Social Issues: Caterpillar Freezes Wages For Six Years

And the insanity continues!

In August Caterpillar Inc., the world’s largest construction equipment manufacturer, signed a labor agreement with the Machinists Union, ending a four month strike. The agreement effectively froze wages for six years and decreased workmen’s compensation.

All well and good you say; times are tough economically and a company has to do what it has to do, right, in order to stay competitive in today’s economic world.

Not so fast my friend! In 2011, Caterpillar made a whopping $4.9 billion in profits and so far in 2012, the first quarter earnings are $1.5 billion. The CEO of Caterpillar earned….are you ready for this….$17 million in total compensation for 2011.

Am I the only one who has a problem with this? Obviously the 780 machinists in Joliet, Illinois, are not too excited, but beyond them, is there anyone else who sees the insanity in this managerial triumph?

To answer the question you must all have, top-tier machinists, the ones who went on strike, are making, and will make for six years, $26 per hour, or roughly $55,000 per year. The new benefits package will mean that each worker will now pay an extra $1,900 per year for benefits, so the adjusted yearly pay will be $53,100.

Second and third tier workers, who make between $13 and $19 per hour, are not affected by this latest contract.

The company states that the wage freeze was necessary in order for Caterpillar to stay competitive in the world market.

And the insanity continues!

Well, according to the latest Census statistics, the American middle class has been stuck in neutral since at least 1988. In 1988 the average income for an American taxpayer was $33,400. In 2008 that income was $33,000.

During that same time the inflation rate rose every year other than 2009, meaning of course that while prices rose, incomes remained the same; not a recipe for success in anyone’s language.

During that same time period, America’s richest 1%, those making $380,000 or more, saw their average income rise 33%.

And the insanity continues!

In part, the income stagnation of the middle class is a result of the decline in labor unions. Less than 11% of the workforce now belongs to a labor union. Collective bargaining is becoming a thing of the past in this country, and even when collective bargaining is evident, as is the case in the Caterpillar strike, the unions often cave to management demands, further weakening collective bargaining in the future.

Manufacturing, once the backbone of the United States economy, is now seeing jobs shipped overseas, leaving hundreds of thousands of workers untrained for the new trend towards a service economy.

The current trade deficit with China is at $295 billion, and since 2001 2.8 million U.S. manufacturing jobs have been lost because of that trade deficit with that one nation alone. Obviously “Made In America” does not carry the weight it once did.

I’m a reasonable kind of guy! If someone logically explains to me why a company that profited $4.9 billion needs to freeze wages to stay competitive, then I will be more than willing to listen to that argument. I would gladly listen to an argument that included cutting back just a tad on the compensation package for the CEO of Caterpillar, so that he made a measly $15 million next year rather than $17 million.

I really need someone to explain the logic to me! I’m not stupid; I have degrees in Marketing and Economics, so I should be able to follow along with any explanation presented to me, so please, give me one ounce of economic logic and I’ll be on board.

I have done a little math on this subject. If you took one billion dollars and simply invested it at 4% interest, you would make several hundred million dollars on your investment in one year. Several hundred million dollars! In other words, increasing the wages of the Caterpillar workers would not increase expenses one iota! The extra wage increase would simply be paid for by the interest on the company profits. So where is the added expense? How does increasing the worker’s pay make Caterpillar less competitive in the world market?

This is simply a matter of corporate greed, pure and simple, and it is socially irresponsible!

And the insanity continues!

Here is what I know to be a fact: if the wages of workers are frozen, and inflation continues, then the buying power of those workers will decrease, meaning they will buy less and eventually businesses will suffer from lost business. Lost business means eventually laying off workers, and the cycle then becomes self-perpetuating. It makes no long-term economic sense to freeze wages, especially in the current economic climate, for a company that is quite healthy.

Certainly there are businesses that must freeze wages in order to survive. Small businesses with less than, say, ten employees, are working on such a small profit margin that it may very well be necessary to freeze salaries and/or benefits. However, that is not what we are discussing with Caterpillar.

$4.9 billion! That is the issue at hand, and by any definition of social responsibility, Caterpillar is irresponsible. This company has over 500 manufacturing facilities around the globe, from Peoria, Illinois, to Russia, Brazil, India, and China. They are paying ridiculously low wages in many of those depressed countries, a fact that just makes this wage freeze much more ludicrous.

When an American corporation had the opportunity to step up and address the current recession in a socially responsible manner, Caterpillar took the low road and concerned themselves with adding to their profits, and then had the gall to blame it on remaining competitive on the world market.

I, for one, am very disappointed that the union members caved and accepted this wage freeze. I understand it but I am still disappointed. Several years ago I was making $55,000 per year and I can tell you, and many others will confirm, that a family of four will have to watch their pennies to live on $55,000 per year. Paying for benefits, shelter, food, clothing, and transportation will eat up the greater portion of that $55,000, leaving very little in case of emergency.

I wonder what kind of emergency fund the CEO of Caterpillar has? I wonder if he has to save his spare change to take his family out to a movie once a month?

I look at the economy today and I have serious concerns. I do not believe this nation can rise to economic greatness unless its manufacturing base is strengthened and broadened, and as a nation we will never be strong until we come together, from top to bottom, as a cohesive unit.

Yes, it has to end! The only question remaining is how will it end?

2012 William D. Holland (aka billybuc)