Major agreements in 1984 provide record low wage increases Essay

Major agreements in 1984 provide record low wage increases In 1984, the size of wage adjustments under major collectivebargaining agreements in private industry reached historic lows for theBureau of Labor Statistics 17-year-old series.1 Settlements reachedduring the year provided adjustments (increases, decreases, and no wagechange) averaging 2.4 percent for both the first year and annually overthe life of the contracts. Adjustments peaked in 1981 and have declinedsteadily since.

(See chart 1.) Wage adjustments actually put intoeffect during 1984, 3.7 percent on average, were also at a historic low. Average wage adjustments under 1984 settlements were low becausewages were frozen or reduced for a substantial proportion of workers,and average increases were the smallest ever. Such developments werenot new, having first emerged as a result of 1981 negotiations.

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Theywere especially evident in 1982 settlements, and persisted in 1983 and1984. (See table 1.) When most of the parties involved in 1984 contracts last bargainedin 1981 or 1982, the economy was in a recession and individualindustries and firms was in a recession ficulty. By 1984, much of theeconomy had emerged from the 1981-82 recession, as reflected by majoreconomic indicators. The gross national product increased 6.8 percentin constant (1972) dollars in 1984, following a 3.3-percent increase in1983 and a 1.9-percent decrease in 1982; total industry utilization was81.

7 percent in December 1984, compared with 79.0 percent in December1983, and up from 69.6 percent in November 1982; productivity (outputper hour) in the business sector rose 3.6 percent in 1984, the largestannual average increase since 1976; the unemployment rate fell from arecession high of 10.7 percent in December 1982 to 8.1 percent inDecember 1983 and 7.1 percent a year later; the Consumer Price Index forAll Urban Consumers (CPI-U) rose 4.

0 percent in 1984, continuing themoderate rate of increase that started in 1982 (this index increased13.3 percent in 1979 and 12.4 percent in 1980); the Employment CostIndex (ECI) showed a dampening of increases in employer costs foremployee compensation, rising by only 4.9 percent in 1984, after a9.8-percent increase in 1981, 6.4 percent in 1982, and 5.7 percent in1983. Despite the improvement in the overall economy in 1984, manynegotiators continued to face problems stemming from import competition,deregulation of the airline industry, nonunion competition (particularlyin the construction industry), and structural changes in some industries(for example, changing product lines or production methods).

Thus,settlements reached in 1984 reflected the pressure on management toreduce or hold down labor costs, and the job security concerns ofworkers which continued to dampen union wage demands. Settlements provide record low adjustments Reacting to a variety of economic concerns, 1984 contracts providedrecord low adjustments, averaging 2.4 percent in both the first contractyear and annually over the life of the agreement. (See table 2.) Theprevious lows, in 1983, were 2.6 percent in the first year and 2.8percent over the life of the contract. About 2.

3 million of the 7.3 million workers under major agreementswere covered by 1984 settlements. The last time parties to thesesettlements bargained (2 to 3 years ago in most cases), wage adjustmentsaveraged 5.9 percent in the first contract year and 4.9 percent annuallyover the contract life. These averages reflect, in part, settlementsreached in 1982, and to a lesser extent 1983, which provided smallerwage adjustments than in earlier years. About 720,000 workers (or 31 percent of those covered under 1984settlements) will receive lump-sum payments that are not incorporatedinto employees’ wage rates during their contract term. Suchpayments are provided by 38 (7 percent) of the 550 agreements reached inthe year.

(Lumpsum payments are excluded from all wage and benefitmeasures in the major collective bargaining agreements series.) Mostworkers under 1984 settlements that provide lumpsum payments willreceive a specified wage increase but no lump-sum payment in the firstcontract year, and will receive lump-sum payments but no specified wageincrease in the second and third contract years. Thus, settlements withlumpsum payments specified wage adjustments averaging 2.5 percent thefirst contract year, but only 1.4 percent annually over the contractterm.

Corresponding adjustments in settlements without lump-sumpayments averaged 2.4 and 2.8 percent.

The small 1984 adjustments stem from the smallest wage increasesand the largest wage decreases on record. Approximately three-fourths of the workers had wage increases averaging 3.8 percent in the firstcontract year, almost one-fifth had no wage change, and the remainderhad decreases averaging 9.

5 percent. About three-tenths of those withwage decreases or no change in the first year will receive subsequentincreases, resulting in a net wage gain for the contract term. Thus, bythe end of their contracts, 84 percent of the workers will have receiveda specified wage increase. Compensation adjustments. The Bureau measures total compensation(wages and benefit costs) adjustments in agreements covering 5,000workers or more. These contracts involved slightly more than 60 percentof all workers under major settlements in 1984.

