Collective Bargaining: Historical Models of Collective Bargaining in the U.S. - Page 3

Employers ability to pay

Product market factors
The employer's ability to meet union wage and benefit demands may result from favorable conditions either in the product market or in the labor market relevant to the employer's business. In the product market, if the employer has the capacity to pass the increased cost associated with improved wages, benefits and working conditions on to the consumer without serious damage to the demand for the goods or services produced, the employer will have the ability to meet union bargaining demands. Some of the methods through which an employer may be in a favorable market position include the following:

  1. Market concentration and administered pricing
    If the market for a particular product is dominated by a very few large corporations, those producers have the ability, within limits, to artificially set the price for the product. For example, the four largest cereal firms in the United States produce 90 percent of the cereal we eat, and the eight largest produce 98 percent. This extensive concentration eliminates substantially the pressure of competitive pricing.
  2. Market expansion
    If the demand for an employer's goods or services is high and expanding, the employer is in a position to pass higher costs on to the consumer. For example, the rapid growth of demand for automobiles through the 1950s and 1960s placed the UAW in a favorable bargaining position. Consumers were willing to absorb higher wage and benefit cost of higher in order to obtain a product in high demand.
  3. Economic cycles
    The cyclical nature of the economy as a whole can also affect the employer's ability to pass costs on to consumers. If a market (local, national or international) is in a period of depression, consumers are unable to absorb increased costs of many commodities because of their lack of spendable income. If times are good and people are working, their personal demand for goods and services increases.
  4. Governmental influences
    A number of governmental policy decisions can have direct and indirect influences on an employer's ability to pay higher wages to workers. Some of the most significant include:
    1. The government as consumer
      The government of any political entity is a major consumer of goods and services produced by private employers. Each year, for example, the federal government spends billions of dollars to buy paper clips, automobiles, filing cabinets, computers, airplanes, books and countless other commodities and services. If the government is willing to absorb cost increases for these items, the employers providing the goods and services can pass along the higher wage costs. This is particularly important when the government is a primary consumer of a particular industry, such as the aerospace industry.
    2. Demand-side social programs
      A number of social programs are designed, in part, to assure that money is made available to maintain demand for goods and services. For example, unemployment compensation insurance is designed to cushion the blow of recessions. When people lose their jobs and income, their demand for goods decreases. By returning a portion of their lost earnings, the government theoretically stimulates demand for goods.
    3. Regulated price setting
      In public utilities and other regulated industries, a governmental unit may have the power to fix the price for the goods and services produced. If a regulatory agency is willing to allow increased costs to be passed on to the consumer, a regulated employer has an increased ability to pay for higher wages and benefits. If the regulated product is one considered essential by consumers, such as electric service, the consumer has little choice but to accept the higher cost of that service.
    4. Subsidies
      In some cases, the role of the government is to serve as a buffer between the employer's increased costs and the consumers' inability or unwillingness to pay higher prices. If the government subsidizes an industry, it allows the employer to charge more fort he product without forcing the consumer to pay more. Subsidies may be either direct or indirect.
    5. Trade and monetary policies
      The government can shift the relative market advantage between domestic and foreign producers through trade policies that either encourage or discourage the consumption of imported goods. The relative cost of domestic goods can also be influenced by the relative cost of money. For example, if the dollar is weak against other currencies, domestic goods are relatively cheaper than imported goods. A weak dollar gives domestic producers a cushion to absorb wage increases without adversely affecting the comparative cost of goods.