Strike Economics — Questions and a Back-of-the-Envelope Calculation

Having been away when the strike hit, I am perhaps unduly perplexed as to some aspects of it.

Here’s a quick summary of what I (think I) understand, and what I’m fairly sure I don’t know about the economic issues.

I think that there are about 450 mostly janitorial employees in the would-be bargaining unit. This includes both the Coral Gables campus and the Medical School (and perhaps the Rosenstiel campus too?). The workers’ current grievance is with UNICCO, which contracts with UM. The UM contract is only one of many held by UNICCO.

Most people I’ve talked to believe Donna Shalala could end all this with a phone call and money. Whether that’s true or not, UM’s leverage is both economic and moral, and especially the moral aspect is a reason why one might reasonably expect Donna Shalala to take a leadership role.

One thing that seems generally agreed is that whether or not there are any current constraints on the extent to which the University can insert itself into what is in form a dispute between its contractor and the contractor’s employees, this contract ends soon, and there are fewer limits on UM’s ability to announce what terms it will wish to put into the next contract, be it with UNICCO or a competitor. If UM were to announce that the next contract will require a minimum wage of $N per hour, or a specific level of health benefits, that would be legal, subject only to questions of timing (I’m told that were the announcement too close to a unionization vote it might be seen as an unfair labor practice); the downside from UM’s point of view is that it would undercut UNICCO, which the University seems strangely loath to do, and would ultimately cost money. How much money is itself an interesting question (see below).

As to the specific desires of the would-be bargaining unit, there are, I gather, at least four families of issues, each of which raises factual questions of its own.

First, there is the allegation of unsafe working conditions, primarily at the Medical School campus. I would have thought that even a moderately well-managed university would take every allegation of endangerment to life or limb on its premises extremely seriously. I am very puzzled as to why the University hasn’t broken out this piece of the controversy and dealt with it, or at least thoroughly investigated it, expeditiously. I would have thought that this should really be defined as a safety (and liability!) issue, not a financial dispute, both to defuse it, and because that is in essence what’s at issue.

Second, there is the issue of how the workers should be polled as to their desire to form a union. The SEIU wants to have workers sign cards, until it accumulates the amount that triggers a duty to recognize the union; UNICCO says it prefers a ballot of the employees which tends to be more favorable to management. Strangely, I’m told that in many other places UNICCO co-exists fine with unions, and has even agreed to card drives in a large number of locations. Why UNICCO is playing such hardball here is thus something of a mystery. Some have speculated that UNICCO is only doing what the University wants, or what UNICCO thinks the University wants, or what various mid- or even top-level administrators may have told it that the University wants. It’s all quite obscure.

Third, there is the issue of medical benefits. All of us at UM get much lousier medical benefits than we did 15 years ago — something which I gather makes us no different from almost everyone else in the USA. There were years when the premium increases ate my salary increase net of taxes. We pay more than we used to and get less (unless we choose the plan where we don’t pay much and get almost nothing). As I understand it, the UNICCO workers get an even poorer deal than UM employees, combined with the fact that since their salaries are so low, high-cost medical plans are not really a realistic option for them if they wish to continue to indulge their life-long practice of purchasing food and shelter. But I have no idea what specifically the would-be bargaining unit is asking for, or even if they’ve made a specific demand, much less what that would cost. I suspect that as there’s no recognized union yet, there’s probably no specific demand, just “better”.

Fourth, there’s the issue of salary. Again, there not being a recognized bargaining unit, I presume there isn’t an actual salary demand. But that needn’t stop us from trying to get some ballpark figures. (There’s some history here by the way. In 2001 the UM Faculty Senate issued a report on what it would take to raise UNICCO workers to a living wage, which so far I can’t find on line but I’m told estimated it would be about $2.5 million per year for what was then a smaller number of workers [UPDATE: I found a copy of the 2001 Report and Recommendations of Ad Hoc Faculty Senate Committee on the Status of Unicco Employees]. Donna Shalala issued a reply in 2002.)

I gather there are about 450 UNICCO workers on campus. I don’t know what their median salary is. I do know that the union and the newspapers have been spotlighting workers who make $6.80/hr, only a few cents above the state minimum wage. I don’t know what the prevailing wage in Miami-Dade is for similar work, but I’m pretty sure I don’t care, just as I don’t much care what Harvard pays workers either. I assume that UM chose the low bidder to outsource to, and that UNICCO is paying the market-clearing, i.e. rock-bottom, wage it can get away with in this unskilled-labor-saturated market. But that’s not the whole story. Ideally, a University should be run more like a community than are factories. We should try to pay everyone on campus at least a ‘living wage’ to the extent that we have the means to do so.

