II. THE CONSTRUCTION
INDUSTRY IN THE NEW MILLENNIUM
Rebuilding
Market Share:
Strategic Dilemmas and Institutional Realities in
Market Recovery Efforts
DAVID
WEIL
Boston University
Abstract
Market
recovery efforts in the construction industry focus too narrowly on
a limited number of strategies and, as a result, yield limited results.
In part, these deficiencies can be traced to the complexity of construction
markets and the differing dynamics in bidding that make the notion of
a single-market recovery strategy nonsensical. Rather, market recovery
efforts must be tailored to the specific nature of product market dynamics.
Market recovery programs must also be composed of a set of complementary
policies by unions and employers that link traditional tools of market
recovery to organizing and apprenticeship activities. The interrelated
nature of market recovery efforts makes them difficult to put in place
politically and institutionally, which helps explain why construction
unions and their employer counterparts continue to adopt less effectual,
single-pronged efforts.
For many years, building trades unions
have adopted policies that seek to expand market share as a means of preserving
their strategic leverage in local construction markets. In response to
falling levels of union penetration in many construction markets beginning
in the late 1970s (Allen 1988), market recovery efforts primarily involved
modifications to collective bargaining agreements between the building
trades and employer associations in a local market. This included wage
and benefit reductions (or targeted reductions for certain types of work),
changes in journeymen/apprentice ratios, and other measures to reduce
union/nonunion cost differentials (Mills 1980). More recently, market
recovery efforts have focused on marketing activities to promote the union
sector to end users and the public and using multi-employer labor-management
funds to win specific projects by subsidizing bids by union contractors
(Grabelsky and Erlich 1999; Northrup 1991).
This
paper argues that these versions of market recovery are overly restrictive
and inherently yield limited results. This is because of the complexity
of the construction market itself, and the differing dynamics in bidding
that make the notion of a single-market recovery strategy nonsensical.
Rather, market recovery efforts must be tailored to the specific nature
of product market dynamics. Even more, to result in sustainable shifts
in market share, they must be composed of a set of complementary policies
by unions and employers that link traditional tools of market recovery
to organizing and apprenticeship activities. The interrelated nature of
market recovery efforts makes them difficult to put in place politically
and institutionally, which helps explain why construction unions and their
employer counterparts continue to adopt less effectual, single-pronged
efforts.
The
scope of change that the global economy is driving necessitates a hard
look, and reflective and creative solutions to the problems and obstacles
that change is generating for American workers and industries. The IRRA
is the preeminent organization that understands and is actively engaged
in assessing and discussing our venue; who better than this organization
to help in designing the fabric of changing labor-management relations
systems?
Market Recovery Efforts and
the Structure of Public and Private Bidding
There
are essentially four alternatives for expanding the unionized share of
local construction markets:
1. Increase the share of existing
union contractors;
2. Create new union contractors;
3. Convert nonunion contractors
into union contractors;
4. Decrease the share of nonunion
contractors.
Market
share recovery efforts will only be successful if they result in one or
more of these four outcomes. Note that policies that are often put in
the foreground of union activity in construction--organizing, apprenticeship,
and promotional efforts--do not in themselves confer expansion in share.
Instead, they are activities that may ultimately lead to one of the four
market outcomes. For example, "bottom up" organizing of workers
only confers additional market share when those workers are hired by union
contractors. Enhancement in apprenticeship or journeymen training only
results in shifts in market share when it improves the relative competitiveness
of union contractors in bidding for private or public work. The underlying
competitive dynamics of the construction market affect each of the four
alternatives for increasing union market share. An analysis of market
recovery, then, must begin by understanding the organization of construction
markets. A critical distinction for market recovery efforts concerns the
operation of public versus private construction.
Figure
1 presents a schematic of traditional and more recent organization of
the sector. At the "top" of the construction project are owners
who are the end users of construction projects, who may be public or private
players. The owners' interest might be extremely short term--as in the
case of developers seeking to build and then lease or sell the building--or
longer term--in the case of private companies building for their own use
or government organizations providing some type of public good (e.g.,
a school, power facility, government office building).
