U of R in a Contract Dispute – What it Boils Down To
October 22, 2012 Health Care

Our fair college is in a contract dispute with nearly 2000 of its employees (I think mostly at the Medical Center) who are members of the SEIU. From what I can gather the dispute seems to be around the value of health benefits. U of R seems to be wanting to offer the workers “more choices” which I am sure is soft-speak for less compensation for health benefits.

I don’t know the details, but this is a useful time to make two points.

(1) The level of compensation is what matters in a contract negotiation. I would recommend that both sides start at that number. If you think your members are able to produce $20 of value per hour, make that the negotiated level. Then after coming up with this “universal” figure, then negotiate what share of this you’d like to see paid out in the form of cash wages versus other benefits. Absent tax reasons, so long as the compensation level is below what any of our true “wants” are, we should be indifferent between a wide variety of wage/non-wage packages.

(2) I thought Obamacare was going to save the day? Remember the other day that I was told that Obamacare was already working (the person with the bumper sticker that said “I love ObamaCare!”). Well of course it doesn’t come into effect until 2014. Now, would workers be happy if they got bounced onto the ACA insurance exchanges, and saw 100% of their health benefits rescinded from U of R, and saw moderate cash wage increases?

I am sure the reason for the dispute is that U of R’s costs of insurance are rising far faster than the rate of productivity increase among its workforce. And so if the U of R even offered the same health benefits today as it did last year, and health benefits comprise, say, 40% of a worker’s compensation (likely the case), all it takes is for health costs to increase by 5% in order for total compensation to be increasing faster than the rate of inflation. If U of R paid it all out, the workers would be gaining. So a benefit cut to them is still, in this scenario, a compensation increase.

The upshot of course is pretty telling. The workers themselves, by calling this unfair, are telling usĀ that they do not value the health benefits at the marginĀ like they claim to be. They would rather $1 dollar of additional wages than $1 of additional health benefits. It couldn’t be any other way. Ironically, then, what the dispute boils down to (if not about total compensation) is that the U of R values paying health benefits, at the margin, MORE than the workers value them. If asked, would each side recognize this?

Finally, just to remind folks about labor markets and basic supply and demand conditions – the level of health benefits doesn’t matter one bit. Again, I don’t know if the dispute is about total compensation or not – but even if the U of R dropped health coverage entirely, it couldn’t make workers worse off. You might want to think about why.

"1" Comment
  1. As a private institution, the University of Rochester can determine its employee compensation policies as it wishes, but it, and even more so public universities, should annually put positions up for bid, just as they do the supply of paper clips, food service and other goods and services that they don’t make themselves. The low bidder should get the spot answering the phone at the English department, painting the bathrooms and sweeping the corridors.

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