Productivity and Firm Effectiveness at BellSouth: A Case Study for the Support of Union Activities

By Scott R. Simpson

Opening Statements

As we enter the twenty-first century, many individuals believe that unions are no longer necessary. This belief is promoted by companies that continue to out-source traditional jobs held by union members. In the effort to increase the bottom-line results, subcontractors are hired at substantially less than union wages to fill jobs that have traditionally been worked by union members. In some industries, this outsourcing of jobs leads to relocation of work centers outside the United States. In other situations, companies actively seek to stop union organization of its workers through intimidation and smear campaigns designed to thwart union activity. For many union companies, management resorts to intimidation and open disregard for contracts, feeling secure that the death of unions are upon us or that unions are too weak to resist. Adding to this disrespect for unions are financial analysts who believe that unions are no longer necessary. For these misguided analysts, unions represent a reduction of dividends and profits that should flow to investors and the wealthiest top 10% of citizens in America. On a recent MSNBC financial show, one of these analysts, in response to the current Verizon strike, stated that unions are no longer necessary in the telecommunications industry.

When one looks at the evidence, however, unions are a vital help to the health and profitability of the company. In the pages that follow, I will outline some of the research that demonstrates that union participation increase the productivity of companies, as well as, increase the margins of profits. In addition, I will provide evidence of what type of management/union structure that benefits a company most significantly. Of course I must first address those issues that have most commonly been associated with union activity. The first argument against unions deals with “restrictive work rules” that force management to work with “inefficient” production methods (Kaufman & Hotchkiss, p 626). This objection is usually stated that unions force companies to use more labor than they would otherwise use. Workers are prevented from performing certain tasks thus a job is not completed until the proper union worker is available to finish the job.

A second objection to unions is the belief that unions object to technical advances. This objection is stated by saying that technological innovations that increase productivity and efficiency are prevented by unions who fear job displacement. Unions thus fight technological advancements to protect the jobs of union workers. A third objection to unions is that productivity is hurt because management must adopt inefficient personnel practices, such as “promoting by seniority rather than by merit, preventing the firing of poorly performing workers, and restricting the use of incentive pay plans” (Kaufman & Hotchkiss, p. 627).

While there may be some merit to these objections, the question remains as to what evidence can be found to support that unions are detrimental to productivity. Historically, unions have represented the workers from being exploited by capitalists who had little regard for the working conditions of their workers. We all know the stories from the late nineteenth and early twentieth century of how unions strengthened workers rights. It is also interesting that during the peak of union activity during the 1940’s and 1950’s, America experienced one of its strongest gains in productivity and in the standard of living. With higher wage gains and more leisure, union workers were able to create demand for the products and services that companies provided.

Of course today’s economic climate is changing. The fastest growing sector for jobs is in the service area. Traditional blue-collar jobs are being replace with automation, or the transfer of these union jobs to overseas sweatshops and workers who work for pennies a day. America has become a service-oriented society. Key to this service is finding workers who can maintain the competitive edge and branding so important to any company. In this current state of affairs, service jobs typically provide wages at rates significantly less than what union blue-collar workers receive. In addition to this wage differential, service jobs are increasingly characterized with unreachable employment standards, such as unrealistic sales goals or objectives, decreased job security, increased intimidation and evaluations that leave the worker feeling worthless about ones abilities and competence. If Darwin were alive today, he would probably feel vindicated in his analysis of evolution. In today’s workplace, it is survival of the fittest. The hell with the rest including labor relations.

Is there a place for union activity in this scenario? Absolutely, more than ever! While misguided individuals believe that unions are inefficient, union workers are able to obtain jobs that help support the purchasing power of society for the services that are being provided. When job descriptions are specific, employers can hire from a growing supply of under-paid workers who seek a better life-style and who have the necessary skills or abilities to perform the work based on job requirements. While seniority rules may benefit the long-term workers of a company more than the newly hired, it also equalizes the workplace to prevent the kind of Darwinian madness and insensitivity that has historically predominated the capitalist society. As for technical change, the service industry is economically dependent upon technical advances that ensure continued product innovation and jobs that support its development. In simple terms, technological innovation equals long-term employment.

