Market conditions, or greed?

Workers at a Caterpillar factory in Joliet, Illinois have been on strike since May. Janitors in Houston have been on strike since July. Both strikes are primarily about wages.

In Joliet, workers, who make hydraulic parts for heavy machinery and whose base pay is about $55,000 a year, rejected the company’s final offer for a new contract that would have frozen wages for six years for most workers and increased the amount of money that they contribute to their health care plan. In Houston, the janitors whose average annual pay is about $9,000, rejected an offer that would have increased their hourly pay by only $0.50 over a five-year period.

In both instances, employers said that labor market conditions prevented them from offering more. Carlos Revilla, Caterpillar’s Joliet plant manager, told the New York Times that tier one workers at the plant, those who started work before 2009, are paid 34 percent above the labor market rate and that Caterpillar couldn’t possibly stay competitive if the company continued to pay wages higher than the market allows.

Negotiators for the cleaning contractors in Houston, all of which are large firms with cleaning contracts all over the US and in some cases all over the world, have used the same reasoning to justify their meager wage offer.

But how strict are the labor market constraints that make it impossible for these large corporations to give their workers a fair pay raise–one that would reflect the extra value that these workers created for their employers?

For Caterpillar, a leading manufacturer of heavy equipment, paying its Joliet workers a modest premium for their work has not hurt the company’s bottom line. Last year it reported $60 billion in revenue and a profit of $4.9 billion, not bad considering that the world economy where Caterpillar does business has been in an extended slump since 2008.

Its outlook for 2012 is even better. During the first half of 2012 it reported profits of $3.2 billion. Analysts, according to the Guardian, are predicting that Caterpillar’s profits will exceed $9 billion this year.

Caterpillar’s argument that market conditions make it impossible to raise wages might be more persuasive if the company were applying labor market principles to the salaries of its top executives, who enjoy a much higher compensation premium than its workers. The compensation package for Caterpillar’s CEO is $16.5 million a year.

But Steven Pearlstein writing in the Washington Post observes that,

When it comes to its executives, managers and engineers, Caterpillar does not use the same criteria of paying the average market wage. In those instances, the company has seen the competitive benefit of paying above the average to attract and retain a cadre of above-average employees and give them sufficient incentive to work hard, take risks and deliver superior performance.

Like its corporate comrades at Caterpillar, Houston cleaning contractors have managed to make decent profits while paying decent wages, just not to its workers in Houston, who are paid $8.35 an hour for a 30-hour work week.

Lisa Falkenberg writing in the Houston Chronicle reports that ABM, one of the corporate cleaners in Houston, pays its Detroit janitors $14.90 an hour, well above the Detroit  local average of $11.71 an hour. ABM last year reported net income of $68 million.

And ABM is not alone. The same corporate cleaners that say that they can’t afford to pay $10 an hour in Houston operate and prosper in local markets where the average janitor’s pay is much higher: for example, according to Falkenberg, the average janitor’s hourly wage in Boston is $15.95; in Portland, i’ts $12.60; and in Minneapolis, it’s $13.42.

When corporations like Caterpillar or ABM invoke the principles of the market to justify wage freezes or meager pay increases, what they are really doing is mystifying an ugly reality–the power relation between labor and capital has shifted dramatically and corporations are taking advantage of this power shift to divert wealth away from their workers and to their shareholders and management.


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