Download Mgmt 583 Chapter 8 Bargaining Theory

Mgmt 583
Chapter 8: The Environment of
Bargaining
Fall 2008
Mandatory Bargaining Issues











Bonuses
Discharge and discipline
Dues check-off clauses
Holiday pay
Hours
Management's rights clauses
Medical insurance
Promotions
Testing of employees
Vacation pay
Wages
Prohibited Bargaining Issues




Closed shops
Hot cargo clauses
Featherbedding
Wage differential based on membership
Permissive Bargaining Issues






Matching programs for charities
Strike settlement agreements
Changes in the BU
Healthcare benefits for retirees
Interest arbitration
Attaching union labels to products
Factors Affecting Bargaining
Power





Degree of regulation in the industry
Foreign competition
Mergers, acquisitions, and divestment
Trends in labor-capital substitution
Labor as a derived demand
Union’s Interests

Satisfy the “median demands” of the BU





Different factions desire different ends.
Older v. younger workers.
Senior union members prefer higher wages over
workforce stability.
Increased membership (Allan Carter)
Remain the BU’s bargaining representative.
Factors Affecting Bargaining
Power

For management this means the ability to with stand
a strike.
 Timing
 Size of finished goods inventories
 Perishability of product
 Level of technology (labor-capital mix)
 Availability of strike replacements
 Availability of substitute products
Factors Affecting Bargaining
Power

Multiple locations & staggered contracts



Work can be shifted to non-striking plants.
Insure CBAs are not negotiated at the same time.
Integrated facilities


Diminish employer power.
Inland-Fisher-Guide plant in Anderson, IN in 1996
shut down most GM production for 4 to 7 days.
A.C. Pigou’s Bargaining Range
Theory (1933)


The model considers management’s and the
union’s initial offers and final offers
(Management’s “sticking point” and the
union’s “sticking point”)to predict whether an
agreement can be reached.
Only if concessions/demands fall within the
tolerance limits of the two parties will a
resolution be possible.
A.C. Pigou’s Bargaining Range
Theory
Union’s Upper Limit
Employer’s Sticking
Point
Tolerance Limits
Union’s Stickling
Point
Employer’s Lower Limit
Range of
Indeterminateness
Critique of Economic Bargaining
Models

Strengths:



Provide a means for understanding the bargaining
process.
Focus attention to costing contracts.
Weaknesses:


Assumes rationality.
Over emphasis on maximizing short-term
economic gain.
Critique of Economic Models



All costs are not known.
Costs cannot be accurately forecasted (better to
develop a range).
Ignores noneconomic consequences (poisoned
working relationships, need for power and lost
trust, e.g.).
Employer Interests in Bargaining

Shareholder wealth.



Increased pressure from institutional investors.
Executives’ reward system is annual, not long
range.
Labor costs must be controlled



Pressures of Global competition.
Productivity must increase faster than wages (a
point lost on many unions).
Increased incentive to replace labor with capital
to gain increased productivity.
Union Interests in Bargaining



Bargaining success is a determinant of
whether local officers are re-elected
As previously mentioned, the ultimate goal is
to remain the representative of the BU
Bargaining goals:


Higher wages
Increased membership (note that increased
membership also increases bargaining power).
Factors Affecting Employer
Bargaining Power


Employer power is a function of its ability to take a
strike.
Timing



Perishability of goods



Avoid negotiation during peak production times.
Schedule negotiations before holidays.
Reduces employer power.
Nonperishable, safe inventory enhances employer power.
Finished goods inventories enhance employer
power, however, JIT enhances productivity.
Factors Affecting Employer
Bargaining Power

Technology



Capital intensive processes may be run by
supervisors.
Caterpillar.
Availability of strike replacements


Are there sufficient KSA in you local labor
market?
Just the threat of strike replacements may bring
the union back to the table.
Factors Affecting Employer
Bargaining Power

Multiple locations and staggered contracts.



Permits work to be shifted between plants.
Avoid having all production in “one basket.”
Availability of substitute products or
services.


The fewer the greater the employer’s power.
Many alternative suppliers shift power to the
union as this results in lost sales.
Factors Affecting Employer
Bargaining Power

Integrated facilities – the employer’s
Achilles heel.



A strike in a supplier operation will close the
entire organization.
JIT is always advantageous to the union.
Example: the March 1996 GM/UAW strike. The
Dayton brake plant (3200 striking workers) shut
down 26 of 29 production facilities company
wide and idled 178,000 workers for 18 days.
Factors Affecting Union Bargaining
Power



Union power is a function of its ability to
impose costs through strikes.
Obliviously anything that diminishes
employer bargaining power enhances union
power, and vice versa.
The union can enhance its bargaining power
only if it can control labor supply or
occupational practices (ALPA and airline
safety standards, e.g.)
Factors Affecting Union Bargaining
Power

Union power is higher when:






Significant barriers to entry exist for new
employers.
Industrial concentration is high (oligopolies)
Foreign competition is low.
High union coverage in the industry by a
dominant union (airlines, e.g.).
Portability of worker KSA between industries.
Union exerts control over the external labor
supply (craft).
Single employer Bargaining
Structures

