Can wage restraint save jobs?

February 4, 2009

In the last month, Australian mine workers and mining communities have been rocked by layoffs and mine closures as mining companies have moved to reduce production in response to collapsing commodities prices.

In this context it is understandable and important for workers and their unions to explore solutions that will protect their communities from the devastation of closure. Two weeks ago, workers at Alcoa, who are members of the Australian Manufacturing Workers Union, decided to defer a four percent pay rise they had won in 2008 until 2010 in exchange for Alcoa not sacking workers.

This decision was made following Alcoa's January 6 announcement that it would be shedding 15,200 jobs, or 13% of its global workforce, although no announcement had been made of job losses in Australia.

While the willingness of the workers to collectively share pay cuts is a significant display of collective solidarity, it is highly questionable that it will be effective in avoiding job losses and could result not only Alcoa workers but other workers losing more.

The Alcoa workers' decision follows an ongoing push from the federal government, business and the media that workers should sacrifice wages now in order protect jobs.

No guarantees

While the workers are specifically offering pay cuts in exchange for no job losses, there is nothing to guarantee this is what will happen in the present circumstances: the offer to defer wage is not tied to Alcoa not proceeding with job cuts in Australia. Even if such an agreement was made, it would not guarantee that Alcoa would not conduct sackings in the future, as Alcoa would be able to blame any subsequent deterioration in the company's financial situation for the job losses.

Previous experience shows that when companies are successful in gaining concessions (whether from workers or governments) they are quick to demand even greater concessions, with jobs ultimately being shed anyway. This should come as no surprise. Capitalism operates on a relentless drive to increase profits: if companies are able to secure an agreement that provides wage cuts under the banner of "saving jobs", there is an incentive.

A central component of contract negotiations between the US United Auto Workers and US car manufacturers since 1978 has been the union making concessions in the wages and conditions of workers in order maintain the competitiveness of the automakers and preserve autoworker jobs. Despite ongoing promises that concessions would result in jobs being saved, employment at General Motors alone had fallen from 450,000 in 1978 to 73,000 in 2007.

In addition to the logic of concessions within a single company, workers giving up conditions at one company will encourage other companies to seek the same concessions — irrespective of whether they are in need of those concessions — in order to remain competitive.

Following the conclusion of the 1998 waterfront dispute between the Maritime Union of Australia and Patrick's Stevedores, where the MUA agreed to a range of concessions in exchange for its members being allowed to return to work — including increased casualisation and reduction in staffing cranes — the other major Australian stevedore, P&O, moved to include the same conditions in its next enterprise agreement with the MUA.

It is also important to recognise that job losses have no direct link to either the wages that workers earn or the profits that companies make. Over the past two decades, thousands of bank workers have been made redundant across Australia during periods of high profits. In 2005, the National Australia Bank announced 2000 redundancies immediately following a quarter in which it made a record profit.

A more important factor influencing employment levels is the question of the amount of work to be performed; if this is reduced then capital will look to sack the workers that it deems to be unnecessary. Given the collapse in Alcoa's revenue is a consequence of both declining commodity prices and declining demand, which has resulted in Alcoa moving to reduce production, Alcoa can be expected to reduce its workforce with the new levels of production that it is looking to achieve.

The only mechanism to avoid this would be to insist that working hours of workers be reduced in proportion with any reduction in production. However wages should be maintained by increasing the hourly rate by the same proportion.

Alcoa's exact financial situation

A significant factor contributing to further threats of job losses is that company financial figures are not readily available to workers and their unions. This makes it possible for companies to manufacture a financial crisis in order to justify calls for concessions or job losses.

An important factor in Alcoa's decision to shed workers globally was its poor performance during the December 2008 quarter, when it lost US$929 million. While this did reflect the impact of halving alumina prices between July and December, $708 million of the loss was a consequence of restructuring carried out by Alcoa.

This makes it important that unions have access to a companies' books to have a clearer indication of their financial situation.

Who should pay?

Calls for workers to defer wage rises in order to limit job losses reflect an outlook that workers should bare the burden of the financial crisis. No such sacrifice has been made by Alcoa's management or shareholders.

On January 23, Alcoa announced that it would pay a dividend of 17 cents per share, the same payment as had been made for the previous nine quarters. Over the same period of time, Alcoa had made profits totalling $4486 million. These massive profits should now be being used to offset the current losses being made by the company, rather than forcing workers and their communities to suffer.

Workers who sacrifice today to offset the declining incomes Alcoa and other companies are experiencing during the current downturn will not be reimbursed for their sacrifices in the future. Instead, everything given up today will have to be fought for again, as companies attempt to maintain any concessions that they are able to extract.

Unlike Alcoa, workers' living costs are not going to be reduced during the economic downturn — indeed crucial costs of living such as rent are likely to continue to increase over the coming year. The only way workers can avoid seeing their incomes decline, and the flow-on effects to the rest of the community resulting from declining purchasing power, is for workers to continue to receive the pay rises that they have already won and that they are able to win in the coming years.

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