The Effect of Unions on Productivity: An Analysis of

the Cattle Kill Floor Susan McDowell William Lesser

Cattle kill floor operations were analyzed using sample data to determine the impacts of unionism on productivity at the plant level. No significant union effect either negative or positive was found, possibly because of the limited union role in setting wages and the wide variation in personnel practices irrespective of the union status of the plants. Large productivity differences observed among the sample firms require other explanations.

Relatively few productivity-oriented studies of the non-farm labor component of the food industry have been conducted, even though non-farm labor costs accounted for 32 cents of the US retail food dollar in 1982.’ Food processing and distribution provide particularly fertile area for productivity research, as these activities in 1982, for example, contributed almost four times the value added and payroll as production agriculture. In fact, the relative labor intensity of food processing and distribution prompted Polopolus to note “. . . one of the major areas of concern of the [agricultural economics] profession should be personnel manage- ment and labor relations”.* One of the most labor intensive and economically important food processing sectors is meat packing. In 1983, the industry had a wage bill of $5 billion on total sales of $50 billion. Wages and benefits are the major component of the gross margin.3 The productivity and efficiency of livestock slaughter have been the focus of a number of Time-and-motion studies have been used to estimate technical efficiency and labor requirements, and efforts have been made to identify problem areas affecting slaughter efficiency.

Recently, however, issues other than technical efficiency have risen in impor- tance as the sector has experienced rapid organizational change over the past decade. From a relatively unconcentrated but heavily unionized industry, meat packing evolved into a moderately concentrated and less unionized one. At the

*This research was funded, in part, by Hatch Project 443 in conjunction with NC-117 with supplemental funding by the Market Research and Development Division, AMS, USDA. The opinions, and any errors, are those of the authors. Professors William Tomek and David Lee deserve recognition for their assistance in the preparation of this paper.

Susan McDowell and William Lesser are, respectively, former graduate student and Associate Professor with the Department of Agricultural Economics, Cornell University.

Agribusiness, Vol. 3, No. 3, 273-280 (1987) 0 1987 by John Wiley & Sons, Inc. CCC 0742-4477 187 1030273-08$04.00

274 McDOWELL AND LESSER

same time, union wages have fallen to near parity with nonunionized workers, down from a 30 to 40% p r e m i ~ m . ~ Concurrently there was a two percent annual increase in labor productivity.’ How the changing union status of plants affected these productivity changes is a controversial and timely question.

This article explains in a cross-sectional empirical analysis the effects of union status on labor productivity in meat packing. In an attempt to control as many variables as possible the analysis is focused on a plant-level analysis of beef packing. In addition, the data are limited to kill floor operations where the technology and measure of output are highly uniform across plants. Results should be useful to individuals involved in the current issues of unionization and de-unionization of plants as well as to a broader readership concerned with maintaining an efficient domestic food processing sector.

The following section reviews the. theories and empirical studies relating to the impacts of unionism on labor productivity. Section three describes the data collection process and model development for the current study, and finally, in section four, the results are presented.

THEORIES OF UNIONISM Two models of unionism, the traditional monopoly model and the voice/response model, provide frameworks for discussing the potential union effects on pro- ductivity. The monopoly model is based on the assumption that unions act as monopolistic sellers of labor, raising wages above the competitive level. This leads at the macro level to (1) an inefficient allocation of capital and human resources, (2) higher unemployment, and (3) lower national output.’ Rees in 1963 placed the loss in output attributable to unionism at 0.3% of Gross National Product (GNP).” Freeman and Medoff re-estimated that value in 1980. Adding the impact of the displacement of workers, they concluded the social costs of unionism in those areas to be 0.2 to 0.4% of GNP,” The monopoly model further asserts that unions reduce productivity through strikes, restrictive work rules, and protection of substandard workers. Ehrenberg and Smith placed the costs of these union effects at 0.5% of 1980 GNP.’*

The voicelresponse model of unionism provides an alternative view.” This model is based on the assumption that unionism has the potential of raising labor productivity and hence offsetting some or all of its social costs. Unionism under this model can be a positive force on productivity for several reasons: (1) Higher union wages compel management to be more efficient; (2) higher wages attract and retain better quality, more productive workers; (3) the cooperative nature of the union work place encourages informal training; and (4) unionism enhances communication, raising worker esteem and improving decision making.