One local negotiates a CBA with a single
employer, Usually at a single location.
Single Unit Bargaining Structure
Bargaining Unit/Local
Employer A
Multiemployer Bargaining
Structures




A local negotiate a CBA with several employers in
the same geographic area.
Common in retail/wholesale trades, grocery stores.
Allows large numbers of relatively small employers
to achieve uniform labor costs in theory passing
labor costs to the customer without affecting
competitive structure).
The dark side: large companies in the region with
a greater ability to pay can afford to grant
concessions that smaller competitors can ill afford.
Multiemployer Bargaining Structure
Bargaining Unit/Local
Employer A
Employer B
Employer C
Bargaining Structures

Industry-wide bargaining




All employers with in a single industry.
Common in interstate trucking.
Operates similarly to multiemployer bargaining,
but ignores local conditions.
National/local bargaining

Contracts are negotiated on both the companywide and local level (paper/pulp wood industry).


Company-wide: wages and benefits (guaranteeing
uniformity).
Locally: work rules and permissive issues.
Industry Wide Bargaining Structure
National/International
Employer A
Employer B
Employer C
Local
Local
Local
Bargaining Structures

Multicraft (wide-area) bargaining



Though it appears similar to multiemployer, each
craft has its own separate contract (not united into
a single contract).
Typical to craft locals within the construction
industry.
Usually encompasses a large geographic area, but
not nation-wide (IBEW, e.g.).
Bargaining Structures

Pattern bargaining


The modus operendi for the automobile industry.
Process:




Contracts are staggered among employers.
The dominant union (UAW) concentrates all of its
efforts on the CBA with the first major employer in
the industry
Union holds a hard line for its initial demands
Once a contract is ratified, the remaining employers
will be held to the same concessions.
Bargaining Structures

Coordinated bargaining

When two or more unions represent the
employees of the same employer and negotiate
separate CBAs.



BUs and contracts are separate, but the CBAs are
scheduled to be negotiated simultaneously.
The objective to get comparable concessions and
CBAs.
In some cases union negotiators may sit in on each
others bargaining sessions.
Coordinated Bargaining
Bargaining Unit A
Bargaining Unit B
Employer A
Two Separate/Independent CBAs
Negotiated Simultaneously
Bargaining Structures

Coalition bargaining

When two or more unions actually combine bargaining
teams.
 BUs and contracts are separate, but negotiate identical
CBAs.
 Example: GE and the International Brotherhood of
Electrical Workers (IBEW) and International Union of
Electronic, Electrical, Salaried, Machine and Furniture
Workers (IUE)*
*In October 2000 the IUE merged with the Communications Workers of
America (CWA).
Coalition Bargaining
Bargaining Unit A
Bargaining Unit B
Employer A
Two Separate/Identical CBAs
Negotiated Simultaneously
Bargaining Structures

Craft Unions within an Employer

When employees’ BUs are organized by craft, employers
must bargain individual CBAs with each.





The common method in the airline industry
Mechanics
Pilots
Flight attendants.
Some BUs have more bargaining power than others.



It is not uncommon for one BU to cross the picket lines of
another.
Northwest Airlines mechanics (Aircraft Mechanics Fraternal
Association) strike of August 2005 (ended Nov 2006).
Professional Flight Attendants Association have voted to strike.
At the time of the strike Northwest had already
eliminated over 5000 jobs.
Bargaining Structures

Some BUs have more bargaining power than
others.




It is not uncommon for one BU to cross the picket
lines of another.
Northwest Airlines mechanics (Aircraft Mechanics
Fraternal Association) strike of August 2005 (ended
November 6, 2006).
Neither the IAM, ALPA, nor the Professional Flight
Attendants Association honored the AMFA’s picket
lines.
At the time of the strike Northwest had already
eliminated over 1600 jobs.
Bargaining Structures

Conglomerate and Multinational bargaining

Conglomerates often deal with different unions in different
industries.


Issues vary on an industry by industry basis.
Multinationals enjoy great bargaining power.



US labor laws do not apply to off shore facilities.
Work may be transferred to offshore facilities.
Not all profits are tied to a single national market.
Bargaining Patterns
Employer
Union
Yes
Is
Employer
large?
No
Several
Competitors?
No
Single
Unit
Bargaining
Yes
Yes
No
Are There
Many
Competitors?
Yes
Comparable
Cost
Structures?
Are
Employers
Rep by One
Union?
Multiemployer
Bargaining
Yes
Industrywide
Bargaining
No
Coordinated
Bargaining
No
Determinants of Bargaining
Outcomes
Economic Factors
•Competitive pressures
•Labor intensity
Organizational Context
•Bargaining structure
• BU size
• Geographic locations
•Industry unionization
Sociodemographic Factors
• Education
• Gender
• Ethnicity
Legal Environment
Bargaining Power
• Strategic Position
•Importance of issues
CBA Outcomes