August 20, 1997
Good News in the UPS Capitulation
by
Charles W. Baird
At first glance, the August 18 capitulation of UPS to the outrageous demands of the Teamsters and the AFL-CIO looks like bad news for employers and workers who want to remain union-free. Inasmuch as most employers and most workers want to remain union-free, this could be bad news for the entire American economy. However, my guess is that in the longer run this will turn out to be a Pyrrhic victory for the unions.
This was indisputably a capitulation. UPS surrendered in its effort to pull out of the 21 Teamster multiemployer pension funds and set up its own plan so that UPS pension money could be used to pay benefits to UPS workers. Pity the UPS retirees who will now not get the 50 percent pension increases UPS offered in its proposed single-employer plan. UPS will now make additional pension contributions to the Teamster funds, some of which will go toward paying pensions to non-UPS retirees and, if the past is any guide, some of which will be used by the Teamsters as a political slush fund. Nothing unusual here. Unions always seek more benefits for themselves than for the workers they purport to represent.
UPS also surrendered on the part-time worker issue. It has agreed to create 10,000 new full time jobs over the next five years. This is in addition to the 10,000 full-time jobs it expected to open up over the next five years due to retirements and normal worker turnover. However, most of the 10,000 new full-time jobs will be created by combining already-existing part-time jobs, thus the 75 percent of part-time workers who do not want full-time jobs will be sacrificed on the altar of "good" union-management relations. Once again, unions care more for themselves than they do for the interests of workers.
UPS also surrendered on the issue of contracting-out some of its deliveries to union-free companies. Some deliveries must be made to places that are away from the usual routes followed by UPS trucks. It makes good economic sense for UPS to pay another firm to make such occasional deliveries rather than make them itself. Why bear the cost of breaking away from routes where the bulk of the traffic is in order to make just an occasional delivery? The Teamsters, of course, want dues payers to carry every UPS parcel. I can think of only one reason why UPS capitulated on this issue - to placate the union that it is stuck with. Apparently the added cost of delivery is less than the perceived cost of enduring the wrath of Ron Carey (president of the Teamsters), John Sweeney (president of the AFL-CIO), and their surrogates.
Finally, UPS capitulated on the issue of wages. UPS had offered a raise over five years of $1.50 an hour to its full-time workers and $2.50 an hour to its part-time workers. Instead, it agreed to $3.10 and $4.10 respectively. Some of this will come out of the $700 million that UPS would have had to pay if it exited the Teamster multiemployer pension funds, but the wage increases will add $1 billion per year to labor costs beginning in the third year of the contract.
Perhaps UPS thought that it had to capitulate because public sentiment was on the side of the Teamsters. The last CNN poll taken before the strike settlement indicated that 55 percent of the public supported the strikers, while only 27 percent supported UPS. Moreover, the unionists were about to embark on a nationwide PR campaign helped by the usual coterie of economic illiterates such as the Interfaith Committee for Workers Justice. The irony here is that it was UPS that bore the costs of creating and nurturing the enormous goodwill that the public has for the people who deliver their UPS packages. That goodwill was not the result of unionization. Indeed, much of it was in spite of unionization. The good-neighbor behavior that UPS requires of all its delivery people is usually asserted by unions to be worker exploitation. The Teamsters were free-riders on that goodwill.
Carey and Sweeney hope that this capitulation is a harbinger of better days to come for the union movement. They have both asserted that workers across the country now realize that unions are their salvation and that employers across the country now realize that the union movement is a formidable foe that can bring them to their knees. They are wrong. The good news in this otherwise infamous capitulation is that it will hasten the decline of the union movement.
Carey and Sweeney speak for the "union movement" not the "labor movement" because the overwhelming majority of American labor is union-free. Only 10 percent of the private sector workforce is unionized. That number has been declining since 1953, when it was 36 percent, and it will continue to decline. By 2000 it will be 7 percent, the same as it was in 1900.
UPS had an 80 percent market share in package deliveries in the United States. Although it had always been unionized it had never before been subject to a nationwide strike. It had a well-deserved reputation for dependability at competitive prices. It no longer enjoys such a reputation. During the 15-day strike, most of its customers discovered that they were totally dependent on UPS. They tried desperately to find alternative ways to deliver their packages, but most of them failed. While UPS has many competitors - e.g., the U.S. Postal Service, FedEx, Emery Worldwide, ETA Express, DHL Worldwide Express, RPS Inc., and even Greyhound Bus Lines - they were not able to handle anywhere near the 12 million packages that UPS ships each day. FedEx has been UPS's strongest and most aggressive competitor, actively trying to capture market share at UPS expense, but most of the others seem to have been resigned to UPS dominance. They no longer are.
The strike has alerted existing and potential competitors to the profit opportunities in fighting UPS for market share. Apart from the Postal Service, most of the other competitors are union-free and thus are able quickly to respond to profit opportunities. They are unburdened with the yoke of union work rules and union costs. UPS inevitably will try to push its increased union costs forward on to its customers. When it does so, even more profit opportunities will open up for competitors. Since UPS customers have been reminded that it is unwise to rely on a monopoly provider of anything, they will be receptive to the blandishments of competitors.
Moreover, UPS faces the threat of another strike by the end of the year. The Independent Pilots Association (IPA), the union that represents the pilots who fly UPS planes, refused to cross Teamster picket lines in the just-concluded strike, and the Teamsters have promised they will not cross IPA picket lines if it strikes in the fall. This is another wonderful opportunity for UPS competitors to remind UPS customers of how unreliable, and costly, a union-dominated firm can be.
As it becomes clear that UPS and the Teamsters are losing market share in the package delivery business, workers will realize that in this globalized, competitive economy unions are not their friends. At best, unions can generate short-run gains for workers they represent. But, since unionized firms have a competitive disadvantage in the modern economy, those same workers will eventually discover that their employers have fewer and fewer jobs to offer.
Unionism has always depended on hoary myths: that employees and employers are natural enemies, that employees have an inherent bargaining power disadvantage relative to employers, that the only way employees can gain bargaining power is through unions, and that unions are responsible for the improvements in living standards enjoyed by workers over the last 100 years.
The UPS capitulation will hasten the day when most workers come to realize that competition and entrepreneurship, not unions, are the source of lasting prosperity for workers and investors alike.