Unions, Airlines and Economics

[anjinoo7]

Please be kind and try not to flame. My intent with this post is tooffer what I percieve to be the some of the problems associated withthe industry. I was going to try and present this in a purely enomistperspective without any emotion involved. My hope is that I can garnersome other opinions and discussion without all the hate vitriolassociated with a subject such as these.

Unions are descibed in simple economic terms are cartel's (not as in:drug). Cartels typically raise wages above competitive levels bycapturing monopolies over who companies can hire and what they must paythem. [font=verdana,arial,helvetica][size=-1]Many unions have wonhigher wages and better working conditions for their members. In doingso, however, they have reduced the number of jobs available. [/size][/font][font=verdana,arial,helvetica][size=-1]That second effect isbecause of the basic law of demand: if unions successfully raise theprice of labor, employers will purchase less of it. Thus, unions arethe major anticompetitive force in labor markets. Their gains come atthe expense of consumers, nonunion workers, the jobless, and owners ofcorporations (i.e. anyone who owns a 401k or Roth IRA).

[/size][/font][font=verdana,arial,helvetica][size=-1]According to Harvardeconomists Richard Freeman and James Medoff, who look favorably onunions, "Most, if not all, unions have monopoly power, which they canuse to raise wages above competitive levels." The power that unionshave to fix high prices for their labor rests on legal privileges andimmunities that they get from government, both by statute and bynonenforcement of other laws. The purpose is to restrict others fromworking for lower wages.

[/size][/font][font=verdana,arial,helvetica][size=-1]The wage advantageenjoyed by union members results from two factors. First, monopolyunions raise wages above competitive levels. Second, nonunion wagesfall because workers priced out of jobs by high union wages move intothe nonunion sector (CFI's, Charter, Regionals or PFT) and bid down wages there. Thus, some of the gainsto union members come at the expense of those who must shift tolower-paying or less desirable jobs or go unemployed.[/size][/font]
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The airlines and unions are perhaps creating thier own demise and in the contributing to the low wages non union pilots make. [/size][/font]Thosecompanies that do survive hire fewer workers when wages are above theirequilibrium level. Let's say there are 2,000 people willing to work fora company at $6 an hour. If the union forces wages to $10 per hour, thecompany will be willing to hire fewer workers, say 1,200. At $10 perhour, however, there may now be 3,000 people eager for the jobs, andmany of the 2,000 people who would have been happy to work for $6 areinstead jobless or end up working for far less wages. As we have seenwhen experienced pilots are furloughed they tend to find employment atlower paying non union jobs. This multiplies the amount of pilotswithin the workforce and causes non union jobs to suffer because pilotsupply exceeds demand for that skill set.

Facedwithhigher labor costs, the company will need to raise the prices of thegoods they sell. Raise prices, and demand falls. With demand down, thecompany needs fewer workers to produce the company's goods. Thistypically causes a spiral effect until the market meets an equilibruim.

It appears unions today are willing to ride a company all the way intobankruptcy and go the way of US Airways. If we can remove some of theemotion we maybe able to see many of the problems these companiesexperience are associated with cartel policies of unions and the marketdriven low cost carriers. We all have to remember a majority of us arepart owners of the airlines. If you participate in a mutual fund oractually work at an airline chances are you own stock in someairline. The "management" does not own the airline, we the shareholdersdo and like any other industry, we expect a return on our investment. Ibelieve if you let a free marketplace take effect on the industry minusthe union influence you will see wages rebound and prices drop. Just mytwo cents and please don't flame just looking for some others opinionsregarding the subject.

 

[TonyC]

Unions are descibed in simple economic terms are cartel's ...

It's difficult if not impossible to describe the dynamics of labor and management relations based on such a simplistic view. The obvious implication of this characterization is that management is powerless in the negotiating process.

For instance, do you know the difference between the National Labor Relations Act and the Railway Labor Act? Airline employees do NOT hold all the cards in the negotiation process. In fact, the laws are written in such a way that there is almost NO incentive for a company to negotiate to amend a contract once it's amendable date is reached. The contract never expires.

