In Washington: Recovery rides on the workers

LARRY KOSCEWSKI works by night at the coke furnaces of Bethlehem Steel and by day as a caddie at the exclusive Saucun Valley Golf Club. In an era of stunted growth cycles and turbulent corporate restructuring, he has clung to the day job as a hedge against layoffs in steel.

For the past few years, however, the exhausted Mr Koscewski has been working double-time at night before dragging himself off to the golf course, after a few hours' rest, to maintain his slot in the lists of experienced caddies. He holds on to both jobs in fear that the current flat-out production in steel will end abruptly. The end result is one unhappy worker.

In Decatur, Illinois, a headquarters city for such big companies as Caterpillar, Staley and Archer-Daniels-Midland, there has been a quiet upsurge of strikes and labour unrest as workers claim they are forced to work double and triple shifts of overtime, because companies refuse to hire people to keep up with production demands.

The same complaints of insufficient workforces and mandatory overtime caused a surprise strike last week at a key General Motors plant in Flint, Michigan. Earlier, Allegheny Ludlum steel plants were struck after some employees were scheduled to work 146 hours over two weeks without any control over their shifts.

Capacity utilisation rates that are the highest since 1989 and tightening labour markets in almost all regions are two strong reasons why the US Federal Reserve Board will almost certainly raise short-term interest rates after the November mid-term elections. Last week, the Fed's key policy committee decided not to raise rates while it gathered more data on surging capacity, which has been dominated by vehicle production. However, the Fed's own internal reports provide enough anecdotal evidence of inflationary pressures to ensure higher rates are only a matter of time.

The key unknown in an otherwise rosy economic picture is the position of US labour in an era of shrinking unions, unprecedented restructuring and rapidly changing industrial relations. The trauma of the 1980s, marked by idle factories, layoffs and short work shifts, resulted in a more quiescent US workforce made up of people like Mr Koscewski, who scrambled for almost any job. Meanwhile, corporations grew leaner, embraced more just-in- time manufacturing techniques and re-engineered themselves to spread more work among fewer employees.

Now that the US business cycle is again in full bloom, with 14 quarters of growth and almost certain to expand into a fifth year, many workers expect the traditional to occur. That would mean extensive hiring, but large US companies, citing high productivity gains, have stated adamantly that the old ways are gone for good. By maintaining lean workforces, paying overtime instead of healthcare, training costs and other benefits for new workers, and instituting flexible schedules, US corporations have outperformed their European and Japanese counterparts. As a consequence, US productivity has risen dramatically and unit labour costs are much lower. The big question is whether workers will stay on board.

Last week, the Wall Street Journal profiled a group of worn-out workers who mirror the unrest that may be building. For example, James Walters, an Allegheny-Ludlum employee, was made to work 42 days in a row last year or face redundancy. He missed family weddings, funerals, his daughter's graduation from university and many abruptly cancelled outings with his wife. 'I am as flexible as anybody but I want the company to realise that I also have a life to live,' he said.

So far this year, the 12.4 million US manufacturing workers have been sustaining on average 41.4-hour work-weeks - a level not seen since the weapons-producing frenzy of the Second World War. In addition, manufacturing workers are averaging almost five hours of overtime a week, up 34 per cent from 1990. While many are as addicted to overtime as are their companies, most want the right to refuse it when it interferes with important personal events. Therein lie the seeds of potential industrial conflict.

Generally speaking, the US economy's composition is the most favourable since the long expansions of the 1960s and 1970s, but with the added boost of much lower inflation than in the 1970s. If, as expected, the Fed moves in late November or December to squash inflationary pressures with another rise in short-term interest rates, the consensus is that the current US expansion is poised for a much longer life expectancy than is usual.

This would result from a variety of factors, notably that the economy did not begin to experience supply constraints until this year and that recovery has proceeded at a moderate pace compared to past cyles, which required tougher tightening measures. Finally, the global economy is entering its most broad-based expansion since the First World War, with new growth centres in China, Latin America, Eastern Europe and elsewhere. Thus there are favorable internal and external signs for the US economy. The one largely unexplored component is the labour force itself.