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Chapter 8 The Negotiations Process & Strikes McGraw-Hill/Irwin An Introduction to Collective Bargaining & Industrial Relations, 4e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserv 8 -3 1 - 3 The Four Subprocesses of Negotiations • Walton and McKersie argued that there are four subprocesses of bargaining within the negotiation of any collective bargaining agreement: - Distributive bargaining - Integrative bargaining - Intraorganizational bargaining - Attitudinal structuring 8 -4 1 - 4 Distributive Bargaining • Distributive bargaining involves negotiations in which one side’s gain is the other’s loss - It is a win-lose or zero-sum bargaining • Wages are an example: If management grants a wage increase, workers gain financially at the expense of shareholders - This type of bargaining leads to conflict • Unions try to make management agree by threatening a strike, while management may threaten layoffs 8 -5 1 - 5 Integrative Bargaining • Provides gains to both unions and management - A “win-win” negotiation - Labor and management both gain when they resolve problems that impede productivity and organizational performance - The introduction of new technology can provide an avenue for integrative gains, since it works best with appropriate changes in work practices 8 -6 1 - 6 Why Integrative Bargaining Can Be So Difficult • Integrative issues contain the promise of joint gains • But the parties are simultaneously confronted with how to divide any joint gain - Thus, integrative bargaining prompts the occurrence of distributive bargaining - Integrative solutions are sometimes blocked by labor and management’s disagreement over how to divide the productivity gains 8 -7 1 - 7 Integrative and Distributive Bargaining Involve Different Tactics • Integrative bargaining is difficult because parties send confused signals to each other - They both require very different tactics • In distributive bargaining, demands are overstated, information withheld, and a tough image projected • In integrative bargaining, an open exchange of information and airing multiple voices - Integrative bargaining can also be difficult since the problems that impede productivity are not always obvious 8 -8 1 - 8 Intraorganizational Bargaining • Occurs when there are different goals or preferences within either side - Unions commonly experience differences between senior and junior members - Senior members want higher pensions while younger workers prefer up-front wage increases - Surface bargaining, or “shadow boxing,” occurs when a representative lacks authority 8 -9 1 - 9 Attitudinal Structuring • Negotiations involve uncertainty • It’s difficult to anticipate how much strike power each side possesses - Attitudinal structuring is the degree of trust the sides feel toward each other - If both sides share a high degree of trust, integrative bargaining is easier • If both sides work together amicably, their “perspective-taking ability” is greater and integrative bargaining is more likely to succeed 8 -101 - 10 Management’s Objectives • The development of wage targets is the heart of the internal management planning process in the early stages of negotiations - The negotiating team must recommend targets that reflect top management’s goals - If they are rejected, the team loses influence and credibility with top management 8 -111 - 11 The Union’s Targets • Management must take the union’s preferences into account when setting bargaining targets - Unless management totally dominates the bargaining, they must consider the acceptability of their wage offer to the union - The union’s bargaining power determines the extent to which management considers union preferences 8 -121 - 12 Local Labor Market Comparisons • If an employer ignores the local job market, high turnover or low morale could result - Employers do not always pay the lowest wage possible in their labor market - Paying higher wages will attract better qualified workers and reduce training costs and turnover - Labor market comparisons are more likely to be used where the union is weak - Where the union is strong, their bargaining power is used to do better than the local market 8 -131 - 13 Product Market Factors • Competition on the basis of lower labor costs has been the dominant factor in management’s drive to hold down labor costs - Particularly in low skill jobs • The threat of outsourcing has been an important part of management’s approach to negotiations in recent years 8 -141 - 14 The Firm’s Ability to Pay • The effects of wage adjustments on profits also influence management’s wage target - This is especially salient in small firms and firms facing a weak union - Management tries to shift from cost of living issues to the firms ability to pay • Unions are reluctant to lower their requests unless the firm can demonstrate economic crisis 8 -151 - 15 Internal Comparisons • Every negotiation is watched by the firm’s other employees - Management must consider the cost of pay increases to other union and non-union employees in the firm - They often consider if unionized hourly worker increases will lead to raises for supervisors and other white-collar employees 8 -161 - 16 The Dynamics of Management’s DecisionMaking Process • The process of establishing