Advances in Industrial and Labor Relations, Vol. 12

LIST OF CONTRIBUTORS Frank Borgers

Labor Relations and Research Center, University of Massachusetts – Amherst, USA

Kirsten Daniel

College of Business Administration, Loyola University – New Orleans, USA

Bruce E. Kaufman

Department of Economic and Beebe Institute, Georgia State University, Atlanta, USA

David Lewin

Anderson Graduate School of Management, University of California at Los Angeles (UCLA), USA

John Pencavel

Department of Economics, Stanford University, USA

Kathleen L. Pereles

College of Business, Rowan University, USA

Jonathan Rees

Department of History, University of Southern Colorado, USA

Saul A. Rubenstein

Institute of Management and Labor Relations, Rutgers University, USA

W. S. Siebert

Department of Commerce, University of Birmingham, U.K.

Roland Zullo

Institute of Labor and Industrial Relations, University of Michigan, USA

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INTRODUCTION David Lewin and Bruce E. Kaufman Volume 12 of Advances in Industrial and Labor Relations (AILR) contains eight papers that deal with contemporary and historical aspects of unionism and other forms of union representation, union-management relations, union political activity, labor market regulation, and interpretations of selected leading labor scholars’ writings about the evolution of welfare capitalism in the U.S. Four of these papers, by Daniel & Siebert, Borgers, Rubinstein, and Pereles, were winners of the 2002 AILR/Industrial Relations Research Association (IRRA) “best papers” competition.1 In the volume’s first paper, John Pencavel questions the long-standing disapproval of company unions voiced by labor scholars from various disciplines as well as Supreme Court justices. Pencavel focuses his attention on the relationships between company unionism and two measures of working conditions, namely, wages and work hours. Using merged data sources from the 1930s, Pencavel finds a significant positive association between company unionism and wages, but not between company unionism and work hours. He then offers three formal models of wages and company unionism to explain his findings, one of which emphasizes the employer’s interest in deterring independent trade unionism and two of which emphasize employer objectives of reducing turnover, fostering worker loyalty, and enhancing work performance. Pencavel concludes that these multiple perspectives on the historical positive association between company unionism and wages should lead to a more subtle view than “that a collective organization of workers is of value if and only if it operates and is financed entirely independently of the employer.” In this volume’s second paper, Kirsten Daniel and W. S. Siebert test the hypothesis that labor market regulation makes firms more cautious in their hiring

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decisions, thereby resulting in increased hiring standards. Daniel & Siebert measure labor market regulation by an employment protection index and by work force average tenure, which is a proxy for insider power. For their empirical work, these authors use a novel five country, four industry, 11 manufacturing plant sample from which they obtained detailed hiring and other personnel data over a 20-year period (from the mid-1970s to the mid-1990s). Overall, they find that labor market regulation does indeed increase employer hiring standards; however, while the employment protection index is associated with increasing age and experience requirements, insider power is associated with increasing educational requirements but decreasing age requirements. Independently, union density, which can also be considered an indicator of regulatory pressure, is shown by Daniel & Siebert to be associated with increasing experience and age requirements. Finally, this analysis finds a strong substitutability between education and experience, from which the authors conclude, “policies to increase education and training significantly improve job opportunities for unskilled workers in any case.” In this volume’s third paper, Frank Borgers provides a detailed analysis of collective bargaining between General Electric (GE) and the Coordinated Bargaining Committee (CBC) during the last third of the 20th century. The bulk of Borgers’ analysis deals with GE’s aggressive, multi-faceted approach to globalization, especially during the 1980s and 1990s when Jack Welch served as the company’s CEO, and with the CBC’s efforts to both participate in and contain GE’s global business initiatives at diversification, decentralization and rapid expansion of international supply chains. Borgers also examines the decline of unionism in three of the company’s historically highly unionized manufacturing divisions – GE Aircraft Engines, GE Power Systems, and GE Appliances. From these analyses, Borgers concludes that the CBC has largely failed to counteract GE’s aggressive globalization initiatives. Consequently, he recommends that the CBC borrow from GE by pursuing a networked, international campaign supporting expanded labor rights and overseas union organizing drives focusing, in particular, on GE Appliances. More broadly, however, and as Borgers also notes, the pursuit of networked social movement unionism will require a transformation that runs “strongly against the grain of historic and contemporary union practice in the U.S.” In this volume’s fourth paper, Saul Rubinstein presents findings from a survey and interview-based study of Cooperative Partnership Agreements (CPAs) that were adopted in 24 steel manufacturing plants during the early 1990s to reorganize traditional work systems and transform labor relations. Although the bulk of these agreements called for extensive business information sharing with the union, training in CPA implementation, and establishment of joint

Introduction

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strategy committees and leadership committees, local union leaders did not rate the overall results of the CPAs as positive. Decomposing the sample into equal groups of successful (or “high CPA”) and unsuccessful (or “low CPA”) plants, Rubinstein found that actual implementation of key CPA components was significantly greater in the former than in the latter. Subsequent multivariate analysis showed that mid-level department structures, training resources and management involvement were significantly associated with successful CPAs, while both quantitative and qualitative analyses showed managerial resistance to be the strongest barrier to successful CPAs. Rubinstein offers several specific recommendations for enhancing CPA success, and concludes that steel industry experiences with CPAs as well as predecessor participatory initiatives are “instructive for other unions and managers struggling with the challenges of . . . an increasingly competitive global economy.” In this volume’s fifth paper, Kathleen Pereles analyzes union commitment among three categories of temporarily employed (that is, adjunct or contingent) faculty of an urban community college located in the Northeastern region of the U.S. Based on prior conceptual and empirical research into union commitment, Pereles proposes that traditional (that is, permanent) faculty will have higher levels of union loyalty as well as responsibility to the union and willingness to work for the union than contingent faculty. Principal components analysis of the survey data collected by Pereles from this college’s faculty (n = 283) confirmed the conceptual distinctiveness, validity and reliability of these union commitment dimensions and, in addition, a new dimension, namely, alienation from the union. Empirically, however, Pereles finds no significant differences in commitment to the union between the traditional and contingent faculty she studied. Consequently, Pereles offers several explanations for these “non-significant” differences, affirms the validity and reliability of the Gordon et al. scale for measuring union commitment,2 and concludes that her research findings “have provided knowledge which unions can use to respond to the increasing use of contingent workers.” In this volume’s sixth paper, Roland Zullo assesses the effects of union political outreach on the perceptions and behavior of members of a Milwaukee, Wisconsin-based local union. Grounding his analysis in political psychology, Zullo uses detailed records of the Milwaukee County Labor Council (MCLC), a quasi-experimental manipulation of workplace mobilization across work units (that is, grocery stores), and a panel survey of local union members to test for the effects of union political outreach on union member political attitudes and behavior. All three outreach methods – telephone calls, direct mail and workplace-level education – were associated with increased union member recognition of the labor-endorsed candidate; only workplace level education was associated with

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increased union member preference for the labor-endorsed candidate; and only telephone calls were associated with increased union member voting. More broadly, according to Zullo, union members do not respond positively to direct mail contact, and workplace-level outreach is most likely to influence workers’ political behavior. A major implication of Zullo’s research is that effective union political action requires a decentralized approach and delegation of authority to the local level. As Zullo concludes, however, “numerous organizational issues deter the transition to a decentralized model.” In this volume’s seventh paper, Jonathan Rees critically analyzes the writings of “old” and “new” labor historians John Fitch and David Brody, in particular, these authors’ studies of unionism and labor-management relations in the U.S. steel industry during roughly the first quarter of the 20th century.3 The most striking contrast between these two authors, says Rees, lies in their treatment of management. The new labor historians, taking their inspiration from Brody, have argued that the “old” labor history was deficient because it unduly focused on unions, neglecting other important factors such as workers’ culture and class. Rees argues, however, that re-examination of the work of writers of the old labor history, such as Fitch, reveals that they in fact included a significant discussion of culture, class and the community social/political environment within which employer-employee relations take place. Further, says Rees, the new labor historians, such as Brody, incorporate culture and class into their analyses of the workers’ side but not the management side of labor history. Instead, they offer a (largely) uni-dimensional portrayal of management as motivated only by an economic concern with profit maximization. Because most labor historians are far closer to Brody than to Fitch in their analytical focus, Rees concludes by recommending a more generalized multi-cultural approach to labor history in which “both labor and management should be considered together in order to understand the development of American capitalism.” Early 20th century welfare capitalism is also the subject of this volume’s eighth and final paper, by AILR Co-Editor Bruce Kaufman. The bulk of this paper actually consists of selected course lectures presented in 1932 to Harvard Business School students by eminent industrial relations scholar Sumner Slichter. Kaufman only recently discovered these previously unknown and thus un-cited notes, and re-produces them here for the value they add to the historical record about welfare capitalism in the U.S. These particular lectures reflect Slichter’s views on and interpretations of personnel management and employee representation, two of the four key welfare capitalism-type practices that developed between the beginning of World War I and the onset of the Great Depression.4 While Slichter is critical of certain rationales for and certain methods of implementing these practices, readers will note that he is also positively disposed toward both sets

Introduction

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of practices generally and, in particular, toward the efforts of many employers to continue these practices even in the face of declining economic conditions. Therefore, and as Kaufman concludes from Slichter’s lecture notes, “The record of Welfare Capitalism thus has to be judged as mixed on its own terms, but clearly far superior to the [traditional] employment model it replaced.” The aforementioned papers deal with heretofore overlooked and underresearched aspects of industrial relations, offer diverse and often novel research designs, and provide new evidence on and answers to key questions about employee representation, labor market regulation, union political activity, labor-management adversarialism and cooperation, and welfare capitalism. It is a pleasure to be able to include these deeply analytical, high quality papers in Volume 12 of Advances in Industrial and Labor Relations.

NOTES 1. Shorter versions of these papers were presented at the national IRRA meeting, Atlanta, GA, January 5, 2002. 2. See Gordon, M. E., Philpot, J. W., Burt, R. E., Thompson, C. A., & Spiller, W. E. (1980). Commitment to the union: Development of a measure and an examination of its correlates. Journal of Applied Psychology, 65, 479–499. 3. See Fitch, J. A. (1989). The steel workers. Pittsburgh, PA: University of Pittsburgh Press (originally published 1910); Brody, D. (1989). Steelworkers in America: The non-union era. Champaign, IL: University of Illinois Press (originally published 1960). 4. The two other key practices, according to Kaufman, were human relations (that is, foremen training in handling employees) and employee welfare benefits. For some of Slichter’s published views on these practices, see Slichter, S. (1929). The current labor policies of American industries. Quarterly Journal of Economics, 43, 393–445.

COMPANY UNIONS, WAGES, AND WORK HOURS John Pencavel 1. INTRODUCTION The topic of company unions – employee associations sponsored and organized by management – has generated strong feelings. For many years, conventional labor unions have been vehemently opposed to worker representation through company unions.1 Conventional labor unions have viewed company unions as devices by management to forestall or thwart independent unionism (i.e. unions organized by workers).2 According to this interpretation, a company union would give the appearance of providing employees with representation and induce workers to temper their demands for genuine collective bargaining. Thus, at their Annual Convention of 1919, the American Federation of Labor described company unions as “. . . a delusion and a snare, set up by the companies for the express purpose of deluding the workers into the belief that they have some protection and thus have no need for trade union organization: therefore be it Resolved, That we disapprove and condemn all such company unions and advise our membership to have nothing to do with them . . .” (Quoted in Douglas, 1919, p. 103). Some labor historians share this view. Irving Bernstein (1960, p. 187), for instance, viewed “avoidance of trade unionism” as the central purpose of company unions and of other forms of welfare capitalism. A similar disapproving stance was adopted by the Supreme Court in 1937 when it interpreted the National Labor Relations Act as outlawing such unions. Today employee involvement programs operate in non-union companies, but by law they must

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avoid issues that are conventionally treated within the province of collective bargaining. There is little doubt that instances can be found to justify the view sketched in the previous paragraphs. After the First World War, when there was a growth in company unionism (or in shop committees as they were then called), Paul Douglas determined, “There can be but little doubt that the recent enthusiasm for shop committees on the part of employers has been due to their belief that here was a ready substitute for the union” (1921, p. 91). However, there are also cases in which employers sought both to improve the efficiency of their organizations and, at the same time, to allow employees to help shape their working environment. Union avoidance was one of several motives for the establishment of a company union. More recent treatments of the company union movement emphasize the diversity of experiences. For instance, the recent volume by Kaufman and Gottlieb Taras (2000) presents a much more complex perspective on company unions, one that identifies a variety of motives and contexts.3 Where current research is deficient is in not providing some quantitative estimate of the association between working conditions and company unionism – and, indeed, whether, in general, company unionism is associated with better working conditions. This paper provides some relevant information on this by examining two important indicators of working conditions – hourly earnings and work hours. It is often asserted that company unionism had no impact on wages.4 By merging data from two different sources on industries in the mid-1930s, I report the association between company unionism, on the one hand, and wages and work hours, on the other hand. A meaningful correlation is measured between wages and company unionism, but not between work hours and company unionism. This prompts the question of why an association exists between company unionism and wages. Three formal models of wages and company unionism are sketched and these help to provide further conjectures about the sort of variables that account for the incidence of company unionism. Apart from the importance of ensuring an accurate understanding of the past for its own sake, an interest in company unionism arises from current proposals to amend U.S. labor law to allow employers a greater role in shaping their own employee representative organizations. Some of these proposals are modest and suggest merely that the law not frustrate employee participation programs in non-union workplaces. This was advocated, for instance, by the Commission on the Future of Worker-Management Relations (the so-called Dunlop Commission) in 1994.5 More radical proposals call for comprehensive removal of the ban on company unions.6 Even though company unions today would not be simple replicas of those in the past, an informed assessment of contemporary proposals would benefit from a good understanding of company unionism in the past.

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Moreover, although unabashed company unions are supposed to be outlawed today in the United States, there exists a wide variety of employee involvement programs, work teams, quality circles, and workplace safety committees that employers have fashioned to increase their employees’ sense of dedication to the firm and workplace. Lipset and Meltz (2000) estimate from their telephone survey in mid-1996 that about one-fifth of non-union employees in the United States are working in companies with some sort of formal employee representation system. From their survey conducted in 1994, Freeman and Rogers (1999) report that 60% of workers say their firm had employee involvement committees that dealt with both short-term and long-term workplace issues. It is likely that some of these are flouting the law as 28% of participants reported discussions in these committees embraced matters relating to wages and benefits. What is missing from this survey research is an estimate of the magnitude of any link between wages and hours, on the one hand, and employer-initiated employee representation programs, on the other hand. There are some valuable case studies,7 but no general estimate of the degree to which, if at all, company unionism was associated with higher wages and lower work hours. The principal purpose of this paper is to provide such an estimate. Before offering evidence on company unionism and working conditions, the broad features of the evolution of company unionism in the United States are outlined.

2. EVOLUTION OF COMPANY UNIONS 2.1. To the End of the First World War Company unions were rare before the First World War. Perhaps the best known were the Cooperative Association at the Filene store in Boston and the “Rockefeller industrial representation plan” in the coal mines and steel works of the Colorado Fuel & Iron Company. These types of plans were responses to special circumstances (for instance, in the case of the Colorado Fuel & Iron Company, the violent coal miners’ strike in Colorado in 1913–1914) and it was not until the First World War that general economic and social conditions provided the context for a substantial increase in employee representation schemes. The War in Europe reduced the supply of labor in U.S. labor markets first because of the reduced immigration to the U.S. and, later, because of the introduction of the military draft. At the same time, the War promoted production activity which induced a sharply increased demand for labor. Labor’s bargaining power waxed. Conventional trade unionism grew, often accompanied by disruptive strikes. Worried that the War effort would be compromised by labor

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strife, the Federal government established various agencies composed principally of representatives from employers and the union movement.8 These agencies assumed the task of arbitrating disputes and they championed “works councils” or “shop committees” to provide workers with a mechanism within the workplace to express their concerns. Many of the settlements proposed by the government agencies specified the permanent establishment of such shop committees. The agencies oversaw the elections determining the employees’ representatives on the shop committees and they helped specify the set of agenda for the shop committees. Typically, the committees could not determine who was to be hired or fired, but many committees were granted authority to discuss wages and virtually all of them were given authority to examine working conditions and to deal with individual grievances over treatment.9 The disputes resolved by the government agencies typically “mandated” the establishment of shop committees, but many firms outside the reach of the Boards voluntarily launched such committees.10 These firms included some of the most conspicuous employers of the day such as Procter and Gamble, Standard Oil of Indiana, International Harvester, Goodyear Tire & Rubber Company, and Bethlehem Steel. The structure of the committees was similar to those authorized by the Boards. They were establishment-specific councils consisting of representatives of employees and representatives of management charged with resolving frictions within the workplace. Most employers “. . . discovered this type of workers’ representation more or less helpful in improving the morale and efficiency of their labor force” (BLS, 1937, p. 17). In some instances, the shop committees came under the direct influence of the existing unions. However, where unions were not already established, the shop committees tended to be welcomed both by employers and by the union organizers: employers often viewed the committees as a device to keep formal unionism at bay while union organizers hoped the committees were steps toward the organization of the workers into independent unionism.11

2.2. Company Unions in the 1920s The end of the War and the drastic shift in industrial production out of War-related output caused considerable reallocation of employment. Many of the shop committees established by the Labor Boards folded as they had been instituted in firms producing material for the War effort and many of these firms sharply reduced their production or completely closed. However, many other firms introduced shop committees so that, according to surveys undertaken by the National

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Industrial Conference Board, the number of committees rose from 196 in 1919 to 725 in 1922 and to 814 in 1924 (National Industrial Conference Board, 1925, p. 5). Unlike the War years, this was a time of shrinking unionism, not expanding unionism. To a large extent, independent unionism and company unionism were not engaged in public battles for the right to represent workers, but they formed noncompeting groups.12 Many independent unions sought industry-wide collective bargaining in competitive industries (such as apparels and coal mining) whereas company unions tended to arise in large firms operating in oligopolistic product markets. Many company unions surfaced in some of the leading firms of the time (Du Pont, Standard Oil of New Jersey, and Leeds & Northrup) that had little prior experience of independent union activity. The commentaries of the time indicate that the establishment of shop committees was viewed by employers less as a defensive tactic to ward off antagonistic unions, but as a mechanism to enhance workers’ morale and to promote efficiency in the workplace. After surveying “practically all Works Councils known to have been organized up to February 1922,” the National Industrial Conference Board reported: In nearly every case . . . the opinions of executives and workers have coincided regarding the effect of the installation of Works Councils on the relations existing in industrial plants between managements and their employees. Viewed from either angle experience has proved the organization to be an eminently satisfactory means of disposing of those difficulties which so often arise because of misunderstanding on the part of either party of the other’s point of view. Prior to the development of employee representation, the lack of any machinery for explaining contemplated changes which, through ignorance of their necessity, were often stubbornly fought by the employees, created and maintained a reciprocal attitude of antagonism, suspicion, and distrust, often developing into strikes. The fact also that the foremen’s decisions in all cases of employees’ grievances were final, admitting of no appeal to a higher authority, was productive of additional discontent. According to the reports of many company officials and employees, the unsatisfactory relations due to the foregoing conditions have been greatly improved by Works Councils (National Industrial Conference Board, 1922, p. 102).

The company unions at Bell Telephone provide an interesting case study. The first were established in June 1919 when strikes and the threat of strikes induced management to launch some countervailing moves. Management informed supervisors of a new policy to “encourage your employees to form associations which shall appoint representatives to discuss freely and frankly with the officials of the company questions affecting their wages and work.”13 The scheme was clearly an anti-union device evident by the fact that the first associations within the Bell company were established where union activity had already been manifested. Many of the meetings dealt with trivial subjects and were often dominated by the representatives of management. However, there were some virtues, too.

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JOHN PENCAVEL The associations also held genuine attractions for workers. In the absence of trade unions, they were the sole means by which workers could seek policy information from responsible management, discuss their working conditions on a regular basis, or compare their conditions with those of fellow employees from distant work locations . . .. They offered workers a means of collective expression, usually on minor matters, but sometimes on major ones. By using the associations in these various ways, Bell workers helped break down the obstacles to eventual unionization (Schacht, 1975, p. 22).

The employee representation plans in the 1920s were of many different types. One was called at the time the “Industrial Democracy” type in that the form of the U.S. governmental system was replicated within the firm so that there might be a Senate and a House of Representatives as well as a Cabinet. However, the two most common forms were the joint representation type whereby representatives of both employees and management sat on the committee (usually in equal proportions) and the employee committee type which represented the workers alone. The employee committee would discuss issues brought to it by employees and management and votes on the committee would be directed to management in the form of recommendations. Typically management officials would attend the meetings of the employee committee and provide information and listen to the discussion. The common feature of these employee representation schemes was the notion that more efficient production required the joint regulation of the workplace by employees and management and that the involvement of employees was best effected through a system of employee representation in committees or councils. The shop committees were one important element in a general portfolio of policies aimed at developing good will and cooperation among employees. “By the mid-1920s the company union had become a hallmark of advanced personnel management” (Nelson, 1982, p. 357). One aspect of the personnel management policies accompanying the establishment of a typical company union that was especially attractive to employees was the limitation placed on the discretionary authority of the foreman. In many plants, the foreman was granted considerable latitude in determining work allocations and rewards and there was little or no recourse to the worker who felt unfairly treated by the foreman’s decisions. Many company unions changed this situation by allowing an aggrieved employee an opportunity to appeal a foreman’s decision to the employee representative and to discuss it further at a joint council meeting. The company union was much more likely in large establishments than in firms employing a small number of workers. (Evidence on this is offered below.) Whereas the earlier years in the twentieth century were characterized by policies of “scientific management” that emphasized the mechanical aspects of work, the policies of the 1920s stressed “personnel management” to gain

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workers’ trust, loyalty, and cooperation. These policies included stock purchasing or profit-sharing schemes, pension and insurance plans, credit facilities, and home-buying and savings plans. Though they tended to see company unions as principally consultative bodies that did not materially compromise the authority of management, the leading employers’ associations of the day – the National Association of Manufacturers, the National Industrial Conference Board, the American Management Association – were not antagonistic toward such bodies and, on occasions, encouraged their members to adopt and maintain some sort of employee representation plan. As the decade of the 1920s closed, “. . . employee representation was strongly established” (National Industrial Conference Board, 1933, p. 14). It needs emphasizing that the degree of independent authority exercised by company unions varied considerably. Management at some companies controlled the agenda of the committee meetings or used the unions as a device to identify and weed out malcontents. Grievance procedures rarely permitted ultimate resort to an outside, independent, arbitrator. However, there were also “progressive” companies that took employee representation seriously and were willing to grant company unions considerable independence over grievances and over more general worker-related issues. Slichter (1929) reports a number of examples where shop committees had sufficient clout to rule in favor of employees in grievance cases: for example, at the Bethlehem Steel Corporation in the 1920s, out of 2,316 grievance cases handled by the shop committees, over two-thirds of them (namely, 1,682) were settled in favor of the employee.

2.3. The Contraction of the Early 1930s The onset of the Depression had a mixed impact on company unions. To some employers, company unions were something of a luxury in the context of the prevailing harsh business climate and they were abandoned. In other cases, though not abandoned, their activity or their subsidy from the firm was sharply reduced. But to yet other employers, the company union was a useful mechanism to facilitate the employment, hours, and wage reductions required of firms in Depression conditions. In these instances, company unions were often used to explain to the workers the new business conditions and to secure their cooperation in responding to the situation. By 1932, for every five workers in independent trade unions, another two workers were covered by company unionism. Unlike labor union membership, as a fraction of non-agricultural employment, the number of workers covered by company unions grew monotonically from the First World War to 1932. (See line 5 of Table 1.)

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Table 1. The Extent of Company Unions and Trade Unions, 1919–1932. 1919 1. Number of companies with company unions 2. Number of company unions 3. Thousands of workers covered by company unions 4. Thousands of trade union members 5. Workers covered by company unions as a percent of total nonagricultural employees

1922

1924

1926

1928

1932

145

385

421

432

399

313

196

725

814

913

869

767

403.8

690.0

1,240.7

1,369.1

1,547.8

1,263.2

4,125.2

4,027.4

3,536.1

3,502.4

3,479.8

3,144.3

1.6

2.7

4.4

4.6

5.2

5.3

Note: Lines 1, 2, and 3 are taken from National Industrial Conference Board (1933), Table 1, p. 16. Line 4 is taken from Leo Troy (1965), Table 1.

The National Industrial Recovery Act (NIRA) of June 1933 changed the environment for company unions drastically. After the wage reductions of 1931–1932, the mind set became one of devising procedures for preventing further falls in wages and collective bargaining constituted a principal procedure. Many employers saw company unions as a mechanism to comply with the new regulations or as a device to evade the new regulations.14 Analogous to the Labor Boards of the First World War, new government Boards were established to address the problems arising from the great increase in strike activity, to supervise representation elections, and to investigate complaints of arbitrary treatment of union organizers by management. Firms had to develop policies to respond to the new environment and address what they hoped was a temporary challenge to their authority. Company unions were a part of that ensemble of policies. Personnel departments and foreman training programs were other elements.15 The Federal Labor Boards supervised a number of elections where workers were given a choice among trade union representation, company union representation, and no representation at all. Between August 1933 and September 1935, of the one-quarter of a million votes cast, about two-thirds in these elections were in favor of trade unions, almost 30% were for company unions, and the remaining 3% were for no representation at all or for some unconventional arrangement.16 Clearly, when given the opportunity in a secret ballot to express their preferences, these employees usually opted for trade unionism as their form of representation. However, elections tended to be held when the unions themselves petitioned

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the Boards and when they expected to win them so the elections do not cover a random subset of the workforce. Even in these non-random situations, a sizeable minority of employees chose the company union as their form of representation. By 1935, the Twentieth Century Fund estimated that about two-and-a-half million workers were represented by company unions and the coverage of such unions was about 60% of the coverage achieved by independent trade unions at that time. (See Millis & Montgomery, 1945, p. 841.)