The
owner, in turn, typically hires a firm to oversee construction. Historically,
this role was filled by a general contractor (GC) who served two functions:
managing the construction project and being the direct employer of "basic
trades"--that is, the trades undertaking construction work that occurs
throughout the duration of the project (e.g., carpenters and laborers).
The GC would also be responsible for coordinating the work of subcontractors
associated with skilled and semiskilled specialty trades such as electrical,
plumbing, sheet metal, roofing, and others. The larger and/or more complex
the project, the more subcontractors would typically be on a job. This
relationship is depicted in the upper panel of Figure 1.
Today,
GCs have been replaced in many instances by construction managers (CMs).
A construction manager works for the owner/developer, and coordinates
with architects and engineers. Unlike the GC, a CM does not directly employ
any workers on the site. Instead, the CM contracts with basic trades much
in the same way as specialty trades. This removes the manager from many
of the responsibilities of employing and directly managing the basic trades.
In addition, collective bargaining agreements between basic trades and
unionized GCs usually stipulated that all subcontractors on a project
would be selected from unionized firms. Because the CM does not directly
employ any construction workers, these provisions no longer apply, and
projects are more likely to have a mix of union and nonunion trades present.
These new relations are shown in the lower panel of Figure 1.
The
structure of bidding for work differs between private and public sectors
(that is, whether the end users of a building or project are private or
public concerns). Bidding for private projects can be done on the basis
of processes between different construction managers or general contractors
(who bid for an entire project, based on their own team of subcontractors).
Alternatively, bidding can be done more informally, with a project manager
going directly to a preferred subset or even single GC/CM for bidding
and negotiation of a project price. The GC or CM with the project, in
turn, may elect to undertake a formal or informal bidding process for
the subcontracted work. Once again, the methods of such bidding are primarily
in the hands of the private parties involved.
Although
by no means uniform, public-sector end users are driven by a narrower
range of objectives around the final application of the project. As a
result, the public character of construction reduces (although in no way
eliminates) pricing pressure relative to private construction. Because
funds for building at the federal, state, or local level ultimately come
from taxpayers, bidding processes are more closely regulated. Public work
is also covered by federal statutes regarding wages and working conditions
("prevailing wage" laws), discrimination, small business set-asides,
and other regulations that address access to the bidding for work. In
addition, states may also regulate the bidding process to insure against
favoritism and patronage, an ongoing (or perceived) problem in regard
to the letting of public construction projects.
Recapturing
market share in the private market is a function of the ability to influence
formal and informal bidding processes. This is often difficult because
of the differences across private construction sectors and in the scale
of projects. For example, the key decision makers on a project (owners,
architects, or construction managers) vary by sector as do the factors
that drive project profitability for the end users. These project aspects,
in turn, affect the incentives in the selection and role of the project
team and the nature of project management. In major metropolitan markets,
as projects become larger and more specialized, the possibility of tensions
between unionized contractors who may be competing against one another
increases, further raising the complexity of market recovery aimed at
private construction markets.
Regaining
the market share through influencing public rather than private bidding
processes is often more attractive. This is in part because of the more
transparent and rule-driven nature of public bidding and because the decision
for letting work itself may be influenced by political processes where
unions have influence. More importantly, to the extent that prevailing
wage laws are enforced, wages and benefit policies have been taken out
of competition on public work, and the competition for projects can take
place on the basis of comparative productivity and other factors.
1
Comprehensive Market Recovery
Strategy
Market
recovery efforts are often cast as involving a single policy (e.g., market
promotion). Yet each of the four alternatives for increasing market share
require adoption of a set of interrelated policies to be effective.
The individual components of each of the four market recovery alternatives
do not provide their full benefits unless they are simultaneously adopted
with a set of other, related policies.
2
The components of market recovery must therefore be adopted together rather
than individually (or even sequentially) in order to achieve optimal results.
The perceived benefits may not outweigh the costs of market recovery activities
if considered individually, because the separable benefits may not justify
the costs, absent capturing the collective benefits of adopting
the practices together (Weil 2000).
