Employee Voice in Competitive Markets

U.S. private sector unionism is in decline. From a high of around 35 percent of the private nonagricultural work force in 1954, unions now represent under 13 percent of private sector workers. Absent reform of the labor relations system, the trend is clear. Unions will remain a significant force in government employment, big-city commercial construction, and certain shrinking manufacturing industries. Aside from these pockets of unionism, however, workplace-based representation of the interests of working people will become a distinctly marginal phenomenon. The prospect of employee voice disappearing in private firms should be a cause for public concern.

A labor-friendly administration in Washington has opened a window of opportunity to revisit basic ground rules. Such openings are rare in our political history and should not be squandered.

The consensus among academic commentators sympathetic to organized labor, such as Paul Weiler of the Harvard Law School and Richard Freeman of the Harvard economics department, identifies employer resistance to unionism as the principal culprit behind the plummeting unionization rate. These writers acknowledge the impact of structural shifts in the economy--the shrinkage in the manufacturing sector and the growth of service industries, traditionally infertile terrain for union drives--but maintain that such forces account for no more than 25 percent of the decline. Rather, they suggest, the dominant explanation for labor's plight is the persistent and emboldened refusal of employers to accept collective bargaining.

Doubtless, employer illegality has played a role, and stiffer penalties are warranted for such actions as unlawful discharge of union organizers. Weiler estimates that 1 in 20 union supporters are unlawfully discharged. Bernard Meltzer and Robert LaLonde at the University of Chicago suggests 1 in 60. Either figure is too high and calls for remedies with "bite."

Weiler's and Freeman's real point, however, is not employer illegality but increased employer opposition--the fact that, entirely within the law, employers are resisting union organizing drives, demanding wage concessions, and utilizing labor law weaknesses that have existed since the very beginning (such as the right to hire permanent replacements for economic strikers).

Although an important factor in union decline, employer opposition cannot be the full story, and it would be a mistake to ground the reform prescription entirely on this diagnosis. For one thing, the shift from a manufacturing to a service economy has eroded the base of the strong industrial unions that previously set the pattern for workers nationwide, even if structural change accounts overall for only 25 percent of the drop in union representation. For example, the Steelworkers Union reports that 500,000 of its members lost their jobs during the past decade, and half of its membership now is drawn from workers outside of the metals industries.

Union organizing efforts have also ebbed. During the 1980s, when the fraction of workers represented by a union dropped a full 25 percent in a single decade, the union victory rate in National Labor Relations Board (NLRB) elections stayed constant at slightly under 50 percent. Yet, the number of elections sought by unions fell from around 6858 in 1980 to 3561 in 1982 and has remained at roughly the 1982 level for the remainder of the decade. From 1982 to 1987, the average annual gain of employees in new units was less than half of the average for 1975 to 1981. Unions are simply not organizing the unorganized to the same extent as before, and hence are not replacing union members lost through structural shifts in the economy or other causes.

Unions are presumably rational actors, and to the extent employer resistance (or other factors) has raised the costs of organization drives, they may well have decided that more could be gained from deploying limited resources in political or other arenas than in attempting to win new members.

There is also reason to believe that traditional unions may not appeal to the baby boomers and to professionals or other "symbolic analysts" (to use Robert Reich's term) in growth sectors of the economy. Moreover, management practices in the nonunion sector are more sophisticated and employee-friendly than may have been true in earlier times. Thus Henry Farber and Alan Krueger, Princeton economists, identify the job satisfaction level of nonunion employees as the principal factor explaining the decline of union density from 1977 to 1991. (This could change, of course, if layoffs by nonunion firms increase job insecurity or unions come to be seen as effective agents for improving terms and conditions in a modern economy.)

But even if, for the sake of argument, we take employer opposition as the principal cause, why is employer opposition on the rise and why has it succeeded in weakening unions? Blame is often laid at the door of the Reagan administration, which was surely hostile to unions, as demonstrated by its firing of air traffic controllers and some of its appointments to the NLRB. But private sector unionism was already in decline throughout the 1960s and 1970s. That was why a major campaign for labor law reform was launched during the Carter years (but could not overcome a Senate filibuster). We entered the 1980s at a unionization rate already down to 20 percent. At the most, Reagan administration policy accelerated the rate of decline.


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SOURCES OF LABOR DECLINE

Something more basic is at work. Labor laws have allowed permanent replacement of strikers since 1938 and lawful employer opposition to union organizing drives at least since 1947. The conflicts of interest between labor and management, and hence the incentive to economize on labor costs, have existed from the start. American managers have never welcomed unions, and yet unions grew from 1935 to 1954 and have declined ever since.

The change in labor-management relations is essentially due to an unleashing of competitive forces in the markets for American products and services. Given a large domestic market and barriers to entry in many industries, unions for years were able to enforce traditional high labor-cost policies across product markets and thus grow or at least maintain their positions--despite hostile, or at best grudging, managements and a relatively toothless labor law. As we enter an era of intense product market competition, however, the underlying strains in the system are now apparent.

The growth of employer opposition (and other causes of union decline) stem from an incompatibility between the premises of our labor relations system and the pressures of competitive product markets. Consider the following features of our system.