2.4. Company Unions under the NLRA In May 1935, the Supreme Court declared the NIRA unconstitutional. The response of the administration and Congress was the more sweeping National Labor Relations Act of 1935 which imposed clear constraints on company unions. They were not banned, but in Section 8 (2) of the Act it became an “unfair labor practice” for an employer “to dominate and interfere with the formation or administration of any labor organization (including company unions) or to contribute financial or other support to it.” Though the new law came into effect in 1935, many employers (often on the advice of their lawyers) disregarded its provisions until the constitutionality of the Act was upheld by the Supreme Court in April 1937. Bell Telephone’s posture toward its company unions was typical. After the 1935 Wagner Act, little was done at Bell about the form of its company unions until the Spring of 1937 when the Act was upheld. Then the company proceeded to abandon formal ties to (including financial support of) its associations, to urge the associations to recast themselves, and then to sign formal agreements with them. Out of these local company unions at Bell Telephone, the National Federation of Telephone Workers was formed in 1939. The workers at Bell were organized not through the efforts of outside unions, but through the conversion of the company unions into an association that was independent of the company. The new National Relations Board dealt with a number of company union cases and it was distinctly unsympathetic to them.17 The Board determined that, among others, the following activities involved management in excessive interference in a union and contravened Section 8 (2) of the Act: active solicitation by supervisory officials on behalf of an employee organization; the denigration by supervisors of an organization attempting to recruit members from the company union; the association of any employee benefits (such as insurance plans) with membership in the company union; and lending money to employees to enable them to pay the membership fee in a company union.

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In representation elections that involved the company union, the Board frequently upheld charges that the company violated Section 8 (2) of the Act and, as penalty, ordered the disestablishment of the company union. Company unions were much less often involved in representation elections after 1935 and especially after April 1937 when the constitutionality of the Act was upheld. When the company unions did compete in representation elections, their rate of success in the period from 1935 to 1941 was just below 10%, much lower than in the years 1933–1935. Those company unions that did survive were obliged to adopt an organizational structure that made them less creatures of the employer and more the agent of the employees. The new legal strictures against company unions caused the growth of so-called “independent unions” which sometimes were mere fronts for the old company unions. However, they had to adopt a form that made them compatible with Section 8 (2) of the Wagner Act.18

3. COMPANY UNIONS IN 1935 We have a good deal of information on company unions as they operated just prior to the NLRA from the survey conducted by the Bureau of Labor Statistics in April 1935. The BLS surveyed about 43,000 establishments. Almost two-thirds of the company unions at that time had been formed since the NIRA. The survey collected information about the incidence of company unionism as well as information about how the company unions operated.

3.1. The Activities of the Company Unions The typical company union in 1935 required no dues from its members. Because it was extremely rare for a company union to strike, there was no need for a strike fund. Where dues payments were required, usually membership in the company union was voluntary and, in these instances, some form of participatory insurance or loan benefits was available. Dues-paying company unions tended to be formed after the NIRA in June 1933. In roughly half of the company unions, membership was an automatic consequence of employment. Usually, employee representatives of the company union met each month to discuss issues brought to their attention. In most company unions, the representatives were compensated by the employer for their time while attending to company union activities. General membership meetings were specified in about half of the company unions surveyed. The issues discussed by the company unions with management were broadly similar to those discussed by independent trade unions with their management:

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individual grievances, wages, work hours, discharges, seniority systems, and health and safety issues. A minority of company unions surveyed had written agreements with their employer. The form of these agreements resembled those signed by independent trade unions. Nearly one-half of the workers were in company unions where arbitration was permitted in the event of a disagreement between management and employee representatives. Often both sides had to agree to such arbitration and it seemed as if the arbitration provision was rarely invoked. Almost one-quarter of the company unions had regular contacts with company unions in other plants of the same company. On the basis of their findings, the BLS survey grouped company unions into three general categories. About one-half of the company unions performed none of the functions that are generally thought of as constituting collective bargaining. They were best understood as “agencies for discussion.” Another group, about one-third of those studied, was undertaking a subset of the activities that independent trade unions assume. Typically, they addressed individual grievances and some issues relating to working conditions. Larger concerns relating to wages and hours were not subject to negotiation or bargaining. The BLS report determined that “about half of the company unions in this group had become effective avenues for the adjustment of individual grievances” (BLS, 1937, p. 205). The third group of company unions, representing about 15% of all those studied, assumed many of the activities commonly ascribed to collective bargaining. Although they were usually separated from other employers’ worker organizations and from a national organization, “they represented the interests of the workers with a vigor not entirely attributable to management encouragement” (BLS, 1937, p. 205).

3.2. The Incidence of Company Unions The BLS survey covered establishments in manufacturing, mining, public utilities, and some selected service and trade workplaces. The sample for manufacturing industries represented more than 26% of workers and was larger than in the other sectors. In determining the fraction of workers covered by company unions, the survey grouped workers into four categories: workers covered by no collective representation (i.e. neither trade unions nor company unions); workers covered by trade unions; workers covered by company unions; and workers covered by a mixture of trade and company unions. The incidence of workers in establishments where management-employee relations took the form of a mixture of trade unions and company unions was the smallest of the four categories: in April 1935, according to the BLS survey, 42.5% of the workers were employed

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Fig. 1. The Fraction of Workers in Establishments Dealing with Company Unions and Trade Unions by Major Industry, 1935.

in establishments that dealt with their employees without any trade union or company union, 26.1% were covered by a trade union contract, 19.9% of the workers were represented through company unions, and 7.4% of workers were in establishments where managements dealt with workers through a combination of company unions and of collectively-bargained contracts with trade unions. The association across two-digit manufacturing and public utilities industries (seventeen observations in all) between the fraction of workers in establishments dealing with company unions and the fraction of workers in establishments dealing with trade unions is illustrated in Fig. 1.19 A negative association is apparent: in those industries where independent trade unionism is strong, company unionism is weak. It suggests that independent trade unions and company unions tended to be substitutes in providing workers with collective representation. As examples, “wearing apparel” reported 55% of workers covered by independent trade unions and 5% covered by company unions (and merely one percent in a mixture of trade unions and company unions); toward the other extreme, “chemicals” reported 55% of workers covered by company unions and 13% covered by trade unions (and almost 6% dealing with a mixture of company unions and trade unions).

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19

3.3. Wages and Hours under Company Unionism The BLS study did not survey workers about their attitudes toward company unions nor did they examine the degree to which the company unions produced results different from those associated with independent unions. For instance, to what extent were the wages and work hours of workers represented by worker-organized trade unions different from those represented by company unions? This was not addressed in the BLS study and it is difficult to know now what the answer to this question would be. On wages, Senator Robert Wagner (1934) believed he knew the answer: “The company union has improved personal relations, groupwelfare activities, discipline, and the other matters which may be handled on a local basis. But it has failed miserably to standardize or improve wage levels . . ..” To Wagner, such wage standardization (a euphemism for the establishment of wage floors) was a key to macroeconomic recovery from the Depression.20 To ascertain whether Senator Wagner was correct in believing that company unions were not associated with “improved” wages, consider merging the April 1935 BLS data on the incidence of company unions across industries with data on average hourly earnings and average weekly hours worked collected by the National Industrial Conference Board (Beney, 1936). Starting in June 1920, the Conference Board surveyed firms monthly in twenty-five manufacturing industries and semi-annually in two public utility industries. The surveys covered production and non-supervisory workers only and these workers are divided into unskilled male labor (where “unskilled” means that no previous training was required to perform the work), skilled and semi-skilled male labor, and female labor which includes female wage earners of all skills. By 1935, the Conference Board was receiving reports directly from 1,886 manufacturing plants and, in addition, the coverage of the iron and steel industry and the automobile industry was almost complete due to the cooperation of the relevant industrial employer federations in those industries. We are able to match the BLS company union data with the wage and hours data from the Conference Board for 23 manufacturing and public utilities industries. For these 23 industries, Fig. 2 graphs the relationship between company unionism and a measure of establishment size, workers per establishment. It has been frequently asserted that company unions were much more likely to be established in large firms. This finds some support in these BLS data as shown in Fig. 2 although there are some conspicuous outliers.21 The industry recording the largest value for establishment size is the rubber industry and the fraction of workers represented by company unions in rubber was merely 0.131 so this is the most prominent outlier. However, this industry also has the largest value for the fraction of workers where workers were represented by a mixture of company

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Fig. 2. Company Unionism and Establishment Size, 1935.

unions and independent trade unions (namely, 0.656) and this provides some explanation for the deviation of the rubber industry from the general pattern. Indeed, if the fraction of workers covered by all sorts of collective representation – trade unions, company unions, and a mixture of both – is graphed against establishment size, the result is a much closer positive association – see Fig. 3. Collective representation of some sort is positively correlated with establishment size although that collective representation may take different forms. Figure 4 represents the scatter of observations on the fraction of workers covered by company unions and average hourly earnings of all workers for these 23 industries. (We shall be using in the regression below a slightly different earnings variable that controls for gender and skill.) There is a positive association between earnings and company unionism in the scatter in Fig. 4, but the correlation is unimpressive. The industry with the highest value for earnings is the newspaper industry with average hourly earnings in April 1935 of $0.862. Yet only 4.6% of its workers are represented by company unions. One reason for its high wages is probably attributable to the fact that it was heavily unionized with 63% of its workers

Company Unions, Wages, and Work Hours

21

Fig. 3. Collective Representation and Establishment Size, 1935.

covered by trade union contracts. This indicates that, in measuring the association between earnings and company unionism, we need to control for the incidence of trade unionism. Consider, therefore, the relation between, first, hourly wages and, second, weekly work hours and the extent of employee representation in these industries in April 1935.22 There are 23 manufacturing and utilities industries and the dependent variable involves stacking observations on male unskilled and male skilled workers so there are 46 observations on wages and on weekly hours. Consider the following stochastic equation: B ln(y si ) = ␣0 + ␣1 S i + ␤ U Ti + ␥ U C i + ␦ U i + ␧si ,

where the subscript i denotes one of 23 manufacturing and utilities industries and the subscript s indicates whether the observation describes skilled male or unskilled male workers. In one regression equation, y denotes average hourly earnings and, in the other equation, y denotes average weekly hours worked. S is a dichotomous variable indicating whether the left-hand side observation relates to skilled workers. There are three variables describing the extent of employee

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Fig. 4. Average Hourly Earnings and the Fraction of Workers Covered by Company Unions, 1935.

representation in the industry. UT measures the fraction of workers in the industry in establishments covered by trade union negotiated contracts, UC is the fraction of workers in establishments represented by company unions, and UB measures the fraction of workers in establishments where both trade unions and company unions operate. Omitted variables are incorporated in the equation’s stochastic term, ␧si . The purpose of estimating the above equation is to compute the partial correlation between wages and work hours on the one hand and company unionism on the other hand. In other words, the first order of business is to report the magnitude of the association between working conditions and company unionism and then to try to interpret it. The arguments in the next section suggest the relationship is not causal. Similar problems of interpretation arise in the association between wages and independent unionism: does independent unionism cause wages to be higher or does the association reflect a correlation that is driven by other considerations? The absence (owing to unavailability of data) from the equation above of other

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Table 2. Estimates of the Association between Company Unionism and Wages and Hours Worked, 1935. Dependent Variable

Estimated coefficients on . . . fraction of workers covered by trade union contracts (UT ) fraction of workers represented by company unions (UC ) fraction of workers in plants where both trade unions and company unions operate (UB ) skilled workers (S) R2

Log of Hourly Earnings

Log of Weekly Hours Worked

0.470 (0.149) 0.283 (0.113) 0.434 (0.126)

−0.154 (0.098) 0.017 (0.074) −0.035 (0.083)

0.298 (0.038)

0.021 (0.025)

0.66

0.10

Note: Estimated standard errors in parentheses.

variables known to be associated with wages and work hours means, of course, that the included variables may be embodying the effects of these other variables which are correlated with company and independent unionism. The least-squares estimates of this equation are contained in the first column of Table 2.23 These estimates suggest that, in the Spring of 1935, the wages of workers represented by independent trade unions were 47 log points above the wages of workers without any union representation at all. This is a very large relative wage difference although the estimated standard error indicates that a large range of values is consistent with this estimate. Moreover, this value is well within the estimates spanned by previous research on the relative wage impacts of unionism in the 1930s in which it has been argued that, by making nominal wage reductions more difficult to effect, unions opened up a large gap between union and nonunion wages.24 The estimated coefficient on UC , the fraction of workers in establishments represented by company unions, is 0.283 suggesting that the wages of workers represented by company unions was 28 log points above the wages of those workers without any unions (independent or company unions). Taken at face value, this would suggest that the relative wage effect of company unions was about 60% (that is, 0.283/0.470) of that of independent trade unions. However, it also suggests that the company unions are associated with higher wages, that they were part of something more than ineffectual discussion groups.25

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The estimated regression coefficients on the other variables conform to expectations. The estimated coefficient on UB (the fraction of workers in establishments where both trade unions and company unions operate) is 0.434 and this lies between the estimated coefficients on UT (the fraction of workers covered by trade union negotiated contracts) and on UC (the fraction of workers represented by company unions). There is a 30 log point skilled-unskilled wage differential (i.e. the estimated coefficient on S is 0.298). Sixty-six percent of the variation in the logarithm of hourly earnings is removed by this combination of variables. Is the case study literature consistent with this association between wages and company unionism? Brandes (1976, p. 130) cites cases where company unions supposedly engineered wage increases although, as always in these instances, the counterfactual – what would have happened in the absence of the company union – is impossible to ascertain. Brandes cites a case at Colorado Fuel and Iron where the company union asked for a cut in weekly hours rather than a large increase in pay. This case might suggest that company unions worked harder to reduce weekly hours. If so, there is nothing in the regression estimates contained in the second column of Table 2 to support the idea that they were successful in this endeavor. In this column, the dependent variable measures the logarithm of weekly hours worked of skilled and unskilled workers and no meaningful association is measured between weekly hours and company unionism in these data. Weekly hours worked are estimated to be about 15% lower in establishments where workers are represented by independent trade unions, but this estimate is not precisely measured.26 The presence of this “company union wage effect” in 1935 is consonant with Jacoby and Verma’s (1992) research into the wage differentials within the same company (TRW) among plants that were nonunion, plants that were represented by conventional unions, and plants organized by independent local unions, the successors to the company unions outlawed in 1937. Over the period from 1979 to 1983, they find that, other things equal, the independent local unions achieved the same sort of wage differential over nonunion plants as those effected by conventional unions that were affiliated to a national organization. They speculate about the reasons for this wage differential and their discussion takes up issues addressed more formally in the following section.

4. THE MEANING OF THE POSITIVE CORRELATION BETWEEN COMPANY UNIONISM AND WAGES As noted above, only about 15% of the company unions in the BLS survey actually engaged explicitly in wage bargaining. For this group, the wage premium associated with company unionism computed in the previous section may reflect

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the returns to this bargaining. However, this interpretation seems less likely for the remaining 85% of company unions in the survey. So let us consider some non-bargaining interpretations of the positive association between company unionism and wages. There are at least three possible interpretations of the positive association between company unionism and wages. They are not mutually exclusive, but to emphasize each element we treat these three interpretations seriatim.

4.1. Company Unions as Personnel Management The first interpretation emphasizes the role that both higher wages and employee representation plans played in developing a company-trained labor force and in reducing the turnover that imposed heavy costs on firms providing specific training. There was an extensive discussion after the First World War of the damaging consequences of high rates of turnover27 and employee representation plans were viewed as a device to increase workers’ attachments to their existing companies. Fairris (1995) provides a very good statement of this perspective. A more formal characterization of this role of company unionism is as follows.28 Let ␶ denote the turnover rate and c the per worker cost of turnover so that total turnover costs are c·␶·E where E denotes total employment. The firm’s governance costs (or costs of human relations policies) are G which depend on total employment, E, and on expenditures on employee representation plans, R.29 The turnover rate, ␶, depends negatively on the wage, w, and on R: ␶ = ␶(w, R) with ∂␶/∂w < 0, ∂␶/∂R < 0. Higher wages and greater employee representation do not merely reduce turnover; they may also increase work “effort.” By work “effort,” I mean not merely the intensity with which each individual employee works. “Effort” here stands for the many different ways in which workers extend cooperation and assistance to the firm’s activities. Employment contracts are notoriously incomplete30 and the effectiveness with which employees work depends, in large part, on whether management has secured the collaboration and support of employees. Work effort here relates to this wider sense of employees’ partnership with management. Let e denote effort per worker and h hours worked per worker. Then e = e(w, R) where ∂e/∂w > 0 and ∂e/∂R > 0. The firm’s profits are denoted as follows: (E, h, w, R) = X[e(w, R)hE] − whE − c␶(w, R)E − G(E, R),

(1)

where the price of output, X, serves as the numeraire. If the firm’s expenditures on representation plans and if wage rates are set at levels to maximize profits, then expenditure on employee representation plans, R, satisfies the following

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first-order condition: EhX 




∂e ∂R




− cE

∂␶ ∂R

 =

∂G , ∂R

(2)

where the left-hand side denotes the marginal return on a dollar spent on employee representation (part of that return takes the form of each worker applying more effort and another part of that return takes the form of reducing turnover) and the right-hand side denotes the marginal cost of a dollar spent on employee representation.31 There is an analogous equation for wages: 

∂␶ ∂e  − cE = hE. (3) EhX ∂w ∂w Again the left-hand side represents the marginal return to an increase in the wage in the form of greater work effort and reduced turnover. The right-hand side constitutes the larger payroll costs of a marginal higher wage. In this model, company unions and higher wages are both mechanisms to increase worker effort and reduce employee turnover. There is no causation running from one variable to the other: company unions no more cause higher wages than the reverse. The positive association between wages and company unionism suggests that they are complementary strategies to enhance worker cooperation and to reduce turnover. According to this model, variations in the incidence of company unions are to be found in the form of the production function (such as the responsiveness of output to increases in work effort) and differences in turnover costs, c, across firms. The value of c is likely to be greater for firms that have invested heavily in training their workers in specific skills and it suggests the hypothesis that company unionism was more prevalent in industries where firms provided extensive specific training for their workers. Note also that, in this model, per employee work hours, h, are set by the firm. In other words, work hours constitute another decision variable for the firm and are chosen jointly with R, expenditure on employee representation plans. Analogous to the association between wages and company unionism, work hours and company unionism are jointly determined variables in this model. The results in the previous section suggest that this correlation was weak or non-existent. 4.2. Company Unions as Union Avoidance This is the explanation for company unions that worker-organized labor unions favor: company unions were a tactic to thwart the organizing efforts of independent unions.32 Once again, company unions do not represent the only mechanism available to an employer to obstruct unionism. Indeed, it has long been recognized

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27

that, in response to a union-organizing threat, an employer may raise wages to reduce the wage gains to his workers from becoming unionized. Consider this possibility.33 Assume that an employer – currently non-union – determines the wage rate to pay and his expenditures on employee representation plans, R, to maximize expected profits, . The probability of the firm becoming organized by an independent union is given by p. Assume that a higher wage rate, w, and greater expenditures on employee representation plans reduce the probability of becoming a successful target of a union-organizing campaign: p = p(w, R) with ∂p/∂w < 0 and ∂p/∂R < 0. The assumption that ∂p/∂R < 0 might be contested. When workers effectively participated in running company unions, they were learning skills that could be directed subsequently to organizing independent unions and the development of such skills might facilitate the establishment of independent unions. Indeed, the formation of the Bell Telephone workers in 1939 into the National Federation of Telephone Workers provides an example of how the company union prepared the workers for the management of their independent union. Though there may be instances in which the opposite assumption might be maintained, I assume that, in general, greater expenditure on employee representation plans reduces the non-union firm’s probability of being organized by an independent union: ∂p/∂R < 0. Profits in the absence of being organized are n = [X(E) − wE − R]. If the firm subsequently becomes unionized by an independent union, the firm will pay the union wage of wu and profits will be u = [X(E) − w u E − R]. In this event, the firm will have spent R on employee representation and yet these expenditures will not have prevented independent unionism. The decision for the firm is to select w and R to maximize expected profits  = (1 − p) n + p u . The first-order conditions for w and R may be combined to show that the marginal rate of substitution of wages for human resource expenditures, R, in reducing p (the left-hand side of Eq. (4)) must equal the marginal cost of increasing w (the right-hand side of Eq. (4)):34 ∂p/∂w = (1 − p)E. ∂p/∂R

(4)

Once again, wages and company unions are complementary policies that, in this instance, are designed to avert worker-organized unionism. Variations in company unionism are to be sought in employers’ estimates of the probability of being unionized, p, and in the magnitude of the union wage, wu . When the threat of being unionized is high and when the wage consequences of unionization are considerable, company unionism is likely to be more common. Lewis (1963, p. 24) surmised that the use of wages to deter the threat of unionism was greater

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when the extent of unionism was growing rapidly (i.e. when p was rising) and this was in the decade from 1935 to 1945. The use of wages to deter the threat of unionism is likely to have been greater after 1937 when an alternative device to thwart independent unionism – the company union – was no longer available (or, at least, had to be largely covert). The great growth in company unions between 1933 and 1935 is correlated with the growth in worker-organized trade unionism and in the existence of a very large union-nonunion wage differential – both consistent with the notion of company unionism as a union avoidance strategy. When the non-union employer has weapons to deter independent unionism in addition to wages and company unionism – such as firing union activists or threatening to move out of the country – the use of wages or company unionism to avoid unionism is likely to decline. This is why, in the last twenty years or so, I surmise there has been little use of wages by non-union employers to deter independent unionism. Devices such as the dismissal of union organizers and the hiring of lawyers whose sole function is to prevent independent unionism obviates the need to use wages to discourage unionism. There may well be specific cases where this is not the case but, in general, because of the availability to non-union employers of other weapons to ward off independent unionism, the classical threat effect of unionism on non-union wages is likely to have been negligible since the early 1980s.

4.3. Company Unions as Employer Benevolence A third explanation for the appearance of company unionism is employer benevolence. Some employers felt a responsibility for the welfare of their workers and were sympathetic to mechanisms that enhanced their development as citizens. As Brandes (1976, p. 30) has written, “. . . among the goals of some welfare capitalists was pure altruism.”35 Such employers care about profits, but they care also about the condition of their workers for its own sake. If  denotes such a benevolent employer’s profits and if U denotes the welfare of each his workers, then this employer may be viewed as maximizing = (1 − ␪)  + ␪ UE where ␪ is the weight placed on the welfare of the workers (0 ≤ ␪ < 1). Express profits as  = X(E) − wE − R where R denotes expenditures on representation plans and express each worker’s utility as U = U(w, R) with utility increasing in each of its arguments. The worker is assumed to enjoy higher utility not only from a higher wage, a monetary benefit specific to each worker, but also from working in a plant that permits workers to have greater control over workplace activities as indicated by the level of R. The benevolent employer selects w, E, and R to maximize . Combining the first-order conditions for w and R yields an expression that relates

Company Unions, Wages, and Work Hours

29

the marginal rate of substitution between w and R in the worker’s utility function to the ratio of the marginal costs: (∂U/∂w)/(∂U/∂R) = E.36 The level of wages and expenditures on company unions are determined jointly to further the goal of enhancing the welfare of the workforce. According to this perspective, company unions were to be found where employers were more altruistic and in firms where the workers placed a relatively high value on mechanisms for employee representation. The “price” for such employer benevolence consists of the opportunity cost in profits forsaken. Firms operating in highly competitive industries were likely to have been so constrained by the imperatives of the market as not to be able to indulge in employee representation simply to benefit workers for its own sake. If so, this suggests company unionism was greater in those firms possessing sufficient market power to spend rents in the form of employee representation plans. J. R. Hicks once wrote that the best of all monopoly profits is a quiet life, but to a benevolent employer another expression of monopoly profits may be an employee representation plan. The fact that in the 1920s company unions appear to have been more common in large oligopolistic firms is compatible with this.

4.4. Summary Statement of Implications Each of these three reasons for management to establish and cultivate company unions may be present in a given context. So this allows for the following predications. Company unions will be more extensive
in organizations where skills are specific to the firm;
at times and in places37 where conventional unions have demonstrated their capacity to organize firms so that non-union firms have reason to be concerned with the potential union threat; and
in firms possessing product market monopoly or oligopoly power or in regulated industries.

5. CONCLUSION The dominant view embodied in the National Labor Relations (Wagner) Act is that the interests of workers and the interests of an employer are opposed to one another and, to guarantee that the interests of the workers are not subverted by the employer, the union’s independence must be protected by ensuring that the employer is not involved in the union’s activities. Thus, through various judicial

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decisions, it has been determined that an employer is prohibited from contributing resources to a union that it prefers and from providing a union with advantages that are not granted to rival unions. Hence, when faced with union organizing activity, employers see themselves presented with a choice between, on the one hand, no labor union at all and, on the other hand, an organization (a conventional union) that usually approaches bargaining as a zero sum game (in which the union’s interests and the employer’s interests are exactly opposed to one another). Confronted with this choice, most employers are willing to devote considerable resources to prevent the unionization of their workers with the consequence that today most workers are without any sort of representation. To change this framework, some observers have proposed amending Section 8 (a) (2) of the NLRA to permit employers a much greater role in supporting and financing unions. For example, Kaufman (1997, pp. 166–167) has argued that “. . . the ban on company unions was not a wise policy decision at the time [the 1930s], nor does it serve the public interest or even the interests of organized labor at the current time. The strictures against non-union employee representation plans contained in the Wagner Act should thus be relaxed, albeit only if accompanied by strengthened protections against employer coercion and discrimination in workers’ choice of a representational agent.”38 Taras (1998) has observed that Canadian labor law places far fewer restrictions on company unionism and conventional unionism in Canada is in a much more vigorous state than that in the United States. Other industrialized countries tend also to be much less suspicious of employee representation programs that are initiated by management. If the employer were not forbidden from an active role in the union, so it may be argued, other types of worker representative organizations would appear. Some of these new types of labor organizations may have some characteristics that resemble company unions which is why an understanding of company unions earlier in this century is relevant to the current debate. Although it would be implausible for the new company unions to be simply the recreation of the old, an understanding of the activities of company unions of the 1930s may be relevant to contemporary reform proposals. This paper has shown that, in the mid-1930s, company unions and premium wages tended to go together. No association has been measured between work hours and the incidence of company unions. The wage-company union association could be the product of bargaining between the company union and the employer. However, the instances of company unions involving themselves in wage policies are unusual.39 Perhaps the bargaining was less explicit. After all, company unions could function as a lobbying group for workers and as a mouthpiece for employee discontent that could be bought off only through higher wages. These things are possible. However, in the interwar period when the company unions tended to be

Company Unions, Wages, and Work Hours

31

heavily dependent not on the autonomous power that they brought to the employment relationship but on the self-interest and goodwill of the employer for their continual operation, it is more likely that the wage-company unionism association does not reflect bargaining between management and the union (as would be the case with an independent union), but one of unilateral decision-making by the employer. The correlation between high wages and company unions is subject to at least three different interpretations and models corresponding to these three types have been sketched. In these three models, the correlation between wages and company unionism does not imply that company unions cause wages to be higher. In the first two models above, the employer maximizes profits; in the third model, the employer takes explicit account of the welfare of the workers. In all three models, the employer’s expenditure on the company union is a decision variable taken jointly with the wages paid to the workers. Although there has been a tendency for the company union to be portrayed in one light – often very unfavorable – the historical record supports at least three different perspectives. In some cases, the company union served the principal purpose of deterring the organization of a firm’s work force by an independent trade union. But, in other instances, the primary role of the company union was “to reduce labor turnover and foster worker loyalty” (Fairris, 1995, p. 524). According to this notion, higher wages and company unionism were complementary policies that firms adopted to enhance work performance. In still other instances, traces of employer benevolence may have been at work. All three perspectives allow for a positive association between wages and company unionism. Recognizing these perspectives and noting the connection between wages and company unionism should contribute to a more discriminating view of company unionism. This view avoids the “all-or-nothing” perspective that maintains that a collective organization of workers is of value if and only if it operates and is financed entirely independently of the employer. A more subtle view acknowledges benefits from worker organizations that are more heavily dependent on the employer’s goodwill and participation. Once a spectrum of worker organizations is envisaged – with completely independent unions at one end of that range and employer-dominated organizations at the other – together with a changing assortment of benefits to the organization as one moves along that range, it becomes less clear why statutory economic policy draws a line so close to one end of that spectrum.

