UPS Strike Could Be a Watershed for U.S.

The Teamsters union strike against United Parcel Service is a defining event not only for labor-management relations but for the entire U.S. economy.

It is comparable to the air traffic controllers’ strike of 1981, in which President Ronald Reagan fired the strikers, hired replacement workers and sent a signal to U.S. business that reverberated for a decade and longer.

The message of the air controllers’ strike was that U.S. companies could restructure to become competitive while the interests of workers took a back seat.

The message of the Teamsters-UPS strike, whatever the details of its eventual settlement, is that corporate management’s flexibility to use part-time workers and to arrange work schedules for maximum efficiency will be reduced.

At the start of the weekend, a settlement was not even in sight. UPS management seemed conciliatory but the Teamsters leadership was digging in.

The eventual outcome is likely to have a bearish effect on stock and bond markets. Indeed, the strike may have contributed to bond market weakness in the last two weeks.

The strike “is a turning point symbolically,” says David Jones, analyst of fixed-income securities for the Wall Street investment firm Aubrey G. Lanston. “Flexibility in employment, as a result of contract work and part-time work, has been one reason that wage pressures have been moderate.”

To understand the broad impact of the strike, we need to examine the issues and the economic changes behind it.

Part-time work, not wages, is the principal issue. More than 100,000 of UPS’ 185,000 employees work part time, a number that increased greatly in recent years as the company grew in air package delivery.

Air operations--with packages coming in on many planes to UPS’ Louisville, Ky., hub and going out again the same night--require intense four- to five-hour periods of unloading, sorting and loading. UPS employed loaders and sorters for the hours needed, not for traditional eight-hour shifts.

Such part-time work suited some employees--homemakers, students, retired persons--and probably irritated others. But whatever the individual grievances, the battle with the union has been over who shall determine the work schedules of UPS employees: management or the workers and their representatives.

After nearly two weeks of strike, it is already clear that the settlement will involve compromise. Either UPS part-timers will get more full-time positions and benefits or part-timers will get higher pay. Either way, the company’s flexibility will be reduced.

And flexibility has been a key to the U.S. economy in the ‘90s.

More than 23 million U.S. workers are part-timers today, compared with fewer than 20 million six years ago and only 16 million in 1980.

At the same time, since post-recession 1992, the U.S. economy has increased total output of goods and services--gross domestic product--from $6 trillion to roughly $8 trillion. An unusually long economic expansion is continuing, without traditional bottlenecks in industrial capacity or pressures on prices and wages.

“It is a flexible economy. Part-time workers--people working as needed--and overseas production and imports have allowed the U.S. economy to have full employment and high consumption without inflation,” says economist Lynn Reaser of Barnett Banks, a Jacksonville, Fla.-based banking company.

The U.S. economy has become efficient and varied.

Temporary employment has become a massive business--the leader, Manpower Inc., now has $8 billion in annual revenue. Unemployment is at 4.8% of the labor force, and the percentage of Americans working is the highest of any nation.

Contrast that with Europe, where full-time employment is protected by law and unions but where unemployment is 12% in Germany, almost 13% in France and Italy. Across the world, the Japanese economy has been in reverse throughout the ‘90s.

However, issues in the UPS strike didn’t arise out of the blue. Protests over outsourcing of work and use of lower-wage airline pilots have been behind strikes at General Motors and American Airlines.

But those strikes didn’t have the numbers of workers or attract the public interest of the UPS strike.

What lies ahead? “The outcome will be complex, allowing both sides to claim a victory,” predicts Daniel J.B. Mitchell, professor of labor economics at UCLA’s Anderson School of Management. “But the union will get some of its demands, and that will make unions think they can get something if they go on strike.”

Since 1981, the year of the air controller reversal, strikes have dropped from 145 a year to 31 last year.

The message to corporate management will be of limits, whether from employees or government. In the strike’s other major issue, UPS wanted to take its pension contributions out of the Teamsters’ multi-employer pension fund. UPS argued that doing so would allow higher pensions for the company’s employees.

But the Labor Department, fearing it would inherit the pensions of bankrupt trucking companies, may have cautioned UPS not to press the pension issue. In any case, UPS management was backing away from the pension issue at the start of the weekend.

To be sure, the trend favoring lower prices and flexible work schedules remains strong. “Global competition is the long-term trend, and that will hold down overall inflation, although domestic labor costs could go up,” says William Gross, managing director of Pacific Investment Management in Newport Beach, a major investor in bonds.

Gross notes that public opinion polls show Americans sympathizing with the UPS part-timers.

So the outlook is for a rise in wages. “If UPS management were wise, it would raise the pay of part-timers but preserve the flexibility of scheduling work,” says New York-based labor economist Audrey Freedman.

In the near term, a little extra in the paycheck for U.S. workers won’t be bad for the consumer economy. The stock market will accommodate that new reality after its customary ups and downs. But the bond market will confront rising wages uneasily, and interest rates may be going up next year, if not this week.

Longer-term, higher wages will spur UPS and other delivery firms to automate procedures and reduce their work forces.

The message of the UPS strike of 1997 will reverberate for years to come.