Collective Bargaining at Work

I

IN August 1933, the manager of a plant employing about 500 men signed an agreement with a trade-union. Several times the agreement has been renewed. As a result of two wage increases, the hourly earnings of the men in this plant are now 20 per cent above 1933, and 5 per cent above 1929. The present agreement with the union expires in January 1938. Since the union on two previous occasions has won wage increases, the members expect another — indeed, many of them look upon their union as an organization which wins a 5 or 10 per cent wage advance for them about every two years. Consequently they are asking an advance of 10 per cent on expiration of the present agreement, and probably expect to receive at least half that amount.

Competition in the business is keen, and the wages paid by the company, which we may call the X Company, are well above those paid by its nonunion competitors. The employees, however, have been unusually well selected and trained, and the very existence of the union has itself contributed to efficiency in some respects, so that the management estimates that its labor costs are not more than 3 or 4 per cent above those of its principal competitors. The company is making some money, but not much. Its present handicap in labor costs does not worry the management, but another increase of 5 or 10 per cent would be out of the question.

If the union insists on pressing its demand, the company will have to refuse, and that might mean a strike. You ask: ‘Why not let the men strike?’ From the standpoint of the X Company, however, a strike would be almost as disastrous as a wage increase. A shutdown for four or five weeks or more would probably lose the company from one sixth to one fourth of its customers. Not until there is again a sellers’ market in the business would the company be able to recover these lost accounts. A strike also would be serious from the point of view of the union. The employees could not win, for the simple reason that the X Company cannot pay higher wages and meet competition, and the disappointment of a lost strike might lead most of the workers to drop out of the union. Hence, a strike might destroy the union. In any event, it would destroy for a year or more to come the jobs of many of the employees.

II

The situation of the X Company epitomizes the labor problem as it exists today in hundreds of companies in the United States — especially in those which have been organized within the last several years. When the union in the X plant first elected officers, it selected as its business agent a man who was a vigorous and persuasive speaker, but who, as it turned out, was a poor administrator and negotiator. By the end of the first year, the members realized their mistake and replaced the business agent with a member of their executive committee who had shown himself wise and resourceful in counsel. The national officers of the union deny any part in effecting this change, but their rôle may not have been an entirely passive one. The present business agent has held office for three years. During this time he has learned much about the problems of the company and about competitive conditions in the industry. He is convinced that a strike would be disastrous for both the union and the employer, and that the union would be foolish to force one. His problem is to persuade the rank and file to accept this view.

As I write these lines no one knows whether or not the union members will vote against a strike. One reason for being optimistic, however, is that the employer has been trying to prepare for the present situation for several years. When he first signed an agreement with the union in August 1933, he had to decide whether he was making a temporary or a permanent change in his business. Influenced by the National Recovery Act, then only two months old, he concluded that an important change was occurring in American life and that collective bargaining was being accepted by the public as a national labor policy. He decided to accept the new union as permanent and to try to adjust his business to dealing with it.

The employer reached this decision only with grave misgivings, because he had never dealt with unions and knew little about them. One of the things that worried him was what would happen to his business if he found himself compelled either to refuse union demands or to insist that the union concede wage cuts for the purpose of helping him meet competition. He knew that such a time would eventually come and he decided he must get ready for it. He was somewhat at a loss what to do, but two things seemed to be particularly important. One was to build up among his employees and their leaders a good understanding of his business and its problems. The other was to convince the union of his honesty and fairness, so that when he had to refuse all concessions, or to insist on a wage reduction, the union would understand that he was not bluffing and that he had good reason for his position.

The first of these objectives has been only imperfectly achieved. The employer has taken advantage of his frequent contacts with the union business agent to discuss with him the problems of the business, and there is no doubt that the business agent has a good understanding of the employer’s competitive position. In each of the six departments of the plant the union has a shop chairman who handles minor grievances. The shop chairmen occasionally act as a committee in dealing with top management. The employer instructed his foremen and his personnel manager to make a point of discussing the problems of the business in a broad way with the shop chairmen, and it is probably true that these employees are now well informed about the employer’s competitive position.

