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 collective
bargaining agreements in private industry reached historic lows for the
Bureau of Labor Statistics 17-year-old series.1 Settlements reached
during the year provided adjustments (increases, decreases, and no wage
change) averaging 2.4 percent for both the first year and annually over
the life of the contracts. Adjustments peaked in 1981 and have declined
steadily since. (See chart 1.) Wage adjustments actually put into
effect during 1984, 3.7 percent on average, were also at a historic low.

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Average wage adjustments under 1984 settlements were low because
wages were frozen or reduced for a substantial proportion of workers,
and average increases were the smallest ever. Such developments were
not new, having first emerged as a result of 1981 negotiations. They
were especially evident in 1982 settlements, and persisted in 1983 and
1984. (See table 1.)



When most of the parties involved in 1984 contracts last bargained
in 1981 or 1982, the economy was in a recession and individual
industries and firms was in a recession ficulty. By 1984, much of the
economy had emerged from the 1981-82 recession, as reflected by major
economic indicators. The gross national product increased 6.8 percent
in constant (1972) dollars in 1984, following a 3.3-percent increase in
1983 and a 1.9-percent decrease in 1982; total industry utilization was
81.7 percent in December 1984, compared with 79.0 percent in December
1983, and up from 69.6 percent in November 1982; productivity (output
per hour) in the business sector rose 3.6 percent in 1984, the largest
annual average increase since 1976; the unemployment rate fell from a
recession high of 10.7 percent in December 1982 to 8.1 percent in
December 1983 and 7.1 percent a year later; the Consumer Price Index for
All Urban Consumers (CPI-U) rose 4.0 percent in 1984, continuing the
moderate rate of increase that started in 1982 (this index increased
13.3 percent in 1979 and 12.4 percent in 1980); the Employment Cost
Index (ECI) showed a dampening of increases in employer costs for
employee compensation, rising by only 4.9 percent in 1984, after a
9.8-percent increase in 1981, 6.4 percent in 1982, and 5.7 percent in
1983.


Despite the improvement in the overall economy in 1984, many
negotiators continued to face problems stemming from import competition,
deregulation of the airline industry, nonunion competition (particularly
in 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 to
reduce or hold down labor costs, and the job security concerns of
workers which continued to dampen union wage demands.



Settlements provide record low adjustments



Reacting to a variety of economic concerns, 1984 contracts provided
record low adjustments, averaging 2.4 percent in both the first contract
year and annually over the life of the agreement. (See table 2.) The
previous lows, in 1983, were 2.6 percent in the first year and 2.8
percent over the life of the contract.



About 2.3 million of the 7.3 million workers under major agreements
were covered by 1984 settlements. The last time parties to these
settlements bargained (2 to 3 years ago in most cases), wage adjustments
averaged 5.9 percent in the first contract year and 4.9 percent annually
over the contract life. These averages reflect, in part, settlements
reached in 1982, and to a lesser extent 1983, which provided smaller
wage adjustments than in earlier years.



About 720,000 workers (or 31 percent of those covered under 1984
settlements) will receive lump-sum payments that are not incorporated
into employees’ wage rates during their contract term. Such
payments are provided by 38 (7 percent) of the 550 agreements reached in
the year. (Lumpsum payments are excluded from all wage and benefit
measures in the major collective bargaining agreements series.) Most
workers under 1984 settlements that provide lumpsum payments will
receive a specified wage increase but no lump-sum payment in the first
contract year, and will receive lump-sum payments but no specified wage
increase in the second and third contract years. Thus, settlements with
lumpsum payments specified wage adjustments averaging 2.5 percent the
first contract year, but only 1.4 percent annually over the contract
term. Corresponding adjustments in settlements without lump-sum
payments averaged 2.4 and 2.8 percent.



The small 1984 adjustments stem from the smallest wage increases
and the largest wage decreases on record. Approximately three-fourths of the workers had wage increases averaging 3.8 percent in the first
contract year, almost one-fifth had no wage change, and the remainder
had decreases averaging 9.5 percent. About three-tenths of those with
wage decreases or no change in the first year will receive subsequent
increases, resulting in a net wage gain for the contract term. Thus, by
the end of their contracts, 84 percent of the workers will have received
a specified wage increase.


