An inflation gap: union workers get a "COLA break'

Most trade unions have been relatively successful in protecting their workers against the ravages of inflation. The result has been a widening gap between union and nonunion compensation.

In fact, some conservatives nowadays talk increasingly of a "worker elite" in such industries as automobile manufacturing and steelmaking, both troubled by imports and recession.

Of course, there has been a differential between union and nonunion wages for decades. But this has been increasing, partly because of the cost-of-living adjustments (COLA) that many unions have won in their collective-bargaining agreements.

The Bureau of Labor Statistics puts together an employment cost index which shows that, in effect, union workers have been getting a bigger slice of the economic pie compared with nonunion workers. The statistical series was launched only in the last half of 1975. In all industries, the statistics show, hourly wages in 1976 in primarily unionized occupations grew 8.1 percent; in nonunion occupations, 6.8 percent. In 1977, the union wage increase was 7.6 percent; nonunion, 6.6 percent. In 1978, 8 percent and 7.6 percent. In 1979, 9 percent and 8.5 percent. The cumulative change from the fourth quarter of 1975 to the fourth quarter of 1979 was 140.1 percent for unionized occupations and 134.9 percent for the nonunion occupations.

Bureau statistics show that a similar trend occurred in manufacturing alone.

In the past such wage gaps between union and nonunion workers have tended to vary over the business cycle. During a recession, the gap increased, because nonunion employers were under less pressure to increase wages. Plenty of jobless workers were available to take over the positions of unhappy employees who insisted on higher wages. During boom times, however, the nonunion employer had to raise his wages more rapidly to keep his employees. They could easily find jobs elsewhere. Yet, union workers' wages were often constrained by long-term contacts. So nonunion wages tended to catch up.

But in the current combination of high inflation and increasing unemployment, the nonunion worker is hit especially hard. His wages do not go up so fast, because his employers face lower profits and have a wider choice in the labor market. But the real value of his wages is hit by inflation.

In an economic slowdown, the unionized worker is more likely to be laid off. The one-quarter of the labor force that belongs to trade unions is concentrated in manufacturing industries that are usually hard hit by recessions. But those remaining at work are protected increasingly by COLA clauses. Their wages rise faster than those of nonunion workers.

Further, the union worker tends to have greater fringe benefits than the nonunion worker. The latest statistics available (for 1974) showed that such fringes came to 24 percent of the hourly wages of union workers and 16.7 percent of nonunion wages.

The growing gap between union and nonuion wages has had several effects on industry, the experts note:

* In the construction industry, nonunion companies have been winning a much larger share of the business. Union workers in this industry are generally about 25 percent more productive than nonuion workers, because they are generally more trained, more skilled. But the wage gap of some 40 percent in many cases can bridge that productivity difference. Trade unions in this area have had to drop many of their restrictive or featherbedding practices to allow their employers to stay in business.

* The Teamsters Union lives in fear of deregulation of the trucking industry. Wages of trade union members are often 40 percent above nonunion drivers. Deregulation of routes and rates would quickly drive many companies employing only union workers out of business.

* High wages in the steel and auto industries are one factor that has made it difficult for the domestic industry to compete against foreign competition -- but only one factor. In most other nations, too, workers in these industries are among the highest paid.

Other elements hurting the domestic industry could include the inadequate supply of small cars offered by US automakers, poor quality control, the dumping of steel by foreign firms, and so on.

Academics note that the larger size of companies in the auto and steel industries, not just their unionized status, may also be relevant to their high wage patterns.

* In the coal industry, there is less of a gap between union and nonunion wages, because the nonunion companies have been eager to keep out the United Mine Workers. They sometimes even offer higher wages than union rates.

What the growing gap between union and nonunion wages means for the future is an open question. Will the unions have more success in their drive to organize nonunion companies? Will nonunion employers respond to the gap and raise wages voluntarily? Will resentment of the gap grow among nonunion workers, prompting some sort of new antiunion attitudes in Washington? Through the higher cost of union-made products, nonunion workers largely pay for the higher wages of their unionized colleagues.

So far, the government has if anything enlarged the gap. Under the government's wage guidelines, union workers were able to negotiate a regular wage increase, plus COLA clauses. However, in calculating the cost of the clauses to see if an agreement was acceptable, the government assumed a 6 percent inflation rate. Inflation instead ran as high as 18 percent. So inflationhas pushed many union wage increases far above the theoretical 7 percent maximum suggested by guidelines. Nonunion workers without cost-of-living protection may have received 7 percent, but were still left behind.