Agreements covering5,000 workers or more provided compensation adjustments of 3.6 percentin the first year and 2.8 percent a year over the contract life. (Seetable 3.) Approximately 5 percent of the workers will have no change ora decrease in total compensation over the life of their agreements; forthe remainder, increases will average 3.

0 percent a year. Changes by industry. Wage increases were negotiated in a varietyof industries, including automobile manufacturing, coal mining,petroleum refining, public utilities, water transportation,construction, building service and maintenance, and health services.Settlements providing no wage changes were primarily in the constructionindustry, but appeared in some contracts in other industries, includingprimary metals, transportation equipment, water transportation, foodstores, and airlines.

Of the 121,000 workers sustaining first-year wage decreases,approximately three-fifths were in the construction industry. Theremainder were primarily in air transportation and food stores.Subsequent wage increases will restore the cuts for about 20,000 of theworkers with first-year cuts, most of whom are in airlines and foodstores. For the others, wage cuts will average 6.1 percent annuallyover the contract life.

Settlements covering nearly one-half million construction workers(one-fifth of those under 1984 agreements) helped dampen the overallaverage wage adjustments for the year. Wages were either cut or frozenfor about one-quarter million construction workers, bringingconstruction wage settlements to a 17-year low–averaging 0.5 percent inthe first contract year and 1.0 percent a year over the contract life,compared with corresponding adjustments of 2.9 percent and 2.7 percentin other industries. The last time the same parties bargained, wageadjustments for construction workers averaged 6.

2 percent in the firstyear and 5.3 percent annually over the contract life. COLA clauses Cost-of-living adjustment (COLA) clauses covered 37 percent of theworkers under 1984 settlements. This was about the same proportion thathad been covered under the old agreements, as 68,000 workers lostcoverage, while 12,000 gained coverage.

Wage adjustments stemming fromCOLA clauses are not included in settlement data because COLA’sdepend on future changes in the Consumer Price Index– changes that areunknown at the time of settlement. However, guaranteed COLA amounts(those specified when the agreement is reached and scheduled to beimplemented later) are included in settlement calculations because theyare not tied to subsequent price movements. In 1984, wage adjustments over the life of the contract averaged1.8 percent annually for settlements with COLA, compared with 2.7percent for those without. This follows the historic pattern, in whichsettlements with COLA clauses have provided lower specified wageadjustments over the life of the contract than those without COLAbecause it is expected that the COLA provision will yield additionalwage increases. (See chart 2.) This relationship often has been truefor first-year wage adjustments as well, but it was not the case in1984.

First-year wage adjustments averaged 2.9 percent in settlementswith COLA and 2.1 percent in the others. Many factors contributed tothis relationship. For example, record low wage settlements inconstruction contracts, which usually do not have COLA clauses, dampenedthe size of non-COLA settlements.

At the same time, some contracts withCOLA’s only provide them in the second or third year of thecontract or after a substantial CPI increase has been reached, and thusdid not moderate the first-year wage increase in anticipation of COLApayments. Adjustments implemented by previous contracts Contracts that preceded 1984 settlements provided average wageadjustments (specified adjustments plus COLA) of 5.7 percent a yearwhile they were in effect. This is down from 9.1 percent for thosereplaced by 1983 settlements. The lower adjustments reflect themoderation in the size of specified wage adjustments that began with1982 settlements, as well as smaller COLA’s, stemming primarilyfrom the moderation in the rate of inflation. Contracts with COLAclauses provided a smaller total average annual adjustment than thosewithout. This continues the relationship between contracts withCOLA’s and those without that occurred in 1983 for the first timein the 9 years for which comparable data are available.

Previously,contracts with COLA’s provided smaller specified wage adjustmentsthan those without, but COLA’s more than made up the difference. The following tabulation shows average annual wage adjustments (inpercent) over the life of contracts with and without COLA’sreplaced in 1984: Wage adjustments effective in 1984 As noted earlier, wage adjustments put into effect in 1984 were thelowest since the series began in 1968. These adjustments result from(1) settlements during the year; (2) deferred changes made underagreements negotiated in earlier years; and (3) COLA provisions. Of the7.3 million workers under major contracts, 6.2 million received wagechanges which averaged 4.4 percent; the remaining 1.1 million had nowage changes.