The overall societal impact of unions then depends on the degree to which any union-induced enhancement to productivity offsets the costs of over-capi- talization, strikes, excessive wage levels, and other factors identified in the monopoly model of unionism. Determining any productivity effects of unions is an empirical matter. Yet, despite the importance of the issues involved, few detailed empirical studies of unions and productivity at the plant and firm levels have been conducted, and none of those is in the food processing sector. To date, the wooden household fumiture,l3 con~truction,’~ coal, l5 and cement industriesI6 have been examined. With the exception of the coal industry, these

UNIONS AND PRODUCTIVITY 275

studies found unionized operations, net of capitalization differences, to be on average more productive than the nonunionized firms within the industries. The productivity enhancement attributable to unions ranged from 6 to over 30%. l1

In one more aggregated study (two digit SIC) in 1978, Brown and Medoff con- cluded that the productivity enhancing effect of unionism (22%) offset the average wage differential (20%) between organized and nonorganized industries. l7 While these results generally counterbalance the monopoly model explanation, the number of studies is insufficient to draw any generalizations. This study con- tributes to the developing empirical literature in this area by providing an analysis of the beef packing industry, focusing at the plant level where productivity may best be observed and compared.

DATA COLLECTION AND STUDY DESIGN This study was conducted using data from 15 large beef packing plants. According to industry figures for 1983, 121 plants processing between 50,000 and 499,000 head annually contributed 51% of the kill. An additional 14 plants operating at over 500,000 head annually handled nearly 31% of the kill.3 Conversations with business, government, and academic personnel led to an estimated 30 plants processing 300,000 head and above annually. From that universe a 50% vol- untary participation sample was drawn of which 11 plants are unionized and four nonunion, roughly the proportion of unionlnonunion plants in the industry. Within the major plants in the sampled group the size range is substantial- from 300,000 to over one million head capacity per year.

Data were collected for the second and fourth weeks of August 1984. This is a relatively short data collection period, but according to individuals familiar with the industry, plant level activities vary little from week to week in these large operations. In addition, plant level employees were contacted throughout the data collection period to determine if any unusual factors were occurring which would affect producitivity. None was reported.

In an effort to maximize the uniformity of the output across plants, the analysis was limited to kill floor operations only. Output data measured as carcasses placed in the cooler were provided on a confidential coded basis by the Food Safety and Inspection Service (FSIS) of the USDA. This output measure is highly standardized across companies and plants, thereby avoiding measurement prob- lems faced by some other productivity studies. Plants within the sample were judged by FSIS technical employees, using blueprints provided by plant man- agement, to be equivalent in technology. Under the Federal Meat Inspection Act (as amended), federally inspected red meat packing plants must submit blueprints to FSIS for approval and for the establishment of a permitted maximum kill line speed, measured in head per hour. As the rated line speed allocated to a plant is in a large degree related to the mechanization of the operation, the speed is used in this analysis as a proxy for the level of plant capitalization. When necessary adjustments are made for double shift using FSIS inspection figures to determine the kill line operating hours.

Data on worker numbers were collected by in-plant personnel working on the kill floor or by the plant personnel office. When apparent discrepancies existed in these figures they were checked with the individuals providing the data. Varying practices across plants occasionally made distinctions between super-

276 McDOWELL AND LESSER

visors and line workers and between kill line workers and byproduct processing workers difficult, yet they could be resolved satisfactorily within the structure of the data collection process. Plant officials provided information on the union status of the sample plants. Personnel managers from a few plants cooperated further by providing information on turnover and absenteeism.

