GMFC is a manufacturing company facing rising levels of health care costs for its unionized employees. In the last year, health care costs per employee increased by 11%, despite benefit reductions to which the Local 384 union had previously conceded. The mounting health benefit costs, coupled with pricing pressures from foreign producers, has made it increasingly difficult for GMFC to manage its health benefit costs and remain competitive. As a result, GMFC is considering subcontracting workers or hiring part-time workers who would not be eligible for health care benefits. Neither option will be welcomed by the Local 384. As a new labor contract is being negotiated, GMFC management must propose an agreement to contain or reduce health care costs which Local 384 is willing to accept.
GMFC Statement on Impact of Employee Health Care Costs
GMFC is dedicated to providing its valued employees with quality health care coverage. However, according to data reported by Fossum (2012), health care cost inflation has increased at a much higher rate than overall inflation, pushing up the relative costs of employer-provided health care. In industries with relatively stable, high consumer demand for the product, employers can increase product prices to help cover rising costs of wages and benefits with little negative effect on a company’s employment levels (Fossum, 2012). However, in situations such as GMFC’s in which foreign competition is driving prices down, passing cost increases on to the consumer is not a viable strategy. As such, unions are less likely to demand high wage increases in industries with significant foreign imports (Fossum, 2012). For that same reason, it is not reasonable for Local 384 to expect that GMFC can continue to manage the increasing cost of health care for its employees with declining product prices and resulting lower revenues.
GMFC cannot sustain annual rising employee health care costs if the company is to continue to exist in an environment of increasing foreign competition. Therefore, GMFC has considered several options to address the issue of rising health care costs. Subcontracting some work out could reduce GMFC’s overall health care benefit bill since outsourced workers do not receive any health benefits from the company. However, outsourcing work would mean laying off some current GMFC workers which would not be acceptable to Local 384. In addition, subcontracting work out takes some control of production out of the hands of GMFC and its employees. This could potentially impact the company’s output, quality of products, and its ability to financially support its internal workforce.
Another option GMFC has considered is hiring part-time workers. Part-time workers would not be eligible for health benefits through the company. The Local 384 has already expressed its opposition to part-time workers because it leads to a reduction in its membership or proportion of employees who may be represented....