-care hospital sector. There were multiple reasons for the shortage, but one significant contributing factor was the 122 COLLECTIVE BARGAINING UNDER DURESS dissatisfaction of RNs with the working conditions in acute-care hospitals. This dissatisfaction caused tens of thousands of nurses to leave the profession (McHugh et al. 2011). Long-Term Care/Nursing Homes Over the past 20 years, changes in the long-term care/nursing home sector have been as dramatic and traumatic as in the hospital sector. In 2001, five of the seven largest nursing home chains entered bankruptcy under Chapter 11, including Mariner (which lost $1.78 billion in 1999) and Vencor/Kindred (which lost $692 million the same year). These financial difficulties can be traced, in part, to changes in the Medicare system that occurred in the late 1990s (SEIU 2001). As the decade progressed, the fortunes of this sector rebounded as investors began to see opportunities in long-term care/nursing home facilities. As a result, the latter part of the 2000s saw an increase in the number of for-profit providers (Highbeam Business 2012). Funding for long-term/nursing home care comes from three sources. In 2009, Medicare, a jointly funded federal–state program that is administered by the individual states, paid for 70% of all nursing home patients. Medicaid, another federal–state program, also covers some costs for lower income people. And patients themselves, or patients’ private insurance, contribute to the costs of long-term and nursing home care (Highbeam Business 2012). As the recession of the mid-2000s began to hit hard, government began to cut back on Medicare and Medicaid reimbursements. Individuals were also hit by the recession and saw reductions in personal funds available to cover long-term/nursing home care. At the same time, the cost of health care rose rapidly. The result was a financial crisis for the long-term and nursing home care industry (Workforce Connections 2012). This crisis has had negative ramifications for workers in the industry. A business consulting firm’s 2011 report on the long-term care/nursing home industry concluded that it suffered from an unusual number of labor-related problems, including low pay, high turnover, staff shortages, physical job requirements, and an above-average number of safety and health problems (Highbeam Business 2012). The workforce in most long-term care/nursing home facilities is made up primarily of certified nurse assistants (CNAs). A relatively small number of RNs work in mostly supervisory capacities. Support personnel (food service, housekeeping, maintenance, and clerical workers) make up the rest of the staff. The median salary for CNAs in 2011 was $24,172 (Salary .com 2012). Their work is sometimes unpleasant, requires little training, is physically taxing (CNAs often move and lift patients), and has a high injury rate. These factors, along with low pay, have resulted in a decades- HEALTH CARE INDUSTRY 123 long CNAs shortage. It also is why CNAs in long-term care/nursing home facilities have one of the highest turnover rates of any job classification in any industry. In 2010, turnover for CNAs was more than 70% (down from nearly 100% a decade earlier). The New York Times reported that “in nursing homes with high turnover rates, certified nursing assistants tend to leave within three months” (Russakoff 2010).

HEALTH CARE UNIONS Union Representation In 1995, 821,321 hospital employees, or 16.5% of the hospital workforce in the United States, were represented by a union. By 2011, union coverage for this group of employees fell to 15.9%; however, the total number of hospital workers with union representation grew to 1,008,957. During the years between 1995 and 2011, union density held relatively steady, fluctuating generally within this range (Hirsch and Macpherson 1995, 2011).5 In the long-term care/nursing home sector, unions represented 193,564 employees, or 11.3% of the workforce, in 1995. By 2011, union representation in this sector had fallen to 8.9%, with 155,251 nursing home employees covered by union contracts. In that same year, 10.3% of workers in home health care were represented by unions, as were 8.4% of outpatient clinic workers, 3.8% of employees in physicians’ offices, and 1.8% of workers in dentists’ offices (Hirsch and Macpherson 1995, 2011). According to the most recent data (2011), the union representation rate for hospital employees (15.9%) was higher than the representation rate for the U.S. workforce as a whole (13%). The rates for nursing home and home health care workers, as well as for employees working in outpatient clinics and physicians’ and dentists’ offices, were less than the overall union coverage rate. However, the number of employees working in those settings who were represented by unions was still substantial, totaling almost 1,500,000 in 2011, an increase from approximately 1,250,000 in 1995 (Hirsch and Macpherson 1995, 2011). When broken down by occupation, the union representation rate for the largest single group of employees in the hospital sector—RNs—was 19.8% in 2011. This is a 1.3% increase over 1995, when the percentage of RNs represented by unions was 18.5% (union representation peaked during this period at 21.6% in 2007). Union membership rates for nurses have historically been 1.5% to 3.0% less than union representation rates. In 1995, 15.4% of RNs held union membership; in 2011, that number increased to 18%. In real terms, 538,613 nurses were represented by unions in 2011, while 487,205 were union members (Hirsch and Macpherson 1995, 2011). 124 COLLECTIVE BARGAINING UNDER DURESS

A number of other occupations primarily in the hospital sector also have above-average union representation rates. In 2011, more than 30% of speech pathologists working in hospitals were represented by unions, as were 23% of nurse practitioners. These are the highest representation rates among all occupational groups in American hospitals. Radiation therapists and occupational therapists had union coverage rates of 16.9% and 16.8%, respectively, and 14.4% of physician’s assistants were covered by a union contract (Hirsch and Macpherson 2011). Physicians, however, are represented by unions at a rate below the overall union representation rate. There was a small surge of physician organizing following the 1999 National Labor Relations Board (NLRB) decision extending the right to bargain to interns and residents in the private sector. However, few of these efforts were successful, and union activity among this profession remains low. In 2011, 61,461, or 10%, of the 615,000 physicians in the United States were represented by unions (Hirsch and Macpherson 2011). However, this is an increase from 1995, when the union representation rate for physicians was 8.8% (Hirsch and Macpherson 1995, 2011). In almost all cases, physicians' bargaining units are in urban hospitals. Another important indicator of union activity is representation or organizing elections. Recent years have seen a decrease in the number of these elections among all workers. This has also been the case among health care workers. However, the experience of the hospital sector has been quite different from that of the long-term care/nursing home sector in this respect. The number of organizing elections for all industries fell 40% between 2005 and 2009 (the most current year for which data are available), from 2,215 to 1,333 elections. However, during that same period, hospital sector elections declined by only 14%, from 108 in 93, while long-term care/ nursing homes organizing elections fell by 54%, from 192 to 88. These numbers suggest that union activity in the hospital industry has remained relatively strong, compared with national trends, while activity in the long-term care/nursing homes sector has fallen (NLRB 2000, 2005, 2009). The percentage of organizing elections won by unions is another indicator of the state of unionism in a particular industry or sector. Overall, unions won 52% of organizing elections in 2000, 61% in 2005, and 69% in 2009. This increase is usually attributed to unions being more selective in petitioning the NLRB for representation elections in recent years, doing so only when they believe the chances of winning are high (this is supported by the overall decline in the number of union elections held) (NLRB 2000, 2005, 2009). HEALTH CARE INDUSTRY 125

Win rates in hospitals, which in 2000 were higher than for the labor movement overall, increased at a rate slightly greater than the increases for unions overall. In 2000, unions won 58% of hospital elections. The win rate in the hospital sector increased to 68% in 2005 and to 79% in 2009. Election rates for the long-term care/nursing home sector also increased between 2000 and 2009 but only by a small margin (from 65% in 2000 to 65.9% in 2009) (NLRB 2000, 2005, 2009). Unions Representing Health Care Employees A relatively large number of unions represent workers in the U.S. health care industry. This appears to be a function of at least two factors. First, a large segment of the health care workforce did not become eligible to organize a union until 1974, after many national and international unions were already well established. Thus, there was less reason for the formation of entirely new health care unions. Second, during this period, many existing unions suffered significant membership losses. Not surprisingly, many of these unions saw health care as fertile ground for organizing. Only a few industries in the United States are growing at the rate experienced by the health care industry. And, unlike many of the industries that have long been a focus of the American labor movement, health care facilities cannot move to lower-wage nations abroad or even to low-wage regions of the country. This has made health care attractive to a wide range of unions, including those with little or no previous connection to the industry. The unions that organize health care workers in the United States represent all three of the major types of unions found in the American labor movement—craft, industrial, and general labor organizations.6 Service Employees International Union The union that represents the largest number of workers in the health care industry is SEIU (Table 3). One of the American labor movement’s fastest growing unions, SEIU has a long history of organizing health care employees, initially in public and private nursing homes and public sector hospitals and more recently in acute-care hospitals. SEIU not only has the most members working in the industry generally (1.1 million of its 2.1 million members), it also is as close to an industrial health care union as exists in the United States today. SEIU’s ranks include significant numbers of health care workers in virtually all professional and nonprofessional job classifications (it does not represent hospital security guards) and all types of facilities (SEIU 2012b). A subdivision of the union, the Nurse Alliance, reports a membership of 85,000 RNs in 21 states (SEIU 2012c). This SEIU affiliate represents nurses working primarily in acute-care hospitals across the United States. 126 COLLECTIVE BARGAINING UNDER DURESS

TABLE 3 Health Care Employee Membership in U.S. Unions, 2012 Total Union/health care division(s) Registered health care Total or major affiliates Physicians nurses members members

SEIU 1,100,000 2,100,000 National Doctors Alliance 15,000* Nurse Alliance 85,000

AFSCME 360,000* 1,300,000* United Nurses of America 60,000*,** Union of American 6,000* Physicians and Dentists

NNU 185,000 CA Nurses Association 86,000 MA Nurses Association 23,000 MN Nurses Association 20,000 MI Nurses Association 10,000 Other affiliates 46,000 Total 185,000 185,000

AFT 1,500,000 Healthcare Division 1,000 82,000 105,000

AFGE 55,000 93,000 650,000 UFCW 30,000 69,200 1,300,000 USWA 45,000 667,000 Teamsters 35,000 1,400,00 OPEIU 33,000 110,000 CWA 20,000 700,000 Laborers 11,300 822,000 Operating Engineers 10,000 358,000 UAW 10,000 767,000 SPFPA 10,000 20,000 Sources: Self-reported membership figures from individual union websites or union media. *Membership made up largely of public sector employees. **Includes LPNs. HEALTH CARE INDUSTRY 127

They work for a range of employers, including large health care systems such as Kaiser Permanente, for-profit chains such as HCA, public hospitals in major cities, and small community hospitals. SEIU also represents far more support staff—nurses’ aides, housekeeping and food service personnel, and maintenance workers—in acute-care hospitals than any other union. One of the reasons for SEIU’s dramatic growth in the past ten years has been its success in organizing workers in the long-term care sector. The union has long organized employees working in nursing homes and rehabilitation facilities, including those operated by major chains such as HCR ManorCare, Kindred Healthcare, Golden Living, and Genesis Healthcare, as well as government-run facilities. More recently, SEIU has organized hundreds of thousands of workers in home health care, one of the fastest growing sectors of the health care industry. Some of these organizing drives have brought huge numbers of members into the union. In one of the biggest union elections ever held, more than 70,000 home care workers in Los Angeles County voted to join SEIU in 1999. Six years later, the union won elections for 49,000 home care workers in Illinois and 41,000 in Michigan (“Michigan Workers to Join Union” 2005).7 As of 2012, SEIU claimed to have more than 500,000 members working in home care, 180,000 of whom belong to its California affiliate, United Long-Term Care Workers (ULTCW) (SEIU 2012f). SEIU is also the only U.S. union that represents a significant number of physicians. SEIU’s Committee of Interns and Residents (CIR) represents “house staff” resident ( physicians of a hospital who care for patients under the direction of the attending staff) (SEIU 2012d). SEIU’s Doctors Council represents attending physicians, dentists, optometrists, podiatrists, and veterinarians employed by a variety of government agencies, hospitals, and private health care facilities. The two affiliates, CIR and the Doctors Council, have a combined membership of approximately 17,000, almost all of whom practice in urban areas. Together they form the National Doctors Alliance (NDA) (SEIU 2012a). Over the past decade, SEIU has gained a reputation for aggressive organizing and for independent action. Its success in organizing has made it the second largest union in the American labor movement, and it showed its independence in 2005 by disaffiliating from the AFL-CIO and, with six other unions, forming a second American labor federation called Change to Win (CTW) (Greenhouse 2005). SEIU remains a member of CTW, along with three other unions—the Teamsters, the United Food and Commercial Workers (UFCW), and the United Farm Workers (UFW) (CTW 2012). 128 COLLECTIVE BARGAINING UNDER DURESS

SEIU has also been a union in turmoil over the past several years. In 2009, its president, Andy Stern, placed the second largest SEIU local in California—United Healthcare Workers (UHW)—into trusteeship, removed its officers, and essentially took over the local. This began a long fight between the local and the national union that consumed a tremen- dous amount of both groups’ time, energy, and money (Pringle 2009). It also spurred the creation of a rival union, the National Union of Healthcare Workers (NUHW), led by former SEIU leaders ousted by the trusteeship, which unsuccessfully contested SEIU’s right to represent UHW’s members (Carlson 2009; Orechwa 2009; Cutler 2013). In 2010, Stern stepped down as president, thus setting up a fierce battle among a handful of would-be successors (Gonzalez 2010). Mary Kay Henry, the leader of SEIU’s Healthcare Division, came out on top of this internecine fight and later that year was elected to the presidency of the union (MacGillis 2010). American Federation of State, County, and Municipal Employees The union with the second largest number of members working in health care is AFSCME. AFSCME represents 360,000 health care members, more than 60,000 of whom are RNs (AFSCME RNs have their own division within the union called the United Nurses of America) (AFSCME 2009; Weiss 2011). The remaining health care members represented by AFSCME work in a wide range of occupations ranging from nurses’ aides to food service and maintenance workers to physicians. Most are employed in acute and long-term care facilities operated by state or local government agencies, although some members work at private, nonprofit facilities. For example, health care workers at the state-run Missouri Veterans Home in St. Louis are represented by AFSCME, as are the psychiatric technicians at the Napa (California) State Hospital and Trumbell Memorial Hospital, a non-profit community facility in Niles, Ohio. National Nurses Union The third most significant union representing health care workers is NNU. If SEIU and AFSCME represent industrial unions in the health care sector, NNU represents the other end of the spectrum—craft unionism— because it organizes only RNs. The NNU is, in essence, an amalgamation of state nursing associations. State nursing associations are a vestige of the American Nurses Association (ANA), a professional organization created in 1896 to advance the nursing profession. Because of differing views among nurses regarding collective bargaining, most of the ANA state organizations split into two associations: one that engaged in collective bargaining and one that functioned as a professional association. It is from the state associations created to HEALTH CARE INDUSTRY 129 engage in collective bargaining that affiliates of the NNU are drawn (AUD 2008). The NNU was created in 2009 by bringing together three nurses’ unions—the California Nurses Association/National Nurses Organizing Committee (CNA/NNOC), the United American Nurses (UAN), the Massachusetts Nurses Association (MASSNA). At its founding, it reported a combined membership of 150,000. The CNA/NNOC was the moving force in the creation of the new union (AUD 2010). Since it broke away from the ANA in 1995 to pursue a more militant course of action in representing RNs, CNA/NNOC has been both one of the fastest growing unions in the country and the most influential and dynamic union in the burgeoning nurse labor movement. In its first 15 years, CNA/NNOC membership grew by 400%. It now represents 86,000 members in hospitals, clinics, and home health agencies in all 50 states (CNA/NNOC 2012). The UAN was formed in 1999 as the national collective bargaining arm of the ANA. The UAN was actually a federation of 27 ANA state associations and was created to assist those associations with organizing and bargaining (Amber 1999a). At its height, UAN had 96,000 members, second only to SEIU in the number of RNs organized. In 2001, it affiliated with the AFL-CIO (ANA 2001a). Because of internal differences, four of UAN’s larger state affiliates—New York, Ohio, Oregon, and Washington—withdrew from the organization in 2006 (AUD 2008). In 2009, UAN, including a majority of its remaining state affiliates, the largest being the Michigan Nurses Association (AUD 2010). The other major union that helped form the NNU was the MASSNA and the MINNA. In 2001, the MASSNA split with the ANA over the issue of collective bargaining and became an independent organization. In 2009, it brought 23,000 members to the new union. The 20,000- member MINNA also affiliated with NNU in 2009 (AUD 2010). The NNU now claims 185,000 members from all 50 states. It continues to grow rapidly, in part because of the pioneering work of CNA/NNOC in organizing RNs in union-hostile states such as Texas and Florida and in other states that have previously seen little nurse organizing. It continues to be a force politically as one of the most vocal groups calling for a single- payer health care system. CNA/NNOC/NNU’s efforts to organize RNs in states without a significant nurses union presence have been greatly aided by a neutrality agreement it signed in 2010 with one of the nation’s largest hospital chainS—HCA. SEIU also signed the same agreement. The agreement allowed the two unions to organize 20 HCA hospitals in Florida, Missouri, 130 COLLECTIVE BARGAINING UNDER DURESS

Nevada, and Texas without opposition from the employer. Under the terms of the arrangement, CNA/NNOC/NNU would organize the nurses at these hospitals, while SEIU would organize the support staff. In return, the unions agreed to refrain from engaging in negative campaigns against the company and to not attempt to organize workers at other HCA facilities (Maher 2011). The joint initiative was a departure from the unions’ past relationship with one another. For years, the two unions had clashed over many issues, particularly in California where NNU affiliate CNA/NNOC had engaged in a running battle with SEIU affiliate UHW. Nonetheless, the agreement has played a critical role in CNA/NNOC/NNU’s successful efforts to gain a foothold in important, largely anti-union, states. Since 2010, CNA/ NNOC/NNU has organized RNs at 13 HCA hospitals, while SEIU has organized more than 4,500 support workers at those facilities (Maher 2011). American Federation of Teachers The union with the fourth largest number of health care workers is the AFT. Although AFT has a total membership of 1.5 million, the division of the union that represents health care workers, AFT Healthcare, has approximately 105,000 members. That membership includes 82,000 RNs, with the remainder working in other professional capacities such as medical researchers, physicians, dieticians, psychologists, x-ray technicians, and therapists. The majority of these members work in acute-care hospitals (AFT 2013; Amber 2013). AFT’s members work in both the private and public sectors (AFT 2013). AFT Healthcare’s membership increased significantly in February 2013 when the National Federation of Nurses (NFN) voted to affiliate with them. When it was originally created in 2008, NFN brought together the state nurses associations of Montana, New Jersey, New York, Ohio, Oregon, and Washington. At its inception, it claimed 75,000 nurse members. Like the NNU, the NFN was a decentralized organization that granted its affiliates a great deal of autonomy (NFN 2012). The NFN was dealt a significant blow when the New York State Nurses Association (NYSNA) pulled its 37,000 members out of the NFN in 2012, effectively cutting its membership in half (NYSNA 2012; Amber 2013).8 With its 34,000 members, NFN’s 2013 affiliation increased AFT Healthcare’s RN membership to its present level of 82,000, ranking it third behind NNU and SEIU in that category. American Federation of Government Employees The union with the fifth largest number of members working in health care is AFGE. AFGE’s 650,000 members work for the federal government. Its membership includes approximately 93,000 health care workers, 55,000 of whom are RNs. Most of these employees work for the Veteran’s HEALTH CARE INDUSTRY 131

Administration at health care facilities around the country. A far smaller number work for the Department of Defense or the Bureau of Prisons (AFGE 2013; Jane Nygard, AFGE Vice President, District 8, email communications, March 3 and 5, 2013). Other Unions Representing Health Care Employees Other unions that include a substantial number of health care workers among their membership include the UFCW (69,200 members), the United Steelworkers (USW; 45,000), the Teamsters (35,000), the Office and Professional Employees International Union (OPEIU; 33,000), the Communications Workers of America (CWA) (20,000), and the Laborers (11,300) (UFCW 2013; USW 2013; Teamsters 2013; OPEIU 2013; CWA 2013; Laborers 2013). A handful of additional unions each have fewer than 10,000 members working in health care. They include the Operating Engineers; the Security, Police, and Fire Professionals of America (SPFPA); the United Mine Workers of America (UMWA), and the United Auto Workers (UAW) (Operating Engineers 2013; SPFPA 2013; UAW 2013; UMWA 2013). There are a number of reasons why non-health care unions such as AFT, UFCW, CWA, UAW, UMWA, USW, SPFPA, the Laborers, and the Operating Engineers seek to organize and represent health care workers. In many case, declining memberships in their primary industries have forced unions to look elsewhere for members to keep the organization financially viable. In some cases, health care workers turn to a union that already has a strong presence in a community or region. This explains why the UAW represents health care workers in a number of locations in Michigan and Ohio and why the UMWA has health care units in Kentucky, Pennsylvania, and West Virginia, among other places.

THE LEGAL FRAMEWORK Bargaining Rights Hospitals Like most other private sector workers in the United States, employees of private hospitals were first given the right to form unions, bargain collectively, and strike by the passage of the National Labor Relations Act (NLRA) in 1935. Although there is a record of at least one hospital’s employees organizing as early as 1936, there was little union activity among hospital workers for the first 12 years of the act’s existence. In 1947, employees of not-for-profit hospitals (virtually all private hospitals at that time) were dropped from coverage by the Taft-Hartley amendments to the NLRA. This action was based on Congress’s belief that health services were essential to the public’s welfare, that they provided “eleemo-synary” (charitable) services, and that unionization could result in the disruption 132 COLLECTIVE BARGAINING UNDER DURESS of those services (U.S. Congress 1947). With the exception of eight states that passed legislation granting some or all private, not-for-profit, hospital employees some collective bargaining rights during this period, most employees in this sector would not have a right to union representation for more than 25 years (Metzger and Pointer 1972). Although for-profit hospitals were rare during the several decades following passage of the NLRA, their employees were not excluded by the 1947 amendment. However, the NLRB did not exert jurisdiction over those hospitals until 1967 (NLRB 1967). In 1974, more than a quarter century after it excluded nonprofit hospitals, Congress deleted the Taft- Hartley exemption for these types of employees and again brought them under the aegis of the NLRA through the passage of Public Law 93-360 (AHA 1976). Public Law 93-360 amended the NLRA by extending coverage to nonprofit hospitals. Its passage raised additional questions about which health care employees were now eligible to organize under the act. The eligibility of physicians proved to be a particularly difficult issue to resolve. Only in the past few years has the board made definitive rulings on physician eligibility (Kimzey and Johlie 2009). Physicians Physicians generally fall into one of three categories in terms of their employment status. They are either employed by hospitals or health care systems, serving internships or residencies in hospitals, or self-employed. Physicians working directly for hospitals or health care systems are considered employees for purposes of the NLRA and can organize and bargain collectively under the law’s protection. Employed physicians who meet the act’s definition of manager or supervisor, however, are excluded from coverage, as are managers and supervisors in all industries. Medical interns and residents, often referred to as house staff, constitute the second major category of physicians. Interns and residents are doctors who have already received a medical degree but are serving a supervised period of clinical training. These physicians are typically employed by hospitals or medical centers. As far back as the 1960s, some interns and residents working for public hospitals successfully formed bargaining units under state laws. However, in a series of cases handed down after the 1974 amendment, the NLRB ruled that house staff in private facilities were primarily students, not employees, and therefore were not eligible to form unions or engage in collective bargaining (Keating 1991). In 1999, the NLRB reversed itself and extended protection of the NLRA to interns and residents at private hospitals, reasoning that although “residents are students … , they are also employees who conform to the NLRA definition of an employee in every way” (NLRB 1999b). HEALTH CARE INDUSTRY 133

The third category of physicians includes those who work in solo or group practices. The NLRB has long held that such doctors are self- employed because their practices are essentially small businesses that treat and bill patients. In 1999, the NLRB, in AmeriHealth HMO v. UFCW, Local 56 (NLRB 1999a), reconfirmed this view (Amber 1999b). Nurses In addition to the disputed collective bargaining rights of physicians, there has also been controversy about the rights of RNs working in private hospitals to engage in bargaining. Because RNs sometimes exercise independent professional judgment in directing less-skilled workers (such as LPNs and aides), hospitals have sought to have them categorized as supervisors under the NLRA. Generally, the NLRB has ruled that staff nurses are protected by the act and that head nurses and shift supervisors are not. However, the 2001 Supreme Court decision in Kentucky River specifically ruled that RNs could be considered supervisors if they “direct others in dispensing medicine, serve as the highest ranking employee in a building, address staff shortages, and move employees among units as needed” (Bellandi 2001:1), at least in the context of a long-term, psychiatric hospital. In a 2006 case, Oakwood Healthcare, the NLRB provided further guidance on the supervisory issue, ruling that permanent charge nurses were supervisors and, thus, under the NLRA, were not eligible to unionize (McGolrick 2007). Despite dire warnings from the labor movement that this ruling could result in thousands of nurse union members being declared supervisors, the board’s decision has not yet had a significant impact. Other Hospital Employees Generally, other patient care employees (LPNs, aides, laboratory technicians, radiation technologists, pharmacists, and physical and occupational therapists) and nonpatient-care employees (food service, maintenance, housekeeping, and security workers) in private hospitals are considered to be covered by the NLRA and have the right to be represented by a union for the purposes of collective bargaining. Long-Term Care/Nursing Home Employees Employees of private sector nursing homes and for-profit, long-term care hospitals have been covered by the NLRA since its passage in 1935. Employees of nonprofit, long-term care hospitals/nursing homes were excluded in 1947 by the Taft-Hartley amendments. In 1974, coverage was once again extended to those employees (Feldeckar 2000). However, as noted previously, the Kentucky River case raised questions about the eligibility of nurses who perform certain duties to organize. 134 COLLECTIVE BARGAINING UNDER DURESS

Bargaining Units Hospitals Because hospital employees range widely in training, skills, responsibilities, and compensation, the passage of the 1974 amendment to the NLRA was quickly followed by questions about the most appropriate bargaining units for hospital employees. After years of contentious litigation between hospitals (who wanted large, or even facility-wide, units) and health care unions (who generally wanted smaller units), the Supreme Court decided the issue in 1991 by affirming the NLRB’s ruling inAmerican Hospital Association (AHA) v. NLRB (U.S. Supreme Court 1991). In its decision, the Supreme Court ruled that there are eight appropriate bargaining units for acute-care hospitals. The court divided professional employees into three units—physicians, RNs, and other professional employees (e.g., pharmacists, medical technologists). Five units were designated for nonprofessionals: technical employees (e.g., LPNs, laboratory technicians), skilled maintenance workers, business office clericals, all other nonprofessional and service employees, and security guards (Table 4) (U.S. Supreme Court 1991). Health care employees who organized a union prior to the 1991 AHA ruling often were in bargaining units that included a greater variety of employees than was called for in AHA. In many case, units would include professionals (RNs, medical and lab techs, etc.) and nonprofessionals (LPNs, CNAs, food service, housekeeping, and maintenance). Such unions were “grandfathered in” (kept intact) when the AHA ruling was handed down. Units with such a wide variety of employees present unions with challenges in terms of determining bargaining priorities and maintaining solidarity. Long-Term Care/Nursing Home Facilities Long-term care/nursing home facilities generally have a less complicated bargaining unit configuration than acute-care hospitals because nursing homes, rehabilitation facilities, and other long-term care facilities have

TABLE 4 Private Acute Care Hospital Bargaining Units (AHA v. NLRB 1991) Professionals Nonprofessionals Physicians Technical employees (e.g., LPNs, laboratory technicians) Nurses Skilled maintenance workers Other professionals Business office clericals All other non-professional and service employees Security guards Source: U.S. Supreme Court (1991). HEALTH CARE INDUSTRY 135 fewer categories of employees than hospitals. For example, it is somewhat unusual for rehabilitation facilities to employ physicians and very unusual for nursing homes to do so. There often are a small number of RNs working in such settings, some of whom usually assume the responsibilities of supervisors, while others may work in a nonsupervisory capacity. In terms of patient care, the bulk of the workforce consists of a small number of LPNs working with a greater number of CNAs. Service workers performing dietary, housekeeping, and laundry functions; maintenance employees; and security personnel typically make up the rest of the workforce. In the 1991 Park Manor Care Center case, the NLRB declined to apply the eight-unit rule decided in AHA to long-term care/nursing home facilities, citing differences in the structure and organization of nonacute-care workplaces. In the past, the most common bargaining unit in these facilities consisted of nonsupervisory, nonsecurity employees, both patient care and nonpatient care, in one unit. Such a unit could include RNs, LPNs, and CNAs, as well as maintenance, dietary, and housekeeping personnel. However, in 2011, the board overruled Park Manor and adopted a new standard for determining bargaining units in long-term care/nursing home facilities in the Specialty Healthcare case. Under that standard, the NLRB allows the unit that a union requests as long as it consists of a clearly identifiable group of employees who have similar job responsibilities, work locations, skills, supervisors, and pay scales. The unit approved inSpecialty Healthcare consisted solely of CNAs. Employers generally oppose this ruling because they fear that such “micro-units” will make it significantly easier for unions to organize long-term care/nursing home employees (Polli and Torrence 2011; Kaplan and Walsh 2012). Mediation and Strikes In addition to regulating the process by which employees form unions, the NLRA provides the legal framework under which collective bargaining takes place once a union has been certified. It also provides a process unique to the health care industry to help unions and employers resolve bargaining impasses. The additional steps the parties must go through before engaging in a work stoppage were designed to minimize such disruptions (Miller 1980). Unions must provide health care institutions, as well as the Federal Mediation and Conciliation Service (FMCS), with ten days’ written notice before striking or picketing. They also are required to submit their dispute to mediation by the FMCS before initiating a work stoppage. And, if the FMCS believes a strike or lockout will “substantially interrupt” the provision of health care to a community, it can order a board of inquiry (BOI) (Miller 1980). 136 COLLECTIVE BARGAINING UNDER DURESS

A BOI is a fact-finding process. The fact-finder considers the issues and writes a nonbinding report that includes a recommendation for settlement. If one or both parties refuse to follow the recommendations, the report is made public. This often puts pressure on the parties to settle. If no agreement is reached, the parties can proceed to a work stoppage (Miller 1980).

BARGAINING STRUCTURE Traditionally, collective bargaining in the U.S. health care industry occurs on a decentralized basis. This approach to bargaining is generally consistent with the bargaining structures found in many U.S. industries. At its most decentralized level, bargaining occurs between a single employer and a single bargaining unit. Where a single employer has separate bargaining units of employees working in separate facilities, the bargaining units might be brought together to bargain one common contract for all of those workplaces. This companywide bargaining structure is more centralized than single-employer, single-unit bargaining. An even more centralized approach occurs when employers in an industry come together to bargain one contract with the multiple bargaining units that represent some or all of the employees of some or all of the employers in a geographic region. This multi-employer approach to bargaining represents a highly centralized structure. Although bargaining in both the hospital and long-term care/nursing home sectors of the health care industry has historically taken place on a decentralized basis, the trend toward forming systems and networks in the hospital sector, and toward corporatization in the long-term care/nursing home sector, has led to more centralized, companywide bargaining. Hospitals Bargaining between hospitals and their employees still most often occurs at the facility level. Usually, this involves one or more units of hospital workers bargaining with the same hospital/employer. Sometimes, multiple units in the same facility band together to engage in coordinated bargaining; other times, the units bargain separately with the common employer. Although less common, companywide bargaining takes place between a single employer and bargaining units working in dispersed locations for that employer. This might occur, for instance, where a health care system or network owns multiple hospitals, either in a single region or nationally. Such was the case in 2012 when Kaiser Permanente and a coalition of 28 local unions successfully negotiated a national contract. Kaiser Permanente is the largest not-for-profit HMO in the United States. It has 37 hospitals and hundreds of clinics and offices in California, Colorado, the District of Columbia, Georgia, Hawaii, Maryland, Ohio, Oregon, HEALTH CARE INDUSTRY 137

Virginia, and Washington. The negotiations involved a coalition of local unions representing nine international unions [SEIU, AFSCME, OPEIU, UFCW, USW, AFT, NFN, the Teamsters, and the International Federation of Professional and Technical Engineers (IFPTE)], as well as a number of smaller independent unions. These unions represented a wide variety of health care employees, including nurses, pharmacists, service workers, technicians, psychologists, and lab scientists (Hobbs 2012a). Although CNA/NNOC and NUHW have members working at Kaiser Permanente, neither union participates in the coalition and neither was a party to the negotiations. An example of single-employer, multi-unit bargaining on a smaller scale is the relationship between the CNA/NNOC, an affiliate of NNU, and HCA, the nation’s largest for-profit hospital chain, in Florida. In May 2012, CNA/NNOC and HCA signed a three-year contract that covers RNs in ten hospitals in the state. The agreement provides consistent salaries and working conditions, as well as opportunities for nurses to have a voice in staffing levels through professional practice committees (Hobbs 2012b). Multi-employer bargaining is another approach to negotiations that, although still not prevalent, is becoming more common in health care. Multi-employer bargaining occurs more in urban areas where multiple hospitals serve similar purposes and where unions have achieved significant bargaining power by organizing most of the hospitals in the area. Where unions are powerful enough to “whipsaw” individual employers against one another, multi-employer bargaining can become the employers’ “counter” to union power (Miller 1980). Multi-employer bargaining can involve a significant number of hospitals. Bargaining between the League of Voluntary Hospitals in New York City and 1199SEIU United Healthcare Workers East is one example of this approach. The league is an employer association that represents 180 hospitals, nursing homes, and other facilities in the New York metropolitan area. Its members employ more than 145,000 workers. The most recent contract between the league and SEIU involving acute-care hospitals was reached in July 2009. The five-year contract covers a wide range of employees, including nurses, nurses’ aides and attendants; laundry, housekeeping, and dietary workers; building and custodial staff; x-ray and laboratory technicians; and various professionals, such as social workers, therapists, and pharmacists (Greenhouse 2009). Another example of multi-employer bargaining is the agreement reached in 2010 between the MINNA and 14 hospitals in the Minneapolis–St. Paul area. In those negotiations, MINNA was bargaining on behalf of 12,000 RNs in the metro area. During the talks, MINNA RNs engaged in a one-day strike that was billed at the time as the largest nurses’ strike in U.S. history. A number of hospitals briefly locked out the nurses in 138 COLLECTIVE BARGAINING UNDER DURESS response. With the MINNA threatening an open-ended strike, the negotiations went down to the wire before a settlement was reached (Kucera 2010; Amber 2010). Physicians have shown little interest in bargaining in conjunction with other health care employees, and physician organizing is not yet so widespread that physicians in multiple locations can band together to engage in multi-unit bargaining. Thus, physician bargaining tends to be very decentralized, occurring, in most cases, on a single-unit basis. Long-Term Care/Nursing Homes As previously discussed, long-term care/nursing home facilities do not have the multiple bargaining unit requirement that hospitals do. In fact, in most cases, an individual independently operated nursing home facility has only one unit, which often includes LPNs, CNAs, and maintenance and support staff. For that reason, most bargaining in this sector of health care takes the form of single-facility, single-union bargaining. Bargaining one contract covering one facility at a time is time consuming from the union perspective. It also makes it difficult to standardize contracts across different facilities, creating a situation where members of the same union doing the same work at different facilities have different pay, benefits, and working conditions. When possible, unions usually favor bargaining contracts that cover multiple facilities. The presence of large chains in the long-term care/ nursing home sector make single-employer, multiple-facility bargaining possible. True companywide bargaining with a national chain is rare, given regional differences within these companies. Regional bargaining, however, is more common. Bargaining in this sector also sometimes occurs on a regional, multi- employer basis. Perhaps the largest of these kinds of bargaining structures involves the Greater New York Health Care Facilities Association (GNYHFA), and 1199SEIU United Healthcare Workers East. GNYHFA is an employer association that represents 250 long-term care hospitals, nursing homes, and continuing care facilities, including private and public facilities in the metropolitan New York City area, New York State, New Jersey, Connecticut, and Rhode Island (GNYHFA 2012). 1199SEIU United Healthcare Workers East represents more than 275,000 health care workers throughout New York City and New York State, the District of Columbia, Maryland, and Massachusetts (1199SEIU 2012). In 2004, GNYHFA and 1199SEIU negotiated a ten-year master contract for all GNYHFA members operating long-term care and nursing home facilities in New York City, New York City’s northern suburbs, and Long Island. The contract covers tens of thousands of 1199SEIU members and establishes uniform wages, benefits, and working conditions for long- term care workers in that region, regardless of employer (1199SEIU 2012). HEALTH CARE INDUSTRY 139

The growing corporatization of long-term care has led to an increase in multi-unit bargaining with nursing home chains. One example of bargaining between a relatively small chain and a health care union is the relationship between HealthBridge, a company that operates six nursing homes in Connecticut that employ roughly 600 workers, and District 1199, New England Healthcare Workers.

BARGAINING ISSUES, IMPASSES, AND OUTCOMES Hospitals Physicians Collective bargaining for physicians is a relatively rare phenomenon in the private sector. Of the two categories of physicians who have the right to organize and bargain mentioned earlier—employees of hospitals or health care systems and interns and residents—unions representing interns and residents (“house staff”) have the most significant track record in bargaining. Like other employees, interns and residents are interested in higher incomes and better benefits; however, in recent years NDA, the union that represents most physicians, has focused increasingly on working conditions and issues related to patient care issues. Gaining greater control over decision making in patient care appears to be a top bargaining priority of the union. Physicians want more input into administrative decisions that affect patient care and greater authority to make patient care decisions without consulting with, or being limited by, nonphysician representatives of HMOs and insurance companies. Their unions contend that these issues are necessary to improving patient care (SEIU Doctors Council 2012). A typical example is the contract negotiated by CIR/SEIU on behalf of the residents at St. Luke’s–Roosevelt Hospital in New York City in 2010. In addition to negotiating a 3% annual pay raise for each of the contract’s three years and a doubling of the textbook allowance, the union won “new collaborative venues for residents to develop quality care initiatives” (CIR/SEIU 2011). One somewhat novel issue that has been a part of some CIR/SEIU settlements is Patient Care Funds (PCF). PCFs are union-negotiated, employer-financed funds used to purchase services and equipment “that can help residents better care for their patients” (CIR/SEIU 2010). At the Alameda County Medical Center in California, residents used these funds to have the medical center purchase a life-saving piece of equipment called a glidescope. At the Oakland (California) Children’s Hospital and the University of New Mexico Medical Center, the CIR/SEIU units used their PCF funds to provide discharge medications to indigent patients who otherwise might not get these critical drugs (CIR/SEIU 2010). 140 COLLECTIVE BARGAINING UNDER DURESS

Ultimately, negotiations by private sector physicians are still a relatively new phenomenon, and the parties are relatively inexperienced. One area where this inexperience might be particularly problematic is in the resolution of bargaining disputes. Although CIR/SEIU did engage in strikes early in its history, strikes have been rare in recent years, and NDA/ SEIU has pledged not to strike. Because lockouts by hospitals seem equally improbable, it remains unclear how disputes between these parties would be resolved (NDA/SEIU 2001). Nurses The shortage of RNs in the first half of the 2000s, combined with the growth of the nurse labor movement during this period, increased the bargaining power of nurses’ unions. These factors led to increased compensation for nurses. In 2000, the mean hourly wage for RNs was $22.31. By 2005, the hourly wage had risen to $27.35, an 18.4% increase over six years. In the six years that followed, average hourly wage growth for nurses slowed, rising 15.7% from $28.71 in 2006 to $33.23% in 2011 (U.S. BLS 2000, 2005, 2006, 2011). This represented less than a 1% real increase yearly over the six-year period (when adjusted for inflation). In recent years, more employers are demanding that nurses agree to concessions on a range of issues. This reflects both an easing of the nurse shortage, which has weakened nurses’ unions push for increased pay, and the recession that has put increasing pressure on the budgets of most hospitals. The changing economic situation is illustrated by the regional multi- employer contract settlement between MINNA and Minneapolis–St. Paul area hospitals. In 2001, MINNA won a 20% to 21% pay increase for RNs at ten hospitals over three years that pushed the pay range for nurses with a bachelor’s degree in that city to a range of $23.09 to $34.63 per hour, depending on years of service (Wascoe 2001; Andrew Calkins, policy analyst, Minnesota Nurses Association, phone interview, January 17, 2002). In 2010 negotiations, the hospital coalition opened negotiations by asking MINNA nurses to accept pay cuts and a reduction of benefits. The union successfully resisted the concessions demanded by the hospitals but signed a contract that included a wage freeze in year one, a 1% increase in year two, and a 2% increase in year three (Amber 2010). Nurses working for the University of California did somewhat better when their union—CNA/NNU—negotiated a statewide single-employer, multiple-facilities contract in 2011 that covered 11,000 RNs. The agreement provided for a 3% to 4.25% pay increase the first year and 4% increases in 2012 and 2013 (Cutler 2011). In recent years, nurses’ unions have begun to make inroads in Florida, Kansas, and Texas, where health care unions previously had very little presence. Despite difficult economic circumstances, CNA/NNOC negoti- HEALTH CARE INDUSTRY 141 ated above-average settlements in these states. In 2012, NNOC-Florida, an affiliate of NNU, negotiated contracts for 3,100 RNs in ten HCA hospitals in Florida. The contracts included annual wage increases of 1.75% to 4% (Hobbs 2012b). In Texas, NNOC-Texas negotiated first contracts at four HCA hospitals in Brownsville, Corpus Christi, and El Paso and for 1,500 RNs that included above-average pay raises. At the Corpus Christi Medical Center, the agreement provided pay increases of 2.25% in the first and third years of the contract and 2% in the second year (BNA 2012a), which are above average for contract settlements during this period (BNA 2012b). And NNOC-Kansas won a breakthrough victory when 325 nurses at the Menorah Park Medical Center in Kansas City signed a contract in September 2012 that included wage hikes of 6% to 16% over three years (Twiddy 2012). Benefits, particularly health care and pensions, played a significant role in hospital negotiations in the late 2000s and early 2010s, just as they had in labor negotiations in almost all industries. In recent years, many, if not most, employers have come to bargaining with the goal of shifting more of the cost for health care benefits to employees and, if they still have a defined benefits retirement plan, converting to a defined contribution plan. Both of these issues were at the heart of a bargaining dispute between the Mercy Regional Medical Center in Lorain County, Ohio, and SEIU1199 in 2012. The company proposed concessions that include switching to a 403(b) defined contribution retirement plan. Although the union threatened to strike, the parties eventually settled (Miller 2012). Members of the NYSNA settled separate contracts in 2011 and 2012 with the Flushing Hospital Medical Center, St. Luke’s–Roosevelt Hospital Center, and Mount Sinai Medical Center that required nurses to contribute $25 to $100 a month for their health coverage (Massey 2011; Chinese 2012). Settlements such as these are increasingly becoming commonplace. Compensation and benefits are important to nurses, as they are to all employees. However, there is evidence suggesting that changes in patient care and working conditions are at least of equal importance to RNs working in the hospital sector. Nurses have long sought to influence the patient care process through collective bargaining (Miller 1980). However, as nurse dissatisfaction over short-staffing, mandatory overtime, and floating practices has grown, patient care issues have come to the forefront of hospital nurses’ union bargaining (Clark, Clark, Day, and Shea 2001; ANA 2001b; Olin 2012). Like managers in most industries, hospital administrators have generally tried to limit the scope of bargaining with unions to traditional issues and have been reluctant to allow unions to participate in patient 142 COLLECTIVE BARGAINING UNDER DURESS care decision making on the basis that such decisions are management’s rights and responsibilities. Today, however, under intense pressure from nurses’ unions, hospitals are being forced to gradually open up the patient care process to greater employee involvement (Bronder 2001; Budd, Warino, and Patton 2004). Of all the patient care issues, staffing is the issue of primary concern to hospital RNs. Although all of the unions representing nurses have fought to minimize or prevent understaffing in hospitals, a deep divide has developed over the best strategy for addressing this and other patient care issues. CNA/NNOC has taken the position that legislative action and collective bargaining are the best mechanisms for resolving staffing problems, while other unions have pursued cooperation with employers, often in the form of labor–management committees designed to monitor staffing levels and make staffing recommendations. In support of its -posi tion, CNA/NNOC points to its successful legislative campaign that resulted in the 1999 passage of a law mandating RN-to-patient ratios of one nurse to six patients on medical–surgical units in California hospitals. The ratios required by the legislation are significantly better than those found in most American hospitals (ratios of one nurse for seven to ten patients are common), and research to date suggests that these improved ratios have a positive impact on patient care (Aiken et al. 2010). An example of how unions can negotiate contract language to address professional practice and quality care concerns can be found in the collective bargaining agreement between AFT affiliate Health Professionals and Allied Employees (HPAE) Local 5004 and the Englewood (New Jersey) Hospital and Medical Center. The contract includes language requiring the union and the hospital to jointly determine staffing levels. If the parties are unable to do so, they must submit their dispute to a neutral third party, chosen by the American Arbitration Association, for final resolution (HPAE 2004). An alternative strategy for giving nurses a greater voice in patient care issues involves the creation and implementation of cooperative labor– management partnerships of nurses and their union and a hospital’s administration. These partnerships are implemented through various mechanisms, including patient practice committees, safe-staffing committees, and broader labor–management forums. The purpose of such groups is to give RNs an actual seat at the table with management so that they can participate in discussions about how to improve care. Proponents argue that including experienced nurses who provide hands- on care around the clock in such discussions adds a critical perspective that has been previously missing in decision making about patient care (Clark and Clark 2009). Opponents point out that the ability of unions involved in these committees to affect staffing decisions often depends on the HEALTH CARE INDUSTRY 143 authority they are given. In their weakest form, the committees are solely advisory; when they are empowered to determine nurse–patient ratios, they can play a very significant role (Budd, Warino, and Patton 2004). CNA/NNOC rejects these collaborative efforts out of hand, arguing that such programs are simply another way that health care employers try to take advantage of unions and union members (Carlson 2009). Notable examples of this approach are the Kaiser Permanente Labor– Management Partnership, the initiative between SEIU-represented nurses and Allegheny General Hospital in Pittsburgh, and the cooperative arrangement involving AFT RNs and management at the Fletcher Allen Medical Center in Burlington, Vermont. Mandatory overtime is another issue that has patient care ramifications and that unions have worked hard at the bargaining table and elsewhere to address. Hospitals that try to reduce costs by cutting their workforces often operate with the absolute minimum nurse workforce possible. When a nurse calls in sick or a hospital experiences a higher than normal census, administrators often turn to mandatory overtime to meet their staffing needs. Because of the disruption mandatory overtime causes in their members’ lives, and the danger presented by nurses working excessively long hours, many nurses’ unions have negotiated contractual limits on mandatory overtime. The goal of most nurses’ unions is a complete ban on mandatory overtime, and an increasing number of contracts contain such language. MINNA effectively eliminated forced overtime in most hospitals in the Minneapolis–St. Paul area in 2004 by including contract language stating that “no nurse shall be disciplined for refusal to work overtime” (MINNA 2004). And the contract between Kaiser Permanente and the CNA (covering the largest number of RNs in the United States) includes a ban on mandatory overtime (Kochan, Eaton, McKersie, and Adler 2009). When not able to win a complete ban, many nurses’ unions have settled for language that limits mandatory overtime to emergency situations. In those situations, contract language is negotiated stating that mandatory overtime can only be used as a last resort after a comprehensive process of seeking volunteers has been exhausted (CNA HealthPro 2009). Another approach to reducing mandatory overtime is to place limits on the amount of overtime employees can be forced to work. SEIU has included language in their contract with Jackson Memorial Hospital in Miami that nurses “working 12½-hour shifts will normally be scheduled for no more than three consecutive days on duty or more than seven days on duty within a period of 14 consecutive days” (SEIU 2012e). The contract also requires management to make every effort to post schedules four weeks in advance. This gives nurses an opportunity to adjust schedules according to their needs (SEIU 2012e). Other unions have negotiated 144 COLLECTIVE BARGAINING UNDER DURESS language that limits the number of times an employer can force an individual nurse to work per year. One additional approach that is sometimes combined with limits on mandatory overtime is to try to increase the compensation for overtime work to discourage its use by hospitals. A contract between SEIU and the University of Iowa hospitals requires double pay for all hours employees work in excess of their regularly scheduled shifts (SEIU Local 199 2013). A final issue that RN unions are beginning to address is the danger nurses face in the workplace. A 2012 contract between the Centinela Hospital Medical Center in Inglewood, California, and the CNA includes what the parties called a “first in the nation needlestick and workplace violence insurance benefit funded by the employer” (Amber 2012b:1). The contract includes insurance that provides benefits to nurses who suffer injury or illness from violent assault or exposure to disease. The benefits include payments for work-related injuries or illnesses, bereavement and trauma counseling, psychological therapy, and travel assistance (Amber 2012b). Support Staff The experience of support staff in acute-care hospitals parallels to a great degree the experiences of RNs. However, because of labor market considerations, support staff workers, on balance, have less bargaining power than nurses. This has made it more difficult for them to resist the efforts of employers to force them to accept concessions in a number of areas. Long-Term Care/Nursing Homes The subjects of bargaining in the long-term care/nursing home sector are similar to those in the acute-care hospital sector. They include wages and benefits, staffing levels, and mandatory overtime, as well as health and safety concerns and training opportunities. However, funding for the long-term care sector differs from the hospital sector, which significantly affects the way the parties approach bargaining. A substantial portion of the revenues a long-term care/nursing facility receives for the care it provides comes from Medicaid. Because reimburse- ment rates depend on the amount of money individual states designate for this purpose, an employer’s ability to meet union demands in this sector depends, in turn, on the level at which that employer’s state decides to fund Medicaid. For this reason, unions representing long-term care/ nursing home workers closely monitor the budget processes of state legislatures across the country. They regularly lobby legislators and governors for the maximum increase to Medicaid and Medicare and for other state funding related to health care because doing so provides a larger pool of funds over which to bargain (Clark 2002). As in virtually all industries, unions are able to increase wages for long- term care/nursing home employees above non-union wage levels. However, HEALTH CARE INDUSTRY 145 compensation for RNs in long-term care historically has been lower than their wages in other health care settings. In 2011, the mean hourly wage and mean yearly compensation for RNs in nursing homes were $29.25 and $60,830, respectively. For RNs working in hospitals, the mean hourly wage was $35.81 and the mean yearly compensation was $70,330 (U.S. BLS 2012). This discrepancy can be attributed, in part, to the large role that public financing plays in long-term care. It is actually the role that government funding plays in this sector that led some unions and employers to sign statewide alliance agreements beginning in the early to mid-2000s. These agreements brought together unions representing nursing home employees (most commonly SEIU) and nursing home owners across a given state. The unions and employers signed formal agreements that ostensibly benefitted both parties. Unions agreed to join with employers to use their collective power to lobby state legislatures to increase, or at a minimum, not reduce, funding for long-term care. Unions also agreed to standardize wages, benefits, and other conditions of employment through “template” collective bargaining agreements. In return, unions received neutrality pledges from employers that would allow them to organize a portion of the employer’s non-union facilities without opposition from the employer (Thomas 2007). Suchalliances were formed between SEIU locals representing long-term care/nursing home workers in California, Oregon, Washington, and other states. An example of these types of arrangements is the Alliance Agreement between SEIU’s Local 503, a statewide local in Oregon, and nursing home operators in that state. In 2002, Local 503 signed such a pact with four nursing home chains in the state. In 2005, workers at six more nursing homes organized with SEIU and bargained their first contracts under the Alliance Agreement. Additional nursing homes were organized in 2006 and 2007 (SEIU Local 503 2009). The union points to a number of positive outcomes that have resulted from the Alliance. In 2008, the Alliance’s lobbying efforts resulted in implementation of new staffing ratios in nursing homes across the state. It also points to increases in Medicaid funding for nursing homes, which helped make the staffing ratios possible. The union also claimed progress in the bargaining arena, reporting an average 6% pay increase per year for workers at Alliance facilities between 2004 and 2008. In September 2011, the local signed a new bargaining agreement for 32 nursing homes around the state (SEIU Local 503 2011). Although alliance arrangements in some states appear to have benefitted both unions and employers, the California Nursing Home Alliance Agreement fared less well. First negotiated by SEIU locals 205, 434B, and 2028 in 2004, the agreement covered 284, or 25%, of the nursing homes 146 COLLECTIVE BARGAINING UNDER DURESS in California. In its early years, it had positive benefits for both parties— increased funding for nursing homes and increased organizing opportunities for the union. However, the locals’ membership appeared to quickly sour on the agreement because it locked nursing home workers into sub- standard contracts, and it was not renewed in 2007 (Schafer 2012). The agreement also was at the heart of an internal division within SEIU that eventually led to a large portion of the union’s organization in California being placed under trusteeship. Because of reductions in government spending for long-term/nursing home care and the recent recession, unions representing workers in this sector have faced difficult times at the bargaining table over the past several years. As employers push for givebacks, unions have had to work hard to keep wages at current levels or, at best, win small increases. Unions have also had to deal with employers’ efforts to switch from defined benefit to defined contribution pension plans and to shift more of the costs of health care insurance from the employer to the employee. As in hospital bargaining, it is notable that unions in the long-term care/nursing home sector are also concerned about patient care issues. One of the more common issues brought up by these unions is inadequate staffing. Unlike hospitals, the main focus of staffing concerns in the long- term care/nursing home facilities is not RNs but LPNs and CNAs. As noted earlier, the Oregon Alliance was instrumental in getting the state government to improve staffing ratios in nursing homes (SEIU Local 503 2009). Likewise, ratios were one of the key issues in a long strike in 2012 at HealthBridge nursing homes in Connecticut (Brown 2012). Nursing home unions in other states continue to advocate for better staffing levels through both bargaining and legislative action.

