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By: James R. Hagerty And Alistair Macdonald
Via: The Wall Street Journal
MUNCIE, Ind.—Jerry D. Bumpus Sr. was a member of the United Auto Workers union for four decades and earned as much as $28 an hour at a General Motors Co. car-parts plant before accepting a bonus to retire at age 60 five years ago.
On a recent Saturday morning, Mr. Bumpus, wearing a black jacket and clutching his résumé, was one of several thousand people lining up to apply for jobs at a new Caterpillar Inc. plant that makes train locomotives here. Those jobs start at as low as $12 an hour plus benefits, and there is no union representing the workers.
“I’m able to adapt to that,” says Mr. Bumpus, who hopes he can get the job to build up his scant retirement savings.
Things have changed in Muncie, a city of 70,000 where closures of auto-industry plants and other factories have left about one in five homes vacant. Jobless workers here and in many parts of the Rust Belt have lowered their expectations and become more flexible. At the same time, state politicians are fighting harder than ever to attract employers with lower taxes, streamlined regulation and other incentives. Companies like Caterpillar are eagerly exploiting both trends.
The politicians and workers are realizing that the battle for scarce jobs isn’t just with Asia and the Sunbelt states. It also is with neighboring states and Canadian provinces in the North American industrial heartland.“Our challenge as a state is to stand apart from our Midwestern colleagues,” says Dan Hasler, Indiana’s commerce secretary, adding: “Our goal in Indiana is really pretty simple: It is to help companies improve profitability.”
That happens to correspond with Caterpillar’s agenda. The Peoria, Ill.-based maker of heavy equipment is adding jobs at the new plant in Muncie even as it closes an older locomotive factory in London, Ontario. At that Ontario plant, unionized workers earned about twice as much as the company pays in Muncie.
When Caterpillar announced the closure of that Ontario plant in early February, the Canadian workers were enraged. “I’ve been here 25 years and they wanted to offer us a bowl of rice to work, like we were workers in Asia,” says Rafeek Khan, a 55-year-old machinist at the plant. Other workers planted burial-style crosses, bearing their names, in the soil outside the chain-link fence Caterpillar had erected to keep them out. Caterpillar said wages at the plant were too high, making the plant uncompetitive.
The contrasting experiences of workers in Muncie and London show how the 2008-2009 recession and the painfully slow recovery of the job market since then have left North American workers with less bargaining power. The median weekly earnings of U.S. wage and salary workers, adjusted for inflation, were down 1.8% in last year’s fourth quarter from a year earlier and have been about flat over the past decade, according to the Bureau of Labor Statistics. Employers rarely cut wages, even during recessions, preventing any sudden plunge in median pay. But many new hires are willing to work for lower pay when jobs are scarce, and that is keeping a lid on wage costs.
Companies are concentrating many of their manufacturing investments in states where unions are weak and wages relatively low. Boeing Co., for instance, last year opened a nonunion airplane plant in South Carolina, supplementing its unionized factories in the Seattle area. Starting pay for assembly workers at the South Carolina plant is $14.35 per hour, compared with $15 in Seattle. But the union employees in Washington state tend to be much more experienced and average about $28 per hour. A Boeing spokesman cited regional differences in labor markets.
Where companies are expanding or modernizing unionized plants, they are winning concessions. Harley-Davidson Inc. in recent years told unions in York, Pa., Kansas City, Mo., and near Milwaukee that it would move production elsewhere unless they accepted more-flexible working arrangements, including greater use of temporary workers. The unions complied.
Tony Wilson, president of the International Association of Machinists union local in Kansas City, said workers felt little choice other than to accept Harley’s conditions. A Harley spokeswoman said the conditions were part of a transformation needed to make the motorcycle maker more competitive.
Over the past two decades, Caterpillar has been at the vanguard of corporate efforts to rein in unions. The company deployed white-collar staffers and temporary workers to operate plants during a 17-month UAW strike at eight plants in 1994 and 1995. The union eventually capitulated, making concessions in such areas as health-care benefits.
The equipment maker has gradually reduced its reliance on organized labor by opening plants in the South, where union support is scarce. At the end of 2011, about 27% of Caterpillar’s U.S. workers were represented by unions, down from 32% in 2003. As it opens new plants, Caterpillar makes no secret of its strategy. An online job advertisement posted by the company last year sought human-resources managers in Muncie experienced in “providing union-free culture and union avoidance.”
Companies like Caterpillar also are shopping for lower taxes and regulatory costs. That is where the politicians come in. All of the Rust Belt states are pursuing pro-business agendas and wooing manufacturers and other employers. But Indiana has been particularly aggressive.
Republican Gov. Mitchell Daniels, who was first elected governor in 2004, has cut costs by shrinking the state work force. That allowed the legislature last year to pass a bill that will cut Indiana’s corporate income-tax rate in stages to 6.5% in 2015 from 8.5%.
By contrast, Illinois, struggling to control pension and other costs, raised personal and corporate taxes last year—drawing a public rebuke from Caterpillar. In early February, Caterpillar sent an email to officials in Peoria County, Ill., where the company has its headquarters, telling them it had decided not to build a new construction-equipment plant there, partly because of what the company called “concerns about the business climate and overall fiscal health” of Illinois.