NOTES 1. Firm-sponsored worker representation mechanisms have been given various titles at different times: shop committees and works councils were common names in the First

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World War and shortly after; later in the 1920s, employee representation plans became the frequent designation; in the 1930s, company unions became standard. I use these names interchangeably, but because the statistical analysis below uses data from the 1930s, I use the term company unions most often. 2. In this paper, I use the term “independent unions” to describe unions organized and managed by workers without the involvement of management. Other authors use the term “independent unionism” to describe local unions that are unaffiliated with any national union. On the latter, see Jacoby (2000). 3. Other examples in this vein are provided by Fairris (1995), Jacoby (1997), and Nelson (1989). Also see the discussion in Millis and Montgomery (1945) who write, “. . . whatever their origin, most company unions have not been merely obstructionist organizations or an insurance against trade unionism. For they have usually had as an objective positive or constructive functions of one kind or another” (p. 873). 4. For instance, in Fairris’s (1995) excellent analysis of company unions, he asserts without supplying any evidence that “company unions . . . generally had little impact on wages or hours at all” (p. 512). 5. Even this modest recommendation brought forth a strong objection from one member of the Commission, Mr. Douglas Fraser, former President of the United Auto Workers. He saw the Commission’s recommendation as a weakening of the law against company unions “which are inherently illegitimate . . .” See U.S. Commission (1994, p. 13). 6. For a thorough examination of the existing U.S. policy and of alternative possible policies, see Kaufman (1999). 7. See, for instance, Schacht (1975), Schatz (1983), and Selekman (1924). 8. The primary Government body was the National War Labor Board. Others included the Shipbuilding Labor Adjustment Board, the President’s Mediation Commission, the United States Fuel Administration, and the United States Railroad Administration. All these agencies championed shop committees to give expression to workers’ concerns. 9. The lumber workers of the Pacific North-west crafted an organization that had no parallel in other U.S. industries. The Loyal Legion of Loggers and Lumbermen not only formed workers’ committees in each mill and logging camp, but also sent representatives to regional councils that engaged in negotiations with representatives of employers. This hierarchical structure involving regional negotiations with employers resembled the Whitley Councils in Britain that were widely discussed in the United States at this time. 10. The rulings of the government agencies did not have the force of law and, in this sense, were not mandatory. However, the discretionary power of government gave their rulings considerable force. For instance, the management of Smith & Wesson Company refused to apply an award of the National War Labor Board so the War Department requisitioned the plant. 11. As noted by the quote in the opening paragraph of this paper, this posture of trade unions towards works councils soon changed. 12. “Before 1933, most unions and company unions occupied separate industrial spheres, rarely competing or even addressing the same issues” (Nelson, 2000, p. 61). 13. This is quoted in Schacht (1975, p. 18). 14. Section 7(a) of the Act specified that employees “. . . should have the right to organize and bargain collectively through representatives of their own choosing, and shall be free from the interference, restraint or coercion of employers . . . in the designation of such

Company Unions, Wages, and Work Hours

33

representatives or in self-organization or in other concerted activities for the purpose of collective bargaining . . .” The law prohibited firms from requiring workers to join a company union, but it did not prohibit them from advocating membership. 15. See the discussion in Jacoby (1985, Chap. 7). 16. There were another 150 thousand votes cast in such elections in the automobile industry, but in these cases the affiliation of the individuals standing for election were not designated. 17. Between 1935 and mid-1943, of the cases brought to the Board charging violation of Section 8 (2) of the Act, the Board found in support of these violations in over 90% of the instances. 18. See Shostak (1962), Jacoby (2000), and Nelson (1997). 19. This scatter of observations omits four industries: services, mining, wholesale trade, and retail trade. In services and trade, individual contracts were dominant and neither trade nor company unionism was important. In mining, 87% of workers were covered by trade union contracts. The data in Fig. 1 encompass over 80% of the workers covered by the survey and relate to the industries used in the regression analysis below. 20. Senator Wagner subscribed to a widespread view that the Depression was caused in large part by production growing faster than household incomes during the 1920s. The subsequent surfeit of unsold products induced firms to cut prices and costs (especially wages), but these wage reductions served only to aggravate the problem of under-consumption. A halt was needed in the successive rounds of wage cuts and, even more, policy needed to effect a redistribution of incomes away from profits and toward labor incomes. Senator Wagner believed company unions were not effective in establishing the sort of wage floors and wage increases that worker-organized labor unions did and, therefore, company unions did not have desirable macroeconomic consequences. On Wagner’s macroeconomic views, see Kaufman (2000, pp. 51–55). 21. The data on establishment size are derived from the BLS survey by dividing the values of: (1) the number of workers covered by the replies to the survey by; (2) the total number of establishments covered by the replies. 22. The information on earnings and hours by manufacturing industry are taken from Tables 5 through 30 of Beney (1936). 23. Weighted least-squares estimates were very similar to those reported. 24. See, for instance, Lewis (1963) who reported a union-non-union relative wage effect (in natural logarithms) of 0.38 for 1930–1934 and of 0.20 for 1935–1939 (Table 64, p. 222). In a re-examination of Lewis’ research, Pencavel and Hartsog (1984) reported estimates for 1930–1934 of 0.496 and for 1935–1939 of 0.223 (column (1) of Table 6). 25. The variable “employees per establishment” was added to this regression equation (in quadratic form) and an association with wages was measured. (The estimated coefficient on the linear term of this plant size variable was negative and the coefficient on the quadratic term was positive so wages fall over some ranges of plant size before ultimately rising.) This plant size variable is derived from the BLS survey, not the Conference Board wage survey. The estimates on the estimated coefficients on trade unions and company unions were altered very little by adding this plant size variable. 26. Once again, the coefficient on UB (the fraction of workers in establishments where both trade unions and company unions operate) lies between the estimated coefficients on UT and on UC . However, none of these coefficients is measured with precision. 27. See especially Slichter (1919) and Brissenden and Frankel (1920).

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JOHN PENCAVEL

28. The model below extends an earlier characterization of a firm’s labor turnover and wage policies. See Pencavel (1972). It is increases in the firm’s wage relative to comparison or reference wages that affects turnover and work effort. In this analysis, wages in other firms are treated as given. The characterization here of company unionism as, indirectly, an input into the firm’s production function is also the representation used by Kaufman and Levine (2000). 29. It seems plausible that G rises each with R and E, but at a decreasing rate: ∂G/∂R > 0, ∂ 2 G/∂R 2 < 0, ∂G/∂E > 0, ∂ 2 G/∂E 2 < 0. Of course, the first-order conditions (Eqs (2) and (3) assume interior solutions to the maximum problem. For corner solutions (such as no expenditures on representation plans), the equalities would be replaced with inequalities. 30. See, for instance, the argument in Chapter 1 of Pencavel (1991). 31. Second-order conditions for a maximum are satisfied if ∂ 2 ␶/∂w 2 > 0, ∂ 2 ␶/∂R 2 > 0, ∂ 2 e/∂w 2 < 0, and ∂ 2 e/∂R 2 < 0. One might think of defining R and w as complementary in generating effort if ∂ 2 e/∂R. . .∂w > 0 and as substitutes if ∂ 2 e/∂R. . .∂w < 0. Some (e.g. Taras, 1998) have suggested that worker representation is only effective in generating a cooperative work ethic if wages are high enough to remove them as an issue. In this model, this would suggest that R and w are complementary in producing work effort. 32. Jacoby and Verma (1992) attribute at least part of the wage differential achieved by independent local unions in TRW to the company’s desire to avoid dealing with conventional unions. 33. The model that follows draws on Rosen (1969). 34. Again assuming interior solutions, the first-order condition for wages is (1 − p)E = (u − n )(∂p/∂w) and that for R is (u − n )(∂p/∂R) = 1. Combining these two yields Eq. (4) in the text. 35. “More than any other item in the program of welfare capitalism, employee representation was couched in idealistic terms. When a strike broke out at the Consolidated Coal Company in Pennsylvania in 1922, the younger Rockefeller [John D. Rockefeller, Jr.], a major stockholder, publicly denounced the operators for denying “their employees all voice and share in determining their working conditions and any adequate machinery for the uncovering and adjustment of grievances. The day has passed when such a position can justly be maintained . . . in a country like ours . . . Employees in every industrial unit [have] a fundamental right, namely, the right to representation in the determination of those matters which affect their own interests.” Rockefeller’s letter, widely praised, reflected the thinking of enlightened employers” (Brody, 1980, pp. 55–56). 36. The first-order condition for employment is w − X  = U ␪/(1 − ␪) > 0. In other words, wages exceed the value of marginal product of employment in proportion to the weight given in to the typical worker’s utility function. 37. It is perhaps noteworthy that the company labor unions established by Thompson Products (subsequently, TRW) in the 1940s and 1950s were located principally in the Northeast and Midwest where conventional union organizing drives were a continual hazard. See Jacoby (1989). 38. The response of Mr. Lynn Williams (of the United Steelworkers of America) to Kaufman’s arguments and proposals repeats traditional union opposition to company unionism. Williams writes (1997, pp. 182–183), “. . . managements’ major preoccupation in their company union activities was with the union question. Their principal purposes were to avoid, not encourage, real unions and to restrain the labor movement . . . [B]anning company unions was entirely appropriate [in the 1930s]

Company Unions, Wages, and Work Hours

35

since it was the insidious, employer-driven spiral to the bottom which needed to be contained.” 39. Jacoby (1997, pp. 23–24) notes that in the 1920s company unions at International Harvester and at Goodyear pressed for wage increases. As noted earlier, in the 1930s, company unions were a useful mechanism to have workers consent to pay reductions.

ACKNOWLEDGMENTS I have benefited considerably from suggestions on an earlier draft from Bruce Kaufman. I am grateful to an anonymous referee for very helpful comments and to Joanna Campbell for research assistance.

REFERENCES Beney, M. A. (1936). Wages, hours, and employment in the United States 1914–1936. National Industrial Conference Board Studies, No. 229. New York. Bernstein, I. (1960). The lean years: A history of the American worker, 1920–1933. Boston: Houghton Mifflin. Brandes, S. D. (1976). American welfare capitalism, 1880–1940. Chicago: University of Chicago Press. Brissenden, P. F., & Frankel, E. (1920). Mobility of labor in American industry. Monthly Labor Review, 10(June), 36–56. Brody, D. (1980). Workers in industrial America: Essays on the twentieth century struggle. New York: Oxford University Press. Douglas, P. H. (1921). Shop committees: Substitute for, or supplement to, trades-unions? Journal of Political Economy, 29(2), 89–107. Fairris, D. (1995). From exit to voice in shopfloor governance: The case of company unions. Business History Review, 69(4), 494–529. Freeman, R. B., & Rogers, J. (1999). What workers want. Ithaca, NY: Cornell University Press and Russell Sage Foundation. Jacoby, S. M. (1985). Employing bureaucracy: Managers, unions, and the transformation of work in American industry, 1900–1945. New York: Columbia University Press. Jacoby, S. M. (1989). Reckoning with company unions: The case of Thompson Products, 1934–1964. Industrial and Labor Relations Review, 43(1), 19–40. Jacoby, S. M. (1997). Modern manors: Welfare capitalism since the new deal. Princeton: Princeton University Press. Jacoby, S. M. (2000). A road not taken: Independent local unions in the United States since 1935. In: B. E. Kaufman & D. Gottlieb Taras (Eds), Non-union Employee Representation: History, Contemporary Practice, and Policy (pp. 76–95). New York: M. E. Sharpe. Jacoby, S. M., & Verma, A. (1992). Enterprise unions in the United States. Industrial Relations, 31(1), 137–158. Kaufman, B. E. (1997). Company unions: Sham organizations or victims of the new deal? Proceedings of the Forty-Ninth Annual Meeting, Industrial Relations Research Association (pp. 166–184).

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Kaufman, B. E. (1999). Does the NLRA constrain employee involvement and participation programs in non-union companies? A reassessment. Yale Law and Policy Review, 17(1), 729–811. Kaufman, B. E. (2000). Accomplishments and shortcomings of non-union employee representation in the pre-Wagner Act years: A reassessment. In: B. E. Kaufman & D. Gottlieb Taras (Eds), Non-union Employee Representation: History, Contemporary Practice, and Policy (pp. 21–60). New York: M. E. Sharpe. Kaufman, B. E., & Gottlieb Taras, D. (Eds) (2000). Non-union employee representation: History, contemporary practice, and policy. New York: M. E. Sharpe. Kaufman, B. E., & Levine, D. I. (2000). An economic analysis of employee representation. In: B. E. Kaufman & D. Gottlieb Taras (Eds), Non-union Employee Representation: History, Contemporary Practice, and Policy (pp. 149–175). New York: M. E. Sharpe. Lewis, H. G. (1963). Unionism and relative wages in the United States: An empirical inquiry. Chicago: University of Chicago Press. Lipset, S. M., & Meltz, N. M. (2000). Estimates of non-union employee representation in the United States and Canada: How different are the two countries? In: B. E. Kaufman & D. Gottlieb Taras (Eds), Non-union Employee Representation: History, Contemporary Practice, and Policy (pp. 223–230). New York: M. E. Sharpe. Millis, H. A., & Montgomery, R. E. (1945). The economics of labor: Volume III Organized labor. New York: McGraw-Hill. National Industrial Conference Board (1922). Experience with works councils in the United States. Research Report No. 50 (May). New York. National Industrial Conference Board (1925). The growth of works councils in the United States: A statistical summary. Special Report No. 32. New York. National Industrial Conference Board (1933). Collective bargaining through employee representation. New York. Nelson, D. (1982). The company union movement, 1900–1937: A re-examination. Business History Review, 56(3), 335–357. Nelson, D. (1989). Managers and non-union workers in the rubber industry: Union avoidance strategies in the 1930s. Industrial and Labor Relations Review, 43(1), 41–52. Nelson, D. (1997). Company unions after 1937. Proceedings of the Forty-Ninth Annual Meeting, Industrial Relations Research Association (pp. 159–165). Nelson, D. (2000). The AFL and the challenge of company unionism, 1915–1937. In: B. E. Kaufman & D. Gottlieb Taras (Eds), Nonunion Employee Representation: History, Contemporary Practice, and Policy (pp. 61–75). New York: M. E. Sharpe. Pencavel, J. (1972). Wages, specific training, and labor turnover in U.S. manufacturing industries. International Economic Review, 13(1), 53–64. Pencavel, J. (1991). Labor markets under trade unionism: Employment, wages, and hours. Cambridge, MA: Blackwell. Pencavel, J., & Hartsog, C. E. (1984). A reconsideration of the effects of unionism on relative wages and employment in the United States, 1920–1980. Journal of Labor Economics, 2(2), 193–232. Rosen, S. (1969). Trade union power, threat effects, and the extent of organization. Review of Economic Studies, 36(2), 185–196. Schacht, J. N. (1975). Toward industrial unionism: Bell telephone workers and company unions, 1919–1937. Labor History, 16(1), 5–36. Schatz, R. W. (1983). The electrical workers: A history of labor at general electric and Westinghouse, 1923–1960. Urbana: University of Illinois Press. Selekman, B. M. (1924). Employees’ representation in steel works. New York: Russell Sage Foundation.

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Shostak, A. B. (1962). America’s forgotten labor organization. Industrial Relations Section, Research Report Series No. 103. Princeton University. Slichter, S. H. (1919). The turnover of factory labor. New York: D. Appleton & Co. Slichter, S. H. (1929). The current labor policies of American industries. Quarterly Journal of Economics, 43(2), 393–435. Taras, D. G. (1998). Non-union representation: Complement or threat to unions? Proceedings of the Fiftieth Annual Meeting, Volume 1, Industrial Relations Research Association (pp. 281–290). Troy, L. (1965). Trade union membership, 1897–1962. National Bureau of Economic Research, Occasional Paper 92, New York. U.S. Commission on the Future of Worker-Management Relations, Report and Recommendations, U.S. Department of Labor (December 1994). U.S. Department of Labor, Bureau of Labor Statistics (1937). Characteristics of company unions 1935. Bulletin No. 634. United States Government Printing Office, Washington, DC (June). Wagner, R. F. (1934). Company unions: A vast industrial issue. The New York Times (March 11). Reprinted in U.S. National Labor Relations Board, Legislative History of the National Labor Relations Act 1935 Volume 1, U.S. Government Printing Office, Washington, DC (1949, pp. 22–26). Williams, L. (1997). Discussion [of historical perspectives on company unions]. Proceedings of the Forty-Ninth Annual Meeting, Industrial Relations Research Association (pp. 181–184).

APPENDIX The table below matches the 23 manufacturing and public utilities industries in the data from the National Industrial Conference Board with those from the BLS information on company unionism. The asterisk denotes a weighted (by employment) average of the industries listed. National Industrial Conference Board

Bureau of Labor Statistics

1. Agricultural implements 2. Automobiles 3. Boots and shoes 4. Chemicals 5. Cotton (North) 6. Electrical manufacturing

Agricultural implements Automobiles Boots and shoes Chemicals ∗ Cotton goods + cotton small wares Electrical machinery, apparatus, & supplies Foundry & machine shop products Furniture ∗ Hosiery + knit goods Iron & steel & their products

7. Foundries & machine shops 8. Furniture 9. Hosiery & knit goods 10. Iron & steel manufacturing

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Appendix (Continued ) 11. Leather tanning & finishing 12. Lumber & millwork 13. Meat packing 14. Paint & varnish 15. Paper & pulp 16. Paper products 17. Printing, book & job 18. Printing, news & magazine 19. Rubber 20. Silk 21. Wool 22. Production & distribution of gas 23. Production & distribution of electricity

Leather ∗ Millwork + sawmills Slaughtering & meat packing Paints & varnishes Paper & pulp Boxes, paper Printing, book & job Printing, newspapers & periodicals Rubber products Silk & rayon goods Woolen & worsted goods Manufactured gas Electric light & power

LABOR MARKET REGULATION AND PRODUCTION WORKER HIRING STANDARDS: INTERNATIONAL COMPARISONS Kirsten Daniel and W. S. Siebert ABSTRACT The study analyses production worker hiring standards based on time series personnel records drawn from matched plants in the U.S., U.K., Italy, the Netherlands and Belgium. Our hypothesis is that labor market regulation pushes upwards hiring standards for production workers. Labor market regulation is measured both by an employment protection index, and by workforce average tenure as a proxy for insider power. We find that the average tenure variable gives more robust results than the index. Its effect is to increase education standards, but to reduce starting age standards. The expected positive effect of employment protection on hiring standards is found in simple regressions, but is not generally supported by the multivariate analysis once other influences are held constant. However, union density is found to increase hiring standards, and might take over the effect of employment protection as an indicator of overall regulatory pressure. We also find a strong substitutability between recruits’ prior experience and education. This substitutability indicates the power of education to widen job opportunities for inexperienced workers.

Advances in Industrial and Labor Relations Advances in Industrial and Labor Relations, Volume 12, 39–71 Copyright © 2003 by Elsevier Science Ltd. All rights of reproduction in any form reserved ISSN: 0742-6186/PII: S0742618603120033

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1. INTRODUCTION The 1980s and 1990s have seen a progressive rise in unemployment and a decline in employment-population ratios in Europe. Unemployment trends have not been so adverse in the U.S., which has led to a substantial discussion about the adverse effects of labor market regulation (e.g. OECD, 1994, 1999). Whereas unemployment in the U.S. seems to fluctuate around some stable natural rate, unemployment does not seem to recover well after an adverse shock in Europe (see for example Blanchard & Summers, 1987, on hysteresis in unemployment). A popular explanation is that interference in the free workings of the labor market keeps real wage costs above market clearing levels. In particular, minimum wages, employment security legislation, strong unions, high taxes and high unemployment insurance benefits are blamed (e.g. Siebert, 1997, p. 39). The argument has been extended to account for the particularly adverse position of unskilled workers in Europe (e.g. Mortensen & Pissarides, 1999). To the extent that mandating employment standards and legislating employment protection increase labor cost, these regulations have a negative impact on the demand for unskilled labor in particular. First, increases in labor cost are likely to be relatively more for unskilled workers, since any administrative costs are a larger proportion of unskilled workers’ wages. Second, a decrease in demand for unskilled labor relative to skilled would require the unskilled workers’ wages and working conditions to fall relative to skilled. Unskilled workers’ wages will be close to income support floors or minimum wages and hence will be less able to fall to offset enhanced working conditions brought about by labor market regulations. Firms are then likely to become more cautious in their hiring decisions, and the more so the more these hiring decisions are irreversible due to employment protection legislation. The research examines personnel record data on characteristics of production worker recruits, in particular their education, starting age and prior experience. The question here is, whether the less restrictive labor laws in some countries (e.g. the U.S.) allow more experimentation with unskilled worker groups – the less educated and the young for example – giving these workers more chance to be absorbed into the core of permanent employees. Our hypothesis is that firms become more cautious in their hiring decisions due to labor market regulation, and so impose higher hiring standards, e.g. higher education or more prior work experience or a higher starting age. Our methodology is based on international comparisons of matched plants producing the same or similar products. Four multinationals are analyzed with matched plants in the U.S., the U.K., Italy, the Netherlands and Belgium. Matching the plants ensures that issues of product differences and product

Labor Market Regulation and Production Worker Hiring Standards

41

quality do not complicate the analysis. Since the product is held constant while the countries differ in their legal provisions and jurisprudence in the area of employment protection, one can test for the effect of employment protection on hiring standards. The analysis has a time dimension, considering past hiring standards in the plants for up to twenty-three years. The time dimension increases the number of data points, with data from 11 manufacturing plants over the mid-1970s to mid-1990s. The aim is to provide data on what firms have actually done in the recruitment process when confronted with changes in employment protection. Measuring regulation is obviously difficult. In particular, firing costs are hard to quantify. In line with Autor (1999), we argue that due to judge-made law the U.S. is not as unregulated as it is often made out to be. So far, a time varying cardinal measure quantifying firing costs that takes account of legal provisions as well as possible litigation costs in the absence of legal provisions – as in the case of the U.S. – is unavailable. Therefore, we construct two regulation measures. One is an employment protection index based on the OECD (1999) method, but incorporating both changes in legislation and in relevant court practices. The other is based on average worker tenure. The argument here is that longer tenure signifies more insider power (Emerson, 1988). In addition, we bring in a measure of trade union density, since this too is linked to regulatory pressure. The plan of the paper is as follows. In the next section, we discuss the determinants of company hiring standards. Section 3 discusses our index of employment protection together with other relevant variables. Section 4 describes our data-set and the nature of the study plants. Section 5 presents our main results and their implications for the evolution of hiring standards.

2. THE DETERMINANTS OF HIRING STANDARDS We are interested in measuring recruitment choices, and explaining variations among plants. In practical terms, we quantify the “type” of worker who does the jobs in the plant by using various skill characteristics such as education, starting age and prior experience. Personnel records provide information on these characteristics. The starting point we use for explaining a plant’s hiring standards is a “conventional” economic model (see also Morton & Siebert, 2000). In this model, the skill level of recruits is explained in terms of the plant’s product, the wage and non-wage (including tax) costs of skilled relative to unskilled workers, labor market regulation including trade unionism, the economic environment, and idiosyncratic factors such as a plant’s history. Let us take these up in turn.

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Product and Wages Starting with the product, product engineering considerations will determine the productivity of high skilled relative to low skilled recruits, and the complementarity between workers of different skills. We aim to eliminate engineering considerations with our strategy of comparing plants producing the same product. The wage element then comes in. Standard economic theory predicts that a particular mix of high and low skill workers will be chosen so as to bring the productivity of high relative to low skill workers into line with their relative wages. The relative wage of unskilled workers might be lower for our U.K. and U.S. plants than in their continental European counterparts – perhaps because of weakened unions and lower unemployment benefit and minimum wage “floors” for unskilled earnings. Lower relative wages for unskilled workers would be a factor predisposing U.K. and U.S. plants towards a less skilled worker mix, that is, less educated, less experienced recruits and perhaps more diversity (more dispersed distributions) generally. While we do not have a relative wage variable, the panel nature of our data allows for plant fixed effects, so relatively lower unskilled wages will be allowed for. However, we do have information on individual recruit’s starting pay, which we include to take account of differences in job characteristics for the relevant positions filled. Taxes A further factor affecting the skill mix will be payroll taxes since these affect labor costs. The standard argument is that, since labor supply is inelastic, high taxes will be shifted back onto the worker, causing a downward movement in wages with little effect on employment. However, if trade unions can limit this downward movement in wages (Nickell, 1997; Scarpetta, 1996), labor costs increase and employers have to search for methods to increase labor productivity. One method to increase labor productivity is to raise hiring standards. Hence we expect higher taxes to be associated with higher standards, and incorporate a tax variable in the analysis. Labor Regulation We are mainly concerned here with employment protection legislation. This legislation can affect a plant’s skill mix by directly constraining the retention decision. As noted in the introduction, the U.K. and U.S. have less strict employment protection legislation than most European Union states. It is difficult to measure the pressure of this legislation, as we discuss in the next section. Nevertheless, in principle we would expect stricter legislation to tilt the recruitment choice against unskilled labor.