But the task of giving the five hundred rank-and-file workers an insight into the problems of the business has thus far seemed an insuperable one. The employer cannot do it himself, for literature handed out by him or addresses made by him would be suspect and heavily discounted. If the job is to be done at all, it must be done by the business agent and the shop chairmen. Up to now, they have not done it. The real difficulty, of course, is that the ordinary employee is little interested in the employer’s problems, because, so long as the concern holds its own, he sees no close connection between these problems and his wages and employment.

No one knows how successfully the employer has been able to convince the men that he is fair and honest in his dealings with the union. He realized that the union members would fear that he might attempt to undermine and destroy their organization, and he has gone out of his way to destroy this fear. He knew, for example, that the foremen might be inclined to encourage employees to remain out of the union, and he warned them strongly against doing this. True, he has steadfastly refused the union’s demand for the closed shop. Nevertheless, when he has needed new employees he has given the union business agent a chance to suggest men. And although he has refused to put pressure on anyone to join the union, he has taken notice of complaints from the business agent that certain employees were delinquent in their dues and has advised them to pay up. The manager knew that the union would suspect discrimination against union membership in every discharge case. He warned the foremen that the days of easy discharges were over and that they must not discharge unless the facts clearly supported the decision. The management also adopted the policy of warning the shop chairman or the union business agent of employees whose work was unsatisfactory and who would have to be dropped unless their work improved. This has helped the union to save the jobs of some members.

The manager early discovered that the greatest desire of union officials is to be consulted and, indeed, even to be given responsibility. Consequently, he has welcomed conferences with the business agent and has always made it easy for both the shop chairman and the business agent to obtain a conference with little delay. The union has made a number of demands which seemed unreasonable to the manager, but he has never dismissed these demands abruptly or refused to discuss them. On the contrary, experience has taught him that even unreasonable demands usually have a good reason behind them.

For example, the union has demanded that some piece rates which the management regarded as quite reasonable be substantially increased. Investigation revealed that the real trouble was the irregular flow of material or other production difficulties which prevented the men from earning a fair day’s pay. For some time the union has been demanding that piece workers be paid at their regular hourly earnings for time spent in waiting for work. The demand led the management to investigate how much time was lost by the piece workers waiting for work and for other reasons. Everyone was surprised at the amount. This led the management to make an effort to reduce waiting time to the minimum.

One fact revealed by the investigation was that the different sections of the working force were frequently out of balance — that some sections were busy while others had little work. In order to deal with this problem, the management has trained a skeleton force of workers who are capable of working in two or more sections and who can be transferred from section to section in order to keep the force in balance. This solution was worked out in coöperation with the union officers.

One of the things which the manager has learned by experience is the danger of ‘short-circuiting’ the union — that is, making concessions to the workers without first consulting the union officers and giving them an opportunity to claim some credit for the concessions. Otherwise, the union officials may feel that the employer is trying to undermine their position with the rank and file and may consider it necessary to demand more than the employer has given. The manager discovered this by accident several years ago when, on his own initiative, he undertook to raise a few scattered piece rates which were out of line and which were causing dissatisfaction. He naturally thought the announcement of these rate increases would meet with general approval, and he was surprised to find the union business agent quite critical and disposed to ask more than had been granted. After this experience the manager has been careful to make no rate adjustments or other concessions without first conferring with the business agent.

III

As a result of his four years’ experience with the union, the employer has gradually been developing a philosophy of industrial relations. He naturally wishes the union to be a responsible and conservative body, and he is acting on the assumption that the way to make it responsible is to treat it fairly and to give it such a satisfactory business relationship with him that the members will not lightly jeopardize that relationship by a strike. But the employees of the company are too inexperienced in unionism to appreciate what a good relationship they have and are disposed to take it for granted. Furthermore, the experience of most of them with strikes is limited to a short walkout of less than three weeks in the summer of 1933. Consequently, they may disregard the advice of their leaders and vote to strike.

