First Thoughts
  By Dan Gilmore  
  Aug. 29, 2013  

The Labor (Day) Supply Chain 2013


Monday marks the annual Labor Day holiday both here and in Canada, and a couple of years ago I decided to do a column on the state of the labor supply chain in conjunction with this event. It was popular enough that I repeated it last year and am back here again for 2013.

According to Wikipedia, Labor Day was "first nationally recognized in 1894 to placate unionists following the Pullman Strike [a major event in US labor history in which a number of striking workers were killed and much US rail traffic brought to a halt]. With the decline in union membership, the holiday is generally viewed as a time for barbeques and the end of summer vacations."

That description of the state of US labor is an interesting one, and largely true based on the data. Yet, as weak as the labor movement has seemingly become in the last few years, in the past 12 months there have been some signs of resurgence

Gilmore Says:

Rules giving the OK to so-called "card check" union approval - achieved without the traditional secret ballot - could also become law through NLRB rulemaking.

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As just one quick example, we've already seen in the US several brief strikes by fast food restaurant workers in major metro areas demanding a "living wage" of $15 per hour. More are scheduled for this weekend. There are certainly many supporting their cause. Do I think these actions will result in $15 per hour pay rates? Virtually no chance. But I do believe there will be some upward pressure from the bottom that may impact what we pay DC associates in the end.

The reality is that production workers in manufacturing average around $19.15 per hour, which is 3.2% below their recent March 2009 peak and back to where they were in 2000, adjusted for inflation, the Bureau of Labor Statistics says. Whatever your overall opinions, manufacturing wages have been flat or down for a decade, while many overall living costs have risen.

At an American Axle & Manufacturing plant in Michigan, new hires for assembly start at $10 an hour. Those hired before 2008 get a "legacy" rate of about $18 an hour. Just $10 per hour to work at an auto industry factory? Amazing - I wonder how far back you would have to go to see when they last paid a wage that low.

GE's celebrated plan to move production of electric water heaters to Louisville from Mexico came only after US unions agreed to a $13 per hour starting wage for new hires, $8 to $10 below the previous contract.

The ironic thing of course is that overall, a big driver of the nascent reshoring trend is the flat or even lower wage rates here in the US, while Chinese wages are rising sharply and consistently.

I hope no one is really happy with this situation. In some cases, clearly union wage rates and total costs (including such things as paid "job banks") in some sectors such as automotive got way out of control. I understand all about global competition and the need to attack every extra penny of costs, but again I hope most of us would like to see manufacturing employees make more than $10 per hour, and have their real wages actually grow modestly but consistently over time.

But labor is succumbing to a host of threats:

• Too many unskilled workers for the number of blue collar jobs.

• Ever-present threat that the work could be moved offshore, or even just to a lower cost/non-union area of the US.

• Increasing threat of automation replacing the humans. The reality is - and something which most labor advocates never seem to quite get - is that the automation may not payoff at $13 per hour wage rates, but just might at $20.

I simply have no answer to that. Labor, pick your poison.

To just add some more facts to point number 2, the number of US manufacturing jobs declined an astounding 35% between 1998 and the bottom in 2010, while I assume the number of workers interested in manufacturing jobs rose. The modest good news is that manufacturing employments is up about 4.5% since then - though we might call that stopping the bleeding, but not reversing the trend.

The BLS statistics, by the way, say US warehouse workers bring home about $15.00 per hour, about 20% less than the $19.15 the average production worker brings home. starts its DC workers at $11.00 per hour (though the rate can rise over time, and Amazon provides a healthy benefits plan, including offering to pay for college.)

Interestingly, the number of workers in warehousing continues to rise, from about 530,000 at the end of 2003 to 690,000 in July. The drop related to the Great Recession was very modest, and employment levels now are actually above where they were in 2008 by 40-50,000.

Union membership in the US continues to tumble in the private sector. According to government statistics, union membership fell to just 6.6% in 2012, versus 6.9% in 2011. In the mid-1950s, that number was around 35%, the vast majority in factories as the US dominated global production, and there was enough money to go around for workers, management and investors.

Those days are long gone.

Unionization in manufacturing fell sharply, from 10.5% in 2011 to 9.6% in 2012. In transportation and warehousing, the rate fell from 20.4% to 19.9%. I assume that relatively high number mostly includes unionized truck drivers, not DC associates, which have relatively little unionization - at least for now (see below).

In March, Michigan of all places became the 24th right to work state, after a fierce battle in the statehouse, joining Indiana as the second state from the Midwest to make the move in the past two years. There are now similar rumblings in my home state of Ohio, in part as it sees Indiana poaching factories from Illinois and elsewhere.

It continues to look like labor is on the run - but not all in fact is bad news for labor.

Early this year, the East and Gulf Coast ports finally reached an agreement with the Longshoremen that appears very favorable to the union, and largely kept intact the contract's archaic provision dating from the 1960s that gives the workers and the union a royalty payment on any container that moves through the port.

Just recently, a federal appeals court upheld a ruling from the very labor-friendly National Labor Relations Board (NLRB) approving the move by a small group of nurses within a larger healthcare provider setting to form their own union.

I frankly just picked up on this trend earlier this year, and which some have termed "micro-unions." It has many business interests very concerned. This idea is that a subset - maybe even a small subset - of associates in any workplace can form their own union. I have heard - but cannot find the back-up - that such a micro-union was formed among shoe clerks at one high end retail department store, and by the receiving staff at one large distribution center. We know it happened in this health care example.

Of course, it could be much easier to get a small group of employees to organize versus an entire workforce. That could be the union camel's nose under the factory or DC tent, if you will. It could even lead to forming of numerous unions within a single operation and the chaos that would cause. Pay attention to this one.

The NLRB certainly might try to revive its approval of "microwave" union drives, which give management little time to respond to a unionization effort. It did so once, but it has been ruled the NLRB didn't have the proper quorum at the time. It does now. And rules giving the OK to so-called "card check" union approval - achieved without the traditional secret ballot - could also become law through NLRB rulemaking, after it failed in Congress.

Perhaps most interestingly, are unions setting their site on the vast pool of distribution center workers, using areas such as port drayage drivers as the first in a series of moves to get to that larger pot of union gold?

In a story we wrote just this week on such an effort at the port of LA, economist John Using said that "The big prize is not organizing drivers at ports. It's organizing drivers at ports to give them leverage over all the non-union warehouses. I suspect that's the deeper issue that's going on here."

This Labor Day, labor is once again diminished. But don't count it out quite yet.

Any reaction to our Labor (Day) Supply Chain 2013 review? How do you see some of these issues playing out? Let us know your thoughts at the Feedback section below.



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