STRIKES AND LOCKOUTS Because of the nature of the industry, health care employers and unions have been reluctant to engage in work stoppages that would disrupt their ability to provide patient care. However, recent years have seen an increase in strike and lockout activity at health care facilities. Hospitals In the acute-care hospital sector, strike and lockout activity appear to have increased in the past few years. Many of these disputes involve RNs and their unions.9 For much of nursing’s history, strikes were viewed as unprofessional and, at one time, were forbidden by ANA policy (Ellis and Hartley 2004). However, as RNs have increasingly turned to unions in an effort to gain a greater voice in the workplace, the acceptance of strikes has grown. Although little systematic data are available on nurses’ strikes, a 2011 report noted that NNU affiliates threatened to strike in 18 separate nego- HEALTH CARE INDUSTRY 147 tiations, affecting 46 hospitals. NNU officials attribute the increased use of strikes and strike threats to growing management demands for concessions on health insurance coverage and premiums, sick time, and other economic issues (Selvam 2012).10 The dynamics of strikes in health care differ from those in other sectors because of a provision of the NLRA, mentioned earlier, that requires labor organizations to give health care institutions an intent-to- strike notice not less than ten days before any work stoppage. The ten-day notice requirement adds a strategic element to a labor dispute between a nurses’ union and a health care facility. Most facilities cannot care for their patients if a substantial portion of their RNs walk off the job. This leaves them with two options—transfer their patients to another facility or hire replacement nurses to take the place of the RNs on strike. Both of these options impose significant financial costs on the employer. If an employer transfers patients, it must absorb the cost of finding facilities to take its patients, transporting them, and, when the strike is settled, returning the patients to their facility. It also must continue to meet any financial commitments related to the physical plant and equipment (mortgage, loan, or bond payments), as well as commitments to nonstriking employees (salaries, health care premiums, pension obligations, etc.). And the employer must continue to maintain the facility so that it can return to operation in a short time. All of these steps occur without the benefit of the revenue that the nursing home would normally generate. If an employer chooses to continue to operate during a labor dispute, it will most likely have to use a nurse staffing agency that specializes in providing replacement nurses. These agencies bring in out-of-town nurses who are paid $50 to $65 an hour or more, well above the cost of the RNs they are replacing. In addition, the health care facility must pay the housing, meal, and transportation costs of the replacement nurses, as well as a significant fee to the staffing agency. The employer must also deal with the long-term impact on its reputation and on its relationship with its employees and patients, and it must assume liability for any problems that arise from bringing in RNs new to its physical plant, procedures, and medical staff (Maher 2006). Agencies that supply RN replacements usually require hospitals to hire their nurses for a minimum period (often five days). In a strategic move to maximize the impact of a strike on the employer and minimize its impact on its members, unions such as CNA have resorted to one-day strikes. This strategy forces facilities to absorb the full costs of arranging for a replacement workforce and then pay both the striking nurses who return to work and the replacement workers who have a multi-day contract. Some employers have chosen to staff their facility with replacement nurses 148 COLLECTIVE BARGAINING UNDER DURESS and lock out the striking nurses when they attempt to return to work. They might do so for the duration of their commitment to the substitute RNs (five days) or keep them on indefinitely to pressure the striking nurses to agree to the employer’s contract terms (Maher 2006). The Washington (DC) Hospital Center chose this strategy when the NNU local representing its 1,600 RNs called a one-day strike on March 4, 2011. The center had previously made arrangements to replace the nurses if they struck and immediately called in 600 strike substitutes. The NNU nurses attempted to return to work the next day but were turned away by the employer. They were allowed to return to work four days after the strike (Sun 2011). The center reportedly spent $6 million on the strike and subsequent lockout. This included $3.5 million to hire the temporary nurses and cover their transportation and lodging, $1.5 million in salaries for about 500 NNU members who crossed the picket line, and an additional $1 million on increased security. A contract agreement that largely favored the union was reached on March 10 (NNU 2011). The one-day strike strategy has also been a part of a protracted dispute between Sutter Health, a network of hospitals in Northern California, and 4,500 RNs represented by CNA. Sutter and CNA began negotiations in 2011. According to CNA, Sutter had been seeking concessions in a number of areas, including sick pay, floating practices, health insurance coverage, family medical leave, and overtime (CNA 2011). In response, CNA staged five separate walkouts at seven Sutter hospitals between September 2011 and July 2012. When the nurses attempted to return to work after each one-day strike, Sutter brought in replacement nurses and locked the RNs out for several days. In the course of the dispute, a patient died as a result of a medical error made by a replacement nurse. This incident heightened tensions between the parties and demonstrated the potential costs of health care labor disputes (Baker 2011). Another relatively new phenomenon related to health care labor disputes that could have an effect in the future is greater interunion support and assistance. In January 2012, 4,000 members of the NUHW who work for the Kaiser health system in California doing mental health and optical work engaged in a one-day strike to protest proposed benefit cuts. They were joined by 17,000 CNA nurses at Kaiser facilities, who walked out in support of the NUHW workers. In addition, 650 members of Stationary Engineers Local 39 who work as Kaiser facility maintenance workers joined the sympathy strike. The walkout of nearly 22,000 Kaiser workers was one the largest strikes by health care workers in U.S. history and demonstrated the potential power a unified movement of health care unions could have (Colliver 2012). HEALTH CARE INDUSTRY 149

Long-Term Care/Nursing Homes As with hospital strikes, little data are available on the frequency or length of long-term care/nursing home walkouts. What is clear is that this sector of the health care industry has struggled significantly since the mid-2000s. The shortage of funding for this type of care has put unions on the defensive and deprived them of significant bargaining power. And when unions do not have bargaining power, strikes are a very risky proposition. One of the longest nursing home disputes in recent years involved both a lockout and a strike. In late 2011, District 1199, New England Healthcare Workers and HealthBridge, a company that operates nursing homes, began negotiations on a contract that would cover nearly 600 workers at six nursing facilities in Connecticut. Among issues in dispute were pay raises, the company’s desire to replace a defined benefit pension plan with a defined contribution 401(k) plan, a demand that employees pay a portion of the costs of their health insurance, and the union’s efforts to establish staffing ratios (Lee 2012). In December 2011, the company locked out employees at one of the six facilities and threatened to do the same at the other facilities. After nearly four months, HealthBridge lifted the lockout. Contentious negotiations continued into summer 2012. After the company imposed its final offer, workers at five of the facilities went out on strike in July. Subsequently, the union filed unfair labor practice charges alleging that the company had not bargained in good faith. The NLRB upheld the charges (Dubé 2013). The NLRB also asked the federal court to issue a Section 10(j) injunction “to restrain the company from engaging in violations of the Act pending the board’s resolution of the unfair labor practice allegations” (Dubé 2013:1). The court issued the injunction, finding that HealthBridge had engaged in unfair labor practices. It also determined that the company had prolonged the strike by refusing to rehire the strikers after they offered to return to their jobs without conditions and ordered HealthBridge to reinstate all the strikers. In addition, the court ordered the company “to bargain in good faith with the union, rescind its unilateral changes, and restore wages, benefits, and other terms and conditions of employment that were in place in June 2012” (Dubé 2013:1).

THE FUTURE As the proportion of the private sector workforce represented by unions has declined over the years (in 2012 it was 6.6%), so has the importance of collective bargaining to the functioning of the American economy. Clearly, the list of industries in which collective bargaining plays a lesser role today than it did 10 or 20 years ago is substantial. However, there 150 COLLECTIVE BARGAINING UNDER DURESS are a few exceptions to this trend. The most notable one is the U.S. health care industry. The U.S. health care industry has been going through a period of tumultuous change over the past two decades. Collective bargaining has been part of this change, and the growth of health care unions ensures that it will be part of the industry’s future. The passage of the PPACA, also known as ObamaCare, means that the health care environment will be equally dynamic in the years to come. The future of collective bargaining in health care will certainly be shaped by this changing environment. Collective bargaining in the acute-care hospital sector is particularly likely to be impacted by these changes. Most of the growth among health care unions has involved RNs working in this sector. The rapid and steady growth of the CNA/NNOC/NNU is the most significant development in this area in the recent past. And with the inroads it has made in states such as Florida, Kansas, Missouri, and Texas, where nurses’ unions had not previously had much of a presence, there is every reason to believe that CNA/NNOC/NNU’s growth will continue. Two factors could greatly influence the pace at which nurse unionism grows. One is the degree to which CNA/NNOC/NNU and the other unions that represent RNs—NNF, NYSNA, and non-health care unions such as AFT and AFSCME—move toward cooperation, and perhaps consolidation, and away from competition. The other is the degree to which nurses’ unions can find mutually beneficial ways to work with unions representing other hospital employees (housekeeping, maintenance, techs, and even physicians). The CNA/NNOC/NNU has made remarkable strides in organizing, in collective bargaining, and in legislative action over the past 15 years. The union has been described as innovative and groundbreaking, as well as arrogant and reckless. Within the labor movement, the union appears to be equally proficient at creating allies and enemies. Ultimately, the optimal situation for RNs in the American health care system would be the creation of a single, united, and cohesive nurses’ union or, short of that, a small number of unions that could work together effectively. The numerous unions representing nurses now, and the philosophical, strategic, and personal differences among them, make consolidation a great challenge. However, a move in that direction could have very significant implications for collective bargaining in the hospital sector. In any case, it is clear that if nurses’ unions are to create, formally or informally, a more united front, leadership for this effort will likely come from CNA/ NNOC/NNU. Although RNs are the largest occupation in the hospital sector, they are not an island unto themselves. The remaining employees in that sector—from maintenance, housing, and food service workers to HEALTH CARE INDUSTRY 151 physicians—constitute a large and influential power bloc in their own right. And although these groups have different priorities, if they can find a way to work together, their combined resources and influence would dwarf what they could individually muster. Although collective bargaining is likely to play a bigger role in the future for RNs working in acute-care hospitals, and possibly for many other occupational groups, there is no reason to believe that this will be the case for physicians. Physicians’ unions fly in the face of the culture of the profession to a greater degree than in any other segment of the health care industry, and any momentum they may have generated in the late 1990s seems to have entirely dissipated. It is not yet clear what implications the passage of the PPACA will have for health care unions and collective bargaining in the health care industry. But it is possible that these unions, which were among the biggest advo- cates of health care reform, could find that reform makes their lives more difficult at the bargaining table. Cost reduction is at the heart of the PPACA. Health care unions have argued that lower costs can be gained through cutting fat and by becoming more efficient. But with roughly 60% of a hospital’s budget going to labor costs, it seems likely that any cost-reduction efforts will have to target labor costs to some degree. Some observers have speculated that unions might find themselves on the “horns of a dilemma” when the reform effort they have championed puts downward pressure on labor costs at the same time they are trying to win better pay and benefits at the bargaining table (Kimzey and Johlie 2009). Collective bargaining in the long-term care/nursing home sector is also likely to be affected by the many changes the American health care system is likely to undergo in the years ahead. What probably will not change is this sector’s dependence on government funding. As pressure on the Medicare, Medicaid, and state funding systems grows, it is hard to see how unions will be able to generate much leverage at the bargaining table. Unions that have entered into partnerships with the long-term care/nursing home industry may have little choice but to continue to work with employers to advocate for greater funding with the knowledge that little, if any, of that additional funding will end up in workers’ paychecks. One bright spot for unions in the long-term care/nursing home sector is the 2011 NLRB ruling in Specialty Healthcare that allows unions to organize smaller units of workers at long-term care facilities. If the decision is not overturned on appeal, unions will be able to organize relatively small groups of employees with common interests in a facility, thus getting a toehold in a previously unorganized workplace. This presence should make it easier for unions to organize additional units of workers in the facility (Polli and Torrence 2011; Kaplan and Walsh 2012). 152 COLLECTIVE BARGAINING UNDER DURESS

Regardless of what the future holds, health care is a vital and important industry on a number of levels. Collective bargaining will continue to be an important part of the acute-care hospitals and long-term care/nursing home sectors of the industry. And although the American health care system is certain to change and evolve in the years ahead, so will collective bargaining in health care. For students of employment relations, this process promises to be both fascinating and instructive.

ENDNOTES 1 In part, this was because the National Labor Relations Act did not extend protection to employees of nonprofit hospitals until 1974, when an amendment was passed that gave them collective bargaining rights. 2 There is a substantial public sector health care industry in the United States. This includes hospitals and long-term care/nursing home facilities administered by an agency of the local, state, or federal government. This chapter is largely limited to an examination of collective bargaining in the private sector health care industry. 3 A third distinct sector of the health care industry is home health care. This includes individuals, often elderly or disabled, who receive nursing care in their homes. It is a growing sector, with approximately seven million Americans receiving such care, but it is smaller than the hospital and long-term care and nursing home sectors and is largely delivered by local government agencies. For these reasons, it is not addressed in this chapter in any detail. 4 Acute-care hospitals provide treatment for severe illness, disease, or trauma. They are distinct from long-term care hospitals that provide ongoing treatment for elderly and other types of disabled patients. Psychiatric hospitals are included in the latter category. 5 The membership and union density statistics in this section include both private and public sector health care workers. 6 Clearly, although these categories do not describe union types as well as they once did (i.e., many craft unions of the past have tended to move toward becoming more like industrial unions, and many industrial unions now might more accurately be classified as general unions), they still are somewhat helpful in describing labor organizations. 7 Although these workers are public employees, these elections were significant because they establish a beachhead in a third sector of the health care industry in which unions have not been particularly successful—home health care. 8 NYSNA continues as an independent statewide union. At 37,000 members, it is one of the larger unions representing nurses. However, in recent years it has experienced a great deal of internal discord that has left it isolated from the rest of the nurse labor movement (Amber 2012a). 9 A lockout involves an employer refusing to allow employees to work in order to put economic pressure on them in the course of negotiations. It is, essentially the employer’s version of a strike. 10 Strikes by nurses are not an uncommon occurrence around the world. In the 1990s, nurses unions undertook strikes in Australia, Canada, Ireland, Israel, Japan, and Portugal. Nurses’ strikes took place in New Zealand and Malawi in 2000, in Denmark and Sweden in 2008, in Portugal in 2009, and in South Africa in 2010. In most of these HEALTH CARE INDUSTRY 153 cases, strikes were either regional/provincial or national (Briskin 2011). American nurses have traditionally been reluctant to strike, seeing such action as unprofessional and jeopardizing patient care. This situation is beginning to change.

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Chapter 5 When Chickens Devoured Cows: Union Rebuilding in the Meat and Poultry Industry

Jeffrey Keefe Rutgers University Mathias Bolton UNI Global Union

This chapter examines the current trends in collective bargaining in the meat and poultry industry that are a direct consequence of the collapse of the national bargaining structure in the American meat industry during the 1980s. These trends were driven by the industry’s restructuring, which led to the return to plant-level collective bargaining in beef, pork, and poultry slaughter and processing. We argue that the driving force behind the collapse and restructuring was the substitution of chicken for beef in the American diet. The relatively high price of beef was no longer sustainable when it came into competition with poultry products that were less costly, healthier, more convenient, and more malleable to further processing. The substitution of chicken for beef put wages back into competition as consumers redefined market boundaries. Poultry processors were non- union, paid low wages, and had a high-productivity growth production system known as the broiler complex. The plants were located in the union-hostile rural U.S. South and had grown their businesses using African American labor in the southern Black Belt. Prior research (Craypo 1994) found that the primary reason for the collapse of industry bargaining was related to the Iowa Beef Processors (IBP) revolution. IBP’s new practices, which allegedly contributed to undermining industry bargaining, pre-dated the collapse by more than a decade. IBP sold boxed cut beef instead of shipping carcasses; they built plants in rural areas, often in right-to-work states, rather than urban rail centers; and instead of accepting unions and pattern bargaining, IBP resisted and developed its own enterprise wage standard. According to this analysis, IBP was the first to combine each of those characteristics into an aggressive operating strategy aimed at existing packers and practices, and by 1976, IBP was the most profitable producer and the nation’s leading beef packer (Craypo 1994).

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No doubt, IBP was a potent anti-collective bargaining innovator; its practices alone, however, cannot explain the collapse of industrywide bargaining. IBP was one of only two profitable public red meat processors during this transition period (1980s); the other was the pork processor, Hormel. First, what distinguished IBP from the traditional beef processors was that it invested in new facilities and new processes. The older industry- wide bargaining firms that had dominated the beef and pork industry since the 1920s—Armour, Swift, Cudahy, and Wilson—had been acquired by conglomerates that focused on capturing cash flow obtained through disinvestment not through investment and modernization. Second, while IBP never invested in the rail-centered industry, the entire industry had already exited the multi-storied railhead factories by 1960, some 20 years before the collapse. Factories moved first to the Corn Belt and then beef moved farther west to the High Plains. Third, boxed beef, developed by Armour in the 1950s, added manufacturing jobs to the plants. Tasks formerly performed in wholesale and retail establishments by unionized, skilled journeyman butchers were performed in manufacturing plants by semi-skilled meat cutters. Boxed beef increased overall plant employment. IBP insisted on paying these meat cutters less than pattern wages, which led to the first IBP strike in 1968. Four more IBP strikes would follow through 1978. IBP resorted to replacement workers to continue to operate; it won these strikes, and as it continued to grow, IBP opened its new plants on a non-union basis. Nevertheless, IBP’s militancy, which began in the 1960s, cannot explain the breadth and depth of the 1980s descent that would produce a 40% reduction in average real wages within a decade. Instead, wages for red meat workers plunged toward those paid by the poultry processors; average red meat wages would settle with a 20% premium over poultry processor wages. The union wage effect would fall to 4% by the early 1990s before rebounding to 13% today. The United Food and Commercial Workers (UFCW) union, particularly after the Retail, Wholesale and Department Store Union (RWDSU) merged into the UFCW, expanded its organizing efforts in the poultry industry. National industry bargaining structures, such as the one that existed in meatpacking, were a legacy of World War II. They were established by the National War Labor Board to prevent strikes, to restrain wage growth, to resolve interest disputes that arose during the war effort, and to provide the board with the information and the mechanism to adjudicate wage equity disputes within an industry, particularly among the large oligopoly employers. After the war, the federal government continued to encourage the stability afforded by these bargaining structures, while taking a less active role. The Korean War reinvigorated wage controls and government involvement in collective bargaining. By 1953, however, the government’s MEAT AND POULTRY INDUSTRY 163 policy shifted to neutrality on the issue of collective bargaining. During the next two decades, many once-stable industries came under competitive pressure either from foreign imports or technological innovations that supplied substitutes for traditional industry products. Managerial capitalism’s culture of relatively benign corporate indifference toward collective bargaining evolved dramatically in the late 1970s into a new era that featured leveraged buyouts, an investor-value focus, a neoliberal industrial and trade policy, and an identity-focused employment policy that shifted the policy emphasis away from collective action into the courts. After Reagan’s popular hard line response to the air traffic controllers’ strike, the use of replacement workers to defeat strikes and force concessions became socially acceptable, and manufacturing employers widely adopted the use of replacements. All these factors combined to allow employers to rapidly eradicate the remnants of industry- wide bargaining structures in most oligopoly industries in the United States in the 1980s and to defeat strikes where unions and workers resisted these changes. The industry-wide bargaining structures that emerged from World War II, once the government had withdrawn its active support, were poorly suited to the adaptation that was necessary to survive and to evolve in a dynamic capitalist economy, even where industries remained dominated by oligopolies. By the 1980s, a consensus among scholars emerged that there was a transformation under way in the American employment system that had shifted the balance of power. Employers and their representatives (management) became the dominant actors in the new American employment system, and they preferred to operate non-union wherever they could (Kochan, Katz, and McKersie 1988). Unfortunately, the frame of research analyses has not kept pace with this transformation and, all too often, while acknowledging the transformation and management’s growing dominance, studies tend to focus on a respective union’s response to recent changes in collective bargaining without adequately explaining the economic and political sources of change driving management’s growing dominance. We will try clarify the sources of the transformation and the consequences for collective bargaining in the meat and poultry industry. What makes this case of particular interest is that it is an American manufacturing industry that is growing in both value added and employment. It has not been subject to a fundamental information technology revolution nor to globalization in terms of off-shoring production, although it does rely on immigration for a significant source of low-skilled labor. It is an industry that successfully net exports a growing share of its output. Nonetheless, ownership, profitability, supply prices, and product demand remain unstable even though the industry is an oligopoly. 164 COLLECTIVE BARGAINING UNDER DURESS

The instability of industry boundaries, whether they be domestic or global, requires continual analysis. Labor and employment relations researchers need to expand their research frameworks to evaluate the forces shaping collective bargaining. For example, the executives in the meat and poultry industry now speak of themselves as part of the global protein industry, which includes red meat, poultry, fish, dairy, eggs, beans, and nuts. What they believe is that while protein consumption is essential for life and while they are profitable protein producers, there is always the potential for one or another protein source to become a commercially successful food that erodes their position. This framework, although broader than pork or beef, however, is still too narrow because it focuses only on horizontal sources of competition. We need to include a framework that helps us understand where and why there is investment and employment growth. To do this, we must know what forces are shaping supply chains and at what stages, which business units are capturing higher than average levels of profitability, and where there is subpar financial performance, then link this analysis to labor market and employment system alternatives. We use a value system framework to analyze meat and poultry processing. Following Porter (1985), the larger interconnected system of enterprise value chains form a “value system.” From this perspective, an industry’s structure drives competition and profitability. A value system includes the value chains of suppliers and their suppliers all the way back to the most basic resources, and then forward to the industry itself—the distribution channels for its products and the buyers extending through their buyers to the ultimate consumer. In meat and poultry, it begins with the genetics of animal breeding and plant biogenetics for animal feed and ends with consumer purchases at supermarkets, Walmart supercenters and warehouse clubs, cafeteria food services, and casual dining or quick-service restaurants. The value system, however, is much more than a supply chain. A value analysis must examine the structural underpinnings of industry and firm profitability. This approach must analyze why and where profits are produced and captured and the intensity of rivalry within an industry. Above-average profitability allows some firms in an industry to retain earnings and gain access to new investment resources at lower costs. Conversely, poor profitability in a low-profit industry may cause a firm’s investors to get their cash out of a business, often reflected in declining share prices, higher interest rates on new debt, and rising yields on out- standing debt. Profit opportunities may encourage firms to integrate horizontally, acquiring competitors, or vertically into industries that may give firms opportunities to increase their profitability in more advantageous markets or to exit low-profit markets. MEAT AND POULTRY INDUSTRY 165

Industry structure and firm performance are shaped by the strength of the five competitive forces [rivalry, customer power, supplier power, potential entrants, and substitute products (Porter 1985)] that influence an industry’s long-run profit potential because they determine how the economic value is created by an industry and then how that value is divided—whether it is retained by companies in the industry or is bargained away by customers and suppliers, limited by substitutes, or con- strained by potential new entrants. Industry structure is constantly undergoing modest adjustments, and occasionally it can change abruptly. Shifts in structure can originate from outside an industry or from within, and these shifts can boost the industry’s profit potential or reduce it. An industry’s structure can be influenced by changes in technology, declining prices of substitutes, changes in customer needs, implementation of government policy, or shocks to input prices. We put profitability and financial decision making at the center of our analysis of firm performance and industry structure. The evolution of an industry, whether it grows or declines, is governed by financial assessments by present or future investors of each business unit and each firm that is a part of the industry. The basic structure of major U.S. industries is oligopoly. This structure does not preclude intense competition and rivalry, but it does not resemble anything similar to textbook perfect competition. By contrast, it is somewhat less stable than Gereffi’s global value chain (GVC) analysis would suggest. In his analysis, production activities are sliced into pieces and dispersed throughout the world to smaller dependent firms or contractors that are subject to tight integration and coordination by lead firms through global supply chains (Gereffi 2005). His analysis focuses on the various alternative relationships that exist between the integrator and supplier whether they be market, modular, relational, captive, or hierarchies—not dissimilar to transaction-cost economics. One shortcoming of the GVC perspective is that it does not adequately account for the financial performance that animates relationships among the key firms. Not all integrators are financially successful. The integrators are often subject to rivalry, competition, pricing power of buyers and suppliers, and high expectations for their financial performance, which can result in considerable ownership instability and difficulties in financing of new investments. Nonetheless, Gereffi and colleagues have done a systematic analysis of chicken (Gereffi, Lee, and Christian 2008), pork (Lowe and Gereffi 2008), and beef (Lowe and Gereffi 2009) from a GVC perspective. His work and the work of his colleagues and students provide a clear analysis of the supply chains for chicken, pork, and beef, which will not be replicated in this analysis. The reader is encouraged to review this material. 166 COLLECTIVE BARGAINING UNDER DURESS

Unions may want to use the value-stream analytical approach before investing scarce resources in organizing, strikes, or comprehensive campaigns. Many unions in the United States have evolved into general unions without any particular industry or occupational focus. Larger unions have merged with dying unions with declining membership. In organizing, they often respond to the “hot shop” for organizing opportunities. Aside from not necessarily resulting in any increase in bargaining power, the hottest shops are often those in failing firms or industries where employers are cutting wages and driving employees to work harder to avoid bankruptcy or business shrinkage. While these workers seek unions to redress their deteriorating employment conditions, the union is unable reverse the root source of their concerns, a failing business. An alternative approach for a union could be to refocus its efforts on organizing a value stream that is growing, profitable, and not confronting imminent technological obsolesce, where gaining bargaining power can result in improving compensation and worker control while building a sustainable growing union. In this chapter, we apply this approach to analyze the meat and poultry value stream—a series of industries in which the UFCW has organized a multitude of bargaining units and has considerable membership in a variety of stages of production and distribution. In this chapter, we also • Recount the collapse of industry-wide bargaining in the red meat industry • Review and evaluate the explanations for the decline of collective bargaining in the meat industry • Analyze the value stream of the contemporary meat processing industry • Review recent collective bargaining outcomes • Discuss UFCW’s comprehensive campaign against Smithfield to gain neutrality and to card-check in the world’s largest pork plant and Smithfield’s Racketeer Influenced and Corrupt Organizations Act (RICO) civil suit against the UFCW

Our analysis concludes with a discussion of whether unions still matter in the meat and poultry processing industry and whether they can improve workers’ terms and conditions of employment. Because of space constraints, we cannot address a variety of important issues in this industry, including immigrant labor, Fair Labor Standards Act lawsuits related to compensated time for donning and doffing of protective gear and safety equipment, health and safety, USDA regulation of meat processing, and antitrust issues. MEAT AND POULTRY INDUSTRY 167

THE COLLAPSE OF THE RED MEAT INDUSTRY AND INDUSTRY BARGAINING Between 1976 and 1993, U.S. per capita consumption of beef declined by 32% while per capita consumption of chicken increased by 73%. Between 1974 and 1980, beef packers’ output fell by 29%. The declining demand for beef and consumers’ substitution of substantially lower-cost chicken unleashed a ferocious industrial restructuring, a process in which none of the major meatpackers survived as independent firms. The consequences for the main union, the UFCW, and its members were even more dire. In the decade between 1978 and 1988, real wages in meat products fell by 34%, while industry-wide union density declined from 46% to 19%. In the five-year period between 1979 and 1984, meatpacking production worker employment declined by 21%, unionization declined 11%, and the union pay differential fell by half (Anderson, Doyle, and Schwenk 1990). Between 1983 and 1988, industry union membership fell by more than 40,000, declining by one third. Overall, meat processing worker wages raced down toward those in the poultry processing industry (Figure 1). The wage equations reported later in this chapter show that poultry production worker wages remain 22% below those in red meatpacking and that the low-wage and the relatively high-productivity poultry industry has become the standard setter of employment conditions for the entire meat processing industry. Real wages peaked in 1978 in red meat slaughter and processing at $19.56 an hour, using 2002 dollars. Within a decade, they fell to $12.90

FIGURE 1 Real Wages of Production Workers in Red Meat and Poultry Industries, 1972 to 2002 (in 2002 dollars) 168 COLLECTIVE BARGAINING UNDER DURESS an hour, a one-third decline. Real wages bottomed out in 1996 at $11.26 per hour, a decline of 42%, and only 20% above the real wages of poultry workers. This chart relies on historical industry data collected for the Standard Industrial Classification system, which has now been replaced by the North American Industry Classification system, which does not provide the same level of detail for this industry. This chapter challenges prior analyses that the demise of the red meat industry bargaining structure and union decline in meat processing was driven by competition from within beef processing. Instead it offers an alternative analysis that the collapse of industry-wide bargaining arose from competition between red meat and chicken processing—that chickens devoured the cows. Consumer substitution of chicken for beef brought unionized red meat workers into competition with non-union poultry workers based largely in the old Black Belt South that earned half the union wage and worked in an industry with faster productivity growth. Getting this analysis right, we believe, opens the prospect for rebuilding collective bargaining in the meat and poultry industry. The Chicken Insurrection Chicken became convenient substitute for beef beginning in the mid-1970s because it was substantially less expensive and a more supple meat for further processing. It was also considered a healthier alternative to beef. The demand for table-cut beef declined as a staple of status and consumption for the new postwar middle class; today, low-income consumers tend to eat more beef than other consumers do (Davis and Lin 2005). After 1974, a change in preferences led to the substitution of chicken parts for table-cut beef (Eales and Unnevehr 1988), and the process of dethroning of beef as the premier American meat commenced. Although there remains a debate about what relative factors contributed to the substitution of chicken for beef, there is no doubt that chicken rapidly replaced beef in the American diet and surpassed per capita beef consumption in 1993. One line of research concludes that the demand for convenience contributed to poultry’s success rather than increased health awareness (Anderson and Shugan 1991; Moen and Capps 1988). Other research finds that the shift away from red meat consumption can be explained by the relative prices between red meat and chicken (Chalfant and Alston 1988), which do not rely on changes in preferences arising from relative convenience, health concerns, or malleability for further processing. Regardless of the weighting of these relative factors, their combination increased the substitution of chicken for beef by consumers and subjected beef sales to intense pricing pressure as it was losing market share in the meat protein market. MEAT AND POULTRY INDUSTRY 169

By way of contrast, pork, the other major red meat in the U.S. consumer diet, did not suffer this same substitution effect, although it too came under considerable price pressure. Pork, however, is sold to consumers primarily as a prepared or processed meat in the form of bacon, sausage, hot dogs, cured ham, lunch meats, and barbecue ribs. Approximately 79% of pork sales are processed or prepared meats (National Pork Board 2009), which is apparently more conducive to the modern American diet. In contrast, beef is sold almost entirely as primal cuts and ground beef. Pork withstood the onslaught of the chicken substitution effect more readily because it was more adaptable to dietary trends and modern production techniques. Beef Packing By 1980, the original post–World War II Big Four Meatpackers—Armour, Swift, Wilson, and Cudahy (the Beef Trust), the core companies in the national industry bargaining structure—had disappeared as independent businesses. They were first absorbed in the conglomeration movement and then spun off in pieces in the disconglomeration restructurings and dives- titures of the late 1970s and early 1980s. By 1980, a new generation of manufacturers—IBP, MBPXL (formerly Missouri Beef and later Excel), Dubuque, and Land O’Lakes—were the four largest steer and heifer slaughterers, supplanting the original Big Four, who had moved steadily away from packing and into processing and had refrained from new investment in the packing industry while closing plants (Cappelli 1985). The four new packers accounted for 36% of steer and heifer slaughter in 1980 (USDA GIPSA 1996). The decline in the production and consumption of beef in the late 1970s left the industry with excess slaughter capacity that made consolidation a more attractive necessity and triggered a wave of mergers and acquisitions lasting from 1977 to 1988 (Azzam and Anderson 1996). The beef-packing industry structure rapidly evolved through mergers, plant acquisitions, and the building of new more productive large facilities. Cargill purchased MBPXL in 1979 and renamed it Excel; in 1983, Cargill purchased a plant from Dugdale and acquired three Spencer Beef plants owned by Land O’Lakes. ConAgra acquired 17 former Armour plants in 1983 and in 1987 bought Monfort and Swift Independent Meat Packing Company (SIPCO). By 1996, a new oligopoly of IBP, ConAgra, and Cargill dominated steer and heifer slaughter and fabrication, as well as pork slaughter and processing (Cattle Buyers Weekly 1996). In 1974, 850 plants were large enough to be required to report to the Grain Inspection Packers and Stockyards Administration (GIPSA). By 1997, the number of reporting plants fell by two thirds to 274 (USDA 170 COLLECTIVE BARGAINING UNDER DURESS

GIPSA 1996) as the core industry built larger new facilities and closed older and smaller plants, and as marginal firms exited the industry. Plants slaughtering 500,000 head or more per year accounted for 66% of total beef slaughter in 1990 (Azzam and Anderson 1996). The Beef Trust companies no longer dominated beef slaughter by the mid-1970s, when per capita beef consumption had peaked. As new firms entered the industry and others emerged, the four-firm concentration ratio for steer and heifer slaughter rose from 25% in 1976 to 36% in 1980, 50% in 1985, 72% in 1990, and 80% in 1996 (USDA GIPSA 1996). In boxed beef production, the four-firm concentration ratio was 62% in 1985, 79% in 1990, and 84% in 1996. While a new oligopoly emerged, ownership structures continued to change.

THE EVOLUTION OF MEATPACKING COMPETITION AND THE DEMISE OF NATIONAL BARGAINING Meatpacking has a long and often romanticized history of unionism. The Amalgamated Meat Cutters and Butcher Workmen (AFL) was founded in 1897 and organized the immigrant workforce in Chicago packing plants. They struck in 1904. The union’s internal dissension and lack of discipline was quickly exposed as the employers brought in strikebreakers, and the strike collapsed (Commons 1904; Brody 1964). Packinghouse workers were militant, often walking off the job, but they found it difficult to build a sustainable organization and negotiate contracts. The Amalgamated, instead, focused its efforts on organizing butchers in the retail and wholesale industry (Brody 1964) and smaller regional packers. During World War I, the elimination of immigration, an increase in demand for beef, and support from the War Labor Board allowed the Amalgamated to organize and negotiate contracts in Chicago meatpacking. Once the war ended, however, the Beef Trust’s concessionary demands were met with a strike that was defeated in 1922, destroying the Amalgamated in Chicago meatpacking (Brody 1964). The CIO established the Packinghouse Workers Organizing Committee (PWOC) in 1937 that in 1940 secured its first major contract. In 1943, PWOC became the United Packinghouse Workers of America (UPWA). During World War II, the War Labor Board created an industry bargaining structure for the UPWA and the Amalgamated to negotiate contracts with the major meatpackers. The strength of the UPWA was in Chicago, while the Amalgamated had gained representation in regional and non- Chicago meatpacking plants. In January 1946, the packers refused the union’s wage demands, and a strike was called that was immediately effective. Ten days into the strike, President Truman, still operating under wartime emergency procedures, seized the plants and ordered work to MEAT AND POULTRY INDUSTRY 171 resume. The unions refused to return to work, demanding that government guarantee enforcement of any settlement reached through a board of inquiry. The Truman administration agreed, and the settlement provided a wage increase and securely established a national bargaining structure for the industry in the postwar period. By the early 1960s, UPWA and the Amalgamated represented more than 95% of hourly workers in beef and pork multi-plant packers outside the South, as the industry moved out of Chicago to rural Corn Belt plants; they negotiated nearly uniform changes in pattern master agreements throughout the industry (Craypo 1994). Work stoppages involved individual companies that refused to follow the industry settlement pattern (Craypo 1994). In 1968, the two unions merged, forming the Amalgamated Meatcutters. Wages and conditions of employment, however, were not identical among meatpacking firms and plants—they varied depending on the industry’s history, regional structures, products, and production volumes (Brody 1964; Craypo 1994). In the late 1970s, in an environment of declining product demand, this structure facilitated further bargaining decentralization: because many plant-level locals retained their own contracts, they readily departed from the master agreement to make wage concessions to prevent layoffs and plant closings (Cappelli 1985). On the employer side of bargaining, the corporate conglomeration movement drastically changed the ownership structure of the Beef Trust companies. Those companies would be further reshaped by the decline of per capita beef consumption that began in 1975, the lack of total factor productivity growth in beef production in the post–World War II period (0.75% annual rate 1958 to 1980, although labor productivity rose 2.5%), and the intense price competition emanating from consumers’ shift to chicken. In 1970, the Greyhound Corporation, diversifying out of intercity bus transportation, purchased Armour. Swift then transformed itself into a holding company, Esmark, in 1973, making Swift a subsidiary and the second largest beef packer. Wilson was acquired by LTV in 1976. It re- emerged as a public company, Wilson Foods, in 1981, when LTV spun it off as pork packer to shareholders. It was still the largest pork packer in the industry. Cudahy had been dismantled in the 1970s after it was purchased by General Host in 1968 and eventually closed; it was then sold off in a leveraged buyout to a management group that reopened four plants without union representation at substantially lower wages. In 1981, IBP was purchased by Occidental Petroleum Corporation, the energy con- glomerate. During the next six years, as a wholly owned subsidiary of Occidental, IBP, which was the only financially successful beef packer, increased its revenues 53% and operating income 92%. IBP also added 8,000 employees and operating plants in four additional locations, making 172 COLLECTIVE BARGAINING UNDER DURESS it the only thriving beef processor in this difficult restructuring period. In 1987, Occidental Petroleum sold off 49% of its stock in IBP, but Occidental remained IBP’s major shareholder. In the early 1980s, old-line red meat processors were challenged by stagnant productivity, obsolete plants, excess capacity, a relatively high wage unionized labor force, and no plans to compete with the rise of chicken as a substitute for beef. These firms, however, knew they needed to reduce input and operating costs and decrease the supply of beef to the market. To cut input costs, they shifted to larger and leaner animal breeds and to larger feedlots, thus taking advantage of the declining costs of corn, which fell 75% between 1975 and 1985. To reduce supply and operating costs, they closed plants, consolidated ownership and restructured operations, and launched a brutal campaign to cut wages and benefits and eliminate unions. Wilson and Armour negotiated 44-month mid-term wage freezes at $10.69 an hour in late 1981 under the threat of plant closures. Other packers soon got similar concessions in return for promises not to close plants for 18 months (Craypo 1994). In 1982, Esmark closed Swift packing plants and sold the assets to SIPCO, which reopened the plants without union presentation and with wages $3 an hour below the master agreement of $10.69 per hour. Greyhound closed 29 Amour plants and sold most of its meatpacking operation to ConAgra in 1983, which reopened 17 plants non-union. In 1980, Monfort, after suffering a substantial loss, closed its main plant in Greeley, Colorado, and kept the plant shut for two years. It reopened in March 1982 without union representation. In September 1994, Greeley workers voted overwhelmingly in favor of union representation, 12 years after Monfort temporarily closed the Greeley plant. Pork processing followed the same practices as the beef packers. LTV spun off Wilson Foods, a pork packer, in 1981 and within less than two years, it filed for bankruptcy. Wilson then terminated its master agreement and cut wages to $6.50 an hour. In October 1981, Hygrade demanded a $3 per hour pay cut in all Hygrade plants as a prerequisite for keeping its Storm Lake, Iowa, plant open. The UFCW refused and the plant closed, eliminating more than 500 union jobs. In April 1982, IBP bought the Storm Lake facility, reopening it with a substantially reduced wage structure. The new IBP plant operated with 10% monthly turnover (Perry and Kegley 1989). During the same period, IBP bought an Oscar Mayer plant in Perry, Iowa, and reopened it with a starting wage of $5.80 an hour— nearly $4 less than Oscar Mayer’s starting wage (Perry and Kegley 1989). According to Craypo (1994), union decline in beef packing began with the 1969 round of bargaining at IBP’s plant in Dakota City, Nebraska. IBP opened the unit in 1966 and began producing boxed beef the follow- MEAT AND POULTRY INDUSTRY 173 ing year. This new process eliminated the shipping of carcasses to whole- salers who used skilled butchers to partially disassemble the carcasses into primal cuts for retail sales, then shipped the primal cuts to supermarkets and butcher shops for further carving up for sale by unionized journeyman butchers. In the box beef process, beef carcasses are broken, boned, and cut, then vacuum-packed in plastic in the slaughter plant and shipped in boxes to retailers, largely eliminating the need for skilled butchers in wholesale and retail distribution. The union organized Dakota City in 1968, but IBP was adamant that it would not accept the industry wage pattern. Indeed, workers struck for several months to get a first contract and then had to settle for base wages below industry averages and accept a differential between slaughter and fabricating wages at the plant. Craypo (1994) concluded that this contract began to put meatpacking labor back in competition and was the first step toward destroying industry bargaining. Four more rounds of bargaining at Dakota City between 1969 and 1986 completed the process of destroying the industry wage pattern, according to Craypo (1994). Each round ended in a lengthy dispute, ranging from 4 to 14 months. Each dispute arose from IBP’s refusal to follow industry pattern settlements and its insistence on wage freezes or cuts. In three of the five contract rounds, IBP locked out union workers and in all five, it brought in replacement workers following the strike or lockout. IBP was one of the earliest large employers to use replacements consistently in labor disputes, beginning in 1969. In December 1986, the fifth round of bargaining, another strike began; however, this strike was settled seven months later as workers successfully resisted company demands for wage concessions. By then, however, only three of IBP’s 14 plants were unionized. In part, this settlement can be attributed to federal intervention. Democratic Representative Tom Lantos was conducting hearings into safety problems in the meatpacking industry. An Occupational Safety and Health Administration (OSHA) investigation demonstrated that IBP management had lied in their congressional testimony. OSHA imposed a $2.6 million fine on IBP that was reduced when the strike was settled and a joint health safety process was established with the UFCW under the supervision of OSHA (December 1996). The new agreement also provided for neutrality and card-check at a new IBP plant. Seventy percent of the meatpacking and 60% of the prepared meat products workers were in plants with collective bargaining agreements covering a majority of their production work force as of June 1984. Nevertheless, relentless restructuring drove unionization to hit bottom by 1987 at 75,760 members, a density of 19% (Hirsch and Macpherson 2003). 174 COLLECTIVE BARGAINING UNDER DURESS

EXPLANATIONS FOR THE DECLINE OF COLLECTIVE BARGAINING IN THE MEAT INDUSTRY Craypo (1994) concludes that the new oligopoly industry left the union behind. All packers had to imitate IBP’s anti-union model because IBP set the competitive standard and chose to operate union-free if possible and, at a minimum, to avoid multi-plant, uniform contract settlements. The new firms destroyed the balance of power inherent in postwar labor relations, but the strategy they used to do so made the parties even greater adversaries and essentially precluded labor–management cooperation. The analysis presented in this chapter is not inconsistent with this assessment; however, we argue that it is incomplete. Other less complete explanations focus on the changing geography of meatpacking with the shift to rural locations, the deskilling of the labor process, the loss of the workers’ shop floor organization, and a shift from the militant unionism of the United Packinghouse Workers Union (UPWU) to the alleged business unionism of the UFCW. These analyses focus on changes in which workers lost control over the pace and conditions of work, causing a loss in their bargaining power over working conditions (Gabriel 2006; Horowitz 2002:35). Bruggeman and Brown (2003) also suggest that the collapse of industrial unionism shifted labor away from militant strategies toward the business unionism that arose from the mergers between the UPWA and the Amalgamated Meat Cutters (AMC) in 1968 and between the AMC and the Retail Clerks International Union (RCIU) in 1979 to form the UFCW. They argue that these mergers significantly diluted the union’s militant core of meatpackers and greatly weakened the union’s ability to respond to the rise of IBP and its aggressive labor relations strategy. These assessments are inadequate or wrong and do not advance our understanding of the basic shift in bargaining power in this industry toward employer dominance. Unfortunately, neither the loss nor gain in shop floor control nor workplace skills translate into union bargaining power in a declining oligopoly industry in which jobs and wages are being cut amidst plant closures, allowing employers to whipsaw every local union. This literature also often confuses militancy with bargaining power. There was no shortage of militancy in the red meat industry during the 1980s; futile strikes were in abundance. However, that militancy could not translate itself into bargaining power nor could it reverse employers’ insistence on concessions. Instead, the defeated militant strikes demonstrated how much power and influence the union had lost in the changing economics and structure of meat and poultry processing. More union militancy was not the answer to competition from the non-union poultry industry. The Hormel and the UFCW Local P-9 conflict further underscores this point. Hormel was profitable throughout this period. It had one controlling MEAT AND POULTRY INDUSTRY 175 shareholder, the Hormel Foundation, which was established in the 1950s by the Hormel family for the improvement of the greater Austin, Minnesota, community. A broad corporate campaign undertaken by Local P-9 was a mismatch to this ownership structure, the strike was the wrong tactic to confront a demand for concessions, a single plant contract battle was a mismatch to deal with a multi-plant employer that was shifting to value- added products, and the local’s effort to rewrite an entire collective bargaining agreement in a highly concessionary environment created an opportunity for Hormel to revise the entire relationship; each of these elements combined to defeat P-9. For all these reasons, the local should not have struck. There is nothing romantic or heroic about losing a strike or getting a large numbers of workers fired. Furthermore, this comprehensive failure contributed to the meatpacker employers’ momentum and conviction that unions could be defeated rather than accommodated. However, Hormel, a pork processor, was not the industry segment under the most pressure. Instead, that segment was beef led by IBP. While recognizing that IBP was the agent of change in beef meatpacking, we offer evidence that it was the competition emanating from substitution of chicken for beef that was the driving force in the collapse of red meat industry-wide bargaining. It was the economics of the meat industry that underlay the transformation. One knows price competition was intense because labor costs accounted for only 5% of the red meat industry’s costs. The boundaries of competition, rivalry, substitution, and entry were redefined in this period. If it had not been IBP, it would have been some other low-cost packer that rose to dominance in the beef industry. Between 1976 and 1998, beef’s share of meat consumption declined from 48% to 32%. Real beef prices fell by approximately 35%, and beef cattle inventories declined 27%, from 45 million head to 33 million head. The beef industry underwent widespread structural changes in attempts to reverse this tidal wave of falling demand, including the consolidation of ranching, cattle feeding, and meatpacking; elimination of collective bargaining; and passage of the Beef Promotion and Research Act of 1985, which introduced the government-sponsored beef checkoff to fund an advertising program for beef (Ferrier and Lamb 2007). Plant sizes increased sharply during the industry’s consolidation in the 1980s; the shift in plant size distribution between 1977 and 1992 reduced processing costs by 28% (MacDonald and Ollinger 2005). Complementary developments in cattle feeding enabled the exploitation of new scale economies in meatpacking by ensuring the necessary livestock volumes. The largest feedlots in Kansas, Nebraska, Texas, and Colorado marketed one quarter of all fed cattle in 1974, nearly half (46%) by 1992, and well over half (57%) by 2002. As production shifted to larger plants, the industry’s aggregate processing 176 COLLECTIVE BARGAINING UNDER DURESS costs fell by 35% by 2002 (MacDonald and Ollinger 2005). These newly built large plants on the High Plains recruited new, largely immigrant workforces. The Rise of the Broiler Complex During World War II, the established poultry industry based on the Delmarva Peninsula (Delaware, Maryland, and Virginia) exclusively supplied the U.S. military. This created an opportunity for other operators to develop sales to the civilian domestic market. Broiler (chickens grown for their meat are called broilers) production and slaughter capacity expanded into the Black Belt South. With the mechanization and decline of the cotton industry, chicken processing plants could rely almost exclusively on black labor. This use of black labor at wage rates lower than in traditional plants kept down production costs in the new region and allowed the industry to develop a unique structure. In 1950, 95% of broiler farms operated independently, selling to the market. By 1955, independent producers accounted for only 10% of total broiler production. The market was replaced with the contracted growing of chickens owned by processors. Feed companies became directly involved in the broiler business by adding hatcheries, acquiring processors, and building their own processing facilities. In the 1970s, corporate processors replaced feed companies as the integrators of the broiler system. The integrators operate broiler complexes where they control the vertical stages of the broiler life cycle through direct ownership and production contracts with broiler grow-out farms. Integrators, such as Tyson, breed their own specialized parent stock, produce hatching eggs (often under contract), hatch the eggs, and contract with growers to raise the chicks to slaughter ready broilers (MacDonald 2008). The broiler complex is anchored by a slaughter plant surrounded by contract grow-out farms that must operate within 30 miles of the plant (Martinez 2000) because once grown to slaughter weight, chickens do not travel well. As processors reduce the radius of their broiler sources, many contract growers have no alternative processors. In this monopsonistic relationship, the asset specificity of broiler houses enables an integrator to pay the grow-out farmer lower compensation rates (Vukina and Leegomonchai 2006a). Broiler contracts are written by the integrator and offered to growers on a take-it-or-leave-it basis. Broiler grow-out farmers are responsible for constructing broiler houses according to the integrator’s specifications, often costing two to three hundred thousand dollars each. Growers are also responsible for labor, utility costs, clean-up costs, and disposal of any dead birds. The integrator provides chicks, feed, medication, veterinarians, and expert field services and decides on the volume of production, includ- MEAT AND POULTRY INDUSTRY 177 ing the rotation of flocks and the density of birds in a given house. Production contracts set specific requirements that ensure uniformity and quality standards for birds. The majority of contracts provide a base payment per pound and a bonus payment tied to the grower’s relative performance benchmarked against other local growers (Vukina and Leegomonchai 2006b). The typical payment by a processor to the grower is five cents per bird (USDA ERS 2006). The rapid improvements in breeding genetics, animal food, and veterinary services; the increasing scale of chicken houses; and the automation of the slaughter process greatly improved productivity by steadily reducing grow-out time to an average of eight weeks, increasing average slaughter weight to 5.5 pounds, and greatly improving bird survival rates (MacDonald 2008). Uniformity is set in feed, medication, and breeding, and grow-out conditions to help standardize and automate the slaughter process (Hennessy 2005). There are also large and extensive scale economies in poultry slaughter (Ollinger, MacDonald, and Madison 2005). Processors have focused increasingly on product differentiation, through further processing and brand labeling. By 1988, brand names accounted for half of all supermarket sales of broilers, and brand-name broilers com- manded a 14% premium over supermarket brands (Bugos 1992). In 2012, 47% of broilers were cut up and sold as parts, and 41% were sold as value- added processed products, such as chicken franks, patties, nuggets, and marinated products (National Chicken Council 2012). In 1978, only 8% of chicken was sold after further processing. Then the food processing revolution began (accompanied by the obesity epidemic). The chicken processing revolution was announced with the introduction of Chicken McNuggets in 1983 by McDonald’s. In 1980, McDonald’s sold no chicken; by 2012, McDonalds sold more chicken than beef. The Rise of Chicken and the Decline of Union Influence Poultry processing firms based in the Southeast rarely faced significant union organizing, and real wages in that industry have remained unchanged for decades (Ollinger, MacDonald, and Madison 2000). As the boundaries of product substitution shifted, the highly unionized workforce in red meat, with union wages and benefits, began to compete with low-wage, non-union labor in the broiler industry based in the rural Black Belt South, who earned half their wages but had higher productivity growth. Combined slaughter and processing production worker employment in the red meat segment bottomed out in 1987 at 193,600. In 1986, employment of poultry slaughter and processing workers surpassed employment in red meat slaughter and, in 1999, it matched production worker employment in red meat slaughter and processing for the first time. Poultry 178 COLLECTIVE BARGAINING UNDER DURESS slaughter and processing could no longer be considered an employment backwater. Its steady growth in output and productivity allowed it to set the terms of competition with beef. The real retail price of beef peaked in 1979 and then fell by 38% in 1986. Both pork and chicken real retail prices continue to decline, but real beef prices started to increase again in 1999. Beef still faces a competitive price disadvantage with chicken and to a lesser extent with pork. In 1986, chicken output overtook pork output and, in 1994, it surpassed beef output. In 2011, pork output almost equaled beef output. Beef output staged a modest growth spurt in 1999 that stalled by 2004. Beef also has a productivity disadvantage. Over the entire period (1958 to 2005 NBER-CES series), red meat slaughter total factor productivity grew at an annual rate of 0.05% and red meat processing increased at an annual rate of 0.65%, while poultry slaughter and processing increased at an annual rate of 2.22%. Beef unit labor costs have increased considerably, while poultry’s unit labor costs have not. Hog producers have progressively adopted the organization and techniques of the broiler complex to improve productivity. Between 1987 and 2006, poultry labor productivity grew at an annual rate of 3.8%, while red meat grew at 0.2%, Poultry has expanded its productivity and cost advantages over beef. What these productivity, value-added, and output comparisons suggest is that poultry growth has continued to improve its relative operating performance and has laid a firm foundation for continued expansion.

THE VALUE STREAM OF MEAT PROCESSING: WHERE ARE THE PROFITS? Value-stream analysis seeks to identify where profits and rents in a supply chain are captured. The value stream is identified with respect to a particular industry. Industry structure determines profit potential within an industry (Porter 2008). The relevant industry for our analysis includes red meat and poultry (NAIC 3116), an industry in which the products can serve as effective substitutes. The industry’s main market segments are dominated by oligopolies in beef, pork, chicken, and turkey, and three larger industry-wide oligopoly firms: Tyson (chicken #1, pork #2, and beef #1), JBS Swift [beef #3, pork #3, and chicken (Pilgrim’s Pride) #2], and Cargill (beef #2, pork #5, and turkey #3). Smithfield, the largest pork producer, in 2008 divested its beef and turkey holdings to focus on pork. The other notable company among the leaders is Hormel, fourth among pork packers and the second largest turkey processor. The industry has increased consolidation and concentration, which is driven in part by the strength of buyers in quick-service restaurants, casual dining chains, food-service firms, and the supercenters, particularly Walmart, warehouse clubs, and merged supermarket chains that compete on price, quality, MEAT AND POULTRY INDUSTRY 179 convenience, and taste. The other factor driving competition is the undif- ferentiated nature of many of the products the industry produces. The industry faces a number of challenges. The falloff in demand arising from the Great Recession affected most segments of the industry. In the past five years, rising feed costs partly attributable to increases in corn-based ethanol production and, more recently, drought, have adversely affected the industry, particularly poultry, in which the then-largest producer, Pilgrim’s Pride, entered bankruptcy in 2008, followed by several other processors, including Cagle’s and Allen Farms. Rivalry within the industry remains intense. Most of the large companies have made substantial investments to differentiate themselves by integrating forward into value-added food processing by further preparing their products to market “ready to serve” prepared meats for either the home or food-service establishments. Tyson, for example, recently established 41 test kitchens as one of its basic research and development initiatives. Some of the broiler companies, such as Sanderson Farms, Wayne Farms, and Mountaire Farms, have focused on larger and heavier broilers, weigh- ing about 7.5 pounds, raised for deboning. These firms have departed from the conventional standard that the maximum weight of a broiler is 5.5 pounds because, above that weight, the rate of nutrient to meat con- version becomes less efficient and bird mortality rises; therefore, it has not been historically profitable to grow heavy birds. These smaller companies have relied on heavier birds for deboning of white meat that has produced profitable performance through improved breeding, new medications, and veterinarian services. Sanderson Farms shifted to larger birds in 1997 to avoid head-to-head competition with the larger companies, and it has achieved superior profitability. The other firms following this strategy are privately held and their profitability is therefore unknown, but they have survived the Great Recession. Table 1 provides four measures of profitability for publicly traded companies by four-digit North American Industry Code for the decade 2002 to 2011. Following Porter (2008), we focus on the return on invested capital. We use earnings before interest and taxes divided by average invested capital less excess cash as the measure of return on investment (ROI). This measure controls for differences in capital structure and tax rates across companies and industries, making the return on invested capital the most appropriate measure of profitability for value-stream analysis. The average returns on invested capital vary greatly by industry (Porter 2008). Table 1 is sorted and ranked by the return on invested capital. Over the past decade, among publicly traded companies, frozen and refrigerated food processing led the value stream in profitability, followed closely by retail distribution, in particular Walmart, which is reported 180 COLLECTIVE BARGAINING UNDER DURESS 25.2 21.8 21.5 18.6 18.4 18.3 14.9 14.4 13.5 13.4 13.4 12.4 12.4 11.9 10.2 (%), operating 5 Continued, next page ROI

(%), net 7.9 9.4 4 73.5 21.5 14.2 25.7 22.4 14.6 18.2 16.2 12.4 14.5 15.9 10.8 12.2 ROE

(%), net 9.88 8.6 7.4 6.4 6.3 5.2 7.0 5.7 5.4 3.2 5.0 4.5 3.7 5.3 3 11.9 ROA

— 7.4 5.9 6.7 4.9 3.9 5.0 5.9 margin (%) 2 18.4 17.9 11.7 14.2 21.4 10.2 10.8 EBITA

TABLE 1 TABLE Dow Kraft Tyson Nestlé Kroger Costco Darden DuPont Aramark Walmart Largest firm Dean Foods Dean McDonald’s ADM-Cargill Value Stream for Meat and Poultry Processing and Poultry for Meat Stream Value MWI Veterinary MWI Pfizer–Fort Dodge Pfizer–Fort

Walmart processing warehouses Animal food Supermarkets Casual dining Pharmaceutical Supercenters and Supercenters Veterinary supply Veterinary Meat and poultry Meat Industrial chemicals Industrial Agriculture chemicals Agriculture Food processing, dairy processing, Food Food processing, other processing, Food Frozen food processing Frozen Food-service contractors Food-service Quick-service restaurants 10-year profitability averages profitability 10-year 1 — 3114 3253 3115 7222 4529 3252 3254 7221 3119 8123 4451 4462 3116 3111 NAICS MEAT AND POULTRY INDUSTRY 181 9.3 8.4 8.9 8.1 1.8 10.2 10.2 10.1 21.8 19.9 11.991 (%), operating 5 ROI (%), net 8.3 7.3 6.0 7.2 12.2 12.2 32.6 16.9 14.1 4 –21.3 6.971 ROE (%), net 5.3 5.3 4.8 1.2 2.0 9.4 9.5 2.5 2.6 –1.1 3 4.156 ROA 5.9 5.9 5.9 3.3 4.4 8.2 4.3 5.3 3.1 margin (%) 10.2 5.591 2 EBITA TABLE 1 TABLE (CONTINUED) Sysco Pantry, Inc. Pantry, Largest firm ADM-Cargill ADM-Cargill Value Stream for Meat and Poultry Processing and Poultry for Meat Stream Value Frozen Food Express Food Frozen Tyson Hormel Sanderson Smithfield Meat stores Meat Grain milling Grain Pilgrim’s Pride Pilgrim’s Meat processing Meat Grain wholesaling Grain Refrigerated trucks Refrigerated Wholesale distribution 10-year profitability averages profitability 10-year 1 3112 4245 4841 4471 4244 3116 3116 3116 3116 3116 NAICS North American Industry Classification Code North and amortization taxes, interest, Earnings before on assets Return on equity Return on investment Return Rev 3116 Rev Sources: Mergent Online, Compustat, IBIS World, and author’s calculations. and author’s World, Compustat, IBIS Online, Mergent Sources: 1 2 3 4 5 182 COLLECTIVE BARGAINING UNDER DURESS separately. Agricultural chemical manufacturers, which include DuPont and Monsanto and fertilizer manufacturer CF Industries, also earned above-average profits. Other above-average performers include fast food, particularly McDonald’s, casual-chain dining (Darden), and food-service companies such as Aramark and Sodexo. On the other end of the profit spectrum is the food distribution industry with companies such as Sysco (but many others that went bankrupt and were restructured) and the refrigerated trucking industry, such as Frozen Food Express. Given the relatively high profitability of value-added food processing, it is not surprising that firms in the below-average-profit meat and poultry processing industry are trying to integrate forward into food processing and develop close collaborative relations with retailers, whether they be supercenters, supermarkets, fast food and casual dining restaurant chains, or food-service contractors. The recent restructuring of the meat and poultry processing industry exemplifies this trend toward forward integration into value-added food processing in pursuit of higher sustainable profitability. Most of the benefits arising from the enormous advances in productivity and cost reduction in the meat and poultry industry are being captured farther down the corporate value stream and by lower food prices for the final consumer. To explain the challenges of the meat and poultry industry, we review the changes in the pattern of ownership and investment. We begin by examining the entry of JBS S.A. (a large Brazilian meat processor) into the United States through acquisitions, ConAgra’s exit from meat processing, and the restructuring of Hormel Foods. In July 2007, JBS purchased the U.S. beef processor Swift & Co. (now known as JBS Swift & Company), then the third-largest U.S. beef processor, from ConAgra, which exited meat processing to focus on its branded food processing business. Swift accounted for 12.6% of the 2006 commercial slaughter (about 4.8 million head) and had U.S. beef sales of $5.6 billion in 2006 (four U.S. plants). In early 2008, JBS signed agreements to acquire the fourth- and fifth- largest U.S. beef-packing companies, National Beef Packing Company and the Smithfield Beef Group. JBS’s share of the U.S. cattle slaughter market increased to 19% with the Smithfield Beef acquisition. JBS also acquired Five Rivers Ranch Cattle Feeding, which was part of the Smithfield deal, making JBS the largest cattle feeder in the United States. The acquisition of National Beef would have given JBS Swift 30% of the cattle slaughter market, and it was blocked by the Justice Department in February 2009 (Johnson 2009). What set this chain of acquisitions in motion was ConAgra’s decision to exit the lower-profit meat processing industry to focus on its assets in the branded refrigerated and frozen food industry. ConAgra was one of MEAT AND POULTRY INDUSTRY 183 the second-generation major meat processors with its acquisitions in the 1980s. Poorly performing Smithfield Foods, restructured to focus on pork processing and its prepared foods, shed all of its other meat processing business units to JBS. The largest chicken processor, Pilgrim’s Pride, went bankrupt after acquiring Gold Kist, a move that made it unable to adapt to rising corn prices given its heavy debt load. In 2009, JBS acquired a controlling interest (67%) in Pilgrim’s Pride and shut down excess and obsolete capacity, making JBS the second-largest poultry processor. Hormel Foods, the most stable and profitable meat processing corporation over the past 40 years, has emphasized the shift to manufacturing branded, value-added consumer items rather than the commodity fresh meat business. The company has three plants that slaughter hogs for processing. A facilities manager, Quality Pork Processors, Inc. (QPP), operates Hormel’s largest slaughter facility, in Austin, Minnesota. All of the fresh meat QPP processes goes to Hormel, providing more than 50% of Hormel’s fresh pork material needs. QPP currently employs more than 1,300 people to slaughter 19,000 hogs a day. QPP is a privately held company started in 1989 by a retired, lifelong Hormel manager. Hormel Foods also transformed its Rochelle, Illinois, plant from a hog slaughter operation to a value-added product processing facility in 2002 as part of its shift to processed food, and it has gone on to make a number of acquisitions to bolster its shift to value-added processed food products. In contrast to Hormel’s value-added strategy, the largest meat processor, Tyson, had a difficult decade after acquiring IBP, outbidding Smithfield. Although becoming the largest meat processor in the world, Tyson’s profitability (ROI) was substantially below the industry average.

