1Labor NegotiationsLabor opens all firms’ offers simultaneously. The best offer on each of the terms it wants improvement on is used as a standard to judge each firm’s offer.What are the dimensions on which labor wants improvements?(hint: one of them is wages...big surprise?!)2Your starting position• Your starting position in the negotiation must be at least 80% of the current contract. • Your upper limit, or ceiling, is always 10% above your starting position.Suppose wages are $20/hr right now...FerrisFerris’’s Bargaining Ranges Bargaining RangeceilingceilingrrStartStart$23 $25.30 $23 $25.30 Each firm will have its own bargaining range for eachof the four categories labor is seeking improvement.$20$20$22 $23 $25.30$22 $23 $25.30StartStartceilingceilingrrLaborLabor’’s Bargaining Ranges Bargaining RangeFerrisFerris’’s Bargaining Ranges Bargaining RangeCompetitors’ bargaining zones (illus of all offers)ceilingceilingrrStartStartPlease: pardon my scale!Andrews’ Bargaining RangeErie’s Bargaining RangeChester’s Bargaining Range3If labor is working at $20/hr and wants $22/hr but is given an offer of $23/hr, it will accept the $23/hr.$20$20$22 $23 $25.30$22 $23 $25.30StartStartceilingceilingrrLaborLabor’’s Bargaining Ranges Bargaining RangeFerrisFerris’’s Bargaining Ranges Bargaining Range(illus of best wage offer becoming std)ceilingceilingrrStartStartPlease: pardon my scale!Labor’s new “demand” for wagesSuppose your firm opened at $22/hr. Your negotiation ceiling will be 10% above your starting position, or $24.20/hr. Since the accepted wage of $23 is within your firm's range, you'll reach settlement on wages.4$20$20$22 $23 $25.30$22 $23 $25.30StartStartceilingceilingrrLaborLabor’’s Bargaining Ranges Bargaining RangeFerrisFerris’’s Bargaining Ranges Bargaining RangeThat’s somewhat like Andrews company here. (illus)ceilingceilingrrStartStartPlease: pardon my scale!Andrews’ Bargaining RangeErie’s Bargaining RangeChester’s Bargaining RangeOthers who are below that will face strikes. When the strikes are over, the struck firms will face labor costs of one-half of the difference between the $23/hr (the best offer, in this case) and their own negotiation ceiling. They will not pay $23/hr.Again, after a strike, labor and management settle at halfway between labor’s standard and the company’s negotiation ceiling.5$20$20$22 $23 $25.30$22 $23 $25.30StartStartceilingceilingrrLaborLabor’’s Bargaining Ranges Bargaining RangeFerrisFerris’’s Bargaining Ranges Bargaining RangeWhere will Chester & Erie settle? (illus)ceilingceilingrrStartStartPlease: pardon my scale!Andrews’ Bargaining RangeErie’s Bargaining RangeChester’s Bargaining Range~ $21.40~ $22.40Strike lengths• Strikes depend on the spread between labor’s “new” demand and firm managements’ negotiation ceilings• Workers strike for about 7 days for every– $1/hr difference in wages– $300 difference in benefits– Each 1% difference in profit sharing– Each 1% difference in annual raises(Example of strike on several dimensions)Example of StrikeStarting positionNegotiation ceiling Demand ContractApprox Strike (days)Wages16.00$ 17.60$ 24.00$ 20.80$ 45Benefits 2,500$ 2,750$ 2,750$ 2,625$ 0Profit Sharing 1.5% 1.7% 2.2% 1.9% 4Annual Raise3.0% 3.3% 7.2% 5.3% 27Total days on strike 766Using labor negotiations as a competitive weapon• What would a dominant position in high automation make possible?• What would your firm get by low-balling? (80% of current contract)As a team…• Locate the current labor, benefits, & profit sharing levels for your industry from the Capstone Courier• Prepare a plan for deciding what strategy (relative to the labor negotiation) your team will act