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Unions Factor into the Profitability & Competitiveness of Enterprise

While unionized workers typically earn more than their non-union counterparts, some may argue that good labor-management relationships are more important to a company's bottom line.

July 2011
One the largest chunks of overhead for any organization - public or private - is labor. And labor is quite often the backbone of an enterprise. A longstanding concern for any organization is whether or not its work force is unionized.

Organized labor emerged in the early part of the twentieth century when sweatshops prevailed; child labor laws did not exist; and signs that read "If you don't show up on Sunday, don't show up on Monday" hung at the entrance to mills in the industrial Northeast. Labor laws were enacted, and labor unions became a playing card in the productivity as well as the profitability of many enterprises. In fact, newspapers in Detroit ran a column devoted to all aspects of unionized labor for its famed auto industry. Although things are much different today, the labor-management debate continues, i.e., fair and reasonable wages for workers versus the economic toll for an employer to pay such wages and remain profitable.

Staying Competitive

What factors should be considered in weighing the circumstances of unionized versus non-unionized labor? How does this factor into the profitability equation of any enterprise that is strategizing a location decision?

"While operations which have been unionized for some time can have a competitive disadvantage based on the compounding impact of years of contract negotiation, that is less often the case today for newly unionized companies with some level of labor sophistication," says Tom Davis, Chair of the Traditional Labor Practice Group at Ogletree Deakins - a Nashville, Tenn.-based law firm specializing in labor and employment. "Instead, during negotiations those newly organized companies typically understand that they must negotiate hard for wages, benefits, and working conditions that will allow them to remain competitive. As a result, there is, in my opinion, no longer a cause-and-effect relationship between unionization and richer wages, benefits, and/or work rules. [Nonetheless], non-union companies are typically more profitable even when providing comparable wages and benefits since the overhead costs of operating a union company are greater."

Site Selection Factors
Wages and benefits are a vital ingredient in the work force planning efforts of any organization that expands, contracts, or develops its geographic position. In fact, labor considerations are an integral part of any location decision and one that often steers the final decision.

"It seems to me that many different factors go into an organization's site selection decision," says Davis. "While the general labor environment - whether the state has a right-to-work law and perceptions about the ability to remain union-free - is often on the list of factors considered, and is more critical for some companies than others, I think those factors rarely drive the decision. In my opinion, the decisive factors are much more likely to involve financial incentives, the availability of an adequate pool of skilled workers, transportation, and proximity to customers - rather than whether the area is perceived to be `anti-union.' That being said, over the past decade it seems that the right-to-work states have had more success attracting major transplant companies than states that are historically more heavily unionized."

Jerry Glass, president of F&H Solutions Group, a labor and human-capital consulting firm located in Washington, D.C., believes that it all comes down to how competitive a company will be in a specific location. "Corporations seek locations where they can get reasonable lease rates.where [they] will not be over taxed or have laws and regulations that restrict [their] ability to be competitive," he says. "Also, depending on the business, easy access to airports or other modes of transportation can be an important consideration. Other factors also come into play, including.quality of life for employees."

Glass says that companies becoming unionized are not a function of where they are located, but more a function of past history, corporate culture, and reputation. "Boeing has had unions for many decades, and has been profitable and unprofitable with unions," he says. "The same can be said for nonunion companies. I would stress that a corporation take into account all [location] factors - tax base, ease of transportation, ability to attract quality workers, good school systems, etc. Companies are not all looking for the same things when they decide where to locate. One size does not fit all."

Labor-Management Relations
Glass qualifies his views by saying that the profit factor is not a corporation's only concern when it comes to being unionized or non-unionized, because labor markets are still driven by supply and demand for competitive jobs. "I would say it is only a piece of the equation, because employers still have to pay competitive wages to attract workers," he adds. "Where unions fail in their job is by trying to create a wage system that is not based on being competitive, but rather based on leveraging the company to pay above-market rates. Also, having a union largely eliminates the direct relationship between an employer and its employees, making it more difficult to communicate directly with employees [and] more difficult to respond to market changes quickly, creating inefficiencies where they might otherwise not exist," he explains.

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