Strife-filled labor relations tend to damage product quality. The deterioration is sometimes so serious that "it would be useful [for consumers] to have products stamped, 'Made during a strike,' " says Princeton University economist Alan Krueger.
Corporate executives often pride themselves on beating down labor costs. But if that effort badly damages relations with employees and unions, the savings may not be worth it.
"There are costs to wringing out every last nickel," says Mr. Krueger.
As evidence of this thesis, Krueger cites what happened at the Bridgestone/Firestone plant in Decatur, Ill., during a long contentious labor dispute in the 1990s. Because tires are still made in large part by hand, the process leaves scope for human error. During the 1994-96 period, discontented workers made an excessive number of defective tires. As a result, more than 40 lives were lost when tires failed and drivers lost control of their vehicles, he and a doctoral student, Alexandre Mas, estimate in a recent National Bureau of Economic Research paper.
Bridgestone/Firestone, the largest tire-maker in the world, got major news attention when in August 2000, it and Ford Motor Co. jointly announced the recall of 14.4 million tires, some 6.5 million of them still on the road, mostly on Ford Explorers.
A month later the National Highway Traffic and Safety Administration (NHTSA) advised that those recalled tires and other sizes and models were under investigation in relation to 271 fatalities and more than 800 injuries. The most common source of failure was a sudden detachment of the rubber tread from the steel belts, causing the tire to blow out.
At the time, a number of observers - members of Congress, plaintiffs' attorneys, and reporters - hypothesized that the tire problem was related to the strike at Decatur. They speculated that undertrained replacement workers or lax supervision during the strike contributed to an excess number of tire defects. Or possibly discord among lesser-paid replacement workers, union members who crossed the picket line, and returning strikers contributed to the production defects. And workers may have been fatigued and more prone to errors because Firestone introduced a 12-hour, rotating shift to operate the plant 24 hours a day during the strike.
These tires, before the recall, had a fatal accident rate of 10 to 30 per million tires produced. As a benchmark, the risk of death from parachuting is estimated at 13 per million jumps.
The research of Krueger and Mr. Mas shows that labor strife in the Decatur plant closely coincided with lower product quality. The evidence may be circumstantial, but it is broad and consistent, they maintain. Workers provide more effort and due diligence if they feel they are being well treated.
Bridgestone/Firestone executives blamed the tire defects in part on the design of the Ford Explorer, which they argued was prone to roll over. They also held that Ford recommended an air-pressure setting that was too low. At lower pressures tires become hotter and are more prone to blow out.
The NHTSA data, however, found that there were more complaints about tires manufactured in Decatur during the strike than at other times or from the same tires made at other Bridgestone/Firestone plants. The company's own engineering tire tests at varying speeds, load, tire pressure, and ambient temperature found more failures in Decatur tires.
The evidence indicates that Ford was just "an unfortunate player," says Krueger.
In industries affecting public safety, regulators should require more safety inspections for products manufactured during a strike or a period of labor strife, Krueger suggests.
The tire strike was disastrous for all involved. The company management was replaced. In the four months after the recall announcement, the market value of all Bridgestone/Firestone stock fell from $16.7 billion to $7.5 billion. And the Decatur plant was closed in December 2001. The Rubber Workers union went bankrupt and merged with the United Steel Workers of America.
"This episode would serve as a useful reminder that a good relationship between labor and management can be in both the company's and the union's interests," Krueger and Mas conclude.
Working on his own dissertation, Mas found additional evidence of the damaging impact of poor labor relations on product quality.
In the auction market for used construction equipment, those machines produced by Caterpillar between 1991 and 1998, during a "long contentious labor dispute," sell for 5 percent less on average than the same machines made in Caterpillar plants that were not affected by the dispute, he says.
"It's a quality issue," says Mas.
The equipment (hydraulic excavators, back-hoe tractor loaders, etc.) sells for an average of $60,000 per machine. Professionals appraise their quality, and equipment made during the labor dispute gets lower ratings on average.
"Part of the costs of bad labor relations are borne by consumers," says Mas.
The original buyers of Caterpillar equipment built in the days of labor unrest got less money when they sold them.
"There can be enormous benefits," he concludes, "for workers and companies that work in more harmonious ways."