To
illustrate this point, consider several core policies required to effectively
convert nonunion into union contractors:
1. Identify key nonunion contractors
that may become viable members of the union sector;
2. Focus "bottom up"
organizing activities on the key workers of targeted contractors to induce
them to join the union. The focus of organizing is to "strip"
these workers from the targeted contractor and bring them into the union;
3. Focus "top down"
organizing efforts at the same targeted contractors in order to convince
them of how they can compete and succeed as unionized contractors. This
might include helping them to win work in areas that they might previously
have had trouble undertaking (public work) or providing them with a higher-skilled
workforce (via new apprentices or journeymen training);
4. Prepare to have work for
those construction workers who have been brought into the local at the
same time as supplying work to the contractor after becoming signatory
to the agreement.
Failure
to implement any one of these policies will undermine the ability to achieve
the overall objective of expanding market share. For example, a strategy
of just "stripping" the workers of a key contractor is risky
if those workers cannot be assured steady employment once in the union
(particularly if this effort occurs during a downturn). If the union does
not bring in the contractor that formerly employed these key workers,
it risks losing them (and the resources put into organizing them). On
the other hand, if the union successfully convinces the contractor to
sign, but is unable to help provide the company with steady work as a
signatory to the union agreement, it will risk losing the contractor and
its workforce over time. By instituting the policies together, the union
can reduce some of the political problems that may arise within the hiring
hall because the new workers are active, new contractors are bidding work,
and presumably the share of the market now controlled by signatories has
increased.
Recasting
market recovery efforts in light of their complementary nature also sheds
light on recurring labor-management tensions in areas like apprenticeship
or organizing. Unionized contractors often press to expand apprentice
programs during times of economic expansion. Unions are often reluctant
to do so because of the risk it creates in terms of having additional
workers "on the bench" and the consequent need to ensure employment
for a larger number of workers (particularly problematic in the event
of an economic downturn). The tension arises because expansion of apprenticeship
programs optimally must be paired with efforts to increase the opportunities
for those apprentices to find productive and continuous work in the longer
run. This requires securing sustainable work opportunities (that
is, expanding market share, beyond the additional jobs arising from the
booming economy). At the same time, convincing nonunion contractors to
become union signatories, or convincing existing contractors to expand
their operations, requires assurances that unionized contractors will
be able to find a productive and stable workforce (and therefore a healthy
apprentice program).
3
Institutional and Political
Implications
For
union leaders, the complexities of market recovery efforts raise some
familiar, but difficult, internal issues. Imagine a union leader choosing
to pursue a market recovery effort aimed at the public side of local construction
markets. Institutionally, the leader must be able to mount a two-pronged
strategy: organizing members at the same time as working with nonunion
contractors to bring them into the fold. The union leadership must also
be willing to support new contractors via market recovery funds at the
same time as trying not to alienate existing contractors who may be less
interested in public work.
The
key political sensitivity for union leadership arises from the tension
between existing members and recently organized workers. This tension
is well-established territory for building trades. The COMET program,
originated by the IBEW in the 1980s, was created to address precisely
this problem (Grabelsky and Erlich 1999; Lewis and Mirand 1998). But the
COMET program is sequential, with its core policies introduced over time
by design (e.g., build support among existing membership, put pressure
on leadership to accept the goal of organizing, and then initiate organizing
activity). In contrast, comprehensive market recovery of the type described
here requires moving ahead with organizing at the same time as moving
ahead on other fronts (e.g., signing up new contractors and helping them
win work).
The
political tension facing union leadership becomes most pronounced in slowing
economies, where competition between members on the bench is most intense.
Although COMET has long been the approach to educate union members of
the need to organize and overcome short-term focus on the new member as
a threat, the number of new members entering during an expansion phase
remains problematic. This is made even more intense if newer workers can
receive more stable employment because of their preexisting relationships
with former nonunion contractors.