The University’s resources are substantial, but so are the claims on it. Its pockets are large but not unlimited. It too exists in a competitive market; there are constraints on the extent to which it can raise tuition while still attracting a diverse student body. Higher prices tend to burden students with more debt. If prices can’t be raised to cover the cost of raises, then something else will have to give somewhere.

Before embarking on a complex analysis of balancing factors, though, it would be useful to know how much is really at stake. Are we talking about a large amount of money? How large?

I know approximately nothing about the costs of health insurance; certainly the forms I have to fill out every year which supposedly tell me about costs and benefits are complex and confusing. But I do know simple arithmetic.

According to the Economic Policy Institute (which Google seems to like),

The level of the living wage is usually determined by consulting the federal poverty guidelines for a specific family size. Often, living wage levels are equal to what a full-year, full-time worker would need to earn to support a family of four at the poverty line ($17,690 a year, or $8.20 an hour, in 2000). Some living wage rates are set equal to 130% of the poverty line, which is the maximum income a family can have and still be eligible for food stamps. The rationale behind some living wage proposals is that these jobs should pay enough so that these families do not need government assistance.

Let’s work with the low end of the 100%-130% range: $8.20 in year 2000 dollars. According to the federal government’s inflation calculator, $8.20 in 2000 dollars equals $9.44 in 2006 dollars.

If we then assume the worst case, that the strike poster people’s $6.80/hr is representative of the entire would-be bargaining unit, then that makes a difference of $2.64/hr. Multiply that by 40 hours, 52 weeks, and 450 workers, and we seem to be talking about $2,471,040 per year.

There are reasons to suspect this nearly $2.5 million is both an under and over estimate. It’s an overestimate if the union has been showcasing its worst-paid employees. [Note that the Wikipedia currently reports that the average pay of UM’s custodial workers is $7.53 an hour; if that’s accurate, the cost of making up the difference between the average wage and the living wage is only $1.78 million per year, about 70% of the number I’m using.]

On the other hand, it may be an under-estimate because raising UNICCO’s salaries to a ‘living wage’ might have knock-on effects on other UM salaries the are either below that level also, or which traditionally have enjoyed a differential. For example, if clerical workers have usually had a pay rate pegged so much above gardeners, they will tend to demand a higher wage to keep the relative difference intact. (That said, one should beware of slippery slope arguments here; as my torts teacher one said, why would one argue that one shouldn’t do the right thing now for fear of having to do the right thing later?)

The $2.5 million/year is admittedly a pretty clumsy estimate. And it focuses on the wages rather than the health benefits (although an extra hundred a week, pre-tax — for that’s close to the maximum that we’re talking about here — might cover some health insurance). But it does give us something to work with. It’s not a tiny tiny number, but it’s not a massive number either in the context of UM’s annual operating budget of about $1.3 billion — — under 0.2%. UM has about 15,000 full-time equivalent students at all levels. If one made the worst-case assumption that 100% of this cost were passed on to each student, without any reductions in any other expense to compensate nor any drawdown on the vast endowment recently raised by the University, that would mean tuition would need to rise almost $165 per student per year to cover the gap [or $117.50 using the Wikipedia number].

This is all very rough: I invite commentary, supplementation, and correction. I am most certainly not a labor lawyer.

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7 Responses to Strike Economics — Questions and a Back-of-the-Envelope Calculation

  1. yet another student says:

    Prof. Froomkin –

    Your calculations are great! Even though they’re rough, it is nice to have something to go off of. Even more so, I don’t think you understand how enlightening it is to see a professor at least acknowledge the fact that in a worst case scenario, STUDENTS may bear the brunt of salary increases. I completely agree that workers should have health care, but it has seemed to me that many of the professors who are in favor of the strike completely ignore how the costs will be made up.

  2. Michael says:

    Well, sticking to the worst case, how awful does $117-$165/year sound to know that this community isn’t paying poverty wages?

    It’s real money, but is it bigger/smaller than you might have thought?

  3. arthur says:

    You probably overstated the cost per student. The university has many other sources of revenue, ranging from sports ticket and television revenue to billing hospital patients and their insurers to government research contracts, and not all of the added cost will be paid by students.

