Ford-UAW SUB Agreement

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Ford-UAW SUB Agreement

United States 1955

Synopsis

In the early 1950s, the United Auto Workers (UAW) under President Walter Reuther began to inject the issue of a guaranteed annual wage into contract talks with the "Big Three" auto makers. Throughout the auto industry's history, its workers had suffered economic setbacks when plants were shut down for annual model changes or during times of slack demand. Without unemployment insurance or other social safety net measures, workers were plunged into periods of insecurity and poverty, often without warning. To provide more economic security for workers, Reuther argued that employers should be required to pay a guaranteed wage to their employees throughout the year. Although Reuther was never able to gain such an agreement in collective bargaining talks with the Big Three, the UAW's contract with the Ford Motor Company in 1955 produced the industry's first supplemental unemployment benefits (SUB) provision. Under the contract, Ford agreed to pay five cents per worker per hour into a fund that would be paid to laid-off workers in the amount of $25 for up to 26 weeks. Combined with government-provided unemployment payments, the SUB meant that workers would receive 65 percent of their regular pay through a half year of unemployment. Later contract negotiations in the auto industry raised the unemployment compensation to 95 percent of take-home pay for up to a year.

Timeline

1935: Second phase of New Deal begins with the introduction of social security, farm assistance, and housing and tax reform.
1940: Hitler's troops sweep through Western Europe, annexing Norway and Denmark in April, and in May the Low Countries and France.
1945: On 7 May, Germany surrenders to the Allies.
1951: Julius and Ethel Rosenberg are convicted and sentenced to death for passing U.S. atomic secrets to the Soviets.
1955: The Warsaw Pact is signed by the Soviet Union and its satellites in Eastern Europe.
1955: African and Asian nations meet at the Bandung Conference in Indonesia, inaugurating the "non-aligned" movement of Third World countries.
1955: Over the course of the year, a number of key ingredients are added to the pantheon of American culture: the 1955 Chevrolet, the first of many classic models; Tennessee Williams's Cat on a Hot Tin Roof; Marilyn Monroe's performance in The Seven-Year Itch; Disneyland; and Bill Haley and the Comets' "Rock Around the Clock."
1955: Among the year's deaths are Albert Einstein, Thomas Mann, Dale Carnegie, Cy Young, and James Dean.
1955: Rosa Parks refuses to move from her seat near the front of a public bus in Montgomery, Alabama, and is arrested. The incident touches off a boycott of Montgomery's bus system, led by the Rev. Martin Luther King, Jr., which will last well into 1956. The situation will attract national attention and garner support for the civil rights movement, before Montgomery agrees to desegregate its bus system on 21 December 1956—exactly a year after Parks's brave protest.
1958: First U.S. satellite, Explorer I, goes into orbit.
1962: As the Soviets begin a missile buildup in Cuba, for a few tense days in October it appears that World War III is imminent. President Kennedy calls for a Cuban blockade, forcing the Soviets to back down and ultimately diffusing the crisis.
1970: President Nixon sends U.S. troops into Cambodia on 30 April. Five days later, National Guardsmen open fire on antiwar protesters at Kent State University in Ohio. By 24 June antiwar sentiment is so strong that the Senate repeals the Gulf of Tonkin resolution. On 29 June, Nixon orders troops back out of Cambodia.

Event and Its Context

While the relatively high wages in the United States attracted millions of immigrant workers to the country in the late nineteenth and early twentieth centuries, unemployment remained a constant worry for American workers. American manufacturers made great strides in technological and administrative developments to maximize the continuous operating capacities of their firms, yet closures for product changes, seasonal maintenance, and downturns in the economy all contributed to the irregularity of industrial employment. The automobile industry typified these patterns. Although auto workers earned some of the highest wages among American industrial workers, most of them faced regular periods of unemployment as plants closed for retooling, product changeovers, or slumping automobile sales. Even after the industry settled into an oligopoly by the 1920s dominated by the Big Three—General Motors (GM), the Ford Motor Company, and the Chrysler Corporation—auto makers were forced to curtail their employment abruptly during the recession of 1921-1922 and the onset of the Great Depression in 1929.