DECENTRALIZED COLLECTIVE BARGAINING In contrast to the post–World War II period, collective bargaining in the meat and poultry industry is currently conducted mainly at the plant level. In the past two decades, bargaining has occurred without visible conflict or controversy. Nonetheless, intense clashes have occurred over the enforcement of immigration policy and organizing new bargaining units, particularly Smithfield’s Tar Heel plant discussed later in this chapter. Table 2 shows the new large bargaining units that were recently organized and achieved a first contract. The main method of gaining union recognition as the majority representative has been the election. In all but one case, Smithfield Tar Heel, the elections were conducted by the National Labor Relations Board (NLRB). Three large election victories for the UFCW occurred after JBS made its acquisitions in 2011 and 2012. In the poultry industry, plants are smaller because they are locally based within a broiler complex and for the most part are not covered by Bureau of National Affairs (BNA) reporting. 184 COLLECTIVE BARGAINING UNDER DURESS

Collective bargaining at the plant level yields a range of outcomes with very little standardization. Contracts do not have common expiration dates or common durations. Some contracts run for three, four, or five years in the industry, as can be observed from the sample of contracts reported in Table 3. Wages and wage increases also vary, but all increments are negotiated in cents per hour adjustments. Chicken contracts pay two to three dollars less per hour than either beef or pork. The only multi-plant agreement in the industry is at Hormel, which covers 4,000 workers at five plants. All the union plants offer employees health insurance, however, with substantial employee contributions relative to their wages. Most employers have also switched to defined contribution 401K with various formulas for employer contributions. Nonetheless, Hormel has retained its defined benefit pension plan that can also be found in several other contracts in the industry. Plant-level bargaining also yields a range of wage outcomes, even for the same company. Figure 2 reports a sample of 2012 wages and scheduled contractual increases for pork plants. These variations are somewhat reminiscent of the community wage polices that large employers applied prior to national collective bargaining agreements, in which they would set wages according to local labor market conditions. However, many of

TABLE 2 Newly Organized Large Bargaining Units in the Meat and Poultry Industry No. of Year Employer workers Meat Union State bargained Majority Pilgrim’s Pride– RWDSU– 1,200 Poultry AL 2012 NLRB election JBS UFCW

JBS Packerland 1,100 Beef UFCW MI 2011 NLRB election

National Beef 2,600 Beef UFCW KS 2012 NLRB election Packing

JBS Souderton 1,200 Beef UFCW PA 2011 NLRB election

Tyson Fresh Meats 1,177 Beef UFCW WA 2010 Card-check

Non-NLRB Smithfield 5,000 Hog UFCW NC 2009 election

JBS Swift 1,100 Beef UFCW UT 2008 NLRB election

PM Beef Meatpacking 500 Beef UFCW MN 2007 NLRB election Plant Choctaw Maid RWDSU– 850 Poultry MI 2002 NLRB election Farms UFCW Source: Various BNA Daily Labor Reports. MEAT AND POULTRY INDUSTRY 185 530 term 25% 2009 Plant 401(k) 4 years Chicken Employee Employee processing $1.00 over $1.00 over Base $9.86 Base contribution: Cents per hour Cents Pilgrim’s Pride Pilgrim’s

2009 Plant 1,000 Tyson family 401(k) 4 years Chicken Employee Employee processing Base $10.00 Base contribution: $11 single, $31 Frozen over term over Frozen -

Pork Pork term 2011 Plant 1,600 bonus Mayer 4 years insurance processing $1.20 over $1.20 over Kraft/Oscar Kraft/Oscar retiree health retiree Cents per hour Cents $1,000 signing Employee con Employee Defined benefit Defined tribution: 20%;

Pork Pork term 2011 2,050 401(k) 4 years 2 plants slaughter Employee Employee Smithfield $1.40 over $1.40 over $34 family $14 single, Base $13.60 Base contribution: Cents per hour Cents 2011 4,000 family 4 years $17.00 $14.00 Hormel + 401(k) TABLE 3 TABLE QPP base Employee Employee Base $14.50 Base Average wage Average contribution: Cents per hour Cents Multi-plant (5) Multi-plant $17 single, $35 Defined benefit Defined Pork processing Pork $1.50 over term $1.50 over 300 term plant 2012 Plant benefit $27.50 Defined Defined Solutions Employee Employee Processing Processing $1.40 over $1.40 over 56 months Base $13.20 Base Cargill Meat Cargill Meat contribution: Cents per hour Cents term 2012 Plant 2,400 Sample Contract Terms for Beef, Pork, and Chicken Contracts in 2012 Pork, for Beef, Terms Contract Sample 401(k) 3 years JBS Swift Employee Employee $1.30 over $1.30 over $24 family $11 single, Base $12.25 Base contribution: Cents per hour Cents Beef slaughter Beef term 25% 2012 Plant wages 3,400 Meats 401(k) $16.55 $18.95 Employee Employee Maximum Maximum $1.55 over $1.55 over 54 months Production Production Tyson Fresh Fresh Tyson Maintenance Maintenance contribution: Cents per hour Cents Beef slaughter Beef

Bargaining unit Bargaining Meat of workers No. covered Duration bargained Year Wages Health insurance Pension Source: UFCW Research Department. UFCW Research Source: 186 COLLECTIVE BARGAINING UNDER DURESS

FIGURE 2 Sample of 2012 Pork Union Weighted Average Wages and Scheduled Contract Increases

Source: UFCW Research Department. the plants in rural areas not only must set wages in accordance with the local labor market but also must able to attract workers from other areas to ensure an adequate labor supply to replace employees who leave. Among the average weighted wages reported in Figure 2, there is considerable variation. This variation can be attributed to the local labor market, the supply of labor more generally, the seniority of the workforce, and union bargaining power in setting wages and terms and conditions of employment. Wages range from $12.50 to $14.70 per hour, with considerable variation in between, even within the same company. Local plant-level bargaining has led to a sharp decrease in both wage levels and the size of incremental wage adjustments. Smithfield pays the highest wages at its Farmland facilities but pays the lowest wages at its newly unionized Tar Heel plant.

COMPREHENSIVE CAMPAIGN: SMITHFIELD, IMMIGRANTS, AND RICO In 1994, Smithfield opened the largest hog slaughter plant in the world in Tar Heel, North Carolina, population 67. The plant eventually employed 5,000 workers and slaughters up to 32,000 hogs a day. Although North Carolina is not in the Corn Belt, the center of the hog industry, it was MEAT AND POULTRY INDUSTRY 187 particularly attractive place for Smithfield because the company wanted to operate union-free. First, North Carolina has the lowest unionization rate in the country and its business culture is well-known for encouraging union-free business development. Second, North Carolina permitted a large number of concentrated animal feed organizations (CAFOs), which enable big farms to raise large numbers of hogs. These farms guarantee a geographically proximate, year-round supply of hogs for the Tar Heel plant. The main problem created by hog CAFOs is the massive amounts of hog manure produced in its normal operation that requires treatment and disposal to preserve clean water, which often brings these farms into conflict with the U.S. EPA (Lowe and Gereffi 2008). Starting in 2000, North Carolina ceased permitting new hog CAFOs because of the pol- lution they cause. In December 2008, workers at the Smithfield Tar Heel plant voted to be represented by the UFCW by a vote of 2,041 to 1,879. A new contract was negotiated and ratified. This was the third vote at Tar Heel. The UFCW’s early organizing attempts resulted in NLRB-supervised elections in 1994 and 1997. The UFCW lost both NLRB elections. Smithfield engaged in what have become typical employer unfair labor practices during the election campaign period, including threatening employees with plant closure, threatening pro-union employees with discipline, interrogating employees about their attitudes toward the union, maintaining surveillance of employees distributing pro-union handbills, suspending and firing pro-union employees, and even assaulting and arresting at least one pro-union employee (Garden 2011). The NLRB ordered Smithfield to reinstate with back pay those employees who had been wrongfully fired, issued a cease-and-desist order, required Smithfield to provide the UFCW with a list of names and addresses of current employees, and ordered Smithfield to post notices. Smithfield appealed the NLRB’s decision. The appeal process was not completed until 2006, which meant that the board-ordered remedies were not implemented until nearly a dozen years after the first election (Garden 2011). During that time, Smithfield grew through acquisitions In 1997, it was ranked the seventh-largest pork producer. By 2000, Smithfield was largest pork producer; it was also the biggest hog raiser (Barboza 2000). Its increased size, however, did not translate into improved profitability. In 2005, Joe Hansen, president of the UFCW, announced initiation of a comprehensive campaign against the financially vulnerable Smithfield Foods. The union sought Smithfield’s neutrality during a union organizing drive and card-check, instead of another NLRB-sponsored election, to demonstrate its majority representation status. In January 2007, Immigration and Customs Enforcement (ICE) agents raided the Smithfield 188 COLLECTIVE BARGAINING UNDER DURESS pork plant in Tar Heel. On November 26, 2007, more than 500 Smithfield employees walked out to protest the company’s decision to fire several dozen immigrants who the company said had presented false Social Security numbers when applying for a job. The walkout coincided with the UFCW’s comprehensive campaign to unionize Smithfield workers, about two thirds of whom were Hispanic immigrants. Worker discontent stemmed not just from the recent firings but also from the speed of the production line and widespread injuries (Greenhouse 2008). As a result of the ICE raids and their fallout, Smithfield hired native American workers, mostly African Americans, to work in the plant to replace Hispanic immigrants who left employment at Smithfield. At the same time, the UFCW’s comprehensive campaign broadened its focus to link to religious, civil rights, consumer advocacy, and human rights organizations. The union produced campaign literature that criticized the Tar Heel plant’s safety record. The union, together with religious, civil rights, immigrant rights, and consumer advocacy groups, organized protests at grocery stores selling Smithfield products, some of which stopped carrying those products. One protest group marched to the home of the president of a store that sold Smithfield products to deliver a large father’s day card, which was signed by the children of Smithfield workers and stated that Smithfield workers were abused and mistreated. The campaign attempted to convince Smithfield’s celebrity spokesperson, Paula Deen, to end her relationship with Smithfield. They encouraged religious bodies and city councils to boycott Smithfield or to pass resolutions con- demning the company. The campaign sent letters criticizing the company to financial analysts and organized a protest at Smithfield’s annual shareholders’ meetings. They also filed regulatory complaints and opposed Smithfield’s regulatory applications, such as the company’s application for a water permit, which would have allowed Smithfield to expand operations at the Tar Heel plant (Garden 2011). Smithfield responded to the UFCW’s campaign by filing a civil RICO complaint alleging the union was engaged in extortion. According to Smithfield, UFCW’s goal was to force Smithfield to voluntarily recognize the union as the bargaining unit’s representative, whether or not a majority of Smithfield employees wanted the union’s representation (Garden 2011). The extortion was the UFCW’s comprehensive campaign, which would continue until the company voluntarily recognized the union. Smithfield’s complaint was scheduled for trial. On the eve of the trial, the parties negotiated a settlement that permitted a fair election process for the Tar Heel workers to decide whether they wanted UFCW representation. MEAT AND POULTRY INDUSTRY 189

In December 2008, the UFCW won the election. Ironically, the 2007 immigration raids may have tipped the balance toward the union (Kammer 2009). Smithfield had to hire legal workers, and most of the new workers were African Americans, who are among the strongest supporters of unions. In contrast, many Hispanic workers were afraid of being seen as union supporters because they feared deportation (Greenhouse 2008). On July 1, 2009, the UFCW and Smithfield announced their first contract covering the Tar Heel facility. A year later, an Associated Press article reported that the parties were working together cooperatively and had greatly reduced workplace injuries, voluntary turnover, terminations, and absenteeism at the plant (Dalesio 2010). Approximately, two thirds of the 32,000 employees in corporate parent Smithfield Foods’ pork division are now covered by union contracts (Dalesio 2010). Although the UFCW eventually prevailed in its organizing drive, there remains enormous uncertainty about the boundaries of union speech in a comprehensive campaign and the applicability of civil RICO suits alleging extortion, which may deter union use of comprehensive campaigns.

DO UNIONS STILL MATTER IN MEAT AND POULTRY PROCESSING? In meatpacking, heightened competition, new entrants, declining unionization, bargaining decentralization, and hard bargaining on the part of employers all contributed to the “meltdown” in bargaining power and a fall in the union compensation effect. Belman and Voos (2004) estimated that the union wage differential fell by 25 percentage points, from 29% to 4%, in meatpacking between the late 1970s and the early 1990s, according to evidence based on Current Population Survey (CPS) data. In our research, we examined the union impact on wages between 1990 and 2008 using the CPS Integrated Public Use Microdata Series (IPUMS) March supplement. The industry includes both meat and poultry processing workers. The means are reported in Table 4. During this period, 19% of the meat and poultry processing workers were union members. Some 88% of workers had a high school diploma or less. Women accounted for 39% of the workforce. The labor force was racially and ethnically diverse. The workforce consisted of Hispanic employees (37%); white, non-Hispanic (37%); African American (24%); and Asian (2%). The average work week is 39 hours, weekly average earnings are $326 (using 2008 dollars), and annual income is $17,118, with 15% of workforce earning wages that place them below the federal poverty line. Most of the workers are employed by large firms; over half are employed by firms with more than 1,000 employees. Employers provide 57% of the workforce with health insurance, and 33% of employees participate in pension savings. 190 COLLECTIVE BARGAINING UNDER DURESS

TABLE 4 Means from the 1990 to 2008 the Current Population Survey Integrated Public Use Microdata March Supplement for Meat and Poultry Processing Variable Mean

Union 19% Female 39% African American 24% Asian 2% Hispanic 37% Married 53% Veteran 6% Less than high school 43% High school 45% Some college 10% College 2% Weekly hours 39 Annual earnings $17,118.78 Weekly earnings $326.48 Below poverty line 15% Firm with 100–499 employees 16% Firm with 500–999 employees 9% Firm with more than 1,000 employees 53% Health insurance 57% Health insurance paid completely by employer 8% Health insurance paid partly by employer 44% Pension participation 32% Meat cutter 34% Production worker 28% Truck driver 6% Laborer/materials worker 24% Maintenance worker 9% Poultry 49% Years of experience 18 Note: CPS sample observations: 5,087. MEAT AND POULTRY INDUSTRY 191

One third of the workforce are employed as meat cutters. Other workers are employed in production worker occupations and materials moving. Two of the better-paid occupations are truck driver and maintenance worker. Educated adjusted work experience is 18 years. Poultry plants account for 49% of employment, and red meat accounts for 51%. Poultry industry employment is not a CPS variable; instead, it is derived by calcu- lating the percentage of output in each state versus red meat output and merged into the CPS sample as a critical control variable. We estimated a standard wage equation using ordinary least squares (OLS). The dependent variable is the natural log of the annual wages. After we control for relative poultry output, demographics, work experience, educational level, hours, and occupation group, we find the union wage effect was 13% during this period. Neither experience nor educational attainment had much effect on earnings; however, the lack of a high school degree carries a 14% penalty. The college premium is 6%. Poultry (primarily located in the rural southeastern United States) pays 22% less than red meat, all else equal. Women earn 15% less than men, African American workers earn 10% less than white non-Hispanics, and Hispanic employees earn 6% less than white non-Hispanics, all else equal. Truck drivers earn on average 18% more than production workers, and the best paid employees, maintenance workers, earn 35% more than production workers, all else equal. In this period, overall real wage levels were stagnant. We then estimated probit equations to determine the likelihood that an employee had employer-provided health insurance. We next estimated OLS equations and cross checked those estimates with the probit results. As expected, employees in the better-paid occupations were more able to participate in health insurance. Surprisingly, being employed in poultry increased the likelihood of participating in employer health insurance, all else equal. Union membership, increased the likelihood of participating in health insurance by 10%, all else equal. There has been a 2% annual rate of decline of employee participation in employer-provided health insurance in this industry for the past 20 years. As with health insurance, we estimated probit equations to assess the likelihood that an employee has an employer-provided pension. We then estimated OLS equations and cross checked the estimates with the probit results. As expected, employees in the better-paid occupations were more able to participate in pensions. Asian employees were significantly more likely to participate in a pension plan than any other racial or ethnic group. Employees in large firms were more likely to participate in pension plans. Union membership increased pension participation by 11%, all else equal. 192 COLLECTIVE BARGAINING UNDER DURESS

CONCLUSION: UNIONS STILL MATTER According to our calculations, the median worker in the extended meat and poultry food value stream earns an hourly median wage of $9.61 (less than $20,000 per year for full-time work). Many of these workers receive neither employer-provided health insurance nor pensions (U.S. BLS 2007, 2011 ). Ironically, there is tendency for profits to rise and the hourly wage to fall the closer the value chain gets to the final consumer. Unionization does change the terms and conditions of employment; however, its impact could be magnified by greater unionization, which could establish the structures that could shift bargaining power. The UFCW represents almost a half million workers in the supermarket–grocery industry and another 200,000 workers in the food processing industry (of which about half are in meat and poultry processing), providing the union with a substantial base in the food value stream. Nonetheless, many growing segments of this value stream remain almost union-free, including such industries as agricultural chemicals, retail supercenters, warehouse clubs, high-end supermarkets (Whole Foods, Wegmans, and Publix), chains for casual dining, and quick-service restaurants. The union has supported a comprehensive campaign to pressure Walmart, while it continues to rebuild its strength in the food processing industry. With the entry of JBS into the meat and poultry industry, several large plant recognition victories have produced contracts. In addition, the UFCW has greatly expanded its efforts and recognition in the poultry industry (Table 5). Although the UFCW has addressed one source of instability in the meat industry arising from competition from the poultry industry, bargaining still takes place at the plant level as employers seek to take advantage of labor market differences, demographic shifts, and other local vulnerabilities, including local monopsony advantages. There is still considerable compensation variations among the union-represented workforces. With strikes rendered almost completely ineffective as the result of employer use of replacements, right-to-work legislation, high unemployment, and private security forces, unions need to use softer power coupled with long-term determination to exercise influence over compensation and working conditions. Cooperative relationships based on mutual respect and recognition are not on the near-term agenda for the meat production industry, however. Most employers in the industry, even those with good relationships with their unions, resist unionization of their non-union facilities, making multiple campaigns necessary to gain union recognition in this high- turnover industry. While highly visible comprehensive campaigns, such as the UFCW’s Smithfield Tar Heel campaign, gain attention and recognition, most union rebuilding goes on at the local level, out of sight, without the drama or MEAT AND POULTRY INDUSTRY 193

TABLE 5 Chicken Processing Plant Union Representation Chicken plant (250+ workers) Market share (%) UFCW representation (%) Tyson 22 33 Pilgrim's Pride 17 31 Perdue 7 0 Sanderson Farms 5 23 Koch Foods 5 63 Wayne Farms 4 68 Mountaire Farms 4 33 House of Raeford 3 75 Foster Farms 4 53 Peco Foods 3 20 Source: Watt Poultry Guide and UFCW Large Plants Database, December 2010. the militancy often highlighted in the narratives of union building. In part, the success or failure of union rebuilding is tied to whether employers reassess the costs and benefits of their low-skill and high-turnover employment model and decide that constructing a more stable relationship with their workforces and their representatives yields net benefits to the employer’s long-term survival and performance. By contrast, with production worker unemployment averaging 9.5% over the past decade, ranging from a low of 6.2% in 2007 to a high of 15.4% in 2009, it is difficult to antici- pate any reason employers would change their low-wage and high-turnover employment system. There are more than 10 million low-wage workers employed in the food value stream from farm to checkout. Workers who directly grow, process, sell, or serve food are mostly low paid, even though many of them work for highly profitable firms. In this chapter, we applied a relatively high-level value-stream analysis to the meat and poultry industry to determine the appropriate analytical boundaries of this industry. Our goal was to demonstrate that there has evolved one meat and poultry value stream because each of these protein sources can serve as substitutes, which means they need to be analyzed together and organized conceptually and practically together. A more appropriate level of analysis, for most labor and employment researchers, would be the business unit—the basic operating division of a firm that governs the operating relationships within an industry and is the basic unit of profit generation. The business unit operates within an industry, and research focus should be on an industry’s profitability and what forces contribute to profitability, what forces are changing, and whether the business unit can capture the value it creates. Firms may not be the 194 COLLECTIVE BARGAINING UNDER DURESS appropriate unit of analysis because many span multiple value streams, confounding a profitability analysis. Unions may want to use the value-stream analytical approach before investing scarce resources in organizing, strikes, or comprehensive campaigns. A union could refocus its efforts on organizing a value stream that is growing and profitable, where gaining bargaining power can result in improved employee compensation and worker control, while building a sustainable growing union. In this chapter, we applied this approach to analyze the meat and poultry value stream, a series of industries in which the UFCW has organized a multitude of bargaining units and has considerable membership in a variety of stages of production and distribution.

REFERENCES Anderson, Eugene W., and Steven M. Shugan. 1991. “Repositioning for Changing Preferences: The Case of Beef Versus Poultry.”Journal of Consumer Research, Vol. 18, no. 2, pp. 219–32. Anderson, Kay E., Philip M. Doyle, and Albert E. Schwenk. 1990. “Measuring Union– Nonunion Earnings Differences.”Monthly Labor Review, Vol. 133, no. 6, pp. 26–38. Azzam, Azzeddine M., and Dale G. Anderson. 1996. Assessing Competition in Meatpacking: Economic History, Theory, and Evidence. Grain Inspection, Packers and Stockyards Administration, U.S. Department of Agriculture, GIPSA-RR 96-6, May. Barboza, David. 2000 (Apr. 7). “Goliath of the Hog World: Fast Rise of Smithfield Foods Makes Regulators Wary.” New York Times. Belman, Dale, and Paula B. Voos. 2004. “Changes in Union Wage Effects by Industry: A Fresh Look at the Evidence.” Industrial Relations, Vol. 43, no. 3, pp. 491–519. Brody, David. 1964. Amalgamated Meat Cutters and Butcher Workmen. Cambridge, MA: Harvard University Press. Bruggeman, John, and Cliff Brown. 2003. “The Decline of Industrial Unionism in the Meatpacking Industry: Event-Structure Analyses of Labor Unrest, 1946–1987.” Work and Occupations: An International Sociological Journal, Vol. 30, no. 3, pp. 327–60. Bugos, Glen. 1992. “Intellectual Property Protection in the American Chicken-Breeding Industry.” Business History Review, Vol. 66, 127–68. Cappelli, Peter. 1985. “Plant-Level Concession Bargaining.” Industrial and Labor Relations Review, Vol. 39, no. 1, pp. 90–104. Cattle Buyers Weekly. 1996 (Sep. 23). p. 2. Chalfant, James A., and Julian M. Alston. 1988. “Accounting for Changes in Tastes.” Journal of Political Economy, Vol. 96, no. 2, pp. 391–410. Commons, John R. 1904. “Labor Conditions in Meat Packing and the Recent Strike.” Quarterly Journal of Economics, Vol. 19, no. 1, pp. 1–32. Craypo, Charles. 1994. “Meatpacking: Industry Restructuring and Union Decline.” In Paula B. Voos, ed., Contemporary Collective Bargaining in the Private Sector. Madison, WI: Industrial Relations Research Association, pp. 62–96. Dalesio, Emery P. 2010. “NC Slaughterhouse and Union Get Along After Fighting.” Associated Press. MEAT AND POULTRY INDUSTRY 195

Davis, Christopher G., and Biing-Hwan Lin. 2005. “Factors Affecting U.S. Beef Consumption.” USDA/ERS. Eales, James S., and Laurian J. Unnevehr. 1988. “Demand for Beef and Chicken Products: Separability and Structural Change.” American Journal of Agricultural Economics, Vol. 70, no. 3, pp. 521–32. Ferrier, Peyton, and Russell Lamb. 2007. “Government Regulation and Quality in the US Beef Market.” Food Policy, Vol. 32, pp. 84–97. Gabriel, Jackie. 2006. “Organizing the Jungle: Industrial Restructuring and Immigrant Unionization in the American Meatpacking Industry.” Working USA: The Journal of Labor and Society, Vol. 9, pp. 337–59. Garden, Charlotte. 2011. “Labor Values Are First Amendment Values: Why Union Comprehensive Campaigns Are Protected Speech.” Fordham Law Review, Vol. 79, no. 6, pp. 2617–68. Gereffi, Gary. 2005. “The Global Economy: Organization, Governance, and Development.” In N.J. Smelser and R. Swedberg, eds., The Handbook of Economic Sociology. Princeton, NJ: Princeton University Press, pp. 160–82. Gereffi, Gary, Joonkoo Lee, and Michelle Christian. 2008 (Jun. 17). “The Governance Structures of U.S.-Based Food and Agriculture Value Chains and Their Relevance to Healthy Diets.” Paper presented at the Robert Wood Johnson Conference. Duke University, Durham, NC. Greenhouse, Steven. 2008 (Dec. 13). “After 15 Years North Carolina Plant Unionizes.” New York Times. Hennessy, David A. 2005. “Slaughterhouse Rules: Animal Uniformity and Regulating for Food Safety in Meat Packing.” American Journal of Agricultural Economics, Vol. 87, no. 3, pp. 600–09. Hirsch, Barry T., and David A. Macpherson. 2003. “Union Membership and Coverage Database from the Current Population Survey: Note.” Industrial and Labor Relations Review, Vol. 56, no. 2, pp. 349–54. Horowitz, Roger. 2002. “Decline of Unionism in Meatpacking.” Social Policy, Spring, pp. 32–36. Johnson, Renée. 2009 (Mar. 10). “Recent Acquisitions of U.S. Meat Companies.” Congressional Research Service 7-5700. Kammer, Jerry. 2009 (Jul.) “Immigration Raids at Smithfield. How an ICE Enforcement Action Boosted Union Organizing and the Employment of American Workers.” Center for Immigration Studies, Washington, DC. Kochan, Thomas A., Harry C. Katz, and Robert McKersie. 1986. The Transformation of American Industrial Relations. New York: Basic Books. Lowe, Marcy, and Gary Gereffi. 2008 (Oct. 3). “A Value Chain Analysis of the U.S. Pork Industry.” Report prepared for the Environmental Defense Fund. Durham, NC: Duke University. Lowe, Marcy, and Gary Gereffi. 2009 (Feb. 16). “A Value Chain Analysis of the U.S. Beef and Dairy Industries.” Report prepared for the Environmental Defense Fund. Durham, NC: Duke University. MacDonald, James. 2008 (Jun.). The Economic Organization of U.S. Broiler Production. Economic Information Bulletin No. (EIB-38). 196 COLLECTIVE BARGAINING UNDER DURESS

MacDonald, James, and Michael E. Ollinger. 2005. “Technology, Labor Wars, and Producer Dynamics: Explaining Consolidation in Beefpacking.” American Journal of Agricultural Economics, Vol. 87, no. 4, pp. 1020–33. Martinez, Steve W. 2000 (Feb.). “Price and Quality of Pork and Broiler Products: What’s the Role of Vertical Coordination?” Current Issues in the Economics of Food Markets. Agriculture Information Bulletin No. 747-02. Moen, Daniel S., and Oral Capps, Jr. 1988. “Nonparametric Analysis of Consumer Preferences for Fresh Meat Products.” Journal of Food Distribution Research, Vol. 19, no. 2, pp. 15–19. National Chicken Council. 2012. National Pork Board. 2009. Ollinger, Michael, James MacDonald, and Milton Madison. 2000. “Structural Change in U.S. Chicken and Turkey Slaughter.” Agricultural Economic Report 787. Washington, DC: Economic Research Service, U.S. Department of Agriculture. Ollinger, Michael, James MacDonald, and Milton Madison. 2005. “Technological Change and Economies of Scale in U.S. Poultry Processing.” American. Journal of Agricultural Economics, Vol. 87, no. 1, pp. 116–29. Perry, Charles R., and Delwyn H. Kegley. 1989 (Jun. 1). “Disintegration and Change: Labor Relations in the Meat Packing Industry.” Industrial Research Unit, Wharton School, Vance Hall, University of Pennsylvania, 239 pp. Porter, Michael E. 1985. Competitive Advantage. Cambridge, MA: Harvard Business School Press. Porter, Michael E. 2008. “How the Five Forces Shape Competitive Strategy.” Harvard Business Review, January, pp. 79–93. United States Bureau of Labor Statistics (U.S. BLS). 2007 (May). “National Compensation Survey: Employee Benefits in Private Industry in the United States, 2005.” Bulletin 2589. United States Bureau of Labor Statistics (U.S. BLS). 2011. “Occupational Employment Statistics, May 2011.” United States Department of Agriculture, Economic Research Service (USDA ERS). 2006. “Broiler Farms: Organization, Management, and Performance.” AIB-748 5. United States Department of Agriculture, Grain Inspection Packers and Stockyards Administration (USDA GIPSA). 1996 (Feb.). “Concentration in the Red Meat Packing Industry.” Packers and Stockyards Programs. Vukina, Tomislav, and Porametr Leegomonchai. 2006a. “Oligopsony Power, Asset Specificity and Hold-Up: Evidence from the Broiler Industry.” American Journal of Agricultural Economics, Vol. 88, no. 3, pp. 589–605. Vukina, Tomislav, and Porametr Leegomonchai. 2006b. “Political Economy of Regulation of Broiler Contracts.” 2006b. American Journal of Agricultural Economics, Vol. 88, no. 5, pp. 1258–65. Chapter 6 Hard Times and Hard Bargaining in the Newspaper Industry

Howard R. Stanger Canisius College

Never before has the fundamental necessity and effectiveness of newspapers been so greatly challenged—by the economy, an evolving readership base, and technology. Though optimists would qualify this as a time for opportunity and suggest that “united we stand, divided we fall,” recent decades have proven rather contentious, with no shortage of infighting between publishers and the professionals they employ. —Gretchen Peck (2011)

Since the late 1980s, daily and Sunday newspaper circulation has been on a steady downward slide. This lost print readership has been amplified by two recessions and the meteoric rise of the Internet after 2000 that drew advertising dollars away from newspapers. Together, these secular and cyclical forces have upended the traditional and profitable advertising- based business model that sustained high monopoly profits for more than a century. Faced with these threats, newspaper companies have engaged in a variety of cost-cutting strategies to maintain profits and stock prices, including pressing their unionized workforces for deep contract concessions at the bargaining table. In response, unions have rallied their members and often their local communities to protect the integrity of their contracts and in some cases to preserve collective bargaining itself. Since 2000, newspaper unions have lost thousands of members and made significant concessions, but they also persisted in achieving successor contracts that preserved key contractual features, endured ownership changes and bankruptcies, and experimented with alternative ownership structures. Although work stoppages have been limited, Editor & Publisher correctly recognized that labor relations have since become more contentious. The Detroit strike in particular, produced “an intense confrontation between the newspaper corporations (Gannett and Knight Ridder) and the unions of their employees.” The resulting conflict “embodied the clash of opposing models of workplace governance: the norms and rules of the postwar labor accord (which featured collective bargaining), on the one hand, and the rising post-1980 anti-union regime, on the other” (DLR 1/10/10; Rhomberg 2012:263, 267).

197 198 COLLECTIVE BARGAINING UNDER DURESS

Although the Detroit strike set the tone for newspaper labor relations in the United States in the new century, not all bargaining relationships were as conflictual. However, an examination of labor relations since 2000 reveals a clear pattern of “hard bargaining in hard times.” To better understand this, one must first understand the newspaper industry, the rapidity with which the advertising-based business model collapsed after 2005, and the industry’s responses to it.

INTRODUCTION TO NEWSPAPERS The newspaper industry is more than three centuries old and, after book publishing, is the second-oldest mass media industry in the United States (Picard 2004). At the turn of the 21st century, newspapers were valued at $59 billion, when advertising and circulation revenues are combined. By 2012, however, that number fell to about $34 billion, owing mainly to the precipitous decline in advertising revenue, which has fallen for more than six consecutive years (Picard 2004:109; PEJ 2012b, 2012c). Newspapers—as part of a free press—play a critical government “watch- dog” role and are essential to the preservation of American democracy. The newspaper industry is the only one protected by the U.S. Constitution and is often referred to as the Fourth Estate. Governments at all levels currently provide more than $1 billion in subsidies to the news media through tax policies, postal subsidies, and legal requirements. Federal tax, antitrust, communications, and other policies continue to influence the newspaper industry in direct and indirect ways (Kirchhoff 2010).

THE STRUCTURE OF THE NEWSPAPER INDUSTRY Daily Newspapers The daily newspaper industry is very fragmented and localized. Few national newspapers (e.g., USA Today, the Wall Street Journal ) exist among the more than 1,300 dailies. In recent decades, the number of dailies has fallen from 1,611 in 1990 to 1,480 in 2000, to approximately 1,382 in 2011, the most recent year for which data exist. The number of dailies in the United States peaked at 2,042 in 1920. Most newspapers are small- to-mid-sized with small average circulations—37,684 daily and 64,799 on Sunday. About 85% of the nation’s newspapers have daily circulations below 50,000; only 3% exceed 250,000 (Picard 2004:109–110; Noam 2009:137; PEJ 2012c, PEJ 2013). Until the early 2000s, the nation’s dailies were about evenly split between morning and afternoon editions. Since then, morning papers have come to dominate circulation, mainly as a result of conversions and consolidations. The growth of the suburbs, changing work patterns, and other factors have contributed to the decline of evening editions. Evening papers, which are found mostly in small towns, comprised about a third NEWSPAPER INDUSTRY 199 of daily circulation in 1990 but only slightly more than 10% in 2009 (Picard 2004:110; PEJ 2012c). The top 25 U.S. dailies by circulation are shown in Table 1. Paid weekday circulation peaked in 1987 at 62.8 million, while Sunday circulation reached its apogee of 62.6 million in 1990. Since then, overall circulation has declined, falling to 43.4 million by 2010. Sunday circulation has fallen by about the same percentage but has ticked upward in the past two years (Morton 2010; PEJ 2012c). Fewer people read daily newspapers today than they did in 1950, despite a doubling of the population, mainly because older, avid readers are dying off and not being replaced (Morton 2012; McChesney and Nichols 2010). The percentage of adults in all demographic groups who report that they read a newspaper the day before has fallen steadily since 1999, standing at just 23%, down 47% since 2000 (PEJ 2012c; PRC 2012). Accounting for digital readership offers a more accurate picture of circulation, especially for younger people. The six-month report ending March 31, 2012, shows that people are consuming more news digitally across multiple platforms. For the first time, theNew York Times had more digital subscribers (807,026) than print ones (779,731). The Wall Street Journal had the second-highest digital subscription base with 552,288 but led when both print and digital are included (Vega 2012; Sohn 2012). However, ten of the nation’s largest 25 newspapers suffered declines even when print and digital readership are accounted for (Mutter 5/2/12). By late 2012, overall circulation had stabilized, but data show that although paid digital accounts grew to 15.3% of circulation, up 5.5 percentage points from a year earlier, print circulation continues to decline (PEJ 2013). Newspaper Markets Newspapers have traditionally sold two products: news to readers and access to that audience to advertisers through advertising space. Until the advent of the Internet, newspapers had monopolies in both local news and advertising markets. Since then, their market power in advertising has waned considerably. In the print newspaper segment, they remain monopolistic, with roughly 99% of dailies existing as the sole daily published in the relevant market. With few exceptions, markets for most papers are the retail trading zones in which they exist (Picard 2004:110; Noam 2009:142; Shirky 2012:29). There are only about a dozen places with competing dailies, mostly large metro areas such as Boston, Chicago, Los Angeles, New York, and Washington (Schulhofer-Wohl and Garrido 2011:2). Given the importance of news to democracy, Congress passed the Newspaper Preservation Act (NPA) in 1970 to preserve newspapers in 200 COLLECTIVE BARGAINING UNDER DURESS 9.40 0.50 2.10 0.10 –3.90 40.30 11.90 –8.90 11.10 16.90 –2.90 –3.20 –11.50 % change

Continued, next page 572,998 605,677 527,568 512,067 507,465 389,352 353,115 425,370 409,642 404,542 9/30/11 2,096,169 1,784,242 1,150,589 Total average average Total circulation as of circulation 641,369 535,875 529,999 522,868 462,228 432,455 412,669 411,960 410,130 392,989 9/30/12 2,293,798 1,713,833 1,613,865 Total average average Total circulation as of circulation — — — — — — — 5,435 35,294 10,105 362,093 169,163 152,997 editions Total branded Total

TABLE 1 TABLE Total Total 606,075 530,440 167,906 522,868 462,228 263,292 402,564 411,960 257,133 392,989 editions branded excluding excluding 2,293,798 1,713,833 1,613,865 86,307 43,318 27,535 70,932 23,112 64,788 794,594 896,352 151,577 146,605 178,113 176,446 114,620 Total digital Total Average Circulation for the Top 25 U.S. Daily Newspapers, September 2012 September Newspapers, 25 U.S. Daily Top for the Circulation Average Print 717,513 454,498 383,835 124,588 344,755 434,693 192,360 226,118 388,848 192,345 278,369 1,499,204 1,627,526 Newspaper name Newspaper Wall Street Journal Street Wall Today USA Times York New Times Los Angeles News Daily York New News Mercury Jose San Post York New Post Washington Chicago Sun-Times Post Denver Tribune Chicago News Morning Dallas Newsday NEWSPAPER INDUSTRY 201 0.70 5.30 30.40 48.10 20.50 –5.90 18.30 11.90 –5.80 26.30 –11.90 –10.50 % change

9/30/11 369,710 240,024 210,586 298,147 331,132 243,299 270,809 292,838 213,078 205,939 242,784 178,082 Total average average Total circulation as of circulation 9/30/12 325,814 313,003 311,904 300,277 296,427 293,139 285,088 275,622 252,174 230,351 228,599 224,973 Total average average Total circulation as of circulation — — — — — — 2,193 81,059 59,474 69,319 editions 109,237 109,399 Total branded Total

Total Total editions branded 325,814 231,944 311,904 300,277 236,953 293,139 175,851 275,622 142,775 230,351 226,406 155,654 excluding excluding TABLE 1(CONTINUED)TABLE 839 91,331 13,610 65,802 43,224 73,630 15,273 13,412 49,432 17,323 29,932 127,430 Total digital Total Average Circulation for the Top 25 U.S. Daily Newspapers, September 2012 September Newspapers, 25 U.S. Daily Top for the Circulation Average Print 234,483 218,334 184,474 234,475 193,729 219,509 160,578 274,783 129,363 180,919 209,083 125,722 Newspaper name Newspaper Chronicle Houston Times Bay Tampa Star-Ledger Newark Tribune Star Minneapolis Inquirer Philadelphia Dealer Plain Cleveland County Register Orange Republic Arizona Review-Journal Vegas Las Boston Globe Oregonian Star-Advertiser Honolulu subject to audit). of Circulations; Bureau Audit as filed with the (preliminary of Circulations figures Bureau Audit Source: 202 COLLECTIVE BARGAINING UNDER DURESS

“economic distress” that might otherwise shut down and leave a market with one editorial voice. The NPA permits two dailies to combine business functions through a joint operating agreement (JOA) and negotiate a mutually acceptable formula for splitting costs, revenues, and profits. In passing the NPA, Congress gave greater weight to democratic concerns than to monopoly pricing. A recent study supports the importance of newspaper competition in public life. The closing of the Cincinnati Post in 2007 (which left the larger JOA partner, the Cincinnati Enquirer, as the sole regional newspaper) made municipal politics in northern Kentucky, where the Post had dominated circulation, less competitive in terms of incumbent advantage, voter turnout, campaign spending, and the number of candidates for office (Schulhofer-Wohl and Garrido 2011). JOAs have been formed in 27 cities, the earliest in Albuquerque in 1933, and the most recent in Denver in 2000, which ended in 2009 with the closure of the Denver Post’s rival, the Rocky Mountain News. In 2001, there were 12 JOAs in operation, but by 2012 only six remained. At best, JOAs have delayed the inevitable demise of the smaller newspaper and have generally failed to meet the NPA’s lofty goals (Picard 2007; Dirks, Van Essen & Murray 2009; Pérez-Peña 2009a). Over the course of the 20th century, the newspaper industry became increasingly concentrated with the creation and growth of chain ownership. From 15% of all dailies in 1930, chains owned 32% by 1960 and 77% in 2000. In that year, the ten largest chains owned 18% of newspapers and 40% of the market by circulation. Moreover, out-of-town companies owned roughly 70% of newspapers (Dirks, Van Essen & Murray 2005a; Noam 2009:139). Newspaper merger activity increased in the 1980s and 1990s, part of the long-term trend toward consolidation in this mature industry. Beginning in the early 1990s, many acquisitions involved chains combining with other chains to create geographic clusters designed to allow firms to streamline operations, remove duplicative functions, and limit competition (Muehlfeld, Sahib, and van Witteloostuijn 2007). Clustering also promises larger, more regional audiences to advertisers. In 1990, just 9% of daily circulation and 19% of all dailies were part of a cluster. By 2000, 400 newspapers, or roughly 35% of all dailies, were part of 125 clusters. By about 2005, 42.8% of all dailies operated in clusters of at least two properties. The majority of clusters operate in rural areas with smaller dailies, but in recent years, larger companies have added smaller suburban properties (Stanger 2002:185; Martin 2003; Dirks, Van Essen & Murray 2005c; Noam 2009:139). The Changing Nature of Newspaper Ownership Beginning in the 1960s and 1970s, private family ownership gave way to public corporate ownership, often because of inheritance tax implications. NEWSPAPER INDUSTRY 203

From 850 family-owned papers in 1960, the ranks thinned to about 250 in 2002. The number of independents moved in the same direction (Neiva 1996; Moses 2002; Fitzgerald 2002:14; Dirks, Van Essen & Murray 2005b, 2007). In 2012, the five largest public companies in terms of total circulation included Gannett (4.90 million), the McClatchy Company (2.08 million), the New York Times Company (1.59 million), Lee Enterprises (1.38 million), and GateHouse Media (839,292) (Table 2). MediaNews Group, with 2.57 million in total circulation and 56 newspapers, would rank second, but it is no longer a public company, while the private chain Community Newspaper Holdings is ranked second overall in dailies (91) and fourth overall in circulation (884,262) (PEJ 2012e). Since 2000, however, newspaper ownership has trended back toward private ownership. Publicly traded newspaper companies, however, still dominate the market. In 2010, they accounted for 44.2% of industry revenue and 24.8% of its dailies, while family-owned groups earned 7.5% of total revenue and owned 21.1% of dailies. Independents owned 3.7% of dailies but accounted for only 2.3% of revenue. Over the past decade, a spate of bankruptcies of public companies, acquisitions of undervalued properties, and conversions of public to private ownership have catapulted lender-owned companies (banks, distressed- debt hedge funds, and other lenders) and private equity firms into significant industry actors. Lender-owned companies have the second-largest share

TABLE 2 Public Companies: Number of Dailies (June 2012) and Year-End Stock Prices, 2001–2011 Change in stock Change from Number of price, 2001–2011 peak value Company dailies (%) (%) Gannett 82 –80.12 –85.00 McClatchy 30 –95.01 –96.77 New York Times 3 –82.38 –84.99 GateHouse Media 79 –99.62 –99.68 News Corporation 12 35.76 –24.56 E.W. Scripps 12 –91.91 –94.98 A.H. Belo 4 –63.96 –63.96 Media General 1 –91.83 –94.34 Journal Communications 1 –74.19 –78.11 Lee Enterprises 52 –98.08 –98.54 Washington Post 2 –27.16 –61.67 Source: Yahoo! Finance, June 2012. 204 COLLECTIVE BARGAINING UNDER DURESS

of revenue behind public companies, at 18.1%, and control 11.2% of dailies. Private equity firms earned 2.3% of total revenue and owned 3.7% of newspapers, equal to that of the independents (Dirks, Van Essen & Murray 2007). Figure 1 shows the number of newspaper transactions between 2001 and 2011. The peak years occurred between 2005 and 2007, just before the Great Recession roiled the industry. Although the number of transactions peaked in 2005, the value of sales spiked in 2007 when 30 deals involving 91 dailies worth $20 billion surpassed the old record set in 2000. Two significant deals were real estate mogul Sam Zell’s acquisition of the Tribune Company for $8.2 billion and News Corporation’s purchase of Dow Jones. After 2000, private groups began acquiring newspapers and media companies. In 2006, McClatchy purchased the larger Knight Ridder chain for $4.5 billion and $2 billion of its debt. McClatchy then spun off 12 of the 32 papers for $1.2 billion to an assortment of private buyers. In general, the newspapers that McClatchy shed were larger metro newspapers in slower-growing markets with lower profit margins and unionized workforces (PEJ 2007; Dirks, Van Essen & Murray, Year-End Reports, 2000–2011). Industry brokers Dirks, Van Essen & Murray refer to 2011 as “The Year of the Big Deal” because 71 dailies traded hands, the most since 2007. Publicly traded Berkshire Hathaway (BH) went on a newspaper- FIGURE 1 Number of Daily Newspapers Sold, 2001–2011

Source: Dirks, Van Essen & Murray (2011a). NEWSPAPER INDUSTRY 205 buying spree, purchasing 63—nearly all—newspapers from Media General for $142 million. BH, which has owned the unionized Buffalo News since 1977 and has a stake in the Washington Post Company, folded Media General’s papers into its BH Media Group. The BH Media Group had already acquired, for $200 million, the Omaha World-Herald Company, the last employee-owned company in the industry, with the state’s flagship newspaper (the Omaha World-Herald), six other dailies, and a direct-mail company (Mutter 6/1/11; Dirks, Van Essen & Murray 2011b). By the end of June 2012, BH Media Group operated 67 newspapers. In early October 2012, Media General sold its last newspaper, the Tampa Tribune, to California-based private equity firm Revolution Capital for $9.5 million, its first newspaper purchase. Overall, 84 newspapers traded hands in 25 separate deals, surpassing 2011. Many buyers were privately held firms (De La Merced 2012; Robertson 2012; News Inc. 2012b, 2012c, 2012e; Beaujon 2012b; Dirks, Van Essen & Murray 2012). Of the largest 25 newspapers by circulation, 16 are privately owned, about half by hedge funds and private equity firms. Among the largest ones are the Los Angeles Times (Tribune), the San Jose Mercury News (Alden Global Capital), the Chicago Sun-Times (Wrapports), the Chicago Tribune (Oaktree Capital Management and Angelo, Gordon & Co.), the Denver Post (Alden Global Capital), the Houston Chronicle (Hearst), the Philadelphia Inquirer and Philadelphia Daily News (Interstate General Media), and the Minneapolis Star Tribune (Wayzata Investment Partners). Despite the noticeable shift to private ownership, most of the largest newspapers controlled by private groups still have bargaining relationships with unions.

ECONOMICS OF NEWSPAPERS Revenue Sources and Trends Traditionally, total revenue was split roughly 80/20 by advertising and circulation. Other businesses such as printing and business services rounded out the numbers. In recent years, owing to two recessions and especially to the Internet, the newspaper industry’s print advertising revenue has fallen six consecutive years, from a peak of $49.4 billion in 2005 to $22.5 billion in 2012, a drop of 54%. Classified ads have lost nearly three quarters of their value since 2000. Print ad revenue now comprises 46% of total industry revenues. By contrast, circulation revenue has declined much more slowly, only about 10% since 2003, so that it now comprises roughly 27% of total revenue and is expected to grow even more. Digital ads make up 11% of total revenue, while the remaining 16% is derived from new and other sources (PEJ 2011, 2012a, 2012b, 2013; Edmonds 2013). Newspaper advertising has four general segments. In order of relative size, they are local retail, classified, national, and online, which is the newest segment. The share of online revenue increased from 2.6% of total 206 COLLECTIVE BARGAINING UNDER DURESS industry advertising revenue in 2003, when the Newspaper Association of America first began to track it, to 13.6% in 2012. However, this has not been enough to offset losses of traditional advertising. In 2010, newspapers had 21.4% of total measured media advertising, down from 25% in 2008. This share is expected to fall to 16.5% by 2014 (Collis, Olson, and Furey 2010:5; PEJ 2012c; Mutter 1/7/13). The relative declining share of total ad dollars continues a trend that had begun in the 1950s and 1960s with the growth of broadcast television and continued over subsequent decades with the rise of cable television and the Internet (Standard & Poor’s 2012:13, 17; Mutter 10/29/12). According to the IAB Internet Advertising Revenue Report (PWC/IAB 2013), Internet advertising revenue in the United States totaled $31.7 billion in 2011, an increase of 22% (6.8% for newspapers) over 2010. It has grown to become second only to broadcast television, with newspapers ranking fourth overall. Since 2002, Internet revenue has increased $25.7 billion, for a compound annual growth rate of 20.3%. In addition, mobile advertising jumped 149% to $1.6 billion for the full year. Given the growth in smartphone and tablet ownership, newspapers have been experimenting with delivering content and advertising via these devices but have not yet fared well (Doctor 2011b; PWC/IAB 2013:7, 11, 19, 20; PEJ 2012a; O’Malley 2012; Walsh 2012). Despite the rise in digital media advertising, newspapers lag behind other media. Their share of the overall U.S. digital advertising market shrank to the lowest level ever in the third quarter of 2012, with only 8%, a decline from the previous low of 10% in 2011. In 2003, newspapers’ share was 16.7; as recently as 2007, it was 15%. Since 2005, newspapers have lost $26.7 billion in print advertising revenue while netting only $1.2 billion in new digital dollars (Mutter 4/9/12, 4/23/12, 12/20/12; Edmonds 2012). Newspapers will continue to be pressured on the advertising front as more and more Americans acquire broadband connections and pure-play Internet giants like Google and Facebook seek to capture online ad segments such as the $20 billion local retail market. In addition, newspapers’ lucrative pre-print advertising business, which represents a quarter of the remaining ad revenue worth $5.2 billion in 2011 and 70% of Sunday revenue at the average newspaper, is under pressure on two fronts. First, big-box retailers are themselves being pressured by Internet commerce and have been shifting from more expensive print advertising to cheaper and more targeted digital formats. Second, in August 2012, the U.S. Postal Service, which has historically aided the industry, granted the direct-marketing company Valassis Communications a discount up to 34% for shifting from newspaper inserts to direct mail (Morton 2010; Nakashima 2012; Mutter 8/29/12). These trends in revenue do not bode well for the newspaper industry, which had increased its dependence on NEWSPAPER INDUSTRY 207 advertising (mainly classified) revenue during the second part of the 20th century (Picard 2002). Costs of Producing a Newspaper Producing a traditional newspaper is highly labor intensive. On the cost side, calculations vary, but most estimate labor to comprise 40% to 50% of total expenses (Kirchhoff 2010:5). Media economist Philip Meyer (2009:40) offers a cost breakdown as a percentage of revenue for a typical 100,000-circulation newspaper in 2001, as shown in Table 3. During the second half of the 20th century, publishers intently sought to reduce the costs of producing a newspaper largely through automation, notably the transition from metal-based “hot type” to computer-generated “cold type.” By the end of the century, the craft unions lost most of their members and merged into other unions (Neiva 1996; Stanger 2002). In recent decades, companies have sought to reduce overall expenses, especially in the newsroom. Newsroom staffing ratios (per 1,000 paid circulation) have dropped double digits over the decade for both 50,000 (–20%) and 100,000 (–12.5%) circulation newspapers (Inland Press Association 2000–2012). But these efforts to reduce costs have not solved the problem of the industry’s broken business model, which has cut into profits, reduced stock prices, and, in some cases, led to bankruptcy. Declining Newspaper Profits and Stock Valuations Despite its problems, the newspaper industry historically has been one of the most profitable media segments and one of the most profitable of any American industry. According to John Morton, average publicly traded newspaper profit margins peaked at 22.7% in 2000 but have fallen by about half since then, with net earnings margins averaging about 5% (Morton 2009; PEJ 2012c).

TABLE 3 Cost of Producing a Newspaper Cost Revenue (millions, $) Percentage of revenue News–editorial 5.36 11.4 Advertising 4.00 9.4 Circulation 5.68 11.1 Production 3.99 8.0 Newsprint and ink 6.43 13.9 Administration and depreciation 12.43 25.4 Gross profit 10.98 20.8 Total 55.48 100.0 208 COLLECTIVE BARGAINING UNDER DURESS

Industry consultant Alan Mutter notes that stock prices for the main publicly traded newspaper companies sank 27% in 2011, while the larger stock market was either flat or up slightly during this time (as previously shown in Table 2). Newspaper stocks rebounded in 2012, with five of nine public companies outpacing the broader market. Still, there was a wide disparity in performance, and every stock ended 2012 at a fraction of its 2006 closing price (Mutter 1/3/12, 1/2/13). Moreover, shrinking revenues and high debt loads from previous acquisitions led about a dozen newspaper companies to file for bankruptcy protection between 2008 and 2011. Private investor groups, though, purchased almost all of the bankrupt companies (Table 4).

