Thursday, September 5, 2013

What Are Unions Good For?

This post is in response to an article in The Militant by Alyson Kennedy, entitled Mine Workers ratify contract with Patriot Coal. This is likely last in a series of articles by Kennedy about the UMWA and Patriot Coal. I've covered previous installments here, here, and here. Ms. Kennedy is consistently a good reporter, and her work is worth reading.

To briefly summarize, Patriot Coal was founded in 2007 by acquiring the unionized mines from Peabody Coal and Archer Coal (those companies are now non-union). Patriot thus inherited the responsibility to pay pensions for 20,000 retired miners and dependents, an obligation that has forced them into bankruptcy. By comparison, Patriot only employs about 1600 unionized miners--they're the people who ultimately have to support all these pensioners.

Despite the noisy demonstrations and empty threats of strike, I expected the miner's union to cave (pun intended). The money to make everybody happy does not exist. The retirees have been promised a bill of goods that can't be paid, and the remaining workforce is too small to make much of a dent in the obligation. But I didn't expect them to cave so quickly or so comprehensively. The new "concession contract" was ratified by 85% of the members.

Losers I thought to myself as I scanned the headline. And they did lose, but on reading the article I see it is not quite so simple. For the truth is that unions do play a useful social role. It's just not what they think it is. Here, in bullet points, is what they agreed to (per Ms. Kennedy's article):

  • A $1 per hour pay cut, with $0.50 per hour annual raises beginning in 2015.
  • Concessions in paid holidays, overtime, and medical expenses.
  • No pensions for new hires.
  • Existing pension obligations will be funded by a union-run VEBA (Voluntary Employee Benefit Association Fund) toward which the company will contribute $15 million, plus 20 cents per ton of coal mined.
  • The union receives a 35% equity stake in the company--now worthless given the bankruptcy--but if the company emerges from Chapter 11 the union can sell that to fund the pension plan.

It's not very generous: $15 million spread among 20,000 retirees comes to about $800 per person--not much of a nest egg. I can't estimate the value of the 20 cents per ton or the equity stake, but both of those depend on Patriot remaining a viable company. The CEO claims they are now on track to come out of bankruptcy. I sure hope so.

But that's not all. The union won a court case which imposes a responsibility on Peabody to cover pensions for 3,100 miners. Presumably these are miners who retired before the company was sold. Funding that smaller number from among Peabody's somewhat larger workforce seems practical. And finally, the union is lobbying for federal assistance in the form of Coal Act funds.

So everybody is taking a haircut. Patriot was already pretty bald, so they're mostly on a pay later plan. Peabody is still on the hook. The union workers get screwed, while the retirees (if they're lucky) get something. As Ms. Kennedy reports,
“We took concessions to help our retired brothers and sisters,” said Darryl Hedgepath, a member of UMWA Local 1793 and scoop operator at the Patriot’s Highland No. 9 Mine in Uniontown, Ky. “On any one day they could still close down the mines.”
None of this solves the pension problem. All it does is kick the can down the road. In the short term the old folks get a pay-out from the VEBA. Medium-term, funds siphoned from Patriot's future revenue string it along a little further. But long term? Long term we're all dead, and that, by the way, is a pretty good solution to the pension problem.

In that context it's important to point out that new hires won't receive a pension. That means nothing now--the coal industry isn't hiring very many people. But it obeys the first rule of holes--when you're in one, stop digging. The UMWA (along with 85% of its members) has finally learned that empty promises of golden pensions are not worth the paper they're printed on. So they've stopped making promises.

And that brings us back to the good things unions do. Of course the unions are going to lose. They were always uneconomic. Ever richer contracts with ever more generous pension benefits built on an imaginary view of the future--those days are over for good. No--the job of today's unions is to lose gracefully--that is, to negotiate a fair distribution of haircuts.

My faculty union has not learned that. I'm sitting in the catbird seat. I have tenure, great benefits, and I'm the highest paid member of my department. I got here by playing by the rules as they were when I was hired--rules that sort of made sense at the time. And then I took some risks (not all of which paid off) that increased my salary. The union protects me--the college can neither fire me nor (significantly) cut my pay, nor even force me to retire. By the time I (voluntarily) retire three years from now my house will be paid for and I'll have zero debt. I will have a decent nest egg from my defined contribution retirement plan, so even if the state goes bankrupt it won't affect me. There are no (large) haircuts in my future (unless the economy collapses).

So I'm grandfathered in, and that's fair. I played by existing rules, and changing them now at the last minute is as unfair as completely screwing over the miners' pensions. The problem is that the union hasn't learned the first rule of holes--they're still digging.

The problem is that the rules under which I was hired no longer make any sense. The business model and operating procedures for higher education look to be radically different in the not distant future. So rather than fighting like mad to retain the status quo--a totally lost cause--the faculty union should be working hard to lose gracefully. The watchword is lose gracefully--and then go out of business.

Colleagues ten years younger than I need to make some adjustments to their retirement planning. Those twenty years younger need to move to defined contribution benefit plans that they can take to a new career if college teaching becomes untenable. And people thirty years younger need to be thinking about their profession in a whole new light. A life-long, tenured professorship such as what I have is simply not in the cards for them.

And that's what I find so sad. My college, just this August, awarded tenure to a dozen faculty. This is a promise for a thirty year career as a college professor. I don't think the promise will be kept--the world is changing too fast and too dramatically. These colleagues are being sold a bill of goods--the campus, with union connivance--is lying to them. This is worse than what the UMWA and UAW did in the 1960s and 1970s--then, at least, the promises seemed credible (even though they weren't). But today, if it's not obvious that higher ed is untenable, then I don't know what obvious means. It is a scandal than anybody is awarded tenure today.

So unions are good for something. But they need to stop lying. And lose gracefully. Kudos to the United Mine Workers.

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