Compensation adjustments. The Bureau measures total compensation
(wages and benefit costs) adjustments in agreements covering 5,000
workers or more. These contracts involved slightly more than 60 percent
of all workers under major settlements in 1984. Agreements covering
5,000 workers or more provided compensation adjustments of 3.6 percent
in the first year and 2.8 percent a year over the contract life. (See
table 3.) Approximately 5 percent of the workers will have no change or
a decrease in total compensation over the life of their agreements; for
the remainder, increases will average 3.0 percent a year.



Changes by industry. Wage increases were negotiated in a variety
of 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 construction
industry, but appeared in some contracts in other industries, including
primary metals, transportation equipment, water transportation, food
stores, and airlines.



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



Settlements covering nearly one-half million construction workers
(one-fifth of those under 1984 agreements) helped dampen the overall
average wage adjustments for the year. Wages were either cut or frozen
for about one-quarter million construction workers, bringing
construction wage settlements to a 17-year low–averaging 0.5 percent in
the first contract year and 1.0 percent a year over the contract life,
compared with corresponding adjustments of 2.9 percent and 2.7 percent
in other industries. The last time the same parties bargained, wage
adjustments for construction workers averaged 6.2 percent in the first
year and 5.3 percent annually over the contract life.



COLA clauses



Cost-of-living adjustment (COLA) clauses covered 37 percent of the
workers under 1984 settlements. This was about the same proportion that
had been covered under the old agreements, as 68,000 workers lost
coverage, while 12,000 gained coverage. Wage adjustments stemming from
COLA clauses are not included in settlement data because COLA’s
depend on future changes in the Consumer Price Index– changes that are
unknown at the time of settlement. However, guaranteed COLA amounts
(those specified when the agreement is reached and scheduled to be
implemented later) are included in settlement calculations because they
are not tied to subsequent price movements.



In 1984, wage adjustments over the life of the contract averaged
1.8 percent annually for settlements with COLA, compared with 2.7
percent for those without. This follows the historic pattern, in which
settlements with COLA clauses have provided lower specified wage
adjustments over the life of the contract than those without COLA
because it is expected that the COLA provision will yield additional
wage increases. (See chart 2.) This relationship often has been true
for first-year wage adjustments as well, but it was not the case in
1984. First-year wage adjustments averaged 2.9 percent in settlements
with COLA and 2.1 percent in the others. Many factors contributed to
this relationship. For example, record low wage settlements in
construction contracts, which usually do not have COLA clauses, dampened
the size of non-COLA settlements. At the same time, some contracts with
COLA’s only provide them in the second or third year of the
contract or after a substantial CPI increase has been reached, and thus
did not moderate the first-year wage increase in anticipation of COLA
payments.



Adjustments implemented by previous contracts



Contracts that preceded 1984 settlements provided average wage
adjustments (specified adjustments plus COLA) of 5.7 percent a year
while they were in effect. This is down from 9.1 percent for those
replaced by 1983 settlements. The lower adjustments reflect the
moderation in the size of specified wage adjustments that began with
1982 settlements, as well as smaller COLA’s, stemming primarily
from the moderation in the rate of inflation. Contracts with COLA
clauses provided a smaller total average annual adjustment than those
without. This continues the relationship between contracts with
COLA’s and those without that occurred in 1983 for the first time
in the 9 years for which comparable data are available. Previously,
contracts with COLA’s provided smaller specified wage adjustments
than those without, but COLA’s more than made up the difference.



The following tabulation shows average annual wage adjustments (in
percent) over the life of contracts with and without COLA’s
replaced in 1984:



Wage adjustments effective in 1984



As noted earlier, wage adjustments put into effect in 1984 were the
lowest since the series began in 1968. These adjustments result from
(1) settlements during the year; (2) deferred changes made under
agreements negotiated in earlier years; and (3) COLA provisions. Of the
7.3 million workers under major contracts, 6.2 million received wage
changes which averaged 4.4 percent; the remaining 1.1 million had no
wage changes. When prorated over all 7.3 million workers, effective
wage adjustments averaged 3.7 percent, the lowest ever recorded by this
series.



The following tabulation shows average wage adjustments (in
percent) effective in 1984 for workers receiving a wage change and
prorated for all workers:2



Workers can receive wage changes from more than one source; thus
the size of the average change (4.4 percent) is larger than any of the
component parts.