NEWSPAPER COMPANIES RESPOND TO BUSINESS MODEL CRISIS: FINDING NEW REVENUE AND CUTTING COSTS As already discussed, the traditional 80/20 advertising to circulation revenue split has become problematic in a business environment that has seen classified ad revenue shrink to about 25% of what it was in 2000. Most of the focus has been in the digital realm, but to date these efforts have failed to compensate for declining print advertising revenue. Nontraditional Revenue Streams A recent Project for Excellence in Journalism survey shows the degree to which newspapers have been experimenting with nontraditional revenue sources. It found that although almost half of respondents were developing new revenue sources, notably in business services, they were yielding only modest amounts of revenue (PEJ 2012d). In some cases, newspapers also are using their pressrooms as profit centers, printing for other newspapers and businesses. TheDallas Morning News now derives 10% of its revenue from contract printing. The Washington Post has developed a successful events and newsletter business and recently launched a social media business. But in none of these cases are the outcomes anything more than modest (PEJ 2012b). Other more extensive approaches are under way, with varying degrees of success. Monetizing Digital Operations In late 2006, seven major newspaper companies with more than 213 daily newspapers struck a deal with Yahoo and its HotJobs recruitment classified ad network to provide HotJobs with help-wanted ads and to create a common platform using HotJobs technology for the newspapers’ employment sites. The Yahoo deal joined similar ones between Monster.com and 43 dailies, and CareerBuilder and 157 dailies (News Inc. 2006; Dirks, Van Essen & Murray 2006). Similarly, quadrantONE, formed in February 2008 by Gannett, Tribune, Hearst, and the New York Times Company, enabled national digital display NEWSPAPER INDUSTRY 209

TABLE 4 Newspaper Bankruptcies and New Ownership Patterns Date of Exited Distressed company bankruptcy bankruptcy Current majority owner Creative Loafing Atalaya Capital Management (alternative weeklies) Sep. 2008 Aug. 2009 (hedge fund) Oaktree Capital Management, Angelo Gordon (hedge funds) Tribune Dec. 2008 Nov. 2012 and JPMorgan Chase (bank) Star Tribune Wayzata Investment Partners Holdings Jan. 2009 Sep. 2009 (private equity) Philadelphia Interstate General Media Newspapers Feb. 2009 Apr. 2010 (investor group) Feb. 2009 Aug. 2009 Alden Global Capital (hedge and Sep. and Feb. fund) and affiliate 21st CMH Journal Register 2012 2013 Acquisition* Sun-Times Media Group Mar. 2009 Oct. 2009 Wrapports American Community Newspapers Apr. 2009 Jun. 2009 HPR Hemlock Freedom Communications Sep. 2009 May 2010 2100 Trust (investor group) Triple Crown Media Sep. 2009 Dec. 2009 Triple Crown Media MediaNews Group Jan. 2010 2010 Alden Global Capital* Morris Communications Jan. 2010 Mar. 2012 Morris Communications Brown Publishing Apr. 2010 Sep. 2010 Versa Capital Management Lee Enterprises Dec. 2011 Jan. 2012 Lee Enterprises (public) Sources: Kirchhoff (2010); Who Owns the News Media (http://tinyurl.com/kt5t35d); company websites; Hoover’s; News Inc. (2012a, 2013). *The Journal Register Company and MediaNews executed an informal merger under which Digital First Media manages both companies. Alden Global Capital, which purchased both companies in 2011, continued to own both chains and Digital First (Benton 2011). advertisers to reach a broader audience with a single purchase. Initially, quadrantONE covered 174 websites in 27 of the nation’s largest 30 markets and reached about 50 million unique visitors per month. By 2012, quadrantONE reached more than 500 local news and information websites nationwide. In February 2013, given the continuing challenges in advertising, the four founding companies closed quadrantONE to pursue different strategies (News Inc. 2008, 2013; Standard & Poor’s 2012:18–19). A second approach to monetizing digital operations began slowly at select newspapers in the 1990s, including the Wall Street Journal and smaller newspapers, when they began charging readers for Web-based 210 COLLECTIVE BARGAINING UNDER DURESS content (Sullivan 2003). Newspapers have begun experimenting with different types of paid models, including monthly charges for access, daily passes, micropayments, and bundled packages for print and online, as well as a mixture of free and fee-based access. Companies are attempting to achieve a delicate balance by maintaining print subscribers, who still generate the bulk of the industry’s revenues, and capturing readers moving rapidly into the digital realm (PEJ 2012b; Standard & Poor’s 2012:5). The industry has been divided on this strategy, but after years of inaction and encouraged by the success of the New York Times Company’s metered model (in which viewers are charged for content after they reach their monthly quota), which launched in March 2011, newspapers of all sizes have instituted different types of paywalls. The growth in the number of newspapers with some form of paywall has been dramatic over the last year. At the end of 2011, for example, about 150 dailies charged for digital content. By the end of 2012, however, more than 400 did. This represents almost 30% of all dailies. Most of the major chains have instituted paywalls, including Gannett, which expects to earn $100 million annually from subscriptions. But paywalls alone will not fix the industry’s broken business model because a digital subscriber yields much less revenue than a print subscriber—$200 per year versus about $730 (PEJ 2012b; Roberts 2012; Kafka 2012; News Inc. 2012f:1). The third major and most comprehensive approach to monetizing digital operations is referred to as “digital first,” an approach driven by the movement of consumers of news online. By the end of 2010, 41% of Americans said they got most of their national and international news online, up from 17% in 2009 (Sterling 2011; PEJ 2012a). The company at the forefront of this strategy is aptly named Digital First Media, established in September 2011 by its owner, hedge fund Alden Golden Capital. Digital First manages MediaNews Group and the Journal Register Company and has operations in 18 states, more than 800 print and digital products, revenue exceeding $1.4 billion, and more than 10,000 employees. Digital First outsources most operations other than sales and editorial, focuses on the cost side, stresses digital sales over print sales with incentives, and uses relationships with the community to provide some of the content in their newspapers. Because Alden Golden Capital has financial interests in ten newspaper chains, the digital first strategy is likely to spread throughout the industry (Benton 2011; Hagey and Feintzeig 2012). Other companies, such as Morris Communications, Sun-Times Media Holdings, McClatchy, and Advance Publications have embarked on this same strategy. Individual newspapers, too, have moved resources, including newsroom personnel, to emphasize digital (Gibson 2011; Editor & Publisher 2011; Depp 2012; Marek 2012). NEWSPAPER INDUSTRY 211

Despite these changes, newspapers must continue to cut costs, and many have turned their attention to production: consolidating operations and outsourcing, reducing delivery and print schedules, scaling back on news coverage, demanding steep concessions from unions, and slashing jobs. Cutting Jobs Precise measures of job losses are difficult to establish, but three different sources show similar patterns. The American Society of Newspaper Editors (ASNE) has conducted an annual newsroom census since 1978. Its data show that the number of professional full-time journalists peaked in 1990 at 56,900 and stood at 56,400 in 2000. By 2012, however, newsroom employment fell to 38,000, a decline of approximately 33% since 2000, with the largest annual declines coming during and immediately following the Great Recession between 2008 and 2009 (Figure 2). Not shown in the figure but important to note are the 2,600 jobs lost between 2011 and 2012. Likewise, the number of minorities dipped to levels not seen since 1990–1991 (ASNE, no date; ASNE 2012; Mutter 4/4/12). Data from the Bureau of Labor Statistics’ Employment & Earnings series (Table 5) between 2000 and 2011 show total average industry employment declined every year, from 445,000 in 2000 to 244, 600 in 2011, a 45% drop. Less dramatic but still significant is the 25.2% decline in employment for production workers between 2003 and 2011 (U.S. BLS 2000–2011).

FIGURE 2 Newsroom Employment, 2000–2012

Source: Pew Research Center, based on data from the American Society of News Editors. 212 COLLECTIVE BARGAINING UNDER DURESS

1.03 1.04 1.00 1.00 1.07 1.11 1.14 1.16 1.17 1.14 1.10 1.08 1.10 hourly wage to nondurable manufacturing real manufacturing real Ratio of newspaper 17.24 17.13 17.45 17.71 17.34 17.37 17.05 16.57 16.48 16.36 16.73 16.81 16.50 dollars) Average hourly earnings, Average groups in real wages (2010 in real groups nondurable manufacturing 17.81 17.79 17.40 17.73 18.58 19.28 19.44 19.26 19.21 18.59 18.43 18.19 18.22 dollars) wages (2010 Average hourly Average earnings in real earnings in real

TABLE 5 TABLE –2011. The BLS reclassified the industry2000 changes between –2011. The BLS year-to-year after 2002, so 13.17 13.53 14.17 14.61 14.63 15.05 15.27 15.32 15.67 16.15 16.56 16.81 17.02 groups earnings, nondurable manufacturing Average hourly Average 13.61 14.05 14.13 14.63 15.68 16.70 17.41 17.81 18.27 18.36 18.13 18.19 18.80 hourly Average Average earnings Employment and Earnings, Newspaper Industry, 2000–2011 Industry, and Earnings, Newspaper Employment

146.9 148.3 142.0 133.2 261.9 262.0 264.6 279.7 273.1 258.7 221.0 203.1 195.9 workers Average no. Average of production

442.2 445.0 431.2 406.7 381.1 374.8 368.8 361.0 345.8 325.9 276.5 253.8 244.6 no. of no. Average Average employees year Data Data 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 & Earnings, 2000 Employment of Labor Statistics, U.S. Bureau Source: impossible to calculate. and 2011 are NEWSPAPER INDUSTRY 213

In 2008, former St. Louis Post-Dispatch journalist Erica Smith created a website called Paper Cuts to track buyouts and layoffs in the newspaper industry, beginning in 2007. The number of cuts (generally underestimat- ing total cuts, including jobs lost to attrition) can be seen in Table 6. Consistent with ASNE data, the steepest employment declines occurred in 2008 and 2009. The table also shows where the largest cuts took place each year. Paper Cuts also tracks closings, and reports that about 200 newspapers have shut down since 2007, with most coming in 2009 and 2010. Venerable newspapers were not immune to employment cuts over the past decade. For example, in December 2012, the New York Times offered management personnel a buyout, while newsroom employees received a fourth buyout option in five years. The parent company cut 40% of its workforce over the 2001–2011 period. In February 2012, the Washington Post announced its fifth buyout to newsroom employees since 2003. The Post’s newsroom has contracted 59% between late 2002 and the end of 2012, from 1,450 to about 600. Both newsrooms are unionized (DLR 11/13/02, 2/10/12, 2/15/12; Moos 2011; LRW 2/15/12, 2/10/12; Sass 2012a; Haughney 2012b). Two of the largest media companies, McClatchy and Gannett, have had multiple rounds of job reductions since 2006 to address declining advertising revenue, high debt loads, and sagging stock prices. McClatchy, the third-largest chain, whose workforce was roughly 5% unionized, cut its total workforce by more than 53%, from 16,791 in 2006 to 7,800 at

TABLE 6 Job Cuts at Newspapers Since 2007 Total Year job cuts Largest cuts Minneapolis Star Tribune (145), Harrisburg Patriot-News 2007* 2,293+ (130), Detroit News and Detroit Free Press (110+), and San Diego Union-Tribune (83) Palm Beach Post (300), Los Angeles Times (100–150), Bay 2008 15,993+ Area News Group (107), Washington Post (100+), New York Times (100), Chicago Tribune (100) Orange County Register (919); 34 newspapers with at least 2009 14,825+ 100 job cuts; 584 newspapers announced cuts Honolulu Star-Advertiser (430); 202 newspapers announced 2010 2,920+ cuts Eight Booth (Michigan) newspapers (Advance Publications) 2011 4,142+ (523+) New Orleans Times-Picayune (201), Tampa Tribune (165), 2012 1,850+ Birmingham News (107), New Haven Register (105) Source: Paper Cuts (http://newspaperlayoffs.com). *Data for 2007 begin in June and end September 7, 2012. 214 COLLECTIVE BARGAINING UNDER DURESS the end of 2011 (GR 2/21/03; LRW 6/19/08; Turner 2011; Sass 2012c). Gannett, the nation’s largest newspaper chain, known for its lean operations, has enacted multiple rounds of job cuts since 2007. At the end of 2011, it had 40% fewer employees than it had at the end of 2001 (31,000, down from 51,500. Over the same period, employment at its U.S. publishing division shrank 47% (LRW 8/21/08; Pérez-Peña 2008c, 2009c; LRW 7/9/09; Peters 2011; Sass 2012c). In addition to direct job cuts affecting both the news and business sides, newspaper companies have employed a number of other cost-cutting tactics that have impacted unionized and nonunionized jobs. Other Cost-Cutting Strategies The business strategy of geographic clustering discussed previously also has impacted employment levels and the allocation of labor at major newspaper companies. As discussed, some newspaper chains began consolidating copy editing and page design at regional facilities to generate economies of scale. In the process, hundreds of jobs have been lost (News Inc. 2012d). As an example, the pioneer of clustering, MediaNews, which has been aggressively building clusters since the 1990s, consolidated its Bay Area News Group’s (BANG) news divisions under a single management group in June 2011. In November 2011, it streamlined BANG by consolidating six newspapers under the Contra Costa Times masthead. Another five papers, including the 137-year-old Oakland Tribune, were “rebranded” as the East Bay Tribune. One paper was eliminated. An estimated 120 jobs (8%) were lost as a result, including 48 Guild-represented positions in the newsroom. Most of the job losses will likely result from the closure of one of its four regional printing plants, but about a quarter of unionized editorial jobs will disappear. Over the past ten years, Bay Area newspapers have lost more than half their newsroom staff (Romenesko 2011; Doctor 2011a; News Inc. 2011). Newspapers also have outsourced circulation and printing to reduce costs. The New York Times, for example, contracts with local papers to deliver its national edition. Other companies contract out phone solicita- tions for new subscribers and customer service to call centers in the United States and India. Still others have moved advertising design jobs to India and have subcontracted routine business functions, such as payroll, to outside vendors (PEJ 2009). The outsourcing of printing is consistent with the move toward digital operations. Until recently, the outsourcing of printing was limited to smaller newspapers. In 2009, eight of McClatchy’s 30 newspapers were printed in locations other than the cities they served, while Gannett has outsourced printing at more than half its papers. Since 2004, more than NEWSPAPER INDUSTRY 215

170 printing plants have been shuttered, with 50 closing between 2009 and June 2011 (PEJ 2010; News & Tech 2012). Companies also have reduced the physical size of newspapers to save newsprint and have scaled back delivery and printing schedules. Major experiments began in Detroit and across Michigan in March 2009 when the Detroit News and the Detroit Free Press changed their weekly home delivery schedules from seven days to just Thursday, Friday, and Sunday (Free Press only), days that account for 80 of advertising revenue. On the other days, readers can buy smaller versions at stores, street boxes, and newsstands. And some, such as the Christian Science Monitor, the Seattle Post-Intelligencer, and the Ann Arbor News now publish only online (Pérez- Peña and Chapman 2009). Advance Publications has led the way, moving print editions to online format in many cities across the country, and caused an uproar when it announced in May 2012 that in October 2012, the 175-year-old New Orleans Times-Picayune would become the nation’s first major newspaper to publish only thrice weekly. The company expects its affiliated website to fill in the print void. Eighty-four of 173 newsroom positions were axed in the transition. Advance’s Birmingham News lost 61 of its 102 newsroom staff. These and other southern properties are non-union (Carr and Haughney 2012; Robertson 2012). Advance recently announced similar changes in the North. In January 2013, it moved to a thrice-weekly print schedule at the Syracuse (New York) Post-Standard and the Harrisburg (Pennsylvania) Patriot-News. As in New Orleans and Alabama, the papers merged their content with local websites and announced 185 combined cuts jobs (Haughney 2012a; News Inc. 2012e:2). In November 2012, Advance hinted to readers that it may reduce the daily publishing schedule at the Cleveland Plain Dealer, the only affected property with a unionized newsroom. In response, with a grant from its parent union, the local Guild initiated a multimedia campaign—“Save the Plain Dealer”—to rally community support to save jobs and the newspaper. In early December, the Guild signed a six-year contract extension that limited future layoffs and called for a pay raise to partially offset recent double-digit wage concessions. In the near-term, the Plain Dealer will cut 53 of 160 newsroom jobs beginning in summer 2013 and create a new digital media company, and is expected trim home delivery to three days a week (Sass 2012b; Haughney 2013; Moos 2012a). These and other deep and widespread cuts in recent years have continued cost-cutting efforts that preceded the 21st century. In addition to layoffs and buyouts, which rose in the 1990s, companies have made fewer investments in news gathering by providing less coverage of local government in the suburbs and remote cities, reducing state government coverage, 216 COLLECTIVE BARGAINING UNDER DURESS closing foreign and Washington bureaus, cutting specialty beats such as religion and science, offering fewer features, and producing smaller business sections that used to be free-standing. In short, newspapers are producing thinner papers with less space devoted to news. According to the FCC, “In very real ways, the dramatic newspaper industry cutbacks appear to have caused genuine harm to American citizens and local communities” and pose a serious threat to the Fourth Estate as severe cuts drive away readers and advertisers and with them revenue and profit (PEJ 2010, 2012b).

LABOR RELATIONS In the context of the industry’s broken business model, unions have experienced hard times and hard bargaining. The Unions Two main international unions represent workers in the newspaper industry, the Communications Workers of America (CWA, AFL-CIO) and the International Brotherhood of Teamsters (IBT, CTW). Both have multiple divisions and represent other media workers. The CWA, formed in 1938 as a union for telephone workers, has a media sector that includes broadcasting, cable TV, publishing, and newspapers. Since 2001, the CWA’s total membership has fallen 32%, from 701,150 to 479,318, while its media unit has experienced a 38% decline, from 59,873 to 37,086 (CWA 2012, unpublished data). Since 1987, the CWA has absorbed three unions that represented newspaper workers: the International Typographical Union (ITU) in 1987, the Independent Association of Publishers’ Employees (IAPE) (which represents workers at Dow Jones, including those at the Wall Street Journal), and The Newspaper Guild, both in 1997. Founded in 1933 as the American Newspaper Guild to represent print journalists, the Guild represents workers in a variety industries and occupations. In July 2012, it had contracts with more than 70 U.S. newspapers, where it represents white- collar print and online journalists, photographers, editors and editorial assistants, and other newsroom employees. On the business side, the Guild represents employees in sales, advertising, marketing, circulation, distribution, accounting, and others. Former ITU members work as typographers, press operators, mailers, and maintenance workers. Guild membership has been adversely impacted by the newspaper industry’s difficulties and more general factors that have been affecting American unions. Since 2000, the Guild has lost more than 28% of its membership, reporting 23,282 members at the end of 2010 (Newspaper Guild website; Newspaper Guild, Sector Conference Proceedings, 2000–2011). NEWSPAPER INDUSTRY 217

The IBT was formed in 1903 to represent wagon drivers and related occupations. In 2005, it left the AFL-CIO to join the Change to Win federation. The IBT is one of the largest labor unions in the United States, with 1,246,255 members in 2012, down from slightly more than 1.4 million in 2000. The IBT has two printing and publishing-related divisions—the Graphic Communications Conference (GCC), which has about 60,000 workers in 206 locals, and the Newspaper, Magazine and Electronic Media Conference (Newspaper Division), which has roughly 8,000 members in 180 bargaining units. The largest Newspaper Division units are in Akron, Boston, Chicago, Columbus, Denver, Detroit, Milwaukee, Philadelphia, Pittsburgh, and Seattle. Workers represented by the GCC and Newspaper Division workers work primarily as drivers, circulation and district managers, mailers, press operators, and designers. The GCC also represents newsroom employees at the Santa Barbara News-Press and (Long Island) Newsday. In general, workers in these two divisions have complementary skills, enabling them to cooperate with each other. For example, they formally coordinate bargaining at the Baltimore Sun, the Detroit Free Press and Detroit News, the Pittsburgh Post-Gazette, Newsday, the Blade (Toledo, Ohio), and in some cases, the Seattle Times (represented by the Teamsters). The GCC became an autonomous conference within the IBT on January 1, 2005, after the Graphic Communications International Union (GCIU) voted to merge with the larger IBT. At the time, the GCIU had 60,000 U.S. members in 160 locals, but it had lost 30,000 members since 1998 and 100,000 since 1983, the year it was created by merger. In 2009, the Teamsters also added the New York–based Newspaper and Mail Deliverers’ Union (NMDU), which formed in 1901. The NMDU has a long history representing drivers in the New York City area and is now known as Teamsters Local 1901 (DLR 12/16/04, 2/26/09; GC 2007:8). Union Density Similar to overall private sector unionization trends, the newspaper industry has become less unionized since 2000, continuing a downward path that began in the 1980s. Using three-year moving averages to account for small sample size, Table 7 shows newspaper industry union membership has dropped 52.5%, while density fell 26.7% between 2000 and 2011. Union weakness also is reflected in median starting salaries that were $3,000 less than for non-union journalists (UnionStats.com; Becker, Vlad, and Kalpen 2012:7, Charts 40 and 41). A possible explanation may be that newer media, which are less likely to be unionized, command higher wages than traditional newspaper work. 218 COLLECTIVE BARGAINING UNDER DURESS

TABLE 7 Union Membership in the Newspaper Industry, 2000–2011 (Three-Year Moving Averages) Three-year Three-year No. of union moving Density moving Private sector Year members average rate (%) average (%) density rate (%) 2000 46,086 — 9.9 — 9.0 2001 44,725 49,828 9.4 10.5 9.0 2002 58,672 50,879 12.2 11.0 8.6 2003 49,239 51,369 11.5 11.3 8.2 2004 46,196 52,458 10.1 11.4 7.9 2005 61,940 52,732 12.6 11.4 7.8 2006 50,060 52,799 11.4 11.8 7.4 2007 46,396 45,105 11.3 11.0 7.5 2008 38,858 38,153 10.3 10.0 7.6 2009 29,204 30,560 8.4 8.9 7.2 2010 23,619 23.655 8.1 7.7 6.9 2011 18,142 — 6.8 — 6.9 Source: UnionStats.com (www.unionstats.com); author’s calculations.

Organizing New Members Growing membership through National Labor Relations Board (NLRB) representation elections has been problematic for unions for decades as they contend with stiff management resistance and ineffectual legal enforcement. Newspaper unions also have had little success adding new units since 2000 (Table 8). The decline is most evident after 2007; newspaper unions have not won an election since 2009, when the Guild prevailed in continuing to represent 32 employees at the Gannett-owned Appleton (Wisconsin) Post-Crescent (Bloomberg BNA Plus, NLRB Election Results, Newspaper Industry, 2000–2012). California (Un)Cool Some of the most difficult union organizing has occurred in California, following bargaining conflicts in newspapers across the state in the 1990s over the introduction of merit pay (Stanger 2002). Just as in Detroit (Rhomberg 2012), recent labor conflict in the Golden State spilled over into the community as workers and unions met stiff management resistance. A few cases illustrate the challenges workers face when attempting to form—and sometimes maintain—unions. Conflict at theSan Diego Union-Tribune (U-T) began in the aftermath of the merger of the morning Union and afternoon Tribune in 1992 that created a local monopoly. At the time, the Copley family owned the U-T. Following the merger, the company began overhauling its operations and NEWSPAPER INDUSTRY 219

TABLE 8 NLRB Elections Held: Newspapers, 2000–2012 Representation elections Decertification elections % of total % of total representation decertification Year Number elections Number elections 2000 30 17 9 18 2001 24 13 7 14 2002 22 12 4 8 2003 22 12 2 4 2004 19 11 8 16 2005 16 9 7 14 2006 12 7 7 14 2007 4 2 3 6 2008 15 8 1 2 2009 7 4 1 2 2010 3 2 0 2011 5 3 1 2 2012 — — 1 2 Source: Bloomberg BNA Plus, NLRB Election Results, Newspaper Industry, 2000–2012. hired a new president and CEO who had successfully reorganized operations and labor relations at some Tribune Company properties, often sparking strikes. The company also employed the anti-union law firm of King & Ballow. Together, they sought to extirpate unions from the newspaper. By 1993, after two successful decertification elections, six units retained precarious footholds. In 1998, the Guild, the largest unit, was decertified by a vote of 406 to 378, leaving only Teamster and GCIU units. The GCIU’s pressroom workers’ contract expired in 1992, but the company had little intention of settling with the union. After ten years and more than 100 meetings with the company, a five-year boycott featuring a “Stinky the Skunk” mascot, the imposition of the company’s final offer in 1999, and the involvement of prominent citizens from religious, labor, and business groups, the GCIU prevailed. The city’s longest dispute resulted in a three-year contract that covered about 150 press operators. Workers won reduced contributions to health insurance, which rose dramatically over the years, and a guaranteed 35-hour workweek. They reluctantly agreed, however, to accept merit raises and production bonuses instead of annual wage increases (DLR 8/7/02; Horwitz 2007). Election activity followed the GCIU settlement. In May 2003, the GCIU lost an election to represent packaging and maintenance workers by a vote of 64 to 122, and another one in 2004, but emerged victorious 220 COLLECTIVE BARGAINING UNDER DURESS a third time in June 2005 when the now GCC/IBT won the right to represent 190 workers who do inserts, bundling, and truck loading for distribution. GCC president George Tedeschi commented on the victory: “These workers went up against very tough management for years but fought to achieve their goal” (Bloomberg BNA Plus, NLRB Election Results, Newspaper Industry, 2000–2012; GC 2005:1). In August 2005, however, the GCC/IBT lost an election to represent building maintenance employees (Bloomberg BNA Plus, NLRB Election Results, Newspaper Industry, 2000–2012). In nearby Los Angeles, the GCIU failed to organize the Tribune Company’s Los Angeles Times pressroom workers, losing the July 2002 election by a vote of 123 to 210. Five years later, concerned about job loss, the lack of pressroom investment, and other issues, pressroom workers voted for the GCC/IBT 140 to 131. At the time, there were 288 employees in a single unit, a significant decline from over the more than 700 employees in three pressrooms almost a decade before. Cuts had been prevalent since the Tribune Company purchased the Times in 2000. The GraphiCommunicator noted that the outcome was a “rare victory for organized labor” (Bloomberg BNA Plus, NLRB Election Results, Newspaper Industry, 2000–2012; 2007:3). The GCC/IBT victory at the Times, just as in San Diego, did not end the strained labor relations; management tried to limit the union’s effectiveness and dislodge it completely. A decertification drive emerged about the time the first contract was set to expire, in spring 2011. After a tough campaign, the GCC/IBT retained the right to represent 130 pressroom workers. It then endured eight months of hard bargaining to achieve a decent second contract, which workers approved by a 2:1 margin. (GC 2012:5). Los Angeles also was the site of a decade-long conflict at the Chinese Daily News that dated to 2001 when The Newspaper Guild won an election 78 to 63 to represent almost all the paper’s employees. In September 2005, under continuous harassment by management and up against a million-dollar anti-union campaign to delay negotiations, workers voted to decertify the Guild, 52 to 92. Soon after, however, the NLRB retro- actively applied rules it had adopted in December 2004 to the 2001 vote, leading the Guild Reporter to exclaim, “The Chinese Daily News is now being characterized as a poster child for NLRB ineffectiveness in fulfilling its original purpose of safeguarding workers’ rights” (GR 10/21/05:3). The dispute continued in the courts until January 2007 when a federal jury awarded the workers $2.5 million dollars in unpaid wages for overtime and breaks dating to 2004 (GR 1/26/07:1). It was not until September 2010 that a federal appeals court affirmed a $5 million judgment. In between the two awards, the company was assessed additional fines for NEWSPAPER INDUSTRY 221 wage and hour violations (DLR 9/28/10). Despite the court victory, workers at the Chinese Daily News remain non-union. Another contentious case involved the GCC/IBT beginning in July 2006 at the Santa Barbara News-Press when eight prominent journalists left the paper alleging that owner and co-publisher Wendy McCaw, who purchased the paper in 2000, interfered with editorial content and favored her friends and business associates. After a three-month campaign, newsroom employees voted 33 to 6 for GCC/IBT representation. In the early 1990s, the Guild unit was decertified after an intense anti-union campaign by the former owner, the New York Times Company (GC 2006:11). The case bounced through the legal system until late 2012 when a conservative-leaning U.S. Court of Appeals for the District of Columbia vacated an NLRB decision that the publisher engaged in unfair labor practices after employees sought to control editorial content and appealed to the larger community to cancel their subscriptions. In overruling the NLRB, the court upheld the publisher’s First Amendment rights of editorial control and the firing of the eight journalists (DLR 1/2/13). Sometimes organizing occurred in response to an employer’s business strategy and desire to escape collective bargaining, as MediaNews Group’s (MNG) clustering strategy in Northern California demonstrates. In 2006, MNG purchased almost all the dailies and weeklies surrounding San Francisco and announced on August 13, 2007, that it would no longer recognize the Northern California Newspaper Guild as the bargaining agent at the Oakland Tribune and four other newspapers that were part of MNG’s Alameda Newspaper Group. MediaNews consolidated these properties with two non-union ones to create the Bay Area News Group– East Bay (BANG–EB). As a result, it argued that union members comprised a minority of the newly consolidated editorial group, so it no longer had a duty to bargain. In response, the local sought an injunction to block the withdrawal of recognition and filed an unfair labor practice (ULP) charge. In a protest letter to management, a local union officer wrote: “Your citing numbers and percentages don’t mask what I consider to be a blatant attempt to destroy a 20-year tradition of progressive labor relations in the East Bay news industry” (GR 8/17/07:3). In reality, the labor relationship had been problematic from the start. Although workers had voted for Guild representation in 1987, they did not get a first contract until 1998 (GR 8/17/07:3). Over the past two decades during which it grew by acquisitions, privately held MNG came to employ more Guild members than any other newspaper company. Two Northern California locals combined efforts to organize BANG–EB workers by launching an unprecedented workplace and community outreach campaign, “One Big BANG: One Guild 222 COLLECTIVE BARGAINING UNDER DURESS

Universe,” that included a mobilization drive funded by the CWA Strategic Industry Fund (GR 10/19/07:1). Their efforts paid off: On June 13, 2008, workers voted 104 to 92 for the Guild to represent 237 bargaining unit members at BANG–EB’s newly consolidated property. According to the Guild Reporter, the campaign “delivered the most significant new-unit organizing win for the Guild in at least 20 years.” The win came in the face of an intense anti- union campaign. The Guild called for tempered celebration because of the “sobering prospect of tough bargaining with MediaNews Group.” It moved fast, however, to form an alliance with the powerful East Bay Teamster Local 853, which had contracts with MNG in the region. The company quickly responded by laying off 13% of the bargaining unit, about a dozen other editorial managers, and others. The union filed ULP charges for retaliation (GR 6/20/08:1, 3; 7/18/08:1). Amidst the recognition election, former Newspaper Guild secretary– treasurer Bernie Lunzer, who had just won the first contested Newspaper Guild presidential election in more than a decade, exclaimed at the CWA’s convention: “Against heavy odds these brave people scored one of the most significant organizing victories at a U.S. paper in years. This victory is giving us renewed hope and dynamic new models to consider as we move forward” (DLR 6/30/08). After more than a year of negotiations during the Great Recession, BANG–EB Guild members overwhelmingly ratified their first contract. The 18-month pact provided basic job protections, grievance arbitration, guaranteed severance and overtime rights, and a wage floor, typical of Guild contracts. The local unit’s chair, Sara Steffens, who was one of 29 employees laid off during the successful organizing drive, noted: “We didn’t get everything we wanted, but we think this proposal is a strong starting point to build our future relationship with the company” (CWA News 2009d:9). The organizing victory at BANG–EB was significant and partially mitigated the losses of two relatively large units in San Diego (1998) and at the Eagle-Tribune (2006) in the Andover, Massachusetts, region and smaller unit at the Advance-owned Harrisburg (Pennsylvania) Patriot- News, in June 2006, which marked the end of 72 years of Guild representation in the newsroom. The decertification vote in Harrisburg came 20 years after the craft workers decertified their unions. Guild members were induced to leave the union by management’s demand that members pay 30% of their health care premiums, while non-union employees paid nothing. The company also earmarked reasonable pension and 401(k) plans for non-union employees only (Bloomberg BNA Plus, NLRB Election Results, Newspaper Industry, 2000–2012; GR 6/16/06:3). NEWSPAPER INDUSTRY 223

Organizing Carriers: A Nightmare on Elm Street? There have been hundreds of cases before the courts and eight before the NLRB in the past 20 years dealing with the legal status of newspaper carriers and haulers. Roughly 95%of newspaper carriers are adults and classified as independent contractors, but unions still attempt to organize them because, as former Guild national organizer Eric Geist argued, “Newspaper carriers are among the worst-treated workers in the country. I would say … we get calls from carriers at least once a month asking for help” (Fitzgerald 2001a). To the industry, the prospect of unionized carriers led Editor & Publisher to title an article “Unionized Paper Carriers: A Nightmare on Elm St.?” (Fitzgerald 2001b). Four notable cases occurred after 2000 that supported publishers’ claims that carriers and haulers are independent contractors and ineligible for union protection. The governing case involved Teamsters Local 460, which attempted to organize 400 carriers at the St. Joseph (Missouri) News-Press. Initially, an administrative law judge ruled that newspapers are in the business of gathering news and manufacturing newspapers—not delivering them, as the employer contended. Then, in a 2-to-1 Republican- majority decision, the NLRB ruled on August 2005 that News-Press carriers and haulers were independent contractors, consistent with the board’s Dial-a-Mattress (1998) ruling. In her dissent, Democrat NLRB appointee Wilma Liebman argued that the carriers were economically dependent on their employers and that the majority chose to apply a “rigid, outdated version of the common law agency test.” She argued that, as newer types of employment relationships have emerged, the distinction between an employee and an independent contractor have blurred, the NLRB “must ensure that the rights guaranteed by the Act do not erode for workers (what) Congress intended to protect” (St. Joseph News-Press v. Teamsters Union Local 460, 345 NLRB No. 31 2005:474, 487). As in other industries, newspaper unions continue to experience difficulties at the bargaining table, including from the bargaining structure, which is often an artifact from another era. Bargaining Structure: Advantage Employers The legacy of family ownership, a decentralized industry, and multiple craft unions created bargaining units that were and still remain narrow and decentralized. This structure has since become woefully out of balance in an industry that is consolidated, centralized, and dominated by large chains and media companies. Unions have attempted to compensate for bargaining structure disadvantages by coordinating bargaining efforts through “unity councils” that can bring together in the larger cities more than a dozen units. For example, there are more than 600 unionized workers in 15 bargaining units at the Buffalo News (Buffalo News Bargaining Status 2012, unpublished). 224 COLLECTIVE BARGAINING UNDER DURESS

There are some exceptions to decentralized structures. At News Corporation’s Dow Jones unit, the IAPE/Guild represents more than 1,700 reporters; copy editors; IT employees; and sales, professional, administrative, production, and support staff, and negotiates a single national agreement that covers more than 50 locations (DLR 3/22/10). At BANG–EB, the Pacific Media Workers Guild (PMWG) represents about 175 editorial employees at the company’s nine newspapers under a single labor agreement. In Philadelphia, the Guild bargains a single contract covering two dailies and a related website (Newspaper Guild, Contract Settlement Reports and Summaries, January 2010). As with organizing, labor law has impeded the ability of unions to centralize bargaining units to match employer power because such a demand is “permissive.” Moreover, decades of interunion rivalries have prevented the development of a single media union capable of dealing with large media corporations (Stanger 2002). These disadvantages have made it hard for unions to fare well at the bargaining table where management has intensified its demands for steep concessions.

HARD BARGAINING: THE NEW NORMAL Work stoppages have been rare after 2000, but labor conflict has been steady, manifesting itself mainly in contentious and protracted negotiations, often with the use of outside counsel who specialize in hardball tactics. Since the 1940s, publishers have been streamlining the production process, often stirring up conflict in the process. Although publishers generally succeeded by the 1970s, they continue to streamline other parts of the organization, such as delivery and editorial (Barwis 1981; Neiva 1996; Tracy 2008). In 2002, after Eugene (Oregon) Register-Guard hired attorney L. Michael Zinser, who demanded a “management-rights bargaining waiver” that would have rendered the Guild local irrelevant, the Guild condemned the privately owned company for transforming “a once idyllic workplace into a rancorous ‘us vs. them’ environment” (GR 10/18/02:3). In 2004, the Scripps-owned Commercial Appeal (Memphis), one of three southern U.S. papers represented by the Guild, also hired Zinser, who demanded deep concessions in pay, work rules, and elsewhere. Bernie Lunzer, secretary-treasurer of the national Guild at the time, blasted Scripps, noting, “The expenses and actions of this notorious union buster [Zinser] are well outside the norm” and jeopardized the previously stable labor relationship that the Guild described as “sleepy” (GR 4/15/05:3, 2/17/06:3). A short time later, the company hired a new publisher who had recently defeated a Guild organizing drive at a group of community weeklies in St. Louis. He joined Zinser in negotiations that had entered their third year (GR 11/18/05:2). Negotiations dragged on for almost NEWSPAPER INDUSTRY 225 seven years until 2010 when the Memphis Guild voted 43 to 7 (out of a unit of 208) to accept a three-year concessionary contract. According to local president Daniel Connolly, “It became clear in recent months that the company absolutely wanted the right to fire everyone and outsource everything. No amount of other concessions would sway them” (Editor & Publisher 2010). The union reluctantly accepted the company’s final offer, which included a wage freeze for all except employees at top scale, unlimited outsourcing and layoffs, and a permanent pension freeze (Newspaper Guild, Contract Settlement Reports and Summaries, December 2010). Scripps took a similar hardball approach at its Knoxville News Sentinel, where after 30 months of bargaining, the Guild settled on a concessionary deal, in mid-2008, that also included merit pay for the first time (GR 6/20/08:2). Arkansas-based Stephens Group hired Zinser in 2005 to negotiate on its behalf at its only unionized property, the (Hilo) Hawaii Tribune-Herald, which had a reputation for poor labor relations. Once again, Zinser, according to the Guild, made utterly unacceptable contract proposals, refused to modify them in subsequent “bargaining,” and instead haggled over minutiae that stretched the bargaining process into years (GR 11/18/05:5). In early 2008, the NLRB upheld 12 of the 13 ULPs against the company. Still, the union accepted the company’s final offer for a two-year contract in 2010 after the company terminated the contract in 2009 and threatened impasse. The contract included minimal raises (the first since 2002) and some minor gains, but it also contained significant concessions, including subcontracting, a broad management rights clause, and elimination of the dues deduction. Overall, the union’s role at the paper was greatly circumscribed (GR 3/21/08:3; Newspaper Guild, Contract Settlement Reports and Summaries, December 2010). At the Rochester (New York) Democrat and Chronicle, the Guild chas- tised owner Gannett for its anti-union tactics, including trying to decertify the union and demanding large concessions. After 16 years, the Guild finally won a contract (GR 2/27/04:1, 7/18/08:2, 8/15/08:1). It took 25 years, however, for the Dayton Guild to reach a contract with the Cox- owned Dayton Daily News. The Dayton Guild was organized in 1986 as an independent union and signed a three-year contract that expired in 1989. It worked without an agreement until 2012. The Guild referred to the company as “aggressive … from the outset” (Newspaper Guild 2012b). One major industry work stoppage occurred in Toledo—and almost in Pittsburgh—after the Block family, owners of both the Blade and the Pittsburgh Post-Gazette, hired the law firm of King & Ballow in 2006. King & Ballow, like Zinser, has a reputation for hardball negotiation tactics and union-busting. In Toledo, King & Ballow negotiated with the 226 COLLECTIVE BARGAINING UNDER DURESS

Guild and unions that made up the Toledo Council of Newspaper Unions. After having accepted a three-year wage freeze in the previous contract, Toledo Guild members faced demands for a 19% pay cut, higher payments for health care, unlimited outsourcing, the loss of seniority rights, and the most onerous demand, a broad management rights clause that would negate the role of the union at the Blade (GR 4/14/06:3). In October 2006, the company suspended dental and vision benefits and locked out five of the seven production unions affiliated with the Teamsters and CWA. The unions filed ULP charges and protested publicly. In Pittsburgh, the company’s weak financial condition—$23 million worth of losses since 2003 and four consecutive years in the red—led it to take a hard line against its six unions. In 2004, the local Guild unit returned $6 million in concessions but blamed management incompetence for continued losses. A Chicago-based attorney bargained on behalf of the Post-Gazette (GR 8/18/06:1; 10/13/06:1, 5). In March 2007, as the lockout of 215 production workers in Toledo entered its sixth month, the unions representing 1,042 workers at the Pittsburgh Post-Gazette reached agreements with management. The Pittsburgh Newspaper Unions Unity Council, which represented 11 of the 14 units at the paper, agreed to make “enormous financial sacrifices” to assist the ailing newspaper and the Blocks, who have owned the paper since 1927 and, who the union noted, made sacrifices to preserve many jobs in 1992. The 39-month contracts provided more than $27 million a year in concessions, including wage and pension freezes, diversion of current wages to pay for health care, and roughly 150 job cuts, hitting the Teamsters the most heavily (DLR 2/13/07, 2/27/07). Despite the settlement in Pittsburgh, the Toledo unions continued their community protests and boycotts into late May, when the Guild ratified a new contract, ending more than a year of conflict at theBlade . The deal, along with similar ones ratified a week earlier by the six unions, provided $15 million in labor concessions over the three-year term ending May 31, 2010. The 300-plus Guild unit was the largest of seven. The concessionary deal called for reduced wages for employees at top scale, a new lower tier for new hires, higher health insurance premium shares, a commission-only pay plan for advertising sales representatives, a longer workday, and two fewer personal days. The Guild also agreed to almost a dozen buyouts and layoffs in addition to 27 jobs cut earlier in the month. All replacement workers vacated their jobs when locked out employees returned to work in June (DLR 5/31/07). Besides the Seattle strike early in the decade, the only other strike occurred in Youngstown, Ohio, on November 16, 2004, when 180 Guild members struck the Vindicator for nine months. The family-owned Vindicator had been losing money over the previous seven years and NEWSPAPER INDUSTRY 227 demanded economic and work-rule concessions. The company continued to publish the paper during the strike while the union launched the Valley Voice to cover local issues, including the strike. After rejecting an offer in July by an 85 to 17 vote, Youngstown Newspaper Guild members voted 50 to 41 to approve a three-year contract almost identical to the one they rejected a week earlier. The contract contained small annual wage increases, signing bonuses, and concessions related to job security and the use of freelance reporters (DLR 7/29/05, 8/5/05). Aside from these more significant work stoppages, small units engaged in limited strikes of very short duration at the Portsmouth Daily Times, the New York Post, and the San Francisco Chronicle (Bloomberg BNA Plus, Work Stoppages Reports, 2000–2012).

HARD TIMES: BARGAINING THROUGH OWNERSHIP CHANGES, BANKRUPTCY, AND THREATS OF CLOSURE Newspaper unions also experienced difficult bargaining conditions when companies declared bankruptcy, changed ownership, or threatened closure. In all cases, the unions maintained bargaining relationships, but they made deep and wide concessions to preserve jobs and the viability of the newspaper. Table 9 provides an overview of bargaining under financial strains. Tribune Company The experience at the Tribune Company’sBaltimore Sun and (Long Island) Newsday shows the challenges of bargaining through the uncertainty of ownership changes and bankruptcy. In 2000, Tribune paid $8.3 billion for the Times Mirror Company. Tribune management was known for hard-line labor relations and had begun training strikebreakers from its non-union facilities during the 2003 round of bargaining with the Guild at the Baltimore Sun, the company’s largest Guild-represented paper at the time, with about 630 employees. There were five other unions at the Sun, but overall, Tribune’s workforce was less than 20% unionized. Tribune demanded extensive concessions from the Guild and offered members a $1,000 signing bonus as a quid pro quo. The Guild initiated a public campaign against Tribune but eventually agreed to a four-year contract that included small wage increases, a merit-pay plan, outsourcing, and the reassignment of employees to lower-paying jobs. A local union officer called Tribune “a really vicious, vicious, company” that never devi- ated from its original bargaining position (GR 6/13/03:1, 8; 7/11/03:1–2). In 2007, the Guild signed a “status quo” contract for its smaller, 500-member unit, which was down from 630 in 2003 owing to attrition and four years of buyouts (LRW 6/21/07). A year later, real estate mogul 228 COLLECTIVE BARGAINING UNDER DURESS

TABLE 9 Bargaining Under Financial Strains Company and Main newspapers union(s) Business conditions Outcomes Three-year concessionary contract extension at the Guild at Sun Bankruptcy (2008– Tribune Baltimore Sun in 2011; three- and GCC/ 2012); Cablevision (Baltimore Sun year concessionary contract IBT at purchases Newsday and Newsday) at Newsday that cut pay and Newsday in 2008 benefits. Union limits more onerous demands. Three-year concessionary Sun-Times Bankruptcy (2009); contract that cut pay and weak- (Chicago Guild, others ownership changes ened seniority; loss of pension Sun-Times) and training for new media. First contracts signed during Avista Guild, Ownership changes wave of bankruptcy. Many (Minneapolis Teamsters, (2007, 2009); concessions; Guild gets profit Star Tribune) others bankruptcy (2009) sharing. Philadelphia Three-year contract in 2010 Newspapers Guild, Bankruptcy (2009); follows bankruptcy. Conces- (Inquirer, Teamsters, five ownership sions continue. Two-year deals Daily News, others changes in six years in early 2013. Philly.com) New York Two concessionary bargaining Threat of closure Times (Boston Guild rounds. Globe remains open and (2009) Globe) under same ownership. Hearst (San Two concessionary contracts in Francisco Guild Threat of closure 2009 and 2010 save paper. Chronicle) Advance (Star- Guild, Concessionary contracts in Threat of closure Ledger, Times of Teamsters, 2008 keeps papers open and or sale Trenton) Drivers under same ownership.

Sam Zell purchased Tribune but soon pushed the company into bankruptcy because of high debt incurred from the purchase and the decline in advertising revenue. Wary of conflict, the Guild agreed to extend the 2007 deal, in March 2011, for another three years. The union won a small raise and the possibility of performance-based raises. Pensions were frozen for current employees, while new employees would be eligible only for the 401(k), to which the employer agreed to increase contributions. The union also received the right to represent business-side Web workers, including designers and videographers, who joined Web content employees already in the unit. The Guild unit continued to shrink: between 2000 and the contract renewal date, membership fell from 800 to 225, a 72% decrease (DLR 3/15/11). NEWSPAPER INDUSTRY 229

At the Tribune’s Newsday, the six GCC/Teamster units that represented about 2,000 full- and part-time employees reached a four-year concessionary contract in January 2006—the first contract since 1995—and avoided a long and expensive fight. The pact contained lump-sum and wage increases, replacement of the pension plan with a 401(k) plan, outsourced delivery in Queens, some reduced vacation time, and 60 job cuts, mainly press operators and drivers. The union won signing bonuses, improved dispute resolution language, and preserved 100 jobs that were slated for cuts. Despite the concessions, the GCC believed it negotiated a strong contract (DLR 1/10/06; Newspaper, Magazine & Electronic Media News 2008:1, 3). In May 2008, Cablevision Systems purchased Newsday from Tribune. Two years later, it demanded from the GCC’s six units and 1,100 employees (down by half since 2006 owing to buyouts and layoffs) double-digit pay cuts, longer hours, and less overtime. In exchange, Cablevision offered to contribute 3% of base salary to employees’ 401(k) accounts beginning in 2012 (DLR 1/11/10). With the support of the IBT, the local rejected management’s offer 473 to 10. In response, management drastically cut severance pay, which was provided for in the employee handbook. GCC president George Tedeschi demanded that Cablevision share its financial records with the union and admonished it for overpaying for Newsday at a time when the newspaper business was in a downturn and the Long Island economy was poor (DLR 1/26/10). In June 2010, after seven months of negotiations, two contract rejec- tions, and company threats to declare impasse and impose conditions, the union accepted a new three-year contract that cut wages between 5% and 10% (for drivers). Given industry turmoil and Tribune’s recent bankruptcy, the union got an “acceptable deal.” It staved off demands for a longer workweek, the elimination of seniority in the newsroom, outsourcing of transportation, and increased pressroom flexibility. According to the local president, “Officers of the union did the best they could without Newsday trying to dismantle the union” (DLR 6/30/10). Sun-Times Media Group On March 31, 2009, the Sun-Times Media Group, owner of the Chicago Sun-Times and other nearby properties, became the fifth newspaper publisher to declare bankruptcy. All had Guild units (GR March/April 2009:2). In September, members of the Chicago Newspaper Guild voted 83 to 22 to reject a three-year contract that would have cut pay by 15%, reduced benefits, and removed seniority provisions to appease a prospective buyer who refused to assume the underfunded pension plan. The Chicago Guild’s executive director argued that the demands “would have gutted the contract.” At the time, employees were working under a 15% pay cut that they could take as unpaid furloughs to mitigate the pain. 230 COLLECTIVE BARGAINING UNDER DURESS

There were 18 bargaining units at theSun-Times , but management did not make the same demands on the craft unions, only the Guild, which represented workers at five of the Sun-Times Media Group’s community newspapers and about 400 of its 600-plus unionized workforce. Three other Guild units rejected the company’s demand. The Guild was also involved in “effects bargaining” at a production unit slated for shut down (DLR 9/22/09). On October 8, 2009, a bankruptcy court judge approved the sale of the company to a private investor group, STMG Holdings, led by local banker James Tyree, for $25 million ($20 million in liabilities). STMG was the sole bidder on the company, reflecting the poor state of the newspaper industry. A day before the court ruling, the Sun-Times Guild unit voted 89 to 29 to accept a three-year concessionary contract. Other Guild units followed. The new deal codified the 15% pay and benefits cut but gave employees choice in arriving at that amount. Seven current underfunded pension plans were frozen and transferred to the Pension Benefit Guaranty Corporation in August 2010. A 401(k) plan replaced the pension plan. The Guild also agreed to remove seniority for determining layoffs, bumping rights, transfers, and other actions, but the new contract “built fences around it to deal with problems,” such as grievances and just-cause requirements. Employees won training opportunities in new media to keep their skills current—a clause that the Guild has been building into other contracts—and a decent severance package (DLR 10/9/09, 8/12/10). Minneapolis Star Tribune Multiple ownership changes and bankruptcy also affected union workers at the Minneapolis Star Tribune beginning in 2007 when New York City–based private equity firm Avista purchased the paper from McClatchy for $530 million, about half of what the Cowles family sold it ($1.2 billion) to McClatchy for in 1998. Avista had no prior newspaper publishing experience. Before the sale, the Star Tribune was McClatchy’s flagship newspaper (Lisheron 2012). In May 2007, following the departure of 24 employees, Avista announced 145 more job cuts, which preceded an announcement that up to 100 newsroom employees would be reas- signed and some of their beats eliminated. After the layoffs, newsroom staffing dropped almost 15%, from 340 to 290. In July 2008, the Guild ratified a three-year contract, 210 to 27, that cut $20 million (or 19% over three years) in expenses. Concessions included a wage freeze (with small increases to follow), higher health care payments, and the elimination of six newsroom positions. The Guild won training resources and, for the first time, buyout offers with contractual severance payments before layoffs occurred. In another first, reporters and photographers could be assigned to use multimedia equipment, provided the company made training and equipment available. The company made NEWSPAPER INDUSTRY 231 even harsher demands on drivers and mailer, press operator, and other units (GR 5/19/07:5, 8/15/08:3; Minnesota Newspaper Guild 2008). The Star Tribune’s parent company operated under bankruptcy protection between January and September 2009. In May 2009, the Guild signed a mid-term bankruptcy agreement with Avista that promised an additional $5 million in savings through its expiration in July 2011. The Minnesota Newspaper Guild said it had the “dubious distinction of being the first Guild unit in the country to ratify contract concessions in the recent spate of newspaper company bankruptcies” (Minnesota Newspaper Guild 2009). The Guild was one of ten units that agreed to mid-term deals. Among the notable concessions were deep wage cuts, the elimination of shift differential and daily overtime, the phasing out of the night differential, two days of unpaid furlough in 2009 and 2010, reduced severance packages, and the freeing of the pension plan. Future company contributions would be paid into each employee’s cash balance plan account. The most controversial part of the deal, according to the Minneapolis Guild, was the revision of the security clause for layoffs, whereby the Guild agreed to an increase in the number of classifications for layoff purposes from 13 to 18, which was less than the company’s demand for 25. For the first time, the company could exempt up to 12 employees from layoff, with no more than 20% from a single job classification. In exchange, the Guild negotiated a profit-sharing plan that would distribute cash at 10% over cash flow above $5 million (Minnesota Newspaper Guild 2009). Soon after exiting bankruptcy under new private ownership in late 2009, the Star Tribune announced it would cut an additional 100 jobs, including 30 in the newsroom by year’s end. The newsroom cuts were two to three times as many as the Guild expected, but they would be buyouts not layoffs (GR November/December 2009:2). In August 2011, after 11 hard bargaining sessions, the Guild voted to extend the contract through January 31, 2013. This was the first round of bargaining since the paper exited bankruptcy (GR Fall 2011:4). Local union executive officer Mike Bucsko stated that Guild members took pay cuts averaging 8% during bankruptcy, some as much as 14%, and have not had a wage increase since 2008. The profit-sharing checks over the past two years totaled about $2,000, far short of the roughly $6,000 in concessions a year per employee (Mike Bucsko, personal communication, 10/10/12). By mid-2012, the company had exited bankruptcy, reduced its debt load, and grown customer-based revenue to 45% of total revenue, well above the industry norm. Despite extensive concessions and newsroom staffing cuts from 400 in 2006 to 260 in 2012, morale has been improving (Ackermann 2011; Ellis 2012; Lisheron 2012). 232 COLLECTIVE BARGAINING UNDER DURESS

Philadelphia Newspapers The experience in Philadelphia, while similar to Minneapolis in terms of bankruptcy, ownership changes, and steep labor concessions, differed in the extent of ownership instability. The company Philadelphia Newspapers has had five owners over the past six years and continues to struggle financially. Late in 2012, the company demanded $28 million in concessions from the unions while the contracts were in effect. In May 2006, McClatchy sold Philadelphia Newspapers to Philadelphia Media Holdings (PMH), led by local advertising executive Brian Tierney, for $562 million. The purchase covered the broadsheet Philadelphia Inquirer, the tabloid Philadelphia Daily News, and the online site philly.com. The properties continued to be managed by Philadelphia Newspapers. The deal transitioned the company from a public company, which it had been since Knight Newspapers purchased it in 1969, to a private concern. Knight Ridder, formerly Knight Newspapers, sold the company to McClatchy in 2006 for $4.5 billion (Saba 2006a, 2006b; Moos 2012b). The 2006 bargaining round, the first under PMH, was highly contentious. The Guild was the last holdout of the ten units and the only unit not in the Philadelphia Council of Newspaper Unions, which negotiated the economic package and contract length. The individual units worked out the non-economic issues. In early December, more than 1,000 drivers, building service workers, press operators, paper handlers, and other groups signed new deals. The Guild, which represented 900 editorial and business employees, negotiated economic issues separately and remained at loggerheads with the company over wage and pension issues. On December 18, the Philadelphia Guild ratified a tentative three-year deal, 498 to 69, that averted a threatened strike. The contract contained small pay increases that were offset by higher health care contributions, amounting to “virtually a three-year freeze.” The contract also established a joint pension board to merge the pension with a multi-employer plan and infuse it with a $4 million contribution to various retirement plans. Afterward, the employer would no longer match employee contributions. The Guild set the economic pattern for the other units (DLR 12/11/06, 12/14/06, 12/20/06). Concessionary labor agreements were not enough to offset revenue declines and a heavy debt burden, leading the company into bankruptcy in February 2009. On August 24, 2010, Philadelphia Guild members voted 287 to 38 to approve another three-year concessionary labor contract with the new owner, PN Purchaser Company (called Philadelphia Media Network after bankruptcy), scheduled to go into effect when the transaction was finalized. The new contract contained wage cuts and unpaid NEWSPAPER INDUSTRY 233 furloughs amounting to a 6% pay cut, no layoffs for a year, a new 401(k) plan with an employer match, a second-tier wage scale for new hires, and longer hours. The Guild won the right to represent 26 employees at philly.com and the possibility of future profit sharing that could go into effect in third year of the contract. The Guild unit had been reduced by about half—to about 500—since the last contract. Counting the value of concessions and attrition, the 2010 Guild payroll was $6 million less than the 2009 payroll. The main creditors of the bankrupt company assumed ownership in late September 2010, bidding $105 million in cash and $139 million overall, a substantial discount to the $562 purchase price in 2006. The new company was controlled by hedge funds Angelo Gordon & Company and Alden Capital Management, and the bank Credit Suisse (DLR 8/25/10; Plambeck 2010). By early 2012, the new owners were looking to sell the company, and in February, they announced 37 buyouts and layoffs, and a restructuring that would merge all three properties into a single newsroom in a new office building. TheInquirer and Daily News have shared ownership and an office building since the late 1950s but maintained separate newsrooms as part of their local rivalry (Chozick and Carr 2012; Armstrong 2012). On April 2, a group of local investors operating as Interstate General Media (IGM) purchased the Philadelphia Media Network for $55 million, the fifth sale in six years. The price was a 60% discount to the 2010 price, and a 90% discount to what Tierney’s group paid in 2006, reflecting continuing industry weakness (Adams 2012; Launder 2012). In August, IGM notified the Philadelphia Guild that it needed $28 million in mid-contract concessions to offset a $16 million decline in revenue for the first half of 2012. The company targeted $8 million from the Guild through wage cuts up to 13%. A local Guild officer responded to the company’s demands: “We understand that revenue is down, but also question why a group of successful local businessmen did not antici- pate this possibility when they bought the company in April and pledged to invest ‘patient capital’ and revitalize the Inquirer, Daily News, and philly.com” (Beaujon 2012a). In early February 2013, faced with the threat of asset sales or liquidation, the Philadelphia Guild voted 200 to 35 to accept a two-year contract that cut wages by 2.5%, continued ten unpaid furlough days per year, and returned $7.1 million to IGM. In exchange, the company offered the prospect of profit sharing in the second year of the contract and agreed to keep the papers publishing daily through 2014. The Guild was the largest unit and the last of the 11 unions to ratify concessionary contracts with IGM (Armstrong 2013a, 2013b; LRW 2/13/13). 234 COLLECTIVE BARGAINING UNDER DURESS