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43

Trade union power should also be considered under this heading. In particular, unions promote labor market regulation (Siebert, 1999, p. 22). In this regard, it is union power at the national, rather than the plant level, which is important. Unions may also enforce labor market regulations within the plant, strengthen insider power and push up wages and working conditions, thereby increasing the overall payment bundle. Standard economic theory predicts that the firm will hire workers so as to equate the worker’s value of marginal productivity with the overall payment bundle. Hence, firms are likely to increase hiring standards in order to increase labor productivity in line with the payment bundle. The Environment Unemployment, global trends requiring more skilled labor, and special factors such as raising the school-leaving age enter here. Starting with unemployment, from a supply side point-of-view high unemployment rates should favor higher hiring standards, since the supply of good people is abundant then (see Reder, 1955). From the demand-side point of view the rationale might go in the opposite direction. Firms will be more likely to expand capacity, invest in new – and most likely more technologically advanced – machinery when business prospects are good, and that is the time when the need for more qualified people arises. Following this demand-side argument it will be the good times with overall low unemployment rates, when firms recruit more skilled workers. But good times from the firm’s point of view might deviate from the overall state of the economy. In other words, fluctuations in overall economic activity as represented by the unemployment rate, need not take account of specific business conditions within a firm. To allow for this, we also include employment deviations from trend at the plant level, as well as the overall unemployment rate. We also incorporate a time trend variable to capture underlying forces leading towards recruitment of more skilled labor. Such an underlying trend could result from technological progress or increased third world competition. Both these factors will favor skilled workers. Idiosyncratic Factors A factor here is a plant’s history. For example, plants might have a tradition in their recruitment behavior, such as hiring members of the same family (as we found in our Italian distilling plant). To take account of idiosyncratic factors we allow for plant fixed effects. In addition, plants in different countries will be subject to different shocks, in particular changes in school-leaving age laws. We account for this change with a suitable school-leaving age dummy.

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3. MEASURING EMPLOYMENT PROTECTION The analysis includes data for plants operating in three continental European countries – Italy, Belgium and the Netherlands – the U.K. and three U.S. States – Missouri, California and Maryland. This range of countries differs widely in their legal provisions, institutional settings and jurisprudence in the area of employment protection. While it is widely accepted that employment reductions are more costly in continental European countries than in the U.K. and the U.S., these firing costs are hard to quantify (Bertola et al., 1999, p. 3). Firing costs are influenced by rules governing unfair dismissal, layoffs for economic reasons, severance payments, minimum notice period, administrative authorization for dismissals, prior discussion with representatives of unions or labor market administrations as well as possible litigation cost in the absence of legal provisions – as in the case of the U.S. So far, a cardinal measure quantifying firing costs taking account of this wide set of rules is unavailable. Therefore, we develop an index for employment protection of permanent employment for the purpose of this analysis (see also Daniel, 2001, 103 ff.). Most research assessing the impact of employment protection on aggregate labor market outcomes utilizes qualitative rankings of employment protection stringency to circumvent measurement difficulties. Bertola (1990), Grubb and Wells (1993) constructed rankings for industrial countries, and the OECD (1993, 1999) constructed indices of the strictness of employment protection based on a wider set of provisions governing regular as well as temporary employment based on the Grubb and Wells method. The OECD (1999) index of employment protection legislation rates countries on strictness of dismissal protection laws for permanent workers and regulation of temporary workers. In contrast to their earlier index (OECD, 1993) the ratings are intended to measure the intensity of restrictions, i.e. they are cardinal measures, rather than ordinal. One reservation about these indices is that they cannot take account of the way the law is enforced (see Bertola et al., 1999). A further limitation of these measures is that they each cover just one point – or two points in the case of the latest OECD (1999) index – in time. When some aspects of employment protection, which are available over time, are positively correlated with other aspects of employment protection, the use of such partial indicators could remedy this problem (see Bertola et al., 1999, p. 3, on measurement problems). For example, Lazear (1990) quantified firing costs as the amount of severance and notice period measured in monthly wages owed to a dismissed worker after ten years of service. While available over time, Lazear’s measure is unable to capture changes in regulation and practices over the time period of our analysis.

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45

Since these measures of employment protection are unlikely to accurately reflect the magnitude of expected dismissal cost, Heckman and Pages (2000) construct a measure of expected firing cost for Latin America, the Caribbean and a subset of OECD countries. While the approach promises a more accurate measure of expected firing costs by summarizing the entire tenure-severance pay profile, assigning dismissal probabilities is problematic. Their measure computes the expected discounted cost at the time a worker is hired of dismissing him/her in the future due to unfavorable economic conditions. Heckmann and Pages assign a common set of dismissal probabilities based on observed turnover rates in the U.S., i.e. every year the probability of dismissal equals 8%. Since turnover rates itself are affected by job security the U.S. serves as a benchmark country with the least legal provisions in their sample. However, despite the absence of legal provisions in the field of employment protection, the U.S. might not be as unregulated as it is made out to be, with firing costs being determined by potential costly termination litigation (Autor, 1999, p. 1). As can be seen in Table 1, according to the OECD (1994, 1999) rating of employment protection legislation for regular employment the U.S. is the least restricted followed by the U.K. The Netherlands and Italy are at the other end with the most restrictions with Belgium being in the middle. Between the late 1980s and late 1990s the OECD measure does not indicate any change in strictness of employment protection in these countries. However, over the period since 1975, the U.K., Belgium and Italy experienced some relaxation of employment protection in contrast to the U.S. According to our index (see Table 2) the U.S. tightened employment protection at the same time as the European countries were loosening it. Table 1. OECD (1999) Employment Protection Index. Regular Employment

Italy Netherlands Belgium U.K. U.S.

Temporary Employment

Late 1980s

Late 1990s

Late 1980s

Late 1990s

2.8 3.1 1.5 0.8 0.2

2.8 3.1 1.5 0.8 0.2

5.4 2.4 4.6 0.3 0.3

3.8 1.2 2.8 0.3 0.3

Notes: The index on employment protection for regular employment incorporates scores for regular procedural inconveniences, notice and severance pay for no-fault individual dismissal and difficulty of dismissal. The index for strictness of regulation regarding temporary employment incorporates scores for regulation of fixed-term contracts and temporary work agencies. The indices can range from 0 to 6, with higher values representing stricter regulation. Source: OECD (1999, Tables 2.2 and 2.3).

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Table 2. Employment Protection in the Study Countries Mid-1970s to Mid-1990s. Employment Protection Index 1975

1995

2.8

2.3

Temporary employment

5.4

3.8

Netherlands Regular employment Temporary employment

3.1 2.4

3.1 1.2

Belgium Regular employment

1.4

1.3

4.6

2.8

1.0

0.8

Temporary employment

0.3

0.3

U.S. Missouri Regular employment

0.2

1.1

0.3

0.3

0.2

1.1

0.3

0.3

0.2

1.1

0.3

0.3

Italy Regular employment

Temporary employment

U.K. Regular employment

Temporary employment California Regular employment

Temporary employment Maryland Regular employment

Temporary employment

Employment Protection: Major Changes Mid-1970s to Mid-1990s

1984: Introduction of the “contratto formazione,” effectively increasing the trial period for permanent employees up to 24 months 1987: Rules governing the use of fixed-term contracts were relaxed

1990: Rules governing temporary work agencies were relaxed

1985: Compensation for unjust dismissal was significantly reduced Early 1990s: Rules governing the use of fixed-term contracts were gradually relaxed

1985: Period of service to claim unfair dismissal increased to two years

1983: Benchmark judgment introducing the implied contractual right to continued employment

1976: Benchmark judgment introducing the implied contractual right to continued employment

1985: Benchmark judgment introducing the implied contractual right to continued employment

Notes: The index on employment protection for regular employment incorporates scores for regular procedural inconveniences, notice and severance pay for no-fault individual dismissal and difficulty of dismissal. The index for strictness of regulation regarding temporary employment incorporates scores for regulation of fixed-term contracts and temporary work agencies. The indices can range from 0 to 6, with higher values representing stricter regulation. Sources: Regulation of regular employment: for Belgium Hepple (1985, p. 500); for Italy Brodolini (1997, p. 115); for the U.S. Autor (1999, Legal Appendix); authors’ computations. Regulation of temporary employment: OECD (1999, Table 2.1 and 2.3).

Labor Market Regulation and Production Worker Hiring Standards

47

In terms of regulation of temporary employment, the U.S. and the U.K. are and have been the least restricted. Italy is and has been the most restricted followed by Belgium and the Netherlands (see Table 1). All three continental European countries experienced some relaxation in the rules governing temporary employment in the late 1980s and early 1990s. To take account of overall employment flexibility, we incorporate a separate index for regulation of temporary employment in the analysis based on the OECD scores for the late 1980s and late 1990s. Due to the lack of availability of a time varying cardinal measure of employment protection for regular employment suitable for all countries involved in the analysis, we construct an employment protection index based on the OECD (1999) method.1 Table 2 gives an overview of relevant changes in rules and court practices governing employment protection and legislation regarding the use of temporary contracts for the period of analysis. In Italy the introduction of the “contratto formazione,” a training contract running for up to 24 months, not only involves tax incentives for the employer, but also effectively reduces the trial period for unfair dismissal from 1–2 weeks for blue-collar workers to 24 months. In practice, these contracts are used as a trial period for permanent employment, i.e. all new permanent hires are initially hired on a training contract and up to 99% of these hires are made permanent after the training contract has expired. Since this relaxation in employment protection manifests itself in the way employers are responding to the introduction of the training contract, rather than in legislation itself, it is not captured by the OECD index. According to Autor (1999), 45 U.S. states, among them the three states in which the study plants are located, experienced a tightening of employment protection with the introduction of exceptions from the employment-at-will doctrine through benchmark court judgments. The implied contractual right to continued employment, introduced in 41 states, is the most encompassing exception and “may de facto classify a company’s entire workforce as terminable only for cause” (Autor, 1999, p. 6). This exception effectively limits employers’ discretion to terminate workers and opens them to costly litigation, thereby tightening employment protection in a way that is not captured by the OECD index, which is based on legislation only. Hence, the U.S.’ particular approach to provide employment protection follows the general notion of “American exceptionalism.” While employment protection is more likely to be statutory elsewhere and enforced by government, the U.S. moved away from the employment-at-will doctrine through private enforcement rather than legislation. We can also expect job tenure to be related to employment protection legislation, since such legislation results in fewer dismissals and lower levels of hiring, and therefore fewer workers with short tenure (Emerson, 1988). In fact, both Italy

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KIRSTEN DANIEL AND W. S. SIEBERT

and Belgium have high job tenure (higher even than Japan, the land of lifetime employment). To this extent the tenure variable links well with the employment protection index. The high Belgian and Italian tenure figures imply high levels of insider power, which in turn suggest a strict regulatory framework. For the purpose of our study, we develop an average tenure time-series variable by taking the average tenure of each plant’s workforce in each year. This variable has advantages over the regulatory index in being plant-specific, and also having a natural cardinal metric. Table 3 gives an overview of the average tenure and employment protection indices together with unionization and tax variables. As can be seen, average tenure has increased in all plants over time – just as much, if not more, in the U.S. plants. The implication is that insider power has increased in these large-company plants. However, our employment protection index for regular work shows a different pattern, with a loosening in Europe but a tightening in the U.S. over the period. There is a conflict here, which surfaces in our regression estimates. As for union density and total taxes, these are higher in the European countries compared to the U.S. However, while taxes have remained high in Europe, there has been a convergence in the U.S. and Europe regarding union density, with a decline being registered in all countries. Across the countries and states included in the study, the employment protection index correlates significantly positively with the tax wedge (0.42, p < 0.01) and with union density (0.19, p < 0.05). These correlations suggest that the employment protection index is picking up regulatory pressure, which is linked to union power and the tax wedge. It is worth noting, as well, that the employment protection index also correlates significantly positively with overall unemployment (0.13, p < 0.05), suggesting that the countries with higher overall regulatory pressure tend to experience higher unemployment rates (either as cause or effect). The average tenure variable also correlates significantly positively with overall unemployment (0.29, p < 0.01), but not with union density and the tax wedge. One has to keep in mind that the employment protection index and average tenure are not measuring the same thing. Average tenure will be influenced by employment protection among other things. For example, since average tenure tends to increase with age, the general trend of aging of the population in the industrialized world might be partly responsible for the general upward trend in average tenure across countries. In addition, labor markets with strong insider power and long average tenure of the workforce can emerge without employment protection as the main driving force. For example, long average tenure can be a sign for firm-specific training investment and efficiency wage considerations playing a dominant role, rather than labor market regulation. In fact, the correlation between average tenure and employment protection is significant but not very strong (0.25, p < 0.01).

Labor Market Regulation and Production Worker Hiring Standards

49

Table 3. Key Country Variables: Changes mid-1970s to Mid-1990s. Employment Protection for Regular Employmentb

Regulation of Temporary Regular

Italy 75–79 90–94

13.55 +2.23

2.8 −0.5

5.40 −1.60

48.7 −9.9

26.9 +14.4

Netherlands 75–79 90–94

8.74 +5.05

3.08 0

2.40 −0.96

36.8 −10.5

43.4 +3.0

Belgium 75–79 90–94

4.52 +3.13

1.43 −0.8

4.6 −1.08

52.8 −0.4

43.7 +1.7

U.K. 75–79 90–94

7.45 +5.65

0.95 −0.17

0.30 0

52.8 −16.6

34.2 +0.7

– –

0.20 +0.88

0.30 0

20.8 −7.2

15.2 +0.3

California 75–79 90–94

4.52 +6.97

0.73 +0.35

0.30 0

23.8 −0.6

18.4 −2.1

Maryland 75–79 90–94

5.87 +8.06

0.20 +0.88

0.30 0

21.0 −6.2

21.2 −1.9

U.S. Missouri 75–79 90–94

Union Densityc

Tax Wedged

Average Tenure of the Workforce

Notes: The tax wedge is defined as total taxes divided by GDP. a Authors’ Computations (see Appendix). b OECD (1999, Table 2.3). c Ferner and Hyman (1992, Table 16.2), Van Ruysseveldt and Visser (1996, Table A19), Waddington et al. (1997), Conference Board (unpublished U.S. tabulations). d Europe: OECD National Accounts Statistics, Vol. 2, several issues, Tables 1 and 6, U.S.: Internal Revenue Service, Bureau of Economic Analysis.

4. THE DATA The sample includes data from four sets of plants, which produce the same or similar products, operating in continental Europe, the U.K. and the U.S. (apart

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KIRSTEN DANIEL AND W. S. SIEBERT

from the pharmaceuticals multinational, where the U.S. match is missing). The plants are subsidiaries of major multinational manufacturing companies, which were chosen on a random basis. The industries involved are ice cream manufacturing (Italy, the U.K., Missouri), distilling (Italy, the U.K., California), food processing producing margarine (Netherlands, the U.K., Maryland), and pharmaceuticals producing penicillin (Belgium & the U.K.). The food processing plants are the closest “match.” They are of similar size, produce an identical product, and use identical equipment. The distilling plants display the greatest differences having been only under common ownership since the late 1980s. Despite some variation in the product range among matched plants, the technology used in the production process, as well as the product, is generally very similar.2 The U.S. ice cream plant is the exception here, with a less capital-intensive production compared to its European counterparts. Interestingly, not only continental European but also U.S. plants experience higher labor cost than their U.K. counterparts (see Table 5). Plant data were collected directly from personnel records of recruits hired between 1975 and 1997 in the study plants. We focus on permanent males, since they represent the group for which most systematic data are available over the past two decades. The 11 plant, five country, two decade study involves approximately 2700 individual male recruits who are taken onto permanent contracts within their first year in the study plant. We compiled information on individual recruits into yearly averages, so forming approximately 130 to 180 plant-time data points, depending on missing observations. The limitation of our approach, although there are about twenty years worth of data for each plant, is that our research is essentially based on case studies. As with all case studies, there is a risk that they are unrepresentative, so that one has to be careful in drawing general conclusions. Nevertheless, our plants can reasonably be taken as representative of practices among large multinational companies. In addition, the use of matched plants increases the power of the case studies, since it allows us to standardize for the product, the technology used and the market environment. The common ownership of the plants means that we can also control for common corporate policies. Such control allows us to identify differences between countries more clearly.

5. RESULTS The analysis considers company hiring standards in the form of recruits’ age – and hence experience3 – and education. To identify the determinants of hiring standards, the analysis starts by giving background to the recruitment process,

Labor Market Regulation and Production Worker Hiring Standards

51

and then moves to a regression analysis with a full set of variables theoretically relevant for the recruitment process (see also Daniel, 2001).

The Recruitment Process Tables 4 and 5 give statistics on the recruitment process in our plants. Table 4 uses average values over the whole period. Table 5 then shows trends, comparing the position in the 1975–1979 period with that in the 1990s.4 Let us consider these tables in turn. Table 4 shows simple measures of dispersion as well as averages for our starting age and previous experience variables. A wide dispersion of starting ages, for example, implies that both young and old are given a chance, as well as the prime age workers. As can be seen, average starting ages do not vary much among the plants, but dispersion does – as measured by the proportion of recruits under 25. This proportion varies between 19.2% (U.S. food processing) and 77.5% (Italian distillers). Similarly the proportion of inexperienced recruits – with less than one year’s previous experience – varies considerably, from 2.3 to 20.2%. Some correlations between variables across the 11 plants are of interest. As we have mentioned, recruits’ age and previous experience are well correlated, as might be expected, r = 0.93. Average age and the proportion of young recruits are also tightly correlated, negatively, r = −0.97. We show the link in Fig. 1. The link is interesting because it shows that plants with a high average starting age also have a smaller proportion of under-25s. A high average age could be compatible with a high proportion of under-25s so long as this was coupled with many over-55s (a wider age dispersion), but apparently this is not the case. Figure 1 shows a tight relationship stretching across diverse countries. We do not

Fig. 1. Starting Age and the Proportion of Young Recruits are Negatively Linked.

52

Table 4. Variables Related to the Hiring Process: Mean Values 1975–1995.a,b,f Ice Cream

Distillers

Food Processing

ITa

U.K.

U.S.b

ITc

U.K.

U.S.

Average hires per Total Permanent males

45 25

61 11

41 8

13 6

74 24

25 5

Starting age of new hires Average (years) % ≤25 years

30.4 32.6

28.1 52.3

27.1 50.4

23.7 77.5

30.2 41.3

– –

10.7 20.2

8.4 18.9

7.7 5.0

10.6

11.9

12.2

9.8

NL

Pharmaceuticals

U.K.

U.S.

BL

U.K.

11 7

28 16

26 7

16 4

43 26

33.6 27.0

25.3 61.9

27.7 51.6

34.8 19.2

34.8 26.4

31.9 30.8

14.0 10.3

14.7 15.4

9.0 6.6

11.9 10.3

15.2 4.8

18.9 2.3

15.9 8.8

11.4

12.1

10.8

11.2

12.4

10.9

11.0

–

12.10

yeard

Education of new hires (years) Hourly entry pay,

1995e

Average tenure of the a The

(U.S. dollar)

workforcef

9.07 –

7.76 12.1

6.58

–

4.8

15.8

9.0

9.3

4.89 10.5

5.08 11.8

10.50

5.56

10.8

7.9

4.83 10.2

period for ice cream manufacture Italy is 1985–1995. Averages for characteristics of new hires are drawn from the stock of employees in 1999. period for U.S. ice cream manufacture is 1980–1995. c Averages for education of new hires are drawn from the stock of employees in 1998. d Average hires per year are drawn from the sample. e Figures are converted to U.S. dollars using 1995 purchasing power parity. f The period for Netherlands and U.S. food processing is 1975–1994. b The

KIRSTEN DANIEL AND W. S. SIEBERT

Previous experience of new hires Average (years) % ≤1 year

Labor Costs per Production Worker, U.S. Dollar PPP, Mid-1990s

Recruits: % with < 1 Year Previous Experience Average 1975–1995

1975–1979

Change from Period 1975–1979 to 1990–1994

Recruits’ Education (Years) Average 1975–1979

Change from Period 1975–1979 to 1990–1994

Ice Cream Ita U.K. U.S.b

35,000 32,100 36,400

– 20.2 18.9

– 20.6 26.7

– +1.2 −9.6

11.9 11.3 12.3

−1.6 +0.7 −0.2

Distillers IT U.K. U.S.

44,100 29,500 47,300

5.0 10.3 15.4

0.0 8.0 24.0

+8.6 +10.6 −24.0

7.5 10.9 11.9

+2.8 +1.9 +0.3

Food Processing NLc U.K. U.S.

53,100 39,000 40,900

6.6 10.3 4.8

7.4 4.6 19.1

+1.7 +13.8 −15.0

10.5 11.1 11.2

+0.8 +0.5 +1.9

Pharmaceuticals BLd U.K.

67,900 29,700

2.3 8.8

0.0 4.5

+2.1 +2.0

9.6 10.4

+1.5 +0.9

Labor Market Regulation and Production Worker Hiring Standards

Table 5. Comparison of Labor Cost with Recruits’ Previous Experience and Education.

a The

period for Italian ice cream manufacture is 1985/1989 to 1990/1994. Averages are drawn from all permanent workers including females. period for U.S. ice cream manufacture is 1980/1984 to 1990/1994. c The period for Netherlands food processing is 1975/1979 to 1986/1990. d The period for Belgian pharmaceuticals is 1975/1979 to 1990/1992. Averages are drawn from all permanent workers including females. b The

53

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KIRSTEN DANIEL AND W. S. SIEBERT

Fig. 2. Starting Pay and Changes in Starting Ages are Negatively Linked.

have time-series data on the proportion of under-25s hired, but can accept that average starting age is a good proxy. Other interesting correlations are with pay. As regards correlation with pay, starting pay correlates reasonably well with recruits’ education, r = 0.58, again as might be expected (but not with starting age). Nevertheless, labor costs (given in Table 5) correlate negatively with the proportion of inexperienced hires, r = −0.54. The implication here is that plants with high labor costs cannot afford to take a chance on inexperienced recruits. The percentage inexperienced variable also correlates well with a plant’s starting pay, r = −0.87. The scatter diagram is given in Fig. 2. The implication is that high paying plants do not recruit inexperienced workers, which is what we would expect. As regards changes to 1990–1994 in recruits’ education, Table 5 shows that the trend has been firmly upward. The average increase, taken across all the plants,

Fig. 3. Recruits’ Education and Experience are Substitutes.

Labor Market Regulation and Production Worker Hiring Standards

55

is almost one year’s extra education. The change in education variable correlates negatively with changes in recruits’ starting age, r = −0.55. The scatter diagram is given in Fig. 3. Plants, which move to hire more educated workers, thus appear also to accept younger, less experienced workers. In other words, education and experience are substitutes, as we would expect. While the scatter in Fig. 3 is not very tight, we will see this relationship becoming stronger in the multivariate analysis.

Regression Analysis We now move to analysis of all plant-time data points. The dependent variables (recruits’ starting age, or education) are formed by averaging information from individuals (permanent males) recruited to work in each plant in each year. Since these numbers are sometimes quite small, as can be seen from the first line of Table 4, we use Weighted Least Squares with weights based on the numbers underlying each plant average. Thus data points based on few recruits receive less weight. Our strategy is first to estimate an unrestricted equation, allowing all coefficients to differ for all plants. This equation is equivalent to estimating eleven separate equations, one for each plant. We then test whether it is permissible, statistically, to restrict some or all coefficients to be equal across plants – though we always allow for different plant intercepts. The model in its general form is thus:


Q it = ai + bi t + c i X it−1 (1) where Qit is recruits’ average education or starting age in the i-th plant and t-th year, and i runs from 1 to 11, and t runs from 1975 to 1994 (for most plants); ai is the constant term for the i-th plant; t is a time trend; Xit −1 is a vector of other variables, generally lagged by a year. A restricted form of the equation is:
Q it = a i + bt + cX it (2) This equation has only the constant term differing among plants. In general we find that Eq. (2) is not a significantly worse fit than (1), and so F-tests allow us to accept the hypothesis of equality of coefficients. Simple regressions are shown in Table 6. These regressions include, in addition to the plant constants, employment protection measures, and the time trend. In addition, for the education variable we have a mandatory school-leaving age dummy (lagged four years to allow for a delayed impact on recruitment in our

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KIRSTEN DANIEL AND W. S. SIEBERT

Table 6. Simple Regressions. Variable (Mean) Regulation measures Average tenure (10.5)

Starting Age (29.7) −0.31 (−1.44)

Employment protectiont−1 (1.2) Temp regulationt−1 (1.3) Time

0.32∗∗∗ (3.18)

4.53∗∗∗ (3.60) 0.43 (0.35) 0.13∗∗ (2.41)

School leaving aget−4 (15.6) Education (11.3) Adjusted R2 F-test for equality of coefficients among plantsa Observations

Education (11.3)

0.03 (0.65) −0.22 (−0.72) −0.23 (−0.84) 0.06∗∗∗ (2.86)

0.06∗∗∗ (4.78)

0.24∗ (1.72)

0.23 (1.56)

−1.51∗∗∗ (−3.62)

−1.33∗∗∗ (−3.92)

0.35

0.40

0.52

0.44

2.58 (1.58)

NA

1.23 (1.62)

NA

165

187

165

187

Notes: t-values are given in parentheses. ∗ , ∗∗ and ∗∗∗ denote significance of the t-tests at the 10, 5 and 1% level respectively. a 5% critical values for the F-test are given in parentheses. “NA” denotes that the unrestricted equation could not be fitted.

plants). For the starting age variable we also include education as a regressor, to measure substitution between education and starting age. The F-tests allow us to accept common coefficients across plants for the education variable (F = 1.23). However, for the starting age variable the F-value is over the borderline for imposing common coefficients (F = 2.58), but we nevertheless report the constrained equation for simplicity. The main results for these equations are, firstly, that the regulation measures are sensitive to specification. The employment protection index is significantly positive for starting age, but not for education. On the other hand, the index for regulation of temporary employment and the average tenure variable are not significant in either case. Secondly, the time trend is positive for both variables, suggesting a steady rise in production worker hiring standards in all the countries. Thirdly, the school-leaving age dummy plays the expected positive, though marginally significant, role in raising hiring standards. Finally, there is evidence of substitution between education and starting age. Such substitution is shown

Labor Market Regulation and Production Worker Hiring Standards

57

Table 7. Full Regressions. Variable (Mean)

Starting Age (29.5)

Regulation measures Average tenure (11.2) Employment (1.2)

−0.57∗∗ (−2.07)

protectiont−1

0.11∗∗ (2.02) −0.40

0.49

Temp regulationt−1 (1.2) Time

Education (11.5)

0.60∗∗∗ (3.27)

(0.16) 0.49 (0.28) 0.44∗∗∗ (2.53)

0.07∗ (1.91) 0.37∗∗ (2.18)

School leaving aget−4 (15.7) Education (11.5)

−1.25∗∗∗ (−2.63)

−1.25∗∗∗ (−3.07)

Unemploymentt−1 (8.4)

−0.39∗ (−1.68)

−0.54∗∗∗ (−2.55)

Union densityt−1 (38.0)

0.24 (1.43)

Tax wedget−1 (33.5)

(−0.61) 0.23 (0.56) 0.06 (1.46) 0.39∗∗ (2.07)

−0.06 (−1.48)

−0.01 (−0.17)

0.29∗ (1.66)

0.03 (0.91)

−0.00 (−0.05)

−0.06 (−0.23)

0.08 (0.28)

0.06 (1.21)

0.01 (0.12)

Employment deviation (0.04)

−0.03 (−0.25)

0.05 (0.52)

0.01 (0.60)

0.00 (0.18)

Starting pay (1.2)

−0.93 (−0.56)

−0.18 (−0.11)

−0.19 (−0.60)

−0.30 (−0.82)

Adjusted R2 F-test for equality of coefficients among plantsa Observations

0.48 0.79 (1.58) 129

0.44 NA

0.47 1.24 (1.57)

143

129

0.38 NA 143

Notes: See Table 6.

in the starting age equation by the negative coefficient on the education variable, −1.33 or −1.51 according to specification. The full results are given in Table 7.5 Here we again report only one equation for all the plants – again allowing different plant constants – because the F-values (where computable) are low enough to accept the hypothesis of common coefficients. As can be seen, once other influences are held constant, the significance of employment protection, as found in the simple age regression, disappears. This

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KIRSTEN DANIEL AND W. S. SIEBERT

indicates that the role of employment protection in increasing age, and hence experience requirements, has now been taken over by other variables, in particular union density. Therefore, union density might indicate regulatory pressure, taking over the effect of employment protection.6 Union density is found to increase hiring standards, in favor of older and hence more experienced workers. This result is in line with Scarpetta (1996) who found union density to significantly increase the youth unemployment rate. Thus, strong unionism may make it more difficult for younger workers to be hired into the firm by causing permanent workers (insiders) to be more carefully selected. As mentioned above, strong unions are likely to play a role in promoting and enforcing labor regulation. In fact, the union density variable is significantly correlated with our employment protection index as well as the overall tax wedge (r = 0.68, p < 0.01), indicating the positive relationship between overall regulatory pressure and union density.7 In the full specifications, the average tenure variable enters significantly. However, this variable behaves in opposite directions for starting age and education. For starting age, we see a negative coefficient on average tenure. An increase in average tenure thus reduces starting age, making it easier for young workers to get hired, which is not consistent with “insiders” exercising their power by restricting entry. In the education equation, however, average tenure has the expected positive sign. An increase in insider power (indicated by an increase in average tenure) appears thus to raise education standards, and so makes it more difficult for less educated workers to be recruited. Overall, since education is substitutable for age (the coefficient on education in the starting age equation remains negative, −1.25), an increase in average tenure apparently strongly reduces starting age requirements, while raising education requirements. On this evidence, insider power acts for educated workers and young workers, but against the uneducated and the old. As for the other variables, the time trend continues to be strong for starting age, though less so for education. Thus there are forces, apart from those explicitly identified in the equation, which raise hiring standards. We identify these forces with factors such as skill-using technical progress, since they act on plants in all countries. Surprisingly, unemployment is found to be associated with a decrease in starting age (though not education). This result goes against the notion that more skilled workers will be recruited in times of high unemployment when the supply of good people is abundant. According to our results, skilled worker vacancies, which require more experience, increase in boom periods when unemployment rates are low. Hence our results point to a demand-side explanation: that it is in good times

Labor Market Regulation and Production Worker Hiring Standards

59

when firms expand capacity and invest in new machinery that the need for more experienced workers arises.