The record low effective wage adjustment reflects the moderation in
the size of new settlements and COLA adjustments. (See chart 3.) During
heavy bargaining years, the new settlement component of the effective
wage adjustments series was larger than or equal to the deferred
adjustment component until 1982. In 1982 and 1983 (years of heavy
bargaining), deferred adjustments averaged more than those from new
settlements. In 1984 (a moderate bargaining year), adjustments from
prior-year contracts averaged 2.0 percent, compared with 0.8 percent
from new settlements.



In 1984, the prorated COLA averaged 0.9 percent, up from the record
low of 0.6 percent set in 1983. The size of the COLA is determined by
movement in the Consumer Price Index, timing of reviews, and the
adjustment formula used. Changes in two of these factors–the decline
in the rate of increase in the CPI and the negotiation of less generous
COLA formulas–contributed to the small 1984 COLA’s.



About 3.8 million workers had COLA reviews in 1984, of which 2.5
million received COLA increases averaging 2.7 percent; approximately 1.4
million had at least one COLA review that yielded no wage change; and
none had COLA decreases. Wage adjustments stemming from all 1984 COLA
reviews averaged 50 percent of the rise in consumer prices during the
COLA review period.



Effective wage changes in major collective bargaining agreements
are reflected in the Bureau’s Employment Cost Index, which measures
the change in the price of labor, free from the influence of employment
shifts among industries and occupations. The wage and salary series of
the ECI is limited to straight-time average hourly earnings, including
production bonuses, incentive earnings, and COLA’s. It excludes
employer 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 than
in any other of the 9 years for which such data exist. Continuing the
relationship that first occurred in 1983, wages went up more for
nonunion than union workers in 1984–4.5 percent versus 3.4 percent.
The ECI wage and salary component, although relating to all union
workers, is conceptually similar to the effective wage adjustment
measure for all workers covered by major agreements which, as noted
earlier, was 3.7 percent in 1984.



Quarterly developments



The following summary of significant developments by quarter in
1984 traces the course of major collective bargaining throughout the
year.3



First quarter. Contracts negotiated in the first quarter provided
average wage adjustments of 2.8 percent in the first year and 3.3
percent annually over the life of the contract. Bargaining activity was
relatively light. The 387,000 covered workers were spread among such
industries as petroleum refining, water transportation, public
utilities, and building service and maintenance. No single industry was
a major factor affecting the data for the quarter. Construction
settlements covering 46,000 workers provided average adjustments of -3.6
percent in the first year and -2.8 percent annually over the life of the
contract. A 2-year contract reached in January between Gulf Oil Corp.
and the Oil, Chemical and Atomic Workers set the pattern for pacts at
other major oil companies. The petroleum settlements covered about
23,000 workers and generally provided for an immediate wage hike of 20
cents 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 stevedoring
companies and the International Longshoremen’s Association, which
was ratified in February. The master contract provided a $1 an hour pay
increase retroactive to October 1 of 1983, $1 an hour on October 1 of
1984 and 1985, plus a $1.25 an hour increase in employer payments to
benefit funds.



Second quarter. Construction settlements dominated second quarter
statistics, covering more than half (54 percent) of the 554,000 workers
under settlements. Wage adjustments in construction settlements
averaged 1.1 percent in the first year and 1.4 percent annually over the
contract life. In other industries, wage adjustments averaged 3.9
percent the first year and 3.8 percent annually over the contract life.
When combined with construction settlements, however, they produced
average wage adjustments of 2.6 percent for the first contract year and
2.7 percent over the contract life.



Third quarter. Construction was an important influence on
settlement statistics, accounting for 26 percent of 573,000 workers
covered by major contracts settled in the third quarter. Construction
contracts provided wage adjustments that averaged 2.0 percent the first
year and 2.1 percent annually over the contract life.



