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What makes industry ebb - old machines or labor cost?

Five stories high and filled with aging belt-driven machines, an idle New Bedford, Mass., tool and die plant is fast becoming a national symbol of labor militancy.

The reason: Striking members of the United Electrical Workers Union (UE) claim their employer hasn't invested enough money in the plant to keep it competitive with others in the industry. They want not only a wage increase and job-protection guarantee but also a commitment that the plant be modernized.

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The employer, in turn, threatens to close or move the plant unless the UE agrees to a wage cut, rollbacks in benefits, and changes in work rules. If the plant were to be modernized as the union wants, a spokesman says, it would probably have to be at the expense of some of the jobs the strikers want to keep.

The strike has been in progress since May 8. A federal mediator called the two sides back to the bargaining table July 22 after weeks of recess.

In the meantime, the union has appealed to Gov. Edward J. King (D) to try to keep the plant from being moved out of state.

Michael Levin-Epstein, managing editor for labor projects at the Bureau of National Affairs (BNA) in Washington, calls the dispute ''fascinating'' but says it is too early to tell whether it signals a trend in collective bargaining.

BNA associate editor John Schappi notes, however, that ''we've seen bits and pieces of this'' elsewhere.

New Bedford, 60 miles south of Boston, once was the center of the US whaling industry. It now is a manufacturing center, but local unemployment - 13 percent - is among the highest in New England.

The target of the UE strike, Morse Cutting Tool Company, has been a fixture in New Bedford for 118 years. In 1968 it was bought by an absentee corporate giant, Gulf & Western Industries.

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Since 1977, however, according to a study commissioned by the UE last spring, Gulf & Western has spent less than $800,000 on new equipment for the plant, whereas more than four times that amount has been spent on other nearby tool plants owned by absentee firms.

Gulf & Western spokesman Tom Smith claims ''more money has been invested in that facility than we've got back out of it.'' But the company concedes that some newly purchased equipment was transferred to another division.

While most observers agree that Morse products are of high quality, they cannot be produced as cheaply as those made in nonunion plants elsewhere. Meanwhile, the market for cutting tools has tailed off because of the prolonged recession.

Labor costs at Morse are estimated in excess of $13 an hour - $4 more than those of several competitors in the South. At the same time, the average hourly wage in New Bedford is $8.32.

Many of the production workers at Morse are in their 50s and 60s with 30 or more years' service in the company, says UE local union president Rod Poineau.

Poineau claims that Gulf & Western ''would have to spend $3 million to $4 million'' on new equipment to make the New Bedford plant competitive. In the late 1960s, he says, there were plans to build a new plant there but these were scrapped in the face of a national recession.

Says Smith: ''There's very little difference between our machines and those of our competitors. The machinery is in good shape and runs well, which everybody we tell that to tends to ignore. ''

The UE has broadened its campaign by trying to organize a conference of representatives from other Gulf & Western bargaining units around the country. The purpose is to find situations similar to that at Morse and put up a united front so the parent company cannot close them all. To date, no such conference has been scheduled.

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