Is the financial analyst correct in saying that the telecommunications industry does not need unions? Absolutely not! One of the fastest growing sectors of the American economy is in telecommunications and its related services. In this competitive environment, productivity and service is a key issue. As more workers are required to support and service the infrastructure, union participation can help achieve productivity gains, as well as, provide long-term stability for a company. So what evidence exists that supports this contention? In the following sections, I will outline published papers that studied the relationship between labor relations and productivity by leading researchers in this area.

The Evidence

Robert Buchele and Jens Christensen have produced a series of journal articles in the 1990’s that demonstrate that union activities help productivity and the economy. Their first article in 1992 analyzed labor-management co-operation and its effects on long-term productivity. Key to understanding the labor-management relationships is ones view of management structure. Most studies have been based on a model that Buchele and Christensen describe as the “conflict model.” The basis of this model is the concept that productivity gains are obtained by companies who increase worker’s productivity by threat of job loss and/or intimidation. In opposition to this model is the “co-operative model.” The premise of this model is that increased worker participation in decisions can “significantly raise the rate of productivity growth. This is because workers are in a position, due to their unique experience and knowledge as the actual producers, to make important contributions to the process of innovation. But workers’ commitment to the goals of the enterprise presumes that they have a stake in its long-run competitive success” (1992, p. 81).

In this study, an analysis of the seven largest capitalist economies, also known as the G7, revealed that labor-management co-operation has significant effects on long-term productivity growth. The conclusion of the study is stated as follows:

When labour relations are characterized by conflict and work is motivated by the threat of dismissal and loss of income, low unemployment and measures that make workers more secure undermine labour discipline and productivity growth.

Where labour relations are co-operative and workers have a secure stake in their

Employer’s long-term competitive success, low unemployment and improvements in worker rights actually appear to reinforce the positive relationship between

co-operation and productivity growth. (1992, p. 95)

This has important ramifications for management-labour relations in America. Policy makers need not fear low unemployment when cooperative relations exist. (There is a economic policy in the US known as NAIRU, non-accelerating inflation rate of unemployment. This policy has traditionally advocated an unemployment rate at the nation level of 6%. The reasoning behind this policy is multifaceted, but one important characteristic is that workers will perform better when unemployment is high due to threat of dismissal) The competitive success of a company and productivity growth is best realized where strong worker rights are embraced and accepted. Since unions provide the structure and forum for co-operative labor relations, unions should be encouraged. Of course this stance flies in the face of current labor policies at most companies who either fear unions organizing their workers or feel that the union workers at the company are a dying breed that are best replaced with outsourced workers who have no stake in the long-term goals of the company.

However, a second journal article by Buchele and Christensen further collaborates their original claim. In this article, worker’s rights are analyzed. Once again, data from the seven largest capitalists countries is used. The strength of worker’s rights is correlated with wage increases and productivity growth. As they state, “Our analysis sets out from the view ‘that high productivity, workers rights, flexibility, unionization, and competitiveness are not incompatible … and may be highly compatible components of a high performance business system’ (Mishel and Voos, 1992; 10). Broadly speaking, this perspective values workers’ skills and cooperative attitudes as assets, and expenditures on training and the employment relationship as productive long-term investments, rather than current operating costs.” (Emphasis mine) (1995, p 407). The conclusion of this study states:

We argue that worker rights have a positive effect on productivity growth because

they encourage and enforce a cooperative approach to labour-management

relations which is, in turn, favorable to productivity growth. We have shown

that for the sample of the G-7 countries, productivity and real wage growth from the early 1970’s to the late 1980s are, indeed, positively related to worker rights. Using several different measures of worker rights, we invariably find that in countries where worker rights are strongest, labour productivity and real wage growth are the highest. (1995, p. 419)

Clearly these studies reinforce the idea that union activity can help a company in both productivity and competitive gains. It also strengthens the notion that product demand will be highest in countries where worker rights are strong. Historically, this explains why the period from the late 1940s and throughout the 1950s is exemplified by real wage and productivity gains that created a self-reinforcing economic mechanism that produced a significant rise in the standard of living.