[font=verdana,arial,helvetica][size=-1]The power that unionshave to fix high prices for their labor ...[/size][/font]

[font=verdana,arial,helvetica][size=-1]The purpose is to restrict others fromworking for lower wages. [/size][/font]
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[font=verdana,arial,helvetica][size=-1]No, they don't have that power. They have the responsibility to negotiate and represent the employees. They don't "fix" anything. And the purpose is NOT to restrict others from working, it IS to protect those that ARE working.[/size][/font]

[font=verdana,arial,helvetica][size=-1]Have you ever heard the term "Divide and Conquer"? Absent representation by a Collective Bargaining Agent (there's a legal term for union, not cartel), management would be free to bid out jobs to the lowest bidder, to fire anybody anytime for any or no reason, and to leave the work force in utter chaos. The union serves as a vehicle for all of the class of workers to stand up as one single unit, whether the issue be wages, benefits, work rules, or the color of the uniform, and speak with one voice. Strength through unity hardly amounts to a cartel.

Now, since you've based your discussion on a very faulty premise, and it's already beginning to crumble, I won't belabor the issue by picking apart many more details. As a matter of humor, though, I must highlight one:

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[font=verdana,arial,helvetica][size=-1]... nonunion wagesfall because workers priced out of jobs by high union wages move intothe nonunion sector (...PFT) and bid down wages there. [/size][/font]

Unions are responsible for PFT, huh? That's hilarious! PFT is not where a union pilot falls back when he's priced out of a high-priced union job. It's where a pilot wannabe goes when he's trying to climb over honest pilots to reach the high-paying job via a shortcut.

Brace for incoming.

 

[smellthejeta]

Either explicitly or implicity, you are asserting that union representation is a bad thing for the airline, the employee, and the economy.

Frankly, having worked for the airlines and studied economics in academia, I believe that the lack of a union hurts the worker. Overtime, airline employees have established that employees within a job category are all equal, that they all perform the same job to the same proficiency, and thus they should all be compensated at the same level. They would argue that flying a plane is flying a plane, loading a bag is loading a bag, turning a wrench is turning a wrench, checking in pax/bags is checking in pax/bags, and giving a safety briefing is giving a safety briefing. We all know that there are differences in performance levels, but how are you going to quantify them for the purposes of pay? I really don't think that you can have a fair system that compensates individual employees, because you don't have sufficient objective criteria to measure. Besides that, most differences in pay within a position would typically be negotiated at the time of hire. Again, what criteria would you use to determine what an individual employee is worth? Obviously, you can make some general statements that an experienced employee is better than an inexperienced employee, but you're still lacking anything quantifiable to measure them with.

What makes me think I'm right? Look at non-union front-line labor at an airline. The pay scales and seniority system mirror that of the union groups. If that system sucked so bad, management wouldn't implement it for the non-union labor. Next, because your labor "parts" are not unique (they're supposedly all the same), they're interchangable. Because the individual employee does not have any unique skill set to bargain with, they lose bargaining power.

If it wasn't for the union, management would work employees like they were employed at a sweat shop (don't think they wouldn't). Wages would be artificially lowered. Look at rampers for United, making $25/hr after 10 years or so. Look at rampers for an express carrier, making $13/hr after 10 years or so. What's the job really worth? Probably something in the middle. They're definitely doing the same job. So what's the job worth? Let the market decide, you say? Well, if you did that, pilots would be working for free and working for peanuts. You don't believe me? It's already happening. GIA, for instance, is a Part 121 carrier that actually has people pay to work for them. All regionals already have poverty level first year pay scales. Part 135 operators, traditionally have no pre-scheduled days off and pay very little. Pilots are on beepers, and must be available with the snap of the fingers. A day off is a day you didn't fly. Frankly, if I legally can't have a beer during a "rest period", it's not a rest period.

