Economic Conditions and Employees

Bargaining Power

When speaking about unions and the leverage they do or do not have at any given time, a pertinent question can easily become whether the unions are in a better position to bargain when the company is doing well or when it is doing poor. Also relevant is how the wider economy is, how the cost of living is changing (or not changing) and so forth. While it may seem like an easy answer to give, there can be factors that lean one way or another even if the overall picture is gloomy. While unions will generally have a better position to bargain when the economy, in both its current and projected future states, are good, there is more than one factor that matters and which way they all fall can vary from factor to factor.

Analysis

There are two different scenarios posed for the author of this report and the author has been charged with picking which one will probably lead to a better bargaining position and outcome for the union. The first hypothetical is a situation where profits are high, market share is expanding, the economy is healthy and the cost of living is rising at a rate of less than two percent per year. The other hypothetical is that the company is achieving lower profits, sales growth is stagnant, economic conditions are uncertain and the cost of living is growing at about four percent. Generally speaking, the first of those two positions would lead to a better outcome. However, there are a few reasons that might not necessarily hold true over the course of the negotiations (Patton, 2016).

First of all, "uncertain" does not mean bad. Even if profits are low and sales are slow, this does not mean that the economy is going to tank. Indeed, "low" profits does not mean "no" profits. While a raise in wages and such would be far from a certainty, to suggest that the employees have no leverage is far from true. At the very least, the employee should be able to stave off any cuts that would hurt the pay and prospects of the employees. The ace in the hole, however, that the employees would have on their side in the "bad" scenario is that the cost of living is twice as much as it is in the "good" scenario. Indeed, if someone's cost of living per month is $1,000, this would mean that the costs would shoot to $1,040 from year to year as compared to the "better" case that would only yield a $20 change, from $1,000 to $1,020. Further, while the company could be non-committal about giving an inch in uncertain economic times, the employees could counter that "uncertain" does not mean that things will go completely bad. So long as the company is in fiscally sound condition and a collapse is not imminent, engaging in cuts or even stopping wage growth would basically be a non-starter for the union as they would expect their wages to grow at least as fast as cost of living so that their "real" dollars available do not actually fall, rather than rise. Further, the company could greatly undermine and sabotage themselves if they go too far in making cuts or trying to take things (or not give things) to/from the union. Given the totality of the circumstances, the cost of living differential between the two firms is what would lean the arrow in favor of the low profit scenario as being the better situation for union bargaining power. Unless the union has a cost of living clause in their agreement, they would have a hard time wrenching a concession from the company (NBER, 1982).