Implications It is interesting to see what the implications of our estimates are for the explanation of hiring standards. We perform this exercise in Table 8 analyzing the effects of the variables identified in the full regressions as significantly influencing hiring standards. The first line of panel A shows that between the mid-1970s and mid-1990s, taking the time trend alone, recruits’ starting age would have increased by six years for the average production worker across all plants. On a different specification (panel B), the increase would have been nine years. For education, the increase would have been one year, other things being equal (panel C). However, we identified other forces that have had a counterbalancing effect on the general upward trend in hiring standards. Taking the plants overall, the actual increase of average recruits’ starting age over this fifteen year period is 0.39 years, and the increase in education is 0.68 years. The positive effect of employment protection on recruitment standards as found in simple regressions is not supported by the multivariate analysis once other influences are held constant. However, it could be argued that union density as an indicator of regulatory pressure takes over the role of employment protection in increasing age requirements. The results suggest that the decline in union density of over 9 percentage points between the late 1970s and the early 1990s across all countries incorporated in this study, has actually helped less experienced workers by reducing age – and hence experience – requirements by over two and half years (see panel A). Results on the effect of average tenure of the workforce if interpreted as a measure of insider power, indicate that insider power favors the recruitment of more educated people, which is in accordance with our hypothesis. However, it also favors the employment of younger workers, which is against our hypothesis. Certainly it can be said that insider power worsens the position of older, less educated workers. Taken by itself, the overall increase in average tenure of the workforce between the late 1970s and early 1990s across all plants has led to the recruitment of workers who are on average three years younger and have over half a year more education (see panel B and panel C). The overall increase in education reduced age requirements by about a year, counterbalancing the upward trend in overall experience requirements (see panel A and panel B). As mentioned above, we found a strong substitutability between

60

Table 8. Coefficient (1)

Effect, (1) × (2)

Change in Variable (2) Cont. Europe

U.K.

U.S.

Cont. Europe

U.K.

U.S.

Overall

A. Summary Analysis of Changes in Recruit’s Starting Age: 1975/1979–1990/1994a Time +0.44 15 years 15 years 15 years Education −1.25 +1.13 +0.64 +0.84 Unemploymentt − 1 −0.54 +2.43 +3.04 −0.76 Union densityt − 1 +0.29 −7.06 −15.05 −5.75 Predicted change Actual change

15 years +0.68 +1.57 −9.29

+6.60 −1.41 −1.31 −2.05 +1.83 +1.67

+6.60 −0.80 −1.64 −4.36 −0.20 −0.41

+6.60 −1.05 +0.41 −1.67 +4.29 +2.51

+6.60 −0.85 −0.85 −2.69 +2.21 +0.39

B. Summary Analysis of Changes in Recruit’s Starting Age: 1975/1979–1990/1994b Time +0.60 15 years 15 years 15 years Education −1.25 +1.13 +0.64 +0.84 Unemploymentt − 1 −0.39 +2.43 +3.04 −0.76 Average tenure −0.57 +3.50 +5.60 +7.50 Predicted change Actual change

15 years +0.68 +1.57 +5.30

+9.00 −1.41 −0.95 −1.99 +4.65 +1.67

+9.00 −0.80 −1.19 −3.19 +3.82 −0.41

+9.00 −1.05 +0.30 −4.27 +3.98 +2.51

+9.00 −0.85 −0.61 −3.02 +4.52 +0.39

15 years +1.20 +5.30

+1.05 +0.62 +0.38 +2.05 +1.12

+1.05 +0.37 +0.62 +2.04 +0.64

+1.05 0 +0.82 +1.87 +0.84

+1.05 +0.44 +0.58 +2.07 +0.68

C. Summary Analysis of Changes in Recruit’s Education: 1975/1979–1990/1994 Time +0.07 15 years 15 years 15 years School leaving aget − 4 +0.37 +1.67 +1.00 0 Average tenure +0.11 +3.50 +5.60 +7.50 Predicted change Actual change a Changes b Changes

in unemploymentt − 1 and union densityt − 1 variables cover the period 1976/1979–1990/1994. in the unemploymentt − 1 variable cover the period 1976/1979–1990/1994.

KIRSTEN DANIEL AND W. S. SIEBERT

Overall

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education and experience, with one additional year of education making up for about three and a half years less experience. As can be seen in panel C, the overall increase in education can only partly be blamed on increases in the mandatory school leaving age in the European countries. Overall increases in unemployment rates in Europe further reduced experience requirements between one and one and a half years (see panel A and panel B). On the other hand, the overall reduction in unemployment rates in the U.S. led to an increase in experience requirements of less than half a year. Overall, the multivariate analysis suggests that the time trend had the strongest impact, increasing average recruits’ starting age (and hence experience) as well as average recruits’ education over the period between the mid-1970s and mid1990s. The strong time trend actually leads to an over-prediction of the change in hiring standards, especially since it is multiplied by fifteen years. The reason for this over-prediction could well be omitted variables like for example the influence of skill-biased technological change. We do not have a time series capturing the intensity of this global influence, hence caution is warranted in interpreting the time trend coefficient. As for experience requirements, this strong upward trend was counterbalanced by increased average education of new recruits, higher unemployment rates throughout Europe, an overall decline in union density and an overall increase in average tenure of the workforce. As for average education of new recruits, the general upward trend has further been increased by increases in the mandatory school leaving age throughout Europe and the overall increase in average tenure of the workforce (see panel C).

6. CONCLUSIONS The purpose of this research is to gain a greater understanding of the processes, which confront people with relatively low levels of education and experience when they are looking for jobs. Our results should be regarded as exploratory, as they are based on only 11 plants – though over twenty years. They are indicative more of a method: looking at firms’ hiring patterns. The main policy issue is whether labor market regulation improves or damages the prospects of less educated and experienced workers. Because the U.K. and the U.S. labor markets have traditionally been less regulated than markets in the continental European countries, this study takes the opportunity to consider the effect of different regulatory regimes against a common background by looking at matched plants. First, we find that our plants have, in a statistical sense, similar-strength relationships with respect to the determinants of hiring standards. The fact that

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the U.S. and U.K. have an easier regulatory environment with lighter taxes might show up, in particular, as a smaller upward time trend in starting age and education in plants in these countries. But it does not. The time trend result probably reflects the power of technical change and global competition. These forces affect manufacturing in all countries. Secondly, our variables indicating regulatory pressure are sensitive to specification. The analysis indicates that labor market regulation in general does increase hiring standards. However, our two measures of labor market regulation – the employment protection index and average tenure of the workforce interpreted as a proxy for insider power – display conflicting results. Our employment protection index tends to increase age (and experience) requirements – with union density, which can be interpreted as an indicator of regulatory pressure, taking over this effect in the multivariate analysis increasing age requirements. Thus, strong unionism makes it more difficult for younger less experienced workers to be hired into the firm. On the other hand, insider power as measured by average tenure of the workforce increases educational requirements, but reduces age requirements. One has to keep in mind that average tenure of the workforce and the employment protection index are measuring different things and are both imperfect proxies for labor market regulation. Average tenure can be increased by employment protection, but is also influenced by other factors, in particular firm specific training. Average tenure of the workforce is found to lead to the recruitment of younger more educated workers, who are presumably more likely to have the cognitive ability and willingness to receive more training, which is important in longer-term employment relationships. Therefore, insider power – as measured by average tenure of the workforce – worsens the position of older, less educated workers. We also find a strong substitutability between education and experience. This finding is plausible, since younger workers have less on-the-job training, for which they can substitute education. The implication is that education is becoming important even for access to production worker jobs in the developed world. The substitutability between education and experience, given the conflicting results on the impact of employment protection and insider power, suggests that policies to increase education and training significantly improve job opportunities for unskilled workers in any case. While the implications of specific labor market regulation such as employment protection are difficult to separate from a range of influences, the implications for education and training policies are clear, pointing to the power of education to increase job opportunities for production workers.

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To further analyze the implications of labor market regulation for hiring standards more data on the plant level are needed. In particular, given the importance of insider power as measured by average workforce tenure on hiring standards, more research is needed to further explore the determinants of tenure at the plant level.

NOTES 1. For details see Appendix, Tables A1–A4. 2. See Daniel (2001, Chap. 4), for a detailed description of the study plants. 3. There is a close correlation between the age of male recruits and their previous work experience. Since the time series on recruits’ age produces less missing observations and separate statistical analysis for age and experience produce similar results, we use the time series on recruit’s age as a proxy for previous work experience as dependent variable in the multivariate analysis. 4. The choice of the time period is basically a matter of data availability, i.e. the majority of study plants could provide personnel records covering the period 1975–1995. Since some years produce missing observations in terms of hiring characteristics, i.e. an individual plant might have no permanent hires in a particular year, Table 5 gives a general overview of trends in hiring standards by comparing five-year averages at the beginning with five-year averages at the end of the study period. 5. Note that the adjusted R2 is lower in the full regressions. The reason for the lower R2 is the number of insignificant variables, which are included for illustrative purpose. 6. Overall, multicollinearity might well be responsible for t-values becoming insignificant once other influences are held constant. This is supported by high F-values comparing the full regression with a regression leaving out the employment protection index, the tax wedge, entry pay and employment deviation. In other words, despite being separately insignificant, these variables are jointly significant. 7. However, correlation does not prove causation. According to our interpretation, it is union density positively influencing employment protection, but both in turn increase recruitment standards. Hence, employment protection is interpreted as an endogenous variable. Path analysis might be able to shed light on which causal path is most consistent with the pattern of correlations found in the data. However, path analysis would ultimately not confirm causation of variables, since it too deals with correlations.

REFERENCES Autor, D. H. (1999). Outsourcing at will: Unjust dismissal doctrine and the growth of temporary help employment. Unpublished Paper, Harvard University. Bertola, G., Boeri, T., & Cazes, S. (1999). Employment protection and labor market adjustment in OECD countries: Evolving institutions and variable enforcement. Employment and Training Papers, 48. Geneva: International Labor Office.

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Blanchard, O. J., & Summers, L. H. (1987). Hysteresis in unemployment. European Economic Review, 31, 288–295. Brodolini, F. G. (1997). Labor market studies: Italy. Luxembourg: Office for Official Publications of the European Communities. Daniel, K. (2001). Labor market regulation and employment of unskilled workers: International comparisons. Ph.D. Dissertation, The University of Birmingham. Dertouzos, J. N., Holland, E., & Ebener, P. (1988). The legal and economic consequences of wrongful termination. Rand Corporation Document R-3602-ICJ. Emerson, M. (1988). Regulation or deregulation of the labor market. European Economic Review, 32, 775–817. Ferner, A., & Hyman, R. (1992). Industrial relations in the new Europe. Oxford: Basil Blackwell. Grubb, D., & Wells, W. (1993). Employment regulation and patterns of work in EC countries. OECD Economic Studies, 21 (Winter). Heckman, J., & Pages, C. (2000). The cost of job security regulation: Evidence from Latin American labor markets. NBER Working Paper No. W7773. Cambridge, MA: National Bureau of Economic Research. Hepple, B. (1985). Security of employment. In: R. Blanpain (Ed.), Comparative Labor Law and Industrial Relations (2nd ed.). New York: Kluwer Law and Taxation Publishers. Mortensen, D. T., & Pissarides, C. A. (1999). Unemployment responses to “skill-biased” technology shocks: The role of labor market policy. The Economic Journal, 109, 242–265. Morton, J., & Siebert, W. S. (2000). Worker recruitment and retention: Plant comparisons in European multinationals. Unpublished Paper, Department of Commerce, The University of Birmingham. Nickell, S. (1997). Unemployment and labor market rigidities: Europe versus North America. Journal of Economic Perspectives, 11, 54–74. Organisation for Economic Co-operation and Development (1993). OECD Employment Outlook 1993. Paris: OECD. Organisation for Economic Co-operation and Development (1994). Jobs Study. Paris: OECD. Organisation for Economic Co-operation and Development (1999). OECD Employment Outlook 1999. Paris: OECD. Organisation for Economic Co-operation and Development (various issues). Main Economic Indicators. Paris: OECD. Organisation for Economic Co-operation and Development (various issues). National Accounts Statistics, 2. Paris: OECD. Reder, M. W. (1955). The theory of occupational wage differentials. American Economic Review, 45, 834–840. Scarpetta, S. (1996). Assessing the role of labor market policies and institutional settings on unemployment: A cross-country study. OECD Economic Studies, 26, 53–113. Siebert, H. (1997). Labor market rigidities: At the root of unemployment in Europe. Journal of Economic Perspectives, 11, 37–54. Siebert, W. S. (1999). Company recruitment policies: Implications for unskilled workers, work and opportunity series 7. York: Joseph Rowntree Foundation. UNESCO (various issues). Statistical yearbooks. Paris: United Nations Education, Scientific and Cultural Organisation. U.S. Bureau of Economic Analysis. Regional Accounts Data, http://www.bea.doc.gov U.S. Bureau of Labor Statistics. Local Area Unemployment Statistics, http://www.bls.gov U.S. Bureau of the Census (various issues). Statistical abstract of the United States: The National Data Book. Washington, DC.

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Van Ruysseveldt, J., & Visser, J. (1996). Industrial relations in Europe: Traditions and transitions. London: Sage. Waddington, J., Hoffmann, R., & Lind, J. (1997). European trade unionism in transition? A review of the issues. Transfer, 3(November), 464–497.

APPENDIX A Variable Definitions and Sources Characteristics of New Recruits The dependent variables starting age, years of prior experience and years of education are generally yearly averages of permanent males hired in that year. Only characteristics of new hires are included to avoid double counting. For Belgian pharmaceuticals and U.S. distillers permanent female new hires are included in the averages, since using male observations only produces no or too little observations for several years. Averages for Italian ice cream manufacture also include females, since in this case gender information was not available. Since the numbers of permanent male employees varies significantly from year to year, the numbers of yearly observations underlying these averages are used as weights in the Weighted Least Squares regression. Starting Pay Starting pay is defined as average basic (i.e. it does not include any shift premiums to ensure comparability) hourly starting pay of all new hires expressed in individual country’s currencies in 1975 values incorporating a scaling factor. Starting pay in plants in Italy is divided by 1000, starting pay in Belgium is divided by 100 and in the Netherlands by 10 to ensure similar mean values across countries. Tenure Average tenure is calculated from the stock of permanent employees as of the 30th of June each year. In most cases the stock contains the entire permanent workforce. In the case of U.K. pharmaceuticals and U.S. ice cream manufacture it is calculated from a sample of the permanent workforce. For U.S. ice cream manufacture the time series on average tenure starts in 1990 and for tenure below two years in 1985, since the plant only opened in 1980. Information on tenure is not available for the Italian ice cream manufacture. Employment In most cases time series on the size of the production workforce is drawn from internal plant statistics on average headcount or reports for some employee

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representative body. Where no reports are prepared for works councils or union representatives, information on the size of the production workforce is often not available over time, as is the case for all distillers’ plants and U.K. ice cream manufacture. In these cases we have collected information on the entire workforce including all employees who have already left the company, and calculated yearly employment from the data-set taking the average for the stock of employees at the beginning, middle and end of the year. For the employment deviation variable, employment is subtracted from trend employment, which is constructed as a three-year moving centered average, and expressed as percentage of deviation from trend. Employment Protection for Regular Employment The construction of the employment protection index is based on the OECD (1999) index for individual dismissal of workers with regular contracts, applying OECD weights. Table A1 presents the time series for the employment protection index. This index includes scores for procedural inconveniences (procedures and delay to start notice) notice and severance pay for no-fault individual dismissal and difficulty of dismissal (definition of unfair dismissal, trial period, compensation and reinstatement), each counting for a third (see Table A2). Scores for the individual components are mainly taken from the OECD and apply throughout the whole time period, apart for scores for trial period and compensation for unfair dismissal, which both affect the score for difficulty of dismissal (see Table A3 for the assignment of numerical scores). U.S. We calibrated the U.S. using the Rand study on termination litigation in California (Dertouzos et al., 1988). The study is the most comprehensive and covers the time of the litigation explosion (1980–1986) in the first state that introduced the implied contractual right to continued employment exception to the employment-at-will doctrine. The outcome of these early terminations should represent the extent of the threat to the employer with the least bias, i.e. before employers take evasive maneuvers limiting the risk of termination litigation. Italy. We interpret the effect of the introduction of the “contratto formazione” in Italy in 1984 as effectively raising the trial period for qualifying for unjust dismissal from 0.8 months to 24, since that is how this contract is used in practice, as trial period for permanent employment. Netherlands. No change. Belgium. Although legal compensation for unjust dismissal has been and still is six months, twelve months have been normal (individually negotiated supplements

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Table A1. Employment Protection for Permanent Employees. Year

IT

NL

BL

U.K.

U.S. Missouri

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997

2.80 2.80 2.80 2.80 2.80 2.80 2.80 2.80 2.80 2.30 2.30 2.30 2.30 2.30 2.30 2.30 2.30 2.30 2.30 2.30 2.30 2.30 2.30

3.08 3.08 3.08 3.08 3.08 3.08 3.08 3.08 3.08 3.08 3.08 3.08 3.08 3.08 3.08 3.08 3.08 3.08 3.08 3.08 3.08 3.08 3.08

1.43 1.43 1.43 1.43 1.43 1.43 1.43 1.43 1.43 1.43 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.35

0.95 0.95 0.95 0.95 0.95 0.95 0.95 0.95 0.95 0.95 0.78 0.78 0.78 0.78 0.78 0.78 0.78 0.78 0.78 0.78 0.78 0.78 0.78

0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08

California 0.2 0.2 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08

Maryland 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08

Source: OECD (1999), Hepple (1985, p. 500), Brodolini (1997, p. 115), Autor (1999, Legal Appendix), authors’ computations.

taken into account) in Belgium, but the government has limited this possibility in 1985 (Hepple, 1985, p. 500). Therefore, we apply twelve months compensation before 1985 and eight months (six months compensation plus advance notice) from 1985 onwards as compensation for unjust dismissal in Belgium. U.K. Trial period changes from twelve to twenty four months in 1985. Regulation of Temporary Employment For the index on regulation of temporary employment we take the OECD scores for the late 1980s and the late 1990s (OECD, 1999, Table 2.3), since changes in regulation in the countries involved all took place in the early 1990s and are therefore captured by the change in the two OECD indices. Table A4 presents the time series for the index on regulation of temporary employment.

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Table A2. Employment Protection Indicators and Weighting Scheme. Level 3

Level 2

Level 1

Procedural inconveniences (1/3)

Procedures (1/2) Delay to start a notice (1/2)

Notice and severance pay for no-fault individual dismissals (1/3)

Notice period after 9 months (1/7) 4 years (1/7) 20 years (1/7) Severance pay after 9 months (4/21) 4 years (4/21) 20 years (4/21)

Difficulty of dismissal (1/3)

Definition of unfair dismissal (1/4) Trial period (1/4) Compensation (1/4) Reinstatement (1/4)

Employment protection index

Notes: Level 1 corresponds to disaggregated data, while levels 2 and 3 represent successively more aggregated indicators. The values in parentheses indicate the aggregation weights that are used in creating the next higher-level indicator. Level 1 indicators are converted into equivalently scaled cardinal measures as specified in OECD (1999, Table 2.B.1). Source: OECD (1999, Table 2.B.2).

Tax Wedge The tax wedge is defined as the total tax burden divided by GDP. Europe. The tax burden was calculated from the Accounts for General Government as published in the OECD National Accounts Statistics, Vol. 2 (several issues), Table 6, Income and Outlay Account. Included are Item 7: Indirect Taxes, Item 8: Direct Taxes and Item 12: Social Security Contributions. GDP at current prices is taken from the same source, Table 1: Item 15. U.S. state and local government total taxes are taken from revenue statistics for local and state government by state, as published in the Statistical Abstract of the United States (several issues, table numbers vary across issues), and added together with total federal income tax liability as provided directly by the Internal Revenue Service. The latter item does not contain estate and gift taxes as well as excise taxes on the federal level, which varied between 5 and 6% between 1980 and 1996 (Statistical Abstract of the United States, 1998, Table 551). We add 5.5% on the total federal income tax liability to approximate overall federal taxes.

0 Procedures

Scale 0–3

Delay to start notice Notice period after: 9 months 4 years 20 years

Days

Severance pay after: 9 months 4 years 20 years

1

2

<10

<18

3

4

5

6

<35

<45

≥45

<2 <3.5 >11

≥2 ≥3.5 <11

<3 <4 ≤18

≥3 ≥4 >18

Scale (0–3) × 2 0–2

Months

0 0 <1

Months

0 0 0

≤0.4 ≤0.75 ≤2.75

≤0.8 ≤1.25 ≤5

≤0.5 ≤0.5 ≤3

≤1 ≤1 ≤6

<26 ≤1.2 <2 ≤7

<1.6 <2.5 ≤9

≤1.75 ≤2 ≤10

≤2.5 ≤3 ≤12

Scale (0–3) × 2

Definition of unfair dismissal

Scale 0–3

Trial period

Months

≥24

>12

>9

>5

Compensation

Months

≤3

≤8

≤12

≤18

Reinstatement

Scale 0–3

>2.5 ≤24

>1.5 ≤30

<1.5 >30

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Table A3. Assignment of Numerical Scores to First-Level Employment Protection Indicators.

Scale (0–3) × 2

Source: OECD (1999, Table 2.B.1).

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Table A4. Regulation of Temporary Employment. Year

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997

IT

5.4 5.4 5.4 5.4 5.4 5.4 5.4 5.4 5.4 5.4 5.4 5.4 3.8 3.8 3.8 3.8 3.8 3.8 3.8 3.8 3.8 3.8 3.8

NL

2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4 1.2 1.2 1.2 1.2 1.2 1.2 1.2

BL

4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 3.7 3.7 2.8 2.8 2.8 2.8 2.8

U.K.

0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3

U.S. Missouri

California

Maryland

0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3

0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3

0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3

Source: OECD (1999, Tables 2.1 and 2.3).

Gross State Product is taken from the Regional Accounts Data, as published on the World Wide Web by the Bureau of Economic Analysis, U.S. Department of Commerce. Union Density Union density is defined as trade union members as percentage of all wage and salary earners, and compiled from various sources (see Table 1). Unemployment OECD standardized unemployment rates are used for the European countries as calculated by the Statistical Office of the European Communities and published in OECD Main Economic Indicators (several issues). Unemployment rates for the

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U.S. states are taken from the Local Area Unemployment Statistics of the U.S. Bureau of Labor Statistics. School Leaving Age School leaving age is defined as the mandatory school leaving age and is taken from UNESCO Statistical Yearbooks (various issues).