Threatened Closures In addition to dealing with bankruptcy and ownership changes, newspaper unions bargained concessionary contracts to save a handful of metropolitan newspapers from closure, such as the Boston Globe, San Francisco Chronicle, Newark Star-Ledger, and its sister, the Times of Trenton. The Boston Globe In Boston, there were four challenging and concessionary rounds of bargaining that transpired after 2000, including one in 2009 that addressed the threat of closure at the New York Times Company’s Boston Globe. During the contract in effect since 2006, the fortunes of both the industry and the Globe worsened (DLR 12/15/06). The Times Company, which spent an industry record-setting $1.1 billion to buy the Globe in 1993, said the Globe lost $50 million in 2008 and was expected to lose $85 million in 2009. In April 2009, the company demanded $20 million in labor concessions, $10 million of which targeted the Guild, in order to save the 187-year-old newspaper. Seven units bargained on behalf of 1,300 employees, with roughly 700 in the Guild unit, the paper’s largest. Although the six other unions agreed to concessions, the Guild refused to reopen the 2006 contract, contending that, while it was sympathetic to the Globe’s plight, it lost 78 members to layoffs and buyouts in March 2009 and almost 400 over the past few years. In late April, the Guild launched an online petition to save the Globe, which it called a “community asset … necessary to the character of the city of Boston and indeed the entire New England region” (DLR 5/5/09). In May 2009, negotiators reached a tentative deal that was designed to save $10 million in labor costs, including the elimination of lifetime job guarantees for 190 Guild-represented employees. The other units also agreed to eliminate 240 positions that were protected by lifetime job security clauses negotiated in the early 1990s. But in June, Guild members rejected this deal, 277 to 265, prompting management to immediately declare impasse and impose a 23% wage cut. In addition, the Globe laid off 17% of its management staff, cut their pay 5%, and degraded some of their benefits (DLR 5/7/09, 6/10/09, 6/15/09). On July 20, Guild members voted 366 to 179 to accept a deeply concessionary contract, the last of seven signed during that round. The deal extended the old contract through the end of 2010 and contained a 5.94% wage cut, five unpaid furlough days, the loss of three paid days off, new overtime rules, the end of banked vacation, the elimination of company pension contributions and 401(k) matches, cuts to retiree and current employee health plans, and the elimination of lifetime job security and other benefits (DLR 7/22/09). NEWSPAPER INDUSTRY 235

One Guild contract has followed the 2009 agreement and, for the first time, offered the possibility for profit sharing. At signing, the size of the Globe’s Guild unit had fallen to 573 from 1,150 in 2004, a decline of 50% (Newspaper Guild, Contract Settlement Reports and Summaries, March 2011). Unable to sell the Globe in 2009, the New York Times Company instead it sold its regional newspaper group for $143 million in 2011 and its final stake in the Fenway Sports Group, owner of the Boston Red Sox baseball club, for $63 million in May 2012. In late August 2012, it sold its About.com unit for $300 million to IAC/Interactive, after acquiring it in 2005 for $410 million. In late February 2013, the Times Company announced its intention to sell its New England Media Group, which includes the Globe, the Worcester Telegram & Gazette, and other assets to concentrate on the Times brand (Vega 2012; News Inc. 2012g; Chozick and Haughney 2013). San Francisco Chronicle In January 2005, the Hearst-owned San Francisco Chronicle hired publisher Frank Vega in advance of contract negotiations with the 900- person Guild unit. Known as “Darth Vega” for his hard-line negotiations tactics when he ran the Detroit Newspaper Agency during the 1995 strike, Vega was determined to pare the workforce and exact concessions from the unions. The local Guild executive officer predicted a loss of 10% of the unit’s jobs and “a lot of hard bargaining between now and the conclusion of these talks” (GR 4/15/05:3). He was right: Vega hired a security firm and made other preparations for a work stoppage. In an internal company memo, Vega wrote, “We intend to publish and distribute the Chronicle no matter what” (GR 6/17/05:3, 8/12/05:1). The recently expired contract was concluded after a two-week strike and extended in 1997 through 2005. In 2000, Hearst sold the San Francisco Examiner and bought the Chronicle for $600 million. To maintain labor peace, it agreed to keep both staffs employed at the Chronicle, but after losing more than $60 million in 2004, it demanded concessions from its five unions. According to the Guild, Vega sought to divide the unions, but they agreed not to ratify any agreements until all had contracts, a pledge that they had in place for more than 40 years. Faced with a publisher determined to exact concessions to stanch large financial losses, the Northern California Media Guild accepted a “terrible” five-year concessionary contract that included the loss of 120 jobs through buyouts, immediate pay cuts up to 44% for a significant group of employees and 11% increases for others, the end of paid time off, the loss of 45 reclassified jobs, elimination of the evergreen clause, and elimination 236 COLLECTIVE BARGAINING UNDER DURESS of the right to honor picket lines without disciplinary retaliation. The Guild won a one-time $2.3 million payment for the health and welfare trust and $5 million for the pension plan. Three other units later signed concessionary deals (GR 8/12/05:1, 5; DLR 7/26/05, 7/29/05). The financial fortunes of theChronicle worsened by 2009, leading the company to seek additional concessions to avoid its sale or closure. Hearst claimed the newspaper lost about $1 million a week in 2008 and had negative profits every year since 2001, when industry profit margins exceeded 20%. Hearst blamed the previous owner’s 35-year JOA with the smaller Examiner and a tough newspaper market. From 2003 to 2008, the Chronicle lost a third of its circulation, one of the steepest declines in the industry. The 2009 contract included vacation and sick leave reductions, a longer workday, a weaker arbitration clause, and the end of seniority protections against job loss. A year later, the Guild ratified a two-year contract, 88 to 13, which included modest gains and no concessions. A local union officer remarked on this contract: “Overall, it’s the first step ahead for the Chronicle membership since 2005” and contains “gains unmatched by virtually any other Newspaper Guild unit in the country in 2010.” The contract covered only 250 employees, down 72% from 2005 (Pérez-Peña 2009b; DLR 12/14/10). Star-Ledger and the Times of Trenton On the east coast, Advance Publications’ Star-Ledger, New Jersey’s largest newspaper, and its smaller sister paper, the Times of Trenton, teetered on the verge of closure or sale before the onset of the Great Recession. In late July 2008, Advance informed its unions that it needed to eliminate at least 20% of the newspapers’ staffs and accept additional concessions to stay afloat. The Star-Ledger’s daily circulation had fallen 34% from 1990 to early 2008. The company claimed it needed more than 300 employees to take buyouts in Newark. Roughly 250 of the paper’s 1,000 employees were unionized. Advance stated that both papers would lose about $40 million in 2008 on top of the steady stream of losses they experienced for years. Advance’s New Jersey properties had been hit harder by the severe downturn in advertising revenue than its other papers across the country. Prior to this announcement, Advance won work-rule, wage, and staffing (via buyouts) concessions from unions in Newark and Trenton. In late September, three months before the January 5, 2009, deadline to sell or close the paper, Teamster mailers, the largest unit at the Star-Ledger with 400 employees, voted 183 to 18 to accept 100 buyouts and a three- year wage freeze. In early October, the 90-person NMDU agreed to a wage freeze and other concessions, including 20 buyouts. The ratification vote of 161 to 6 included members employed at other companies, as permitted under the union’s rules. Given the precarious financial state of the NEWSPAPER INDUSTRY 237 industry and the dearth of potential buyers, 230 non-union workers, more than the targeted number, accepted buyouts. The editorial staff in Newark was reduced by 40% and shrunk from 11 to 4 in Trenton. With these labor contracts and the non-union buyouts, Advance retained ownership of these two properties (Pérez-Peña 2008a, 2008b; Strupp 2008a, 2008b). Summary of Bargaining Trends and Outcomes Since the Great Recession The extent of wage, benefit, work-rule, employment, and other concessions at the newspapers discussed in this section reflect unfavorable industry conditions that began before 2000 but have since have been amplified by the effects of the Internet and the Great Recession. Newspaper companies have attempted to preserve monopoly profits by cutting costs and making larger investments in digital operations with only limited success and with significant reductions in journalism quality. For about two decades, unions have been pressured to make concessions, but in recent years employers have asked for wider and deeper concessions. For example, companies sought to remove seniority as the basis for layoffs and other personnel decisions, consolidate multiple job classifications into a single journalist job classification, and freeze or eliminate defined benefit pension plans in favor of 401(k) plans or enter into multi-employer pension plans with less onerous funding requirements. Employers have also demanded staffing cuts even when profitable. Deep staffing cuts since 2000, especially since 2007, have hurt the Guild’s effectiveness in protecting its members by reducing the union’s membership by 28% and by depleting local leadership ranks (GR 9/10/08:3). Employer demands for concessions accelerated in the wake of company bankruptcies in early 2009 (GR January/February 2009:5). Although concessions were steeper at financially troubled properties, few, if any, bargaining units across the country did not make concessions. Between October 2011 and the end of 2012, the Guild signed about 40 agreements on behalf of 32 locals representing more than 2,000 employees in the United States and Canada. With few exceptions, these contracts have included pay, benefits, and job cuts; wage freezes; and unpaid furloughs. Between the summer of 2012 and the end of 2013, the Guild will renegotiate 48 contracts (Newspaper Guild 2012a). In advance of these negotiations, the Guild convened a special 13-member blue-ribbon panel “to develop strategies that local bargaining units can use to strengthen their positions in negotiations” (GR Summer 2012:3). Whatever strategies emerge from this panel, Guild, Teamster, and other newspaper unions will continue to face a difficult bargaining environment years into the future as the industry continues its shakeout and tries to find a viable business model. 238 COLLECTIVE BARGAINING UNDER DURESS

In a rare example of good news, in mid-November 2012, after 21 months of negotiations and public protests, the New York Guild ratified by a vote of 521 to 64 a five-year contract that covered 1,100 employees. The deal includes a 6% pay increase over five years, new annual incentive bonuses, a new hybrid pension that preserves the defined benefit plan, higher employer contributions for health care, a new two-tier severance benefit, and a merger of print and digital operations into a single unit. Guild president Bill O’Meara attributed the good contract in the face of management’s demands for concessions to a “level of engagement and activism … that has been greater than anything I’ve seen in my 24 years at the Guild” (LRW 11/21/12).

THE FUTURE OF NEWSPAPER UNIONS AND COLLECTIVE BARGAINING Improved bargaining prospects will emerge only from changes in labor and media law and policy that create a more favorable climate for workers and unions. Such changes are not likely in the short run, however, so unions must work harder to improve their prospects using old and new strategies. Organizing Prospects for Newspaper Unions The newspaper industry, like much of the private sector, is virtually non- union, with exceptions at the larger metro newspapers. Although organizing poses formidable challenges, union growth can come from organizing non-union newspapers and by additional mergers of local and national unions. The history of union mergers in the industry is mixed at best, and prospects for a single, large media union, while necessary, face major obstacles (Stanger 2002). The clustering and consolidation of operations, however, enables unions to focus scarce resources on a concentrated geography instead of spreading them thinly across geographically dispersed operations. The Guild’s successes in organizing workers at BANG–EB in 2008 and in Dayton in 2012 might offer a blueprint for future organizing success. Geography is not an issue in the digital realm, where staffs are small and limited mainly to editorial employees. The Newspaper Guild conducted its first online-only organizing drive in 2008 at the nonprofit, progressive- leaning website, Truthout. The St. Louis Newspaper Guild (now the United Media Guild) conducted the drive electronically and by card-check and successfully organized the 15-member unit (Timothy Schick, personal communication, 9/18/12). But not all progressive websites welcome unions. In July 2011, in an NLRB-directed election, workers voted 7 to 5 for the PMWG to represent them at the Bay Citizen, a San Francisco–area digital-only investigative operation launched in May 2010 with a $5 mil- NEWSPAPER INDUSTRY 239 lion grant the to fill the void in case the San Francisco Chronicle closed. TheBay Citizen partnered with the New York Times to deliver content to Times subscribers in the Bay Area and formed relationships with other news organizations and the Berkeley Graduate School of Journalism. In May 2012, it merged with the 70-person, non-union Center for Investigative Reporting (CIR), the longest-running nonprofit investigative news operation in the nation, founded in 1977 (Bay Citizen website). After the merger, CIR management argued that the Guild no longer represented a majority of workers and called for a new election. The Guild lost the July 2012 election in a 10 to 11 vote. Timothy Schick, Guild administrative director, reported that the biggest obstacle faced by local organizers was a “startup mentality,” whereby workers viewed themselves as partners with management, building a new type of organization from the ground up (Timothy Schick, personal communication, 9/18/12). This mindset is common among employees of these new, mainly tax-exempt, digital-only ventures with small staffs, uncertain financing, and workplace cultures different from those of traditional newsrooms (see Enda 2012 and Anderson 2012 for more on nonprofit journalism). Organizing newspapers’ legacy print and digital operations and the new online-only operations remains essential to the survival of newspaper unions in the future, but there are other avenues for unions to pursue. Alternative Ownership Arrangements: Hits, Misses, and Future Prospects Newspaper unions have a long history of establishing strike newspapers, as they did recently with the Detroit Sunday Journal, a weekly publication that existed for four years and reached a peak circulation of 300,000 in its first year (Rhomberg 2012:199, 247). Although such newspapers generally shut down at the conclusion of the dispute, the Citizens’ Voice (Wilkes-Barre, Pennsylvania) continues to operate since its founding in 1978. Starting a union-run print newspaper is not prudent under current conditions, but establishing digital-only publications supported by international unions and labor federations, private foundations, employees, paywalls, or membership subscriptions could fill market niches and might survive under the right conditions. Since 2005, The Newspaper Guild has explored other forms of alternative ownership models such as the purchase of newspapers; employee stock ownership plans (ESOPs), the creation of low-profit, limited liability companies (L3Cs); and worker-owned cooperatives. Some of these models have been implemented, but others have failed to gain traction. With supportive public policies, alternative forms of ownership could give newspaper unions another mode of representation. 240 COLLECTIVE BARGAINING UNDER DURESS

The biggest attempt at direct union purchase occurred in late 2005 after Knight Ridder put itself and 32 newspapers up for sale. The Newspaper Guild joined Gannett, MediaNews, McClatchy, and at least nine private equity firms as bidders on parts of Knight Ridder. The Guild, which represented employees at nine papers, hired Ownership Associates and Duff & Phelps Securities to explore ownership potential and created a holding company called Value Plus Media to house acquired properties. The Guild proposed a combination of “worker-friendly” private equity concerns and a Subchapter S corporation, a type of ESOP, to operate on a tax-free basis. Knight Ridder stated early on that it was not interested in selling individual properties (Seelye and Sorkin 2006; GR 1/20/06:1). In mid-February 2006, the Guild received backing from the union- friendly investment firm Yucaipa Companies, founded in 1986 by supermarket billionaire Ron Burkle (GR 2/17/06:1–2). In March, however, McClatchy successfully bid on Knight Ridder’s 32 newspapers but put eight unionized properties up for sale. The Guild coveted the eight unionized papers and had Yucaipa’s backing. Other prospective buyers expressed interest in the former Knight Ridder properties (GR 3/17/06:1–2, 5/19/06:1, 5). By July, all papers were sold to private concerns, shutting out both the Guild and Yucaipa (GR 6/16/06:1–2, 7/21/06:3, 8/18/06:1). The Guild has long decried private equity’s reputation for slashing labor costs at newly acquired newspapers, so when MediaNews and other pur- chasers of former Knight Ridder newspapers made significant job cuts, the Guild called for a “day of action” in December 2006 to protest the loss of 34,000 newspaper jobs since the beginning of 2001 (GR 10/13/06:1, 12/8/06:1–3). Unable to purchase newspapers outright, the Guild has had more success in getting an equity stake. In June 2009, the Blethen family, owner of the Seattle Times Company, sold its three Maine newspapers to an investment group headed by Richard Connor. The sale included the Portland Press Herald/Maine Sunday Telegram and properties in Waterville and Augusta. At the time, the Guild represented about 350 employees at the Portland and Waterville newspapers (GR 11/19/08:3; Mapes 2009). Connor’s group teamed up with a Dallas-based private equity firm that co-owned the Times Leader. The company, Maine Today Media, demanded concessions, including the reduction of 100 of 500 total jobs, to return the newspapers to profitability. The final sale was delayed until the Portland Guild won a successor clause in the contract. After more than a year of negotiations, the Portland Guild voted 161 to 19 to accept a new contract that included a 10% pay cut, a two-year wage freeze, the suspension of 401(k) payments, a pension freeze, and buyouts. In return, it received a 15% ownership stake, via an ESOP, in NEWSPAPER INDUSTRY 241

Maine Today Media, two seats on the new board of directors (the other unions received a single seat), and joint labor–management committees to improve the quality of journalism and to develop a new business model. The vote, the Guild declared, “marks the first time in recent history that U.S. newspaper workers have had a say in taking an ownership position in a company that employs them” (GR May/June 2009b:1, 4; July/October 2009:7; Mapes 2009). The ESOP succeeded in preventing bankruptcy at the time—no small feat. In fall 2011, after months of tough bargaining and a company threat to declare bankruptcy, Guild members ratified an 18-month contract that “struck a responsible balance between their needs and the survival of the Portland Press Herald/Maine Sunday Telegram,” according to the Guild Reporter. During that time, Maine Today ousted Connor and promised to upgrade technology and provide training to Guild members to work with digital technology. Within a few weeks, the local faced a threat from a new investor who the Guild feared would shred the contract. Instead, Guild leaders found a prospective owner, Donald Sussman, a progressive businessman married to a Maine congresswoman who had deep roots in Maine. In February 2012, Sussman and the Maine Today board, including union representatives, reached a deal: In exchange for a multi-million- dollar loan, the Portland Guild would retain its equity stake and board seats. The newspapers also won complete editorial independence. Portland Guild vice president Greg Kesich was pleased: “We expect to have a voice in important strategic decisions in the company’s future” (GR Spring 2012:1, 4). These new arrangements, according to Guild president Bernie Lunzer, show that the “newspaper industry is more than a business and more than a job to our members. It’s a calling. Members are not only fighting for their jobs, they’re fighting to ensure that their communities and our larger democracy continue to benefit from newsrooms full of skilled and seasoned civic watchdogs who know how to dig for the truth” (CWA News 2009b:6). Thomas Jefferson and James Madison expressed similar beliefs about the essentiality of a free press in a democratic polity. Their efforts made the press the only industry protected by the U.S. Constitution (McChesney and Nichols 2010). With newspapers’ civic roles threatened by falling profits and editorial cutbacks, Maryland Senator Ben Cardin (D) sponsored the Newspaper Revitalization Act (2009) to allow newspapers to operate as non-profits, under 501(c)(3), for educational purposes, similar to public broadcasting. Cardin’s bill targeted local newspapers to preserve independent and investigative journalism as a bulwark against corruption and other threats to democracy (Cardin 2009). The Newspaper Guild also 242 COLLECTIVE BARGAINING UNDER DURESS supported a related bill, the Program-Related Investment Promotion Act, which would have enabled newspapers to operate as L3Cs (GR July/ October 2009:5). Both bills failed, but L3Cs remain a viable option. Low-profit, limited liability companies blend for-profit and nonprofit elements into a hybrid structure designed to attract private investments and philanthropic capital in organizations that are primarily charitable. Unlike a charity, however, L3Cs can distribute after-tax profits to owners or investors. In April 2008, Vermont became the first of nine states to recognize the L3C as an official legal structure. The IRS is considering federal tax code changes to make them federally permissible (Chan 2008; interSector Partners 2012). The Newspaper Guild and the Peoria Newspaper Guild, which represented 100 employees (with the CWA Printing Sector representing another 30) at GateHouse Media’s Journal Star, explored the possibility of purchasing the paper from the debt-ridden company and creating an L3C beginning in late 2008. Employees preferred local ownership, with which it had experience. From the mid-1980s until 1996, the Journal Star had operated as an ESOP. Although the Guild was optimistic that legislation would enable unions to buy and convert the Journal Star to an L3C in 2009, and do likewise at the Minneapolis Star Tribune, both have retained traditional ownership (CWA News 2009c:6; Fitzgerald 2009). In 2009, in Puerto Rico, 90 locked-out Guild-represented employees from the defunct San Juan Star, which had operated for 49 years, established the Puerto Rico Daily Sun as a worker-owned newspaper. TheDaily Sun, currently the island’s only English-language newspaper, is run by Cooperativa Prensa Unida, part of an $8.5 billion cooperative. All Daily Sun employees—and some U.S.-based Guild and CWA members—purchased shares valued at $800 in the new venture. The newspaper launched a website with aid from the Guild and CWA. TheDaily Sun prints seven days a week and celebrated its third anniversary in 2012 (CWA News 2009a:7; GR November/December 2009:6; Puerto Rico Daily Sun). These and other forms of alternative ownership arrangements (see McChesney and Nichols 2010 and Pickard, Stearns, and Aaron 2009 for more on public policies) could save troubled newspapers and provide workers and unions with a voice in strategy and operations, but by themselves they will not be enough to reverse the decline of newspaper unions. Until the combination of a viable business model, more effective union strategies, and favorable public policies emerge, unions will continue to experience hard times and hard bargaining. NEWSPAPER INDUSTRY 243

ACKNOWLEDGMENT I would like to thank Melanie Janiszewski (doctoral student, Cornell ILR) for her assistance in collecting and tabulating data.

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Chapter 7 Public Sector Collective Bargaining: Tumultuous Times

Robert Hebdon McGill University Joseph E. Slater University of Toledo Marick F. Masters Wayne State University

Before 2008, public sector labor relations might best be described as “business as usual.” Union density levels were stable, wage and benefit levels more or less in line with the private sector, privatization was at average levels, and strike rates were at relatively low levels. This apparent stability in relations changed dramatically after 2008 with the start of the Great Recession. This recession was unique because it was coupled with a financial meltdown that resulted in exploding deficits and debt as demand for services grew (Stiglitz 2010). The pre-recession stability quickly turned into crisis as public employee compensation and services came under attack and collective bargaining itself was challenged in several states (Saltzman 2012). This chapter documents the changes in the economic, financial, legal, and political environments at all three levels of government: local, state, and federal. Considering the vastness of these changes, a complete chronicle is beyond our scope. We have chosen instead to highlight the legislative battles and offer special focuses on the federal sector and the state of Wisconsin. Wisconsin may not be fully generalizable as a case, but it has all of the key elements of the story. We contend that the future directions of collective bargaining in the public sector may well be found in the Wisconsin story—for example, in terms of the limits of political attacks on collective bargaining.

THE ORIGIN AND STRUCTURE OF PUBLIC SECTOR BARGAINING The National Labor Relations Act of 1935 excluded all federal, state, and local government employers from collective bargaining coverage (29 U.S.C. § 152). Thus, without national guidelines, collective bargaining emerged

251 252 COLLECTIVE BARGAINING UNDER DURESS on a rather piecemeal basis by state and federal governments. The first state to formalize collective bargaining for its employees was Wisconsin in 1959. The federal government provided a weaker system of bargaining later in 1962 when President Kennedy signed Executive Order 10988. It provided no right to strike and prohibited bargaining on wages and benefits. Following these early developments, a number of states passed laws covering some or all state and local public employees. The state laws fall into four categories: • Single comprehensive law covering multiple occupations: District of Columbia, Florida, Hawaii, Iowa, Massachusetts, Minnesota, Montana, New Hampshire, New Jersey, New Mexico, New York, Ohio, Oregon • A law for each occupation: Alaska, California, Connecticut, Delaware, Illinois, Kansas, Maine, Michigan, Nebraska, Pennsylvania, South Dakota, Vermont, Washington, Wisconsin • A law for some occupations: Alabama, Georgia, Idaho, Indiana, Kentucky, Maryland, Missouri, Oklahoma, Rhode Island, Tennessee, Nevada, Utah, Texas, Wyoming • No law: Arizona1, Arkansas, Colorado, Louisiana, Mississippi, North Carolina, North Dakota, South Carolina, Virginia, West Virginia

North Carolina, a state in the fourth category, explicitly bans collective bargaining and has received considerable attention from the International Labour Organization (ILO). The ILO, a tripartite agency of the United Nations, applied international standards on freedom of association to the North Carolina ban in a case involving the United Electrical Workers and the state. Here are some excerpts from their decision: In conclusion, the [ILO] Committee [on Freedom of Association] emphasizes that the right to bargain freely with employers, including the government in its quality of employer, with respect to conditions of work of public employees … constitutes an essential element in freedom of association, and trade unions should have the right, through collective bargaining or other lawful means, to seek to improve the living and working conditions of those whom the trade unions represent. The public authorities should refrain from any interference which would restrict this right or impede the lawful exercise thereof … The Committee requests the [United States] Government to promote the establishment of a collective bargaining framework in the public sector in North Carolina—with the participation of representatives of the state and local PUBLIC SECTOR 253

administration and public employees’ trade unions, and the technical assistance of the [ILO] Office if so desired— and to take steps aimed at bringing the state legislation, in particular through the repeal of NCGS § 95-9895- 98, into conformity with the freedom of association principles, thus ensuring the effective recognition of the right of collective bargaining throughout the country’s territory. The Committee requests to be kept informed of developments in this respect. (ILO 2005; see also Compa 2012)

The ILO has followed up their decision on several occasions since 2007, but at the time of writing this chapter, North Carolina has failed to implement its recommendations. Until 2011, changes in the law governing collective bargaining were infrequent, and collective bargaining received little attention in the media and by academics. Next, we describe this period of relative stability.

THE CALM BEFORE THE STORM Union Density Overall, public sector union density remained remarkably constant from 36.8% in 2001 to 37.0% in 2011 (Table 1). To the extent that union density measures influence and power, then, in the aggregate, unionization was not affected by downsizing, privatization, and other actions that may have weakened public sector unions during this period. Within the three levels of government, however, there was evidence of a small shift. At the federal level, union density declined from 31.5% to 28.1% over the period, while it increased slightly at the state and local levels. We will present more on federal sector developments later. Work Stoppages The Bureau of Labor Statistics (BLS) provides only limited information about strikes, restricting its sample to work stoppages of 1,000 or more workers and lasting at least one shift. Moreover, its definition of a work stoppage does not distinguish between strikes and lockouts. Figure 1 shows the dramatic decline in the number of strikes and lockouts that occurred between the 1970s and 1990s and the decade after 2000. The same trend could have been shown if time lost because of work stoppages was summed by decade. The decline in strikes is a widely reported phenomenon throughout the industrialized world (see Bamber, Lansbury, and Wailes 2011). Because our focus is on the public sector, we were able to break out a category, state and local government, from the work stoppage raw data 254 COLLECTIVE BARGAINING UNDER DURESS provided by the BLS. Figure 2 shows the overall state and local government and private sector totals from 2003 through 2011. State and local government strikes and lockouts increased over the period 2003 through 2007, but the numbers were still relatively small, reaching a peak level of nine in

TABLE 1 U.S. Public Sector Union Density and Coverage, 2001–2011 Public sector totals (%) Federal (%) State (%) Local (%) Year Density Coverage Density Coverage Density Coverage Density Coverage 2001 36.8 41.4 31.5 36.9 30.5 34.8 41.9 46.4 2002 37.3 41.5 32.2 37.3 31.0 35.0 42.3 46.2 2003 37.2 41.5 30.9 36.8 30.3 34.2 42.6 46.7 2004 36.4 40.7 29.9 35.0 30.7 34.3 41.3 45.8 2005 36.5 40.5 27.8 33.1 31.3 35.0 41.9 45.8 2006 36.2 40.1 28.4 33.7 30.2 33.6 41.9 45.7 2007 35.9 39.8 26.8 31.5 30.4 34.0 41.8 45.6 2008 36.8 40.7 28.1 33.0 31.6 35.1 42.2 46.1 2009 37.4 41.1 28.0 33.2 32.2 35.3 43.3 46.8 2010 36.2 40.0 26.8 31.4 31.1 34.6 42.3 45.9 2011 37.0 40.7 28.1 33.2 31.5 35.0 43.2 46.6 Source: U.S. Bureau of Labor Statistics, News Release, January 23, 2012, Table 2.

FIGURE 1 Average Annual Major Work Stoppages, 1971–2010, by Decade

Source: U.S. Bureau of Labor Statistics, News Release, Major Work Stoppages in 2010, Chart 1. PUBLIC SECTOR 255

FIGURE 2 Major Work Stoppages, 2003–2011

Source: Compiled from U.S. Bureau of Labor Statistics, Major Work Stoppages (Annual 2003–2011).

2007. However, after the arrival of the recession, public sector strikes immediately declined to three, two, four, and one from 2008 to 2011. This trend is consistent with the procyclical nature of strikes identified in the private sector and suggests that the public sector is affected in a similar manner (Harrison and Stewart 1989; Campolieti, Hebdon, and Hyatt 2005). Working Conditions As a measure of working conditions and perhaps another measure of conflict for public sector employees, we examine illness and injury rates. The BLS began reporting injury and illness rates for public sector state and local workers in 2008. In 2010, the BLS reported rates for approximately 18.4 million state and local government workers—for example, police protection and fire protection. According to the BLS (2010) and as illustrated in Figure 3, approximately 820,300 injury and illness cases were reported among state and local government workers combined in 2010, resulting in a rate of 5.7 cases per 100 full-time workers—significantly higher than the rate among private industry workers (3.5 cases per 100 workers), and relatively unchanged from the rate (5.8 cases) reported among these public sector workers in 2009. Nearly 4 in 5 injuries and illnesses reported in the public sector occurred among local government workers in 2010, resulting in an injury and illness rate of 6.1 cases per 100 full-time workers—significantly higher than the 4.6 cases per 100 full-time workers in state government. 256 COLLECTIVE BARGAINING UNDER DURESS

FIGURE 3 Injury and Illness Rates, Private and Public Sectors

Source: U.S. Bureau of Labor Statistics, News Release, Workplace Injuries and Illnesses, 2010, Chart 3. TRC = total recordable cases DART = days away from work, job transfer, or restriction cases DAFW = days away from work cases DJTR = days of job transfer or restriction-only cases ORC = other recordable cases

The BLS also provides data showing injuries and illnesses that caused days away from work. These data are broken down by occupation and public and private sectors. In each of the occupational categories that include laborers, janitors, maids, landscapers, and maintenance, state and local government employees had higher incidence rates in 2010 than the same categories of private sector employees (Figure 4). Thus, public sector employees tend to have higher rates than their private sector counterparts, and local government employees had higher rates than state employees. Wage and Benefit Levels Wage and benefits levels (i.e., total compensation) are the outcomes of market forces, and, where unions exist, the collective bargaining process. Thus, when compared with private sector compensation, they provide a partial indicator of the performance of the institution of collective bargaining. After 2008, the issue of public sector compensation became the pretext for an assault on public sector compensation, jobs, unions, and PUBLIC SECTOR 257

FIGURE 4 Incidence Rates of Injuries and Illnesses with Days Away from Work for Selected Occupations with High Case Counts by Ownership, 2010*

Source: U.S. Bureau of Labor Statistics, News Release, Nonfatal Occupational Injuries and Illnesses Requiring Days Away from Work, 2010, Chart A. *These occupations had at least 1% of the days away from work cases in their respective ownerships. the institution of collective bargaining. Sadly, the rigorous research on this topic was largely ignored as the rhetoric of the political debate escalated out of control. The evidence on the private–public compensation differential both at the start of the recession in 2008 and the substantial work conducted since was unequivocal. Public sector employees are generally not overpaid relative to their private sector counterparts (Keefe 2012; Lewin, Kochan, and Keefe 2012; Bender and Heywood 2012). Using the most current and comprehensive data, Keefe (2012) thoroughly tackles the controversial methodological and data issues that have plagued public–private wage and benefit comparisons over the years. First, his estimates are conservative because they exclude a control for unionization. He notes: Union status was omitted from this study and earnings comparisons, since it has been a focal point of the compensation controversy. This means that, in essence, we are statistically comparing unionized public sector workers with all private-sector workers—both union and nonunion— rather than with their union counterparts. Unionized private-sector workers have both better pay and higher benefits, of course, so our standard of comparison is very conservative. (p. 7) Second, in the earnings equations, he controls for education, experience, hours of work, organizational size, gender, race, ethnicity, and disability. He reveals that public sector (state and local) workers are more 258 COLLECTIVE BARGAINING UNDER DURESS highly educated on average, with 54% of public sector workers holding at least a four-year college degree compared with 35% of private sector workers. These college-educated public sector workers were paid 25% less than their private sector counterparts. When benefits were included in the comparisons, the differential fell to 20%—still substantial. Keefe (2012) suggests, therefore, that the size of the differential may create opportunities for cost saving by reviewing professional contracting out. We examine the research on this question in the next section on public sector restructuring. Finally, he addresses the thorny question of defined benefit versus defined contribution pensions and associated funding issues. After a thorough examination of debates over the aggregate size of state and local government pension deficits, he concludes that “in most states, a modest increase in funding and sensible changes to pension eligibility and benefits should be sufficient to remedy underfunding” (p. 8). Overall, he concludes, the data reveal that on a per-hour basis, public employees are slightly undercompensated when compared to similar private-sector employees … full-time state and local employees are, on average, undercompensated by 5.6%. The public employee compensation penalty is smaller for local government employees (4.1%) than state government workers (8.3%). (p. 4)

Public Sector Downsizing and Restructuring Largely for financial and budgetary reasons, governments of developed countries have attempted to achieve economies in the provision of public services. These trends, which have been prevalent since the 1980s, can be divided into two categories (Osborne and Gaebler 1992; Hebdon and Kirkpatrick 2005). The first is downsizing or reducing the size and scope of public services. Second is the trend to reform the management of these services by adopting private sector or market-oriented approaches and methods. Downsizing Reductions in the size of public service employment rarely involve layoffs or dismissals. Cuts are more likely to have indirect effects such as hiring freezes or not replacing employees who quit or retire. Whatever the method used, if there has been widespread use of these measures, the effects should show up in total public sector employment statistics. Using public sector employment as a proportion of the labor force, we begin with a comparative look at the numbers. The direct workforce in public services (as a proportion of total employment) remains considerably PUBLIC SECTOR 259 larger in some countries than in others. In Sweden, for example, the public sector accounted for 26.2% of total employment in 2008, while in France the figure was 21.9%. By contrast, the percentage size of the share of the public sector in total employment in 2008 was much lower in the United States (14.6%), the United Kingdom (17.4%), Canada (16.5%), Greece (7.9%), Spain (12.3%), and Germany (9.6%) (OECD 2011:38). In addition, the proportion showed only a slight decrease over the period from 2000 to 2008 in the United States, from 14.8% to 14.6%. Over the same period, the OECD average of 34 countries also dropped marginally from 15.2% to 15.0%. Thus, there is no indication of significant change in public sector employment at least up to 2008 (for the recession period after 2008, see Dewan 2012). The BLS provides data on the two categories of federal government employment and state and local government employment. Over the period 2000 to 2010, the federal government gained 103,000 jobs, and state and local government gained 1,588,000 (U.S. BLS 2010). Thus, whether as a proportion of total employment or by industry category, there is no evidence that public sector restraint policies have reduced employment. Management Reform A new public management (NPM) has emerged that promotes the adoption of various market and private sector business practices. There is a debate in the public administration literature about the pervasiveness of NPM. On the one hand, it is argued that there is a convergence of NPM reforms in the United States and Europe (Gualmini 2008), while others challenge the existence of an NPM paradigm (Goldfinch and Wallis 2010). Here are some typical examples of NPM (Gualmini 2008; Goldfinch and Wallis 2010): • A move from a focus on process and input reporting to outputs, outcomes, or results, and the reporting of such • Decentralized structures with smaller, multiple, and often single- purpose agencies and putatively flexible and innovative staff replacing highly centralized bureaucracies • Motivation of public servants based on financial incentives rather than professional ethos or duty, with contracts, particularly written ones, being a key part of this process • Greater autonomy to agency managers, including decision-making power on human resources and IT and other operational matters • Internal and external market or quasi-market mechanisms to imitate market competition, including the widespread use of competitive mechanisms, written contracts, contracting out, and ultimately privatization • A customer focus, sometime defined primarily in market terms, for the provision of public services 260 COLLECTIVE BARGAINING UNDER DURESS

• Professional, union, and operational group influence severely curtailed, with such groups often characterized as “rent seeking” interests, excluded from decision making

We provide evidence of one of the most prevalent elements of NPM— privatization. The most common form of privatization is contracting services to the private sector (Brudney, Fernandez, Ryu, and Wright 2005). For an account of this phenomenon during the Great Recession, see Dannin (2012). Contracting Out to the Private Sector There are no publicly collected data on contracting out, but the International Cities and Counties Management Association (ICMA) conducts periodic surveys of alternative service delivery at the local level of government. The 2002–2003 survey includes service-delivery questions for 67 defined municipal services. This survey shows that local governments provide fewer of the 67 services, but delivery by public employees was still the most prevalent (44%) and remained stable from the previous survey in 1997. An examination of the results of ICMA surveys over the periods 1992 through 1996 and 1997 through 2002 reveal that contracting out was also stable over the period, at 27% of all service delivery (Hefetz and Warner 2007:557). It was previously revealed that college-educated private sector employees are more than 20% better compensated than similarly educated state and local public sector workers (Keefe 2012). This gap might create cost saving opportunities by reviewing professional contracts. Indeed, public administration researchers have discovered a significant contracting back in (labeled “reverse contracting”) phenomenon of previously privatized services at the local level of government. One study found that from 1992 through 1997, new contracting was used in 18% and reverse contracting in 11% of the cities in the sample but, surprisingly, in the subsequent survey period (1997 through 2002), new contracting was 12% and reverse contracting 18% (Hefetz and Warner 2007). A Canadian study that replicated the 2002–2003 ICMA study also revealed both high levels of privatized services as a proportion of all services provided (26.6%) and significant cases of new reverse privatization or contracting back in (28% of cities) (Hebdon and Jalette 2008). Union Responses to Privatization Most privatization studies either ignore unionization or include a dummy variable indicating whether the city workers were unionized. One exception was a study that examined various union strategies when confronted with membership losses owing to contracting out proposals. It found that PUBLIC SECTOR 261 union strategies included not reacting or supporting the proposal, engaging in collective action, attempting arbitration and litigation, negotiating to reduce adverse effects, suggesting alternatives to privatization, or combinations of these strategies. Though unionized cities attracted a greater number of new privatization proposals, unions effectively rejected them—the most successful strategy being to suggest alternatives. Conversely, initiating strikes and other industrial actions were not as effective. Cities in which multiple strategies were adopted had lower long-term privatization rates. The authors suggest that their results support a pragmatic view of union–management relations illustrating how unions and city managers found mutually acceptable alternatives to privatization or adjustment policies (Jalette and Hebdon 2012).

THE STORM Economic/Financial The Great Recession produced the worst budget crisis at the state and local levels of government since the Great Depression of the 1930s (Freeman and Han 2012). State governments, for example, were directly affected in two ways. First, tax revenues declined in 2009 by 8.5%, back to 2006 levels (Pece, Lee, and Higgins 2011). Second, expenditures on welfare, health, and unemployment insurance increased dramatically as demand for services exploded. For example, 2009 unemployment insurance increased 86% over 2008 levels (Pece, Lee, and Higgins 2011). The result was that at least 37 states had substantial budget deficits. As Keefe (2012) explains: Several governors have identified excessive public employee compensation as a major cause of their states’ fiscal duress, including New York, New Jersey, California, Wisconsin, Michigan, Ohio, Iowa, and Indiana. The remedies they propose include public employee pay freezes, benefits reductions, privatization, major revisions to the rules of collective bargaining, the elimination of collective bargaining and constitutional amendments to limit pay increases, each as a necessary antidote to the public employee over- payment malady. (p. 239)

Political and Backlash The 2010 midterm elections saw a significant shift in favor of the Republican party and the emergence of the Libertarian tea party faction. Emboldened by the defeat of Democrats during those elections, several Republican governors used their budgetary crises to attack public employee compensation, unions, and collective bargaining. This type of attack was not new, 262 COLLECTIVE BARGAINING UNDER DURESS but its scope and the national attention it received was (Freeman and Han 2012; Malin 2012). Freeman and Han (2012) document the scope of the attempted changes: There were 733 bills in 42 states relating to public employee unions, 140 bills relating to union dues/agency fees, 55 bills on political activities and contributions, 171 bills for public safety employees, and additional bills in other categories making a total of 1707 bills in 50 states. The majority of these bills in most states were designed to weaken unions and their collective bargaining rights. (p. 393)

After an analysis of such factors as debt-to-state gross domestic product, deficits, and the existence of collective bargaining laws, Freeman and Han (2012) found that the main cause of the budgetary problems was the recession and that unions gave sizable wage and benefit concessions to deal with the crisis. The authors conclude that the attacks were motivated by political opportunism and ideological opposition to collective bargaining (Freeman and Han 2012; see also Keefe 2012). Social Context The debate about public sector bargaining took place against a background of declining private sector unionization and growing inequality in both in the labor force and society. Conservative attacks on public sector compensation have relied on what conservatives perceive as private sector workers’ envy of better wages, health, and retirement benefits of public sector workers (Freeman and Han 2012). Despite union decline, however, public support for unions had remained stable for more than 70 years, according to the Gallup organization (Gallup 2012). Support declined, however, in 2009 to an all-time low of 48%, perhaps owing to the GM and Chrysler bailouts and the sense that auto- worker contracts contributed to their difficulties. More recently, union support increased to 52% but has yet to reach the historic 60% of the previous 70 years (Gallup 2012). The surprising support for collective bargaining both in Wisconsin and in national polls may have something to do with growing inequality in America. As a measure of inequality, the OECD reports Gini coefficients after taxes and transfers for 34 developed countries (OECD 2012). The OECD data confirm that inequality as measured by Gini coefficients for the working age population grew steadily from the mid-1970s to the late 2000s. Of the 34 countries in the OECD study, the United States had the fourth highest inequality index.2 PUBLIC SECTOR 263

Legal/Legislative Although public sector labor statutes change much more frequently than private sector labor statutes, 2011 was the most significant year in this regard for at least several decades. The changes (or, in the case of Ohio, the attempted change) that have continued into 2012 are summarized below. In this list, Ohio is first, because it was one of the most far-reaching attempts to cripple bargaining rights. The remaining state laws, all still quite significant, are listed in alphabetical order. In all instances, these laws either restricted or eliminated collective bargaining rights of public employees. Wisconsin will be discussed in the next section as part of our special focus. This section is limited to laws on collective bargaining. It does not include laws that cut pension benefits for public workers, although from 2010 to 2011, 41 states enacted significant changes to their public sector pension statutes. The changes in pension laws all resulted in reduced benefits and/or reduced coverage. Moreover, public sector pension benefits and formulas are rarely a legal subject of bargaining for public sector unions. Rather, in almost all jurisdictions, pension benefits and formulas for public employees are set by a separate statute and are not subject to union negotiations (Slater 2012a). This section also does not cover recently passed laws in states which do not permit collective bargaining that limit or bar payroll deductions for organizations that engage in political activity (a move clearly aimed at unions; see, e.g., Alabama Act 2010). We discuss Ohio and provide a summary of changes in the other states in an appendix to this chapter. Ohio In 1983, Ohio enacted a public sector labor law applicable to most public employees; it even allows most public workers to strike (Ohio Statutes 2011a). In 2011, Governor John Kasich signed Senate Bill 5 (S.B. 5), a bill designed to profoundly alter this law (Ohio Statutes 2011b). Ohio law permits recently enacted legislation to be put on hold pending a voter referendum on whether to reject the law, if enough signatures are gathered requesting such action. Pursuant to this procedure, S.B. 5 was put on hold pending a voter referendum in November 2011, and in that referendum, the voters soundly rejected S.B. 5 (the vote was approximately 61% to 39%; Slater 2012b). Notably, S.B. 5 was nearly as radical as Act 10 in Wisconsin. Among other things, S.B. 5 would have eliminated collective bargaining rights for certain employees, including, at least, most college and university faculty, lower-level supervisors in police and fire departments, and employees of charter schools (Ohio Statutes 2011b). 264 COLLECTIVE BARGAINING UNDER DURESS

Senate Bill 5 also would have imposed right-to-work rules and barred public employers from agreeing to provide payroll deductions for any contributions to a political action committee without written authorization from the individual employee. It also would have greatly restricted the scope of bargaining and made a number of other changes restricting or eliminating union rights (Ohio Statutes 2011b). For employees who could bargain, S.B. 5 would have eliminated both the right to strike for those who have that right (all covered employees with the exception of police, fire, and a few other small categories) and the right to binding-interest arbitration at impasse for employees who cannot strike. Instead, the parties would have been left to mediation and fact finding, and if those did not lead to an agreement, the governing legislative body could have, essentially, simply chosen to adopt the employer’s final offer. Specifically, if the nonbinding mediation and fact finding did not produce an agreement—and the fact finder’s report could have been rejected by either the employer or a majority of the union—then the governing legislative body (often the employer itself) would have had the option of choosing the employer’s final offer (Ohio Statutes 2011b). It added various additional restrictions to the impasse procedure, all favoring the employer. Even within the negotiating and fact-finding process, S.B. 5 would have required that, in determining the employer’s ability to pay (a statutory factor that fact finders had to consider under pre-existing law as well), only the financial status of the public employer at the time of negotiations could be considered; future potential revenue increases from levies and bonds could not be (Ohio Statutes 2011b). Also, under S.B. 5, for certain employers (not the state or state universities), if the legislative body selected the last best offer that cost more and the CFO of the legislative body did not determine whether sufficient funds existed to cover the contract, the last best offers could have been submitted to the voters (Ohio Statutes 2011b). Other States Legislative changes designed to weaken union collective bargaining rights are summarized for several states in the appendix. Changes tend to focus on a particular sector (schools, local government, state, etc.) and such issues as interest arbitration and union security. The Federal Sector A distinctive legal system governs federal sector (nonpostal) labor– management relations. Title VII of the 1978 Civil Service Reform Act (the Federal Service Labor–Management Relations Statute, FSLMRS) covers employees in the general schedule and wage grade parts of the civilian federal sector. (A separate statute, the Postal Reorganization Act PUBLIC SECTOR 265 of 1970, applies to the U.S. Postal Service and allows for relatively broader union rights.) Essentially codifying a pre-existing string of executive orders emanating from President Kennedy’s 1962 January Executive Order 10988, the FSLMRS tilts the balance of power between the parties decidedly to the advantage of management. It grants employees the right to unionize and bargain collectively but denies them the opportunity to negotiate over major economic issues. The FSLMRS also forbids strikes and union security agreements, such as the agency shop. In addition, it enumerates a potent list of managerial rights. In setting policy in the area, Congress and the executive branch have preserved policymakers’ prerogatives regarding budgeting and staffing. Notwithstanding these limitations, most employees in the federal service have opted for union recognition (for brief discussions of the evolution of federal sector labor policy, see Masters and Albright 2003 and Masters, Albright, and Eplion 2006). Union representation grew rapidly after the 1962 presidential order and rose to peak levels of slightly more than 60% of the nonpostal civilian sector by the mid- to late 1970s, since which time it has remained more or less steady. This relatively high level of density; however, does not translate into a commensurate level of union power at the bargaining table. In fact, labor’s lack of real bargaining power, coupled with a widely held perception that management often did not listen or exploited its advantageous position, produced growing dissatisfaction with the labor relations system. To a certain extent, the ill-fated 1981 strike led by the Professional Air Traffic Controllers Organization (PATCO) epitomized a much broader sense of disenchantment felt throughout the federal service, particularly among employees and their union representatives. Compounding this discontent, because unions were denied the right to negotiate union security agreements, they more often than not confronted enormous free-riding problems. Federal-employee unions often represented units in which far less than half of the employees chose to pay dues (Masters and Atkin 1989, 1990). The resulting lack of financial resources further hindered the unions’ capacities to service bargaining units. Despite labor’s relative weakness in the federal system, labor– management relations still stirs political passions that resemble those currently surrounding labor–management relations in many state and localities, where unions have relatively more power in terms of bargaining rights. In fact, the administration of President George W. Bush deliberately stirred those passions, hoping to gain political capital from a frontal assault on unions in the federal service. Its attack reflected a deep-rooted managerial ethos that gained traction from the tragic events of 9/11. The very legitimacy of union representation came into question, particularly in the 266 COLLECTIVE BARGAINING UNDER DURESS vast areas of the federal government dealing with national and homeland security. Labor–management relations in federal service became a political lightning rod, foretelling the broader attack on unions after the tea party– inspired sweep of the Republicans in the 2010 congressional and state elections. Backdrop: Clinton, Reinvention, and Partnership President Bill Clinton entered office in January 1993 facing three pressing deficits: economic, budgetary, and public confidence in government (Kettl 1994). Many pundits believed that the last deficit approached crisis pro- portions. To address the confidence issue, President Clinton charged Vice President Al Gore to lead a National Performance Review (NPR) to reinvent government (National Performance Review Report 1993; see Table 2 for a time line on key federal labor relations developments between 1993 and 2012). The NPR borrowed heavily from the emerging NPM philosophy, which espoused transplanting best business practices to improve government. One of those practices the NPR (1993) discovered sorely lacking in the federal service was labor–management cooperation. Instead, the NPR found a pervasive and largely dysfunctional adversarial labor– management climate. Without a dramatic transformation in the labor climate, government could not possibly reinvent itself to become cost effective and customer oriented. To address this problem, the NPR recommended that the president establish a government-wide labor–management partnership program, which President Clinton did on October 1, 1993, through Executive Order 12871. The order required each federal agency with a bargaining unit to establish a labor–management partnership to “involve employees and their union representatives as full partners with management representatives to identify problems and craft solutions to better serve the agency’s customers and mission.” Another union-empowering change made it mandatory for agencies to negotiate over so-called “permissive” items, which include, under § 7106(b)(1) of the FSLMRS, determining the numbers, types, and grades of employees assigned to an organizational subdivision and work projects, as well as the technology, methods, and means of performing work. Agencies rapidly implemented partnerships and began the process of involving unions in pre-decisional bargaining to improve labor relations, working conditions, and agency performance. Most agencies complied with the partnership mandate, at least in a nominal sense, but there was considerable reluctance to bargain (b)(1) items in a meaningful fashion. The overall record of impact of the partnership experiment was mixed. Identifying and measuring resulting improvements in agency performance often proved problematic. Nonetheless, several studies have identified PUBLIC SECTOR 267

TABLE 2 Time Line of Key Federal Sector Labor Relations Developments, 1993–2012 Date Development September 1993 National Performance Review issues from Red Tape to Results: Creating a Government That Works Better and Costs Less October 1, 1993 Executive Order 12871 February 17, 2001 Executive Order 13203 November 14, 2001 Aviation Transportation and Security Act November 25, 2002 Department of Homeland Security Act March 2003 Transportation Security Administration Memo November 24, 2003 National Defense Authorization Act for fiscal year 2004 June 27, 2006 National Treasury Employees Union v. Chertoff, U.S. Court of Appeals, District of Columbia Circuit, Nos. 05-5436, 05-5437 September 3, 2006 Federal Aviation Administration imposes work rule changes May 18, 2007 American Federation of Government Employees v. Gates, United States Court of Appeals, District of Columbia Circuit, No. 06-5113 August 13, 2009 Federal Aviation Administration and National Air Traffic Controllers Association reach agreement October 29, 2009 National Defense Authorization Act for fiscal year 2010 December 2009 Executive Order 13522 November 12, 2010 Federal Labor Relations Authority decision on Transportation Security Administration union election February 4, 2011 Transportation Security Administration administrator’s decision June 29, 2011 American Federation of Government Employees certified as exclusive union at Transportation Security Administration February 6, 2012 FAA Modernization and Reform Act August 2, 2012 American Federation of Government Employees and Transportation Security Administration reach labor agreement 268 COLLECTIVE BARGAINING UNDER DURESS positive effects on the labor–management relations climate, reduced grievance and arbitrations, and brought cost savings in selected agencies, often as a result of fewer litigated disputes between the parties (Masters 2001; Masters, Albright, and Eplion 2006; U.S. OPM 2000). Although it produced mixed or often unclear results (perhaps “unmeasured” is the better term), the partnerships nevertheless sent a powerful message. The Clinton mandate established labor–management relations as a central part of the broader reinvention initiative. Thus, Executive Order 12871 elevated the organizational significance of labor– management relations to management. A much wider swath of managers became involved in dealing with unions on a broader range of issues, and often on a much more positive note. Many partnership councils became deeply involved in organizational projects, such a restructuring, in which the parties established an ongoing dialogue. If the parties were willing (and not infrequently, at least one of them was reluctant or distrustful), they had an opportunity to contribute to improving agency performance while simultaneously improving the labor relations climate. The Bush Years Successive Democratic and Republican administrations from President Kennedy to President Clinton have basically accepted the framework of limited union rights in the federal service. The election of George W. Bush in 2000, however, ushered in a new chapter in federal labor–management relations. Within a month after taking office, President Bush issued Executive Order 13203, which rescinded Clinton’s partnership mandate. He tore a page directly from a January 2001 report issued by the Heritage Foundation titled “Taking Charge of Federal Personnel” in which the authors declared that “the new President will need to revoke President Clinton’s executive order and demonstrate from the outset that his approach to reforming the federal bureaucracy will emphasize political responsibility and accountability to the taxpayer” (Moffit, Nesterczuk, and Devine 2001:4). A further indication of the Bush administration’s approach toward federal sector labor–management relations surfaced in the President’s Management Agenda, issued in August 2001 through the Office of Management and Budget (U.S. OMB 2001). One of the cornerstones of the agenda involved promoting “freedom to manage.” The OMB declared that “federal managers are greatly limited in how they can use available financial and human resources to manage programs; they lack much of the discretion given to their private sector counterparts to do what it takes to get the job done” (U.S. OMB 2001:5). The agenda urged the strategic management of human capital and acceleration of competitive sourcing or outsourcing of government functions and personnel, but it stood deaf- PUBLIC SECTOR 269 eningly silent on the matter of union representation and labor– management collaboration. Coupled with the rescission of the partnership mandate, the freedom- to-manage initiative sent a clear message. Partnership may die on the vine, but managerial rights need to expand, and unions have no place in the process of managing and engaging the workforce. As Elie Wiesel said, the opposite of love is not hate but indifference—and the attitude toward unions was precisely indifferent. TSA, DHA, and DOD The tragic events of 9/11, however, provided an unfortunately rich opportunity for the Bush administration to advance its agenda to a whole new level and marginalize unions in the process. Urgent demands to federalize airport screeners started right after the terrorist attacks. In the process of enacting the Aviation Transportation and Security Act (ATSA) of 2001, the administration insisted on managerial flexibility to establish a new labor relations policy covering airport screeners. Signed into law in November 2001, the ATSA granted the agency head such latitude, which was exercised by Admiral James Loy, head of the newly created Transportation Security Agency (TSA). In a March 2003 memorandum, Loy stated in relevant part with respect to Transportation Security Officers (TSOs): “In light of their critical national security responsibilities, [TSOs] shall not, as a term or condition of their employment, be entitled to engage in collective bargaining or be represented for the purpose of engaging in such bargaining by any representative organization.” The policy maxim arose that union rights were incompatible with national security. A second wheel of the federal government’s organizational response to 9/11 involved creating the Department of Homeland Security (DHS), which the Bush administration agreed to under considerable congressional prodding. In enacting DHS, the administration aggressively resisted granting DHS employees (many of which would come from the 22 agencies with already existing bargaining units) collective bargaining rights. An impasse resulted that was effectively broken by the 2002 midterm elections. The compromise required merely that the new secretary of DHS, with the director of the Office of Personnel Management (OPM), establish a new personnel system that would “ensure that employees may organize, [and] bargain collectively.” No specifics followed. Those specifics came in a set of final implementation regulations imposed in February 2005. The new DHS labor program sharply shrunk bargaining rights from those afforded under the FSLMRS. It expanded the scope of managerial rights, significantly narrowed the scope of bargaining, and created an in-house board to administer the labor relations program. The logic behind this program was that even the limited rights granted unions under the 270 COLLECTIVE BARGAINING UNDER DURESS

