The Roemer Report May 1985

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THE TEAMSTER PACT IN PERSPECTIVE: Last month we detailed the basic economics of a new Teamster contract. This month we'd like to place this agreement within the context of labor trends. We want to give our trucking executive readers a sense of the fundamental labor trends in this industry and how they are in general concert with developments in the overall economy.

INSIDE THE DUAL-PAY SCALE CONCEPT: The latest Teamster pact contains a provision for lower initial wages for new hires. This two-tiered pay scale is being adopted by other key industries in our country as a way of addressing harsh economic realities while inflicting minimum pain on current union members. We look for such agreements to spread in the transportation industry. Why? Deregulation has rapidly intro­ duced some very harsh economic realities. At the same time, it has given unions very little time to organizationally digest the consequences. The two-tiered wage system is a way for unions to adjust to the real world, but it does not address the fundamental long-term problem of cost competitiveness. Such a system -- while clearly necessary at the moment -- nonetheless discriminates between new and old workers.

While it will certainly help trucking companies to save on wages, some suggest that it could pose considerable long-term complica­ tions for those who adopt the system. For example, what will be the impact on productivity and morale with two people doing the same work at different wages?

A SYMPTOM, NOT A SOLUTION: Some labor scholars are suggesting that the two-tiered pay system is really a symptom of current industry economic problems, not a solution. For example, deregulation of the trucking and airline industries meant that established carriers faced increasing competition from upstart, often lower cost carriers. A prime ingredient in the newcomer's operation has been generally lower paid non-union workers. The two-tiered system doesn't ultimately address these fundamental cost differences. Rather, in the opinion of some labor scholars, it represents a failure on the part of our unionized sectors to adjust quickly enough to a more competitive economic environment. In a way, we are clinging to our past rather than boldly addressing our economic future.

A DECLINE OF INDUSTRY-WIDE AGREEMENTS: "Instead of looking outward --to industry patterns--employers are looking inward to profitability and to unit labor costs, to set their bargaining objectives." That's how the Conference Board's chief labor economist Audrey Freedman sums up the current bargaining atmosphere. Here's the key trend. During the 70s, this country had a considerable amount of wage rigidity that seemed to be "endemic" despite periodic bouts of high unemployment.

This will apparently not be true during this decade. Competition ,is breaking up traditional patterns and, in effect, eroding union power. Example. The recently announced dissolution of the Steel Companies Coordinating Committee demonstrates a decision by the major steel producers to abandon coordinated bargaining and, to pursue their own economic self-interests through individual bargaining. The circumstances in steel are not unlike those in trucking. In our case, increased rate competition has resulted in varying competitive positions of different trucking firms. Hence, over the long term the concept of coordinated bargaining remains dubious.

THE POST-DEREGULATION RAILROAD: Railroading was the nation's first regulated industry (1887). The railroads, of course, have undergone a huge shakeout since deregulation… a process that has probably made it a far more competitive transportation mode. The railroads once carried more than 56% of the nation's total freight. But that market share gradually slipped to a low of 35% in 1982. Now for the first time since their glory days of the 50s, railroads have increased their market share to 37%.

Transportation analysts believe the railroads could be poised to capture some of the business lost long ago to truckers. What's happening? Railroads are free to fall in the post-deregulation era. They can now set rates rapidly -- without regulatory red tape and respond quickly to changing market conditions. They also can plan investments based on market conditions. Moreover, the railroaders have signed some 20,000 shipper contracts for periods ranging from three months to 39 years. Maximizing the amount of business under contract seems to be a goal of many. Some of the contracts even guarantee delivery by a certain day and hour. The key in most is price with a clause based on the consumer price index. Finally, the railroaders are introducing a number of services like warehousing to enhance their competitive position. The railroads have a long trek remaining on the comeback trail. But they certainly appear to have discovered the road to the free market.

THE REAL COST OF IMPORTS: The recent rise in imports may be more costly than most people realize. Thanks to the robust dollar pushing down prices on foreign goods, and the healthy appetite of American consumers, imports soared by 26.4% last year, total of $341.2 billion. Imports ran the gamut from low tech to high tech, capital goods to consumer goods. But it's the steep climb in high tech equipment imports that especially concerns analysts. If this field is America's economic future, we must maintain our competitive edge. Yet In 1984 more than a quarter of the U.S. instrument market -­ Including scientific equipment, thermometers and even watches -- was comprised of imports. Likewise, foreign-made computers, office equipment and electrical machinery increased their American market shares by nearly 50%. Here's the bottom line: Surging imports are damaging our economy and labor force far more than sagging exports.

Americans spent 20 cents of every dollar last year on foreign goods -- direct substitutes for domestic products. Some economists claim that each billion dollar increment in the trade deficit costs the U.S. 24,000 jobs. Following that formula, the real price tag on 19841s $123 billion trade imbalance was three million jobs. Granted, that may be a simplistic analysis. After all, six million people have joined the labor force since the dollar's launch five years ago. But protectionist rumblings are audible across the nation, with Japan the prime target. If the dollar sustains its present rate of appreciation the U.S. trade deficit could swell by $15 to $20 billion this year -­ mostly from imports.

THE ENTREPRENEURIAL GROWTH ENGINE: All signs point to a burgeoning entrepreneurial era in this country. Within the past several years, a record number of new businesses have been created, many of them high tech-inspired. INC. Magazine marks this trend by annually identifying America's 100 fastest-growing public companies. Here are some revelations from this year's list… (1) Newborn businesses. More than 80% of these firms didn't exist a decade ago. In 1980, most were in the start-up stage -- small, privately held and struggling. (2) Wide-ranging ranks. The 1ist encompasses manufacturing, wholesaling, retailing, service and energy-related companies in 22 states. Computer businesses prevail, followed by health care companies, energy explorers, restaurants and air carriers. (3) Phenomenal growth. Today these firms average $54.6 million in annual sales. Five years ago their average volume was $2.3 million. This means their total revenue has grown 2,260% over the five-year period. (4) Enduring founders. In 71 of the 100 firms, the founder still serves as CEO. On average, he or she holds 17% of the equity down from last year's 20% figure. (5) Rising payrols. This year's 100 feature larger and still expanding -- staffs. Each company averages 702 employees, a 347% Increase over their 1980 payrolls. (6) Ragged bottom lines. More than half of these firms were in the red five years ago. Even now their average net profit is a modest 3.29% of sales.

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