CAPITAL MOBILITY AND THE SOCIAL ACCORD: A CRITICAL EXAMINATION OF THE GE COORDINATED BARGAINING COMMITTEE Frank Borgers INTRODUCTION JoAnn Wypijewski, reflecting on the experience of workers laid off from General Electric’s (GE) Bloomington, Indiana refrigerator plant, as GE announced profits of $12.7 billion, and the relocation of half the production to Celaya, Mexico, asks: What will it take to match fire with fire at GE, not just in Bloomington but everywhere? Twenty years ago, Jack Welch openly articulated a strategy for taking the company to where it is today. The GE unions never developed a parallel strategy, and 100,000 lost jobs later, most of them still haven’t shed their faith in what the AFL-CIO likes to call “high-road capitalism.” During the 2000 national contract talks, Robert Thayer, the Machinists’ representative to the CBC, was trying to convince the company to agree not to interfere in future unionization drives, arguing that a “contract is a partnership, not a hindrance.” To which the company coolly asserted, “GE has never been neutral and doesn’t intend to be neutral” (Wypijewski, 2001, p. 22).

GE has become an icon of global capital mobility and union avoidance. However, GE’s current capacities can be traced back to a long term, explicit strategy of corporate reorganization initiated in the 1940s. At that time GE was a vertically integrated manufacturing conglomerate, based in a series of huge, northern U.S. plants, organized at extremely high density by the left and militant UE. In the Advances in Industrial and Labor Relations Advances in Industrial and Labor Relations, Volume 12, 73–114 © 2003 Published by Elsevier Science Ltd. ISSN: 0742-6186/PII: S0742618603120045

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sixty years since, GE has transformed itself into a networked and globalized conglomerate, whose manufacturing capacity has been relocated endlessly, first into smaller U.S. greenfield sites and then increasingly overseas, decimating U.S. union density, and replacing UE with a patchwork of AFL-CIO affiliates that have embraced a far more conservative and limited vision of unionism. U.S. labor has been unable to halt this transformation. This paper uses the Coordinated Bargaining Committee (CBC), formed by GE unions in the mid-sixties to coordinate their bargaining with GE, as a lens to critically examine labor’s response to GE’s transformation. This paper argues that the CBC’s inability to significantly raise the costs of, let alone halt, GE’s rampant global capital mobility is largely attributable to a failure of strategy. This failure can, in turn, be traced to the limitations of the post war labor-management accord and U.S. labor’s continued confinement within the narrow parameters of business unionism. Examining the CBC’s response to GE’s transformation therefore reveals the broader political-economic and institutional challenges of global capital mobility facing U.S. labor. The paper briefly outlines the origins and early victory of the CBC, the post-1970 evolution of bargaining at GE, and concludes with a critical examination of the limitations of the CBC and some suggestions for alternate directions.

BOULWARISM AND THE CBC The corporate reorganization of GE and its strategic use of capital mobility, which have evolved into today’s globalized form, can be traced back to UE’s nationwide strike of GE in 1946. This strike was seen as a self-acknowledged debacle by GE management and produced three interrelated shifts in corporate strategy:

The Development of Boulwarism as a Bargaining Technique Named after Lemuel Boulware, Vice President of Relations Services after 1946, Boulwarism relied on a three pronged bargaining approach that departed radically from both GE and standard NLRA practices. In the words of GE: First, General Electric strives to determine, and to put into place voluntarily all that is warranted in the way of wage and benefit adjustments for all employees. Second, General Electric tries to give individual attention to employees’ desires and problems in the day-to-day relationship between each employee and his supervisor. Third, the company tries to back up its performance by communicating fully to employees, throughout the year, on all matters which affect their relationship with the company (GE).

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Fig. 1. Geographic Dispersal of GE Factories, 1892–1961. Source: Downing, 1967, p. 166.

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From labor’s perspective, the crucial difference between Boulwarism and regular NLRA bargaining was that it completely bypassed traditional union bargaining structures. GE engaged in extensive direct communication with members, around union representatives, over terms and conditions with the goal of “enabling employees to appraise the soundness and fairness of management actions in its negotiations with union representatives” (GE, 1967, p. 1). GE’s negotiators considered their first offer as their final offer and thereby bypassed the “ask and bid” process of traditional bargaining. While GE was, according to its spokespeople, willing to rearrange its package, it would not alter the size of its package, except in the face of “new” and “relevant” information (GE). Finally, GE’s opening bid was offered, almost simultaneously, to all of its unions, thus sending the strong message that, regardless of union, GE workers would confront substantially the same management defined “firm and fair” offer (Cohen, 1973).

Wholesale Corporate Reorganization GE started relocating productive capacity away from the large, heavily unionized northeastern plants into smaller, non-union, greenfield facilities (Schatz, 1983). GE also expanded into new, non-union, and increasingly white collar sectors. By the mid-sixties, less than half of GE’s employees belonged to unions and its highgrowth divisions were completely non-union.

Exploitation of Cold War Divisions within the Labor Movement While various CIO affiliates had started raiding UE-GE shops in the mid-1940s, raiding escalated dramatically after the UE was expelled from the CIO in 1949 for alleged Communist domination (Schatz, 1983). The IUE, formed by anti-Communist former UE leadership to undermine the UE’s position at GE, and backed by the CIO, launched an all-out offensive that was aided and abetted by GE’s simultaneous attack on UE (United Electrical Workers, 2000). By 1954 IUE had replaced UE as the primary union at GE, and UE’s membership had been more than halved. By the mid-sixties GE had bargaining relationships with over 180 GE locals, covered by 14 different internationals, and all but three of GE’s labor contracts (IUE, UE, and the Pattern Makers’ League of North America) were local (Cohen, 1973; Schatz, 1983). In short, by the mid-sixties, the structure of unionism at GE had been transformed into multiple, mostly local contracts, bargained in an uncoordinated

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manner, and where cross plant solidarity was riven by long-standing and intense political and organizational rivalry and division. Boulwarism’s exploitation of the disjuncture between GE’s singular, unified position on the one hand, and its unions’ divided and uncoordinated position on the other, created a deeply-lopsided bargaining relationship (Cohen, 1973; Filipelli & McColloch, 1995; Matles & Higgins, 1995; Northrup, 1964; Schatz, 1983). The CBC was explicitly formed to counter Boulwarism and its exploitation of inter-union divisions which led to the lead IUE-GE contracts between 1948 and 1966 being concluded “on substantially the terms of the company’s first offers” (Cullen, 1965, p. 24). The real breaking point occurred during the 1960 bargaining round. The company-wide strike called by the IUE was broken after three weeks, with the union signing a contract strictly on the company’s pre-strike terms, in what the New York Times regarded as “the worst setback any union has received in a nationwide strike since World War II” (Cohen, 1973, p. 94). The strike made clear to GE unions that their string of bargaining failures “were at least as much of their own making as that of GE’s labor policy” (Kuhn, 1971). GE’s unions, led by IUE, determined to mount a concerted legal and organizational challenge to Boulwarism (Northrup, 1964). The CBC at GE was formed in 1965–1966 under the auspices of the AFL-CIO, with strategy developed by the Industrial Union Department, and with the executive committee chaired by AFL-CIO President, George Meany himself. The AFL-CIO’s high level involvement was prompted by deep concern about the impact of another Boulwaristic defeat on the whole labor movement. The rest of the committee was comprised of the union presidents of six of the AFL-CIO GE unions: the IUE, the Machinists (IAM), the Autoworkers (UAW), the International Brotherhood of Electrical Workers (IBEW), the Allied Industrial Workers (AIW), and the American Federation of Technical Engineers (AFTE). The second largest union at GE – the unaffiliated and left UE – was excluded from the CBC until 1969 (Cohen, 1973). The executive committee’s role was to coordinate between the internationals so as to create a set of national contracts and avoid local bargaining. A Steering Committee was formed to perform the administrative functions. Members of the Steering Committee were each appointed as chairmen of one of five subcommittees whose role was to prepare detailed, common bargaining proposals and develop strategy for the upcoming negotiations.1 The CBC also developed an elaborate communication system based on teletypes. Seventeen regional coordinators were appointed to work on a full-time basis and were linked to coordinating headquarters in Washington and to key national negotiation centers in New York (for GE) and Pittsburgh (for Westinghouse).

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FRANK BORGERS Thus, all bargaining developments, company statements and local union actions were transmitted daily by the coordinators to Washington, then condensed and disseminated back to the locals through their regional coordinators. Through this elaborate medium every bargaining committee going into negotiations with GE knew what had happened at every other GE negotiations table the day before (Cohen, 1973, p. 121).

The CBC attempted to counter GE’s tremendous PR and back-to-work capacities by developing a countervailing communication and mobilization capacity. The two mechanisms developed were: (1) Unity – a joint monthly publication, whose purpose was to “denounce GE’s ‘Boulwarism’ and to criticize or argue with the companies’ positions” as well as “spread the idea of the new coordinated bargaining approach”; and (2) local and regional inter-union unity meetings with the rank-andfile to “explain and advance the agreed joint collective bargaining program . . . and to obtain full support at the grass-roots level” (Cohen, 1973, p. 123). The CBC was first used during the 1966 bargaining round, where despite legal and procedural objections by GE, the CBC deployed its “mixed bargaining committee.”2 The IUE negotiating team was comprised of representatives of all the CBC unions. Each representative would wear a lapel button identifying his respective union. The IUE argued that all of the individuals present had been chosen to render advice and help in the discussions confined to IUE matters, and were actually non-voting members of the IUE negotiating committee. The IUE further emphasized its legal right to choose its own representatives to the bargaining table (Cohen, 1973). While in 1966 the CBC came to the brink of declaring a national strike, it retreated in the face of President Lyndon B. Johnson’s threatened TaftHartley injunction. Believing that an 80-day injunction would have destroyed any semblance of unity across the CBC, the unions capitulated and accepted GE’s last offer (Cohen, 1973). The CBC met with far greater success in the next bargaining round in 1969. Three factors were decisive: (1) CBC coordination was extended to non-AFL-CIO GE unions, and most crucially, the UE. UE appeared at their bargaining table with representatives from the IUE, UAW and Teamsters, with these unions often making up half the UE negotiating team. While UE was never granted a position on the IUE-CBC committee, its coordination with the CBC meant that “although GE still technically negotiated with some “100-odd” unions, it found itself dealing actually with one big union, that is, the CBC” (Cohen, 1973, p. 258). Business Week, pointing to labor’s united front, spoke of the impending bargaining round as “Boulwarism vs. Boulwarism” (Business Week, 1969, p. 48). (2) The CBC launched an extremely aggressive and militant mobilization, whose urgency was well captured by Meany: “This is more than another big strike. It

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is a strike that involves the future of collective bargaining, not only in GE, not only in the electrical industry, but everywhere in America” (AFL-CIO, 1969a, p. 1). The AFL-CIO backed its rhetoric by organizing a nationwide boycott of all GE products, a national fund-raising campaign for strike support, and the organization of strike support rallies in 23 major cities across the country (AFL-CIO, 1969b). (3) In ironic political contrast to Democratic President Johnson’s threatened anti-strike injunction three years earlier, Republican President Nixon adopted a “hands-off” policy in the dispute (Cohen, 1973). Following a three month national strike, GE settled its national contracts on terms very different from its opening offer. Business Week, noted that “not in two decades has GE altered initial proposals to its unions as much as it has this time” (Business Week, 1970, pp. 28–29). Cohen saw GE’s defeat as a “debacle” on the scale of UE’s 1946 strike victory, and predicted a comparable reorientation of corporate strategy. (I)nasmuch as the 1946 work stoppage “shocked” the Company and caused it to develop a new labor and union policy, the 1969–1970 round with the coordinated bargaining alliance should necessitate an equal self-reappraisal and change. Some union officials contended in private that such a reappraisal had already been made by GE and that they anticipated some fundamental changes in future union-management relations there (Cohen, 1973, p. 273).

At the level of institutional bargaining Cohen’s optimistic conclusion rings true. The 1969–1970 bargaining round had, as Business Week pointed out, pitted corporate vs. labor Boulwarism and the unions had decisively won the battle. The CBC and its non-AFL-CIO allies had moved GE significantly beyond its initial offer, and the CBC unions were able to maintain and even expand these economic gains in post-1970 bargaining. Most significantly, the CBC had broken GE’s ability to sow dissent and division across GE’s dispersed and decentralized plant level bargaining structure and labor appeared to have buried the divisive specter of Boulwarism. The CBC had built a well resourced organizational mechanism capable of centralizing and coordinating union demands across this large and complex corporate network. The CBC had made a concerted effort to maintain peak unity and local discipline, and had mobilized the rank-and-file and broader labor movement by framing the conflict within a broad rhetoric that cast the strike as a conflict over the fundamental right to bargain in good faith. In the process, the CBC broke new and challenging legal and organizational ground, revealing a radically different form of NLRA bargaining that held great promise for union coordination in other industries. However, the prediction that labor’s victory would lead to “fundamental changes” in GE labor policies was, at least from a broader perspective, seriously

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misplaced. Boulwarism had been only one face of GE’s response to its defeat by UE in 1946. The other face of this response was GE’s wholesale corporate reorganization, and more specifically, the decentralization and deunionization of GE’s productive capacity. While the CBC was able to exert significant economic pressure on GE’s electrical divisions, the larger company had slipped below fifty percent density, and entire key divisions were completely union free. Consequently, despite the CBC’s increasing unity at the bargaining table, the structural foundations of its leverage were already badly eroded. In terms of the deeper balance of power between GE and its unions, it becomes much harder to conclude that the CBC won a unanimous and permanent victory. Indeed, when the trajectory of post-1970 labor-management relations at GE are examined, the limitations of the CBC’s victory and indeed its self-conception become increasingly apparent.

CORPORATE REORGANIZATION AND LABOR RELATIONS AT GE POST 1970 In the wake of its 1970 victory, the CBC faced the economic downturn of the 1970s, followed by the full scale recession and rightward political shift of the 1980s, and the ascension of Jack Welch to Chairman of GE in 1981. The electrical industry, bolstered by the continued strength of defense contracts fed by the Vietnam war, actually survived the 1970–1971 recession relatively intact. However, the 1974–1975 recession, the abrupt halt in the war economy, and the rise in “foreign competition,” hit the electrical industry hard, with a rapid rise in plant shutdowns and layoffs. UE was particularly impacted, losing some dozen shops just in 1974, and seeing membership decline at the GE Ashland plant from 2,200 in 1965 to 700 in 1975, losing some 1,600 positions at GE Erie, and the threat of closure at the GE Allentown plant (Filipelli & McColloch, 1995). It is important to note that, while GE became an expert at raising the specter of foreign competition, such claims were belied by GE’s market position and financial leverage which made it a market leader, forcing entire industries to follow its downward squeezing of labor through capital mobility and work intensification.3 These efforts were raised to an even higher level with the promotion of Jack Welch to CEO of GE in 1981. The business press greeted Jack Welch’s ascendancy with adulation. Welch’s chairmanship was seen as a signal that GE would intensify diversification and investment into high growth non-union niches (Hayes, 1980a, b). Welch had a well deserved reputation as an aggressive manager, with one former colleague describing him as a “one-man engineering operation . . . .

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If things weren’t moving fast enough for him, he moved them” (Hayes, 1980b, p. 1). Despite these ominous signs, the IUE-CBC leadership welcomed GE’s new chair. IUE President David Fitzmaurice claimed Welch, “wants to get along with unions.” Business analysts provided a more sophisticated, but troubling analysis. According to Business Week, Welch’s purpose was to create “a sense of ownership” in workers that would “enhance their willingness to be productive – for instance, by changing work rules either formally or informally . . . GE intends to automate rapidly and shift more jobs overseas. All of this will be easier if workers feel they are treated fairly” (Business Week, 1982, p. 29, emphasis added). Welch’s arrival did indeed signal dramatic change at GE. Within two years the new Chairman had dismantled GE’s respected central planning department, and had transferred strategic responsibility and operational freedom to GE’s divisional heads. His “only” mandate to the new operational power-brokers was that each division had to become first or second in its respective industry, or get out. This restructuring led to a massive corporate shedding of productive capital as profitable, but “under-performing” capacity was sold off or sub-contracted. By 1985 Welch had reduced GE’s pay-roll from 440,000 employees to 340,000, and by 1998, even after huge growth and multiple acquisitions, GE’s head-count stood at 293,000 employees. As the Journal of Business Strategy pointed out, “(n)o-one can say he didn’t earn the nickname ‘Neutron Jack’ ” (Goett, 1999). The heightened intensity of global capital restructuring under Welch unleashed an assault on GE’s older and most heavily unionized U.S. facilities. In 1980, the Niles, Ohio plant was shut down, with the work moved to Brazil, and half the jobs at the Decatur, Indiana facility were transferred to Juarez, Mexico. In 1981 GE closed its Ontario, California plant, laying off a thousand workers, mostly women. The destruction of UE was not confined to GE’s older plants. In June 1984 GE announced the closing of its 450 worker facility in Charleston, South Carolina. The plant had opened in 1969 and had been organized at great cost to UE in 1975. UE developed a conversion plan for the plant, proposing 11 alternate products and a marketing strategy. However, as Business Week, pointed out, the plan faced “the daunting task of influencing companies determined to maintain management prerogatives” (Business Week, 1984b, p. 70). In what would become a predictable pattern, GE outright rejected the plan, shut down the plant a year later, and shipped the work to its new non-union plant in Taiwan. Likewise, in 1987, despite a vigorous anti-shutdown campaign by UE, the Decatur plant was fully shuttered and the remaining work was moved to Juarez, Mexico (Filipelli & McColloch, 1995). The wholesale oversees shift of productive capacity continued through the late 1980s and 1990s. A sampling of the more prominent plant closures and downsizing in the 1980s and 1990s includes the following.

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In 1987, GE announced a massive round of layoffs in Massachusetts at plants in Pittsfield, Lynn and Everett, and a complete shutdown of the Medford facility. The job loss would total about 3,500 workers (PR Newswire, 1987).
In 1993, GE announced it would transfer 525 jobs from its Erie, Pennsylvania Motors plant, represented by UE, to sister GE plants in Alabama and Ontario (Journal of Commerce, 1993).
From 1987 to 1994, GE reduced its heavily unionized aircraft engine workforce in Evendale, Ohio, from about 19,000 workers, to about 8,000 (Hartford Courant, 1994). Then, in 1994, 353 aircraft engine workers represented by the United Auto Workers, received layoff notices. Five years later, despite substantial work-rule concessions, GE announced further layoffs at the engine plant. While GE predictably blamed macro-economic factors, UAW officials accused GE of simply shipping the work to two Mexican Maquilas (Associated Press, 1999).
In 1998, IUE calculated that almost 3,000 jobs were at risk within IUE alone, due to announced layoffs and plant closings by GE (IUE News, March–April 1998).
In 1999, GE threatened to move all or part of the work at its 3,100 worker Bloomington, Indiana and its 1,500 Louisville, Kentucky refrigerator plants to Mexico. GE ultimately decided to target the Bloomington plant and over the next two years transferred some 1400 jobs to its new refrigerator facility in Celaya, Mexico (Carey, 2001; Schoch, 1999). The 1999–2000 events at GE’s refrigerator plant in Bloomington, Indiana illustrate GE’s deployment of its tremendous whip-sawing power against workers, locals, and communities. After making its lay-off announcements, GE was contractually compelled to bargain with the IBEW local at the plant for 45 days. However, these negotiations consisted of GE’s requesting that the local come up with $65–$95 million in savings. The absurdity of this request can be measured against the size of the plant’s payroll, which stood at $142 million, or against the fact that GE was asking the local to agree to annual pay reductions of about $21,000 to $30,600 per worker (Koenig, 1999). The “problem” was defined by GE as the huge wage discrepancy between Indiana and Celaya. “With benefits, hourly workers there (in Bloomington) make about $28 per hour, compared with about $2 in Mexico. Annual operating costs in Bloomington are about $80 million more than they would be in Mexico” (Schoch, 1999). GE also reminded the Bloomington community that the IBEW local was competing against the IUE Local at the Louisville Kentucky refrigerator plant for the retention of existing jobs and the potential of $100 million in new investment. GE spokesperson Terry Dunn pointed out that no decision had been made in either city. GE could move some, all or none of the production to Mexico. Dunn said:

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‘We need partners to help close the competitive cost gap so we can win the investment for Bloomington. We think we can, but we need some help,’ he said, referring to government and union officials, and local suppliers . . . ‘Louisville union leaders have been much more aggressive, putting together a job preservation committee months ago to develop cost-saving proposals with GE. The Bloomington local has not made a similar effort,’ Dunn contended. ‘The local in Louisville clearly saw that Rome was burning, and they’ve been working for months to put out the fire. Rome still is burning in Bloomington, and we see no fire hoses’ (Schoch, 1999).

Ultimately, after months of fruitless “negotiations,” and savings proposals by the local and the community, GE announced that these hadn’t met GE’s needs and that they would have to lay-off 1,400 workers over the next two years (Carey, 2000). Welch also used GE’s tremendous power as a buyer to exert leverage on the rings of suppliers it had created through outsourcing. Business Week, referring to Welch’s mantra “squeeze the lemon” (i.e. wring out costs) noted that in 1999 “the lemon-squeezing at GE has been as never before.” Business Week had uncovered an internal report from GE Aircraft Engines (GEAE), describing one of GEAE’s suppliers meetings where suppliers had been told they needed to cut costs up to 14%. GEAE indicated that the only way to achieve these new cost-reduction targets was for suppliers to relocate their manufacturing facilities to Mexico. According to the report, “GE set the tone early and succinctly: ‘Migrate or be out of business; not a matter of if, just when. This is not a seminar just to provide information. We expect you to move and move quickly” (Bernstein, 1999, p. 74). Welch simultaneously intensified GE’s already formidable and market leading productivity and efficiency drives. Building on the “successes” of work intensification in the 1970s, Welch embarked on an ambitious campaign to drive productivity of GE’s remaining manufacturing capacity even higher in the 1980s and 1990s. Welch’s first initiative was the “Work-Out” program, launched in 1989. Work-Out built on top of GE’s “quality circles” of the late 1970s, but injected them with the intensity and top-to-bottom application that would mark every Welch innovation. The next evolution was the adoption of Six Sigma in 1995. Six Sigma was essentially a variant of Total Quality Management (TQM), whose goal was to reduce manufacturing and service operation defects. According to Welch, GE had invested over a billion dollars in Six Sigma by the end of 1998 but had reaped over one and three-quarters of a billion dollars in savings. Six Sigma differed from TQM implementation elsewhere in that Welch had the capacity to implement the program throughout GE’s corporate structure, and to integrate it within his broader reorganization strategy known as “Boundarylessness” (Goett, 1999). Six Sigma, like “partnership” programs throughout the US, was sold to GE’s unions and workers with promises of greater job security, improved working conditions, greater shop-floor autonomy, variety and control, and even the

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elimination of formal supervision. While the resultant work rule concessions were often highly unpopular within locals, they were imposed by GE using the stick and carrot of capital mobility. Locals that resisted were warned of layoffs and plant closings and locals that were wavering were promised new investment. In 1984, IUE Local 201, representing workers at GE’s huge aircraft engine facility in Lynn, Massachusetts, was confronted with this dilemma. GE proposed the construction of a new $52 million flexible machining center in Lynn that would be a state of the art “factory of the future.” The plant was predicted to employ some 140 skilled workers once completed and would “make Lynn a showplace for American ingenuity and productivity and will enable (GE) to maintain our leadership position in the industry” (Business Wire, 1984). As part of the deal, GE also agreed to maintain the current number of jobs in plants in the Lynn area for at least a year, and held out the promise to spend $450 million to add capacity and modernize other area plants over the next six years. The catch was that the Local would have to agree to fundamental work-rule changes at the new facility, including: a shift to seven 12-hour shifts every 14 days, with four hours of overtime pay each shift; consolidation of job classifications from the more typical 25 categories into three, with workers doing tasks that previously were spread across as many as 12 job classifications; and, for the first time in any IUE contract with GE, the union would have to let GE unilaterally set production goals (Business Wire, 1984). GE made the costs of local union resistance to work-rule changes quite clear. GE vice president James Krebs, pointed out that “(i)f people didn’t want it here, we would build it elsewhere . . . this wasn’t a threat, that was just the way things stood . . . If they were hostile to high-tech, if they were looking for problems, it wouldn’t be worth it. We were up front about that.” Not surprisingly, members accepted the agreement by a majority of nearly three to one. IUE 201’s Business Manager was emphatic that members had not seen this as “caving in to a take-it-or-leave-it ultimatum by the company.” However, the Local’s President acknowledged that without the concessions “(t)hey absolutely, positively would not have built that plant here” (Behr, 1984, D1). The decision created intense internal division within the local. The steward’s council rejected the agreement 63–30, and the Local’s Vice-President declared, “The final settlement stinks. It is clearly a deskilling of the work force.” The Vice President also indicated that the leadership at UE Local 506 at GE’s Erie locomotive factory was “upset.” While UE officials refused to go on record, a business agent for Machinists Local 912, at GE’s aircraft engine plant in Evendale, Ohio argued that “(i)t’s blackmail: ‘We’ll build a plant here if you’ll give us what we want’ ” (Business Week, 1984a, p. 43). Sixteen years later, it seems clear that the Local’s contractual concessions did not achieve their goal of job security. Less than three years after signing off on the new work rules, GE announced a massive round of layoffs throughout Massachusetts,

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including at the Lynn plant. Local 201’s membership has declined from 8,000 members in 1984 to around 2,700 members today. Local leaders might respond that work-rule concessions did slow the loss of membership. If they had said no in 1984, GE would have invested its new capital elsewhere and probably targeted Lynn even more aggressively in future downsizing. While no doubt true, the larger truth is that Local 201, like all the other GE locals and communities have been powerless to resist GE’s concessionary demands. Stretched out and isolated along GE’s network, locals and communities have repeatedly been faced with the “choice” of concession vs. loss of capital investment. The larger problem is that the CBC never developed a concerted and coordinated position on corporate reorganization, capital mobility, or work reorganization, leaving locals to fend for themselves against GE.