FSLMRS were incompatible with the managerial flexibilities (writ “freedom to manage”) essential to operation agencies with a homeland security mission. While the DHS approach to labor–management relations covering about 170,000 employees in 22 existing agencies (including the recently formed TSA) was unfolding, the Department of Defense (DOD) launched a strikingly similar effort as part of its Fiscal Year 2004 National Defense Authorization Act, which was enacted in November 2003. DOD proposed granting its secretary and the director of OPM the authority to create a new National Security Personnel System (NSPS) that would introduce more managerial flexibilities á la DHS, based on the logic that collective bargaining introduced unacceptable rigidities into staffing and managing in an agency with a security mission. At the time, DOD employed about 650,000 civilians, a majority of whom were represented by unions. DOD and OPM issued the final regulations for NSPS in November 2005. The new labor relations system closely resembled the one adopted for DHS. It expanded the sphere of managerial rights, narrowed the scope of bargaining, and established an in-house board to administer the program. In short, by the end of 2005, the Bush administration had effectively taken 823,000 of the 1.83 million civilian workers and put them under new labor relations systems. In so doing, it had eliminated collective bargaining rights for one group (TSOs). For the other DHS employees and the DOD workforce, managerial rights were expanded and the scope of bargaining narrowed. The Bush administration had gone a long way toward fulfilling the objective of granting greater freedom to manage. FAA and NATCA The disastrous (from the union perspective) PATCO strike of 1981, which caused 11,000 air traffic controllers to lose their jobs, has emerged as a turning point in the litany of modern American labor relations. McCartin (2011:361) has argued that “while the PATCO strike did not cause American labor’s decline, it acted as a powerful catalyst that magnified the effects of the multiple problems that upset American unions.” Many have felt that President Reagan’s coup de grâce against the strikers gave implicit license for employers to deal harshly when their workers struck. PATCO was rapidly decertified as permitted under the FSLMRS, but it did not take long for a new union of air traffic controllers to emerge. The National Air Traffic Controllers Association (NATCA) won exclusive recognition in 1987. For whatever reason, air traffic controllers have an expressed need for union representation. The FAA has never been known to lack controller–management tensions. In the mid-1990s, Congress took steps to modernize the FAA’s personnel system, which actually set precedent for the Bush administration's subse- PUBLIC SECTOR 271 quent efforts, though with far different consequences for union rights. To introduce more flexibility into personnel, Congress passed legislation in 1995 that required the FAA to develop a new personnel system (Shimabukuro 2008), which the FAA administrator did in early 1996. Later in 1996, Congress amended the program by creating a new dispute resolution procedure that required mediation of the disputed items by the Federal Mediation and Consultation Service (FMCS). If mediation did not produce mutual agreement, Congress gave the FAA administrator the power to impose new contractual terms, unless it objected. In the process of revamp- ing the personnel system, unions in the FAA acquired the right to negotiate over selected economic items, an enviable anomaly in the federal service. The FAA and NATCA entered a tense set of negotiations during the Bush administration, against the backdrop of recurring calls to commer- cialize or privatize the air traffic control function. After months of negotiating, the FAA declared an impasse. And in September 2006, the administrator of the FAA chose to exercise the authority to implement unilaterally a new contract, which changed work rules and reportedly reduced the starting pay of new controllers by 30%. Congress chose not to override the FAA’s decision. It took more than three additional years for the FAA and NATCA to reach a new agreement, which occurred in August 2009, after mediation. The head of NATCA declared this “a new day between the FAA and the air traffic controllers as we move forward with a spirit of cooperation.” From that point forward, the NATCA’s attention turned more toward congressional funding of the FAA and creating a “fairer” dispute resolution procedure that would provide for binding arbitration. The Unions Respond: Litigation and Political Action The major federal-employee unions, which often have competed among workers for bargaining rights, entered into an ad hoc alliance to challenge the Bush attacks. They carved two main paths to wage proverbial battle: litigation and political action. To a remarkable degree, their efforts proved fruitful. The primary union actors in this more or less concerted effort involved the three largest unions in terms of bargaining recognition in the federal service: the American Federation of Government Employees (AFGE), National Treasury Employee Union (NTEU), and National Federation of Federal Employees (NFFE, which had affiliated with the International Association of Machinists, IAM, in the late 1990s). Given its relatively narrow jurisdiction confined to FAA, NATCA focused mainly, but by no means exclusively, on matters pertaining to that agency. As a result of the their efforts in litigation and political activism aimed at securing union representation of TSOs, the AFGE and TSA reached their first collective bargaining agreement in August 2012. 272 COLLECTIVE BARGAINING UNDER DURESS

To wage aggressive campaigns, particularly on the political front, the unions had to amass large sums of money. Political clout, rightly or wrongly, does not come cheaply in a city (Washington, DC) where billions are spent each year to influence lawmakers. To give some insight into how much the main federal-employee unions have spent in politics over the past several years, we report two sets of data: (1) contributions to federal candidates, parties, and other political action committees (PACs), and (2) lobbying and electioneering expenditures. The first set of data is from the Center for Repressive Politics (CRP), and it includes the money unions contribute from their own PACs, contributions made by individuals affiliated with the unions as officers or employees, and treasury-based income that can be contributed to certain political entities, such as Super-PACs. The second set is from the unions’ annual financial disclosure forms (LM-2) filed with the Department of Labor (DOL) and available online. Since 2005, DOL has required the reporting of political expenditures from treasury-based income on such forms. Table 3 reports the federal-employee unions’ contributions (from PACs, individuals, and treasury-based income) to federal candidates, parties, and other PACs. It reveals a sizable increase in contributions over the past seven election cycles, though 2012 data are not complete at this date. Despite the fact that 2012 data have not been fully reported, NATCA’s contributions have increased more than fourfold between 2000 and the most recent cycle to nearly $3.3 million. To put this number into a different perspective, NATCA’s contributions in 2012 amounted to about $202 per union member. Between 2000 and 2012, AFGE’s contributions rose by more than 57%, to nearly $1 million. Parenthetically, as an affiliate of the IAM, the NFFE has relied on its parent affiliate to perform this role. Table 4 reports the amount of money unions spend from their treasury- based income on lobbying and electioneering (it does not include political money unions raise from their members on a voluntary basis to contribute to candidates through PACs). It reveals that AFGE has increased its political expenditures from $4.8 million to more than $6 million over the period between 2005 and 2011. Although spending relatively small amounts, NFFE’s expenditures have notably increased. The Obama Program Federal-employee unions had high hopes for the future when President Obama was elected and the Democrats retained control of Congress in 2008. They lobbied intensely for restoration of some sort of partnership- type executive order. They also hoped to secure a rescission of Admiral Loy’s policy regarding TSOs’ collective bargaining rights. In addition, the unions wanted to ensure the demise of the NSPS program and the adoption of a new dispute resolution procedure at the FAA. PUBLIC SECTOR 273

TABLE 3 Major Federal Union Contributions to Federal Candidates, Parties, and Outside PACs, 2000–2012 Union Election cycle AFGE NATCA NFFE NTEU 2000 $586, 277 $ 782,525 — $474,755 2002 718,405 1,099,100 — 517,700 2004 721,700 1,444,900 — 574,575 2006 688,369 2,160,570 — 563,160 2008 896,720 2,487,033 — 604,190 2010 990,030 2,303,550 — 601,950 2012* 923,590 3,239,570 — 407,662 *Incomplete data from 2012 election cycle as of the date of this writing.

TABLE 4 Major Federal Union Political Expenditures, 2005–2011 (LM-2 Reports) Union Year AFGE NATCA NFFE NTEU 2005 $4,803,494 $1,809,408 $ 42,506 $2,225,619 2006 4,780,544 1,401,078 109,310 1,674,366 2007 5,022,036 1,340,884 101,798 1,792,748 2008 4,243,172 3,288,631 138,270 2,093,571 2009 4,330,761 1,938,679 186,449 1,998,241 2010 6,238,937 2,285,252 206,060 1,774,071 2011 6,046,061 1,671,252 237,150 1,828,427

For the most part, the Obama administration has responded favorably. It encouraged Congress to terminate NSPS, which occurred in 2009. Obama’s TSA director also reversed Admiral Loy’s ban on TSO collective bargaining. In December 2009, President Obama issued Executive Order 13522 “Creating Labor–Management Forums to Improve the Delivery of Government Services.” Executive Order 13522 declares that its purpose “is to establish a cooperative and productive form of labor–management relations throughout the executive branch” by requiring agencies to establish labor–management forums that would “allow employees and their union representatives to have pre-decisional involvement in all workplace matters to the fullest extent practicable, without regard to 274 COLLECTIVE BARGAINING UNDER DURESS whether those matters are negotiable subjects of bargaining.” The order also created a tripartite (labor, management, neutral) National Council on Federal Labor–Management Relations (the Council) to provide guidance in establishing forums and ensure that they focus on identifying and measuring ways to improve governmental performance as well as the labor–management climate, which had obviously deteriorated under the Bush years (National Council Report 2012).Shortly after its inception, the Council adopted a set of guiding principles for labor–management forums (Masters, Merchant, and Tobias 2010). It has also focused extensively on identifying metrics so that forums can evaluate their impacts, as required under the order. One aspect of the order, however, proved very disappointing to the unions. Unlike Clinton’s Executive Order 12871, the Obama mandate did not require the negotiation of the so-called permissive (b)(1) items. Instead, it required that (b)(1) pilots be established and evaluated. The Council established 12 such pilots covering about 14,000 employees, each of which has submitted periodic updates over 17 months. As required, the Council reported to the president on the results of the pilots. In its May 2012 report, however, it “determined that challenges remain with regard to evaluating bargaining over permissive subjects” and therefore it planned to extend the duration and scope of the pilots before rendering any judgments. Simply put, data on actual results and impacts were too parsimonious to permit meaningful conclusions. During the Obama years, however, the most overarching concern has stemmed from the federal budget deficit. Federal employees’ pay has been frozen for more than two years, and continual concerns about reductions in force have existed. Interestingly, despite the Bush administration’s strong push for competitive sourcing, overall nonpostal employment rose from 1.7 million in fiscal year 2001 to more than 1.9 million in fiscal year 2009. The number of federal employees has hovered in the range of 2.1 million since 2010, though declining very slightly most recently. Over the past decade and some more, each of the major federal-employee unions has experienced membership growth, though NFFE’s has been uneven (Table 5). AFGE’s membership has climbed by about 46% and NTEU’s grew nearly 14%. Wrap-Up Federal sector labor–management relations underwent a full 360-degree circle in the past 20 years. In 1993, President Clinton embraced and empowered federal-employee unions in an effort to transform labor– management relations into a positive force for reinvention. The government- wide partnership experiment pushed the needle forward, particularly with regard to improving what had been a widely adversarial labor relations climate. In this context, even efforts to introduce managerial flexibility, PUBLIC SECTOR 275

TABLE 5 Major Federal Union Membership 2000–2012 Union Year AFGE NATCA NFFE NTEU 2001 198,453 12,645 7,528 74,306 2006 229,248 14,571 6,055 77,707 2011 289,023 16,042 7,674 84,548 such as those undertaken at the FAA, were done to expand rather than weaken the voice of unions. This experiment, however, proved short-lived because it was quickly aborted by the Bush administration in early 2001. In hindsight, this action represented the first shot across the bow. The President’s Management Agenda, which came a few months later, sent another signal, though not one so loud. That agenda set as one of its major objectives promoting the freedom to manage, and it stood completely silent on the role of unions in government. The tragedy of 9/11 provided a wide opening for the administration to take its managerial agenda to a new level. In creating the TSA and DHS, the administration insisted on having the authority to craft new personnel systems, including the labor–management program. At TSA, this meant denying the TSOs the right to collective bargaining. At DHS, it meant delimiting the voice of unions far beyond the already circumscribed scope of influence allowed under the FSLMRS. On the heels of DHS, the administration sought similar restrictions at DOD. By 2005, the Bush administration had succeeded in retrenching the bargaining power of unions to the greatest extent possible on the basis that unionism and collective bargaining were fundamentally incompatible with national and homeland security. Federal-employee unions mounted vigorous legal and political campaigns to reverse these major policy setbacks. They made substantial inroads through their efforts. The election of President Obama in 2008, along with the re-election of a Democratic-controlled Congress, accelerated the demise of the Bush program. By 2011, the unions had succeeded in terminating the labor relations programs at DHS and DOD, allowing for the representation of TSOs, and reintroducing a labor–management cooperation initiative throughout the federal service. NATCA eventually won its drive for binding arbitration. In the past decade, federal-employee unions have defeated the argument that collective bargaining cannot coexist with national and homeland security. With the re-election of President Obama in 2012, they have set the stage for the advancement of the labor–management forum 276 COLLECTIVE BARGAINING UNDER DURESS program and (b)(1) piloting. Yet, falling off the fiscal cliff looms over everyone as an ominous cloud whose ramifications remain unfathomable.

THE WISCONSIN CASE Introduction Wisconsin was the first state to formalize collective bargaining, in 1959. One of the contributing factors to the rise of unions was the influx of youth and minorities into the public service. Identifying with the civil rights and anti-Vietnam war movements, they demanded social justice and the wage gains of their private sector counterparts (Kearney 2008). It was both appropriate—and yet ironic—that the battleground over public sector bargaining would center on Wisconsin where it had arguably begun some 52 years earlier. Legislative History Before 2011, Wisconsin had two fairly similar public sector labor statutes, one covering local and county government employees and the other state employees (Wisconsin Statutes 2012a: § 111.70 and 111.81, respectively). The former was initially enacted in 1959. The Budget Repair Bill, Act 10, signed by Governor Scott Walker in 2011, made huge changes to these laws, although it exempted employees in “protective occupations,” mainly police and fire (Wisconsin Statutes 2012b). Sections § 265, 279, and 280 eliminated collective bargaining rights entirely for some employees, such as University of Wisconsin (UW) system employees, employees of the UW Hospitals and Clinics Authority, and certain home care and child care providers. Section 315 limits the scope of bargaining to bargaining over a percentage of total “base wages,” and even this sole permissible topic was limited to an increase no greater than the percentage change in the consumer price index. The act expressly excluded from bargaining overtime, premium pay, merit pay, performance pay, supplemental pay, and pay progressions. No other issues can be negotiated. Section 169 bars collective bargaining on any other topic even if the employer is willing to engage in it. Section 234 bars interest arbitration for all public employees (again, except for the public safety employees who are generally excluded from the new statute’s provisions). Interest arbitration is a method to resolve bargaining impasses that is frequently used in U.S. public sector labor law. It is meant to substitute for strikes, which are barred for all government employees, even in the majority of states that permit public sector collective bargaining. Interest arbitration is often the final step in a series of statutorily mandated impasse processes (often including mediation and fact finding). Interest arbitration involves an arbitrator (or sometimes an arbitration panel) deciding on the substantive terms of the provisions of PUBLIC SECTOR 277 a labor contract that are at impasse, using criteria set out by the relevant public sector labor statute (Malin, Hodges, and Slater 2010). Although the new Wisconsin law does away with interest arbitration, it does not provide a specific replacement procedure to resolve bargaining impasses. Act 10 also imposed an unprecedented mandatory recertification system that requires every public sector union to face a recertification election every year, whether or not any employee requests one. Also, under this system, a union is recertified only if 51% of the employees in the collective bargaining unit—not merely those voting—voted for recertification (Wisconsin Statutes 2012a: § 111.70(4)(d)(2)(a)). The bill also limits the duration of collective bargaining agreements to one year (Wisconsin Statutes 2012a: § 111.70(4)(cm)(8m)). The law also makes Wisconsin a right-to-work jurisdiction by making union security clauses in collective bargaining agreements illegal (Wisconsin Statutes 2012b: § 219). Further, the law makes it illegal for an employer to agree to automatic dues deductions, even for employees who voluntarily wish to pay dues (Wisconsin Statutes 2012b: § 227). However, there has been a recent development regarding this law, especially as to the recertification and dues check-off provisions. On March 30, 2012, a federal district court struck down those two parts of Act 10, while upholding the rest of it. The case, Wisconsin Education Association Council [WEAC] v. Walker (2012), upheld most of Act 10 against an equal protection challenge. For most provisions of the law, the court held, the state had a rational basis to distinguish nonpublic safety employees from public safety officials—notably, rational concerns that public safety employees would be needed if the other public employees went out on strike (even though such strikes would have been illegal under Wisconsin law). But, in a victory for the union side, the WEAC decision enjoined the recertification provision and the bar on dues check-off on both equal protection and First Amendment grounds. The court found no connection between the Walker administration’s purported justification for treating these two groups of public employees differently for such purposes. There was no rational basis for this distinction—at least none that did not raise serious First Amendment concerns. The court noted that “public safety employees” disproportionately supported the Republican governor, Scott Walker. Indeed, the court at least strongly implied that the Walker administration passed these provisions as political payback for the public safety unions that supported Walker in the 2010 election (Bologna 2012a). On April 9, 2012, the attorney general of Wisconsin, J.B. Van Hollen, filed with the 7th Circuit an appeal of the substance and a motion to stay the injunction pending the appeal. This motion remains pending as of this 278 COLLECTIVE BARGAINING UNDER DURESS writing (Bologna 2012b). Apart from the stay, the substance of the WEAC decision will certainly be adjudicated by higher courts. Here is a summary of Act 10’s elements: • It prohibited negotiations on pensions, health care, and working conditions. • It allowed bargaining on wages only for wage increases at or below the inflation rate. • It shifted the burden of paying for pensions and health care benefits from the government to workers, raising employee contributions toward pensions and health care premiums by huge amounts. • It required public sector unions to win an annual vote to maintain union certification, prohibited them from collecting union dues through automatic payroll deduction, and allowed members to opt out of paying any union dues or fees when they wished to do so. • Finally, the bill required agencies to discharge any state employee who “participates in a strike, work stoppage, sit-down, stay in, slowdown, or other concerted activities to interrupt the operations or services of state government, including … mass resignations or sick calls.” (State of Wisconsin, Act 10, 2011, Feb. 15) The Political Attack In November 2010, Scott Walker was elected governor of Wisconsin with a majority in both the state assembly and senate. The stage was set for a battle with state employees who had failed to conclude negotiations in the previous summer with the Democratic administration. It is worth noting that various public employee unions had made “large concessions” during summer 2010, but the contracts had not been approved by the Democratic-controlled state legislature (Sernatinger 2010:48). Walker received a powerful mandate but arrived with a problem. Republicans had argued that Wisconsin was broke during the campaign— only to find a surplus of $120 million. According to Sernatinger (2010:49),“Walker and the Republican government wasted no time paying over $140 million to special interest groups in January through tax deductions, credits, and reclassifications” (see also One Wisconsin Now 2011). After creating a budget deficit, Walker introduced the Budget Repair Bill on February 11, 2011. In the state where formal collective bargaining began for public employees in 1959, Wisconsin became the first state to end collective bargaining. The annual union election requirement is particularly draconian in at least two ways. First, a union must win 51% (which is more than the 50% plus one majority requirement of the NLRB) of the entire bargaining unit so that abstainers are counted as “no” votes. Second, if a union fails to obtain the required 51%, it is decertified at the end of the collective agreement and cannot reapply for a year. PUBLIC SECTOR 279

The act exempted public safety employees from the restrictions—police officers, firefighters, and state police. Because protecting citizens is one of the few legitimate purposes of government recognized by Libertarians, this exemption is not surprising. Thus, despite the willingness of public sector unions to make concessions and accommodate most of his demands (Sernatinger 2010; Freeman and Han 2012), Walker insisted on legislation designed to weaken unions and emasculate the institution of collective bargaining. The stage was set for confrontation. Union Responses Finding themselves at the center of a political struggle for collective bargaining, unions and their allies adopted strategies that included industrial action, political maneuvering, legal action, and demonstrations. An estimated 1,000 teachers protested the Repair Bill by calling in sick on February 16, 2011 (Epstein 2011). Job actions were effective at getting public attention but were difficult to sustain and ran the risk of losing public support. Labor and its allies soon realized, somewhat surprisingly, that there was widespread support for their cause. Planned marches and demonstrations ranged between 25,000 and 100,000 supporters. These demonstrations brought national attention to the plight of public sector workers and in the process exposed the extreme agenda of the tea party Republicans. They also invigorated the labor movement and their allies in a manner reminiscent of the 1960s. They came out in huge numbers, young and old, in the middle of winter to protest the loss of collective bargaining rights by public sector unions. Both national and statewide polls showed substantial support for their cause. For example, a Gallup poll in February 2011 showed 61% would oppose a law in their states similar to Walker’s Wisconsin bill, 33% would favor such a law and, in Wisconsin, 56% to 71% of residents said the state should not take away collective bargaining rights of public sector workers if workers were willing to pay more for health and retirement benefits (see Table 4 in Freeman and Han 2012). Politically, the strategy was to try to block the passage of the Repair Bill by sending 14 Democratic state senators to Illinois to prevent the legislature from achieving a quorum (Secunda 2012). This strategy worked for a while until the Republicans removed the quorum requirement by eliminating fiscal items in a revised bill introduced on March 9, 2011 (Donegan 2010). This action prompted a legal challenge to the bill that was initially successful at the Dane County circuit court level but was eventually upheld by the state Supreme Court in a 4 to 3 decision on June 15, 2011 (Zebley 2011). Unions and their supporters gained sufficient signatures for the state to hold recall elections for the legislators in summer 2011. The Republicans 280 COLLECTIVE BARGAINING UNDER DURESS retaliated by petitioning to recall two Democratic legislators. If the Democrats won three Republican seats and held their own, they would gain a majority in the state senate. The voters recalled two Republicans and re-elected the Democrats. In winter 2011, unions and their allies had gathered enough signatures to force a recall election of Governor Walker. On June 8, 2012, Walker was easily re-elected as governor, and Act 10 restricting public sector collective bargaining remained unchanged. The Backlash: An Overreach by the Right? There is sufficient evidence to show that the assault on collective bargaining by the conservative right went beyond what was supportable by public opinion. There was widespread public support for concessions from public employees but not for the removal of collective bargaining rights. By contrast, the re-election of Walker also demonstrates the limitations of political action by public sector unions and their allies. The story, however, is different in Ohio where the legislation taking away bargaining rights was defeated in a referendum.

CONCLUSION Public employees bore the brunt of a political attack on the American minimalist version of the welfare state. The conservative right took advantage of an opportunity to try to remove an obstacle standing in the way of further reductions in the size of government—collective bargaining. They have succeeded in weakening laws covering negotiations, arbitration, and union security in several states. Largely because of its fragmented legal structure, however, we argue that collective bargaining has survived. More important perhaps, the political attack on public employees and their unions awakened a sleeping giant. Unions and their allies were surprised and emboldened by the mass support for their cause in the sheer size of demonstrations and the wide popular backing for the institution of collective bargaining. Finally, the Wisconsin battles paved the way for the Occupy Wall Street movement of 2011 that placed income inequality on the national scene and on the policy agenda of the United States. PUBLIC SECTOR 281

APPENDIX: LEGISLATIVE CHANGES BY STATE

Idaho Summary • Fact finding eliminated • One-year agreements • When agreement expires, the terms also expire • Time limit on negotiations; otherwise school board imposes settlement Legislative Changes Idaho enacted SB 1108, which limits collective bargaining by teachers to “compensation” (defined, in § 17, essentially, as wages and benefits, including insurance, leave time, and sick leave). Section 22 of the law eliminates mandatory fact finding. Fact finding is another process commonly used in U.S. public sector labor laws to help resolve bargaining impasses, typically after mediation and before interest arbitration. In fact finding, an individual fact finder (or sometimes a panel) investigates and makes findings regarding facts relevant to the issues at impasse (e.g., the public employer’s budget and resources and what comparable public employees are paid in comparable jurisdictions) (Malin, Hodges, and Slater 2010). Now that Idaho has eliminated fact finding, only mediation remains, and even that is limited. Under § 20 of the new law, if the parties have not reached agreement, they are permitted but not required to enter into mediation. Section 22 also limits collective bargaining agreements to one year and prohibits “evergreen” clauses.3 Section 20 provides that if the parties have not reached an agreement by June 10, the school board will unilaterally set the terms of employment for the coming school year.

Illinois Summary • Length of school day and year not mandatory subjects • Right to strike limited Legislative Changes In S.B. 7, § 10, Illinois amended its Educational Labor Relations Act such that in the Chicago public schools, the length of the school day and school year are permissive, not mandatory, subjects of bargaining. In other words, public employers need only negotiate about such issues if the employer wishes (they are not obligated to do so), and the union may not strike or invoke any impasse resolution procedures (mediation, fact finding, or interest arbitration) over such issues. 282 COLLECTIVE BARGAINING UNDER DURESS

This law also made minor adjustments to the right to strike for most public education employees and imposed more significant restrictions on the right for Chicago public school employees. Under § 13(b)(2), for schools other than Chicago schools, if the parties have not agreed within 45 days of the start of the school year, the Illinois Educational Labor Relations Board must invoke mediation. After 15 days of mediation, either party is allowed to declare an impasse. Seven days after that, each party must submit its final offer. Seven days later, the offers are made public. No strike is allowed until at least 14 days after publication of the final offer. Under § 13(b)(2.10), for Chicago schools, if mediation fails to produce an agreement after a reasonable period of time, either party has a right to fact finding. If this does not produce a settlement within 75 days, the fact finder will issue a private report with recommendations. The parties have up to 15 days to accept or reject the recommendations. If the recommendations are rejected, then they are made public. The union cannot strike until 30 days after the publication of the recommendations and even then cannot strike unless at least 75% of the bargaining unit authorizes the strike.

Indiana Summary • Scope of bargaining limited to wages and benefits for teachers • Right to work bars all union security Legislative Changes Indiana Senate Enrolled Act No. 575 limits the scope of bargaining for teachers to wages and benefits. Specifically, § 14 limits bargaining to salary, wages, and certain fringe benefits. The law explicitly bars negotiating over practically all other subjects. For example, § 15 expressly bars negotiations over a wide variety of subjects, including the school calendar and criteria for teacher evaluation and dismissal. Even as to wages and benefits, § 13 forbids contracts that would put a school district in a deficit. Although the bill does state that the parties shall discuss issues such as curriculum, textbooks, evaluations, promotions, demotions, student discipline, and class size, § 18 explicitly adds that collective bargaining agreements cannot contain any agreements on any of these topics. Further, although the new statute allows union contracts to have grievance procedures, § 17 eliminates the authorization in the previous law for binding arbitration as part of the grievance procedure. Section 6 also repeals the provision in the previous law that authorized unions and employers to arbitrate teacher dismissals. PUBLIC SECTOR 283

In 2012, Indiana enacted a right-to-work law (barring all forms of union security clauses) that applies to the public sector (Schneider and Sikich 2012).

Massachusetts Summary • A procedure for local government to reduce health care costs without bargaining Legislative Changes Chapter 69 of the Acts of 2011 makes it easier for local government employers in Massachusetts to make changes in health insurance. Under the new law, the governing body lists its proposed changes along with estimated cost savings and proof of the savings. It then notifies each bargaining unit and a retiree representative. The retiree representative and the bargaining unit representatives form a public employee committee that bargains with the employer for up to 30 days. After 30 days, the matter is submitted to a tripartite committee which, within 10 days, can approve the employer’s proposed changes, reject them, or remand for additional information. The committee’s decision is final.

Michigan Summary • A public sector version of a bankruptcy process whereby collective agreements can be amended or terminated. • Scope of bargaining is restricted for teachers. Legislative Changes Michigan enacted the Local Government and School District Fiscal Accountability Act (2011 Michigan Act 4), which allows the governor to appoint an emergency manager for local governments experiencing a financial emergency. The manager can reject, modify, or terminate any terms of contracts with public sector unions. This law has proven quite controversial. Local city governments within the state (controlled by Democrats) protest that the Republican governor Rick Snyder is essentially taking over what should rightfully be locally controlled decisions—or extorting concessions by threatening to do so.4 On May 22, 2012, a court of appeals in Michigan upheld this act against a challenge that it violated Michigan’s open meetings law (Pluta 2012). A separate law, Michigan Public Act 103, limited the scope of bargaining for public school employees. Among other things, educational employers and employees cannot bargain over placement of teachers, reductions in force and recalls, performance evaluation systems, the content and implementation of policies regarding employee discharge or discipline, and 284 COLLECTIVE BARGAINING UNDER DURESS how performance evaluation is used to determine employee compensation. In March 2012, Michigan enacted a law providing that union dues for teachers and other public school employees in Michigan can no longer be collected through payroll deductions. The law also requires unions to file independent audits of expenditures for collective bargaining, contract administration, and grievance adjustment with the Michigan Employment Relations Commission, which must publish the audits on its website.5 Also in March 2012, in a separate bill, Michigan barred organizing by graduate assistants at Michigan public universities.6 This law passed both houses of the Michigan legislature on party lines. The bill on graduate assistant organizing, has, however, been the subject of some recent litigation. On April 2, 2012, a judge in Michigan issued a temporary injunction against this bill (and several others) on grounds relating to the procedure used in the Michigan legislature to pass it (Livengood and Kozlowski 2012). But then on April 9, a court of appeals stayed the injunction pending an appeal. Thus, the ultimate fate of this law is unknown as of this writing. Also, on April 10, 2012, Michigan passed a law, S.B. 1018 (P.A. 76), that blocks home-based caregivers from representation by public sector unions. Specifically, the law changes the definition of a public employee to exclude anyone who receives a government subsidy for private employment. It was designed to end dues collection by the Service Employees International Union (SEIU), which had (since 2066) been acting as the bargaining representative for home health aides who care for people receiving Medicaid benefits. The Michigan Department of Community Health pays those workers.7

Nebraska Summary • Restrictions on interest arbitration Legislative Changes Legislative Bill 397 changed Nebraska’s interest arbitration rules to be more favorable to public employers. In Nebraska, interest arbitration is performed by the Commission of Industrial Relations (CIR), not by private arbitrators. The new Nebraska law provides detailed criteria for selecting the group of “comparable” communities for interest arbitrations. Also, it mandates that if the employer pays compensation between 98% and 102% of the average of the comparable communities, then the CIR must leave compensation as it is. If the employer’s compensation is below 98% of the PUBLIC SECTOR 285 average, then the CIR must order it raised to 98%; if it is above 102%, the CIR must order it lowered to 102%. The targets are reduced to 95% to 100% during periods of recession (defined as two consecutive quarters in which the state’s net sales and use taxes, and individual and corporate income tax receipts, are below those of the prior year).

Nevada Summary • Collective bargaining is removed from supervisors, doctors, and lawyers • Reopeners for fiscal emergencies Legislative Changes Nevada enacted S.B. 98. Sections 5 and 6 of this law to reduce the number of public employee supervisors eligible for collective bargaining. They also eliminate collective bargaining rights for doctors and lawyers Also, § 7(2)(w) of this law mandates that labor contracts contain clauses that would reopen such contracts during fiscal emergencies. This law applies to local governments only because state employees in Nevada do not have collective bargaining rights.

New Hampshire Summary • Removed card-check recognition Legislative Changes New Hampshire enacted S.B. 1, which eliminates the requirement that the terms of a collective bargaining agreement automatically continue if an impasse is not resolved at time the agreement expires. It also enacted H.B. 589, which repealed a 2007 state law that provided for mandatory card-check recognition—that is, mandatory union certification when a majority of the employees in a bargaining unit sign cards indicating they want a specific union to represent them. Readers may recall that such a provision was very controversial in the United States when the Employee Free Choice Act (EFCA) was being debated; EFCA would have applied mandatory card-check recognition to private sector unions under the NLRA. Less well-known is the fact that a number of states had already adopted mandatory card-check recognition in their public sector laws (California, Illinois, Massachusetts, New Hampshire, New Jersey, New York, and Oregon; Malin, Hodges, and Slater 2010:412). New Hampshire, however, has now repealed this rule. 286 COLLECTIVE BARGAINING UNDER DURESS

New Jersey Summary • Wage controls and arbitration restrictions • Health care benefits removed from bargaining Legislative Changes In late December 2010, New Jersey adopted New Jersey Laws 2010, Chapter 105. This law capped wage increases at 2% for New Jersey police and firefighter arbitration awards for contracts expiring between January 1, 2011, and April 1, 2014. This cap on base salaries expires on April 1, 2014. Arguably more important, this law placed serious restrictions on interest arbitrators. Arbitrators are now randomly selected (as opposed to the previous process of mutual selection); arbitrator compensation is limited to $1,000 per day and $7,500 per case; arbitrators must issue awards within 45 days of a request for interest arbitration (prior law allowed 120 days); and, quite significantly, arbitrators will be penalized $1,000 per day for failing to issue an award. Also, the arbitrator’s award may be appealed to the state’s Public Employment Relations Commission, which must decide the appeal within 30 days. In 2011, in New Jersey Public Law, Chapter 78, the state suspended bargaining over health care benefits for four years while a new statute, which will control the issue, is phased in. The new law sets a sliding scale of mandatory employee contributions to health care plans, and it calls for a state committee to design two public sector health care plans: one for education employees and one for other public employees.

Oklahoma Summary • Collective bargaining made discretionary for cities Legislative Changes In H.B. 1593, Oklahoma repealed the Oklahoma Municipal Employee Collective Bargaining Act, a 2004 law that had required cities with populations of at least 35,000 to bargain collectively with unions. The repeal leaves the decision of whether or not to bargain with a union to discretion of individual cities. As in Wisconsin, however, this change does not affect police and firefighters, who, in Oklahoma, are covered by a separate statute. PUBLIC SECTOR 287

Tennessee Summary • Collective bargaining removed for teachers Legislative Changes In the Professional Educators Collaborative Conferencing Act of 2011 (Tenn. Pub. Ch. No. 378), Tennessee repealed the Educational Professional Negotiations Act, a 1974 law that had authorized collective bargaining for public school teachers. Under the new act, teachers are now permitted only “collaborative conferencing.” Under § 49-5-605(b)(1), (2), and (4) of this law, teachers now are represented by groups that receive 15% or more of the votes in a confidential poll rather than by a particular union. This is an especially intriguing provision in that it rejects the “exclusive, majority representative” Wagner Act model ubiquitous in public and private sector labor law in the United States. Crucially, though, the bill does not provide for “collective bargaining rights” because that term has been traditionally understood. Specifically, § 49-5-608(a) of the new Tennessee law mandates “collaborative conferencing” on issues including salaries, benefits other than retirement benefits, working conditions, grievance procedures, leave, and payroll deductions. However, § 49-5-609(d) also states that the parties are not required to reach agreement on any of these issues and adds that if no agreement is reached, the school board will set terms and conditions of employment through school board policy. Further, § 49-5-608(b) of the law also specifically prohibits collaborative conferencing on a number of issues: differential pay plans, incentive compensation, expenditure of grants or awards, evaluations, staffing and assignment decisions, and payroll deductions for political activities.

ENDNOTES 1 A meet and confer executive order was implemented in 2008. 2 Only Chile, Mexico, and Portugal had higher Gini coefficients than the United States. 3 An evergreen clause is a term in a collective bargaining agreement providing that when the agreement expires, the terms of the agreement remain in effect until it is renego- tiated. 4 See, for example, stories and columns at the Huffington Post . 5 H.B. 4929, now P.A. 53. 6 H.B. 4246, now P.A. 45. 7 Nora Macaluso, “Michigan Governor Signs Bill Ending Union Representation for Home Care Givers” 69 DLR (BNA) A-10 (2012). 288 COLLECTIVE BARGAINING UNDER DURESS

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Chapter 8 Professional Sports: A Tale of Conflict and Accord

James B. Dworkin Purdue University North Central Richard A. Posthuma University of Texas at El Paso

Professional sports are a big part of American culture. Whether attending a game of one of the four major pro sports—basketball, baseball, football, and hockey—watching sports on television, reading about last night’s contest in the newspaper, or buying apparel to support a favorite team, a very large segment of the population interacts in some way with the sports industry. Most people, including the casual sports fan, recognize that along with scores of games involving their favorite teams, newspapers, magazines, blogs, Twitter, Facebook, and other media are replete with coverage of labor relations events in professional sports. In fact, the American public probably knows more about collective bargaining in the four major pro sports than in any other industry. Whether it be a dispute over mandatory thigh and knee pads for National Football League players, the firing of Major League Baseball arbitrator Shayam Das after he overturned player Ryan Braun’s drug suspension, the continued building and opening of new ball parks, a record number of professional baseball players (14) earning more than $20 million during the 2012 season, the billions of dollars of licensed merchandise sales in all four major sports, or the recent controversy over the use of replacement referees in the National Football League, labor news seems to constantly compete with the on-the-field aspects of professional sports. This chapter covers the major issues involved in collective bargaining during the past ten years in professional baseball, football, basketball, and hockey. A final section will discuss the future of labor– management relations in this high-profile industry.

THE INDUSTRY Most industries have unique institutional circumstances that influence how they operate, and the professional sports industry is no exception.

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One factor is the high-profile nature of the industry. In addition, professional sports wield enormous market control in the sectors in which they operate. Professional sports also exercise more control over the allocation and use of their employees (the players) than any other industry. Finally, the professional sports industry requires teams to cooperate so that everyone may survive and prosper. Each of these features is discussed in the following sections.

PUBLIC ATTENTION TO PROFESSIONAL SPORTS Why are Americans and people around the world so fascinated with professional sports? U.S. professional sports have huge yearly revenues— $9 billion in the National Football League (NFL), $7 billion in Major League Baseball (MLB), $3.8 billion in the National Basketball Association (NBA), and $2.9 billion in the National Hockey League (NHL). Yet these revenues pale in comparison to the revenues produced by major U.S. companies (e.g., Exxon’s fiscal year revenue in 2011 was $496 billion, Walmart’s revenues were $447 billion, and General Motors had $150 billion in revenues). Thus, it’s not the size of the industry that generates so much attention (Quirk and Fort 1999; Fort 2000) but other factors. First, many people grow up actively participating in a variety of recreational sports. People can relate to professional athletes more easily than they can relate to workers assembling a car or inventing new software for a high-technology company. The media fuel vicarious participation in the sports industry by keeping us constantly informed of the daily events in each major sport. It’s true that many people also watch the activity of the New York Stock Exchange and the NASDAQ as a daily routine. Yet during the important formative years of one’s youth, few children traded stocks and bonds; most, however, actively participated in some sport at some time (Little League baseball, youth soccer, etc.). Second, professional sports teams are a source of community pride. People are proud of their teams and come to identify with their players and their successes or failures. The Dodgers left Brooklyn for Los Angeles in the 1950s, yet even today, people in Brooklyn still talk about Walter O’Malley moving the team to the West Coast. Third, competition on the playing field is captivating. One of the alluring aspects of professional sports is the fascination surrounding games with uncertain outcomes. With the possible exception of Los Angeles Dodger fans, who are notorious for arriving late and leaving early, a close contest typically has fans glued to their seats until the final out or until the clock ticks off the last second of play. Fourth, sports teams provide a model for teams in the workplace. Often, managers seek to emulate the team model to manage their workplaces. They try to assemble a winning team, to facilitate cooperation among PROFESSIONAL SPORTS 295 team members, and to celebrate successes when their teams win out over the competition (Katz 2001).

THE INDUSTRY WIELDS STRONG MARKET CONTROL The professional sports industry is unique in the degree to which it is able to exercise market control. Much of this control centers on the exclusivity of geographic franchises. Through bylaws and rules, sports leagues control which teams operate in which markets, when teams can relocate, where they can relocate, and when new franchises can enter the market. By contrast, in the retail industry, Walmart may open a new store, and one of its competitors is free to locate nearby. There are no restrictions on this kind of competitive activity. This control over team movements and team location provides the professional sports industry with power not possessed by any other industry. This power allows team owners to make demands on cities for new, economically viable stadiums paid for by local taxpayers. To balk at such a request is to risk losing a team, a risk many cities are unwilling to take. Often, other host cities wait in the wings, offering entic- ing packages to existing teams that are considering franchise relocation. Each professional sports league operates teams only in those markets (cities) in which it chooses to enter. No competition is permitted. Challenges to this market control have arisen when rival leagues were formed. But generally, those challenges had little or no long-term impact. One exception was the American Basketball Association, which prospered for several years and had several of its better teams absorbed by the NBA (Naismith 1996; Gould 1998). In all other sports, the success of one team or league has not had much impact on the attendance of other leagues.

CONTROL OVER ALLOCATION AND USE OF PLAYERS Professional sports have unique control over new player talent entering the league. This control is exercised via a number of rules and regulations governing the drafting of rookie players. Actually, until the player unionization movement took hold, teams were able to control their players over their entire careers through what economists refer to as monopsony power (one buyer and many sellers). This control was enforced through the reserve clause in each player contract (Staudohar 2012c). Players were “reserved” to one team in perpetuity. This control has been challenged and weakened over the years. The players in all professional sports have finally achieved a modicum of control over their careers through a series of collective bargaining agreements. Yet it is still as true today as it was 100 years ago that the leagues and teams have vast power over entering talent through the rookie draft procedures. Players are still owned by their teams for the early to mid-portions of their careers. 296 COLLECTIVE BARGAINING UNDER DURESS

COMPETITION AND COOPERATION The economics of professional sports leagues is peculiar (Neale 1964). Leagues operate by a set of rules whereby the teams within a league cooperate to prosper and survive. Teams use a set of common playing rules (instant replay, strike zone, three-point shot, penalties for slashing) and enforcement mechanisms. Yet cooperation also entails agreeing to league rules about franchise relocation and the allocation of television revenues. The agreed-on gate and television revenue-sharing arrangements vary across leagues, from complete revenue sharing in football to a more complicated and problematic system of partial revenue sharing employed in baseball. This cooperation is in juxtaposition to the ongoing competition among the teams. Teams compete to win but also to make profits, often at the expense of other teams in the league. Competition among teams within a league is essential, but too much economic competition could kill the golden goose. This results in an industry that requires a moderate degree of competitive balance to enable all teams to share in the success of the industry (Sherony, Haupert, and Knowles 2001). Many of the woes facing baseball continue to stem from “small-market versus big-market teams” competitive issues. Can a small-market team such as Milwaukee, with limited local TV and radio dollars, really compete with a large-market franchise such as the New York Yankees? The Yankees might earn as much as $100 million per season in local TV and broadcast rights. The large-market teams generate large revenues that can be used to buy the best players. Therefore, the leagues struggle with supporting smaller markets to ensure that a reasonable level of competition continues.

THE PARTIES Within this industry, several key parties exert significant influence—the leagues, the teams, the players and their unions, and the government. Each of these parties is discussed in turn (Dunlop 1993; Aaron and Wheeler 1991). Employer Groups—The Leagues Professional sports leagues in hockey, football, basketball, and baseball engage in many functions, such as determining schedules; arranging for referees, umpires, and other game officials; interpreting rules; and handing out discipline. Besides these crucial functions, however, all leagues impose strict policies and codes on all member teams that limit economic competition. By limiting competition among league teams and restricting entry into the league by newer teams, these cartel organizations are better able to maximize profits. The league grants each member team what is referred to as an exclusive territorial franchise. Although the concept varies PROFESSIONAL SPORTS 297 from league to league, it generally means that a team in a specific location has a monopoly over that area. No other teams are permitted to operate in that territory. However, several very large metropolitan areas do possess multiple teams in a single sport. In addition, once a team is situated in a particular location, movement to another location is not permitted without a supermajority of support from all league teams (e.g., 75% in the NFL). Table 1 presents a summary of the number of franchise moves in each league since the 1950s. The data suggest that there is only about one franchise relocation per year (Quirk and Fort 1999). Many franchises move to communities that offer them economically viable stadiums financed by cities and citizens. However, many more teams threaten to move than actually do. Often, just the threat of moving results in local support for a new arena or stadium. The league’s restriction on entry of new teams has led to threats of new or rival leagues. These include such ill-fated ventures as the World Hockey Association, the World Football League, the Mexican League in baseball, and others. Yet it’s hard to find examples of successful rival leagues. The rival leagues have a big disadvantage because of lack of resources, poor player talent, and inadequate playing facilities. Nonetheless, there have been a few successes, such as the American League in baseball, the American Football League (AFL), and, of course, the American Basketball Association (ABA) (who can forget the red, white, and blue ball?). The most curious thing about these successful rival leagues is the way the competition was resolved. In each case, the competing leagues were merged or assimilated into the existing league. These combinations reestablished the former monopoly powers of the pre-merged league. In essence, after competition the leagues were right back where they started, as anticompetitive, profit- maximizing cartels.

TABLE 1 Franchise Relocations by Sport, 1950s to Present Decade Baseball Football Basketball Hockey Total 1950s 5 0 4 0 9 1960s 4 2 5 0 11 1970s 2 0 7 3 12 1980s 0 3 2 2 7 1990s–present 1 4 1 4 10 Totals 12 9 19 9 49 Sources: League guides; Quirk and Fort (1999). Note: The most recent franchise relocations are as follows: NFL 1997: Houston Oilers become Tennessee Titans (Nashville) NBA 2001: Vancouver Grizzlies become Memphis Grizzlies NBA 2002: Charlotte Hornets become New Orleans Hornets MLB 2005: Montreal Expos become Washington Nationals (D.C.) NHL 1997: Hartford Whalers become Raleigh Hurricanes 298 COLLECTIVE BARGAINING UNDER DURESS

The story of the ABA is an interesting example. In terms of player salaries, the ABA could do two things. The ABA’s first approach was to hire college stars for big money. The NBA teams, however, could pay higher salaries. The ABA’s second approach was to encourage established NBA players to switch leagues. Some players did jump leagues, but most players were able to reap the benefits of interleague competition by merely threatening to jump leagues. As Koppett (1998) and others have pointed out, interleague rivalry was not in their best interests. The result was a mini- merger in which the NBA accepted several of the ABA’s strongest franchises. Individual Employers—The Teams Although the leagues play a crucial role in establishing market power and in rule-making/enforcement procedures, the major employers in the professional sports industry are the teams within the leagues. Team ownership has changed significantly over the years. Early owners tended to be former players who accumulated enough capital to get into the management side of the game. For example, in football, the Chicago Bears were owned and coached by former player George Halas, and the Green Bay Packers were owned and coached by former player Curly Lambeau. A more recent example is Michael Jordan and the Washington Wizards basketball team. However, the days of former players as owners have mostly passed into history. Today, owners tend to be billionaire business tycoons such as Mark Cuban (Dallas Mavericks), Rich DeVos (Orlando Magic), Jerry Jones (Dallas Cowboys), Paul Allen (Seattle Seahawks), Peter Angelos (Baltimore Orioles), Fred Wilpon, (New York Mets) and Geoff, Andrew, and Justin Molson (Montréal Canadians). Although some argue about the profitability of these team franchises, the value of a franchise is illustrated by its selling price. In today’s market, the least expensive pro sports franchise sells for close to $100 million. This is much more than prices paid for even the most elite teams in the recent past. However, the recession of the mid-2000s has dampened franchise selling prices, at least for the short term. Table 2 gives a few examples of the recent selling prices for teams. It should be noted that some franchise values have increased enormously, while teams such as the Charlotte Bobcats (NBA) and the Tampa Bay Lightning (NHL) have seen flat or even decreased values. In the past, profitability was a primary goal of most franchises. However, for today’s millionaire and billionaire owners, it’s not clear that profitability is the primary objective. Owning a team may be more of a rich person’s hobby. Just as a big-game hunter spends extravagantly to bag an exotic animal, today’s team owners want winning teams, even if it means sometimes operating at a net loss. It is quite possible to spend huge sums of PROFESSIONAL SPORTS 299

TABLE 2 Examples of Team Sales Prices Price* Previous sales Team Sport (year last sold) price (year) Texas Rangers Baseball $250M (1998) $97.8M (1989) Minnesota Vikings Football $250M (1998) $100M (1991) Philadelphia 76ers Basketball $12M (1996) $12M (1981) Edmonton Oilers Hockey $8M (1998) $7.5M (1979)* Charlotte Bobcats Basketball $275M (2010) $250M (2002) Chicago Cubs Baseball $84M (2009) $20.5M (1981) Tampa Bay Lightning Hockey $100–150M (2010) $200M (2008) Miami Dolphins Football $1.1B (2009) $138 M (1995) Sources: Quirk and Fort (1992, 1999); Sandomir and Belson (2010). *Fee paid for entry into league. money to acquire players just to win a championship. Consider the case of Wayne Huizenga of Blockbuster Video. His Florida Marlins won the 1997 World Series after Huizenga spent millions of dollars to hire the best talent. Having accomplished that goal, the championship club was dismantled, and it finished last in the very next season. High player salaries do not guarantee team success. Table 3 illustrates how team salaries are related to team winning percentages for the highest- and lowest-paying teams in each professional sport. The results are quite revealing and interesting. In basketball, the highest-paying L.A. Lakers had a winning percentage of .621 (third highest), while the lowest- paying Houston Rockets had a winning percentage of .515, putting them in ninth place. Not surprisingly, in baseball, the highest-paying New York Yankees had the third-highest winning percentage at .586, while the San Diego Padres came in 19th place out of 30 teams with a winning percentage of .469. The biggest surprise is in the NFL, where the highest-paying Kansas City Chiefs were tied for last place in terms of winning percentage, at .125, while the lowest-paying Indianapolis Colts made the playoffs with a winning percentage of .688, which put them sixth highest among all NFL teams. In the NHL, it makes more sense to talk about points earned rather than winning percentages. The highest-paying Philadelphia Flyers earned 103 points, which placed them sixth among the 30 NHL teams, while the lowest-paying New York Islanders only earned 79 points, which put them in 27th place among all NHL teams. Although paying large salaries may lead to more wins, the above data demonstrate that the relationship between high salaries and superior team performance is not a certainty in today’s world. 300 COLLECTIVE BARGAINING UNDER DURESS

TABLE 3 Player Salaries and Team Success Basketball Baseball Football Hockey Average player salary $5.2M $3.3M $1.1M $2.4M New York Kansas City Philadelphia Highest team L.A. Lakers Yankees Chiefs Flyers average salary $6.7M $6.18M $2.42.M $2.73M Houston San Diego Indianapolis New York Lowest team average Rockets Padres Colts Islanders salary $3.2M $1.93M $1.52M $1.34M Winning percentage, .621 (3) .586 (3) .125 (29) 103 (6) highest Winning percentage, .515 (9) .469 (19) .688 (6) (79) (27) lowest Source: Kercheval (2013). Notes: Major League Baseball team salaries are for the 2012 season. National Basketball Association team salaries are for the 2012–2013 season. National Hockey League salaries are for the 2011–2012 season. National Football League salaries are for the 2012 season. Winning percentage in MLB, NBA, and NFL is the percentage of regular-season games won. For the NHL, the measure used is the number of points earned. Numbers following winning percentage and points indicate rank in league.