Unemployment Insurance and a Guaranteed Annual Wage

Progressive Era reformers pointed to the unemployment insurance measures in most of the industrialized countries in Europe as examples for the United States to follow. In Great Britain most labor unions had instituted programs to collect payments from their members to be disbursed during periods of unemployment. After the British government established a state-run unemployment compensation program in 1911, it joined the other European countries that maintained such a program to supplement private unemployment compensation programs. In contrast, both public and private efforts in the United States to ameliorate the distress of unemployment lagged far behind those found in European programs. By 1929 only eight states had enacted any form of unemployment insurance; there was no such federal program in existence. Some trade unions had instituted unemployment relief programs out of funds paid into by their members, but the lengthy economic downturn after 1929 demonstrated the shortcomings of such efforts. Prior to 1933, only 38 companies had inaugurated their own private unemployment insurance plans. Typically, only large corporations such as Eastman Kodak, General Electric, Procter and Gamble, and J. I. Case could afford to fund such schemes, which usually took in 5 percent of an employee's earnings up to one year and matched them with the employer's contribution.

With unemployment reaching 25 percent on the national level and exceeding 50 percent in many industrial communities by 1932, voluntary unemployment assistance proved woefully inadequate to ameliorate the misery of the Great Depression. Elected on a New Deal platform to address the country's economic problems, President Franklin D. Roosevelt formulated a number of measures to provide relief and recovery. The 1935 Social Security Act, which established a national pension system, also created a federally supervised unemployment insurance program. Under the act, the federal government took in funds from a payroll tax that it then provided to states to administer to unemployment insurance programs under their own guidelines for recipients.

In the private sector, labor unions also focused on unemployment issues through efforts to organize industrial workers and demand improved wages and benefits, job security, and seniority provisions in collective bargaining. Among the most dynamic labor unions of the era was the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America, or the United Auto Workers union (UAW). After organizing the Big Three between 1937 and 1941, the union became one of the foremost advocates of unemployment relief efforts, particularly through the leadership of Walter P. Reuther. Elected president of the UAW in 1946, Reuther had made headlines during World War II for his "500 Planes a Day" plan for industrial production and emerged from the war as a national spokesman for the labor agenda. One of Reuther's priorities was the establishment of a guaranteed annual wage (GAW) for workers to safeguard them from unemployment during economic downturns. It was not until 10 years into Reuther's term as president, however, that the union finally took steps to implement a GAW provision in its 1955 collective bargaining sessions with the Ford Motor Company.

Ford Motor Company and the UAW

Relations between Ford and the UAW in the 1930s and 1940s had been intensely bitter. Ford was the last of the Big Three auto makers to be organized by the UAW, in large part because of the opposition of its founder, Henry Ford, to labor unions. Ford's antiunion outlook stemmed from his rugged individualism—which stood in direct contrast to a union's collective aims—and was manifested in his employment of virulently antiunion subordinates. The company's service department under Ford lieutenant Harry Bennett was notorious for its violent tactics against the UAW, especially the Battle of the Overpass at Ford's Rouge Plant in Dearborn, Michigan, on 26 May 1937. After Reuther and Richard Frankensteen, another UAW leader, were beaten up by Bennett's thugs, a public uproar tarnished Ford's image at a time when the other major auto manufacturers had already signed agreements with the union. Ford resisted unionization until June 1941, when the company suddenly reversed its course and entered into collective bargaining with the UAW. Although the reasons for the decision remain unclear, some have suggested that Ford's wife, Clara, insisted that the company unionize to avoid further violence. Ford signed its first collective bargaining agreement with the UAW in June 1941.

Ford's grandson, Henry Ford II, assumed leadership of the company in 1945 and attempted to repair labor relations between the company and the UAW. In a nationally publicized speech before the Society of Automotive Engineers in Detroit in January 1946, Ford called for an era of cooperation between management and labor. In an abrupt turnaround from the elder Ford's stance, Henry Ford II's administration soon became the most receptive among the Big Three to the UAW's collective bargaining platform. In September 1949 the company became the first major automobile producer to set up a pension plan for workers. UAW members at Ford could expect a monthly pension of $100 per month upon retirement at age 65 with 30 years of service. The UAW secured similar agreements for workers at Chrysler and GM within a year. In addition to the pension agreements, the UAW successfully negotiated for cost-of-living adjustments beginning with its 1948 contract with GM, which also included a partially paid health insurance plan for GM workers covered by the UAW's agreements.

