The dramatic growth in manufacturing in the southern states by the time of World War I was accompanied by significant growth in the ranks of organized labor. The war also witnessed unprecedented cooperation among government, business, and organized labor, brought about by wartime needs and unexpected encouragement from the administration of President Woodrow Wilson. After American entrance into World War I, close ties developed between Wilson's administration, business, and Samuel Gompers's American Federation of Labor. The United States Conciliation Service, established in the Department of Labor and supported strongly by President Wilson and Secretary of Labor William B. Wilson, was established to mediate labor disputes. The possibility of a new stage in the history of labor-management conflict proved illusory, however, when Conciliation Service personnel were confronted with staunch opposition from oil producers during a major strike of Texas and Louisiana oilfield workers in 1917–18.
Paternalistic management policies, inflation, and poor working conditions led oilfield workers to form a local union at Goose Creek in December 1916 under the leadership of the Texas State Federation of Labor and the Houston Trades Council. Because there was no national union for oilworkers, locals became affiliated with the AFL by the spring of 1917. When producers refused to discuss grievances the following October with representatives of numerous Gulf Coast locals, a union strike vote resulted in the walkout of approximately 10,000 workers in seventeen Texas and Louisiana oilfields on November 1, 1917. After the strike was more than a month old, and with United States commissioners of conciliation unable to work out a settlement, the President's Mediation Commission, a special branch of the Conciliation Service headed by federal mediator Verner Z. Reed, was called in and given the task of bringing about a settlement. Unrelenting employer opposition to unionism became apparent when producers began spreading the rumor that the Industrial Workers of the World was involved with the oilfield workers. This opposition worked vigorously against the possibility of an equitable settlement of the conflict. Furthermore, the striking oilfield workers proved unable to win support from refinery workers, while the employers' determination to break the strike and destroy the union was single-minded.
These were the conditions confronting Reed and members of the President's Mediation Commission when they arrived in Houston in December 1917. After several brief meetings with representatives of both the producers and workers, Reed, apparently unaware of limits on his authority, issued the commission's report shortly before Christmas. The report reprimanded the union for walking out before giving the government's representatives a chance to mediate, but it also infuriated the producers by agreeing to most of the union's demands. In early January 1918 more than 240 producers, representing 95 percent of area production, met in Houston, organized a formal association of Texas and Louisiana oil and gas producers, angrily questioned the authority of Reed and the commission, and refused to accept that body's findings. In late January officials from the Department of Labor met with union and producer representatives and effected a settlement that supplanted Reed's report. This settlement rejected the eight-hour day, any immediate wage increase, and most other union demands. The final agreement represented a near total victory for the producers and undermined union effectiveness. Nearly one-fourth of the striking workers lost their jobs, and within several months the Gulf and Humble companies granted wage increases similar to the union demand. The union's position was undercut further when some Gulf Coast employers initiated stock-purchasing plans and made company-owned housing available to employees.
Employer solidarity and failure to win the allegiance of refinery workers persuaded Gulf Coast oilfield workers and their California counterparts, with AFL approval, to form a national organization. In June 1918 a charter was issued to the International Association of Oil Field, Gas Well, and Refinery Workers of America. Though the new organization grew rapidly at first, by the early 1920s division between radical and moderate workers, continued failure to win meaningful support from refinery workers, employer-initiated benefits, and a new open-shop movement (the American Plan), combined to render the new union impotent. Such was the status of all organized labor in the 1920s. The labor movement awaited Franklin D. Roosevelt's New Deal.