You say that people who can't get a union job flood the non-union market, driving wages down. That's why unions exist, duh! They exist to protect those that already have a job. However you want to define it, there is an over supply of pilots. Period. I don't buy the argument that lower wages on its own would increase the number of jobs available. Management are tight wads, and will always extract maximum productivity for minimum cost. What incentive is there to hire more people? These recent BK filings are having the effect of extracting more productivity from employees for a lower cost. They sure aren't hiring more employees because they're each of them less and working them harder.

Face it, in any industry, management could name its price and always find people willing to work for that price. I'm not going to get into the effects job-offshoring is having on the rest of the economy. The only thing I will say is that lower pay = lower spending, which decreases demand for other productive, which in turn puts the economy in a dive.

Let's look at FlyI too... They're hurting, and it's not labor's fault. They could work for free, and the company still wouldn't make money. Should individual employees have to file bankruptcy because the company couldn't pay them? Oh, you say they should quit and find another job? With no employees, the company would go out of business, so what's the difference if the employees make some money off of the airline instead of the welfare line?

 

[anjinoo7]

It's difficult if not impossible to describethe dynamics of labor and management relations based on such a simplistic view.The obvious implication of this characterization is that management ispowerless in the negotiating process.

Management is typically powerless in a negotiation. Labor unions are immune from taxation and fromantitrust laws. Companies are legally compelled to bargain with unions in"good faith." This innocent-sounding term is interpreted by theNational Labor Relations Board to suppress such practices as Boulwarism. Toshorten the collective bargaining process, Lemuel Boulware communicated the"reasonableness" of GE's wage offer directly to employees,shareholders, and the public. Unions also can force companies to make theirproperty available for union use.

Once the government ratifies a union's position as representing a group ofworkers, it represents them exclusively, whether particular employees wantcollective representation or not. Also, union officials can force compulsoryunion dues from employees, members and nonmembers alike, as a condition ofkeeping their jobs. Unions are relatively immune from payment of tort damagesfor injuries inflicted in labor disputes, from federal court injunctions, andfrom many state laws under the "federal preemption" doctrine. NobelLaureate Friedrich A. Hayek once said: "We have now reached a state whereunions have become uniquely privileged institutions to which the general rulesof law do not apply."

No, they don't havethat power. They have the responsibility to negotiate and represent theemployees. They don't "fix" anything. And the purpose is NOT torestrict others from working, it IS to protect those that ARE working.

What exactly are those current workers being "protected" from? Whenwe look at other professional fields of endeavor, the "protection" isno where to be found yet jobs thrive. Lets take for example engineers. When Iwent to undergraduate school the pilots graduated in the same amount of time asengineers and other majors leading me to believe we all received the equivalenteducation. The typical result within the marketplace is engineers seem tothrive without union protection. We can go on and use a similar example for amajority of professional endeavors within the marketplace.

Have you ever heard the term "Divide and Conquer"? Absentrepresentation by a Collective Bargaining Agent (there's a legal term forunion, not cartel), management would be free to bid out jobs to the lowestbidder, to fire anybody anytime for any or no reason, and to leave the workforce in utter chaos.

We can look at the millions of jobs in countless industries that are notunionized and not experiencing "utter chaos" as you say. This issimply hyperbole and is a nice scare tactic but no basis in reality. The simpletruth would be that highly experienced pilots would simply not try to obtainthose jobs that didn't meet their income needs.

Unions are responsible for PFT, huh? That's hilarious! PFT is not wherea union pilot falls back when he's priced out of a high-priced union job. It'swhere a pilot wannabe goes when he's trying to climb over honest pilots toreach the high-paying job via a shortcut.

You are correct, unions are the biggest factor in PFT. In a true free marketindustry as it relates to pilots, PFT would not exist. This is the simple factthat those airlines that support them such as MESAwould be unable to find employees able to work at those low wage levels norpay for their training if the other half of the industries jobs fell tocompetitive levels. The supply of pilots as well as the demand for theirservices would reach equilibrium at all experience levels. You can look tocountless other professional industries without unions and you don't see thisproblem. Again, advantage goes to union employees at the expense of others whoare non-union within the same field. My previous post provided an examplerelating to how companies hire based on wages, if you can find an economiccounterpoint to it please post.