The
institutional complexities are equally daunting (although quite different)
for contractors. Comprehensive market recovery requires accepting short-term
losses that may arise from introducing new unionized competitors in order
to achieve the longer-term gain of taking wages out of competition. This
may be politically more difficult water to navigate for management than
for the union. For individual members of the contractor associations,
the individual incentives to not participate may be greater than collective
incentives to expand share. This is why "promotion" campaigns
are usually the most commonly adopted method of market recovery because
they are inherently nondivisive (i.e., they involve promoting expansion
of the existing group of unionized contractors). But as I have argued
above, such single-pronged strategies do not respond to the underlying
market recovery problem.
Some
of the institutional problems on the employer side reflect longstanding
tensions in multi-employer forms of bargaining (Dunlop 1961; Mills 1980;
Ulman 1966). These tensions are acute in the case of market recovery because
the policies cut to the core of company competitive strategy, in a deeper
way than differences in association members' ability to afford changes
in wage, benefit, or manning policies. For example, targeted market recovery
money for new entrants into the industry, and assistance in winning work,
may create (or be perceived to create) direct competitors for existing
contractors in established businesses.
The
nature of tensions among employers may also shift during the course of
the business cycle. In periods of economic growth and tight labor markets,
funneling higher-quality workers to newly organized contractors may have
significant effects on improving their competitive position relative to
established contractors in the face of labor shortages. In contrast, in
a cooling economy, requests to use market recovery money as a means of
weathering bad times may be the source of conflict between established
contractors who may expect to be at the front of the line for such funds
(based on past practice) versus newly organized contractors who were drawn
into the sector in part through the use of those money and may threaten
to shift back to the nonunion sector if it dries up.
Conclusions
Market
recovery efforts require a labor-management group to pay close attention
to the fundamental differences of the construction sector in terms of
private versus public activity as well as within each sector. Setting
recovery policies even within a sector is made more complex by the complementary
nature of strategic choice in this area. Finally, institutional and political
realities create unique problems for both unions and employers seeking
to implement policies. Sustaining efforts over time is particularly difficult
due to the inevitable ups and downs in construction occasioned by the
business cycle.
4
In
the past, unions and labor-management efforts have dealt with these
inherent complexities by focusing on "least common denominator"
approaches, such as promotion strategies (in periods of economic recovery)
or concessions (during recessions). These policies have had limited effectiveness,
as evidenced by long-term declines in unionization rates in construction.
In order to address the more fundamental changes that have occurred in
construction product and labor markets, labor and management face a daunting
task and have a limited number of examples to emulate.
Acknowledgments
I
am grateful to Rich Gambino, Michael Monahan, and John Dumas of IBEW Local
103 and Paul McConnell, Paul Guarracino, and John Penney of Boston NECA
for conversations regarding issues discussed in this paper, and to John
T. Dunlop and Bob Gasperow for helpful comments on this manuscript.
Endnotes
1.
One of the earliest efforts at coordinated market recovery was undertaken
in the 1960s by the Operating Engineers, Carpenters, Laborers, and Teamsters,
with public construction of highways as its focus. The effort targeted
highway construction in states with low union density and assisted specific
union contractors' bids for highway jobs by allowing the contractors and
unions to work out wage, benefit, and work condition terms for the project
after it had been secured. These efforts proved a highly successful means
to use the burgeoning interstate highway construction market and public
bidding laws to win work and market share.
2.
In this sense, market recovery is a form of "production complementarity"
(Milgrom and Roberts 1990). Production complementarity describes a case
in which a set of practices that can be adopted (pricing, quality control,
production and manufacturing strategies) have reinforcing properties such
that the adoption of one practice enhances a firm's profitability both
directly and indirectly by increasing the returns of other practices.
3.
The complementary nature of market recovery policies also helps explain
why the COMET approach may be insufficient by itself as a means of expanding
market share. Although COMET arose from a recognition of the need to convince
union membership of the need to bring in nonunion workers as a means of
protecting their own wages and working conditions, it does not set out
a clear path for pursuing contractors: either convincing existing union
contractors to expand their market or bringing in nonunion contractors
as signatories.
4.
It is often the case that unions overestimate their strength during recoveries
because a large number of workers are "off the bench" and working.
This may mask the fact that the growth of the market as a whole outpaces
growth in the union sector, leading to erosion in market share.
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