During the past couple of weeks, important news has emanated from Southern California that will eventually resonate well outside that region.
The most important is the new labor agreement between three major supermarket chains and seven locals of the United Food and Commercial Workers union. Those locals represent some 65,000 members. Secondly, and in a not entirely unrelated development, news continues to trickle out about Tesco's upcoming entry into Southern California and nearby markets.
Let's take a closer look, first at the labor pact. Some details of the agreement remain obscure, but one of the most notable features of the new contract is the elimination of the two-tier wage and benefit arrangement. The tiers were a central feature of the agreement of early 2004 that ended a protracted and ruinous strike-walkout action.
What led parties to expunge the tier arrangement this time? Some labor-oriented commentary suggests the tiers were ditched because they set up distracting conflict in the workforce. Newly hired workers not only made less than veteran workers, which is common in any system that rewards seniority, but neophyte workers also knew that they could never achieve the wage rates of long-time workers, and would need to wait much longer to get a reduced slate of benefits. So the tier system promoted worker frustration and rapid turnover.
The perspective of employers is much different, of course. It may be that employers allowed tiers to go away because the tiers had already accomplished their work. The Los Angeles Times reported that some 33,000 workers at Albertsons (Supervalu), Ralphs (Kroger) and Vons (Safeway) were in the second tier. That means more than half the workforce churned during the term of the previous contract, significantly lowering payroll costs. To be sure, churn poses its own costs, but in a situation where a sizable pool of workers exists, rapid turnover may be a price worth paying.
Moreover, under terms of the new contract former second-tier workers will pay $7 to $15 weekly for health insurance benefits at the time they become eligible for the top benefit schedule, which takes 5½ years. Workers hired prior to the strike will make no payments. Other features of the new contract include modest wage increases, as compared to none for the previous contract, and a four-year term as compared to three years for earlier contracts.
Bottom line: some aspects of the old second tier remain to become the foundation of the only tier. Management only dispensed with what it could well afford to give up and doubtless has already realized enough to sponsor future wage increases.
Now let's turn to the impending advent of Tesco's Fresh & Easy stores in Southern California and nearby areas. It may be that the entry of this new competitor to the region was a motivating factor in the success of negotiations that led to labor peace for four years. As was reported in SN July 23, Tesco intends to open stores starting in early November. In all, Tesco has identified 60 locations to be opened before too long; 12 in Los Angeles, 27 in Phoenix, 14 in Las Vegas and seven in San Diego.
Labor and Tesco: Effects of these developments will be widespread.