CBC BARGAINING POST 1970 In contrast to the tumultuous economic and corporate environment confronting the GE CBC post 1970, a review of the subsequent bargaining rounds reveals a pattern of astonishing placidity. Bargaining has proceeded in a ritualistic, predictable manner, with an almost surreal disconnect between bargaining dynamics and the rampant deunionization surrounding the negotiators. Negotiations had taken around seven months to settle in 1966 and over eight months in 1969–1970. In contrast, start to finish negotiations dwindled in length from a little less than four months in 1976, to around two months in 1979, 1982, and 1985, and a month or less in every bargaining round since.4 Most significantly, the CBC has not seriously raised the threat of a national strike against GE since 1970. While 1973 marked the zenith of CBC unity and, despite a few cracks in the CBC’s upper structure, post-1970 unity has been remarkably solid and has certainly not witnessed a return to the cold war dissension of the first post-war decades. The all out assault on labor after 1972 drove the CBC coalition even closer together, as “old animosities seemed less important at a time when unions of all persuasions were fighting for survival” (Filipelli & McColloch, 1995, p. 182). In 1971, in a historic step, UE President Albert Fitzgerald and IUE President Paul Jennings addressed one another’s Executive Boards’, with Fitzgerald urging “reunification of all the workers in our industry so that we’re all again under the banner of one union.” While UE and IUE have never seriously considered merging, the UE did sign formal no raiding agreements with the Steelworkers and IUE (International Union of Electrical Workers, 1971). This unusual degree of coordination and cooperation has brought GE’s unions significant material gains at the bargaining table (see Table 1). The IUE-CBC

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Table 1. Major GE-IUE-CBC Contract Terms, 1976–2000.a Negotiation Year

Wages and Benefits

Job and Income Security Provisions

Pension Provisions

1976

Wage increases of $1.10 an hour, or 22%, plus additional 5 cents to 50 cents for skilled workers. Improved COLA capped at 7%, but increments reactivated if CPI rises by 9% or more annually. Wage increases of 84¢ per hour over three years which, when combined with Improved COLA, produce wage and benefit increases below 23% over three years. Dental plan for the first time at GE. Two wage increases of three percent each in 1983, and 1984, plus improved COLA for 1983 and 1984. Wage and benefit increase of 28% over three years, assuming 7% annual inflation.

Company blocked demand for union shop and retirement after 30 years’ service regardless of age.

Increased (unspecified) minimum pension rates, unemployment pay, and insurance benefits.

Company blocked demand for neutrality pledge in union organizing and for various penalties or benefits to raise the cost of shutting down plants. GE conceded “maintenance of membership” clause.

Full pensions at age 60, down from 62, and minimum monthly pensions up 25% from the previous range. GE agreed to reduce workers’ contributions to the pension plan. Pension guarantees, floors for employee pension contributions, supplemental payments, and medical coverage for retirees raised.

1979

1982

1985

Increased pension benefits for normal retirement. Improved and expanded medical care plan.

FRANK BORGERS

Three percent first year pay bonus and two annual 3% wage increases, plus immediate decompression increases of 1 cent to 35 cents per hour for higher paid workers. Improved COLA. New vision care program and expanded medical coverage.

Six months’ advance notice of plant closings and work transfers. Scaled (by years of service and age) lump sum payments/annual income option for employees affected by plant closings. New re-employment assistance program providing counseling, job placement and up to $1800 for education and training. Hourly production employees whose jobs are eliminated by work transfer/automation and moved to lower rated job guaranteed former pay rate for 26 weeks. Agency shop. Preferential hiring rights at other plants for workers hurt by shutdowns; $5,000 retirement bonus for eligible workers impacted by automation; expansion of existing provisions, including definitions, entitlements, training allowance, etc. Improved early retirement, with the regular supplement increased and years of service cap removed and an additional special pension supplement, of $200 per month until age 62 for workers with 25 or more years service who retire at age 60.

Immediate wage increase of 2.5% and two further 1.5% wage increases, plus two special cash payments ($165 and $900), plus five COLA adjustments, over term of contract. Expanded medical and dental insurance. Pre-tax set aside for employee benefit contributions.

Early retirement options for employees affected by job loss, and nationwide preferential hiring. One-time “early retirement window” for employees at locations with layoffs. Retirement bonus payment raised and expanded to include discontinuation of a product line. Retraining assistance for those affected by plant closings and annual maximum benefit for all training and education under GE’s Individual Development Program raised were increased.

1991

Three general wage increases (3.5%, 2.25%, 2.25%), five improved formula COLA adjustments, and first year increase for higher rates in pay structures – expected to raise the pay of the average GE worker by 13.5% over contract. Moderate increases in employee medical care cost sharing, with somewhat expanded services and opportunity to purchase long-term care insurance. Three general wage increases (3.5%, 2.5%, 2.5%), six COLA adjustments, and first-year increase that applies to higher rates in pay structures expected to raise the pay of the average GE worker by 13% over contract. Moderate increases in employee medical care cost sharing, with somewhat expanded services.

Renewal of early retirement option and new plant closing pension option. Various preferential hiring arrangements at other GE locations, increased tuition refunds for outside coursework. New provision requires GE to discuss with union before making subcontracting decisions.

1994

Renewal of early retirement and plant closing pension options. New supplemental benefit for long-service employees affected by job loss and weekly supplementary layoff payments increased. Improvements in preferential hiring, including increased payments for employees who transfer to other GE locations. Retraining and education benefit increases.

Floors for employee pension contributions, for retirees raised, quicker vesting of pension rights, new interest-bearing personal pension accounts, and higher supplement payments for longer service employees who retire early. Guaranteed pensions increased twice. Special early retirement opportunity renewed. Increases in guaranteed and regular pension formulas, higher supplements, updates in benefits for past service and other enhancements. Agreement increases regular supplements paid to those who retire before age 62 and raises the special retirement supplement for long-service employees.

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1988

Increases in guaranteed and regular pension formulas, higher supplements, updates in benefits for past service, and other enhancements.

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Table 1. (Continued ) Wages and Benefits

Job and Income Security Provisions

Pension Provisions

1997

Three general wage increases (3.75%, 2.5%, 2.5%), six COLA adjustments, and first-year increase that applies to higher rates in pay structuresexpected to raise the pay of the average GE worker by 13% over contract. Somewhat expanded medical benefits.

Guaranteed and regular pension benefits and regular and special pension supplements increased.

2000

Three general wage increases (4.0%, 3.0%, 2.5%), six COLA adjustments, and first-year increase that applies to higher rates in pay structuresexpected to raise the pay of the average GE worker by 14% over contract. Somewhat expanded medical benefits.

GE locations with ≥100 employees will form Job Preservation Steering Committees to study technology, workflow and work practices and recommend changes in training and production methods to ensure maximum productivity and efficiency. Notice and local decision bargaining on sub-contracting and similar actions. Jobs preserved through the decision bargaining process will be protected for two years or until the end of the contract. Improved company-wide Preferential Placement System and retraining opportunities for employees. Plant Closing Pension Option and Early Retirement Option renewed and expanded. Early-retirement options for employees with 30 or more years of service affected by business changes. GE’s early retirement options renewed and enhanced. New joint company-union leadership meetings will be held at businesses to review opportunities to protect jobs. Job Preservation Steering Committees will be formed at more sites to discuss training needs and work practices. Expanded Preferential Placement and funds for education and training. Expanded opportunities for early retirement with retiring workers being replaced one for one. The pool of eligible replacements was enlarged to include new hires.

a Source

of above contract summary data are PR newswire releases.

Increases in pension tables, formulas and supplements while reducing employee contributions, updating for long-service employees, increasing the Guaranteed Pension table and Regular Pension formula, increasing supplements and enhancing survivor benefits.

FRANK BORGERS

Negotiation Year

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was consistently able to secure wage and benefit increases from 1976 through 2000. This is of wider significance given that the GE contract was the pattern setter for the wider electronics industry and was crucial to the CBC’s efforts to bring reluctant competitors, in particular Westinghouse, in under the pattern. Most significantly, the CBC was able to establish a fairly generous cost of living adjustment (COLA) formula in the early seventies. In contrast to many industrial unions, the CBC was able to carry its wage and COLA improvements through the concessionary bargaining climate of the 1980s and 1990s (Voos, 1994). The CBC also moved slowly toward its long term goal of establishing union shops throughout GE, a bargaining demand that had always been vigorously rejected by management. In 1979 the CBC won a maintenance of membership clause, and in 1985 an agency shop clause. While this language ultimately did nothing to stem the loss of union jobs at GE, New York Times Labor Editor, A. H. Raskin proclaimed this “An Industrial Breakthrough,” noting the significance of this gain during a “period of open war on unions by much of American management” (Raskin, 1985, p. 27). The remainder of the job and income security provisions won by the CBC have primarily focused on retraining, and in particular early retirement language that was put in place in the 1980s and subsequently strengthened. Likewise, pension provisions have gradually but consistently been improved throughout the period, while also bringing down the age of pension eligibility. Today it is possible for GE employees to retire with full pension benefits at 60 or with various retirement options after 30 years employment. Consequently, it has become increasingly attractive for senior workers to retire out of GE, allowing the partial absorption of workforce reduction through early retirements. In contrast, throughout the 1980s, GE refused IUE-CBC demands for a neutrality clause and any language that would interfere with or raise the costs of corporate reorganization. It was not until the nineties that GE conceded slightly on these issues, and even then the resulting language barely interfered with management prerogatives. For example, the 1991 contract contained a provision requiring management to discuss subcontracting decisions with the union before implementing, but didn’t actually restrain GE’s power to implement on their initial terms. While the 1997 contract expanded this language to give IUE restricted bargaining rights over sub-contracting, these terms still fall far short of the employment level guarantees patterned on the UAW-big three contracts that the IUE-CBC was demanding. Likewise, the 1997 contract put in place “Job Preservation Committees” at plants with over 100 workers “to study technology, work flow and work practices and recommend changes in training and production methods to ensure maximum productivity and efficiency” (Lewis & McCabe, 1997). These provisions were expanded and further joint committees were established under

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the 2000 contract. However, as GE workers have learnt through bitter experience, and as argued in Working Smart (Labor Notes, 1994), union participation in joint committees and embrace of management oriented productivity and efficiency language has rarely produced sustained job growth or increased job security. While these contract improvements may have provided a little leverage at the local level, their inadequacy is painfully obvious when placed against the backdrop of GE’s untrammeled capital mobility and reorganization and its extraordinary destruction of union jobs during this period.

THE CBC AND THE CORPORATE REORGANIZATION OF GE Despite the CBC’s impressive achievements at the bargaining table and in building peak coordination and unity, the CBC unions have been unable to halt or even slow GE’s corporate reorganization, post 1970. GE’s capital mobility strategy has intensified and evolved from domestic-regional relocation, to encompass international mobility, domestic and international sub-contracting, and under Welch’s tenure, the explicit use of capital mobility as bargaining leverage against its domestic and overseas unions. During the nineties, GE reduced its global employment from 373,000 to 210,000 employees, while driving the ratio of U.S. to non-U.S. employees from more than four to one to under one to one5 (Meyer, 2001). Consequently, Fortune Magazine was able to declare that the “globalization of General Electric may be the greatest legacy of Jack Welch’s nineteen years as CEO” (Fortune Magazine, September 27, 1999). In order to debate union strategy, we must look beyond GE’s awesome powers and evaluate, critically and honestly, the failings of labor’s response. Such an analysis reveals the organizational and political-economic challenges confronting union efforts to halt, slow, or steer the global mobility of U.S. manufacturing capital. This final section highlights the CBC’s limitations in order to understand why its victory against Boulwarism in 1969–1970 was swallowed by labor’s larger defeat at the hands of GE’s radical corporate reorganization. The history of the CBC reveals that the AFL-CIO and CBC unions utterly failed to confront the deeper significance of GE’s corporate restructuring post 1946. The roots of this failure extend beyond a lack of union resolve. The central weakness of the CBC was that, while it created the embryo of a potentially radical bargaining strategy for dealing with networked corporations, its organizational structure and agenda remained locked within the narrow parameters of business unionism. As Moody has argued, labor’s continued operation within these narrow parameters has severely limited the potential of coordinated bargaining.

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To take responsibility for a new, complex area of endeavor like coordinated bargaining means more time, more intricate ‘politics’, more headaches as the targeted corporate giant resists and maneuvers in return. There is the apprehension that coordinated bargaining might involve a new mode of functioning with unforeseen repercussions on the internal life of the union. Most of all, it points to a new level of confrontation (on the part of the employer if no one else) that gives ulcers to modern business unionists. So coordinated bargaining remains rare throughout industry and partial where it is attempted. It is a great idea awaiting a leadership with the courage, imagination, and appreciation of rank-and-file initiative to carry it out (Moody, 1988, p. 112, emphasis added).

The CBC and Cold War Divisions Within U.S. Labor The fragmentation of bargaining, and the decimation of UE’s, and ultimately the CBC’s, density at GE were rooted in the full-scale attack launched against UE during labor’s Cold War. Labor’s political climate has warmed significantly, political differences have been partially sublimated to a unifying struggle for survival, and UE plays a far less significant role in contemporary CBC bargaining. Nevertheless, the triumph of conservative business unionism during the Cold War in the electrical industry, has significantly weakened the capacity of the contemporary CBC. The expulsion of UE from the CIO in 1949 and the consequent raiding by AFL-CIO affiliates decimated UE’s ranks at GE, sowed disunity and “defections” within UE, diverted untold resources away from organization of the growing non-union GE operations, and left a legacy of deep hostility and mistrust between GE’s unions (Matles & Higgins, 1995; Schatz, 1983). The destruction of a highly organized, unitary union presence at GE was replaced by “a crazy-quilt pattern of bargaining which left General Electric and Westinghouse workers nearly as divided as they had been during the non-union era of the 1920s” (Schatz, 1983, p. 226). These divisions were a key dynamic in explaining the success of Boulwarism. The exclusion of the UE insured that, no matter how militant or solidaristic the AFL-CIO affiliates were prior to 1969, GE was left free to whipsaw across this division (Matles & Higgins, 1995; Northrup, 1964; Schatz, 1983). It has taken thirty years of concerted effort within the CBC to bridge these Cold War divisions, and the CBC’s success has allowed it to narrow the gap between GE contracts and those in other manufacturing industries. However, the losses in union density incurred during the post 1949 raiding were never recouped and these have dramatically lowered labor’s bargaining leverage at GE.6 Beyond such immediate losses, UE’s expulsion, along with the broader purge of left labor activists, solidified “the bureaucratic character of industrial unionism,” and destroyed the “political pluralism” of the earlier CIO. The presence of the

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left, and especially Communists within the CIO ensured that “virtually every tendency in the CIO attempted to portray itself as politically progressive and/or industrially militant” (Moody, 1988, pp. 50–51). These developments exerted a powerful influence over the direction of the CBC, due to its domination by the virulently anti-Communist leaders of the IUE and AFL-CIO, and had a huge impact on labor’s leverage in the electrical industry. It is not too much to say that what was left after the fracticide was labor the bargainer. What had gone was labor the movement. It didn’t take long to see that the first was much less effective without the second. With all their occasional faults . . . many of the militant left-wingers, first among them the Communists, brought with them a genuine commitment to the working class. It would be simplistic to attribute the long decline of the labor movement which began shortly after the purge solely to the removal of the left wing. But it would also be wrong to suggest that it was not a major factor. The tragedy of unionism in the electrical manufacturing industry stands as grim testimony to that truth (Filipelli & McColloch, 1995, p. 193).

These weaknesses, inherited from labor’s Cold War, continue to haunt the contemporary CBC, limiting its’ internal and external organizing capacity, and creating a narrow analytical framework for dealing with questions of corporate reorganization. While the UE represents an alternate paradigm for dealing with these challenges, it’s diminished presence in the CBC make it unlikely that the IUE or other AFL-CIO affiliates will seriously examine the applicability of such alternatives in confronting GE.7

The Limitations of NLRA Bargaining The CBC was explicitly created as a mechanism to counter Boulwarism and the huge bargaining leverage it gave GE through its exploitation of the divisions between multiple unions bargaining in isolation across GE’s network of unionized production facilities. It is crucial to recognize that the CBC’s central goal was to bring GE “back to the table” and re-establish “good faith bargaining” over basic economic terms and conditions. IUE President Paul Jennings explicitly cautioned, in the mid-sixties, that the purpose of the CBC was “not to declare a war against GE and Westinghouse” (IUE, 1965b, p. 1). Within this conception, the CBC separated GE’s strategy of corporate reorganization from that of Boulwarism. GE’s real offense was not the creation of a growing non-union capacity, rather it was its “absolute denial,” through Boulwarism, of “the ability to meet at a bargaining table and resolve differences” (Jennings, 1971, p. 164). The CBC’s inability to expand the framework of NLRA bargaining, which precludes direct union influence over corporate reorganization, has resulted in the regressive narrowing of labor’s bargaining demands around immediate

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economic gains for an ever shrinking core of unionized workers. This framework has prioritized labor’s deployment of its political-economic resources, including membership mobilization, in defense of these gains rather than around the larger questions of corporate reorganization. This has left GE’s remaining unionized U.S. facilities as small islands surrounded by a vast ocean of non-union production. Locals’ only point of contact is every three years during CBC negotiations, where questions of work reorganization, sub-contracting, plant closure, and organizing are buried beneath an agenda of wage and benefit improvements. GE locals confront these complex, fundamental issues in isolation, and without the benefits of CBC coordination or cross plant strategy and solidarity. The point is not that the CBC never raised demands around corporate reorganization. The IUE, UE, and CBC made various demands limiting management prerogatives in both the pre- and post-1970 bargaining rounds.8 However, given that such demands are designated as “voluntary” by the NLRA, and have consistently been met with extreme hostility by GE, the CBC should never realistically have expected to win in this arena through the use of traditional bargaining or in the absence of significant member mobilization.9 It is important to stress that the CBC’s orientation toward corporate reorganization follows the dominant pattern of post-war bargaining. A key parameter of the post-war U.S. labor “accord” was capital’s retention of power over questions of corporate governance and capital investment, which were designated exclusive management prerogatives (Davis, 1986; Moody, 1988). Despite the broad recognition that the “Golden Age” of U.S. capitalism ended sometime in the late seventies, and the fact that GE has shown little interest in operating within the parameters of the accord since 1946, the CBC and broader labor movement has yet to move beyond its faith in “partnership” and “good faith bargaining,” and toward an analysis and strategy that adequately reflects these changed circumstances.10 While the UE has historically rejected the AFL-CIO’s and its affiliates embrace of partnership, UE’s diminished size and increasing self-isolation precluded the possibility that its oppositional vision would infect the CBC and its other affiliates.11 With IUE and CBC leadership delegating responsibility for bargaining over corporate reorganization to individual locals, the CBC’s potential as a coordinating mechanism for organizing and bargaining in opposition to work reorganization was squandered, and locals were left to fend for themselves. GE was left free to pick off resisting locals or UE plants, threatening and/or implementing work reduction or wholesale plant closure where it could not attain local compliance. By limiting CBC coordination strictly to bargaining over narrow economic terms every three years, GE was free to pursue Welch’s vision of ever increasing global capital mobility and work intensification. “Globalization is the oldest current initiative in GE, driven by the GE operating system for about

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fifteen years, (and) is like Work-Out, becoming so pervasive and ingrained in the company that it’s less an ‘initiative’ now and more a reflex” (GE, 1999, p. 4). The confinement of the CBC’s bargaining agenda was partly framed by ideological and political-economic constraints. However, the CBC’s inability to impose restrictions on GE’s reorganization and capital mobility was also due to the inadequacy of CBC leverage for overcoming GE’s intense opposition. This power deficit was due to the CBC’s limited capacities for internal and external mobilization.

The CBC and Internal Mobilization While the CBC represented a radical departure from traditional bargaining structures, its internal organization replicated business unionism’s “obsession with protocol and hierarchy” (Moody, 1988, p. 111). Business unionism, and the labor-management accord, required capital to be willing to bargain in good faith over basic terms and conditions. Equally important, it required that union leadership channel member demands and class discontent within the parameters of the accord, and have the power to deliver on its side of the bargain – membership ratification of narrowly construed contracts (Davis, 1986). So, while the CBC was created in order to confront GE’s transgression of the accord (i.e. Boulwarism), it had an equally important self-disciplining function. While capable of mass mobilization (as in the 1969–1970 strike), the CBC only engaged these capacities to back narrow economic goals, and organized within a carefully crafted internal hierarchy. Assessing the CBC’s weaknesses with regard to internal mobilization requires a critical examination of both the structure and rhetoric deployed to organize the CBC’s membership. While the voices of locals and the rank-and-file were “heard” through CBC bargaining surveys, these demands were centralized into a uniform bargaining agenda, ultimately determined by nationally appointed representatives, and quickly dispatched in ever shortening bargaining rounds. In particular, rank-andfile demands for job security in the face of GE’s rampant reorganization have been translated into early retirement or transfer options, and weak, decentralized bargaining mechanisms. While the CBC has at times engaged in more intensive mobilization, it has largely relied on a predictable series of rallies and protests, often organized by national leadership, and mostly convened to bolster the CBC’s “reasonable” demands for “good faith” and “fairness” on the part of GE. Militant leadership rhetoric attacking GE’s managerial prerogatives, and demanding greater control over corporate reorganization is hard to find. While such rhetoric has emerged prior to bargaining, militancy has quickly retreated in the face of

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stiff opposition from GE, and the CBC’s unwillingness or inability to support its’ rhetoric with mass mobilization. Cohen (1973) examined the internal structure of the CBC through 1970, and his observations regarding centralization are quite revealing. Cohen observes the domination of the CBC by the leadership of the AFL-CIO and IUE, possible control of the Steering Committee’s “consensus” decision making by IUE, and, the use of leadership appointments throughout CBC committees. Likewise, all communication across the CBC teletype network originated from the top and flowed down through centralized nodes, blocking direct communication between regional coordinators, let alone local unions. Further, despite significant differences within the CBC leadership and between the CBC steering committee and locals in both the 1966 and 1969–1970 bargaining rounds, these appear to have been settled on IUE’s terms and by leadership decree. CBC Conventions seemed to restrict member involvement to little more than ritualistic consent to leadership goals. At the 1966 CCB convention, 300 delegates representing 160,000 workers were able, after one day of “discussion,” to approve, with almost no changes, a joint bargaining program drafted by the AFL-CIO’s Executive Council. The vote was followed by the endorsement of a “Resolution of Unity” that declared that “Our members will know and the companies will know that all bargaining units will be directing their energies toward the same national goals” (IUE, 1965a, p. 5). Given the scale and complexity of forging consensus across the CBC’s multiple internationals and vast network of locals, such assertions of unanimity and consensus seem suspect. Given that the structure and functioning of the CBC has not fundamentally changed since Cohen’s analysis, these questions remain. However, in the absence of member surveys, detailed organizational analyses, or visible dissent it is hard to gauge contemporary rank-and-file demands for a more democratic or decentralized CBC structure. However, rather than casting democracy and centralization as a simple dichotomy, it seems more useful to think of organizational centralization and democracy as separate, but intimately related processes. Both centralized and decentralized decision making can be more or less democratic, depending on organizational structures and the degree of mobilization within those structures. The challenge for peak organizations such as the CBC is to ensure that centralization is structured in a democratic fashion and that rank-and-file demands are well represented.12 It is equally important to recognize that centralization and democracy are not simply questions of static organizational structure but that they require attention to issues of membership mobilization and education. In the absence of a lived history, union culture, and leadership constantly creating and nourishing union democracy and militancy, the demand for such from the membership may

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disappear. In the absence of both lived and intellectual experience with class, or social-movement consciousness, member demands for greater decentralization and militancy may atrophy or become buried beneath a layer of cynicism and withdrawal from the union’s political life. The complex organizational dynamics of mobilization are very difficult to measure, especially from a distance, and in the absence of careful longitudinal and comparative analyses. Nevertheless, based on Cohen’s (1973) survey of CBC locals, it is possible to identify some tentative patterns. Cohen’s survey revealed that most local unions through the 1969–1970 bargaining round did not participate in the locally “mixed” bargaining committees envisaged under the CBC structure. Local coordination was characterized as unnecessary, given national level coordination. Cohen, argues that while such a perspective may be understandable, “when measured against the principles and objectives of the coordinated bargaining theory, this course of ‘individualism’ as practiced by most GE unions at the local level in 1966 and in 1969–1970 seems a strange and rather incompatible phenomenon” (p. 205). Based on his interviews and surveys of local and national officers, Cohen claims that local unions supported the idea of centralized control “willingly,” and that they had “been consulted by their national unions prior to announcing the formation of coordinated bargaining” (Cohen, 1973, p. 120). It is very likely that these sentiments reflect local leader’s pre-CBC experience of local fragmentation and whip-sawing under Boulwarism. From this perspective, the CBC’s centralized bargaining structure represented a huge improvement, and understandably there would be little appetite for a return to decentralization. However, alternate organizational structures that combined centralization with greater democracy and mobilization were extremely rare in the mid-sixties. Consequently, local leader sentiments around the CBC’s structure may simply reflect their lived experience and their ignorance of alternatives. The question then becomes whether there were viable alternatives present at the time from which CBC locals could have learnt. UE’s consistent focus on internal democracy and debate, relatively flat hierarchies, and its promulgation of a left critique of the parameters of the U.S. accord have historically created a significantly more militant and engaged shop-floor culture than its AFL-CIO counterparts. This process can be observed in Matles and Higgins’ (1995) discussion of rank-and-file militancy within UE locals toward work reorganization which emerged within the context of leadership critique of partnership programs. Likewise, Stepan-Norris and Zeitlin (1991) highlight the dramatic differences in member militancy and engagement in shop-floor politics between UE and AFL-CIO locals, and they attribute these to UE’s explicit politicization of the workplace. However, the central dynamic within inter-union relations at GE has been the exclusion and dramatic weakening

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of UE. Consequently, UE has never been in a strong enough position from which to export its model of unionism to the rest of the CBC locals. The 1969–1970 strike seems to reveal the potential of membership mobilization when union leadership escalates the militancy of its rhetoric and steeps its analysis in moral outrage. Time magazine titled its lead article on the 1969–1970 strike, “Inflationary End to a Class War,” and characterized CBC membership “as united in bitterness against their employer as any band of workers who fought the U.S. industrial class wars of the 1930s.” The article also quoted Ralph Boyd, one of several hundred black workers at the GE Schenectady plant: Some people think this is a strike for a few cents an hour, but it is about human dignity. It is about the workingman’s right to organize, and it is about an employer’s duty to bargain, not to tell us to take or leave his offer. For those issues, I would rather starve than surrender (Time, 1970, p. 72).

