The Midwesterner: New Midwestern labour wars

By Richard C. Longworth

Earlier this year, the battleground in Midwestern laborr wars involved public sector workers. This summer, the front line has shifted to private-sector manufacturing unions, especially in the cornerstone industries of steel and heavy equipment.

In Joliet, Illinois, most of the 780 union workers at a Caterpillar factory have been on strike for twelve weeks, to protest company demands for a six-year wage freeze for top-tier workers, plus sharply increased worker contributions to health care plans. At the same time, the Wall Street Journal reports that ArcelorMittal, the world's biggest steelmaker, is demanding that wages and benefits be cut for all workers by no less than $28 per hour, or 36 per cent. US Steel, the nation's biggest steelmaker, is heading into contract talks with the United Steelworkers Union (USW); US Steel will be focusing on pension and health-care costs, but apparently is demanding fewer union concessions than is ArcelorMittal.

The two steel companies employ 26,000 workers nationwide, but more than half — 15,000 — work at two big mills in northern Indiana, the US Steel Gary Works and the ArcelorMittal plant at Burns Harbor. ArcelorMittal is headquartered in Luxembourg and its Burns Harbor plant, originally owned by Bethlehem Steel, is the largest steelmaking complex in the western hemisphere.

The details — pay scales, profit margins and significance — differ widely between Peoria-based Caterpillar and the two steel companies. But the background noise is the same. All three companies, like their industries, have gone global. Midwestern workers compete with workers around the world. Unlike their companies, they can't pick up and move to some other country. The USW, like the International Association of Machinists Union in Joliet, says it will strike if necessary, but in the global economy where jobs are more mobile than unions, this strike threat often is an empty one.

The Caterpillar strike in Joliet is important because, as the New York Times pointed out, the company has been a leader in the past in bare-knuckle brawls with unions, winning union concessions such as two-tier wage structures that were later adopted by automakers. Caterpillar also is hugely profitable and, despite its demands for wage freezes for workers, has given big raises to executives.

The steel industry, by contrast, faces tough global competition and tight bottom lines: ArcelorMittal's profits were down in the first quarter to $11 million from $1.1 billion a year ago, while US Steel lost $219 million in the quarter.

Another difference is in the pay scales. At Caterpillar, top-tier workers, who are about two-thirds of the work force, average $26 per hour. The average steelworker makes $77.40 per hour and ArcelorMittal said this pay, plus benefits including retirement benefits, means that each worker costs it $170,855 per year.

All this makes the Midwest the focus of American labour conflict, just as it was the past two years when governors in Wisconsin, Ohio, and Indiana tried, with varying success, to trim the ability of unions, especially public-sector unions, to represent their members. Indiana turned itself into a right-to-work state. Wisconsin Governor Scott Walker survived a recall election forced by angry public service unions, but lost control of the legislature, at least for now. In Ohio, voters overwhelmingly repealed a tough anti-collective bargaining bill pushed by Governor John Kasich. 

These issues will come up again politically in this year's election, especially in Wisconsin and Ohio. The Caterpillar and steel mill battles, by contrast, are being fought on two stages, one intensely local, the other global.

Companies can play hardball and get away with it, because they have somewhere else to go. Last year, Caterpillar closed its locomotive plant in London, Ontario, after the union rejected a demand to cut wages by 55 per cent. (The same threat hangs over the Joliet plant, which Caterpillar rents on a lease that, I'm told, expires next year.)

Caterpillar still has vast facilities in the United States and says it's expanded its American employment by 6,500 workers over the past year. But it increased non-US employment by twice as much and has both more workers and more sales outside the US: it has 16 facilities in China alone, and plans to add two more.

Steelmaking has been a global industry for years. America lost its leadership in the industry to import competition from countries like Japan and Brazil more than 30 years ago. The US now has barely 6 per cent of world steel output.

This global competition has an implication that is falling squarely on hourly workers who never saw it coming. This implication was stated in 1948 in a theory called "factor price equalisation," proposed by the late Nobel Prize-winning economist Paul Samuelson. In plain language, this theory states that if the same thing can be made in two places in the same market, over time the price of that thing — and the cost of making it — will be equal.

Basically, this means that if the same ton of steel or bulldozer part can be made in one place by workers earning $30 per hour and in another by workers earning $10 per hour, in time all these workers will be making $20 per hour. This, obviously, is good news for the low-paid workers, but not so good for those making higher wages.

It's taken sixty years for Samuelson's chickens to come home to roost, mostly because China and the US, say, were never part of the same market. Now they are. Assuming they keep their jobs, workers in Gary and Joliet will never be paid as badly as Chinese workers are, because wages in China will rise. But in due time they, like other Midwestern factory workers, will be paid the same as Chinese workers.

(This already has happened in the competition between the Rust Belt and the Sun Belt. Average wages for production workers in Michigan are now about the same as those in Mississippi.)

Most people these days don't work on assembly lines or blast furnaces, so most people don't worry much about factory wages. They should. Lowered wages for factory workers push down wages for almost everybody else. That means most Americans have less to spend (as we're seeing now). In a country where consumption accounts for 65 per cent of the economy, consumers need to have enough money to spend, or the economy collapses.

This declining purchasing power explains why the recession happened. The battles in Gary and Joliet explain why it isn't going to end any time soon.

This post was originally published at The Midwesterner.

27 July 2012