Outlook 2018: Labor Hopes to Capitalize on Hot Economy, Tax Cuts

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By Jaclyn Diaz and Mara Lee

Health-care inflation continues to create conflict between employers and unions, but the tight labor market is leading to more generous wage scales across industries. And that trend is expected to continue in 2018.

Employer-friendly changes to the tax code will also have unions asking for a share of that bounty at the bargaining table.

“I would anticipate that argument will be made in virtually every negotiation,” said Brian Pedrow, who leads Ballard Spahr’s Labor and Employment Group. But he doesn’t think it’s going to gain much traction with companies.

Unions will be saying “you got this tax break, and we think that’s a great thing, because you’re going to be investing and creating more work, and sharing the gains with us,” said Adam Seth Litwin, an industrial relations professor at Cornell University. That argument will be much easier to win in industries with labor shortages, he said. “But I also think that unions would be very smart to put some very public political pressure on these companies as well.”

Pedrow said Republicans’ intentions are for companies to invest as a result of lower taxes—whether through equipment or expanding the workforce—not to raise wages for the workers they have.

When Congress passed the tax bill Dec. 20, a handful of companies announced a one-time bonus for workers or $15-an-hour minimum wages and credited the tax bill as the motivation.

Hands Will Be Out

UPS is one of several major companies with labor contracts expiring in 2018. The Teamsters will be negotiating a nationwide contract with UPS covering more than 200,000 workers.

“I think everyone’s going to have their hand out when it comes to the potential benefit of the tax bill. Certainly investors are going to expect to benefit,” UPS spokesman Steve Gaut said.

Ultimately, UPS says, it’s possible the tax changes will boost “economic activity, which could translate into expanded demand for our services,” Gaut said. If UPS sees more demand, it hires, he said.

Health-Care Cost-Shifting Disputes Continue

Several thousand workers in manufacturing, health care, telecommunications, and hospitality will also see major contracts expiring in the new year.

Health care, always a top-tier issue at the negotiating table, will continue to cause headaches for both sides, especially for unions representing low-wage workers, Richard F. Vitarelli, a principal at Jackson Lewis, told Bloomberg Law.

“Unions continue to fight or resist employee premium cost sharing and increases to premium cost sharing,” he said.

Sometimes that resistance has led to strikes, as when Massachusetts Nurses Association workers walked out at Baystate Franklin hospital in Greenfield, Mass.

“Employers are understandably concerned about bearing all or substantially subsidizing the cost of providing health care,” particularly in the face of legally mandated minimum wage increases, he said.

“Despite an improving economy, there’s only so much money to go around and it’s based on company profits. Something has got to give,” Vitarelli said.

Low Unemployment Boosts Wage Scales

Unions can see when new hires are paid more than incumbents. During bargaining, they’re telling employers it’s time to boost existing workers’ wages, both management-side and union-side representatives told Bloomberg Law.

Union contracts settled in 2017 with hospitals in Kentucky, West Virginia, California, and Washington, D.C., increased nurses’ wages after unions complained new hires were making more than those with many years of experience.

Many contracts contain wage caps, and Pedrow said in the mid-Atlantic region where he practices, some employers are trying to reopen contracts so they can offer more competitive entry-level wages.

A nationwide survey by the trade group LeadingAge found more than a quarter of organizations are raising wages in reaction to recruitment challenges.

Raising salaries is expensive, Litwin said, but “even from a management perspective, it’s not great to have people doing the same work at vastly different wages.”

Wage inflation is most common in the health-care sector, Litwin said. Pedrow said he’s seeing higher wage scales for entry-level hires in the public and private sector and in many fields, including manufacturing and transportation.

To contact the reporters on this story: Jaclyn Diaz in Washington at jdiaz@bloomberglaw.com and Mara Lee at mlee3@bloomberglaw.com

To contact the editor responsible for this story: Peggy Aulino at maulino@bloomberglaw.com

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