But such a vote does not mean that a strike will occur. Indeed, despite the fears of the employer, a strike is distinctly improbable. Many national unions forbid their local unions to strike without first obtaining consent of the national officers. The national union with which the local in the X plant is affiliated exercises no such complete control over its locals, but it does possess control of the purse. Its constitution requires the national officers to refuse financial aid to strikes which the national officers have not approved. Before the national officers sanction a strike, they send a national representative to try to settle the dispute. Some employers regard national representatives as troublemaking outsiders intruding in the affairs of the employer and his men, but managers who are experienced in dealing with unions do not make this mistake. They know that national unions receive far more requests for strike support than they can meet and that the purpose of the national representative is to make a settlement and to protect the national treasury.

In the case of the X plant it is fairly certain that a national representative, after reviewing the gains which the local has made in the last four years and considering the competitive situation of the employer and the probable outcome of a struggle, would conclude that a strike would be a waste of national funds. Almost certainly he would insist that the local make a settlement. He might fear that some disappointed members of the local would discontinue paying dues, and in his negotiations with the X Company he would seek some condition which would prevent this. He might suggest the closed shop, which the employer is not ready to accept and would refuse. Quite probably the outcome would be a gentlemen’s agreement between the employer and the national union representative that the employer would help the union hold its members. You wonder whether the union would be willing to accept such a gentlemen’s agreement. That, of course, would depend upon its confidence in the good faith of the employer.

IV

One of the great fears of the head of the X Company has been the possibility that the union would impair the company’s competitive ability by forcing it to accept restrictive rules, particularly make-work rules or rules limiting the use of labor-saving devices. Restrictive rules usually spring from the fear of unemployment. The keen competitive situation in the industry and the two wage increases granted to the union have compelled the management to search very hard for ways of saving labor, and output per man-hour is now well above the levels of 1933. Thus far, the expansion of business has permitted the management to make labor-saving changes without dropping men. The real test of relations with the union will come with business recession. In order to combat dropping sales, it will be necessary for the management to strive harder than ever to find ways of cutting costs, and, in a period of declining sales, labor-saving methods will mean a displacement of men. Will the union permit this? No one knows.

As a matter of economics, of course, it is the workers who in the last analysis bear most of the cost of restrictive rules. What a union can extract from an employer depends fundamentally upon (1) the employer’s income and (2) the union’s bargaining power. If the union elects to impose higher costs on the employer in the form of restrictive rules, it is to that extent less able to impose higher costs upon him in the form of higher wages. Consequently the workers must choose whether they wish to use their bargaining power to get restrictive rules or to get higher wages. Unfortunately, most workers do not realize this, and even if they did they might prefer to impose make-work rules in order to protect men from being displaced at times when jobs are scarce. The employer thinks that his enterprise should be prepared to pay a dismissal wage to men who are displaced in hard times by labor-saving devices, and he thinks that a reserve for this purpose should be set aside from earnings in good years. Up to the present, however, he has done nothing, and he is somewhat reluctant to act because he does not know whether the government would tax such a reserve as undistributed profits.

Despite his fears that the union may eventually handicap both the company and its employees by restrictive rules, the employer confesses that thus far the presence of the union has helped rather than hurt efficiency. True, the union has not tried to promote efficiency, but its existence has compelled the management to be more efficient and has improved the morale and the spirit of the employees. There are several ways in which these results have come about. The manager was quick to realize that the presence of the union would limit the company’s freedom to discharge workers, especially when the charge was incompetence or inefficiency. Consequently, he has insisted that the hiring practices of the company be tightened up and that greater care than ever be exercised in selecting employees.

Over three fourths of the workers are paid by the piece. The manager realized that the union would subject new piece rates to more critical scrutiny than they had ever received. He also feared that union pressure might cause new piece rates to be set too high, and that in the course of time a structure of loosely set rates would grow up that would seriously weaken the competitive power of the company. Hence, top management has insisted that new rates be set after more thorough and careful time studies than ever before. Union criticism of the rates has revealed many conditions that had been hindering production. Everyone knows that the time required to do a job, and consequently the rate which the job should pay, depend upon the conditions under which it is done. Until the workers acquired spokesmen who were willing to speak without restraint, the management itself never knew how many conditions were hindering production.

