Capstone Labor Relations 1

Pattern bargaining US industrial union practice Select company most likely to provide a generous settlement based on strong sales, low inventory, high margins, etc. Make demands and negotiate new agreement Go to next strongest company with the new agreement as the “pattern” or new demand. University of San DiegoGary Whitney2

University of San DiegoGary Whitney3 Labor Relations Contract expires! Labor demands 10% above current contract. Management will establish its negotiating range. The summary page says when negotiations are scheduled. The most generous management offer sets the pattern

University of San DiegoGary Whitney4 Labor Position Labor demands 10% over current contract. For example, Current labor wage rate is $20/hour Now the union wants $22.00 or they may strike. Strike?

University of San DiegoGary Whitney5 Management Position Hourly wage starting position is between 80% and 150% of current contract. E.g., current is $20/hour; therefore starting offer could be $16 to $30. Benefits, profit sharing, and annual wage increase starting positions are between 0% and 150% of current contract. E.g., current annual wage increase is 6%; therefore the starting offer could be between 0% and 9%.

University of San DiegoGary Whitney6 Wage negotiation example Current wages are $20.00, labor’s starting demand is $22.00 CompanyStartingCompany ceiling Labor’s demand Andrews ? Baldwin ? Chester ? Ceiling is 10% over starting—calculated by simulation. Andrews is demanding a wage decrease and is willing to take a strike. Baldwin is willing to pay for a modest increase. Chester will pay a 20% increase to avoid a strike.

University of San DiegoGary Whitney7 Labor’s demand Labor looks at the starting bid made by management and selects the highest bid over their demand for a 10% increase. This becomes labor’s new demand (the pattern). If no bid exceeds labor’s 10% demand then it remains as the demand.

University of San DiegoGary Whitney8 First settlement—the pattern Current wages are $20.00, labor’s starting demand was $22.00 CompanyStartingCeilingNew demand is Andrews Baldwin $24.00

University of San DiegoGary Whitney9 Negotiation (Baldwin) Labor looks at the remaining companies’ ceiling bids If the company’s ceiling bid is higher than labor’s new demand Split the difference between company’s first bid and labor’s new demand. No strike. Union’s new Demand $24.00 Baldwin Ceiling $24.20 (22x1.1=24.20) Baldwin First $22.00 Settle $23.00

University of San DiegoGary Whitney10 Negotiation (Andrews) Labor looks at the remaining companies' ceiling bids If the company’s ceiling bid is lower than labor’s new demand  Settle half way between labor’s new demand and the company’s ceiling bid. Strike at the end of the year. STRIKE Union’s new Demand $24.00 Andrews Ceiling $17.60 Andrews First $16.00 Settle $20.80

University of San DiegoGary Whitney11 Negotiation summary CompanyWage rate Strike effect (Added to other effects) Andrews =6.4 weeks Baldwin23.00None Chester24.00None Chester $24.00 Baldwin $23.00 Last year $20.00 Andrews $20.80

University of San DiegoGary Whitney12 Length of Strike Wages: for every $1 difference between demand ($24.00) and ceiling offer ($17.60), 1 week of strike, plus… Benefits: every $300 difference, 1 week of strike, plus… Profit sharing and annual wage increase: each 1% difference, 1 week of strike. Total up to max length of strike (12 weeks). Strikes occur at the end of the year

University of San DiegoGary Whitney13 Labor strategy issues The low cost producer must keep wages low The high margin producer may be less sensitive to labor cost Firms with inventory can weather a strike more easily Firms with high automation are less sensitive to labor cost All of these should be considered in relation to your competitors.