(FORTUNE Magazine) – FROM THE WAY negotiations are going at Chrysler Corp. over the soon-to-expire contract with the United Auto Workers, you'd hardly guess the company is coming off two years of record profits. Chairman Lee A. Iacocca is talking about how much better competitors -- especially the U.S. operations of Toyota and Mazda -- are doing in holding down labor costs. And the union is listening. The talks are in keeping with a trend that's produced moderate deals this year between the Big Four tiremakers and the United Rubber Workers, between GE and Westinghouse and the electrical unions, and in a host of other industries. Next year's bargaining in telecommunications and aerospace promises to extend the trend. The result: though the dramatic slowdown in U.S. wage gains is largely over, the growth of unit labor costs won't accelerate. The forces behind the wage disinflation of the recent past remain at work. Unemployment is remarkably high for a recovery, and despite the August drop it's headed higher over the next year or so. Workers are less worried about inflation than they were earlier in the expansion. And because of continued fierce competition from imports and non-union rivals in deregulated industries, even thriving unionized companies are keeping a tight grip on labor costs. In industries still losing money, wage concessions remain on the agenda. During the first half of 1985, one out of six workers who bargained took a ( wage freeze or cut -- the same proportion as last year and four times more than in any year on record prior to 1981. Most of those workers were in construction, retail food, and primary metals industries. Concessions should dwindle by next year, but they won't disappear. Steelmakers are still battling for survival. The employer group that's negotiated every steel labor contract since 1956 finally fractured, formally disbanding last spring. Says labor economist Audrey Freedman of the Conference Board, a business research group, ''The producers want variations by company, by plant, even by product line.'' Among the minority of U.S. workers who are union members, pay gains have been running at 3.4% for the past year. Union pay gains will stay modest, averaging only 3.5% this year and 4% next. Increases under new contracts during the first half of 1985 have been slightly higher than last year. Workers pocketed raises even in some industries like trucking and clothing that aren't in great shape. And pay hikes for construction workers, who made the most concessions of any group during the recovery, averaged 2% this year, up from a meager 1% in 1984. But increases for 1985 won by workers bargaining in earlier years will be smaller than comparable increases last year. And cost-of-living adjustments (COLAs) are costing employers less: not only has inflation stayed relatively low, but the proportion of union members with COLAs has been falling. Workers who aren't union members -- about 85% of the work force -- have been doing better lately: most are in trade and service industries insulated from foreign competition. Their wage gains averaged around 4.8% in the past year. But with the economy growing only sluggishly next year, there's little likelihood of large non-union increases either. Employers' costs for fringe benefits will grow only slightly faster than wages next year, despite a 1.3% Social Security tax increase scheduled for January. The reason, according to Daniel Mitchell, director of the Institute of Industrial Relations at UCLA: high-interest income is lowering the cost to employers of funding life insurance and pension plans. So total hourly compensation won't grow any faster this year than it did last year and will edge up only half a percentage point in 1986, to 4.5%. That will help keep unit labor costs manageable. The cloud around this silver lining is that the rise in compensation will just cover next year's increase in the CPI. Inflation-adjusted compensation will stagnate -- hardly a happy prospect for wage earners or for the companies that sell to them.

CHART: TEXT NOT AVAILABLE ON A SLOW TRACK Increases in hourly compensation kept falling well into the recovery before flat ening. Pay will pick up a bit during 1986, but not enough to get workers a ead of inflation.