Wall Street Journal - September 3, 1999
[from the Washington Wire front-page column]
THE IMF QUESTIONS the Fed's reluctance to prick the stock market. The Fed resists as impractical IMF official Fischer's suggestion that the central bank raise margin requirements on borrowing to buy stocks. Speeches next week by Greenspan and two Fed governors may signal whether Friday's employment report boosts chances of an October interest-rate boost.
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Wall Street Journal - September 3, 1999
Unions Seek Big Pay Gains, Sparking Inflation Worries
By GLENN BURKINS Staff Reporter of THE WALL STREET JOURNAL
WASHINGTON -- After years of stagnant wages, organized labor is aggressively seeking -- and sometimes winning -- big pay gains, raising the prospect that tight labor markets may finally be leading to wage inflation.
Two recent corporate contract offers have drawn attention from labor experts. In one, Boeing Co.'s machinists accepted the company's offer of a 10% bonus and annual raises of 4% for two years and 3% in the third year. Separately, Northwest Airlines offered flight attendants pay increases averaging 25% over five years, as well as an average 80% increase in pension benefits. The flight attendants, represented by the Teamsters union, rejected the pact last week, saying it wasn't sufficient to make up for 10 years without a pay raise.
The average Boeing machinist now makes $44,000 a year without overtime. Northwest flight attendants make between $15.99 an hour initially to $38.07 an hour after 12 years' service.
Economists and labor analysts cautioned that it was too soon to declare the era of muted wage gains over. Overall, unions aren't doing that much better this year than last year. A typical contract negotiated in the first half of this year -- the most recent period for which data are available -- called for first-year pay increases averaging just 2.7%, up from 2.4% in the first half of 1998, according to the Bureau of National Affairs, a private firm that tracks union wages.
Rise in Unit Labor Costs
But with unemployment remaining so low for so long, economists have been alert to signs of growing payroll pressure. Indeed, the Labor Department reported Thursday that unit labor costs rose at an annual rate of 4.5% in the second quarter. It was the largest such jump in five years, though analysts played down the report, noting that the number fluctuates significantly from quarter to quarter.
Friday's Labor Department report on job growth, unemployment, and wages also will be closely scrutinized by investors worried about inflation. And labor analysts say the Boeing and Northwest negotiations provide anecdotal evidence of an emerging trend: Unions, for the first time in years, are focusing much more on economic gains than they have been recently as they continue the broader fight for job security.
Other unions expected to press for significant pay increases this year are the United Auto Workers of America in its contract talks with the Big Three auto makers and the International Association of Machinists and Aerospace Workers negotiating with US Airways Group Inc.
To be sure, not every union is taking this tack. Still, analysts say it isn't insignificant that some union contracts are getting fatter. "It does remind us that unions aren't irrelevant," says Harry Katz, an industrial-relations professor at Cornell University.
Labor has had the most success, he said, in industries that are both heavily unionized and experiencing solid economic performance, most notably aerospace, auto, steel, trucking and airlines. In weaker industries that are less unionized, union gains have remained modest.
Factors Suppressing Gains
Patrick Cleary, vice president of economic policy at the National Association of Manufacturers, said several factors are suppressing wage gains, particularly global competition. And the Boeing contract, he said, isn't likely to force other manufacturers to follow suit.
"Except for the rare case of pattern bargaining within an industry," he said, "I think each negotiation stands alone. It's a tight labor market, but as I like to remind everybody, it's tough for everyone."
Some analysts said the Boeing contract, while clearly a good one for the machinists, isn't outstanding. Unlike many of its manufacturing competitors, Boeing doesn't offer its unionized workers a profit-sharing plan. So instead, the analysts say, the company in the past has used signing bonuses as sort of a substitute.
Perhaps the biggest test of labor's ability to press wage demands will occur this fall when the UAW begins negotiations with the Big Three. With vehicle sales strong, the union has signaled that it expects a bigger share of the pie this time around.
Specifically, analysts will be watching to see if the union can secure a first-year pay increase above its usual cost-of-living adjustment. Under some past agreements, the UAW has negotiated for signing bonuses instead of a first-year raise. Over time, this has had the effect of restraining wage growth for UAW members.
Wages are also expected to be a factor in a number of other contracts. Next summer, for example, General Electric Co. will sit down with its 48,000 unionized workers. And the machinists union, flush from its success at Boeing, is seeking a deal that would give its US Airways workers a 4% raise for three straight years. Harley Shaiken, a labor-relations professor at the University of California at Berkeley, said it should surprise no one that unions are now demanding higher pay: "If times are so good, workers expect something more in their paychecks."