In addition to the quantitative data collected, in-plant interviews were con- ducted with personnel managers and union shop stewards in several of the sample plants. The interviews provided qualitative information on the impacts of union- ism on the kill floor, as well as insights into the sources and causes of labor productivity differences among plants.

MODEL

The variables included in the empirical models may be defined as:

Q: weekly average number of head processed, L: average weekly number of kill workers times operating hours, K: the USDA rated line speed, adjusted for the number of shifts operated, used

U: unionization dummy variable, with a one for the unionized operations. as a proxy for capitalization,

The means and ranges for these values and the per labor hour ratios used in the analysis are shown in Table I. In addition, several interaction variables with the union dummy were created and used to test the effects unionism has on labor.

The basic analytical model asserts that the interplant difference in labor productivity, net of capital inputs, is explained by a union dummy variable. Unionism might affect average productivity (the intercept), average productivity as labor or capital increases (slope), or both. Linear and curvilinear production functions were estimated. Based on previous research, the Cobb-Douglas form was expected to be appropriate, but several simple, linear equations are first estimated and discussed.

The signs and magnitudes of the coefficients of the dummy variable are of special interest. A significant positive value of the union dummy coefficient or interactive term would indicate the presence of a positive union productivity differential, and vice versa.

Table I. Means and Ranges for the Variables Used in the Analysis.'

Variable Mean Range in Sample

K (approved head/hr) 220 75-330 L (hours) 6764 1062-18,260 Q (head/wk) 12,716 2265-20,156 Q / L (head/worker hr) 2.2 1.06-3.2 KIL (capitalizatiodworker) 0.06 0.03-0.14

'Sources: USDA, FSIS and survey data (see text).

UNIONS AND PRODUCTIVITY 277

EMPIRICAL RESULTS

The analysis was done using OLS on Minitab Advanced Version. Both the linear and log linear form of this simple production function QIL = f (KIL, U ) fit well, explaining about 60% of the variability among the sample plants (Table 11).

To test if unionism affects average labor productivity as labor increases, the model (in both linear and log linear form) QIL = f (KIL, U , U*L) was estimated. Similarly, the model QIL = f (KIL, U , U*KIL) was estimated to test if unionism affects average labor productivity as capital per worker increases.

In none of these cases (equations 1-5, Table 11) is the union effect statistically strong. In the simplest models (equations 1 and 2) the union effect has varying signs but a small t-ratio. The unionism affect appears to be statistically inde- pendent of the size of the plant as measured by total labor hours (equation 3). Giving the best statistical fit (at about the 65% level) are the equations (4 and 5) which include a variable for the interaction between capitalization and union- ism. The log-linear form (equation 5) has an intercept value of about 2.2 which is close to the estimated 2.5 kill floor productivity value in large beef packing plants in the early 1980s." Thus equation 5 seems the best empirical result, but it provides only weak statistical evidence (at about the 20% level for two- tailed tests) of a positive union impact on labor productivity in the sample plants.

In an attempt to improve the results, a capacity utilization variable was added under the expectation that lower utilization would negatively affect labor pro- ductivity. Defining capacity utilization as the ratio of the operating line speed to the rated speed, no significant effect was found in several alternative speci- fications of the model. The variable was dropped and the results are not reported here in detail.

Managers and union officials interviewed as part of the study identified turn- over and absenteeism as key factors affecting labor productivity. In regression

Table 11. Floor Labor

Regression Analysis of the Impacts of Unionism on Beef Packing Kill

Productivity measured as head per labor hour (QIL) ~ ~~ ~ ~ _ _ ~ ~ ~

No. Form Int. K I L U U*L U*KIL R2

- 0.63 (3.37) (4.98) (0.52)

- 0.59 (6.74) (4.65) ( - 0.92)

0.60 3. Linear 1.03 16.50 0.209 -0.000014 - (3.07) (3.60) (0.67) (-0.44)

- 23.4 0.68 4. Linear -0.334 39.7 1.51 -

5. Log 2.18 0.498 1.72 - 0.638 0.65

1. Linear 0.963 17.7 0.118 - 2. Log 2.36 0.560 -0.110 -

(-0.42) (2.99) (1.79) (- 1.71)

(1.46) (6.37) (4.21) (1.56) -

'Note: t-statistics are in parenthesis. bN = 15 (11 union and 4 nonunion). 'Sources: USDA, FSIS and survey data (see text).

