A $1 billion annual savings for the nation's railroad industry.

That's the price tag placed last week on efforts by railroad corporations to eliminate some of the oldest work rules existing in American industry. As major labor negotiations are about to begin on new contracts, rail executives say they are serious about reaching a major breakthrough and are prepared to take a strike, if necessary.

That raises the possibility of another confrontation over so-called union featherbedding, an issue which dominated labor-management relations in the industry throughout the 1960s. It was resolved only in 1972, when rail firms powered by diesel and electric locomotives finally were able to drop steam engine-era firemen from freight train crews.

Since then, rail labor and management have been emphasizing a cooperative effort to restore the industry to better health. They've also been trying to create a better image in the wake of declining shares of the intercity freight business and bankruptcy for major railroads in the Northeast states.

Charles J. Chamberlain, chairman of the Railway Labor Executives Association and president of the Brotherhood of Railroad Signalmen, last week expressed the general uneasiness of labor officials as they prepare for the opening session of hard bargaining on July 7 in Chicago.

"Labor is concerned that the negotiations" may not be subject to conclusion at the bargaining table, "on a peaceful basis, as have the last three agreements." In effect, he was implying that an impasse could develop that will force the creation of outside government panels to look into the issues, as happened in the controversy over firemen.

"We've gone so far, with labor working with management side by side. I hate like the dickens to see us put back in an adversary role," Chamberlain added.

But George S. Paul, executive vice president of the Southern Railway, said last week that, "I am prepared to go to the mat. I can't sit still any more." If an agreement cannot be reached at the bargaining table, Paul conceded, "it will hurt us," in terms of a bad public image about railroad problems.

However, he added, "Here we have a situation where it seems clearly in our mutual interest to reach an agreement fair to us both. Because our adversary stance is becoming increasingly dangerous for us. If we continue to stand toe-to-toe instead of shoulder-to-shoulder, events may just bury us in that same pugnacious attitude."

Association of American Railroads president William H.

Dempsey, who revealed last week the estimate of payroll savings to an industry conference on Kiawah Island, south of Charleston, said the work rules at issue are "mired in the last century."

In essence, what the rail industry is seeking is more control over its labor force. Changes have been proposed in three key areas:

Crew size. United Transportaion Union rules now require nearly every freight train to have two brakemen and a conductor, in addition to the engineer. Rail firms say a crew of three, plus an engineer, are not needed on modern railroads. The additional payroll costs make rail service less competitive with trucks and inland waterway barges, management argues.

What the industry is seeking is the right to assign specific numbers of crew members to each train, based on specific circumstances. In addition, management argues that the current system locks workers into jobs where they cannot realize their full potential.

Basis of Pay. Unlike most Americans, rail workers on freight trains are not paid on the basis of hours they work. Under a system that dates back to the early 1800s, the freight crews are paid on the basis of time and milegae. Eight hours equals one day's pay, but 100 miles traveled also equals a day's pay. Since a modern train covers 100 miles in a few hours, employees often are paid two or three days of pay for eight hours of work.

This system was designed orginally as an incentive to workers, in an era of steam locomotion. Trains had to stop often to serve the engines and 100 miles was about the limit for an eight-hour day. For workers who brought in their trains early, the free time they gained was a bonus and the rail firms benefited from better service under the incentive plan.

Road and Yard Service. Under current rules, freight train crews are barred from doing most switching and yard work. Rail management says this is wasteful, because it prevents qualified persons from doing work they are able to perform. The industry wants train crews to perform some of the yard work where management finds that operations would become more efficient.

According to the National Railway Labor Conference, which represents the industry in the bargaining talks, "These three proposals represent decades of frustation for the railroads,"

Paul, who said last week that Southern would save $50 million a year once work rules are revised, said the current work rules create a critical situation. If the railroads are not permitted to become more competitive, profits will remain relatively depressed.

"We know about competing with trucks. They're labor intensive, just as we are, but not very capital intensive. With a right-of-way largely provided by government, they've been able to skim off a lot of the high-value business in transportation," Paul noted.

In possible competition with coal slurry pipelines, Paul noted, the railroads also would suffer because the pipelines are costly to build, but require few workers.

The problem railroads face is that they are both labor-intensive and capital-intensive. Management believes the key to survival is higher worker productivity.

Union leaders have declined to discuss the proposed work rule changes, but they are certain to express opposition. The UTU, for example, always has contended that crew issues are not national problems subject to overall negotiations for the industry.

In general, the rail unions are concentrating their efforts on higher wages and some work rule changes of their own.

The UTU, which represents 185,000 brakemen, conductors and engineers, led off the union proposals by seeking three-year contracts to start next Jan. 1, with three pay raises of 15 per cent a year in addition to cost-of-living adjustments. Twenty other rail unions are asking for the same 45 per cent hike, which management estimates could add up to 75 per cent increases once additional benefits and work rule changes are added to wages.

Al H. Chesser, president of the UTU, has proposed continuation of cost-of-living boosts but without a ceiling on the amount, with rail workers gaining an additional cent per hour for every increase of three-tenths of a point in the consumer price index.

In addition, the UTU has asked the railroads to provide lodging and transportation to replace allowances now granted for workers away from their homes, an increase in meal allowances to $5 from $2, an eleventh paid holiday each year with the addition of the Friday after Thanksgiving, six weeks of vacation after 25 years, and giving UTU members the right to be selected as future engineers.

Rail management executives contend this package would cripple the industry, result in inflation for the whole economy, higher freight rates and fewer rail industry jobs.

According to government statistics, rail workers already are the highest paid among any industry. The average rail worker earned $19,246 in 1975, the last year for which such data has been compiled by the Commerce Department, compared with an all-industry average of $12,541 and $17,505 in mining, $17,329 in communications, and $6,648 for agriculture, forestry and fisheries, lowest of 12 industry groups.

The current industry contract is estimated by management executives to have cost about 42 per cent in terms of higher labor costs over the three years ending next Jan. 1. That contract included four wage hikes totaling 22 per cent, the last of which (4 per cent) takes effect July 1.

Industry statistics show that average rail workers' hourly wages have increased 3.1 per cent more than the consumer price index and 1.4 per cent more than wage hikes for industry generally, indicating that inflation has had less of an impact on the industry's employees than national averages.

Paul said last week that his industry has been able to make advances in productivity, but he argued that they were purchased by management "at tremendous cost." New Techonology were borne only by the companies, he argued.

Fred Kroll, president of the Brotherhood of Railway and Airline Clerks, said last week that neither labor nor management "could bury its head in the sand," if a long-awaited revival of railroad transportation in an energy-conscious era is to transpire.

He called on the companies to keep labor abrest of technological change, but said labor expects a "fair share" of the profits from improved productivity and will seek lifetime job guarantees.

Railroad workers, said Dempsey, are "unusually loyal" to their companies. And every other major industry has similar problems with developing more productivity and keeping labor costs under control, he added.

What management apparently seeks is to convince the workers that their loyalty to rail companies should be expressed in a willingness to bargain away some old and costly work rules in order to assure not only their jobs but additional employment to other Americans in the future.