Thursday, June 9, 2016

Verizon's Horizons

Bill Onasch is both a good writer and very knowledgeable about the US labor movement. His articles are well worth reading. Indeed, his latest piece on the Verizon strike is the most informative that I've so far read anywhere.

We'll get back to the Verizon strike in a minute.

There are always two ways to interpret economic data--is it a demand issue or a supply issue? Usually there is no way to distinguish between those two possibilities.

Take, for example, the recent BLS employment report, tallying a meager 38,000 new jobs in May. Most pundits argue that it is a demand issue: consumers are holding back, nobody is buying anything, there is too much inventory, and we're on the verge of a recession. This view might be correct.

The alternative interpretation is that it is a supply issue: the economy has run out of qualified workers to employ. That unemployment is now down to 4.7% suggests the economy is going full-tilt, actually over-heating. Far from a recession, we're more likely to see wage inflation, and then inflation more generally. It looks like the Fed subscribes more toward this point of view.

I have no idea what the truth is, and what's more, I don't think anybody else knows either. Most likely it's some complicated mix of demand and supply factors. But Mr. Onasch's article lends credence to the supply-side explanation.
First of all, they [Verizon workers] remembered what the company tried to ignore—the boss had been paying them because they needed their work. The landlines can’t be moved to Mexico and there aren’t enough qualified white shirts to keep up with installations, repairs, or even the call centers for long. And efforts to employ “temporary replacements” fell far short of expectations.
Fixing telephones is a skilled job, not one they teach in college. There are not that many people who can do the work--you can't just hire somebody off the street. The "white shirts" may have their own value, but when it comes to climbing poles they're fairly useless.

Mr. Onasch claims--probably correctly--that the company had no other source of labor. They had to settle with the union. Even robots can't help them--it'll be a long time before a robot can look at a telephone circuit, figure out what's wrong with it, isolate the individual pole, climb it and then fix the problem.

In short, Verizon ran out of skilled labor--a classic, supply-side constraint. This gave the union a lot of bargaining power, which they used to the max.

To keep a more flexible workforce, Verizon wanted to contract out some of the repair work to non-union shops. But given the supply constraints, the contractors aren't going to be able to hire workers at a lower wage than Verizon. The company is better off putting the people on the payroll. Thus the union "won" a 25% increase in the number of pole jobs in New York City.

Beyond that, what did the union use it's bargaining power to accomplish? According to Mr. Onasch,

  • 1300 new call center jobs will be added.
    This is good for the union, but not for the skilled workers. The latter have bargaining power even without the union, but the union itself earns money only by extracting union dues from contracted employees. Adding 1300 call center jobs to Verizon's payroll will augment union dues, without much improving the lives of the call center workers (who are eminently replaceable).
  • Annual 1% increases in defined-benefit pensions.
    This only works if the pension plan is fully funded. If not, then it's a big lie--just ask unionized mine workers about that.
  • A modest number of retail store workers and technicians in the wireless division will be included in the contract.Again, this is good for the union, but potentially terrible for the employees. The retail workers are both dispensable and low-paid, and will now have to contribute to support the pensions of the skilled workforce.
  • An immediate 3% raise, along with three 2.5% raises over the life of the contract.
    Yeah, when there's a labor shortage salaries get bid up.
Mr. Onasch is cautious about using the strike tool.
Major industrial corporations today have alternative sources of production to reduce a strike’s impact on their “bottom line.” These formidable challenges have succeeded in reducing the numbers and length of strikes in the United States over the last few decades—and especially during this century. 
But some modest or partial strike victories in recent years—Temple University Hospital nurses, Chicago teachers, oil workers national agreement, Kohler—have inspired a few unions to continue this tactic even as all the pundits tell them that their shrinking unions are now irrelevant and strikes are futile.
He shows he implicitly understands the supply/demand distinction made above. Firms that have run up against labor supply constraints are easier to bargain with than others. That surely is true for the oil workers and the Kohler employees--both drawn from a skilled workforce. So contrary to Marxist assumptions, strikes are more common and more successful when the economy is strong rather than when it is weak.

The teachers, on the other hand, are public employees, and nurses are so heavily regulated that they might as well be public employees. These workers are in a different category altogether. Their success depends on how good they are at lobbying politicians for bennies. This is a form of corruption, and has little to do with any supply/demand issues. Personally, I think the future for public employee unions is grim.

But for workers in skilled trades that can't be automated--their future is bright. Mr. Onasch explains why with more clarity than perhaps he is aware of.

Further Reading:

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