Major Labor Contracts in 1986 Provided Record Low Wage Adjustments

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Major labor contracts in 1986 provided record low wage adjustments

In 1986, major collective bargaining settlements in private industry provided record low wage and compensation adjustments, reflecting both employers' and unions' efforts to curb labor costs. Their task was made easier by continued moderate upward pressures on wages from comparatively small increases in consumer prices. According to the Bureau of Labor Statistics' 19-year-old series on private industry agreements covering 1,000 workers or more,1 wage adjustments --the net effect of decisions to increase, decrease, or not change wages--under settlements reached during 1986 averaged 1.2 percent in the first contract year and 1.8 percent annually over the contract term. (See table 1.) The settlements covered 2.5 million workers.

This was the fifth consecutive year in which settlements produced average wage adjustments that were substantially below those registered prior to 1982. (See chart 1.) Wage adjustments which were actually put into effect during 1986, stemming from settlements negotiated that year and those reached in prior years, also averaged a record low-- 2.3 percent.

The last time parties to 1986 settlements negotiated (usually in 1983 or 1984), they agreed to contracts that specified average wage adjustments of 3.5 percent the first year and 3.2 percent annually over the term. Total wage adjustments --those specified at the time of settlements plus any subsequent cost-of-living adjustments (COLA's)--averaged 4.0 percent a year over the contract term. This was the smallest on record, and occurred while the Consumer Price Index for Urban Wage Earners (CPI-W) was rising 3.5 percent a year (between December 1982 and December 1985).

The average size of total wage adjustments under expiring agreements has dropped steadily since 1983 because the size of specified wage changes declined and because smaller price increases produced lower wage increases triggered by COLA's. As shown in the following tabulation, the contracts preceding 1986 settlements yielded larger total wage adjustments when they included a COLA clause.

This marks a return to the pre-1983 pattern in which expiring contracts with COLA clauses provided smaller specified wage adjustments than those without, but COLA's more than made up the differences.

The bargaining climate

Bargaining during 1986 took place in a mixed national economic climate. The Consumer Price Index for Urban Wage Earners rose 0.7 percent during the year (the smallest rise since 1961) and unemployment continued to hover around 7 percent. Negotiators focused on both old and new problems, including: depressed markets and competition from abroad in the steel, aluminum, and copper industries; competition from nonunion firms in retail trade and construction; competition from both union and nonunion carriers in the airline industry; and the breakup of long-standing bargaining relationships in the steel and telephone communications industries. The most common issue was how to curb labor costs and retain jobs.

A number of contracts addressed this issue by such indirect methods as restructuring jobs or changing work rules. Other more direct approaches included historically low wage increases, freezes, or cuts; lump-sum payments (which are not included as wages in this series) instead of wage increases or to offset wage cuts; lower wage adjustments in the first than in subsequent years of multi-year contracts; and the suspension or elimination of COLA clauses.

Wage increases, decreases, and freezes

Average wage increases under 1986 settlements were the smallest on record for this series--2.9 percent the first contract year and 2.7 percent a year over the contract life. First-year increases were received by 1,730,000 workers, while 526,000 workers had no wage change and 230,000 sustained wage cuts averaging -9.2 percent. …