The benefit of workers rights is further collaborated in another article by Buchele and Christensen. Once again analyzing data from the G-7 countries, the analysis examines employment and productivity growth in the context of labor relations. Key to this article is a comparison of productivity growth contrasted between America and European countries. In recent years, economic policy makers, around the world, have touted the American labor relation model as the best for the new era of economic globalization. The American labor model is characterized by flexible labor market regulations, i.e. “Right to Work” laws, and decreased union activity and collective bargaining. The important point for the present argument is that America has had lower productivity growth than European countries due to the “flexible” nature of labor relations as described above. Buchele and Christensen sum up this study as follows:

Our argument is that all the basic determinants of productivity growth-- the pace of innovation in technology and labor process, the rate of growth of capital per worker and the development of workers’ skills (including general problem solving and integrative skills)—depend crucially on the cooperation and effective participation of workers. Due to their first hand experience and strategic position in the production process, workers are in a unique position to contribute improvements in technology and work organization that raise labor productivity….Workers’ trust that they have a secure stake in the firm’s fortunes is fostered by worker rights, including collective bargaining rights, the power to retaliate (e.g. strike) if employers violate explicit or implicit commitments, legal protection against unjust dismissal or economically unnecessary layoffs and income security measures that reduce workers’ vulnerability to job loss. In short, worker rights and legal protections empower workers to foreclose ‘low road’ options for employers and thus lend credibility to ‘high road’ employers’ long-term commitment-- they reduce the risks of cooperation for workers. Thus, strengthening worker rights encourages labor-management cooperation and workers’ active involvement in improving productivity and product quality. (1999, p. 323) (Emphasis mine)

It is evident from the above studies that increase labor-management cooperation is key for successful companies and unions represent a major player in this cooperation. To ignore these facts is to ignore a critical issue that has plagued policy makers, that being how to increase American productivity levels. However, the question remains on just what type of labor-management relation is best for the overall growth of a company. What evidence exists on labor-management relations that demonstrate the best structural system for achieving productivity gains?

To answer this question, I turn to a journal article by David Levine and Laura D’Andrea Tyson. The first sentence of their article states, “How does employee participation in decision making affect firm performance?” (1990, p. 183) The authors of this study gathered data on successful participatory arrangements from firms in Japan, Sweden and the United States. One conclusion of the article is that participation has a positive long-term effect on productivity when it involves “decisions related to shopfloor daily life, when it involves substantive decisionmaking rights rather than purely consultative arrangements (for example, quality circles), and when it occurs in an environment characterized by a high degree of employee commitment and employee-management trust.” (p. 183-184).

From the research they developed, they identify three basic types of participatory arrangements. The first is called “consultative participation.” Allowing employees to state their opinions and suggestions characterize this type of labor relation. However, workers are not allowed to decide how to solve the problems and their suggestions and opinions are subject to management decisions. Companies that use quality circles or dialogues represent this type of participation.

The second type of participatory arrangement is called “substantive participation.” This type of labor relation actively involves workers in workplace decisions. In this relation, workers are often given “wide discretion in organizing their own work and operate with little supervision” (p. 190). Work teams that are responsible for the decisions and practices that affect their work area are characteristic of this model. The third type of participatory arrangement is called “representative participation.” This type of labor relations involves joint labor-management consultation committees, and employee representation on company board of directors.

The evidence in this article supports the contention that labor-management arrangements that are closely aligned to “representative participation” have the highest gains in productivity and profits. The evidence supports the idea that quality circles or dialogues have little long-term effect on productivity, thus consultative arrangements benefit the company the least. With regards to work teams, studies indicate that work teams help in the short-term, but that work teams accomplish higher levels of productivity when there is “greater employee participation in higher-level decisionmaking.” The authors point out that joint consultation committees (JCCs), characteristic of Japanese companies, have positive effects on company performance. Quoting from an econometric study by Morishima, companies with these types of arrangements “show a strong and sizeable positive association between an index of information sharing and three performance indicators—firm profitability, employee productivity, and labor costs” (p. 201). The conclusions of the authors are that “participation is more likely to produce a significant, long-lasting increase in productivity when it involves decisions that extend to the shopfloor and when it involves substantive rather than consultative arrangements” (p. 204).

