Recent Union Contract Concessions

Abstract

Recent Union Contract ConcessionsSINCE 1979, union contract concessions have occurred with increasing frequency. Substantial press attention has been devoted to these concessions along with other ills plaguing organized labor such as the declining proportion of union members in the work force and political difficulties with the Reagan administration. Popular accounts of these trends often suggest that a turning point in union wage determination and industrial relations has been reached.It is clear that the current climate for large wage settlements, both union and nonunion, is unfavorable. The general economic slack since 1979 and the deceleration of price inflation that began in 1981 suggest that the rate of wage increase in the near future should be lower than in the recent past. Such behavior by itself does not represent a break from past processes of setting wages; empirical wage equations have long suggested that recession and declining price inflation would have such an effect.Although the concessions have been confined thus far to distressed industries, it might be hypothesized that they would have "spillover" effects on wages elsewhere. Such spillovers could produce short-term wage settlements below what standard wage equations would predict. Or it might even be argued that recent concessions will prove to represent fundamental changes in wage-determination processes for the longer run, particularly changes that would make wage inflation more sensitive to real business cycle conditions. In this paper I address three questions. First, is the current episode of union wage concessions unprecedented? The answer turns out to be 0007-230318210001-0165 $1.00/0 (C Brookitngs Itistitiution union sector appears to have become segmented, with dramatic concessions occurring in some industries while other wage settlements seem largely unaffected.Whether a given contract settlement is a concession is obviously subjective. It might be argued that a union that negotiates a wage increase of 7 percent when 10 percent has been expected has made a concession. The difficulty of estimating an expected wage adjustment for individual settlements, however, precludes the use of such a broad definition of concession for analytical purposes. Instead, a narrowly defined list of concessions was drawn for the period beginning in 1979 and ending in early 1982 from published sources such as Current Wage Developments.Concessions were defined as including wage cuts, wage freezes, premature renegotiations of existing contracts (the termination of an existing agreement before the official expiration date and its replacement with a new contract providing less favorable terms to workers), an easing of work-rule restrictions in a manner likely to decrease employer costs, and a miscellaneous category of other notable breaks from past practice . Forty-six such situations were identified.2 Of these, twenty-one were wage cuts and thirteen were wage freezes. In eleven cases, work rules were relaxed. At least twenty-six of the concessions involved pr...

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