 

[Bandit60]

This is not intended to flame but I used to live in a huge union town and the thought process of the union and non union is just different. For example, when asked the purpose of a business the union person will answer "to give me a job" but if the same question is asked to a non-union person the answer is "to make a profit".

It just is a different way of looking at the same thing and alot of it has to due with the upbrining of that person.

Is the glass half empty or half full.

 

[Flying Illini]

...to fire anybody anytime for any or no reason, and to leave the work force in utter chaos.

I don't really have strong feelings on this issue one way or the other but I disagree with this statement by TonyC.
I don't believe this is true. There are MANY non-union jobs where the employer takes care of his employees without a union. A union is a very political "agent" and with that comes good and bad. In a non-union job you have the ability to walk in to your bosses office and ask for a raise or to negotiate something before you accept the job. In a union job, you must go through the union and whatever contract is currently in use, that is what you get, no negotiating.

A boss can't fire you just because he feels like firing someone today. Even non-union workers have a legal recourse if something like that happens. That said, it is often the realization (by management) that if they *don't* take care of their employees, then they *may* organize and form a union. But there are jobs out there where they pride themselves on taking care of their employees to the point where they don't have unions in their company.

I guess I agree and disagree that unions are a good thing.
Another example, most corporate flight departments *don't* have unions yet they get paid a very respectable wage and have great benefits and work rules and happy employees. It's a different mindset than union jobs. And once you have a union on premesis, it's nearly impossible to go back to being non-union (at that particular job).

Again, unions are good and bad, IMHO.

 

[TonyC]

Management is typically powerless in a negotiation.

... and Santa Claus is real.

What exactly are those current workers being "protected" from?

... The typical result within the marketplace is engineers seem to thrive without union protection.

How many of those engineers have the threat hanging over their head that if they don't accept the company's offer, they will be fired, and they'll have to enter the work force at another company at the bottom of the corporate ladder earning entry-level wages again? How many of those executives go from upper-echelon wages after 25 years with Company A to bottom-rung wages at Company B to begin the ladder climb again?

Did you learn this stuff at school?!?! Did you pay for it?

You are correct, unions are the biggest factor in PFT. In a true free marketindustry as it relates to pilots, PFT would not exist. This is the simple factthat those airlines that support them such as MESAwould be unable to find employees able to work at those low wage levels norpay for their training if the other half of the industries jobs fell tocompetitive levels. The supply of pilots as well as the demand for theirservices would reach equilibrium at all experience levels.

And I talked to the Easter Bunny last night.

 

[TonyC]

A boss can't fire you just because he feels like firing someone today.

Wanna bet? Federal Law prohibits discrimination, and it would be unlawful for a boss to fire an employee because he didn't like his religion or ethnicity, but he could arbitrarily fire any employee at any time. It would be up to the employee to prove any wrongdoing. Absent wrongdoing, there is no legal recourse.

Did you taxi too slow yesterday? You're fired.

Another example, most corporate flight departments *don't* have unions yet they get paid a very respectable wage and have great benefits and work rules and happy employees. It's a different mindset than union jobs.

It has been said that Companies get the unions they deserve. If a company is willing to treat employees with fairness and respect, there can be harmony without a union. If the same company begins to view the employee as nothing more than a cost center that must be minimized, the tone changes drastically. If you trust the Company to hold all the cards, don't unionize. If you see the need to hold a few of the cards yourself, organize.

 

[smellthejeta]

You are correct, unions are the biggest factor in PFT. In a true free marketindustry as it relates to pilots, PFT would not exist. This is the simple factthat those airlines that support them such as MESAwould be unable to find employees able to work at those low wage levels norpay for their training if the other half of the industries jobs fell tocompetitive levels. The supply of pilots as well as the demand for theirservices would reach equilibrium at all experience levels. You can look tocountless other professional industries without unions and you don't see thisproblem. Again, advantage goes to union employees at the expense of others whoare non-union within the same field. My previous post provided an examplerelating to how companies hire based on wages, if you can find an economiccounterpoint to it please post.