Postwar Collective Bargaining

As in the debates over unemployment insurance during the Progressive Era, social reformers had also advocated a guaranteed income to alleviate economic insecurity for workers. Reform efforts had few tangible results; although Congress passed an Employment Act in 1946 that declared the federal government responsible for fostering full employment in the nation, the law had only symbolic importance. As the Republican Party eclipsed its Democratic rivals during the early years of the cold war, it was obvious that any extensions of Roosevelt's New Deal or even President Harry Truman's more limited Fair Deal programs would be hard-fought battles.

With the continued prosperity of the American economy through the 1950s, Reuther sensed that the time was right to use collective bargaining as a tool in the campaign for a guaranteed annual wage (GAW) for workers. Reuther never stopped advocating greater government involvement in industrial planning to achieve a guaranteed annual wage in the 1950s, but his most tangible success on the issue came with the UAW's contract with Ford in 1955. By that date negotiations with the Big Three had settled into a fairly predictable pattern; as the largest and most profitable company, GM was usually the target of the biggest requests for wage hikes, whereas Ford, considered the most progressive of the major auto makers in terms of its willingness to negotiate benefits issues, was usually the first to receive requests for new company-funded programs such as pensions.

Before bringing the GAW demand to Ford in the 1955 talks, Reuther first conducted a public relations campaign to highlight the issue. Backed by an array of statistics from the UAW's Research Department, led by Nat Weinberg, Reuther attempted to prove first that employers could afford to pay the GAW and that such a measure would create economic and social stability for the entire nation. Reuther also believed that a GAW policy would force manufacturers to plan their production schedules with more efficiency so as to avoid layoffs. The GAW campaign, then, had both a pragmatic side rooted in economic analysis and a moral dimension oriented toward social welfare.

In the first round of the 1955 talks, Ford's chief bargaining agent, John Bugas, initially rejected Reuther's call for a GAW. Instead, Bugas offered to initiate an interest-free loan program for employees based on their company stock holdings that they had purchased through a stock option program. Reuther countered that the loan program was too complicated and avoided the primary issue of helping laid off workers. After more grandstanding, the UAW and Ford worked out a compromise agreement that fell short of the GAW that Reuther envisioned. Instead, Ford agreed to place five cents per employee per hour worked into a trust fund. Under a new supplemental unemployment benefits (SUB) program, the trust fund would be dispersed to laid off workers in the amount of $25 for up to 26 weeks. When the SUB payments were added to state unemployment compensation disbursements, it translated into approximately 65 percent of a worker's regular take-home pay. In the subsequent 12 years, four new contracts at Ford increased the SUB to 95 percent of take-home pay and expanded the payment period to a full year. Once Ford had established SUB as part of its benefits package under the UAW contract, the other auto makers had little choice but to follow suit. For industries covered by union contracts, the SUB provision became a standard item in collective bargaining by the early 1960s.

To Reuther's admirers, the SUB agreement demonstrated the labor movement's ability to work constructively with management for the benefit of both parties through collective bargaining. To his critics, the SUB scheme was evidence of how far the union movement had strayed from its responsibility to help all members of society by restructuring the economic and political status quo. Yet the UAW remained one of the foremost advocates of public policies to improve the economic status of all Americans. By the early twenty-first century, the UAW had been a leader in the fight to expand SUB to include workers on family leave; to extend unemployment benefits to victims of domestic violence who had to terminate their employment; to make part-time workers eligible for unemployment benefits; and to exempt unemployment benefits from federal income tax requirements.

Key Players

Ford, Henry II (1917-1987): President of the Ford Motor Company from 1946 to 1960 and chairman of the board from 1960 to 1980, Ford gained a reputation as the most receptive of the Big Three's leaders to collective bargaining talks with labor unions.

Reuther, Walter Philip (1907-1970): President of the UAW from 1946 until his death in 1970 and one of the most influential labor leaders of his era, Reuther was a national spokesman on labor, civil rights, and other political issues and used his leadership to promote a liberal social agenda that culminated in the Great Society programs of the 1960s.

Weinberg, Nat (1914-1985): Head of the UAW's Research Department from 1947 to 1974, when he retired, Weinberg also served as the director of special projects and economic analysis for the UAW from 1957 until his retirement and was a leading advocate of social reforms in the United States and abroad.