While such evidence is extremely circumstantial, it does lend credence to the notion that, had the CBC leadership mobilized its membership against the immorality of the costs of GE’s relentless reorganization and capital mobility, it might have generated deep member support for demands that increased union control over managerial prerogatives. Would a deeper class analysis, that raised questions about the morality of capital governance and prerogative, have provided an alternate, more compelling basis for cross-union unity and membership mobilization? Would GE workers have backed the prioritization of bargaining demands over capital controls? While it is impossible to definitively answer these questions in hindsight, the absence of such an agenda for the CBC speaks volumes about the truncated nature of post-war business unionism. These questions also confront the contemporary CBC as it attempts to shift its organizational focus. It seems highly probable that today’s CBC is burdened by a deep residue of membership alienation and powerlessness. The majority of today’s GE workers did not directly experience the unity, militancy, and tremendous gains of the 1969–1970 round. Members have experienced years of job insecurity and work intensification while their leadership has appeared impotent to intervene on their behalf, except to garner them transfer or early retirement rights. The sense of powerlessness generated by thirty years of retreat will likely make it extremely difficult, and certainly impossible in the short run, to mobilize members behind the type of militant, coordinated campaign imagined by some for the 2000 bargaining round (Hickey, 2000). Moving the membership in a direction that might support such efforts would require a combination of: (a) intensive education around the history and political-economy of GE, including its labor relations practices, and including union and CBC failures; and, (b) a gradual accumulation of small (domestic) campaign victories that

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show that it is possible to successfully confront one of the world’s most powerful multinationals. Finally, the CBC must thoroughly redefine its orientation to GE as a capitalist entity, and find a way to break out of its self-imposed imprisonment within the confining parameters of the post-war accord. The CBC’s adherence to a philosophy of “partnership” and “good faith bargaining” must be abandoned. Despite GE’s relentless and explicit deunionization, for over fifty years, the U.S. labor movement and the CBC have continued to come back to the table year after year, vainly trying to reconstruct a social accord which, in the case of GE never existed post 1946.13 Partnership and good faith will never be ceded voluntarily by GE but may only be approximated if the CBC is able to develop the means to exert significant leverage. The CBC’s acceptance of a complete lack of control over GE’s managerial prerogatives, in particular over decisions of corporate investment or disinvestment, must be abandoned. Without developing and pursuing serious proposals to increase control or raise the costs of capital reorganization and mobility, the CBC will remain incapable of producing job security for its membership. Further, such demands must become the centerpiece of CBC bargaining – demands which cannot be traded for wages and benefits, demands that are backed with serious organizational and political capital, and demands for which the unions are willing to take serious organizational risks. Such a reorientation must be systemic. Both leaders and members are trapped within the assumptions of business unionism. Bargaining leverage derives from a mobilized membership, and contracts are ultimately ratified by the membership. If the rank-and-file are unwilling to prioritize demands for union control of managerial prerogatives over wage and benefit gains, leadership loses the capacity to push for these in negotiations. Consequently debate and education must take place throughout the network of CBC unions, and must involve a serious internal organizing effort to produce deep member support for such demands.

The CBC and External Mobilization The CBC never developed a GE wide organizing strategy and, despite some tentative contemporary efforts, has never operated as an organizing body. As with questions of work reorganization and capital mobility, responsibility for organizing was delegated to its constituent unions, who organized on a plant-by-plant basis. Consequently the CBC’s coordinating capacities were never extended to organizing. The CBC’s ability to confront GE’s reorganization at the bargaining table has been critically injured by the absence of a coordinated organizing strategy. As union density declined, GE reorganized, and the CBC continued to

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operate in isolation of broader social movements, the power imbalance between GE and the CBC grew increasingly skewed. The organizing stasis of the CBC and its constituent unions mirrors the limitations of post-war business unionism as regards organizing. Both Davis (1986) and Moody (1988) argue that the U.S. labor movement lacked the scale, sophistication, and militancy required to achieve meaningful gains against anti-union corporate giants such as GE. (T)he approach of most unions to organizing since the 1950s has been a routine, shop-by-shop approach which could not organize large numbers of workers even if it were well financed. In a round table discussion on the difficulties of organizing, Charles McDonald of the AFL-CIO’s Organizing Department pinpointed one of the problems: ‘What many people fail to recognize, however, is that few unions have a national organizing strategy; instead most organizing efforts are initiated and carried out at the local level.’ Obviously, such a parochial approach is ill-suited to dealing with today’s conglomerate, multinational corporations (Moody, 1988, pp. 124–125).

Faced with the twin challenges of sophisticated union avoidance and radical corporate reorganization at GE, CBC union organizing efforts receded.14 Where organizing did occur it suffered the limitations typical of post-war organizing, including limited resources and a top down strategy, overly reliant on external organizers and neglectful of rank and file mobilization. By the late 1970s, the CBC recognized its lack of organizing capacity at GE and began to attempt to address this weakness through bargaining.15 The CBC first introduced the demand for management neutrality during organizing drives as early as 1979, and continued to raise the issue throughout the 1980s. Ed Fire’s presidential campaign included a call for organizing neutrality and the issue was once again placed on the table in the 1997 bargaining round. However, as with all previous attempts to win neutrality at the bargaining table, this demand was met with stiff management opposition, and was buried, along with the stronger job security proposals, beneath a quick agreement on wage and benefit issues.16 The CBC’s organizing capacity has also been limited by the structural mismatch between GE’s multi-divisional, networked morphology and the CBC’s unidimensional structure. This lack of organizational correspondence is of particular relevance to discussions of union density and organizing. This can be illustrated by examining the state of unionization at three of GE’s historically unionized manufacturing divisions – GE Aircraft Engines (GEAE), GE Power Systems (GEPS), and GE Appliances GEA.17 Appendix 1 provides an overview of the domestic and global structure of each of these divisions. This analysis reveals that while union density remains relatively high across many of GE’s older U.S. facilities, these have been dramatically downsized over the last five decades. More significantly, GE’s unionized U.S. capacity is enmeshed in a massive and rapidly growing network of domestic

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and global non-union capacity. GE has evolved into a complex combination of production networks, organized into divisional groupings. Under Welch’s leadership these divisions operate with a degree of operational independence, but within tight financial parameters set by GE’s upper management. The production chains within GE’s divisions are paradigmatic of what Brecher and Costello (1998) have called the “disintegrated corporation,” or what Harrison (1994) termed “networked production.” For some divisions, such as GEA, it seems clear that the long-term, downward trajectory of its U.S. unionized facilities is on an irreversible course. However, even the very high domestic union density at GE’s wholly owned plants in divisions such as GEAE, is hardly reassuring. Given GE’s massive domestic and global network of suppliers, joint partnerships, and joint production agreements, such density figures are an extremely poor measure of the CBC’s leverage and the extraordinary organizing challenge it faces. The CBC has completely failed to address the growth of domestic and overseas suppliers, joint ventures, partnerships, and agreements. From an organizing perspective, the CBC’s blindness to the supplier chains has been particularly disastrous. These “non-GE” firms have been the destination for much of the work that has been down-sized and outsourced from GE’s unionized plants. However, the CBC currently does not have accurate data on GE’s supplier networks, let alone an organizing strategy for dealing with them. Again, it is important to note that GE’s corporate evolution did not occur overnight. The growth of supplier networks is a logical outgrowth of the corporate decentralization strategy initiated over fifty years ago, and which was accelerated dramatically by Jack Welch over twenty years ago. It is hard to find any evidence that the CBC or its constituent unions paid any attention to this long term structural shift. The CBC’s blindness is emblematic of the broader labor movement’s failure to confront a reorganized capital. In the past quarter-century, capitalism has undergone a revolutionary restructuring in the United States and worldwide. Meanwhile, the American labor movement retains the basic structure it established more than half a century ago. Organized labor will have a future if and only if it can redesign itself to cope with the restructuring of capitalism. Neither the new leadership of the AFL-CIO nor its critics on the left and right have engaged in more than a desultory discussion of the changes organized labor must undergo to meet the restructuring of global capitalism (Brecher & Costello, 1998, p. 5).

The resultant structural mismatch between GE and the CBC creates a fundamental crisis for the CBC’s organizational and representational capacities. The immediate challenge for the CBC is to develop a strategy for organizing GE’s supplier network. This is obviously a huge and daunting challenge. The image of hundreds of small and relatively powerless suppliers, spread across the globe represents an

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organizing nightmare. However, strategic corporate analysis of GE could produce a more layered, and manageable picture of the organizing challenge. Such a task is obviously well beyond the scope of this paper, and should in any case be the purview of the CBC and its unions. However, it is possible to point to some tentative possibilities. First, it must be noted that service sector unions such as SEIU and HERE have managed to win large organizing victories in industries and against corporate targets, at least as challenging as that presented by GE’s networked structure. These victories have been wrought by a combination of sophisticated industrialcorporate analysis, a massive investment of organizing resources, bottom-up organizing, and a willingness to organize as a social movement (Lerner, 1996). The CBC unions could probably learn a great deal by studying the campaign strategies of such service sector unions. Of course, the organizational changes necessitated by such an approach are quite fundamental. At a minimum, they require a very significant redistribution of union resources, and a dramatic change in organizing philosophy. Perhaps most daunting, such a large scale organizing drive needs central coordination. The CBC, or at least some evolved version of the CBC, would be the logical locus of such coordination. Obviously the CBC does not currently play this role, and its transformation in this direction would present a significant organizational challenge. The most difficult question would be the CBC’s role in settling jurisdictional disputes, and beyond that, its ability to provide and enforce strategic coordination of union organizing efforts. Second, GE’s multiple divisions operate with considerable operational autonomy and are marked by great structural and market diversity. Developing an organizing strategy based on this divisional structure not only breaks down the scale of the task, it produces an analysis that actually matches GE’s corporate and market dynamics and may thus have some chance of developing some real leverage. Some tentative suggestions can be advanced to illustrate this point. Based on the divisional analysis presented in Appendix 1, one might conclude that GEA does not represent a viable target division for a U.S.-based organizing drive and that the CBC should expend its organizing resources on other divisions. GEA appears to be approaching end game status in terms of its manufacture of appliances in the U.S. Consequently, it may make sense for the CBC to simply continue its historic bargaining pattern for GEA workers and attempt to maximize “exit” benefits (generous pension, job retraining and relocation provisions). However, given that GEA is still part of GE and has a long union history, the CBC could explore the possibilities of a coordinated, international campaign around labor rights and in support of overseas organizing drives, as initiated in the 2000 round, but focused specifically on GEA.

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In contrast, GEAE and GEPS represent viable, although quite different targets for U.S.-based organizing. At GEAE, CBC unions still have very high density rates at GE’s core manufacturing and service sites. The challenge here would be to develop a strategy that targets the vast supplier chain, and that leverages their control at GE production sites to pressure its suppliers into compliance. In contrast, union density at GEPS is much lower. However, it seems highly probable that, given the relative immobility of its large, capital-intensive U.S. production facilities, the CBC could mount organizing campaigns at GEPS’ non-union U.S. sites without invoking credible capital mobility threats. Beyond this, organizing at GEPS would need to develop a supplier organizing strategy similar to GEAE. Production networks for both GEAE and GEPS are likely structured within GE’s international three pole structure. Consequently, significant elements of these production networks are likely to extend into Canada, Mexico, and parts of Latin America. Any successful organizing strategy would have to carefully explore this transnational morphology and develop a corresponding international element to its campaign. Moody (1997) has discussed the strategic implications of such “Regionalized Production Chains”: (T)he regionalization of production in many important industries, particularly those with a unionized base in both North and South, has strong implications for trade-union strategy . . . It is along these regionalized production chains that workers can begin to make contact to exchange information on corporate strategies, to organize mutual support, and to make common decisions about future actions (p. 75).

The power of such transnational networking is that: (a) it links workers within actual production networks that share a common employer and common industrial sector; and (b) such linkages can be made within a relatively constrained geographic realm. Consequently, GEAE and GEPS divisions of the CBC could focus on developing transnational campaigns focused on building leverage in a meaningful way, and could do so within manageable geographic parameters.18 Finally, organizing and bargaining at GE has largely been conducted in complete isolation from other social movements. While the CBC was able to elicit some community support during the 1969–1970 strike, its organizing efforts, and its most recent attempts to build a corporate campaign against GE have not produced strong links to broader social movements. A central problem for the CBC is that it’s limited agenda narrows the space for building meaningful relationships with non-labor groups, whose vision of social and economic justice lay far beyond the narrow parameters of business unionism. Given its historic trajectory, the prognosis regarding the CBC’s ability to expand its agenda and become part of a broader social movement is not very optimistic. However, without such a transformation the CBC seems doomed to bargain itself into isolated oblivion. Given the CBC’s

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extremely low density and weak leverage, neither a conventional strike, or even a more creative corporate campaign will have the necessary impact on GE. In order to increase its leverage and effectively pursue a bargaining agenda that addresses GE’s corporate reorganization and global capital mobility requires that the CBC become part of a broader movement demanding corporate responsibility. Of particular contemporary significance are the potential links between CBC unions and the emergent anti-globalization movement. Everything from GE’s extraordinary profits, outrageous managerial compensation, and Jack Welch’s abrasive persona, to GE’s record as despoiler of the environment, destroyer of communities and unions, to its willingness to brutally leverage its global capital mobility to achieve these ends make GE a perfect corporate target for joint labor-anti-globalization campaigns. While the 2000 mobilization and the development of an electronic sweatshops campaign against GE point in the right direction, the links between GE’s unions, and in particular, the CBC and the anti-globalization movement remain extremely tentative.19

CONCLUSION In sum, the conclusions of this paper are both optimistic and pessimistic. On the optimistic side, the foregoing analysis reveals the buried historical and contemporary potential of the CBC to confront GE’s corporate reorganization. Further, these capacities are primarily domestic in nature and largely concern inter and intra union transformations. This conclusion stands in stark contrast to most analyses of global capital mobility that portray the challenges to labor as overwhelming and/or residing in international contexts not easily accessed by domestic unions. This is of significance given that a central challenge to developing union responses to “globalization” is overcoming the sense of powerlessness and hopelessness that accompanies discussions of issues such as capital mobility. While this case study has concerned a very specific corporate actor, operating within a number of specific industries, it seems entirely feasible for U.S. manufacturing unions to produce detailed, strategic corporate-industrial analyses, that illuminate points of leverage and organization. On the pessimistic side, the analysis reveals two serious challenges. GE’s growth, diversification, and global reorganization may have been allowed to develop unchecked for so long that it may prove impossible for its U.S. unions ever to recoup the losses documented here. While there may be some hope for a reinvigorated labor presence in some of GE’s divisions, others will likely continue to downsize and deunionize in the U.S. Regardless, it seems clear that the CBC

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will never reclaim the unitary leverage exerted by UE some sixty years ago. However, it should be recognized that GE is fairly exceptional in this regard and that pessimism or optimism regarding labor’s prospects should be based on a case by case basis. There are likely many industrial sectors and multinationals in which the deployment of a militant, networked unionism may substantially increase U.S. unions’ leverage. More significantly, the foregoing critique of the CBC and the tentative suggestions for its transformation run strongly against the grain of historic and contemporary union practice in the U.S. The political and organizational challenges facing the emergence of networked social movement unionism, especially within extant U.S. unions, are extremely daunting.

NOTES 1. According to the IUE’s David Lasser, chair of the steering committee, unanimous agreement reached by consensus was required in all committees on all major decisions. However, Cohen (1973) argues that at least one top union leader disputed the accuracy of this depiction of decision making (Cohen, 1973, Chapter V, fn. 20). Cohen is not very clear how the relationship between the CBC Steering Committee and local unions worked other than quoting the Allied Industrial Worker, “problems involving local working conditions will be dealt with by each union separately, as in the past” (November 1965, p. 1, quoted in Cohen, 1973, p. 114). 2. GE consistently opposed the CBC’s proposed “mixed bargaining committee,” basing its rejection on legal grounds, and arguing that this proposal represented an attempt on the part of the CBC unions to engage in illegal coalitional bargaining. (See Cohen, 1973, p. 138 for a discussion of the NLRB ruling which spells out the parameters of, legal, coordinated bargaining cf. illegal coalitional bargaining.) At the preliminary bargaining meeting company negotiators protested the composition of the CBC bargaining team, promptly walked out, and then publicly denounced the CBC as a “subterfuge,” and refused to meet again until “such time as the IUE is ready to deal with us in a sincere effort to form GE-IUE subcommittees” (GE, 1967, p. 86). This rebuttal launched a legal battle with both sides filing Unfair Labor Practice Charges. The NLRB ultimately dismissed GE’s charges and issued an injunction forcing GE to go back to the negotiating table. After various appeals, the Supreme Court ultimately ruled in favor of the injunction, and GE was left with no alternative but to meet with the CBC committee. The NLRB, and Second Circuit Court both eventually ruled GE’s Boulwaristic bargaining strategy as Unfair Labor Practices (General Electric Co. 150 NLRB, at 196; NLRB v. General Electric Co., 418 F2d 736 (2d. Cir. 1969) at 762) See Cohen (1973, pp. 94–96) for a more detailed account. Despite the legal ruling against Boulwarism and Boulware’s retirement from GE, GE continued to adhere to Boulwaristic practices (see Cohen, 1973, p. 106). 3. Matles and Higgins (1995, p. 300) point out that GE’s net income in 1971 was more than one and a half times that of the combined net income of its closest European and Japanese competitors, while GE’s employment was less than half.

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4. This is counting length of time between official opening of bargaining to IUE-CBC settlement at the table. Member ratification was typically completed in ten days or less. 5. While GE claims that the 2000 ratio of U.S. to non-U.S. employees is 1.25:1, it’s calculations are based on its annual reports which underreport foreign employment and don’t include employment in GE joint ventures, even where GE owns more than 50% of the company. By CBC estimates GE in 1999 actually had 197,000 U.S. employees and 224,000 non-U.S. employees, and a more accurate estimate of the ratio of U.S. to non-U.S. GE employees is therefore below one to one (0.88:1). (Meyer, 2001). Given the globalized and networked structure of GE’s contemporary manufacturing capacity it is extremely difficult to even provide basic density figures. Density calculations based on wholly owned, or even subsidiary, domestic GE plants massively underestimate GE’s non-union capacity and do not provide an accurate sense of the CBC’s (lack of) corporate leverage. Within GE’s corporate morphology, domestic density figures are not only hard to generate but may be largely meaningless as a measure of labor’s leverage. 6. By 2000 the CBC represented, at most, some 47,00 workers, or 36% of GE’s reported 131,000 U.S. employees. IUE’s GE membership was down to 23,000 members (or 18%) and UE’s GE membership was down to 5,000 members (or 4%) (GE 2000 10-K; Department of Labor, Collective Bargaining Agreements File, http://www.bls.gov/cba/, June 2001). These figures may be considerably overstated. According to media estimates at the start of 2000 bargaining, IUE represented only 17,000 GE workers the UE about 4,600, and the 11 other unions about 10,000. This would place the CBC total at around 31,600 (PR Newswire 2000a). However, other media reports claimed slightly higher numbers, with a PR Newswire putting CBC membership at around 40,000 (PR Newswire, 2000b). 7. UE has maintained a unique organizational structure that is based on strong principles of membership control and internal democracy, modest leadership and staff salaries, and a commitment to member-based organizing. UE has also maintained its political-ideological independence and has assumed positions, whether on work reorganization or electoral politics that lie well to the left of the AFL-CIO and its industrial affiliates (Filipelli & McColloch, 1995). 8. In 1979, the CBC raised the demand for a neutrality pledge in union organizing and for various penalties or benefits (thirty years and out retirement language) to raise the cost of shutting down GE plants. However, these demands were dropped after securing solid wage increases, defending the COLA, and most significantly, GE’s acceptance of a “maintenance of membership” clause. The 1988 round opened with William H. Bywater, President of IUE and chair of the CBC, claiming that job security language (including a plant closing moratorium, a no-layoffs clause, and stronger limits against subcontracting) was a central demand. GE refused the job security proposals point blank, and the final contract contained none of these provisions (Bernstein et al., 1988). By the 1991 and 1994 rounds, real job security demands had slipped into virtual invisibility. In 1991, neutrality was listed as an “important” area, but was ranked behind the “crucial” wage and benefit demands that ultimately dominated the settlement (PR Newswire, 1991). In 1997, IUE President Ed Fire, who had toppled outgoing President Bywater by campaigning hard on the issue of GE job security at GE, included demands for UAW style union job guarantees, and organizing neutrality. While threatening to strike over these demands, the CBC’s density at GE was so eroded that the threat of a national strike had become almost meaningless (Lewis & McCabe, 1997). One month later the CBC had reached a tentative pact, which saw Fire’s demands for UAW style union job guarantees and organizing

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neutrality replaced by local “Job Preservation Committees” – a mechanism that would prove spectacularly incapable of stemming GE’s wholesale destruction of union jobs (PR Newswire, 1997a, b; The New York Times, 1997). While the CBC in 2000 launched a far broader and more ambitious contract campaign, focusing on capital mobility, than it had ever attempted before, the campaign was actually more limited than some had hoped (Hickey, 2000). Despite the IUE’s aggressive rhetoric demanding job security from GE, the 1997 goal of UAW style union job guarantees, and organizing neutrality appeared to have been dropped (PR Newswire, 2000c; The Associated Press State & Local Wire, 2000). 9. For example, Welch had “reacted like a bull to a red flag,” to Fire’s 1997 Job Security demands, telling 400 GE line managers that Fire’s demands were “not for us in any way.” Welch called the job guarantee language “crazy demands that are non-competitive,” and said that the “issue of neutrality makes absolutely no sense to us.” He warned his managers “(y)ou better get prepared like you’ve never been prepared . . . to operate in a strike and not flinch” (Bernstein, 1997, p. 178). Welch promised “that if the unions wanted a strike, GE would show the corporate world how to run a strike” (Swoboda, 1997, F10). 10. At GE, as was noted previously, IUE President Fitzmaurice had greeted Jack Welch as a friend of labor, despite no objective proof of such sentiments in Welch’s prior career at GE. Later IUE leadership and the AFL-CIO have been equally willing to extend the hand of “partnership” to Welch (see for example: Davis, 1986, p. 134; Moody, 1998, p. 147; Slaughter, 1998; Bernstein, 2000). Viewed in relationship to GE’s more than 50 years of deunionization, hard-ball opposition to union organizing of new facilities, and relentless reorganization, this faith in GE and Jack Welch is stunning. Nevertheless, this view can be explained by reference to the battered parameters of business unionism that frame labor leadership’s improbable belief that “what is good for GE is good for us.” Under these terms, GE’s profitability is equated with a larger pie to “share” with labor. The fact that there is hardly any labor left to share in what has indeed become a gargantuan pie, falls outside leadership’s narrow calculation of what is negotiable. 11. UE resisted the imposition of GE’s productivity initiatives, and stood alone in rejecting “Quality Circles” at GE and Westinghouse in the 1970s. UE’s leadership also steadfastly resisted Welch’s reorganization programs, arguing that these led to speed-up and work reduction, and that team discussions of “quality” issues allowed management to impose greater standardization and regimentation. Likewise, team production was rejected, because it led to worker internalization of ever tightening, management dictated goals that put unbearable pressure on older, slower, less experienced or less healthy workers. Finally, team based self-discipline was opposed on the grounds that it divided workers and undermined workplace solidarity (Matles & Higgins, 1995). 12. CBC structures could certainly be democratized, without losing the advantages of centralization or coordination. CBC committees could be staffed by election rather than by appointment. Elections could be structured so as to ensure proportional representation based on the relative size of internationals and locals within the CBC. The need to have elected representatives with bargaining and technical expertise could be ensured through election requirements (for example requiring candidates to have served on local bargaining committees and/or have undergone significant training). While legally challenging, the process of contract ratification could be reversed. Instead of seeking ratification of the national contract followed by local bargaining, none of the internationals would endorse or ratify the national contract until every local had settled their local contracts. The CBC could serve as the coordinating body for providing solidarity and support for locals that

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were facing difficult negotiations. Finally, the role of the AFL-CIO could be restructured to provide more expertise, networking, and other resources, and less control and ideological direction over the CBC. 13. See note 10. 14. According to Business Week, in 1999 the AFL-CIO actually proposed a $25 million organizing drive at GE. However, IUE leadership wasn’t willing to embrace such an ambitious and aggressive organizing strategy. Instead the IUE and thus the CBC settled on a far less ambitious campaign focused on traditional tactics like rallies and protests. Ironically, the article goes on to identify the limitations of the more conservative strategy. “Labor’s new campaign may embarrass Welch and even prompt GE to tone down its demands on suppliers. But it won’t rebuild the union’s clout at the bargaining table the way a serious organizing drive might have done. Until that happens, Welch probably has little to fear from his restive unions” (Bernstein, 1999, p. 74). 15. Cohen (1979) details the CBC’s contract demands through the 1969–1970 bargaining round but does not list any relating to organizing. 16. See note 8 for more details. 17. GE is sub-divided into twelve divisions: Aircraft Engines, GE Appliances, GE Capital Services, GE Industrial Systems, GE Information Services, GE Lighting, GE Medical Systems, GE NBC, GE Plastics, GE Power Systems, GE Supply, GE Transportation Systems. 18. While the challenges of distance and logistics should not be underestimated, GE’s unions have access to a technology that can significantly aid the sustenance of such long distance relations – the Internet. Moody (1997) is probably correct in arguing that face to face contact and direct worker exchanges are a crucial foundation upon which to build transnational exchanges. However, such activities are extremely expensive and time consuming and cannot realistically provide the means for ongoing and intensive communication over long distances. The Internet can provide a very powerful and relatively inexpensive means for maintaining contact, exchanging information, and engaging in significant joint strategy development. The Internet also provides the capacity for the decentralization of communication. Rather than filtering all communication and exchange through a centralized body such as the CBC or union leadership, the Internet would allow locals to be in direct and meaningful contact with one another. The fact that GE’s networked divisions are crucially dependent on internet technology should come as no surprise. Again, the CBC’s capacity to study and learn from GE’s practices, in this case with regard to the Internet, might provide valuable clues for the development of a corresponding union network. Likewise, the CBC could fruitfully study the crucial role played by the Internet as the communications backbone for the anti-globalization movement. This movement has been extremely successful in using various Internet-based tools to link an extraordinary range of loosely knit groups, across the globe, to forge common opposition to, and coordinate action against particular international neoliberal initiatives. The fact that the proposed GE networks would link workers and unions around a far narrower agenda, and within a more constrained geographic sphere bodes well for the potential contribution of Internet-based communication. 19. Given the heavy baggage carried by the CBC unions, embracing the beliefs, practices, and organizational structure of the anti-globalization movement will be enormously challenging (see Borgers, 2000 on the organizational fault lines surrounding the 1999 anti-WTO mobilization in Seattle). Nevertheless, the CBC and its unions should strive to become active coalition members in the anti-globalization movement. The actions and

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campaigns emanating from this coalition are well suited for confronting GE, and present an extraordinary opportunity for communication, education, and solidarity across the labor-social movement divide.

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