Wednesday, November 14, 2007

Labor Strikes in the New Millennium

There have recently been some high profile labor strikes in the news. As I write this, Hollywood writers are on strike. Not long ago there was a brief strike at Chrysler before their new labor contract was approved. But frequent or large numbers of labor strikes across the country are a thing of the past. Often, when there is a strike it is of short duration.

However, there are a few exceptions in recent years, like the Goodyear strike a few years ago, where the strike lasted longer and had more serious ramifications for both sides involved. In many ways that strike reflected a reality faced by many American manufacturers. Key facts included:

The United Steelworkers union called the strike because Goodyear had announced plans to close two plants (Gadsden, AL and Tyler, TX).

Goodyear expected to be $2.2 billion short in covering pension obligations in 2006 and said it could save $50 million/year by closing a U.S. plant.

Goodyear said the union refused to help them to remain competitive in a global economy, and the contract provisions the company wanted would protect jobs long term and provide for retiree medical benefits.

The Union said they had agreed to closing a plant and cutting pay and other benefits in the 2003 negotiations, and now was being asked for similar concessions again.

In 2003, Goodyear lost more than $1 billion, took on billions in debt and saw its stock go down from a high of $20 per share in 2002, to below $4 per share in early 2006. The stock later rebounded to the $14 per share range.

One complicating factor in negotiations was that senior executives received huge bonuses in 2006. Securities and Exchange Commission records showed Goodyear CEO Robert J. Keegan collected a $2.6 million bonus in 2005. Head of North American tire division, Jonathan D. Rich, was paid $680,000.

Ultimately the strike was resolved with the union being unable to prevent the plant closures, but preserving some benefit previsions for current and retired employees.

This strike illustrated the issues presented by a number of situations in American manufacturing. We live in a global economy and there are ever expanding alternatives for where goods can be manufactured for less. The collective bargaining process cannot prevail against market pressures. A strike is never a pretty situation, and I do not envy those involved on either side.

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