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© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

The Impact of Unions in Wage Determination

McGraw-Hill/Irwin

© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Wordweb defined Union as an organization of employees formed to bargain with the

employer.

McGraw-Hill/Irwin

© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

The Impact of Unions in Wage Determination

Impact on general wage and benefit levels

Impact on the structure of wages

Impact on non-union firms (spillover)

Impact on wage and salary policies and practices in unionized firms

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Union Impact on General Wage Levels Unions do make a difference in wages. Union workers earn between 8.9% and 12.4%

more than non-union workers/counterparts. The size of the gap varies from year to year. During periods of higher unemployment and slow

economies, the impact of unions is larger. During strong economies the union-nonunion gap

is smaller. Unions in the public sector make a difference in

wages of 7% to 12% more than their nonunion counterparts.

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The Structure of Wage Packages The presence of a union adds 20% to 30% to

employee benefits. Unionized employees have a greater percentage of

their total wage bill allocated to employee benefits. Benefits are 34.5% of the total compensation

package for union workers Benefits are 25.6% for nonunion workers The higher costs are from higher pension

expenditures and higher insurance benefits. Unions are reluctant to accept a two-tier wage

structure in contracts.

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Union Impact: The Spillover Effect Employers seek to avoid unionization by

offering workers the wages, benefits, and working conditions won in rival unionized firms.

The nonunion management continues to enjoy the freedom from union “interference” in decision making.

The nonunion workers receive the “spillover” of rewards obtained by their unionized counterparts.

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Role of Unions In Wage and Salary Policies and

Practices The role of unions in administering

compensation is outlined primarily in the contract. This includes:

Basis of pay Regular pay Overtime pay

Occupation - wage differentials Experience / merit differentials

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Role of Unions In Wage and Salary Policies and

Practices (continued) Other differentials

new and probationary employees pay to unionized employees employed by firm in different

geographic areas part-time and temporary employees

Vacations and holidays

Observance of the following Legal Holidays New Years Day (Jan. 1) - Independence Day (June

12) Maundy Thursday - National Heroes Day

(Aug. 29) - Bonifacio Day (Nov. 30) Good Friday - Christmas Day (Dec. 25) Araw ng Kagitingan (April 9) - Rizal Day (Dec. 30) Labor Day (May 1)

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Role of Unions In Wage and Salary Policies and

Practices (continued) Wage Adjustment Provisions

Deferred wage increases- is negotiated at the time of initial contract negotiations with the timing and amount specified in the contract.

Re-opener clauses- specifies that wages, and sometimes such nonwage items as pension and benefits, will be renegotiated at a specified time or under certain conditions.

Cost-of-Living Adjustments (COLA) or Escalator clauses- involves periodic adjustments based typically on changes in the consumer price index.

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Summary

Due to increased international competition, U.S. labor costs must be cut to improve competitive position.

Unions face a difficult situation. How should they respond to the

attacks on traditional compensation systems?

The crisis demands changing attitudes from both management and labor.

McGraw-Hill/Irwin

© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Reference:

Milkovich, G.T. & Newman, J.M. (2002). Compensation 8th Eds., USA: McGraw-Hill Higher Education.