When prorated over all 7.3 million workers, effectivewage adjustments averaged 3.7 percent, the lowest ever recorded by thisseries. The following tabulation shows average wage adjustments (inpercent) effective in 1984 for workers receiving a wage change andprorated for all workers:2 Workers can receive wage changes from more than one source; thusthe size of the average change (4.4 percent) is larger than any of thecomponent parts.

The record low effective wage adjustment reflects the moderation inthe size of new settlements and COLA adjustments. (See chart 3.) Duringheavy bargaining years, the new settlement component of the effectivewage adjustments series was larger than or equal to the deferredadjustment component until 1982. In 1982 and 1983 (years of heavybargaining), deferred adjustments averaged more than those from newsettlements. In 1984 (a moderate bargaining year), adjustments fromprior-year contracts averaged 2.0 percent, compared with 0.

8 percentfrom new settlements. In 1984, the prorated COLA averaged 0.9 percent, up from the recordlow of 0.6 percent set in 1983. The size of the COLA is determined bymovement in the Consumer Price Index, timing of reviews, and theadjustment formula used. Changes in two of these factors–the declinein the rate of increase in the CPI and the negotiation of less generousCOLA formulas–contributed to the small 1984 COLA’s. About 3.8 million workers had COLA reviews in 1984, of which 2.

5million received COLA increases averaging 2.7 percent; approximately 1.4million had at least one COLA review that yielded no wage change; andnone had COLA decreases. Wage adjustments stemming from all 1984 COLAreviews averaged 50 percent of the rise in consumer prices during theCOLA review period. Effective wage changes in major collective bargaining agreementsare reflected in the Bureau’s Employment Cost Index, which measuresthe change in the price of labor, free from the influence of employmentshifts among industries and occupations. The wage and salary series ofthe ECI is limited to straight-time average hourly earnings, includingproduction bonuses, incentive earnings, and COLA’s.

It excludesemployer costs for employee benefits. The ECI wage and salary component shows that in private industry,the cost of wages and salaries rose 4.1 percent during 1984, less thanin any other of the 9 years for which such data exist. Continuing therelationship that first occurred in 1983, wages went up more fornonunion than union workers in 1984–4.

5 percent versus 3.4 percent.The ECI wage and salary component, although relating to all unionworkers, is conceptually similar to the effective wage adjustmentmeasure for all workers covered by major agreements which, as notedearlier, was 3.

7 percent in 1984. Quarterly developments The following summary of significant developments by quarter in1984 traces the course of major collective bargaining throughout theyear.3 First quarter. Contracts negotiated in the first quarter providedaverage wage adjustments of 2.8 percent in the first year and 3.3percent annually over the life of the contract. Bargaining activity wasrelatively light. The 387,000 covered workers were spread among suchindustries as petroleum refining, water transportation, publicutilities, and building service and maintenance.

No single industry wasa major factor affecting the data for the quarter. Constructionsettlements covering 46,000 workers provided average adjustments of -3.6percent in the first year and -2.8 percent annually over the life of thecontract. A 2-year contract reached in January between Gulf Oil Corp.

and the Oil, Chemical and Atomic Workers set the pattern for pacts atother major oil companies. The petroleum settlements covered about23,000 workers and generally provided for an immediate wage hike of 20cents an hour and a 35-cent increase in the second contract year.Another 31,000 workers under major agreements were covered by a 3-year”master’ contract between East and Gulf Coast stevedoringcompanies and the International Longshoremen’s Association, whichwas ratified in February. The master contract provided a $1 an hour payincrease retroactive to October 1 of 1983, $1 an hour on October 1 of1984 and 1985, plus a $1.25 an hour increase in employer payments tobenefit funds. Second quarter. Construction settlements dominated second quarterstatistics, covering more than half (54 percent) of the 554,000 workersunder settlements.

Wage adjustments in construction settlementsaveraged 1.1 percent in the first year and 1.4 percent annually over thecontract life. In other industries, wage adjustments averaged 3.

9percent the first year and 3.8 percent annually over the contract life.When combined with construction settlements, however, they producedaverage wage adjustments of 2.6 percent for the first contract year and2.7 percent over the contract life. Third quarter.

Construction was an important influence onsettlement statistics, accounting for 26 percent of 573,000 workerscovered by major contracts settled in the third quarter. Constructioncontracts provided wage adjustments that averaged 2.0 percent the firstyear and 2.1 percent annually over the contract life. An important settlement during the third quarter covered 105,000active mine workers, and was negotiated in September by the BituminousCoal Operators Association and the United Mine Workers of America.Negotiated against the backdrop of a depressed industry with about55,000 unemployed miners, the settlement provided pay increases of $1.40an hour over the term of the 40-month pact, compared with $3.60 an hourover the previous 40-month pact.