management bargaining strategies involves extensive intraorganizational bargaining - This can be as intense as the bargaining with the union - The process is replete with ambiguities and conflicts of authority - Management continually tries to predict what is required for a settlement 8 -171 - 17 Union and Worker Involvement in Negotiations • The Role of the Union Negotiating Committee - The makeup of the union committee varies across unions • Typically includes some union officers, support staff, and elected worker representatives • The committee will meet prior to negotiations to establish strategy and demands • They typically solicit issues from the membership 8 -181 - 18 Acquisition of Strike Authorization if at Impasse • If a union comes to an impasse with management, typically two steps occur: - The local union seeks a strike authorization from membership - Authorization is needed from the national union • Strike approval is an important process, since it enables striking workers to receive strike benefits from the national union • Union will typically poll members before a strike 8 -191 - 19 Contract Ratification • When an agreement is reached between management and the union negotiating committee, the union begins contract ratification procedures - Some unions send the agreement to a council of lower level officers for review - Union constitutions typically require that members vote on a new contract 8 -201 - 20 Union Leaders’ Roles in Shaping Strategies • Leaders must discard unrealistic goals of the membership - The goals of older, more skilled workers may prevail in selecting preferences for bargaining - Union leaders may ultimately consider union security over members’ wishes - Communications, upward and downward, are key to effective leadership - Unions use modern media – including the Internet – to communicate with their members and the public 8 -211 - 21 The Cycle of Traditional Negotiations • The Early Stages - Both parties present their opening proposals - Some proposals may be critical to the parties - Others may be withdrawn at various stages of negotiation - The involvement of different representatives can smooth intraorganizational bargaining within the union 8 -221 - 22 The Presentation of a Laundry List • The union can recognize the interests of various constituencies by including them in the laundry list - Some issues will be aired and then disposed of without agreement - This process takes the pressure off of the union leadership - A long list of demands can also be used to camouflage the real priorities of the union 8 -231 - 23 Employer Behavior in the Early Phase • Employers often present their own laundry list - They will often delay wage and major economic agreement until the late stages of the negotiations • Wage issues can be emotional and divisive - “Grandstanding” on both sides may take place in the discussions 8 -241 - 24 The Middle Stages • The middle stages involve more serious considerations • Both sides estimate the relative priorities • They estimate if an agreement can be reached without a strike • Signal issues of possible compromise 8 -251 - 25 The Final Stages • The final stages begin as the strike deadline approaches • Off-the record discussions may take place between two individuals or small groups from both sides - Sometimes with the assistance of a mediator - Each party is trying to convince the other of the credibility of its threats - They try to get the other side to decrease their bottom line - Each tries to assess the other’s “real” positions 8 -261 - 26 Interest-Based Bargaining: An Alternative to Traditional Negotiations - Some criticize traditional bargaining as reinforcing rather than overcoming adversarial tendencies in labormanagement relations • Interest-based bargaining (IBB) is essentially an effort to apply integrative bargaining to negotiations • Parties are encouraged to focus on interests, generate options, work together and share options, evaluate options, and choose options that maximize interests • As of 2000, 57% of negotiators made some use of IBB 8 -271 - 27 Strikes • In recent years, strikes occur in only about 5% of all negotiations - But the threat of a strike plays a major role in motivating parties toward settlement • How the Strike Threat Influences Negotiated Settlements - Bargaining parties are unlikely to settle on terms that differ substantially from what would settle a strike if one were to occur - Consequently strikes are an important determinant of bargaining power 8 -281 - 28 The Hicks Model of Strikes • In the Hicks model, bargainers form an expectation of what they would eventually agree to if there were a strike - If a strike occurs, both labor and management will have to absorb income losses - Workers will forgo earnings during the strike, and management will lose profits - Cognizant of these income losses, the parties should be able to find a settlement that they prefer over the wage settlement after a strike 8 -291 - 29 The Hick’s model of strikes 8 -301 - 30 Some of the Sources of Miscalculation • Ashenfelter and Johnson posited that union members have unrealistic expectations of a strike’s outcome - Even though managements and union leaders understand the consequences - Strikes may occur when union members and leaders have diverging expectations