An important settlement during the third quarter covered 105,000
active mine workers, and was negotiated in September by the Bituminous
Coal Operators Association and the United Mine Workers of America.
Negotiated against the backdrop of a depressed industry with about
55,000 unemployed miners, the settlement provided pay increases of $1.40
an hour over the term of the 40-month pact, compared with $3.60 an hour
over the previous 40-month pact. Other settlements in the third quarter
covered 65,000 United Food and Commercial Workers in southern California who received a total of 2.3 percent in wage increases over the life of
the 3-year contract; and 50,000 workers under a 2-year pact between the
league of Voluntary Homes and Hospitals of New York and District 1199 of
the Retail, Wholesale and Department Store Union which provided
5-percent pay hikes each year.



By the end of the third quarter, contracts had been concluded for
about 9 of 10 construction workers for whom contracts would eventually
be settled in the year. It was clear that average wage adjustments in
settlements negotiated in the construction industry for 1984 would be
historically low and would dampen the all-industry averages for the
year. The fourth-quarter developments reinforced this by providing
first-year adjustments of -2.8 percent and over the life of the contract
adjustments of -0.8 percent for 47,000 construction workers.
Construction contracts covered about one-fourth of all workers under
1984 settlements and provided record low average wage and compensation
(wage and benefit costs) adjustments.



Fourth quarter. This quarter generally is light in terms of
settlement activity, but 1984 was different. Settlements covered
797,000 workers, more than in any other quarter. A notable settlement
was the agreement between United Parcel Service and the Teamsters ratified in late October. This pact, covering 90,000 workers (including
a substantial number of part-timers), extended the 1982 agreement until
July 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 to
September 4, 1984. This is the total amount of the COLA’s that had
been diverted in 1983 and 1984 to help finance health and welfare and
pension benefits. Also, it provided for a 50-cent hourly pay increase
on September 1 of 1985 and 1986.



Settlement data were dominated by 3-year contracts negotiated by
the Auto Workers at General Motors Corp. (for 350,000 workers) and at
Ford Motor Co. (114,000 workers). Both auto contracts provided
immediate specified wage increases ranging from 9 to 50 cents an hour
(depending on pay bracket). Although wage rates will not be raised as a
result of specified increases for the remainder of the pacts, workers
will receive lump-sum “performance bonuses’ in 1985 and 1986.
These bonuses will equal 2.25 percent of the previous contract
year’s pay for all compensated hours, including straight-time (but
not premium) pay for overtime. Similar contract terms were extended to
24,000 workers represented by the International Union of Electrical,
Radio and Machine Workers and 4,000 represented by the United Rubber
Workers at General Motors. As discussed earlier, lump-sum payments are
not incorporated into wage rates and are not included in the major
collective bargaining agreements series. The large number of workers
who received lump-sum payments but no specified wage increase after the
first contract year had a noticeable influence on settlement statistics
for 1984.



FOOTNOTES



1 The major collective bargaining agreement series for private
industry covers 7.3 million workers in bargaining units with at least
1,000 workers. For definitions of terms, see Current Labor Statistics,
Wage and Compensation Data, pp. 98. Additional tabulations from this
series appear in the April 1985 issue of the Bureau’s Current Wage
Developments.



2 To calculate the effective adjustment and each component for
workers receiving wage changes, each percent change in wages is weighted
by the number of workers receiving the change, then the total
worker-weighted change is divided by the number of workers receiving the
changes. The prorated adjustment is calculated by dividing the total
worker-weighted change by the total number of workers covered by major
agreements. Therefore, the size of the average adjustment and each of
its components reflects both the size of each change and the number of
workers it affects.



3 For details of these settlements, see George Ruben, “Modest
labor-management bargains continue despite recovery,’ Monthly Labor
Review, January 1985, pp. 3-12.



Table: 1. Proportion of workers with increases, decreases, or no
wage change under settlements covering 1,000 workers or more reached in
1979-84



Table: 2. Wage adjustments in private sector settlements covering
1,000 workers or more, 1984



Table: 3. Average compensation (wage and benefit costs)
adjustments in private sector settlements covering 5,000 workers or
more, 1984



Table:



Photo: Chart 1. Average wage adjustments in private-sector
settlements covering 1,000 workers or more, 1973-84



Photo: Chart 2. Average annual wage adjustments over the life of
contracts with and without COLA in private-sector settlements covering
1,000 workers or more, 1973-84



Photo: Chart 3. Average wage adjustments effective in
private-sector agreements covering 1,000 workers or more, by 3-year
bargaining cycle, 1973-84

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