The authors then elaborate four characteristics of successful participatory systems. These characteristics are profit sharing, job security and long-term employment relations, measures to build group cohesiveness and guaranteed individual rights. Firms that have these characteristics also recognize that the employees, as well as the stockholders, are a “constituent” of the company and their interests are considered in the formulation of policy for the company. While each of these characteristics have important implications for policy, the authors point out that guaranteed individual rights and unions have an important place in the company. Citing a survey by Richard Freeman and James Medoff, it is stated, “union workers with guaranteed individual rights have higher productivity and lower turnover rates than other similarly paid workers (p. 213).

Clearly the evidence exists to support the contention that unions help increase productivity and the long-term viability of a company. The belief that unions are on the decrease and are ineffective is an artifact of misguided opinions of union activity. The truth of the matter is that employees are very concerned about the long-term viability of their company. Furthermore, more active union participation and higher-level involvement by unions in the decision making of firms is critical in today’s economic environment. Policy decisions at the government level and at the firm level should be based on a more accurate portrayal of worker rights and the benefits that are incurred.

The Implications

While the above evidence has important implications for policy decisions at the macro level, this evidence also has implications for the current labor problems at BellSouth and Verizon. While I will limit myself to suggestions for BellSouth, other firms could easily adopt these recommendations. An important key for understanding what follows is the BellSouth Corporate decision to be not only the number ONE telecommunications provider in the Southeast, but also to be a Top 100 employer. Let it be stated that this is also the goal for CWA workers at BellSouth. The problem that ensues is how we are to achieve this goal. Based on the foregoing discussion, I think five labor policy proposals can be established.

The first deals with greater participation and control over the workplace environment. All too frequently, changes in policy are enacted from the top down. Workers have no say in the effects of these decisions on customer service or their ability to competently do their jobs. In fact, for many workers, these decisions fly in the face of what is considered good customer service. If BellSouth is truly committed to being the telecommunications company of choice, workers need a greater voice in the decisions that are made. It does not come as a surprise to service representatives that BellSouth has slid from first to number five in the recent J D Powers survey. The increased workplace pressure and unrealistic objectives have hurt the ability of representatives to provide superior service to our customers. Workers are told that revenue is all that matters. Needless to say, this is one of the major points of contention in the current Verizon negotiations and will be at BellSouth also.

The truth of the matter is that service representatives and outside technicians have something significant to say about policies that affect their jobs. When labor policies are pursued that alienate and threaten these workers, the cooperative nature of labor relations becomes seriously impaired. BellSouth is operating at a sub-optimal level! This hurts both productivity and profits. Workers no longer feel they have a long-term stake in the outcome of the company. While these issues are usually delegated to contract negotiations, I question whether BellSouth can afford to flounder for another year with decreasing revenues and worker cooperation. With this in mind, my first proposal is the establishment of a joint consultation committee (JCC) that can analyze and correct the policy decisions that have caused our current malaise.

A second proposal is the placing of a CWA labor representative on the Board of Directors at BellSouth. Communication is critical for companies if they are to maintain their competitive edge. Under current policy, little information, if any at all, is given for policy and personnel practices that affect the front-line workers. Workers are increasingly wondering who is trying to sabotage BellSouth from the inside. Decisions hurt customer relations and increasingly hurt both the health and motivation of workers. Key to this proposal is increase information and access to the decision making process. Occasional dialogues only provide very short-term gains in productivity and commitment. What is needed is assurance that workers have a long-term stake in the company and have a voice at the highest level. Thankfully, CWA member Hubert C. Blankenship has been nominated for the Board. This nomination can be achieved by proxy or by management’s unanimous approval.