One of the matters which affect the morale of workers is their relative compensation. Almost every shop has some jobs which are overpaid and some which are underpaid, but unless the men have proper representation the management may not know which jobs fall into each class. The union has brought to the surface many inequities in rates which previously had been covered up simply because no one was quite willing to speak out. When the second wage increase was negotiated, the management and the union business agent decided to apply part of it to bringing up some of the rates which were too low.

The presence of the union has greatly improved the relations between the foreman and the men. Never before in the history of the company has it been so necessary for the foremen to get on with their employees. The union does not dominate the foremen, but the fact that it is there means that the foremen must be able to justify disciplinary action by facts, that they get into trouble when they attempt to ‘take out’ their grouches on the employees or when they play favorites in awarding well-paying jobs and overtime work, and that little cliques which existed to get the favor of the foreman and lived by his favors have disintegrated. There is a more wholesome atmosphere in the shop than ever before, the foremen are better liked and command more respect, and relations between the foremen and the employees were never more satisfactory.

Finally, and possibly most important of all, there is the feeling of freedom which the union has introduced into the shop. Before the day of the union, most employees were quite careful of everything they said or did. A man with a grievance might speak out, but often he did not. No one ever really knew how much the men were suppressing. The union has cleared the atmosphere. The man with a grievance tells the shop chairman, and if the shop chairman thinks the employee has a case, he takes it up with the foreman. The manager thinks that this contribution of the union is the most important thing it has done.

V

The experience of the X Company illustrates fairly well both the advantages which collective bargaining brings to employers and employees and the problems which it creates. Up to the present moment, collective bargaining has improved materially the condition of the employees without injuring the company, but a prolonged strike would destroy the prosperity of the company for several years to come and with it the jobs of perhaps a hundred or more union members. The cry is frequently heard these days that unions should be made responsible. A common proposal is that they be made suable at law. There is no serious objection to this, provided all unincorporated associations are made suable. It is important, however, that the public realize the unimportance of this and many other proposals for the regulation of unions. Certainly the proposal would not help the X Company. The only kind of responsibility which would help this company would spring from an understanding by the union members of the fact that their wages and employment depend upon the prosperity of the company and that a strike at the present time would jeopardize their jobs. No law can create that understanding. Incidentally, there are eighteen states (of which Michigan is one) in which unions may be sued to-day, and no one can detect by any difference in industrial relations which states permit unions to be sued and which do not.

A large part of the public looks on union leaders as agitators who are engaged in stirring up men who prefer not to be stirred up. This conception may have some application to the organizers who are attempting to unionize the unorganized workers, because, as every experienced union man knows, the unorganized are often quite indifferent to unionism. But this concept does not fit most officers of established unions, and the situation among the employees of the X Company suggests the reason. The union leaders usually find themselves pressed by the rank and file to obtain more from the employer than the union can possibly compel him to concede — often more than he can afford to pay. The seasoned leader is likely to devote more effort to persuading the rank and file to temper their demands than to stirring up his members. Some of the recently formed unions will undoubtedly be destroyed by the rank and file’s demanding the impossible of them — and then dropping out in disgust when the unions fail to make good.

The experience of the X Company also shows how the character of tradeunion leadership is influenced by the employer’s policies. Since the tradeunion officer must be able to lead and control large groups of men, he needs to be something of a politician. And since the union is engaged in selling labor, its leader needs to be well acquainted with the business problems of the employers and a good judge of market trends and prospects. This means that the leader should be a good business man. The business type of leadership has come to the fore in the X plant union only because the company has not challenged the right of the union to exist and has been willing to deal with the union in a matter-of-fact, businesslike way. Had the employer chosen to be ‘tough,’ ‘hardboiled,’ and hostile, challenging the union at every point and losing no opportunity to undermine its influence with his employees, the men would have selected one of their toughest and most militant members to deal with him.

The management of the X Company has succeeded up to now in preventing its agreement with the union from developing into an elaborate and cumbersome set of rules. It has done this by avoiding arbitrary practices and by making it easy for the union to obtain settlement of individual cases as they have arisen on the basis of the facts in the case. Recently, I had occasion to compare some union agreements in British industry with American agreements. I was surprised to find that the British agreements contained very few rules. But the British agreements spelled out with care the process by which individual disputes are handled and provided rather elaborate machinery for settling them. If one were to contrast the policies represented by British and American trade agreements in general terms, one would say that the Americans are more disposed to rely upon the legislative method — the method of a rule spelled out in advance — and that the British are more disposed to rely upon the administrative method — the method of settling individual cases on their merits.