of the strike outcome 8 -311 - 31 Behavioral Sources of Strikes • Strike rates are consistently higher in industries that are not integrated into the community - Mining and longshoring are examples • These workers often have their own subculture • They are often distant from population centers • Their work involves harsh physical labor 8 -321 - 32 Militancy as a Cause of Strikes • Strikes may also occur as a result of militancy of the work force or union - Strikes occur more frequently during business upturns • This is contrary to the Hicks model, which predicts that settlements should be higher during upturns • Marxist theorists argue that the procyclical movement in strike frequency demonstrates that conflict is a product of the bargaining power held by labor • It is very difficult to predict the settlement point or causes of an impasse 8 -331 - 33 Strike Activity • The number of strikes and lockouts annually between 1975 and 2005 ranged from less than 14 to 381 • Approximately two-thirds of all strikes concern negotiations for a new contract - The remaining one-third are generally shorter strikes over other issues during the term of the agreement - The time lost due to strikes has averaged below .5% per year, and was at an all-time low in 2001 and 2002, and thence began to rise • Strikes now occur in about 5% of all negotiations 8 -341 - 34 Public pressure as a bargaining tactic 8 -351 - 35 The Role of Strike Replacements • Management has the right to hire temporary replacements • They can hire permanent replacements if they so notify the union and the newly hired employees - Striker replacement increases the duration of the strike, and signals management’s intent to bargain hard - In 1997, threats of permanent replacements were in 12% of negotiations surveyed by the FMCS - That number declined to about 10% in 2000 8 -361 - 36 First Contract Negotiations • One-third of all new bargaining units never reach an agreement - Strikes occur in 9.5% of first contracts, versus 3.5% of contract renewal cases - Striker replacements were used in 31% of first contracts that were threatened by managements • Compared to only 9% of contract renewal negotiations where this threat was made 8 -371 - 37 Public Pressure as an Alternative or Complement to a Strike • Union strike leverage declined in recent years - Due to permanent replacements, outsourcing, or other tactics - Some unions recently used public pressure to strengthen their bargaining leverage - Slowdowns are also used by unions, with mixed results 8 -381 - 38 The Role of Strategy in Negotiations and Strikes • The Role of Management Strategies - Management strategies have a major effect on the negotiations process • Investment and product decisions affect bargaining power and negotiation strategies • The company’s overall human resource strategy has an effect on negotiations – particularly employee attitudes 8 -391 - 39 In Airline Negotiations • After September 11, 2001, airlines experienced large losses - Four of the largest carriers filed bankruptcy and cut thousands of jobs • Many subsequent airline labor negotiations were contentious - Northwest hired replacement mechanics • American Airlines avoided bankruptcy when workers negotiated concessions • Southwest illustrates the links among strategies, human resource policies, and labor negotiations - While the average airline negotiation takes 17 months, Southwest averages just 6 months 8 -401 - 40 The Role of Union Strategies • Steel industry bargaining reveals how union strategies can influence negotiations • With the rise of global trade, the U.S. steel industry has struggled - By 2003, 37 steel companies filed bankruptcy • Including the second and third larges producers – LTV and Bethlehem • Bankruptcy provided management with a way to reduce "legacy" costs and pension obligations • At some steel companies, a conciliatory relationship emerged between labor and management in an effort to remain competitive - Initiatives included incentive pay and gain-sharing programs 8 -411 - 41 The Persistence of Historical Relationships • The drop in passenger traffic following September 11, 2001 ushered in a new era in airline labor relations - Yet a surprising degree of continuity in patterns ensued in the year following the attacks • Southwest stressed its good labor relations • Alternatively, carriers such as United and American requested deep concessions • This suggests that patterns persist even in the face of a changing bargaining environment 8 -421 - 42 International Comparisons of Strike Activity • The United States is not alone in experiencing a decline in strike activity - Australia and Ireland, which rivaled the U.S. in strike activity, are also experiencing a decline - Strikes in the U.S. are tactical bargaining tools • In many other countries they have more political undertones - In some countries unions or strikes are outlawed 8 -431 - 43 Summary - There are four subprocesses of bargaining distributive, integrative, intraorganizational, and attitudinal structuring - Traditional negotiations involve a complex cycle • Both sides engage in extensive preparations, including labor market studies, wage formulation, and polling of members by unions - The United States experienced a low rate of strike occurrence over the previous twenty years