  4. bricklayer says:

    There are roughly 2200 full time faculty at UM, according to the web site facts and figures section (there are actually 7000 more full tiem employees). Thus using your numbers, the workers could be funded by reducing faculty salaries by $1100 or $800 (depending on the correct cost).
    Do you dispute these numbers?

  5. Sue Ann Campbell says:

    The students would not necessarily bear the cost of any increases if some “economy” was applied at UM.

    How about funding the cost from NOT replanting trees every 6 months? UM is so busy making sure there are beautiful landscapes they fail to see that people need more help than the trees. All they really need to do to keep a nice landscape is cut the law and prune existing trees. They only need to replant for disease or damage, but this place changes foilage as if it were new drapes or bedspreads. Every time you get used to one kind of plant – they come dig it up and replace it with something else. What do you think that costs annually, not just in the cost of plants but the cost of manpower and maintenance? Don’t they subcontract some of those replanting jobs to nursery workers with the heavy equipment to do it?

    Or how about trimming the “research and travel budgets?” Limit those catered lunches that go with every faculty meeting and let the faculty brown bag it like the rest of the staff usually does. They have done away with our spring employee “company picnic” and the annual “Ashe Bash” holiday party to cut costs, so why fete Faculty? Someone retires? Let a “donation” be taken up to do a party, why make the university pay for it? I’m sure the cost of “alumni functions” can be halved by serving only punch and cookies instead of full meals.

    Did you know that IBM saved million by mandating that only 1 brand of pencil and 1 kind of pen could be supplied for the office? (Even the Accounting Dept. was told they could only use one kind of fine line pen for their bookkeeping). Right now every faculty secretary and every professor orders what they “like”. So instead of everyone using a standard pen and a standard pencil that costs X, and even less if bought in bulk, people buy things based on individual likes and dislikes and the cost is not even questioned. Think of the savings over all if we all jsut used a standard Bic and #2 Eagle pencil?
    So why not make up the difference in how things are ordered?

    Can the campus parking enforcement do without golf carts and use 3 wheel trikes instead. More pedal power, less fuel cost.

    There are dozens of ways UM can “find” the money without raising any student’s tuition costs.

  6. Doug Bailey says:

    Strike Economics — Questions and a Back-of-the-Envelope Calculation

    Let me take some of the points raised in Michael’s posting and respond to them and generally try to fill in some blanks.

    The total number of employees on campus is 423. The average wage of these workers — calculated two days ago – is $7.79 an hour.

    The allegations of unsafe worker conditions are merely that: allegations made by the union with little basis in fact. OSHA has investigated the allegations and some corrective action was taken in cases involving the condition of storage closets and proper identification of materials.

    We believe that a secret ballot election is the best way to properly assess our workers’ wishes and intents. Yes, it’s true that UNICCO has accepted the card check system but in most instances those were cases in which broad geographcial areas, or multi-unit departments were being organized and we generally were pretty certain we could determine the true wishes of our employees. Neither is happening at the UM campus, where a relatively small unit is being organized and we have not been able to get a good feel for what the majority of the workers want. Some have told us they don’t want the union. Some have said they did not understand the petition when they signed it or felt pressured into signing it. So with this backdrop, the company feels the decision on whether to recognize the union should not be made by management. It should be a decision made directly by the workers with no pressure or interference by anyone. One of the reasons the union is against the secret ballot election is they say that companies engage in all sorts of nefarious campaigning between the time the union files for the election and the time the actual election takes place. UNICCO will agree to a stipulated time frame, be it two weeks, five weeks, six weeks, whatever and will not engage in any anti-union activity during that time.

    On the issue of medical benefits, UNICCO does not offer comprehensive health care benefits to UM workers.

    But if UNICCO’s wage and benefit rates were deficient with respect to the area market, our turnover rates would be much higher than they are now, and we would not be able to maintain an adequate workforce. The compensation package UNICCO provides is consistent and in line with the South Florida labor market. Yet the company is being singled out — along with the university — and being vilified by the union for what really is a reagional, national, and global issue.

    We believe the union and the university community should wait for the recommendations of the Working Group before declaring war.

  7. UM Law Student says:

    The UM undergrad student government came to a similar numerical conclusion as Prof. Froomkin. However, they based their figure on the 10k undergrad students and excluded the 5k grad students. If you re-do their numbers and include grad students, the cost is $128 or $147 per student.

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