Caterpillar since has announced that the $200 million plant will be built near Athens, Ga. That was partly because Caterpillar wanted proximity to an Atlantic port. Even so, Illinois Republicans say Caterpillar’s decision not to consider their state for the plant shows the need for stronger efforts to reduce taxes and other costs of doing business there. “We are competing with states around us, and they are very aggressive,” State Rep. Don Moffitt, a Republican, told reporters. Illinois Gov. Pat Quinn, a Democrat, counters that he has made the state more attractive to employers, such as by enacting changes in the unemployment-insurance system. Those reforms are designed to save companies $400 million over the next seven years.
In early February, Indiana enacted right-to-work legislation that bars contracts requiring all workers to pay union fees and makes it harder for unions to organize work places. Indiana became the 23rd state with such a law, and the first in the industrial Midwest. “This announces, especially in the Rust Belt, that we are open for business here,” Republican House Speaker Brian Bosma said.
Indiana already is less unionized than its neighbors. The percentage of Indiana workers represented by unions last year was about 13%, compared with 15% in Ohio, 17% in Illinois and 18% in Michigan. The national average was about 13%. In Muncie, the UAW was a major political force in the 1960s and 1970s, representing more than 7,000 manufacturing workers in the city. For years, the union even owned and operated a public park in Muncie. Today, the UAW is barely visible there. It doesn’t represent any manufacturing workers in Muncie, though it still has a tiny branch representing deputy sheriffs.
The results of Indiana’s efforts to attract manufacturing jobs are encouraging so far. The number of Indianans employed in manufacturing at the end of 2011 was up 7.6% from two years before to 472,500, compared with a 3% rise nationally, after plunging during the recession. Over the past decade, Indiana’s performance has been better than other Rust Belt states. Its manufacturing employment is down 20%, compared with drops of 26% in Illinois, 29% in Ohio and 35% in Michigan, according to data from Moody’s Analytics.
Like many other small Midwestern cities, Muncie has suffered from an exodus of manufacturing jobs. Bitterness lingers from a 1989 strike in Muncie over cuts in health benefits at BorgWarner Inc., a maker of car transmissions. BorgWarner used managers to continue production at the plant while 2,100 workers tried to block the entrances and in some cases threw nails on the road. After seven weeks, the two sides settled the strike and agreed on a plan to reduce health-care costs. BorgWarner closed the plant in 2009 after an unsuccessful attempt to get more worker concessions.
In the past few years, Muncie has lured some new manufacturers, including Brevini U.S.A. Inc., a maker of parts for windmills. When Caterpillar announced in October 2010 that it would build locomotives in a vacant Muncie factory once owned by Westinghouse Electric Corp., the town was jubilant. Local officials put together a $28 million package of tax breaks, training grants and other incentives.
Production of locomotives began last year on a small scale, and the company is gearing up for higher output. The closure of the 62-year-old Ontario plant, Caterpillar’s main North American location for assembling locomotives, promises to bring more work to Muncie and another new plant in Brazil.
Caterpillar is seeking to hire more workers for the Muncie plant, mostly at wages of $12 to $14.50 an hour, compared with the equivalent of more than $30 an hour for most workers at the plant being closed in Ontario.
The lower wages in Muncie are fine with John Velasquez, 47, who joined CAT as a material handler in July and is now training as a welder. “I’m glad to have a job,” says Mr. Velasquez, who lost his job in housing construction during the recession.
Dustin Pittsford, 24, was among the thousands who lined up at Caterpillar’s recent job fair for potential employees. Mr. Pittsford says he currently is raising two children by working at a tire store for $8.25 per hour. The Caterpillar wages would be “a step up for me,” he says.
Muncie’s mayor, Dennis Tyler, has mixed feelings. He was a union member throughout his career as a firefighter here. And his father was a UAW member when he worked at the BorgWarner plant. “Driving down wages doesn’t do anybody any good,” the mayor says.
Even so, his top priority is jobs. Whether those jobs are unionized or not, he says, they are welcome.
London, Ontario, whose population is 366,000, also has suffered from losses of automotive-related jobs and is eager to keep as much manufacturing employment as possible. Worry began to mount last spring when Caterpillar proposed to cut wages at the London plant by about 50%. The union refused that offer, and at the end of 2011 Caterpillar said it would lock out the workers until they agreed to a new contract. The workers set up a camp outside the factory gates, burning scrap wood in old oil drums, and picketed around the clock.
During the lockout, London Mayor Joe Fontana says, he called senior Caterpillar executives frequently to ask what the government could do to help keep the jobs in London. “I’d ask, ‘Do you want new equipment, new research grants?’” he says. Caterpillar’s answer, the mayor says, was that the first step was to sort out the wage dispute.
Early on Feb. 3, Mr. Fontana took a call from a Caterpillar manager and learned that the plant was closing. “I said, ‘I can’t believe you have closed the plant when we were still talking about ways to get you back,’” the mayor says. A Caterpillar spokesman declined to comment.
Now Canadian officials at provincial and federal levels are thinking about how to make the region more competitive. They note that Canadian corporate taxes are lower than those in the U.S. One big problem, though, is that a stronger Canadian dollar has made the nation’s exports less competitive.
Finding new ways to attract employers “is something that we are very diligently engaged with,” says Brad Duguid, Ontario’s minister of economic development and innovation. “One of our challenges will be competing with low-paid jurisdictions around the world.” By some measures, that now includes Indiana.