The big question is whether team owners today are in it just for the fun or to make money. Table 4 presents data on team value and operating income in each of the four sports covered in this chapter. As shown in Table 4, owning a major league team may or may not be a profitable endeavor. In each league, the highest-valued and the lowest-valued teams are listed, along with operating revenue in 2012. The variance in both team value and operating revenue from team to team is quite large. In the NFL, the Dallas Cowboys are valued at $2.1 billion, while Jacksonville is valued much lower, at $770 million. Not all teams are profitable, though. The lowest-valued team in the NBA (Milwaukee Bucks) and in the NHL (St. Louis Blues) report a negative operating income in the most recent season. Some lower-valued teams such as the Pittsburgh Pirates in baseball have been very adept at making money while losing more games than they win, season after season. The Pirates’ recent record in 2012 constituted their 20th consecutive losing season! The Unions and the Players Much has been written about the history of player unionization in professional team sports (Dworkin 1981). Players have overcome relatively oppressive conditions and a monopsonistic labor market in which each player was owned—in perpetuity—by the club for which he played. The result of a monopsonistic labor market was control of player salaries. In the early years, collective bargaining did not exist, and individual salary PROFESSIONAL SPORTS 301

TABLE 4 Team Value and Operating Income, 2012 Team Team value Operating income Dallas Cowboys $2.1B $226M Jacksonville Jaguars $770M $29.6M New York Yankees $1.8B $10.0M Oakland Athletics $327M $14.6M L.A. Lakers $900M $24.3M Milwaukee Bucks $268M $–7.6M Toronto Maple Leafs $1.0B $81.9M St. Louis Blues $130M $–10.0M Sources: “Forbes Releases” (2013); Ozanian (2011, 2012, 2013). Note: Team value is defined as the value of the team based on its current stadium deal without deduction for debt. Operating income is defined as earnings before interest, taxes, depreciation, and amortization. negotiations were typically not very successful. A player seeking a higher salary had few options. He could not threaten to play for another team in his own league. In the absence of a rival league, he could not threaten to jump to the other league. He could threaten to hold out for more money, but in so doing, he faced a situation of severe resource imbalance. His team had a much greater ability to withstand his holdout because the team had far greater resources. Finally, a player could always quit the game and go into another (probably less lucrative) occupation. Players were in a difficult position. Collective bargaining has changed the players’ labor market fortunes. Probably one of the most interesting differences between labor relations in professional sports and that of other industries covered in this book is that wage bargaining in the sports industry occurs at two levels. Through collective bargaining, the players’ union and league management set minimum salaries for players with fewer years of service. These minimum salaries set the floor for the important individual negotiations that go on between each player and his club. Today, most players employ agents to negotiate their individual contracts. The high salaries that have resulted are legendary. Table 5 illustrates just how high salaries have become, listing two of the highest- paid athletes in each sport. Nevertheless, although certain player salaries are high, there is a lot of variation between the highest- and lowest-paid players. Most teams have a few players earning the professional minimum (NFL $325,000, MLB $480,000, NBA $457,000, NHL $500,000), while the team superstars can earn more than $20 million for a single season. There is also a lot of variance between the highest average team salary and the lowest average team salary, as demonstrated earlier. 302 COLLECTIVE BARGAINING UNDER DURESS

Two questions immediately come to mind. Are these players worth the money? And how did salaries get this high? Economic theory suggests that a club would be willing to pay a player the extra amount of revenue he would bring in for the club. This extra revenue might come in the form of greater ticket revenue, better TV contracts, and more team merchandise sales. Extremely popular superstars such as Peyton Manning, Albert Pujols, Kobe Bryant, and Sidney Crosby can add real magic to their teams’ economic fortunes. The trick for each team is to balance these highly paid superstars with the remaining roster of “bargain basement” athletes and still have a club that can compete for a championship. Under the labor market systems that existed in the past, players had severely restricted opportunities. Player reserve clauses gave the player’s current team the right to require that the player sign with them again when his contract expired. In negotiation terminology, a player did not have a very good “BATNA,” or best alternative to a negotiated agreement (Lewicki, Saunders, and Minton 1997). If a player could not play for another team, no other team could bid for his services. Perhaps his BATNA was to work at J.C. Penney for $30,000. This would not be a very attractive alternative for the player, who would probably sign again with the same team for a relatively low salary. But by now, in the year 2013, all players in all sports enjoy free agency and in some cases salary arbitration, as well. These factors have significantly improved players’ BATNAs and enabled them to negotiate for much higher salaries. These improved alternatives are a direct result of the collective bargaining process. Through negotiations, the players have significantly curtailed the labor market restrictions they faced for so long. The case of baseball illustrates the two most important changes the players have gained: free agency and salary arbitration. For example, if the current club offers the player $2.3 million, his best alternative may be

TABLE 5 Highest-Paid Currently Active Players by Professional Sport Player Sport Average yearly salary Alex Rodriguez, New York Yankees Baseball $27.5M Albert Pujols, California Angels Baseball $24.0M Rashard Lewis, Orlando Magic Basketball $21.0M Kobe Bryant, L.A. Lakers Basketball $19.48M Calvin Johnson, Detroit Lions Football $16.5M Larry Fitzgerald, Arizona Cardinals Football $15.0M Alexander Ovechkin, Washington Capitals Hockey $9.5M Didney Crosby, Pittsburgh Penguins Hockey $8.7M Source: Compiled by authors. PROFESSIONAL SPORTS 303 to go the route of free agency and be paid $2.8 million by another team. Free agency, or even the threat of negotiating with another team, has made the labor market for players much more competitive. In baseball, salary arbitration has been a second major alternative available to players earlier in their careers. If the player is not able to obtain a satisfactory salary through negotiation, he may invoke binding arbitration and have his salary determined by an independent third-party arbitrator. To summarize, all professional athletes today in baseball, basketball, football, and hockey are represented by a union—their players’ association. The union negotiates over a traditional set of labor–management issues, such as minimum wages, hours of work, and other terms and conditions of employment. Players typically employ agents to negotiate their individual salaries. The unions have largely been responsible for the major gains players have seen in compensation over the years because of free agency and salary arbitration provisions in collective bargaining agreements. These basic structural changes to the players’ labor market have altered the game tremendously. However, although player unions have had a significant influence, we cannot ignore the role that government has had. It is to this final party in the system that we now turn our attention. The Government State, local, and federal government policies have profoundly affected all professional sports leagues (Abrams 1998; Quirk and Fort 1999; Dworkin 1981). Relationships between individual players and team owners are governed by contract principles because virtually all players sign a standard player contract. A critical factor for small-market franchises is the generation of sufficient revenues to meet skyrocketing player payroll costs. One way to generate more revenue is through new stadium facilities that include lucrative skybox arrangements. In fact, it is possible to decrease the total number of stadium seats while increasing revenues through the construction of more economically viable arenas. In addition, teams with expiring stadium or arena leases put pressure on local and state officials, threatening to relocate unless “better” facilities are built. Quirk and Fort (1999) relate the story of the $210 million baseball stadium built for the Baltimore Orioles, Camden Yards. As Hamilton (1997) and Kahn (1992) have demonstrated, Camden Yards has been a great success for the Orioles, making them one of the most profitable baseball franchises since the stadium opened in 1992. Interestingly though, the stadium authority running the facility loses almost $10 million per year. It’s the taxpayers in the state of Maryland who pay the tab. Like Camden Yards, most recently built stadiums and arenas are single sport in nature and are publicly financed. These financing arrangements 304 COLLECTIVE BARGAINING UNDER DURESS are negotiated with local and sometimes state officials. Often the citizens get involved through the public referendum process. The bottom line from the labor relations perspective is that the revenue-generating aspects of new playing facilities provide player unions and player agents the opportunity to demand a larger share of an increasing revenue pie. As a result, the players’ unions must be sensitive to the public relations aspects of their sport so that public support is maintained. In the decade of the 1990s alone, at least 40 different cities built or were in the process of building new facilities (Jozsa and Guthrie 1999). Table 6 summarizes stadium building in MLB to demonstrate the magnitude of the stadium phenomenon. Of the 30 MLB teams, 14 play in facilities built after the year 2000. The two newest stadiums are played in by the Minnesota Twins (2010) and the Miami Marlins (2012). The federal government has also been an important factor in professional sports labor relations. Most of this involvement has centered on the applicability of federal antitrust statutes to the various professional sports (Abrams 1998; Waller, Cohen, and Finkelman 1995; Blair and Haynes 2012). Going back to the Federal Baseball Club Supreme Court decision in 1922, baseball has been exempted from antitrust law coverage (Federal Baseball Club v. National League 1922). Congress held many hearings over the years to address baseball’s exemption, but it was not until 1998 that a major change occurred. That year, Congress passed, and President Bill Clinton, signed the Curt Flood Act (Curt Flood Act 1998; Curtis C. Flood v. Bowie K. Kuhn 1972). The statute was named in honor of a famous baseball player who sat out one year in 1970 to avoid the restrictions of the player reserve clause (Flood and Carter 1970). The statute amended the nation’s antitrust law to remove the exemption that baseball had enjoyed. However, the statute removed only the exemption as it applied to issues “directly relating to or affecting employment of major league baseball players” (Curt Flood Act 1998). In other respects, baseball continues to be exempted from the antitrust laws. Other professional sports have not enjoyed baseball’s antitrust exemption (Dworkin 1987). However, Congress also acted on antitrust issues involving other professional sports. Although the inaction of Congress strengthened market power in baseball, its action strengthened the league’s market power in football and basketball. Congress exempted football from antitrust laws when the NFL and AFL merged. The same approach was employed during the NBA–ABA merger negotiations. However, Congress has not done much to improve the market power of players in any sport. As noted previously, that has been accomplished through the collective bargaining process. Thus, the legal system, local and state politics, and the U.S. Congress have been important factors affecting labor relations in professional team PROFESSIONAL SPORTS 305

TABLE 6 Current Major League Baseball Stadiums No. of Date opened stadiums Locations Before 1962 2 Chicago Cubs (Wrigley Field, 1914) Boston Red Sox (Fenway Park, 1912) 1960s 3 L.A. Dodgers (Dodger Stadium, 1962) California Angels (Angels Stadium, 1966) Oakland Athletics (Alameda County Coliseum, 1966) 1970s 1 Kansas City Royals (Kauffman Stadium, 1973) 1980s 1 Toronto Blue Jays (Rogers Center, 989) 1990s 9 Colorado Rockies Atlanta Braves Arizona Diamondbacks Texas Rangers Seattle Mariners Baltimore Orioles Cleveland Indians Chicago White Sox Tampa Bay Rays 2000–present 14 New York Yankees St. Louis Cardinals Philadelphia Phillies Sand Diego Padres Cincinnati Reds New York Mets San Francisco Giants Milwaukee Brewers Washington Nationals Detroit Tigers Houston Astros Minnesota Twins Pittsburgh Pirates Miami Marlins Source: Compiled by authors. sports. Much of the activity herein has taken place at the local level. No major federal statutes regulate the sports industry overall. Of course, this industry is covered by other federal statutes, much the same as is all commerce in the United States.

WORKERS AND LABOR MARKETS Each of the professional sports teams and leagues covered in this chapter employs several types of personnel. At the league level, we find managerial employees associated with conducting the business of the 306 COLLECTIVE BARGAINING UNDER DURESS sport, ancillary personnel, and game officials. At the team level, the basic types of employees are managerial (club officials); other employees involved in such things as ticket sales, promotions, concessions, and so on; and, of course, the players themselves. The two groups of employees most involved in labor relations issues have been the officials and players. Officials There have been several collective bargaining events involving sports officials, including the recent NFL referees’ lockout that is covered in more detail later in this chapter. A noteworthy earlier event involving officials was the boggled attempt at a strike—of sorts—by baseball umpires in 1999. A little background sets the stage for this event. Officials belong to unions for the purpose of collective bargaining with the respective leagues. The baseball umpires formed the Major League Umpires Association (MLUA) in 1978. Over the years, the umpires engaged in several job actions (1979, 1984, 1991), and the leagues imposed a lockout in 1995. The precipitating factor for the 1999 umpires’ job action was the incident involving Roberto Alomar, of the Baltimore Orioles, and umpire John Hirschbeck, on September 27, 1996. Alomar spit in Hirschbeck’s face after he ejected Alomar from the game for arguing a third-strike call. Umpires were enraged by the light, five-day suspension meted out to Alomar by then–American League president Gene Budig. Further incensing the umpires was the decision by MLB to hire Sandy Alderson as executive vice president of baseball operations. Alderson’s responsibilities would include labor relations dealings with the umpires group. Power and authority would thus be consolidated in one person compared with the older approach in which each league president (National League, Len Coleman; American League, Gene Budig) dealt with labor matters separately. Umpires were also riled about baseball wanting the rulebook “high” strike to be called. Management was also pressing to change the post-season work rules, whereby 75% of all umpires had been guaranteed post-season work. This system was better for the umpires than were the arrangements used in hockey, football, and basketball, in which only the highest graded officials in the regular season were entitled to work in the post-season. What happened next was absolutely amazing. The collective bargaining agreement (CBA) was set to expire on December 31, 1999. Because the season would be over, the union realized that an effective strike could not occur when the contract expired. In a serious tactical mistake, MLUA executive director Richie Phillips persuaded 55 umpires to resign on September 2, 1999. This would mean they would not work the last weeks of the regular season or in the playoffs. This tactic was designed to pressure MLB to accede to the terms of a new collective bargaining contract that would be favorable for the umpires. PROFESSIONAL SPORTS 307

The strategy failed badly on two counts. First, baseball was ready with a supply of talented replacement umpires. Second, the umpires’ union did not have the solidarity of purpose necessary to pull off an action of this sort successfully. Compare this approach with what occurred with the replacement NFL referees in 2012. Many of the umpires who resigned later rescinded their resignations. Although 55% of the National League umpires rescinded their resignation and were rehired, only 36% of the American League umpires followed suit—and fan support was running strongly against the umpires and in favor of MLB. The leagues hired 25 replacement umpires. Twenty-two umpires had their resignations accepted by the two leagues. The umpires’ union tried several things to get jobs back for its members who had resigned. A suit in the U.S. District Court in Philadelphia to acquire a court order allowing umpires to rescind their resignations was unsuccessful. Another unsuccessful ploy was an unfair labor practice claim filed against MLB, contending significant changes in terms and conditions of employment by shifting authority over umpires from league presidents to the commissioner’s office. Both the unfair labor practice charge and the lawsuit were later dropped. For 22 lost jobs, all the union obtained in the final settlement was a split of the $1.36 million post-season bonus among all umpires, whether still working or not. The union also received the right to arbitrate the issue of whether the terminated umpires were treated in a discriminatory or recriminatory fashion. In November 1999, the umpires voted in an election, supervised by the National Labor Relations Board, to decertify their union and replace it with a new one, the World Umpires Association. Their first president was John Hirschbeck, and the executive director was player-agent Ron Shapiro. Thus ended one of the most abortive job action attempts ever witnessed in professional sports. In addition, the positions of American League and National League president were eliminated in favor of the consolidation of power in the office of the commissioner. The strike zone was also enlarged. The final chapter to this bizarre event was written when arbitrator Alan Symonette ordered MLB to rehire 9 of the 22 umpires who had been terminated in 1999. The terminations of the other 13 umpires who had resigned and later rescinded their resignations were upheld (Dworkin and Staudohar 2002). Recently, much more research has looked at professional sport referees. One example is the study by Frick (2012), which examines career duration of individual referees in German Soccer. It is heartening to see that the empirical findings suggest that career length is primarily determined by individual referee performance. It is expected that issues such as the selection of referees, career duration, and wages will be the subjects of future 308 COLLECTIVE BARGAINING UNDER DURESS research and will cover other European football leagues, as well as referees in major professional sports in the United States. Professional Athletes The professional athletes who play the games have been studied in terms of their education and skills, their compensation, and racial and demographic issues. Each of these topics is discussed in the following sections. Education and Skills Most talent in baseball and hockey is developed through extensive minor league systems. Some players in these two sports come into the minors (or majors) after completing a college career. But for the most part, baseball and hockey players tend to be high school–educated, with some college. By contrast, in basketball and football, far more players finish four years of college eligibility before entering the professional ranks. Colleges serve as the minor league training grounds for both basketball and football players. These two sports do not have an extensive system of minor league franchises. Thus, on average, education levels are higher for basketball and football players than for hockey and baseball players. In terms of skill level, major league players have incredible and unusual talents (Sullivan 1992; Marburger 1997). This small number of athletes with incredible skills generates large earnings. By contrast, officials earn only a fraction of the million dollar salaries of the players. Yet there are a lot more people who have the necessary skills to become umpires than there are people who can become players. Fewer people possess the necessary traits to enable them to become professional athletes. Those who do possess such skills are therefore appropriately compensated for their scarce skills and talents. Perhaps some of the on-field tension between umpires and players described earlier in this chapter can be attributed to jealousy or animosity over these pay differentials. Compensation The earnings of professional athletes are illustrated by the empirical data in Tables 3 and 5. Salaries have soared since restrictive labor market practices of the past have been abolished. Researchers have continued to study aspects of player remuneration in recent years. In one study focusing on NBA player salaries, Osborne (2012) looked at the issue of whether the NBA increasingly relies on foreign players to drive down wages for domestic players. Empirical evidence showed little or no support for the contention that foreign players have driven down the wages of domestic players in the NBA. PROFESSIONAL SPORTS 309

The impact of salary caps and luxury taxes has been examined by Coates and Frick (2012). These two topics are viewed as special cases of a more general policy on player compensation and club spending. Starting with the first salary cap in the NBA in 1983, the NFL followed in 1993 and then the NHL instituted a rookie salary cap in 1995, followed by an all-inclusive salary cap in 2005. A basic finding is that these caps have had no impact on winning percentage or league competitive balance. As Sheehan (1996) had concluded earlier, Coates and Frick also maintain that there is no evidence that a salary cap actually works. Finally, a recent study by Kahane (2012) has looked at salary dispersion in the NHL. Looking at the competing theoretical predictions of the tournament and fairness approaches, Kahane’s empirical results support the fairness model. As opposed to the tournament model in which greater performance is projected to occur because of greater salary rewards, the support for the fairness model suggests that wide variation in player salaries may indeed cause players to feel unfairly compensated relative to their peers. It will be interesting to see whether these results are replicable across other sports. Race and Demographics Demographics and racial discrimination in the labor market for professional athletes have also generated much attention in the literature. Much of the useful writing on this topic has been done by Lawrence Kahn (2000). The data reveal that in the 1990s, about 30% of baseball players were black, and Hispanics represented another large racial group in that sport. In the NFL, blacks made up 65% of the player rosters, while in the NBA this figure was as high as 80% (Staudohar 1996). Indeed, much progress has been made compared with the pre–Jackie Robinson era in baseball and other professional sports. Many black and Hispanic athletes are among the highest paid in the cohort group. More recently in baseball, the number of black players has once again dropped to alarmingly low levels. In other jobs, such as managerial and front office positions, minorities have not fared as well (Zimbalist 1992; Fizel, Gustafson, and Hadley 1996). Many authors have addressed the question of racial discrimination, and a review of the literature suggests some conclusions. There have been studies in baseball, basketball, football, and hockey (Christiano 1986, 1988; Dey 1997; Jones and Walsh 1988; Kahn 1992; Lavoie 2000; Longley 2000). Gary Becker (1957) suggested partitioning discrimination into three types: employer, co-worker, and customer. For example, some baseball teams exhibited employer discrimination by being very slow to bring black ballplayers to the major leagues. Teams quick to employ blacks typically had greater success on the field of play. Co-worker discrimination was 310 COLLECTIVE BARGAINING UNDER DURESS exhibited when certain white players threatened to strike or not play against or with black players. Customer discrimination was exemplified by threatening letters to great players such as Jackie Robinson and later Hank Aaron (Tygiel 1983; Aaron and Wheeler 1991). The empirical evidence on salary discrimination has been striking. In basketball, Kahn and Sherer (1988) showed whites received 25% higher salaries, controlling for productivity. Hamilton (1997) also found some evidence of racial discrimination in the 1994–1995 NBA season but only for star players. By way of contrast, recent empirical work has not found much evidence of salary discrimination against minorities in baseball, hockey, or football (Kahn 2000). Discrimination can also be looked at from other angles. Are black players drafted based on their talent levels? Do they receive the same kinds of marketing endorsements and commercial opportunities as similarly situated white players? What about assignment discrimination? There is some evidence that most quarterbacks are white. Of course, quarterbacks on average are the highest-paid NFL players. Hoose (1989) documented how positional or assignment discrimination is prevalent in professional sports. Finally, a word about tenure, or what might be called retention discrimination. Are minority ballplayers likely to have shorter careers than their white counterparts, all things being equal? All professional athletes tend to have short playing careers. This limited length of career heightens the importance of (1) earning as much as possible during one’s playing career and (2) having a college degree or marketable skills for that inevitable moment when one’s career ends. Empirical evidence suggests exit discrimination against black athletes. One study (Jiobu 1988) found that black players in baseball had significantly higher exit rates than their white counterparts. Hoang and Rascher (1999) reported similar empirical findings for black NBA players. In an occupation in which career length is short to begin with, a loss of two years because of the color of one’s skin can have major economic consequences. A recent essay by Walters (2012) reviewed the issue of prejudice in MLB from the late 1880s until the current day. Kahn’s (2012) empirical study covered discrimination in the NBA in the areas of salary, hiring, and retention and from the standpoint of the customer. The racial pay gap exhibited in the 1980s has declined, and similar decreases were found for hiring and retention discrimination. Kahn also found a decline in customer discrimination since the 1980s. Basketball, the sport employing the largest percentage of black athletes (80% in the 1980s) has seen progress in terms of less evidence of discrimination against minorities. The recent evidence on discrimination in the NHL has been reviewed by Longley (2012). The NHL comprises 20% American players, almost all of whom are white. There are very few players of African descent in PROFESSIONAL SPORTS 311 the NHL, so the discrimination studied in the NHL has focused more on national origin and ethnicity. The treatment of French Canadians, Europeans, and Americans varies widely across studies. Empirical studies of both salary discrimination and entry discrimination have suffered from lack of a clear method for evaluating the defensive skills of players. Much more research will be required to determine whether discrimination exists in the NHL, and if it does exist, the causes. As Longley points out, although there has been an influx of European players into the NHL, there are no European general managers and only two short-tenured European head coaches. Finding solutions to these examples of possible discrimination in the NHL would require additional study. In summary, there is evidence that minorities have progressed a long way in the field of professional sports. Many blacks and other minorities earn huge salaries as professional athletes. The evidence on salary discrimination suggests that the problem of lower salaries for blacks has subsided considerably. Other more subtle aspects of discrimination still must be addressed. There seems to be fairly strong evidence of discrimination against blacks in areas such as position assignment, tenure, and even fan racial preferences. Until black and white athletes are treated equitably on all of these dimensions, the professional sports industry will still have to wrestle with the problem of racial bias.

DEVELOPMENTS IN PROFESSIONAL BASEBALL In 2002, the average baseball player earned $2,383,235 per season (CBS Sports 2012). This represents a phenomenal achievement since the inception of collective bargaining in baseball in 1968 and the demise of the former monopsonistic labor market that had existed in the sport since the beginning of the professional game. By the 2012 season, the average salary for a professional baseball player was $3,440,000, an increase of 44% over ten years (CBS Sports 2012). Since 2002, MLB and the Major League Baseball Players Association (MLBPA) have negotiated three “basic agreements,” one covering 2002– 2007, a second running from 2007–2011, and most recently, a rather remarkable five-year basic agreement that guarantees baseball will be played through the 2016 season. This agreement means that even though baseball has seen no fewer than eight strikes or lockouts in the past 45 years, the sport is guaranteed relative labor peace and continuous play on the field for an uninterrupted 21 seasons. Collective bargaining in professional sports is a complex process involving complicated compensation, benefits, employment relations, and working conditions issues. For example, the 2007–2011 MLB–MLBPA basic agreement is 229 pages long; the provisions of the Joint Drug Prevention and Treatment Program cover another 55 pages. Although it 312 COLLECTIVE BARGAINING UNDER DURESS will not be possible to examine all recent developments in labor– management relations in professional baseball, this section will touch on three key areas: (1) the impact on fans, (2) competitive balance, and (3) drug testing and player safety. Impact on Fans Few things related to professional sports are as devastating to a dedicated fan as a work stoppage. The owners and the players’ union have ensured that a strike or lockout will not deprive fans of baseball through the 2016 season. Given the history of strife between owners and players, this is a remarkable achievement. When owners and players do have a dispute, such as in the Ryan Braun case mentioned earlier, the parties have agreed to resolve their differences using an internal grievance arbitration procedure that will allow play to continue while such disputes are resolved. Baseball is the only major professional sport to successfully reach a labor deal without a work stoppage in recent years. Indeed, in 2011, fans faced the possibility of lockouts or stoppages in each of the major professional sports. As indicated in Table 7, the NFL went through an off-season lockout in 2011 prior to reaching a new contract. NFL referees were also locked out and replaced prior to an eventual settlement being reached. A lockout in professional basketball delayed the NBA season until Christmas and led to a year in which only 66 games were played. And the NHL lockout of 2012, which shortened the season to 48 games, marked the fourth such shutdown since 1992, a record that included the 2004–2005 lockout over the salary cap issue that led to the loss of the entire season. This history of labor disputes makes the settlement between MLB and MLBPA without a work stoppage that much more impressive. One of the primary explanations for this peaceful negotiation may be that baseball is the only one of the four sports without a salary cap. Baseball fans have certainly benefited from this unique aspect of baseball’s collective bargaining relationship. In the course of this turmoil in labor–management relations, a very useful set of fan-friendly recommendations for MLB’s new collective bargaining agreement were set out by McDonnell (2011). The author’s five recommendations for the new agreement are summarized in Table 8. The 2011 baseball settlement, in fact, included a number of these fan- friendly provisions, including • The wildcard play has been extended to include an additional team in each league. The two wildcard teams in each league compete in a one-game playoff to determine which club advances. This provision has generated a substantial amount of enthusiasm among fans. PROFESSIONAL SPORTS 313

TABLE 7 Recent Collective Bargaining Agreement Expiration Dates and Results Sport Expiration date Result Baseball December 11, 2011 Five-year deal Basketball June 30, 2011 Shortened season to 66 games from 82 Football March 3, 2011 2011 off-season lockout; ten-year deal Shortened season to 48 games from 82; contract runs through 2021–2022 season, Hockey September 15, 2012 but either side can opt out of the deal after eight years Source: Compiled by authors.

TABLE 8 Five Recommendations Area Recommendation Revenue sharing Remain intact but clarify penalties for violations Competitive balance tax Remain intact to support balance and player benefits First-year player draft Move toward international draft Team debt Clubs fulfill all financial obligations One-game wildcard playoffs; winning teams have home- Extended playoffs field advantage Source: McDonnell (2011).

• The idea of the team with the higher winning percentage obtaining home-field advantage is preserved except for one season, 2012. Even in 2012, the team with the best record hosted three games out of the initial five-game series. However, because of a lack of travel dates, for one season only the team in each case with the lower winning percentage hosted the first two games at its home field, followed by the next three games, if necessary, at the site of the team with the higher winning percentage in the regular season. This one-season aberration will be corrected in 2013 so that future first-round series will feature the familiar 2, 2, 1 playoff format with travel dates. • The All-Star Game will continue to be meaningful in that the winning league will have home-field advantage in the World Series. Much like the controversy that has surrounded the designated hitter for years, this is another controversy with good arguments on both sides, des- tined to be the topic of many future discussions and disagreements. • The two leagues will finally be balanced in 2013 as the Houston Astros move to the American League West Division. Baseball fans love interleague games, which will in the future be scheduled all 314 COLLECTIVE BARGAINING UNDER DURESS

season long instead of just during narrow specified periods. In the 2013 season, for the first time ever, baseball’s first professional team, the Cincinnati Reds, played their opening home series against an American League team, the California Angels (McDonnell 2011).

There are other fan-friendly items in the new basic agreement that will likely turn out to be popular with fans across America. In truth, baseball has kept its fans in mind by resolving the terms of the new basic agreement without the necessity of a strike or a lockout—and by incorporating fan-friendly provisions that can only increase the popularity of America’s game. Competitive Balance The evidence suggests that baseball has been reasonably successful in ensuring competitive balance among its teams. The concern in this area has always been that the large-market teams dominate baseball because they are able to spend so much on player salaries compared with their small-market counterparts. To help evaluate this hypothesis, Table 9 includes the 2012 payrolls for all 30 MLB teams; it also indicates which ten clubs made the playoffs in the 2012 season. Although 5 of the top 15 payroll clubs made it to the post-season in 2012, 5 of the lowest 15 payroll clubs also made post-season play. Note that the team with the highest payroll, the New York Yankees, finished in first place in the American League East Division with a record of 95–67. The team with the second lowest payroll, the Oakland Athletics, won the American League West Division on the last day of the season and entered the playoffs with a final season record of 94–68. The $142 million difference between the payrolls of the Yankees and the Athletics is larger than the total payroll of all but four teams. It is also worth noting that both high-payroll and low-payroll clubs made the playoffs in 2012. Table 10 depicts this phenomenon in yet another way—by dividing teams into higher- and lower- payroll categories (top 15 vs. bottom 15) and playoff and nonplayoff categories. The table suggests that being a large-market/large-payroll team does not guarantee a spot in the playoffs. Large-market/large-payroll teams such as Philadelphia, Boston, and the Los Angeles Angels had mixed success despite large payrolls. None of these teams made it to post-season play. By contrast, teams in smaller markets with lower payrolls such as Washington, Cincinnati, and Baltimore had great success and made the playoffs. Much to their credit, negotiators in MLB kept their eye on the issue of competitive balance when finalizing the basic agreement. By 2016, the top 15 large-market teams will not be eligible for revenue sharing, on the basis that they do not need the additional revenue. PROFESSIONAL SPORTS 315

TABLE 9 2012 Payroll Rankings and Playoff Status Winning Club/payroll Rank Playoff status percentage New York Yankees/$197,962,289 1 Yes .586 Philadelphia Phillies/$174,588,938 2 .500 Boston Red Sox/$173,186,617 3 .426 Los Angeles Angels/$154,485,166 4 .549 Detroit Tigers/$132,300,000 5 Yes .543 Texas Rangers/$120,510,974 6 Yes, wildcard .574 Miami Marlins/$118,078,000 7 .426 San Francisco Giants/$117,620,683 8 Yes .580 St. Louis Cardinals/$110,300,862 9 Yes, wildcard .543 Milwaukee Brewers/$97,653,944 10 .512 Chicago White Sox/$96,919,500 11 .525 Los Angeles Dodgers/$95/143,575 12 .531 Minnesota Twins/$94,085,000 13 .407 New York Mets/$93,353,983 14 .457 Chicago Cubs/$88,197,033 15 .377 Atlanta Braves/$83,309,942 16 Yes, wildcard .580 Cincinnati Reds/$83,309,942 17 Yes .599 Seattle Mariners/$81,978,100 18 .463 Baltimore Orioles/$81,428,999 19 Yes, wildcard .574 Washington Nationals/$81,336,143 20 Yes .605 Cleveland Indians/$78,430,300 21 .420 Colorado Rockies/$78,069,571 22 .395 Toronto Blue Jays/$75,489,200 23 .451 Arizona Diamondbacks/$74,284,833 24 .500 Tampa Bay Rays/$64,173,500 25 .556 Pittsburgh Pirates/$63,431,999 26 .488 Kansas City Royals/$60,916,225 27 .444 Houston Astros/$60,651,000 28 .340 Oakland Athletics/$55,372,500 29 Yes .580 San Diego Padres/$55,244,700 30 .469 Source: Compiled by authors. 316 COLLECTIVE BARGAINING UNDER DURESS

TABLE 10 Does Big Spending Work? High payroll Low payroll Yankees Braves Tigers Reds Playoff bound Rangers Orioles Giants Nationals Cardinals Athletics Phillies Mariners Red Sox Indians Angels Rockies Marlins Blue Jays Cubs Padres Homeward bound Brewers Diamondbacks White Sox Rays Dodgers Pirates Twins Royals Mets Astros Source: Compiled by authors.

The luxury taxes on extremely high payrolls will remain in place in 2012 and 2013, but it will increase to $189 million for seasons 2014 through 2016. Tax rates on teams that exceed the threshold for the fourth time will go up to 50%, which is consistent with the recommendation of McDonnell (2011). Article XXIII of the 2012 basic agreement deals with the competitive balance tax, while Article XXIV describes the revenue sharing plan. These provisions will help ensure that competitive balance remains a concern of all the parties in baseball. Drug Testing and Player Safety The use of performance-enhancing drugs has been an issue at the forefront of all of the professional sports, and all parties remain concerned about it. As mentioned earlier, the previous basic agreement in baseball contained a 55-page Joint Drug Prevention and Treatment Program. The new basic agreement calls for all players to be subjected to blood testing for the presence of human-growth hormone “for reasonable cause” at any time during the year. Every player is tested in the spring and all players are subject to random, unannounced testing; the testing began after the conclusion of the 2012 season. The owners and players also continue to be very concerned about player safety. Attachment 36 of the basic agreement deals with the assessment and management of player concussions. The basic agreement includes a provision for neurocognitive baseline testing during spring training for each player and immediate on-the-field evaluation of any player with a PROFESSIONAL SPORTS 317 high risk of concussion involved in an incident during a game. Any sign of a possible concussion leads to removal of the player from the game. Another new development is establishment of a seven-day disabled list solely for the placement of players who suffer concussions. Before a player can return to active status a “Concussion Return to Play Form” must be submitted. Evidence of the seriousness with which the owners and players are taking this matter is the language found in paragraph 8 of Attachment 36: The Parties will mutually agree upon a report to be compiled annually by the epidemiologist that will provide a summary of concussion activity for the preceding season, including the number of events, the circumstances attendant thereto, and the results of any treatment programs. Within 30 days of the issuance of the report, the Parties shall meet to discuss the report’s contents and to review the functioning of the protocols and procedures established by this agreement. (Collective Bargaining Agreement Between MLB and the MLBPA, 2012–2016) Although some may see this development as just one more statistic in a vast array of such numbers in baseball, attention to the safety and security of professional baseball players is seen as a very positive development, which can lead to better future outcomes. This critical attention to drug abuse and concussion activity among professional athletes also should serve as a sober reminder of how important it is to feature and promote safety for younger participants in baseball and other recreational activities.

DEVELOPMENTS IN PROFESSIONAL FOOTBALL In recent years, collective bargaining in professional football has been significantly more contentious than in baseball. Like the game itself, the process of collective bargaining in football during the 2000s left the parties with significant bumps and bruises. But the parties have persevered and survived. As noted earlier, the previous NFL–NFLPA collective bargaining agreement (2006–2012) expired on March 3, 2011. On March 11, the NFL locked out the players (Staudohar 2012b). The lockout continued through July 25, 2011, as the parties wrangled over how to share the approximately $9 billion of revenues generated per year. It was a happy scene when NFL Commissioner Roger Goodall and National Football League Players Association (NFLPA) Executive Director DeMaurice Smith assured fans on July 25, 2011, that football was back. The agreement reached was a historic ten-year deal of some 300 pages that covered a myriad of topics (Collective Bargaining Agreement Between 318 COLLECTIVE BARGAINING UNDER DURESS the NFL and NFLPA, August 4, 2011). This last-minute agreement meant that only one exhibition game was lost, the Hall of Fame game in Canton, Ohio, which had been scheduled for August 7. The parties were able to keep the entire pre-season and regular season intact, something that did not occur in the most recent negotiations in either basketball or hockey. This section focuses on three of the most important items of bargaining included in the talks: (1) the division of revenues, (2) the safety and welfare of the players, and (3) the “other” lockout in football involving the NFL and its referees union, the National Football League Referees Association (NFLRA). Division of Revenues At the heart of the 2011 NFL–NFLPA negotiations was the issue of how the revenues generated by the league and the players should be divided. In the 1989 negotiations, the players voluntarily engaged in a strategic “decertification.” By dissolving their union, the NFLPA created a situation whereby individual players could sue the NFL. As a result, the players won free agency rights that would greatly benefit players for years to come. In the 2011 dispute, a similar decertification action was taken by the players in an effort to block the lockout. Players on each team voted unanimously in fall 2010 to renounce collective bargaining rights (decertify their union) if the previous collective bargaining agreement was not extended. Both parties lobbied Congress in an attempt to reinforce their positions. The NFL wanted the freedom to institute the lockout while the NFLPA stressed the potential $160 million in lost revenue for each NFL city were a lockout to be imposed. The NFL had a guaranteed $4 billion from TV contracts in 2011 regardless of whether any games were played or not. Federal Judge David Doty ruled on March 1, 2011, that the NFL actions were to “advance its own interests and harm the interests of the players” (Associated Press 2011). As noted earlier, the owners did impose a lockout on March 11, 2011. After decertification, ten NFL players—including prominent quarterbacks Tom Brady, Drew Brees, and Peyton Manning—filed a suit to halt the lockout. U.S. District Judge Susan Nelson invalidated the lockout on April 25, 2011, ordering the NFL to open up operations. After other legal maneuvers, the lockout was affirmed as being legitimate by the Eighth Circuit Court of Appeals on July 8, 2011 (Florio 2011). Although the league had thoroughly prepared contingency plans that would have allowed for a shortened season resulting from a prolonged lockout, this strategy was never implemented. As noted earlier, on July 25, 2011, the new collective bargaining agreement was approved, and it became effective on August 4, 2011, after player ratification. The single on-the-field cancelation caused by the 2011 lockout was the Pro Football PROFESSIONAL SPORTS 319

Hall of Fame Game that was to have been played between the Chicago Bears and the St. Louis Rams. These 2011 talks featured the intervention of a federal mediator, the possibility of a lost season, a threat to cancel the 2012 Super Bowl, and the lawsuit filed by Tom Brady, Drew Brees, Peyton Manning, and seven other players in an effort to halt the lockout (Kahane and Shmanske 2012). The basic disagreement between the 32 teams in the NFL and the players centered on division of the estimated $9 billion in revenue received by the league each year. In the past, the owners took the first $1 billion and then divided the remaining revenue, with the players receiving 59% and the owners 41% (Collective Bargaining Agreement Between the NFL and NFLPA 2006–2012). In the 2011 negotiations, the owners came to the bargaining table united in the belief that the 59% of the league revenue the players were receiving was too high. As pointed out by Fenn (2012), players in the NFL do not have guaranteed contracts as are typical in other sports. Instead, NFL players tend to receive much larger signing bonuses. The NFL has used these upfront payments in lieu of the longer guaranteed contracts found in MLB, the NBA and the NHL. In professional football, bargaining between the single buyer of labor (NFL) and the single seller (NFLPA) is referred to by economists as a bilateral monopoly. Theory predicts that the winner in such a negotiation tends to be the party with the greater bargaining power. As Fenn points out, the NFL is the single employer of elite players, but the use of replacement players is possible. However, the poor performance of replacement players during the NFLPA’s 1987 strike makes it much harder to argue that one side has a bargaining power advantage over the other. In fact, the relative equality of power between the NFL and NFLPA is one of the factors that have made it difficult to settle their disputes. Table 11 presents revenue data, as well as the number of players employed and the number of teams in each of the four major professional sports. Although the number of teams per league is fairly consistent, revenues and the number of players vary widely. The huge revenues generated by the NFL and its players are a big target for both sides.

TABLE 11 Professional Sports Revenues, Teams, and Players Professional sport Revenues Teams Number of players Football $9 billion 32 1,620 Baseball $7 billion 30 1,200 Basketball $4 billion 30 450 Hockey $3.3 billion 30 690 Source: Compiled by authors. 320 COLLECTIVE BARGAINING UNDER DURESS

One of the key mechanisms for resolving the differences over the distribution of revenue between the NFL and the NFLPA was a concept called a salary cap. As mentioned earlier, salary caps were retained in the new agreement. The 2011 season salary cap per team was set at $142.4 million. However, the issue of whether teams must spend all or most of their salary cap limit was left unresolved. Players are quite concerned about this issue because a cap may have little or no meaning if clubs regularly elect to economize and stress profits over wins. This concern seems to have been resolved to some extent by an agreement covering what percentage of the salary cap must be spent. The settlement between the owners and players included a commitment to spend 99% of the salary cap for seasons 2011 and 2012. For the remaining years of the basic agreement (2013–2020), each team agreed to spend at least 89% of the cap (Collective Bargaining Agreement Between the NFL and NFLPA, August 4, 2011). The formula for setting these season-by-season salary caps is based on a new model featuring the concept of “all revenue.” Players under this new model will receive 55% of national media revenues, 40% of local club revenues, and 45% of revenues from NFL Ventures (the venture capital arm of the NFL). The parties also agreed that the players’ share of all revenue would average no less than 47% over the ten years of the basic agreement. Finally, minimum salaries were increased in every year of the agreement (Collective Bargaining Agreement Between the NFL and NFLPA, August 4, 2011). Although the revenue split favored owners 53% to 47%, collective bargaining always involves trade-offs between economic issues and non- economic issues. In the case of the 2011 negotiations, the NFLPA was able to win a number of significant concessions involving player safety and welfare. Player Safety, Health, and Welfare Issues Of the four major professional sports, football and hockey feature the most body-to-body contact. Such contact inevitably increases the risk of injury. NFL careers tend to be short, averaging five years (this varies a lot by position played) owing to a variety of factors. The primary reason is career-ending injuries (“NFL Injuries Report” 2012). Given this situation, the safety, health, and welfare of players is a high priority of the NFLPA. The emphasis on these issues is sometimes in direct conflict with the owners’ interest in generating more revenue, as well as with coaches’ interest in extensive practice, training, and the desire to win more games. The 2012 playoff game incident involving Robert Griffin III is a recent real-life example of this conflict (Saraceno 2013). Griffin entered the Redskins playoff game with the Seahawks with an already injured knee, only to be PROFESSIONAL SPORTS 321 hurt again in the first quarter. Football teams sometimes like to distinguish between being injured versus being hurt! In bargaining terminology, player safety, health, and welfare should be seen as an integrative issue (Walton and McKersie 1965)—that is, an issue in which both parties’ interests align and from which both parties benefit. This is because healthy players compete better on the field and lead to winning seasons. A winning team leads to greater fan interest and a better chance to win a championship, the goal of all franchises. In addition, player injuries result in additional costs for owners in the form of medical costs, lost productivity, and the costs of substitute players. In the most recent negotiations, some player safety issues were handled as integrative issues, while others were treated as distributive issues (i.e., zero-sum issues in which gains made by one side are seen as losses by the other). Among gains sought by the union in the area of player safety was a reduction in off-season training programs. Players saw these programs as onerous and excessive and argued that they greatly increased the likelihood of injury. On that basis, they were able to win a five-week reduction in such programs, limits to on-field practice time and contact practices in both the pre-season and regular season, and increases in the number of days off for players. This latter concession was viewed by the players as particularly important because it takes even a well-conditioned athlete at least a couple days to recover from a Sunday football contest. One of the highest-profile issues that owners brought to the bargaining table in 2011 was a proposal to increase the number of regular season games from 16 to 18. Although owners saw this as an economic issue, because more games mean more revenues, the union viewed it as a player safety issue. The players prevailed on this issue, at least in the short run; the final agreement maintained a 16-game regular season and a 4-game pre-season until 2013. Any future increase to the number of regular-season contests will have to be agreed to by both parties through the bargaining process (Collective Bargaining Agreement Between the NFL and NFLPA, August 4, 2011). In terms of player welfare, several new items were negotiated. Among them was a $50 million joint fund that was established for medical research, health care, and charity-related expenses. The players also were able to negotiate the right to maintain their current medical plan during their post-career years. Injured players will receive additional salary coverage protection of $1 million for the year after a career-ending injury and up to $500,000 in the second year after such an injury (Collective Bargaining Agreement Between the NFL and NFLPA, August 4, 2011). Additional changes were agreed to with regard to disability plans, the so-called 88 Plan, college completion and career transition, and the Player Care Plan. The 88 Plan assists players vested under the NFL Player 322 COLLECTIVE BARGAINING UNDER DURESS

Retirement Plan. The 88 Plan is designed specifically to assist former players diagnosed with dementia by paying the cost of medical and custodial care for eligible former NFL players. The NFL Career Transition Program is the only such program found in professional sports. This program is held at Georgia Tech University and is designed to assist former NFL athletes advance to their next career. Although 80% of NFL players possess a college degree, those who do not are encouraged to pursue completion of a degree. And finally, the NFL Player Care Foundation is an independent organization assisting retired players in improving all aspects of their life after playing football (NFL Player Care Foundation). One final area addressed in negotiations involved the welfare of retired players. The interests of current employees are almost always the highest priorities of union negotiators. Over the past decade, unions have sometimes agreed to two-tier contracts, which provide lesser terms for employees hired after the ratification of the contract, in return for better terms for current employees. In the case of the NFLPA–NFL talks, much attention was focused on former players. This was, in part, driven by high-profile media stories of former players who failed to manage their finances wisely and ended up bankrupt and, in some cases, homeless. Recognizing that salaries of professional football players of earlier generations were not nearly as lucrative as they are today, the two parties agreed to provide additional funding of up to $1 billion over the next 20 years for improved retiree benefits (Collective Bargaining Agreement Between the NFL and NFLPA, August 4, 2011). Of particular significance was the focus on the pensions of players who had retired prior to 1993. The league and the union jointly set up a so- called Legacy Fund of $620 million to enhance pension funds for players who retired nearly two decades earlier (Collective Bargaining Agreement Between the NFL and NFLPA, August 4, 2011). Compared with past years, the attention paid by both sides to the concepts of player safety and welfare is a very positive development. Future players will benefit greatly because of these provisions, both in terms of playing the game and in their off-the-field lives. These provisions will also result in significant improvements in the work environment and personal lives of current players. Finally, former NFL players can celebrate the increased attention paid to their welfare through the establishment of the Legacy Fund. These safety and welfare provisions are good for the game of football and should be applauded as a product of good faith negotiations between the owners and the players. The Other Lockout in Professional Football—The Referees Although the focus of fan interest is the teams and players, the 2012 lockout of the NFL referees sheds much light on the vital importance of PROFESSIONAL SPORTS 323 high-quality officiating. The lockout lasted 116 days, from June 4 through September 27 (Jessop 2012). A previous lockout in 2001 had affected only the pre-season. This second lockout extended three full weeks into the regular season, with the replacement referees turning in an uneven performance. Initially, the NFL’s use of replacement officials worked reasonably well, but things came to a head with a widely viewed Monday night football game between Green Bay and Seattle on September 24. A disputed call on the game’s final play gave the Seattle Seahawks a very controversial victory over the hugely popular Green Bay Packers (Associated Press 2012). As the game was played over and over on ESPN, other sports shows, and on YouTube, the fan backlash grew. This fan reaction raised concerns about the integrity of the game (Gregory 2012). Particularly intense was the criti- cism from fantasy football participants and people who gamble on games. This negative publicity significantly raised the cost of disagreement for the NFL (Chamberlain and Kuhn 1965). The league recognized the increasing strength of the union’s position and a settlement followed quickly, putting the regular referees back on the field for the fourth week of the season. Table 12 details the major issues that were part of the settlement (Collective Bargaining Agreement Between the NFL and NFLRA, August 4, 2011). As can be seen in Table 12, a longer contract length of eight years has benefits for both parties. Referees have the clear knowledge that they cannot be locked out through the 2019 season, and the NFL enjoys the peace and financial certainty of a longer contract and high-quality referees. In terms of compensation, the 2011 salary of $149,000 increases to $173,000 in 2013 and to $205,000 in the final year of the contract. In evaluating this salary, it is important to keep in mind that referees typically have other full-time careers during the regular workweek (“NFL, NFLRA Reach” 2012). The sticking point in these negotiations was pensions. The existing system was a defined benefit plan through which a referee, upon retirement, was guaranteed a specific amount of dollars based on the number of years worked. The NFL wished to terminate this older plan and move to a defined contribution plan, such as a 401(k). The outcome was a compromise between the two systems and can be seen as a victory for the TABLE 12 NFL and NFLRA Agreement Basics Issue Resolution Who prevailed? Contract length Eight years Both parties Salaries 37.5% increase over eight years Referees Pensions Hybrid model NFL Performance reviews Will occur NFL Source: Collective Bargaining Agreement Between the NFL and NFLRA 2011. 324 COLLECTIVE BARGAINING UNDER DURESS

NFL. Current referees stay on their defined benefit plan until 2016 or when they have achieved 20 years of service. The plan is then frozen and will be eliminated. New referees hired after the starting date of the 2012 collective bargaining agreement will be on a defined contribution plan, the specific details of which are unclear. Another contentious issue in 2012 was the performance evaluation system for the referees. Several changes were agreed to in this area. Although the details of this new performance evaluation system are not known at the time of writing this chapter, an increased emphasis on evaluating the performance of officials has been established. One other change made by the referees’ union involved the employment status of officials. Prior to the 2012 negotiations, referees were employed by the league on a part-time basis. Beginning in 2013, the NFL will hire full-time referees, with certain referees employed to train new referees as well as to officiate games. Like most negotiations, it appears that in the 2012 talks between the NFL and the officials’ union, each party was able to secure some of the things it wanted to include or change in the agreement. This, and the fact that well-qualified and trained professional referees resumed their on-the- field work and will continue to do so uninterrupted through the 2019 season (Armstrong 2012) suggests that in this case the collective process functioned reasonably well. To summarize, collective bargaining has resulted in two new agreements in professional football. The NFL and the NFLRA have agreed to new contract terms, summarized in Table 12, which guarantee labor peace and quality officiating through the 2019 season. The other major labor agreement, between the NFL and the NFLPA, also guarantees ten years of football without the interruptions of lockouts or strikes. This deal featured an agreement on the division of revenues, with 53% going to the owners and 47% going to the players, along with several key safety, health, and welfare gains by the players. As is typically true in collective bargaining, each party got some of what it wanted and had to make real concessions in other areas.

DEVELOPMENTS IN PROFESSIONAL BASKETBALL With the exception of professional hockey, the most intense labor– management conflict in recent years occurred in professional basketball. Professional basketball is no stranger to labor disputes and work stoppages. In 1998–1999, a total of 437 games were canceled, and play did not resume until early February with a 52-game schedule in place of the regular 82-game season (Staudohar 1996). The most recent talks, conducted in 2011, were almost equally contentious. PROFESSIONAL SPORTS 325

The 2011 negotiations followed a familiar pattern, including the decertification of the players’ union, federal antitrust lawsuits, and indeed, a shortened season. In the lockout of 2011, the season did not begin until Christmas Day of 2011, with a reduction in total games to 66 (Staudohar 2012a). This discussion of recent developments in collective bargaining in professional basketball focuses on three specific issues—fan impact, the salary cap, and revenue sharing. The final 2011 collective bargaining agreement between the basketball owners and players addressed an exceptionally large range of issues. Table 13 provides a comparison of the most critical issues in the 2005 and 2011 agreements (Collective Bargaining Agreement Between the NBA and NBAPA, December 2011). As the table suggests, the 2011 settlement seems to have favored the owners. The final agreement was for ten years, a longer than normal period that would seem to benefit all parties involved, including fans. However, the promise of ten years of labor peace is qualified by the fact that the contract includes an opt-out provision that either side can exercise after six years (Collective Bargaining Agreement Between the NBA and NBAPA, December 2011). It is useful to note that the 2011 negotiations and lockout occurred as the result of the owners opting out of an existing contract. There is little doubt that a similar opt-out decision could be made again in 2017, perhaps this time by the players. Revenue, and how it would be split among the parties, was also a major issue in these negotiations. The agreement reduced the player’s share of

TABLE 13 Key NBA–NBAPA Collective Bargaining Agreement Terms Item 2005 2011 Contract length Seven years (2011 opt-out) Ten years (with 2017 opt-out) Revenues 57% BRI* to players 51.15% BRI to players Escrow 8% in 2010–2011 10% per season One player waived prior to any One player salary not Amnesty season—salary not counted counted toward luxury tax toward luxury tax or salary cap Revenue sharing Some distribution Revenue sharing tripled 85% 2011–2012, 2012–2013; Team salaries 75% of cap 90% thereafter $1 paid for every $1 above Incremental taxes and penalties Luxury tax threshold for repeat offenders Sources: Collective Bargaining Agreement Between the NBA and NBAPA, December 2011; Collective Bargaining Agreement Between the NBA and NBAPA, July 2005. *Basketball-related income. 326 COLLECTIVE BARGAINING UNDER DURESS revenue from 57% to 51% (Collective Bargaining Agreement Between the NBA and NBAPA, December 2011). This represents a substantial improvement for the owners, who had collectively lost more than $300 million in each of the past three seasons. The 2011 basic agreement also tripled revenue sharing so that small- market teams will continue to benefit from the luxury tax. As in football, basketball players wanted some certainty as to the percentage of their salary cap the owners would have to spend each season. The players did make progress under this concept, but the reality is that spending less than the cap had not occurred often in the past. The raising of the salary floor also guaranteed that more money would be spent on player salaries (Collective Bargaining Agreement Between the NBA and NBAPA, December 2011). Finally, like the NFL, NBA teams exceeding the spending cap for salaries will face high “luxury” taxes, with higher penalties for repeat offenders (Collective Bargaining Agreement Between the NBA and NBAPA, December 2011). Whether this type of “soft cap” will work more effectively than a “hard cap” is uncertain. The NBA has never been able to achieve a hard cap through negotiations and thus has settled for the concept of the soft cap with heavier penalties. Although the owners and players have negotiated highly technical provisions in several of the areas mentioned previously, one item conspicu- ously missing from the 2011 basic agreement is a concern of many fans—the cost of attending a game. The cost of a product or service itself is rarely the subject of labor negotiations; however, both parties certainly need to be aware of the impact of the decisions they make at the bargaining table on the customers who purchase their product or service. This area of fan cost is prominent in all professional sports. Impact on Basketball Fans Tables 14 and 15 present the most recent data on the Fan Cost Index (FCI) for the four major professional sports. The FCI represents the average cost for a family of four to attend a regular-season game (post-season games are significantly more expensive). The FCI includes four average- price game tickets, two small beers, four small soft drinks, four hot dogs, parking, two game programs, and two of the least expensive, adult-size adjustable caps. Whether the FCI actually represents what average fans spend to attend a game or not, it does, like the market basket used to calculate changes in the Consumer Price Index, provide a way to compare fan costs across sports. The FCI for an NBA game, although less expensive than the costs for an NHL or NFL game, is still reasonably high, which suggests that it is quite expensive for an average fan to bring his or her family to an NBA PROFESSIONAL SPORTS 327

TABLE 14 Fan Cost Index Sport FCI average Season Baseball $207.68 2012 Basketball 301.06 2011 Hockey 328.81 2011 Football 427.42 2011 Sources: Fan Cost Experience; Team Marketing Report.

TABLE 15 Range of Fan Cost Index By Sport Sport High Low Baseball $336.99, Boston Red Sox $145.94, Arizona Diamondbacks Basketball $608.78, New York Knicks $192.80, Memphis Grizzlies Hockey $626.45, Toronto Maple Leafs $223.78, Dallas Stars Football $628.90, New York Jets $319.06, Jacksonville Jaguars Sources: Fan Cost Experience; Team Marketing Report. game. Table 15 shows the highest and lowest FCIs per sport and, again, the NBA’s FCI range, although high, is less expensive than those of football and hockey but more expensive than baseball. The FCI is sometimes evident in a given sport. For example, not all stadiums are full for every game. An increasing percentage of fans in all sports are made up of those able to afford luxury boxes. The ability of the average fan to bring his or her family to a game remains a concern for professional teams. This raises the issue of the extent to which owners and players keep their fans in mind when negotiating collective bargaining agreements that virtually guarantee that certain teams will be profitable and also provide for ever-increasing player salaries. There appears to be little evidence that owners and players will consider including fan-friendly provisions in collective bargaining contracts in basketball or other professional sports. It appears more likely that the FCI for all professional sports will only increase in the years ahead. Salary Cap and Luxury Tax As already discussed, professional basketball has a soft salary cap. This feature is a by-product of compromise through collective bargaining. Although the owners prefer a hard cap, the players prefer a situation more similar to professional baseball, which does not have a salary cap. When the two sides are faced with such diverse positions, the way to eventual agreement is through compromise. In basketball, the compromise reached has had a big cost in terms of lockouts and games lost. 328 COLLECTIVE BARGAINING UNDER DURESS

As noted by many labor economists, elements of the labor markets for professional athletes have been discussed in the literature as far back as the 1950s (Rottenberg 1956). One of the most interesting market-related issues is the salary cap. Sports featuring such caps typically also specify luxury taxes or penalties for clubs exceeding the cap maximum. Several types of caps can exist, including those on maximum salaries for rookies or players with a certain number of years of major league experience. Team salary caps can also be negotiated, as has been the case in several sports. An excellent summary of salary caps and luxury taxes is found in Coates and Frick (2012). As these authors note, basketball instituted the first salary cap in 1983. Football and hockey soon followed. As previously mentioned, baseball continues to operate without a salary cap. Simply put, through collective bargaining the parties agree on how to define revenues and how much of these revenues, however defined, will go toward player salaries. For 2005–2006 through 2011–2012, NBA players received 57% of basketball-related income. In general terms, the salary cap is determined by dividing 57% of total league revenue by the number of teams in the league, which is 30 (Collective Bargaining Agreement Between the NBA and NBAPA, December 2011). There are many issues surrounding salary caps, and both players and clubs have to be wary of the implications of these provisions. These issues include exactly what revenues will be shared, what aspects of player compensation are counted in determining the salary cap, how the luxury tax is calculated, how the luxury tax revenues are distributed, and how rookie salaries are determined and whether they count toward the tax. Although salary caps and luxury taxes were intended to hold down salaries and increase the parity of play in the league, the evidence in support of these contentions is spotty at best. The NBA has a soft salary cap, which means numerous exceptions (one is referred to as the Larry Bird exception) regularly allow clubs to have salary-spending levels above the agreed-on cap. As noted earlier, the NFL’s cap is of the harder variety. In the NBA, it is typical for 24 or more of the 30 teams in the league to be above the cap in any particular season. Take, for example, the 2009–2010 NBA season in which 28 of the 30 franchises exceeded the league salary cap for that year, which was $57.7 million. Many teams saw salary spending that was so excessive that luxury tax payments were incurred. The evidence is pretty clear that a soft cap does not effectively diminish teams’ appetites for highly paid players (take, for example, the Miami Heat roster in recent years). As long as teams face a soft cap and modest penalties for exceeding the cap, clubs will continue to overspend. The most recent collective bargaining agreement attempts to address this issue by imposing higher taxes on repeat offenders (Collective Bargaining PROFESSIONAL SPORTS 329

Agreement Between the NBA and NBAPA, December 2011). Only time will tell how this newer approach will work. Finally, the evidence on the impact of the salary cap on games won is also mixed. Competitive balance in the NBA does not seem to be any greater since the cap and the luxury tax have been in effect. Earlier in this chapter, it was noted that baseball has no team salary cap but does invoke penalties on very high-spending teams. This approach appears to have had some impact in promoting competitive balance. In basketball, as Sheehan (1996) stated more than 15 years ago, there is no evidence that a salary cap actually works. Small-Market Franchises and Player Location Decisions Like other professional sports, the NBA has both large-market and small- market franchises. Teams operating in small markets, such as the Memphis Grizzlies or Indiana Pacers, may have income of around $300,000 per game, although a large-market team such as the Los Angeles Lakers may bring in revenues of close to $2 million for every game (Smith 2012). As noted previously, a soft salary cap such as the one imposed in the NBA does not have much impact on the teams operating in very large markets. The dollars brought in by local TV revenues may be on the order of 15 to 1: $150 million per season for large-market teams and just $10 million for those in small markets (Sherman 2011). The issue of how the smaller-market teams can remain competitive, both in the labor market and in league standings (wins and losses), is a difficult one. The newly agreed-on collective bargaining agreement took a step in the direction of aiding smaller-market teams (Richards 2012). As mentioned, the two sides agreed to a new revenue division of 51% to 49%, from a split of 57% and 43% in the preceding collective bargaining agreement. This change means that small-market teams will receive an additional $270 million that in previous years would have gone to the players (Collective Bargaining Agreement Between the NBA and NBAPA, December 2011). It has been observed that the impact of the shorter season in 2011–2012 on the small-market city of Indianapolis was not terribly significant. The few pre-season and home games lost surely did hurt local restaurants, hotels, bars, and the like. But Indianapolis also played host that season to both the first Big Ten football championship and the Super Bowl. Actually, when no games are played, another big loser is state government. This impact is illustrated by the data presented in Table 16 on the recent decision made by LeBron James to sign with the Miami Heat. As the table clearly illustrates, because James signed with a Florida team, he avoided paying a significant amount in state taxes (Florida has no state 330 COLLECTIVE BARGAINING UNDER DURESS

TABLE 16 Did LeBron James Make the Right Choice? Team State taxes ($96 million/five-year contract) New Jersey Nets $10.32 million New York Knicks $12.34 million Miami Heat No state taxes LA Clippers $10.12 million Cleveland Cavaliers $5.6 million Chicago Bulls $2.87 million Source: Kopkin (2012). income tax, although when players are on the road their wages are taxed according to the state and local taxes in effect in that location). Clearly, free agents in the NBA can benefit by relocating to tax-free states. In fact, recent research has shown that teams located in high tax states have less success in recruiting and signing the most talented free agent players (Merchak 2010). Although the collective bargaining agreement has made strides toward ameliorating some of the challenges faced by small-market teams, there is nothing in the labor agreement that addresses the impact of high state and local tax rates on player movement. It will be interesting to see whether the parties attempt to mitigate this problem through the collective bargaining process and how they would do so.