First, it is decentralized. Largely because unions seek elections on the basis of the smallest organizing unit, NLRB elections are typically held at the plant level, usually among a subset of the workers--with craft workers and professionals having the right to opt for separate representation. Multi-employer bargaining outside of the construction industry is rare. Union organizers like decentralized bargaining structures, which also ensure a relatively high level of responsiveness to union members.

Second, the system is based on an adversarial model of labor-management relations. Admittedly, the system does not "require" adversarial unions or managements. However, an essential premise of the National Labor Relations Act (NLRA) is that there is a fundamental conflict of interest between labor and management that is thought to require structural guarantees to keep separate their respective spheres of influence. Thus, employers can play no role in forming labor organizations or providing assistance to them. Similarly, the representatives of management, including supervisors and other personnel having a role in company policy, have no right to form unions and are aligned by the statute against the ranks of the organized, largely blue-collar workers.

Third, unions are multi-employer organizations representing employees of competing firms. This makes it very difficult for any firm to share proprietary information with, or to secure variable labor terms from, the multi-employer union. For example, in the still-unresolved Caterpillar-United Auto Workers (UAW) dispute, at stake is not the rather modest economic differences between the two sides. Rather, the union's concern is its ability to maintain "pattern" bargaining--in this case, to impose on Caterpillar the terms agreed to by its less export-sensitive competitor, Deere, and also to preserve that strategy for bargaining with the Big Three auto manufacturers.

Finally, unions are institutionally insecure. In the old days, the competition came from rival unions. This has diminished since the 1954 merger of the American Federation of Labor and the Congress of Industrial Organizations. Today the unions' vulnerability comes from the growing nonunion sector and the various mechanisms for policing union responsiveness, such as decertification elections, the employers' ability to test majority support by withdrawing recognition, and union democracy safeguards. Unions respond to the preferences of long-service workers who are relatively free of risk of layoff because of seniority rules. Absent a palpable crisis threatening the jobs of these union members, flexibility in bargaining objectives and cooperation with management in reducing labor costs are politically unpopular with the rank and file.


WAGES OUT OF COMPETITION?

Nonetheless, for several decades, these features coexisted with union growth and strong unionism. This was largely because unions could credibly promise unionized firms that they would, in due course, organize all firms in the relevant product market, and hence ensure that any gains at the bargaining table would be imposed on all competitors. Consumers might face higher prices, but the union-represented firm suffered no competitive disadvantage.

But the ability of unions to "take wages out of competition" has declined substantially thanks to the competitive forces unleashed by the emergence of global product markets; the deregulation of highly unionized industries such as airlines, trucking and telecommunications; and technological change altering needs for skilled labor and reducing the advantages of local producers.

U.S. unions can no longer guarantee employers industry-wide wage costs. However, to retain the support of their members and attract new ones, many unions must continue to pursue "wage premium" and "job control" policies that raise labor costs in excess of productivity gains attributable to unionization. (The studies of Robert Lawrence now at Harvard's Kennedy School, Michael Wachter of Wharton, and their associates suggest that in some industries the union wage premium actually increases as the unionized proportion of the work force declines.)

Even Richard Freeman's and James Medoff's 1984 defense in What Do Unions Do? concedes that unions reduce profits. The cost of capital increases, and capital increasingly withdraws from the union sector.

Nonetheless, recently such unions as the steel, auto, and rubber workers have reached creative and constructive solutions with managements to preserve jobs and the firms' market position. But these are the unions whose memberships are dropping the fastest, and they have reached these accommodations against a background of forces that spell a diminishing role for unions. To avoid this fate, there must be a change in union objectives, management responses, and, ultimately, the labor-management climate.


THE GERMAN AND CANADIAN MODELS

Labor relations specialists like Weiler and Freeman point to the examples of Canada and Germany, where pro-union labor laws allow strong union movements to coexist with competitive product markets. Germany, however, has a radically different framework for labor-management relations. The Germans have institutionalized their unions through a system of centralized, industry-wide collective bargaining coupled with extension by law of collective agreements to unorganized firms. Union members (defined as dues-payers) represent 40 percent of private sector workers, but union contracts cover over 90 percent of private sector workers. Also, German social legislation--often prompted by the political power of the labor movement--regulates many of the substantive areas handled in the U.S. through collective bargaining. Given the extent of union-contract coverage, the fact that bargaining takes place at the multi-enterprise level and the prominent role of social legislation, collective bargaining in Germany might better be seen as a means of negotiating the rate of inflation for broad sectors, if not the society as a whole.

Most important, the Germans have found a way to reconcile a major union role in setting standards for labor market competition while allowing flexibility in setting a firm's compensation and staffing levels. The industry-wide collective bargaining agreement sets a true minimum--there is no statutory minimum wage--while some 25 percent of average compensation is negotiated as contingent bonus payments with the enterprise-based works council. Notably, the works council represents all of the non-executive employees of an enterprise and is prohibited by law from striking (although resort to a kind of arbitration mechanism is theoretically available).