Dude, you really make me laugh. That's not what he said. At all. Unions have NOTHING to do with PFT. The real difference between pilots and engineers is this... Have you ever heard of amateur engineers? Private engineers? How many people do you know that *pay* to design bridges for fun? I know people who pay to fly airplanes for fun. It's a natural extension to try to make a personal enjoyment a profession. A lot of young kids will do *anything* to fly airplanes and not have to pay for the privelege. Those with deep pockets *will* pay for the privelege. It's a fact of life in this industry. I can get hired by a regional just as easy without having paid $30,000 to GIA as I would if I did pay $30,000 to GIA. PFT in its strictest sense is paying the airline for required training for a job.

Study your airline history a little more, and you'll find that airlines *with* union representation had PFT. GIA is not PFT, GIA is kids with deep pockets who want to fly a B1900 for 250 hours. After 250 hrs you're out. No matter how you slice it, when what you "earn" is less than what you *paid* for a job, it isn't a job. PFT was, among others, Atlantic Coast (a union shop) back in the day, when you had to pay them to go through initial ground school. They all got rid of it because they were growing so fast they couldn't find enough deep pockets who wanted to pay for a job.

BTW, if as many people who wanted to become pilots wanted to become engineers, the engineering profession wouldn't pay nearly as much.

Management is powerless in negotiations? Really? How come contract negotiations extend *years* after they become amendable? One other thing you're doing with confusing pilots with engineers. Engineering is an educated profession, it can be learned from a text book. Flying is a skilled trade, which is learned through practice. That shoots a large hole in your argument comparing engineers and pilots.

Again, the unions are not limiting the amount of employees an airline can have. In fact, they *increase* the number of pilots required. You want to know why? By federal law, the airlines are limited to the number of hours in a day, week, month, and year that a pilot can fly. The unions come through and try to place additional limits on the federal law. This actually increases the number of pilots required, creating jobs. So, if a pilot is limited to flying 100 hours per month, what's the difference between paying him $80k/yr to fly those 100 hrs/mo or paying to pilots $40k/yr to fly 50 hrs/mo each? There is none. One of the things the airlines have done in the recent BK proceedings is *increasing* the number of hours a particular pilot can fly in a month, *decreasing* the number of pilots needed on the seniority list.

Next, you have to realize that there are two sides to running an airline. There is costs, and then there is revenue. In a sense one could say that the combination of seats and revenue is seat capacity. Seat capacity generates revenue, and seat capacity generates costs. Let's take a look.

Increasing capacity increases your total costs. Period. More fuel, more planes, more pilots. More costs. Increasing your seat capacity after a certain point will *decrease* your revenue. Why? Because when you have more seats than you have demand, you have to decrease your ticket prices to stimulate demand. You also need to realize that the revenue side of the airlines has nothing to do with the cost of the product and the cost of the product has nothing to do with how much the airlines are generating from it. Furthermore, there is a finite limit to the amount of seats and airplanes the airlines can fly, and they're pretty much pushing it already.

It's a dirty rotten business dude, get used to it.

 

[Sctt@NJA]

Unions are not perfect. They have certainly done plenty of harm. For awhile England had a horrible problem with unionism nearly paralizing the economy.

However they also serve a purpose. They would not exist if companies had not mistreated their employees.

You need to look at the employer/employee relationship as being very much the same as a company/customer relationship. A customer exchanges money for a good or service. An employee exchanges time and effort for money. These are all mutually benefitial arrangements. Capitalism at work.

Pure unregulated capitalism has some pitfalls. If any one entity gains too much power the sytems starts to fail. A company gaining a monopoly is a bad thing and we have laws to deal with it. Employers who can leverage employees in unfair ways is a bad thing and we have unions and laws to deal with it. If unions had too much power (like the problem England had) then that can cause problems too... and we have laws that limit the power of unions as well.

To simply say that unions are bad.. period. Is far too simplistic. We have all seen the ugly side of the union mentality. Have you seen the ugly side of the management mentality?