DEVELOPMENTS IN PROFESSIONAL HOCKEY Writing in 2002, the authors of this chapter predicted that “labor peace in the NHL may be short-lived” (Dworkin and Posthuma 2002:253). The authors went on to say that “many people believe that when the current contract expires in September 2004 the entire NHL season may be lost to yet another labor dispute.” In fact, the entire 2004–2005 NHL season was lost because of a lockout (Brady 2011). NHL Commissioner Gary Bettman has held his position since the 1993 season. In 1994, a labor–management dispute cost the parties half their season. However, even after the settlement, severe financial problems remained in professional hockey. One particular problem was that, much like MLB, team payrolls varied widely (USA Today 2011). So it seemed like déjà vu all over again at midnight on September 16, 2012, when the NHL became the third professional sport in 18 months to lock out its players. That was the fourth NHL shutdown since 1992. The most famous and damaging shutdown was the 2004–2005 lockout. The key issue in those negotiations was the salary cap (Staudohar 2005). PROFESSIONAL SPORTS 331

Previous Collective Bargaining Agreement Table 17 recaps the previous four labor disputes between the NHL and the NHLPA. The 2004–2005 lockout was the first and only time that a professional sport in the United States had lost an entire season because of a labor dispute. For the second time, no Stanley Cup was awarded—the first being in 1919 because of the widespread flu epidemic that followed World War I (Staudohar 2005). The final deal reached after this monumental 301-day lockout produced a formal agreement covering 457 pages. As noted earlier, it was this six- year agreement that expired and led to the 2012–2013 lockout. The agreement ran six years through the 2010–2011 season. The NHLPA had the option to extend this contract for an additional season, 2011–2012, an option that they did decide to exercise (Staudohar 2005). Had they not exercised the option, the 2012–2013 lockout would very likely have played out one year earlier. Table 18 highlights the major features of the 2005 agreement. As indicated in Table 18, the agreement contained a salary cap. Individual club payrolls were not permitted to be below the set minimum or above the maximum level (Staudohar 2005). Without the possibility of lavish payroll spending as in baseball, no luxury tax was necessary in the NHL. So, for the first time, players faced a salary cap system. In previous years, some teams had spent up to $80 million on payroll, while at the lower end, other teams had payrolls of barely $20 million (USA Today 2011). This vast disparity is what led the NHL to hold out for the cap the parties eventually agreed on. As previously noted, the NHL and the NHLPA agreed on a hard cap. Teams were not permitted to

TABLE 17 Previous Hockey Labor Disputes Season Result Player strike 1992–1993 30 games postponed 103-day lockout 1994–1995 468 games canceled 301-day lockout 2004–2005 Entire season lost Lockout began September 16, 2012 625 canceled games 2012–2013 Settlement on January 6, 2013 48-game season Sources: Kercheval (2013); Collective Bargaining Agreement Between the NHL and NHLPA, January 12, 2013. 332 COLLECTIVE BARGAINING UNDER DURESS

TABLE 18 Major Components of July 22, 2005, NHL–NHLPA Collective Bargaining Agreement Term Outcome Six years Contract length One-year extension option for NHLPA < $2.2 Billion (54%) $2.2–2.4 Billion (55%) Revenue share to players $2.4–2.7 Billion (56%) > $2.7 Billion (57%) Club payrolls/salary caps $21.5–$39 Million Maximum: $7.8 million Salaries Minimum: Increased to $525,000 in 2011–2012 For clubs in bottom 15 in league revenues and Revenue sharing smaller markets (< 2.5 million TV households) Luxury tax None Source: Collective Bargaining Agreement Between the NHL and NHLPA, July 22, 2005– September 15, 2011. exceed agreed-on spending levels. Along with this salary cap agreement, players also saw a 24% cutback to existing contracts and, in exchange, received 57% of hockey-related revenues, if revenue exceeded $3.3 billion (a regular occurrence in recent seasons) (Collective Bargaining Agreement Between the NHL and NHLPA July 22, 2005–September 15, 2011). The players believed they had made major concessions to get this larger share of hockey-related revenues and thus were very reluctant to give in to the lower number. As might be expected, the owners thought that 57% was too high and insisted on reducing the players’ share to between 47% and 49%. Table 19 demonstrates the impact of reducing the players’ share of revenues to 47% from 57%. And despite the fact that the 2005 agreement contained many other terms agreed on in areas such as performance bonuses, Olympic participation, free agency, entry-level players, and the entry draft and salary arbitration, the divergent views on the revenue share were at the heart of the lockout (Staudohar 2005). 2012 Negotiations The NHL and the NHLPA began their most recent round of bargaining in late June 2012. After two and a half months of negotiations, the owners locked out the players on September 16. Normally, in a strike or lockout, bargaining continues in an effort to move the process forward. However, this was not the case in the 2012 talks. The differences between the parties seemed so significant that there appeared to be little hope that the gap could be bridged in the short term (Staudohar 2013). As the weeks passed, the parties watched as key milestones in the NHL season were lost. First, the pre-season was canceled, then the opening of PROFESSIONAL SPORTS 333

TABLE 19 Revenue Sharing Examples Players’ share Total revenues Players get 57% $3.3 billion $1.88 billion 47% 3.3 billion 1.55 billion 57% 5.0 billion 2.85 billion 47% 5.0 billion 2.35 billion Sources: Collective Bargaining Agreement Between the NHL and the NHLPA, July 22, 2005– September 15, 2011; Collective Bargaining Agreement Between the NHL and the NHLPA, January 12, 2013. the season on October 11. Later in the fall, the internationally televised New Year’s Day outdoor game between the Detroit Red Wings and the Toronto Maple Leafs at the 115,000-seat University of Michigan Stadium in Ann Arbor was canceled. In November, the NHL announced that its annual All-Star Game, to be hosted in the small-market home of the Columbus Blue Jackets on January 27, 2013, would not be played. As in other professional sports, the small-market Columbus franchise struggles financially. A chance to host an NHL All-Star contest would have been a big boost to that franchise (Staudohar 2013). During a lockout, financial losses mount up on both sides. Players do not receive their salaries, and the teams lose income from ticket, concession, and merchandise sales, as well as from television. According to Deputy Commissioner Bill Daly, the NHL estimated that it lost around $100 million from the cancelation of the pre-season alone. Many other businesses located near NHL stadiums also suffered losses. Without games, fans do not stay at hotels or eat out at restaurants before or after games. As each day passed, these losses continued to mount (Staudohar 2013). One particularly problematic aspect of the 2012 dispute was that both the NHL and the NHLPA had experience in season-long disputes in the past. Both sides were very well prepared going into the lockout. The executive director of the NHLPA is Donald Fehr, and the players’ association special counsel is his brother, Steve Fehr. Both have significant experience in labor relations in the professional sports arena. Donald Fehr formerly served as the executive director for the baseball players union and before that had worked alongside Marvin Miller, the first executive director of the MLBPA (Goldstein 2012). As mentioned earlier, NHL Commissioner Bettman had been through an entire season lockout in 2004–2005. Both sides seemed to be prepared for a long struggle (Collective Bargaining Agreement Between the NHL and NHLPA, July 22, 2005– September 15, 2011). 334 COLLECTIVE BARGAINING UNDER DURESS

Settlement and Aftermath Just when it appeared that fans of the NHL might have to suffer through their second entire season cancelation because of a lockout, the NHL and NHLPA announced a tentative accord on a new collective bargaining agreement that would save a portion of the 2012–2013 season. This announced deal came on the 113th day of the lockout after 625 games had been canceled (Kercheval 2013). Apparently, the deal was struck at 4:40 a.m. on January 6, 2013, between NHL Commissioner Gary Bettman and NHLPA Executive Director Donald Fehr after a 16-hour bargaining session. The NHL had earlier announced the need to settle by January 11, 2013, if there was going to be enough time for a one-week training camp to be followed by a shortened 48-game season. A typical NHL season has 82 regular-season games followed by the playoffs, which eventually lead to the Stanley Cup championship. This new agreement meant that the Stanley Cup was awarded in 2013, an event that did not occur after the loss of the entire 2004–2005 season because of a previous lockout. The lockout was officially lifted on January 6, 2012, after the new deal was announced. The NHL ratified the contract on January 9, followed by NHLPA ratification on January 12. Three basic elements of this new agreement (Collective Bargaining Agreement Between the NHL and NHLPA, January 12, 2013) can be summarized as follows: • The two sides agreed to split the $3.3 billion in league revenues at 50% for the players and 50% for the owners. The previous agreement featured a 57% share for the players of what started as a much lower base of $2.2 billion in the 2003–2004 season. This new division of revenues favors the NHL. • The new agreement has a term of ten years with either side able to opt out after eight years. Both sides benefit from this longer agreement because stability for the long term was a high priority. Fans will no doubt enjoy not having to worry about another lockout for close to a decade. • The salary cap for 2012–2013 was set at a prorated $70.2 million and $64.3 million in 2013–2014. The floor was set at $44 million in both seasons. The deal also puts a seven-year limit on player contracts, but teams are able to re-sign their own players for eight years. Players received a defined benefit pension plan for the initial time, and minimum salaries will increase to $750,000 by the 2021–2022 season from the $525,000 level they are set at in 2012–2013. These developments tend to favor the players.

An important aspect of this settlement was the involvement of federal mediator Scott Beckenbaugh, who also has mediated negotiations in Major PROFESSIONAL SPORTS 335

League Soccer, the NFL, the NBA, and the 2004–2005 NHL talks. Federal Mediation and Conciliation Service director George Cohen stated that “fans throughout North America will have the opportunity to return to a favorite pastime and thousands of working men and women and small businesses will no longer be deprived of their livelihoods” (Sports Illustrated 2013). Cohen made the important point that these negotiations were not only about millionaire owners and players—many other people have careers and labor market opportunities that rely principally on NHL games being played. Those people are able to resume their careers or restart their businesses and won’t have to worry about another labor dispute for a long time. It is too early to tell which side prevailed in the negotiations. One might easily wonder why it took so long to reach a settlement that clearly looks like it could have been agreed on much earlier. Indeed, there really was no new ground broken in this latest settlement. Why did it take so long? Players had indicated much earlier that they were willing to take a lower percentage of the revenues—which they did! It is interesting to compare the relative lack of passion from hockey fans for the return of the game during the lockout with the din made by the NFL fans even with the threat of a canceled pre-season game. Moreover, recall the uprising from the use of NFL replacement referees that ultimately led to a swift settlement. Maybe the point is that hockey fans miss hockey but not as much as football fans would miss football. And although it is tempting to give the owners the edge over the players in the NHL settlement (Elliott 2013), the overall picture remains rather cloudy. The NHL got the salary cap, entry-level salary restrictions, and revenue-sharing changes that will create better cost certainty. But the players received the right to seven-year contract limits, a good pension plan, and a maximum 55% variance in the year-to-year value of contracts. Both sides made some concessions they probably did not want to make and indeed had not intended to make. As noted earlier, instead of focusing on whether the owners or players won, it is easy to say who the losers were in the entire affair—the fans, the small-business owners, and the employees of the arenas and the NHL who suffered during the lockout. Will the fans return? As has been the case in the past in other sports, the answer is a tentative yes, made quite a bit stronger by the length of the new contract. Thus, the NHL and the NHLPA became the fourth and final pair of negotiators to settle in this latest round of collective bargaining negotiations in the four major team sports. It is usually a dangerous business to declare winners and losers. But in hockey, as in baseball, basketball, and football, there are some positive signs from lengthy agreements in all four sports that should benefit all parties who were at the bargaining table and others who want the games to go on. 336 COLLECTIVE BARGAINING UNDER DURESS

CONCLUSIONS AND THE FUTURE Famous baseball player and worldly philosopher Yogi Berra reputedly once said, “Prediction is difficult—especially about the future.” And so it is with some trepidation that this chapter concludes with a brief summary of some possible future scenarios. The discussion of collective bargaining in the four major professional sports in North America can be summarized around the following points. The period 2011–2012 witnessed the expiration of the CBAs in each sport (Table 7). The negotiations that ensued produced a tumultuous year, yet, in each case, the collective bargaining process once again worked and led to eventual accords. Baseball was the only sport to settle on a new CBA without any work stoppage. Football and basketball featured short lockouts, with the NBA season actually being shortened to 66 games. The NHL season also featured a lockout that reduced the season to 48 games. Football referees were also locked out, but after three weeks of using replacement referees, a settlement was finalized in time for the Thursday night football game on September 27, 2012. A key feature in the three sports featuring lockouts was the ongoing provision of a salary cap. Baseball, alone, has no salary cap. Its record of peaceful labor relations over the past 21 seasons is remarkable. The lack of a salary cap arguably provides more flexibility in baseball negotiations and has contributed to the stability of the relationship between the parties in this sport. Player safety has emerged as a major factor in ongoing negotiations (Barrett 2013). This safety consciousness, especially in football, has gradually trickled down to much lower age levels. Today there is much more interest in head injuries and helmet safety. The seriousness of concussions and other brain injuries will continue to be studied and will be a key subject of future collective bargaining sessions (Belson 2012). Internationalization of the four professional sports has continued to be a major focus. Although baseball has only one Canadian team (since the loss of the Montréal franchise), there are many signs that suggest the world market will be a much bigger factor in future years for the professional sports covered in this chapter (Friedman 2005, 2008). Professional games will continue to be played in foreign countries, perhaps in increasing numbers. In some of the sports, international leagues already serve as minor league training grounds for future professional athletes not quite yet ready for the center stage. The possibilities for merchandise sales on an international scale are enormous. It is possible that several of the professional sports covered in this chapter will feature international teams in countries other than Canada in the not too distant future. The professional PROFESSIONAL SPORTS 337 sport that appears most likely to establish another non-U.S.–based team is baseball. Although fan interest in the four major professional sports continues to be very high, the increasing costs of attending a game, one measure of which is the FCI, looms as a potential problem. Simply put, it is now very expensive for even a middle class family to attend a professional game at the local ballpark, arena, or stadium. The popularity of baseball and football on television is evidence of this situation. Fans regularly watch games at a local bar or at home with friends. The growing popularity of lower-cost college or minor league games also may be driven, at least in part, by cost (Gitter and Rhoads 2011; Brennan 2010). Minor league baseball games are very popular for family outings because of easy access, nearby parking, competitive games, and perhaps most important, reasonably priced tickets and concessions. Professional teams and leagues need to think about ways to bring the average fan back so that games are attended by more than the very wealthy. A distinction running across all four professional sports is the major labor market differences seen in today’s relatively free and open player market compared with the former monopsonistic market faced by players in the past. As described earlier in this chapter, and in many other works on the professional athletes’ labor market, players have benefited greatly by using collective bargaining to eliminate most of the former market restrictions they faced since before the late 19th century. Much of the current strife between owners and players revolves around the constant pressure on both parties to either “dial up” or “dial down” these labor market restrictions. A good example of this is the salary cap issue featured in basketball, hockey, and football. Discussions over salary caps and the appropriate division of revenues between owners and players have led to lockouts in the recent rounds of negotiations, first in football, then in basketball, and finally in hockey. The salary cap is a very controversial topic that goes right to the heart of the disagreement between owners and players: who should get the largest portion of the revenues produced by the game? Of course, there is general agreement that both owners and players should share in these revenues, but the key question then becomes how much should each party receive? There is no easy answer to this question. There would, of course, be no games without the players. But it is equally true that there would be no games without owners who have the resources and managerial expertise to establish leagues, teams, television contracts, and minor leagues. This is an old question that has deep roots in each of the four professional sports, as evidenced by the long history of conflict between players and owners. 338 COLLECTIVE BARGAINING UNDER DURESS

From the earliest days of professional baseball in the late 1800s, when the owners completely controlled player markets and when superstar players such as John Montgomery Ward asked, “Is the Baseball Player a Chattel?”(Ward 1887), professional sports have come a long way to today’s labor market compromises. In the end, the recent strife over salary caps and revenue sharing is just the modern version of the age-old question of how to divide game revenues fairly between the two parties. This question will not go away. It will almost certainly always be a feature of future collective bargaining negotiations between owners and players (“Greed v Pride” 2012). The United States Postal Service issued a postal stamp in the year 1975 that featured the process of collective bargaining with the quote, “Out of conflict … accord.” This is a good way to summarize the labor–management relations situation in professional sports. A monopsonistic labor market in each sport, which led to huge conflict, has given way, in each case, to an accord featuring a much freer and open player labor market. Much the same can be said for many of the divisive issues that have existed and, in many cases, still separate owners and players at the bargaining table. Even with the trauma experienced along the way, the process of collective bargaining has served the parties reasonably well. For this reason, it will most likely continue to play an important role for many years into the future. In the final analysis, the conclusion reached by the authors in a previous edited volume on collective bargaining (Clark, Delaney and Frost 2002) is still valid today: The bottom line is that the future of the industry looks challenging, but there are many opportunities for mutually beneficial gains. Union–management relationships in baseball, basketball, football and hockey are maturing. With age hopefully will come the wisdom and the ability to focus on the big picture to achieve equitable solutions for all parties. Let us hope that in the case of the professional sports industry, out of conflict shall come eventual accord. (Dworkin and Posthuma 2002)

Nothing witnessed in the past ten years regarding collective bargaining in the four major professional sports has changed this fundamental conclusion. At times, things have been difficult (and, in some cases, dire), and building good relationships has continued to be very challenging. Yet, through it all, whenever conflict has arisen, it has eventually been followed by accord. That is the way collective bargaining is supposed to work. That is indeed the way it has worked in the arena of professional sports. PROFESSIONAL SPORTS 339

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Chapter 9 Commentary: Union Practitioner Perspective

Iain Gold International Brotherhood of Teamsters

It would be irresponsible to comment on the state of collective bargaining over the past ten years without commenting on the “state of the unions.” This means addressing union density and the economic environment in which bargaining took place, the latter of which was book-ended by a recession and culminated in the Great Recession. In 2012, union density fell to 11.3% of the workforce—its lowest level since 1916 (Greenhouse 2013). Even worse, the private sector rate of 6.6% in 2012 masks the 11.3% low point in 1916 because of the non-existent levels of public sector members in the early 1900s. It is not my intent or purpose to reflect on the key reasons why density is dropping (others have written extensively on it), and it is pretty clear that a number of factors are the cause. But what’s even clearer is that declining union density has not abated, and prospects are not good for the necessary public policy changes to reverse it.1 In discussing collective bargaining over the past ten years, I draw from the chapters in this research volume and my experiences at the International Brotherhood of Teamsters. I then discuss what the next ten years of bargaining might look like if there are very few changes in worker attitudes or in policy at the federal level. Finally, I offer some thoughts on a few key developments that may alter the landscape.

THE PAST TEN YEARS What do the past ten years tell us? The 2000 downturn and then the Great Recession created a negative economic environment that challenged virtually every business in every part of the economy. To assess the scope of the negative impact, it is more instructive to look at sectors of the economy to help develop the narrative. On one end of the spectrum, the U.S. auto industry led by the “Big Three” (Ford, General Motors, and Chrysler) is an example of an industry hardest hit by the macroeconomic environment, as evidenced by the highly public bankruptcies and near failure of both General Motors and Chrysler in 2009. As noted in Chapter 2 of this volume, auto industry employment fell by 43%, from 970,100 in 2003 to 561,700 in 2009. The lack of 345 346 COLLECTIVE BARGAINING UNDER DURESS purchasing power, inability to access credit, and greatly diminished demand for cars caused sales to fall to historic lows. Union density was already falling as transplants took market share from the Big Three and accelerated with its restructurings. That same credit crunch and lack of disposable income meant people were traveling less, so the airline and hotel/casino industries were negatively affected (see Chapter 1 and Chapter 3 of this volume). Airlines, a systemic boom or bust industry, experienced multiple bankruptcies and consolidations over the past ten years, and employment dropped from 450,000 workers in 2000 to 350,000 in 2010. Union density in the airline industry remains relatively high at 43%. Hotels (especially those with casinos), however, depend on a traveling public willing to spend money. The industry saw its growth stunted during this period, but overall employment stayed roughly the same. Union density, however, declined from 9% in 2000 to 7% in 2012. The newspaper industry has been facing technological changes that challenge its existing business models, as discussed in Chapter 6 of this volume. Those changes, which resulted in declining circulation and advertising revenue, were already wreaking havoc on the financial condition of newspapers, and most were further stressed by a bad economy. The industry, like many others, continues to face widespread bankruptcies, consolidation, and employment decline. Annual revenue declined from $59 billion in 2000 to $34 billion in 2012, employment fell from 455,000 in 2000 to 244,000 in 2011, and union density fell from almost 10% in 2000 to 6.8% in 2011. In the public sector (Chapter 7 of this volume), the Great Recession produced a huge drop in revenues for public entities that at the same time faced an increase in demands for services. The resulting budget strains created the environment for laissez-faire–oriented politicians to target public sector workers as a source for savings. The extreme examples are the attempted stripping of public sector collective bargaining rights in Wisconsin and Ohio. Health care faces different industry dynamics and, as such, collective bargaining was not as directly impacted by the recessions. The major dynamic in health care is federal policy (the Affordable Care Act), combined with rising costs and changing demographics. Employment in this sector is growing, and union presence in the hospital sector is keeping pace with growth (see Chapter 4 of this volume). Teamster members in aforementioned industries faced similar experiences. Those in the auto industry saw two companies that transport new cars to dealers file for bankruptcy—one liquidated, another back in bankruptcy a second time (“Chapter 22” in bankruptcy jargon), and two other companies merged. In the airline industry, mergers and bankrupt- UNION COMMENTARY 347 cies have set the tone in bargaining and representation issues. In the trucking industry, the Great Recession exposed the weakness of the less-than-truckload sector’s largest company, YRCW, a debt-laden carrier that grew in mid-2000s when borrowing money was cheap. In 2003, when Yellow bought the second-largest player, Roadway, they had a combined 55,000 employees. By 2011, when the company eventually restructured as a result of the Great Recession, it was less than half the size and smaller than either Yellow or Roadway was at the time of the merger. Bargaining in the context of bankruptcy in difficult economic times presents challenges distinct from those of traditional collective bargaining. In extreme cases, the absolute need of the business to save costs to survive drives economic concessions. Unions then need to figure out how best to preserve jobs and benefits, ensure that new management will run the business better, and make sure workers share in the upside if the company does successfully recover. For members to approve a package, they must have confidence in the “restructured” company and believe that the concessions are necessary and will help improve the business. In addition, they need to see that all constituents are making similar sacrifices and that management will not squander the savings and end back up in bankruptcy. In the extreme examples from the airline, auto, and trucking industries, the economic concessions came in the form of “hard” dollars from layoffs, reduced wages, reduced or eliminated defined benefit pension plans, and/or reduced health care costs, and in the form of “soft” dollars in the form of relaxed work rules. It is important first to verify that the savings are needed. It is incumbent on the union to perform the necessary due diligence to understand the scope of the company’s business problems, what it takes to fix them, and whether there will be a viable business going forward if concessions are granted. To do this, the union must have access to the same type of financial advice that other key constituents have in the process, and union leadership has to be able to stand in front of their members and give them the straight story about the prospects of survival. If there is a path to a viable business after a potential restructuring, then in exchange for the economic concessions, unions can facilitate the overall restructuring by demanding that other stakeholders, senior lenders, bond holders, equity holders, management, and non-union workers all contribute to the restructuring, which is a Teamster core principle— a concept we call equality of sacrifice. A second core principle is management accountability, which requires changes in the management team that got the company into its current financial predicament and usually includes a new board of directors, often with representatives nominated by the unions. These conditions are 348 COLLECTIVE BARGAINING UNDER DURESS critical to existing union members, who often have no confidence in the management team in place, and if left untouched, will squander any savings generated by contractual changes. (If management problems are not addressed, members are less likely to vote to approve a proposed contract.) A third core principle is bargaining unit participation in any upside. If the company restructures, the union must be able to show members that they have an ability to benefit economically when things go well. Upside participation can come in different forms—restoration, or “snap- ping back,” of concessions; and recouping wage or benefit cuts in the form of profit sharing (General Motors and Chrysler), outright equity (stock in the newly reorganized company (YRCW, American Airlines), or a combination of those options. If the pieces fall into place—meaning that union members believe there is a need to make the sacrifices; if they see other constituents (management, non-union workers, lenders) sharing in the sacrifice; if management, old and new, is being held accountable; and if there is a mechanism that, if the company performs well, they have some ability to recoup or offset some of the sacrifices they make—then the contract has a decent chance of being ratified. These companies will have the opportunity to see if the restructuring works. If union members are not convinced that these changes will occur, then the package will be rejected, leading to liquidation and the loss of jobs. Thus, in the past ten years, the economic environment greatly shaped the collective bargaining experience of many industries—difficult economic times and financially troubled industries lead to challenges for collective bargaining. The impact of the Great Recession varied because some industries were already transforming (newspapers, meatpacking; see Chapter 5 and Chapter 6 of this volume), but in general, union density in industries discussed declined as employment fell and unionized employers restructured (reduced employment), merged, or went out of business.

THE NEXT TEN YEARS If you do not change direction, you may end up where you are heading. —Gautama Buddha

Where will the labor movement be in ten years if nothing changes? In terms of absolute numbers of union members in the United States, there were 14.3 million members in 2012. Although there has been a slight decline, the number has been holding steady. The peak was 20.1 million union members in 1979 and was 17 million at the height of union density in the United States in 1954. In 2002, the number of union members was UNION COMMENTARY 349

16.1 million. The trend suggests there will be some further erosion over the next ten years, which could be partially offset by an improved economy (Mayer 2004). If the trend holds, the labor movement would still comprise more than 12 million union members. We can look to the most recent union density data for clues and a few nuggets of good news. Union membership increased among non-white workers: in 2012, unions gained 156,000 new Latino members, 82,000 new black members, and 45,000 new Asian members (Miles 2013). The growing percentage of the Hispanic portion of the labor force—expected to reach 18% by 2018 (U.S. BLS 2012) and 29% of the population by 2050 (Pabst 2011)—could be a source of added union members. Union membership also increased in some states—most notably California, where membership was up 110,000 (Schmitt, Jones, and Sanes 2013). Where state or regional politics are supportive of workers’ rights, unions should be able to maintain their current position in terms of absolute numbers in both the private and public sectors. Therefore, it appears that over the next ten years, unions can continue to tread water in “stronghold” states, based on current trends and status quo political conditions. Within states, union membership is often concentrated in urban areas, and one can envision the ability of unions to maintain membership and relative density in core urban areas. For example, in large cities (Chicago, Los Angeles, New York, San Francisco, and Seattle), unions have a strong presence and are involved in innovative campaigns. Harold Meyerson, in an article titled “What Happens If Labor Dies,” points to successful campaigns “waged by workers and their allies in liberal cities” and cites the community group Los Angeles Alliance for a New Economy (LAANE) as the laboratory to transform Los Angeles into a “labor-friendly” city through mobilization of the vast immigrant community. The architects of transforming Los Angeles into a labor city were the late Miguel Contreras, leader of the Los Angeles County of Federation of Labor; his wife, Maria Elena Dorazo; and LAANE founder Madeline Janis (Meyerson 2012). The political power harnessed by LAANE has been used to support policies that require payment of living wages, inclusion of local hire agreements, and card-check provisions on projects involving public funds in the city of Los Angeles. So, over the next ten years, it’s not implausible that sheer numbers of union members, pockets (in industries and geographic areas) of relative strength, and growing minority populations with higher tendencies to join unions can mitigate trends of declining numbers and density. In terms of collective bargaining, pressure will continue on the overall compensation package but be focused even more on pension and health care structure and costs (especially with the passage of the Affordable Care Act). 350 COLLECTIVE BARGAINING UNDER DURESS

SPARKS THAT MAY CAUSE CHANGES There’s something happening here. What it is ain’t exactly clear … —Buffalo Springfield, “For What It’s Worth”

What’s clear is that workers or unions aren’t likely to stay the course. Although there likely will not be any new federal legislation to address the inadequacies of our labor laws, workers, their organizations, and their allies are not going to wait for those policy changes and, in fact, are increasingly taking matters into their own hands. Scott Walker’s anti-public sector collective bargaining law in Wisconsin, closely followed by a similar bill in Ohio in early 2011, put workers into motion. The response from all unions—private and public sector alike— was to rally and not let the threats to the existence of unions go unchal- lenged. This response to the “war on workers” was further amplified by Occupy Wall Street, which spawned similar “Occupies” in hundreds of other cities and solidified the 1% and 99% frame as an issue in the 2012 presidential election. In 2012, workers employed by Walmart contractors initiated a strike at a warehouse in Los Angeles’ sprawling warehouse hub in the Inland Empire and went on a 60-mile march to Los Angeles City Hall, protesting work conditions. That strike was followed by one at a dedicated Walmart facility in Elwood, Illinois—another concentrated warehouse hub, south of Chicago. Weeks later, Walmart retail workers initiated strikes at dozens of retail stores around the country, demanding to be treated with respect. Many of those workers are affiliated with OUR Walmart, an innovative new organization supported by the United Food and Commercial Workers International Union (UFCW). Then, on Black Friday 2012, Walmart workers and their allies demonstrated at more than a thousand Walmart stores in support of striking retail workers, all in the name of fair treatment for Walmart workers. Retail food workers in New York City and retail workers along Chicago’s Golden Mile also took to the streets in late 2012. These one-day strikes showed that workers at the bottom of the “food chain” are so marginal- ized that they have little to lose and are willing to take action even if it means losing their jobs. Many unions are embracing militant action and supporting workers who are prepared to strike or otherwise fight for better treatment. In 2005, a central theme in the formation of Change to Win was increasing resources to run innovative, comprehensive campaigns in an effort to organize more workers in targeted industries. Not that they had the all the answers, but the unions that split off to form Change to Win pledged to try different UNION COMMENTARY 351 ways to alter the direction they were headed. There have been successes (Smithfield for UFCW and school bus drivers for the Teamsters, to name two) but not on a scale that has altered overall union density. These unions continue to evolve their strategies and, in addition to running organizing campaigns, are major supporters of the worker movements previously described. The willingness to develop new strategies seems to be growing across the labor movement. Reports coming from the February 2013 AFL-CIO executive council meetings indicate that the Federation and its affiliates are prepared to move in a different direction. In speaking with reporters after an executive council session at which “growth and innovation” were the topic of conversation, AFL-CIO president Rich Trumka said, “We’ve been talking about the crisis that we’re in and the fact that we need to change.” AFSCME president Lee Saunders added, “I think we have to be creative. I think we have got to work with organizations that are concerned about the plight of workers whether they are a union or not.” What strategies come out of the AFL-CIO or its affiliates remains to be seen, but at least the recognition for innovation and discussion about change have reached a new level of seriousness (Palmer 2013). Will the spark generated from the most exploited and disenfranchised workers in our economy catch more broadly to other sectors of the workforce? Will unions and their members continue to push back on states’ attacks on public sector bargaining laws and on the private sector through right-to-work initiatives? Will the Occupy movement continue to help broaden the narrative of what’s wrong with our economy and lend support to the increasing militancy that workers are demonstrating a willingness to embrace? With immigration reform front and center on the political agenda, how will immigrants on a path to citizenship (or if reform fails, on a path to further frustration) affect these movements? Although the doomsayers predict the demise of the labor movement and the relevancy of unions, there are too many wildfires to imagine that something is not emerging. And, as it does, these workers’ movements should be able to dramatically shape and possibly transform collective bargaining in low-wage industries over the next ten years.

The views expressed are the author’s and do not necessarily reflect the views of the International Brotherhood of Teamsters. 352 COLLECTIVE BARGAINING UNDER DURESS

ENDNOTES 1 For a recent discussion, see Warner, Kris, “Protecting Fundamental Labor Rights: Lessons from Canada for the United States,” August 2012, Center for Economic Policy Research.

REFERENCES Greenhouse, Steven. 2013 (Jan. 23). “Share of the Work Force in Union Falls to a 97-Year Low, 11.3%.” New York Times. Mayer, Gerald. 2004 (Aug.). “Union Membership Trends in the United States.” Congressional Research Service. Meyerson, Harold. 2012 (Sep. 13). “If Labor Dies, What’s Next?” The American Prospect. Miles, Kathleen. 2013 (Jan. 25). “Unions Gain Latino Members, Could Be Unions’ Saving Grace.” Huffington Post.com. Pabst, Georgia. 2011(Mar. 31). “Report: Hispanic Workforce Growing.” JSOnline.com. Palmer, Anna. 2013 (Feb. 28). “AFL-CIO Enters Survivor Mode.” Politico.com. Schmitt, John, Janelle Jones, and Milla Sanes. 2013 (Jan.). “State Union Membership, 2012.” Center for Economic and Policy Research, Washington, DC. United States Bureau of Labor Statistics (U.S. BLS). 2012 (Aug.).“ Labor Force Characteristics by Race and Ethnicity, 2011.” Chapter 10 Commentary: Management Perspective

Martin (Marty) J. Mulloy Ford Motor Company

Over the past ten years, globalization of the automotive industry has rapidly accelerated. The development of automotive manufacturing in countries that were formerly absent from the market, such as China, Korea, Russia, and India, has resulted in an increasing number of new entries into the global automotive market. Free trade agreements have opened up markets that were previously closed, providing opportunities for companies to introduce new export products, thereby challenging domestic manufacturers and the unions that represent these employees. In the United States, these changes have had a profound impact on domestic automotive manufacturers—the combination of an economic downturn, reduced domestic market share as a result of shifting consumer interests influenced by rising oil prices, lower margins and increasing legacy costs resulted in the bankruptcies of automotive giants, and the near collapse of Ford Motor Company. These economic changes forced the need for drastic modifications to the traditional negotiations process between the domestic automotive companies (GM, Chrysler, Ford Motor Company) and the United Auto Workers (UAW). This chapter outlines a perspective of the changes that have occurred in collective bargaining and the resulting impact on the domestic automotive companies and the UAW.

BARGAINING PROCESS CHANGES Traditionally, negotiations between the UAW and the domestic automotive industry focused on protecting and increasing compensation, benefits, and job security. The approach was pattern bargaining among the domestic automotive industry. Years of traditional bargaining resulted in the domestic automotive industry being approximately $30 above the competitive labor cost of the transplants (fully fringed rate of $75 versus $45). This labor cost disparity contributed to eroding market share, overcapacity of manufacturing facilities, and the elimination of more than 100,000 UAW jobs, in addition to thousands of salaried positions. The economic landscape prompted the need for a radical change in the traditional bargaining process. The tried and true methods of the past

353 354 COLLECTIVE BARGAINING UNDER DURESS had failed, and a new approach to collective bargaining was required to support the shared goal of survival. The following is a discussion of the key elements of this new bargaining process at Ford Motor Company. From Position to Interest-Based Bargaining In the past, it was not uncommon for Ford and the UAW to engage in a position-based bargaining process, in which both sides would come to the bargaining table committed to a position and use coercive forms of power in a limited amount of discussion, thus agreeing to items that were not optimal for either party. With the changing business environment, which brought significant challenges to both parties, it was evident that Ford and the UAW would be better served by adopting a more interest- based approach to bargaining. This approach allowed the company and the union to approach bargaining priorities in more of a joint problem-solving manner, in which issues and problems could be discussed in a collaborative, open, and honest way; solutions could be constructed in the best interest of all parties; and the parties jointly owned implementation of the agreement they had reached. Using this process allowed the union to operate in a proactive manner and secure a greater voice in the business. Joint problem solving was the only way that both parties could secure the outcomes that were required to remain competitive. Transparency of Information Traditionally, the companies held confidential data close to the vest. The UAW, assuming the worst intentions, leveraged the companies to negotiate the best deal they could achieve for their members. The new strategy was to regularly share core financial and operating information with the UAW—not just when formal bargaining occurs. The sharing of key business metrics has become ingrained in the way we do business, not only with the UAW leadership but also with our employees, and it helps solidify the joint partnership. Rather than solely discussing what the company has decided to do and the impact of these decisions, our discussions now include potential alternatives and a candid discussion of options and methods to achieve mutual objectives. This approach allows the union to draw its own conclusions on the state of the business—not just take the company’s word. This strategy has changed the dynamics of the relationship. More than ever, the UAW has a greater voice in the decisions that affect the collective future of its members and the Ford Motor Company. Educating all stakeholders on the business will continue to be critical in the future. It is expected that social media will play a huge role in connecting with employees and helping to understand their needs. Finding a way to manage the impact of social MANAGEMENT PERSPECTIVE 355 media will be important for both the company and the union in order to gain successful ratification of future negotiations. Senior Executive Participation In previous years, the vast majority of the UAW’s engagement with senior company representatives was limited to Labor Affairs staff. This was particularly true during formal bargaining. In support of the new bargaining process, we engaged the company’s senior executives in sharing the intricacies of the business. Before bargaining began, we scheduled meetings with senior UAW officials and senior management, which included our chairman, CEO, CFO, and other senior executives, to share their respective bargaining interests. This had two beneficial results—better information to the union leadership and an improved relationship built on trust. While Labor Affairs managed the process and orchestrated the negotiations, engagement of the operating leadership was essential to settlement of a competitive agreement. Continuous Improvement—Living Agreement Another shift in the bargaining approach has been the frequency and timing of “re-opening” the agreement. Traditionally, contracts were negotiated a couple months before expiration of the current contract. In the past few years, it has not been uncommon for contracts to be re-opened for mid- contract bargaining. This became necessary to combat the weakening of the auto industry and to attend to the competitive challenges that threatened the viability of the industry. Re-opening contracts was done not only at the national level but also at the local plant level. Locally, management and local union leadership worked on negotiating competitive operating agreements (COAs) or modern operating agreements (MOAs) that strove to achieve business results with a focus on manufacturing best-in-class products and improving worker safety and employee morale. While the UAW understood that change was necessary and that changes were required to current contracts, they had to approach the bargaining process in a very strategic manner in an effort to maintain the hearts and minds of their union members—and ultimately win ratification.

KEY WAGE AND BENEFIT BARGAINING ISSUES Globalization and the fragile state of the U.S. economy changed the nature of bargaining. There was no longer a labor monopoly, and gone were the days when the domestic automotive oligopoly could pass along price increases to consumers that resulted from generous contract wage and benefit increases. A choice needed to be made—we could either continue to shrink our manufacturing footprint in the United States and outsource to emerging countries with competitive labor rates or we could face up to 356 COLLECTIVE BARGAINING UNDER DURESS the grim realities and address the core of our problems. Thankfully, we engaged in bargaining that addressed our lack of economic competitiveness and structured an agreement that provides an opportunity for market and job growth. The following sections provide an overview of changes that have occurred in economic bargaining. Pensions Pensions have always been an element of bargaining, and bargaining has generally focused on the amount of increase to the plan—not whether there was going to be an increase. With falling rates of return, underfunded plans, and increased regulations such as the Pension Protection Act, employers are forced to negotiate alternatives to retaining what has already been negotiated and avoid placing additional demands on the pension plan. One alternative has been a shift from defined benefit plans to defined contribution plans. Under a defined contribution plan, the employee is given the benefit directly and is responsible for investment of the funds. While this transition has focused on new employees, the real cost burden lies with the legacy employees. Efforts to buy out existing retired salaried employees from the defined benefit plan are underway. Wage Increases Historically, the outcome of wage negotiations between the UAW and the domestic manufacturers consisted of cost-plus agreements, which included general wage increases, cost of living allowances, lump sum increases, and profit sharing. Most recently, the structure of wage packages has moved away from base increases and was modified to reflect the competitive level of the market and tied to delivering the business metrics. While there still is a labor cost gap between plants owned by U.S. and non-U.S. auto companies, significant improvements have been achieved. Health Care Without question, health care costs have escalated faster than any other component of labor cost. What makes this particularly challenging is that it is the most difficult to manage. Cost shifting is simple enough, but bending the curve of health care costs and addressing the fundamentals of health care economics is a challenge for both the private and public sectors. Left unabated, health care costs will continue to become a greater portion of the total labor cost equation, leaving less room for the company and union to negotiate direct compensation provisions. Alternatively, employers and unions must identify new ways to reduce the costs of health care or be forced to shift the costs to employees (higher premiums, co-pays, and deductibles). A significant action taken by the domestic automotive industry and the UAW was to move retiree health care from a company-paid benefit MANAGEMENT PERSPECTIVE 357 to a trust fund (known as a voluntary employee beneficiary association). The UAW Retiree Medical Benefits Trust (the Trust) was launched in 2010 with a mission to provide the retiree population with coverage that preserves core benefits and assets of the Trust. The Trust is controlled and managed by the union. The ownership and interest to protect retiree health care benefits has increased awareness of the UAW about the importance of managing the escalation of health care costs and the need to implement innovative cost-management initiatives. Multi-Tier Wage Structure The concept of newly hired employees gradually growing into a matured labor rate is an element that has recently been introduced in automotive labor contracts. The use of a multi-tier wage rate helps the company achieve a competitive blended wage rate. This is particularly true where the labor rates of existing employees are substantially above the market competition. It is anticipated that the use of multi-tier labor will continue as long as there is a labor cost gap between the employer and the existing competitive labor rate. Job Security For years, the labor agreement strapped the company with guaranteed employment numbers as a penalty for outsourcing uncompetitive work. This approach essentially created an artificial jobs bank that was not sustainable. Through interest-based bargaining, the joint parties negotiated a job security program focused on investment commitments that are based on competitive labor costs, job placement, and temporary income security. There is a much better understanding and appreciation today about what constitutes real job security. The number of employees on layoff is almost zero today, and the company estimates an additional 12,000 new jobs by 2015.

CHANGES IN MANPOWER UTILIZATION To maximize the efficiency of operations, corporations implemented Frederick Taylor’s principles of scientific management (commonly referred to as Taylorism). Taylorism is a production efficiency methodology that breaks every action, job, or task into small and simple segments that can be easily analyzed and taught. The application of these principles resulted in the highly structured lines of demarcation in hourly employment job assignments. While the approach achieved high levels of output, it unfortunately limited the level of contribution the majority of employees made to the enterprise and lowered job satisfaction. As foreign competitors continued to capture market share in the United States, American manufacturers had to rethink their strategies for eliminating waste and staying viable. The move for Ford was to go from mass production to lean produc- 358 COLLECTIVE BARGAINING UNDER DURESS tion. The following sections discuss changes to manpower utilization that have been addressed at the bargaining table and that continue to evolve. Skilled Trades Lines of Demarcation As a devoted fundamentalist adheres to the literal interpretation of sacred scripture, so too does a skilled trade craftsman adhere to the precise elements within the lines of demarcation carefully transcribed in the master and local agreements. In most cases, this devotion to the craft and rigidity to past practices and contractual agreements underutilized employees and suboptimized the overall organization for the benefit of a few. Unfortunately, the waste has resulted in American jobs lost to foreign competitors. Today, we have worked with organized labor to address these inefficiencies and reduce lines of demarcation to allow employees to work up to their personal capability. Workers in the skilled trades are broadening their skills across different trades, and “non-skilled” production employees are developing the ability to complete semi-skilled assignments to improve production throughput and productivity. While some employees receive an increase to their base wage associated with the expanded role, the broadened skill set is intended to create higher levels of personal job satisfaction and greater manpower utilization for everyone. Team Leaders Taylorism adheres to the principle that management plans and supervises, while hourly employees execute the tasks prescribed by their boss. Today, we are in the process of re-engineering our organizational structure and redefining roles and responsibilities. The traditional factory line supervisors are being retrained and transformed into process coaches whose role is to build team leader and team member capabilities and coach to the operating standards. Team leaders remain as members of the union and are covered under the collective bargaining agreement. Team leaders must pass an assessment process to be selected and are trained in both technical and leadership skills. These team leaders are responsible for safety, quality, and delivery objectives through standardized work and keeping the line running safely and smoothly while producing quality parts. It would be very difficult for an outsider to distinguish team leaders from members of management.

Key to these change efforts is engagement of the entire workforce in the continuous improvement of the enterprise, including safety, quality, delivery, cost, people, maintenance, and environment. In essence, it is the culmination of what many unions originally sought to achieve—personal MANAGEMENT PERSPECTIVE 359 recognition and dignity for every employee. Given the progress made to date, knowledge-based work system initiatives are expected to expand in the future.

OUTLOOK FOR COLLECTIVE BARGAINING— THE NEXT TEN YEARS The combination of an increasing number of global competitors, new product offerings in the United States, and the stress to fund legacy obligations will ensure that there will be challenges facing collective bargaining in both the private and public sector over the next ten years. Essentially the “economic pie” has become smaller—the margin of waste has shrunk, and we are faced with making difficult decisions to maintain our private capital and public-level solvency. Since Franklin Roosevelt’s signing of the National Labor Relations Act in 1935, there has been only one significant policy change—the Taft- Hartley Act of 1947. The last contemplated change was the Employee Free Choice Act, but it was scuttled by the Obama administration when it was determined that conservative Democrats would not support the bill. Although our labor laws have changed marginally over the years, the macroeconomics of the world have changed dramatically—and will only accelerate in the future. Organizations such as the World Trade Organization, which regulates trade and tariffs worldwide, will continue to demand that nations around the world adhere to free trade policies. Thus, it is becoming more difficult for nations, industries, and unions to hide from Adam Smith’s metaphor of the invisible hand. As emerging nations around the world continue to develop the infrastructure to support global trade, Western democracies that have high labor costs will continue to be under intense pressure to compete with emerging market countries that have a significant labor cost advantage. The right strategy for high-cost industries is to collectively, with their labor unions, recognize the challenges they face and to engage in interest-based discussions on how to reduce their costs to maintain competitiveness. Enough manufacturing jobs have been lost in America by the inability of the parties to rationally negotiate competitive agreements. The benefits to society of having management and labor construct competitive labor agreements cannot be overstated, as Ford Motor Company and the UAW have demonstrated. Our states and cities desperately need these jobs to support the economic infrastructure of our communities. The multiplier effect at one Ford assembly plant job creates nine jobs in the community. As we have seen in years past, changes in the economic and political landscape will require companies, states, local municipalities, and unions 360 COLLECTIVE BARGAINING UNDER DURESS to modify their bargaining strategies. Bargaining over the next ten years will require honest and open dialogue, with the interests of key stakeholders at the forefront. Faced with reality, tough choices and interest-based problem solving will be required.

The views expressed in this chapter are the author’s and are not representative of Ford Motor Company. ABOUT THE CONTRIBUTORS

Mathias Bolton was the director of corporate affairs and research for the RWDSU Council of the United Food and Commercial Workers Union in North America. One of his primary responsibilities at the RWDSU was in the poultry sector, where he participated in organizing drives, collective bargaining, and building strategic alliances with poultry worker unions around the world in response to the rise of global protein companies. Before that, Bolton was a rank- and-file union activist for year years. He currently works for UNI Global Union in Nyon, Switzerland, and resides in Geneva. Paul F. Clark is director and professor in the School of Labor and Employment Relations at Pennsylvania State University. His research has focused on collective bargaining in the coal, steel, and health care industries; union administration, structure, and government; and union member commitment and participation. Clark is the author, editor, or co-editor of five books, including this research volume. James B. Dworkin is chancellor and professor of management at Purdue North Central. He has taught negotiations and dispute resolution and collective bargaining and labor relations courses at the undergraduate, master’s, executive master’s and Ph.D. levels. He has served as an arbitrator, mediator, and fact-finder for a variety of labor–management disputes in the public and private sectors of the economy. Dworkin has published more than 50 articles and two books in the field of industrial and labor relations. Vincent H. Eade is a professor in the William F. Harrah College of Hotel Administration at the University of Nevada, Las Vegas. He teaches and does research in the areas of human resource management, employment law, and employee–employer relations. Before joining the faculty at UNLV, Eade worked in the Las Vegas hotel/casino industry, spending the majority of his time in labor relations and personnel administration. Ann C. Frost is an associate professor of organizational behavior at the Richard Ivey School of Business, Western University. Before joining the school in 1995, Frost was a doctoral fellow at the Center for Industrial Competitiveness at the University of Massachusetts, Lowell. Frost’s research and publications have focused on the role of local unions in workplace restructuring, restructuring in the steel and health care industries, and changes in low-wage work and careers. Jody Hoffer Gittell is a professor of management at Brandeis University’s Heller School for Social Policy and Management. Her research explores how coordination by front-line workers contributes to quality and efficiency outcomes in service settings. She has developed a theory of relational coordination, propos- ing that work is most effectively coordinated through relationships of shared goals, shared knowledge, and mutual respect, and demonstrating how organizations can support relational coordination through the design of their work

361 362 COLLECTIVE BARGAINING UNDER DURESS systems. Gittell is the author or co-author of dozens of articles and chapters and several books, including The Southwest Airlines Way: Using the Power of Relationships to Achieve High Performance, and Up in the Air: How the Airlines Can Improve Performance by Engaging Their Employees. Iain Gold is the director of the International Brotherhood of Teamsters Strategic Research and Campaigns Department. He has worked in research capacities for several unions, including the United Food and Commercial Workers International Union, AFSCME, and the AFL-CIO. Gold was a LERA board member from 2009–2012 and has served in various capacities for the organization’s Washington, D.C. chapter, including president in 2003–2004. Robert Hebdon is a professor of industrial relations in the Organizational Behaviour Area of the Desautels Faculty of Management at McGill University and serves as associate dean of students. His first career, with the Ontario Public Service Employees Union Research and Collective Bargaining Department, spanned 24 years in the research and collective bargaining department. His research interests are in the areas of public sector labor relations, workplace conflict, privatization, and labor rights as human rights. Hebdon has published widely in those fields in such journals as Industrial and Labor Relations Review, Berkeley Journal of Industrial Relations, Advances in Industrial and Labor Relations, Relations Industrielles, and American Economic Review. Harry C. Katz is the Kenneth F. Kahn Dean and the Jack Sheinkman Professor of Collective Bargaining at the School of Industrial and Labor Relations, Cornell University. His research focuses on new structures for labor–management relationships. Katz is the author of several books, including Shifting Gears: Changing Labor Relations in the U.S. Automobile Industry, The Transformation of American Industrial Relations, Converging Divergences: Worldwide Changes in Employment Systems, and the widely used textbook, An Introduction to Collective Bargaining and Industrial Relations. Jeffrey H. Keefeis an associate professor in the School of Management and Labor Relations at Rutgers University. He conducts research on labor markets, human resources, and labor–management relations to inform public policy. Presently, he is analyzing state and local government public employee compensation, employment levels, and dispute resolution, particularly interest arbitration, health benefits, and pensions. He recently completed a multi-year study, funded by the Alfred P. Sloan Foundation, of changing labor, employment, and work practices in the telecommunications industry. Keefe also is a research associate at the Economic Policy Institute and former director of telecommunications policy research at EPI. John Paul MacDuffie is an associate professor of management at the Wharton School, University of Pennsylvania, and director of the International Motor Vehicle Program. His research examines the diffusion of lean, or flexible, production as an alternative to mass production; the impact of human resource systems and work organization on economic performance; and collaborative problem solving within and across firms. MacDuffie is a member of the Industry Studies ABOUT THE CONTRIBUTORS 363

Association board of directors, the Federal Reserve Bank’s Automotive Experts Group, and the World Economic Forum’s Automotive Industry Council. Marick F. Masters is currently director of Labor@Wayne at Wayne State University, where he is a professor of business and adjunct professor of political science. Labor@Wayne includes the Labor Studies Center, Douglas A. Fraser Center for Workplace Issues, the undergraduate labor studies major, and the master of arts program in employment and labor relations. His research and teaching interests are in conflict resolution, negotiations, labor–management cooperation, public sector labor–management relations, union finances, and unions in politics. Masters has published more than one hundred articles and two books: The Complete Guide to Conflict Resolution in the Workplace and Unions at the Crossroads. Martin (Marty) J. Mulloy is known as one of the leading national automotive labor experts and is the vice president, Labor Affairs, Ford Motor Company. In his role at Ford, Mulloy oversees labor policy and negotiations covering the Ford’s approximately 117,000 hourly employees around the world. He has responsibility for Ford’s collective bargaining with unions worldwide. He was chief spokesperson and led the Ford negotiating team during 2007, 2009, and 2011 contract negotiations with the United Auto Workers union. Frits K. Pil is a professor at the Katz Graduate School of Business and a research scientist at the Learning Research and Development Center at the University of Pittsburgh. His research focuses on organizational learning. His most recent studies examine the interplay between human and social capital; innovation in relation to product, process, and organizational structure; and the broader dynamics of organizational learning and value creation. Recent press cites about Pil’s work have appeared in the Wall Street Journal, Financial Times, Automotive News, Harvard Business Review, and The Economist. Richard A. Posthuma is the Ellis and Susan Mayfield Professor of Management in the College of Business Administration at the University of Texas at El Paso. He has published on many topics, including conflict management, staffing, high-performance work practices, justice, and international/cross-cultural issues. Posthuma is editor of the International Journal of Conflict Management. He also has extensive work experience in human resource management. Joseph Slater is the Eugene N. Balk Professor of Law and Values at the University of Toledo College of Law. He has published numerous books and articles on labor and employment law, especially in the area of public sector labor law. He is a member of the Labor Law Group, an invitation-only group of labor and employment law scholars, and of the Employment Policy Research Network, an invitation-only group of scholars specializing in labor and employment relations, affiliated with LERA. Among Slater’s many publications areModern Labor Law in the Public and Private Sectors: Cases and Materials, Public Sector Employment: Cases and Materials (2nd ed., with Marty Malin and Ann Hodges), and Public Workers: Government Employee Unions, the Law, and the State, 1900–62. 364 COLLECTIVE BARGAINING UNDER DURESS

Howard R. Stanger is a professor in the Department of Management at Canisius College, where he also holds an affiliated appointment in history. His published research on the printing and newspaper publishing industries covers both historical and contemporary labor relations topics. He has also authored articles on Buffalo’s Larkin Company (1875–1942) that address various aspects of the company’s employment and business history. In 2002, Stanger published a chapter on newspapers in the Industrial Relations Research Association’s Collective Bargaining in the Private Sector, and, since 2006, has co-chaired LERA’s Collective Bargaining Interest Group. Andrew von Nordenflychtis associate professor of strategy at Simon Fraser University’s Beedie School of Business. He researches governance and management of human capital–intensive firms, especially professional services and airlines. He is a co-author of Up in the Air: How the Airlines Can Improve Performance by Engaging Their Employees and has published articles in leading industrial relations and management journals, including Industrial and Labor Relations Review, Academy of Management Journal, Academy of Management Review, and Organization Science. C. Jeffrey Waddoups is a professor in the Economics Department at the University of Nevada, Las Vegas, where he teaches courses in labor economics, macroeconomics, health economics, and statistics. He has published articles on several topics in labor economics and industrial relations, including collective bargaining in the hospitality and gaming industries, the incidence and determinants of job training, the impact of responsible contracting policies on construction costs, and public subsidies to low-wage employers through uncompensated medical care costs.