278 McDOWELL AND LESSER

analysis no systematic affect could be measured although the sub sample used in this analysis is so small ( n = 6) that the results can be considered as indicative only. Some evidence did appear of an inverse relationship between absenteeism and turnover. Apparently firms with strict absenteeism policies tend to discharge workers more frequently, raising the turnover rate. The critical relationship between these activities and the key productivity issue nonetheless remains poorly explained.

Overall, the analysis documents no strong or systematic impact of unionism on labor productivity in the sample plants. This in itself is a substantial finding as it provides no supporting evidence for the claim that union workers should earn a wage premium because of higher labor productivity. Nor does it support those who oppose unionism in this industry for its detrimental impacts on labor productivity.

Upon reflection this result is quite reasonable as none of the factors proposed under the voice-response model as enhancing the labor productivity of unionized workers seem to apply to the beef packing industry. Union wages at the time of data collection were nearly comparable with those of the nonunion plants in the sample. Thus, any wage-induced quality factor of union members does not apply here. Moreover, although the union may act as a conduit between workers and management during training and grievance procedures, a number of the sample nonunion plants had corporate-sponsored grievance and dismissal procedures similar to the contract specifications examined during the study. Thus if no strong union-specific labor productivity factor was detected it seems to be a factor of the declining impact of unions in the sector as the industry increasingly adjusts to operating in a union-free environment. Replications with a richer data set allowing additional functional forms are needed before that result can be taken as conclusive.

CONCLUSIONS

If the unionization factor failed to explain any strong basis for productivity differences within the sample plants, that does not imply there is none to be explained. Indeed, productivity per labor hour varied by over 300% (1.06 to 3.2, Table I) among the 15 plants for which data were collected. This variability is not strongly correlated to size economies. Nor is it explainable as general firm-level management policy. Several of the plants in the sample are operated by the same firm (including mixtures of unionized and nonunionized plants) yet display a wide diversity in productivity.

The interplant labor productivity differences seem to require other explana- tions. Some personnel managers interviewed during the study attribute it to the dedication of the employees, a factor they correlated with worker age and eth- nicity. Alternative employment opportunities in the region also affect the type of employee attracted to and retained by the industry. Many employees for their part felt the general worker/management relationship was the predominant factor. When work attitudes were good, productivity was high, according to this inter- pretation. Indeed, Connerton in his study of the bituminous coal industry attrib- uted the negative productivity effect of the union to the very poor relationship

UNIONS A N D PRODUCTIVITY 279

between the miners and management. l9 Here again in the beef packing industry unionism is a factor but not the dominant one; relations were described by the employees as bad or good at both unionized and nonunionized plants. Perhaps the best explanation for no systematic union effect is the wide variation in personnel practices in the sample plants irrespective of their union status. Absen- tee policies appear especially critical.

Resolving these issues exceeds the scope of this study. We are, nonetheless, able to conclude tentatively that unionism per se does not have a prevailing impact on beef kill floor labor productivity. A larger study at different points in time will be required to decide this issue with more certainty. From available evidence, it appears that statements strongly supporting or criticizing the union impact on this sector are both overstated. The explanation of labor productivity differences within this sector rather seems to lie elsewhere, possibly with concepts as nebulous as personnel policies and the laborlmanagement relationship. Under- standing and resolving these and related matters are major challenges for man- agement, labor, unions and academics.

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4. D.R. Hammons, Cattle Kill Floor Eflciency. Marketing Research Rep. No. 1056, USDA/ ARS, Washington, DC, July 1976.

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280 McDOWELL AND LESSER

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