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Published: Sunday, 11/28/2010

Organized labor gives ground on 2-tier pay systems

MILWAUKEE - Organized labor appears to be losing an important battle in the recession.

Even at manufacturers that are profitable, union workers are reluctantly agreeing to contracts that create two levels of pay.

In years past, two-tiered systems were used to drive down costs in hard times, but mainly at companies already in trouble. And those arrangements, at the insistence of the unions, were crafted, in most cases, to expire in a few years.

Now, managers of marquee companies are aiming to make the concession permanent. If they are successful, their contracts could become blueprints for others, a startling retreat for labor.

Although union officials said they could not readily supply data on the practice, managers have been trying to achieve this for 30 years, with limited results. The recent auto crisis brought a two-tier system to General Motors Co. and Chrysler Group LLC. Major parts maker Delphi Corp. has one. Caterpillar Inc. signed such a contract with the United Auto Workers in 2006.

The arrangement was a fairly common means of shrinking labor costs in the recession of the early 1980s. At the end of the contracts, however, wages generally snapped back up to a single tier. At GM, Chrysler, Delphi, and Caterpillar, pay will not be snapping back.

Nor will they for workers at three big manufacturers here in southeastern Wisconsin - where 15 percent of the work force is in manufacturing, a bigger proportion than in any other state. These employers - Harley-Davidson Inc., Mercury Marine, and Kohler Co. - have all but succeeded in the last year or so in erecting two-tier systems that could last well into a recovery.

“This is absolutely a surrender for labor,” said Mike Masik, Sr., the union leader at motorcycle maker Harley-Davidson, not even trying to paper over the defeat. His union recently accepted a contract that freezes wages for current employees for most of its seven years, lowers pay for new hires, dilutes benefits, and brings temporary employees to the assembly line at even lower pay and no benefits whenever demand for Harley's bikes increases.

When the proposal was put to a vote recently, Harley's employees, most of whom belong to the United Steelworkers, approved it 53 percent to 47 percent.

Just up the highway, Mercury Marine, which makes outboard motors and marine engines, has a similar agreement with its factory workers. And Kohler, famed for its bathroom fixtures, is negotiating a contract using Harley's pact as a template and, so far, is getting much of its way.

“The simple economic fact is that we overproduced and now we have to burn off the excess,” Matthew Levatich, president and chief operating officer of Harley-Davidson, said in an interview, speaking in effect for all three manufacturers. “You could say,” he added, “that the new contract is a recognition of this truth on the part of our workers.”

Nowhere else in the country has quite so tough a contract emerged at companies that are profitable, the AFL-CIO said.

“Management clearly has the upper hand in negotiations because of the employment situation,” said Milwaukee Mayor Tom Barrett.

The contracts capitalize on a particularly difficult set of circumstances for blue-collar workers. In response to falling demand, the big manufacturers here have cut production and laid off thousands. Many people lost jobs that had paid $22 an hour or more.

Few can get work that pays as well, if they can get steady work at all, given an unemployment rate of nearly 8 percent in the area. That makes holding a job a higher priority than holding the line on pay and benefits, much less pushing for improvements, Mr. Masik said.

Increasing the pressure, Harley-Davidson and Mercury Marine, a unit of Brunswick Corp., publicly declared that they would move factory operations to lower-cost U.S. cities — Stillwater, Okla., for example, or Kansas City, Mo. — if the unions rejected the concessions set forth in remarkably similar contracts. One provision denies laid-off or furloughed workers their old pay if they are called back; they must return as second-tier employees, paid $5 to $15 an hour less.

Mercury Marine's nearly 900 hourly employees voted last fall to reject such terms, but a few days later, they voted again and accepted them. They reversed course after the company announced that its headquarters factory, in nearby Fond du Lac, would be closed and operations would be consolidated in Stillwater. The Stillwater factory is now being closed instead.

Kohler officials have stopped just short of saying that they too will go elsewhere.

The alternative for the workers is to strike, thus challenging the companies in their stated determination to relocate. The International Association of Machinists at Mercury Marine and the United Steelworkers at Harley-Davidson declined to take that risk, and so has the UAW at Kohler, so far.

The employees themselves are convinced, their union leaders say, that the companies are prepared to move factories from the Milwaukee area, where all three came to life decades ago.

“The company stuck to its agenda,” Mr. Masik said of the Harley negotiations, his voice rising, “and we ended up accepting their agenda.”

Harley-Davidson has two similar new contracts, one with the Machinists, who represent employees at an assembly plant in York, Pa., the other with the Steelworkers at an engine-and-transmission factory in greater Milwaukee.

The York agreement, ratified last year and now in effect, has shrunk the core work force by more than half, to nearly 800 full timers, while adding 300 “casual” employees, who are union members without benefits.

The Milwaukee agreement, recently ratified, will shrink the full-time payroll to 900 from 1,250 today and more than 1,600 before the recession. Up to 250 “casuals,” as in York, will be used to handle surges in demand.

Although hourly pay under the current contract averages $31, that drops to $25 for the second tier, which becomes the only tier once all the veterans have left or retired. Casuals, in contrast, get $18.50 an hour.

The new Milwaukee contract kicks in when the current agreement expires March 31, 2012. The union balked at negotiating so far in advance, Mr. Masik said, but conceded after the company insisted it otherwise would use the intervening months to prepare to move operations, perhaps to Kansas City. To guarantee support, Harley incorporated into the contract $12,000 bonuses for its steelworkers, including those laid off.

Harley's president said the recession left no choice but to reorganize. Motorcycle sales are down 40 percent from their peak in 2006, Mr. Levatich said. Cutting the core staff allows Harley to slow the line during the winter months of lean demand and add “casuals” when demand picks up in the spring and summer.

“What we are doing is not mean-spirited,” he insisted. “We have to retool if we want to survive. We should have started doing this, in small steps, 20 years ago.”



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