When we here about 3% raises in union contracts, what does that mean? Seems obvious: people will make 3% more next year over this. But with union contracts, that’s not the case. In most union contracts with which I’m familiar, each position has a defined table of step increases based on years served. When we here about 3% raises, for example, that 3% is being applied to the STEPS not to the people.
For municipal and teacher contracts (Police and Fire contracts can be different–going “up a step” doesn’t occur yearly, for instance), that usually means pre-defined increases for the first ten steps (or years). After that, people are “frozen” at step 10 and continue to receive the annual step 10 escalation (which is basically the publicized % raise we always here about).
To a non-union member of the public, this can be confusing, which isn’t helped by the way such pay increases are routinely reported.
Here’s an example: This chart is for a generic municipal position (fyi: the numbers aren’t real, just an example) based on the tentative agreement in Warwick, with the typical salary/step structure laid out for 2009->2012 based on current salary in 2009, 0% “raise” in 2010 and 2.25% raises in 2011 and 2012.

An actual, flesh-and-blood first year employee makes $30,000 in 2009, $32,500 in 2010, $35,788 in 2011 and $39,206 in 2012. Even if there were no “raises” in 2011 and 2012, that worker would still see raises ($35,000 in 2011 and $37,500 in 2012) as they progressed year-to-year. So, you see, the structure of the steps has a “hidden” raise built in.
Here’s a real-world example. This is the step structure of an old teacher contract from a Rhode Island community.

As you can see, for the most part, the raises for each STEP were uniform (“Step Incr.”). This is what gets reported as the % raise. So, you might hear that the teachers received, on average, a 3.6% raise from Year 1 to Year 2 and a 3.4% raise from Year 2 to Year 3.
But the actual teachers received raises much higher than that (“Real Incr.”). Here’s the same chart, but with the actual year-to-year career path of a sample “rookie” teacher highlighted.

So, moving from Year 1 to Year 2 doesn’t result in the publicized 3.6% raise, but a 12.6% raise, thanks to the built-in Step increases. And so on.
Finally, those outside of the “stepladder” (people with over 10 year service, usually) are “frozen” at Step 10 and receive the % increase that is always publicized (in essence, these are the only employees to which the public number applies). Eventually, they also usually receive a longevity bonus every year, based on how many years they’ve served. As an example, from the same real world contract:

(Thanks to commenters “MikeinRI” and “Patrick” for helping me to clarify my thinking with this!)
ADDENDUM: Bill Felkner from OSPRI passes this along:

When we posted the teacher contracts we did a short analysis of each one, tallying up the step and “raise” – what we found is that the districts average about 10.5% per year. If you go to our fiscal database (http://www.oceanstatepolicy.org/transparency.php) and browse to each district, you will find a category for Contract Evaluation. Click on that and you will see the total step+raise for each one.

Thanks!