The British method is more flexible and more adaptable to a rapidly changing world, and is less likely to bind both sides by rules which will turn out to be a handicap to each. The unions have accepted the administrative method in Great Britain partly because employers there have been less hostile to tradeunions than American employers and partly because the British employers have been willing to coöperate with the unions in setting up carefully planned machinery for disposing of individual disputes.¹

VI

Collective bargaining is a form of price fixing — a way of fixing the price of labor. With 5,000,000 or 6,000,000 men in trade-unions, it represents price fixing on a very large scale — a scale so large that the results will affect profoundly the general business situation. How successfully collective bargaining works will depend in the last analysis on whether employers and trade-unions do a good job at keeping the price of labor properly adjusted to other prices. If collective bargaining pushes up wages too rapidly in periods of recovery, or keeps them too high in periods of recession, or raises wages in union plants too much above those paid by nonunion competitors, it will produce a substantial amount of unemployment. In that event it is not likely to raise the standard of living of wage earners as a whole. Furthermore, if mistakes in fixing the price of labor produce a considerable amount of unemployment, the unemployed will be hired by nonunion employers at prices which drive union employers out of business. Hence, if wages are not wisely fixed, collective bargaining is likely to destroy itself.

All of this means that the success of collective bargaining requires that the problem of fixing the price of labor be approached in a much more realistic fashion than ever before — that it be approached, not simply as a problem of ethics or social justice, but also as a business problem, a problem of selling labor. The difficulty of foreseeing business trends and of adjusting wages to them is illustrated vividly by the experience of the last year. When commodity prices were rising early in 1937, employers regarded it as good business to make liberal wage concessions in order to avoid interruptions to production. About the middle of January, however, demand deposits in the banks began to fall. This was important, because demand deposits are the principal form of money in the country. At first the decline of demand deposits was regarded as merely a temporary adjustment to changes in reserve requirements recently imposed by the Federal Reserve Board. It proved, however, to be more than this, and in ten months after the beginning of the year demand deposits had fallen by over $1,900,000,000. In the face of this large deflationary movement, the price of labor had been raised about 10 per cent! These increases in the price of labor must be regarded as an error in business judgment of first magnitude. And yet virtually no one among economists and employers appreciated that an error was being made until it was too late.

This experience illustrates the difficulty of operating collective bargaining in a world of business cycles. Undoubtedly the next time demand deposits turn downward everyone will pay more attention to their movement and employers will be more cautious about making additional wage increases.

The history of price fixing is strewn with failures. Are there any reasons to expect that collective bargaining will work better than most price-fixing schemes? I think there are. One reason is that in collective bargaining both buyers and sellers are organized, and hence each is a check upon the other. Another reason is that in the long run trade-unions cannot escape discovering that high wages can only be the result of prosperous industry. Some people, it is true, have recently been confused on this point. They regard wage increases as a way of creating rather than distributing prosperity. I wish that they were right. Then, by the simple expedient of increasing wages tenfold or a hundredfold, we could create enough prosperity to give every family several cars and perhaps a private yacht!

Some employers are skeptical as to whcther trade-unions are capable of appreciating that high wages are the result of prosperity rather than the cause of it. I do not believe that there is much cause for worry. The lesson is not an easy one to learn, but there is really no way of escaping learning it. It simply is a fact; and painful experience, if nothing else, will teach us that it is a fact. Indeed, if one surveys labor tendencies during the last fifteen years in Great Britain, Sweden, Czechoslovakia, one is impressed by the steadily growing understanding by labor leaders in those countries of labor’s need for a prosperous industry. There is likewise a fairly good appreciation of this need among American labor leaders. They would appreciate the need far more keenly, however, if American unions were not kept so busy fighting for such elementary rights as the right to exist and to represent their members in collective bargaining. Naturally, as long as unions are treated as outlaw organizations by a considerable part of industry, they can scarcely be expected to have a proper sense of their interest in the employer’s prosperity.