The third proposal, based on the above suggestions, is to develop employee evaluations that are more constructive and positive. The constant demoralization produced by current employee evaluations is symptomatic of the problem. Workers rights have suffered. The opinions and expertise of workers are dismissed by evaluations that are based solely on “market expectations.” Surely management must recognize that not only are the workers stockholders, but also that we have more important concerns about the viability of our company. We are not just juggling stock portfolios, (as if that was truly the most important concern) we are struggling to maintain a standard of living and a basic subsistence level. Evaluations that are counter-productive and degrading only weaken the vital link between productivity and profit gains and employee dedication. Furthermore, these evaluations ignore the truth that our jobs and wages provide an important link to the demand for the products and services that BellSouth offers. Our communities are richer because of impact that BellSouth employees provide through their leadership and spending habits. Long-term employment concerns demand that evaluations be geared toward the most important goal at BellSouth, which is being the number one choice in our markets. Evaluations will only become useful when they provide constructive feedback on how to improve our productive skills, and more importantly, provide an opportunity for innovation in the workplace as well.

The fourth proposal is that BellSouth staff its operations with permanent workers. Outsourcing of work is common among major companies in this global economy. However, the gains from outsourcing have yet to be demonstrated. Sure it will cost more to pay union wages, but the benefits and commitment of employees to BellSouth’s objectives is critical. When services are outsourced, workers are used who have little or no personal stake in the operations and success of this company. These outsourced workers also typically know nothing about the complexities of our services, how they interact and how they operate. While short-term gains in the profit margins may impress shortsighted Wall Street casino players, it negatively affects the long-term performance of BellSouth. Let the current workers of BellSouth service our customers. Let the branding that has been associated with BellSouth remain intact and not diluted by non-employees. Let workers who are qualified and motivated to move to other growth areas and positions of the company relocate.

A fifth proposal is to invest more in the training of current employees. Workers need a better grasp on how to deal with complex customer issues. As integration of wireless, satellite and traditional services occurs, workers need to be experts on the front line in attempting to solve service issues. This training will increase customer satisfaction and avoid the tiresome and annoying escapade of customers being transferred from one department to another. While this investment represents a short-term charge to profits, it increases the long-term reputation and profitability of the company. For service representatives, this is a key issue. We are over-trained on how to sell the services we offer. However, we often have no idea on how to configure the services or solve service problems when they occur with these services. In every service center, trained representatives who know the inside-out of any of our services should be the standard. This training only leads to higher customer satisfaction and loyalty. BellSouth branding is only as good as its representatives and technicians.

Based on the discussion as elaborated in this paper, these five proposals can provide a basic direction and vision on the future of our company. The time for inaction has passed. The future of our company is on the line. Let it be known that the Communication Workers of America at BellSouth will not silently stand by and not speak up. We care too much for the future of this company and its long-term profitability to do so. We have waited too long for management to actively recognize the value we represent for our company. Hopefully, this paper can provide an incentive and rationale to make our company the best in the telecommunications industry, as well as, show that BellSouth is a model case study for productive and successful labor relations in the twenty-first century.

06/07/2003

Bibliography

Buchele, Robert & Christensen, Jens. (1992) “Industrial Relations and Productivity Growth: a Comparative Perspective.” International Contributions to Labour Studies, 2, 77-97.

Buchele, Robert & Christensen, Jens. (1995) “Productivity, Real Wages and Worker Rights: A Cross-National Comparison.” Review of Labour Economics and Industrial Relations, 9, 405-423

Buchele, Robert 7 Christensen, Jens. (1999) “Employment and Productivity Growth in Europe and North America: The Impact of Labor Market Institutions. International Review of Applied Economics. Vol. 13, Issue 3, 313-333.

Kaufman, Bruce E. & Hotchkiss, Julie L. (1999) The Economics of Labor Markets. (New York: Dryden Press).

Levine, D & Tyson, L.D. (1990) Participation, Productivity and the Firm’s Environment. In A Blinder (Ed.), Paying for Productivity, 183-243 (Washington: The Brookings Institute).