For decades, executives at unionized companies have harbored the fantasy that they could dictate the wages, benefits and working conditions of their employees, just like non-union firms. What stood in their way was the unions’ ability to mount a strike that would prove more costly than paying above-market compensation. In the language of economics, the strike gave workers market power.
Now, at a hydraulics plant in Joliet, Ill., this corporate fantasy is about to become economic reality. Thanks to globalization, declining union density and years of chipping away at labor laws, Caterpillar is set to prove that even unionized companies can operate as if they have no union at all.
Steven Pearlstein is a Pulitzer Prize-winning business and economics columnist at The Washington Post.
(Scott Olson/Getty Images) - It was reported that strong demand fueled Caterpillar Inc.'s second-quarter earnings which rose 67 percent on July 25, 2012.
It’s no longer just a matter of getting unions to agree to “concessions” and “give-backs” in order to save their plants or avoid corporate bankruptcy, as happened in the steel and auto industries. As Caterpillar aims to demonstrate in Joliet, even a thriving, global powerhouse posting record profits can take a strike and impose market-level wages and benefits on its unionized workers.
It’s been three months since Local 851 of the International Association of Machinists voted overwhelming to reject Caterpillar’s “best and final” offer and go out on strike. In terms of negotiations, there really haven’t been any. From the outset, Caterpillar made it clear that there really wasn’t anything to negotiate.
In the previous six-year contract, Caterpillar won a two-tier wage structure: Existing employees would get to keep wages that average about $26, but there would be no raises and new employees would be paid wages pegged to the existing market — roughly $12 to $19, depending on the job classification. Instead of the old defined-benefit pension plan, the company would put 3 percent of each worker’s base pay into a 401(k) retirement account, and match employee contributions up to an additional 3 percent. The company would continue to pay 90 percent of the premiums for a generous health insurance plan, and profit sharing that averaged $2,300 a year.
Now, six years later, the company is offering pretty much the same — no raises of any sort for the “old” employees, whose compensation the company says is still 34 percent above the market, with pay for new employees continuing to rise only with prevailing market wages. In exchange for more flexibility in shift scheduling and elimination of certain seniority rights, the company was willing to offer a no-layoff pledge. And it demanded that workers increase the share of health premiums to roughly 20 percent, which by the end of the contract would represent an increase of roughly $3,800 if premiums continue to escalate as they have been. The company also offered a one-time $5,000 per worker signing bonus if a contract were signed without a strike.
The union counterproposal was, by historical standards, rather modest: in effect, a 1.5 percent raise each year, along with continuation of most existing seniority rights. The company rejected it out of hand.