Other settlements in the third quartercovered 65,000 United Food and Commercial Workers in southern California who received a total of 2.3 percent in wage increases over the life ofthe 3-year contract; and 50,000 workers under a 2-year pact between theleague of Voluntary Homes and Hospitals of New York and District 1199 ofthe Retail, Wholesale and Department Store Union which provided5-percent pay hikes each year. By the end of the third quarter, contracts had been concluded forabout 9 of 10 construction workers for whom contracts would eventuallybe settled in the year.

It was clear that average wage adjustments insettlements negotiated in the construction industry for 1984 would behistorically low and would dampen the all-industry averages for theyear. The fourth-quarter developments reinforced this by providingfirst-year adjustments of -2.8 percent and over the life of the contractadjustments of -0.

8 percent for 47,000 construction workers.Construction contracts covered about one-fourth of all workers under1984 settlements and provided record low average wage and compensation(wage and benefit costs) adjustments. Fourth quarter.

This quarter generally is light in terms ofsettlement activity, but 1984 was different. Settlements covered797,000 workers, more than in any other quarter. A notable settlementwas the agreement between United Parcel Service and the Teamsters ratified in late October.

This pact, covering 90,000 workers (includinga substantial number of part-timers), extended the 1982 agreement untilJuly 31, 1987. (The 1982 agreement had been scheduled to expire June 1,1985.) It set an initial pay hike of 68 cents an hour, retroactive toSeptember 4, 1984. This is the total amount of the COLA’s that hadbeen diverted in 1983 and 1984 to help finance health and welfare andpension benefits. Also, it provided for a 50-cent hourly pay increaseon September 1 of 1985 and 1986. Settlement data were dominated by 3-year contracts negotiated bythe Auto Workers at General Motors Corp.

(for 350,000 workers) and atFord Motor Co. (114,000 workers). Both auto contracts providedimmediate specified wage increases ranging from 9 to 50 cents an hour(depending on pay bracket). Although wage rates will not be raised as aresult of specified increases for the remainder of the pacts, workerswill receive lump-sum “performance bonuses’ in 1985 and 1986.These bonuses will equal 2.25 percent of the previous contractyear’s pay for all compensated hours, including straight-time (butnot premium) pay for overtime.

Similar contract terms were extended to24,000 workers represented by the International Union of Electrical,Radio and Machine Workers and 4,000 represented by the United RubberWorkers at General Motors. As discussed earlier, lump-sum payments arenot incorporated into wage rates and are not included in the majorcollective bargaining agreements series. The large number of workerswho received lump-sum payments but no specified wage increase after thefirst contract year had a noticeable influence on settlement statisticsfor 1984. FOOTNOTES 1 The major collective bargaining agreement series for privateindustry covers 7.

3 million workers in bargaining units with at least1,000 workers. For definitions of terms, see Current Labor Statistics,Wage and Compensation Data, pp. 98. Additional tabulations from thisseries appear in the April 1985 issue of the Bureau’s Current WageDevelopments. 2 To calculate the effective adjustment and each component forworkers receiving wage changes, each percent change in wages is weightedby the number of workers receiving the change, then the totalworker-weighted change is divided by the number of workers receiving thechanges. The prorated adjustment is calculated by dividing the totalworker-weighted change by the total number of workers covered by majoragreements.

Therefore, the size of the average adjustment and each ofits components reflects both the size of each change and the number ofworkers it affects. 3 For details of these settlements, see George Ruben, “Modestlabor-management bargains continue despite recovery,’ Monthly LaborReview, January 1985, pp. 3-12.

Table: 1. Proportion of workers with increases, decreases, or nowage change under settlements covering 1,000 workers or more reached in1979-84 Table: 2. Wage adjustments in private sector settlements covering1,000 workers or more, 1984 Table: 3.

Average compensation (wage and benefit costs)adjustments in private sector settlements covering 5,000 workers ormore, 1984 Table: Photo: Chart 1. Average wage adjustments in private-sectorsettlements covering 1,000 workers or more, 1973-84 Photo: Chart 2. Average annual wage adjustments over the life ofcontracts with and without COLA in private-sector settlements covering1,000 workers or more, 1973-84 Photo: Chart 3. Average wage adjustments effective inprivate-sector agreements covering 1,000 workers or more, by 3-yearbargaining cycle, 1973-84

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