Despite these structural advantages, German unions have trouble retaining union membership because of the system's serious "free rider" problem. The German system is also facing pressures for change: rising unemployment (from one-seventh of U.S. levels in 1973 to parity with the U.S. by the mid-1980s), as well as joblessness of exceptionally long duration, a growing contingent, part-time work force, and the opening of German production facilities in other countries, such as the proposed BMW and Mercedes plants in South Carolina.

The Canadian experience is more relevant. The labor laws in the Canadian provinces and at the federal sector are markedly more pro-union than our own. Several of the provinces allow unions to obtain bargaining rights on the basis of authorization cards in lieu of contested elections; they also impose arbitration in first-contract situations where the parties cannot reach agreement on their own, and prohibit the hiring of permanent replacements during strikes.

The unionization figures in Canada are twice as high as our own, and despite a decline in the 1970s, appear in recent years to have leveled off or slightly increased. However, Leo Troy, a Rutgers labor economist, argues that the Canadian statistics are misleading because they merge private and public sector employees and include "Crown Companies" that operate largely as government monopolies. His numbers show a decline in private sector union density of 25 percent from 1975 to 1985, once the public sector and Crown Company components are subtracted. In his view, the trend lines for Canadian private sector unions are the same as our own but lag behind ours because Canada shifted to a service economy later than we did. The free trade agreement also will narrow labor-cost differences between the two countries. Canada, too, faces serious economic difficulties, including a dwindling manufacturing base and double-digit unemployment.


WHAT SHOULD BE DONE?

Option 1: Do Nothing. There is a strong case that workers deserve representation. However, the case cannot be persuasively based on unions as agents for a redistribution of wealth from capital to labor. Tax and spending measures are better suited for this purpose than collective bargaining. Whatever force collective bargaining once may have had as a redistributive strategy, unions will have difficulty pursuing traditional wage premium and job control policies in a world of competitive product markets.

It is, rather, the "voice" benefits of workplace representation that argue for reform. To use Albert Hirschman's influential terminology, workers have a need for "voice" because of a limited ability to "exit," as they are rooted in their communities and tied to the firm by training and benefits policies that discourage mobility. Voice is important not only because of the contribution it makes to the dignity and autonomy of the individual worker. Voice mechanisms in the workplace also promote efficient contracts between workers and firms. A meaningful grievance procedure is a "collective good" that individuals are unlikely to secure. In addition, many productivity-enhancing improvements in the workplace are difficult to put in place without a mechanism for representing employees and eliciting their cooperation and trust.

There may also be a direct relationship between the decline of workplace representation and the rise in demand for social legislation. In some cases, as suggested by the debate over workplace-based health insurance, appropriate legislation may be preferable to reliance on the outcomes of decentralized collective bargaining or unilateral employer policies. However, the demand for legislation can also take the form of an ever-growing list of "mandates" that may poorly reflect employee preferences, deter needed job growth, and divert resources to the litigation system. Unions or other institutions for employee voice, when they effectively communicate employee preferences, provide an important alternative to legislation and litigation.

The Wagner Act framework was intended to recognize these benefits of collective representation, but it no longer serves most workers. If we do nothing, unions will keep losing ground, as instruments of voice as well as of redistribution. In the absence of reform, we will be poorer as a society.

Option 2: Allow Collaborative Representation. The National Labor Relations Act prohibits company-dominated or supported "labor organizations." There's a strong case that this should be significantly relaxed. Although the original impetus for this provision was to prevent employers from installing sham unions, the term "labor organization" was broadly defined to include any organization, however informal, in which employees participate for the purpose of "dealing with" their employer.

This prohibition has not spurred union growth and has had largely negative effects. Worker self-determination is hardly advanced by confining the range of options to the limited choice of independent unions or unilateral employer decision making. Moreover, nonunion employers are barred from promoting greater employee participation in workplace decisions.

In 1992, a complaint to the Labor Department caused Polaroid to disband a system of committees in place since 1946 for airing shop-floor grievances and adjusting layoffs and other personnel practices that provided for third-party arbitration at the final step. In December 1992, the Labor Board issued its long-awaited Electromation ruling finding a company guilty of no other impropriety than forming employee "action committees" for joint dealings with management over absenteeism, pay progression and smoking policies. "Employee involvement" programs in both nonunion and union shops are in jeopardy if they stray beyond narrowly-conceived productivity issues to include changes in terms and conditions of employment.

Employers should not be able to establish and dominate representational structures that purport to function as bargaining agents for the employees, so as to deceive employees into believing they are represented by independent unions when, in fact, they are not. But elimination of such deceptive practices should be the extent of the statutory prohibition. Under current social conditions--a better educated work force, minimum wage and other protective legislation, and a rights-conscious legal culture--it is doubtful that allowing consultative arrangements or the use of employee representatives in grievance procedures would prevent employees from freely deciding whether they wish to be represented by an independent union, provided steps are taken to bolster the right to seek independent representation.

Option 3: Emulate the German System. Another approach would be to copy the system of another country that does a pretty good job of reconciling worker representation and firm competitiveness. If we were to adopt the German model, for example, the labor laws might require industry-wide collective bargaining (with extension of collective contracts to unorganized firms), union representation in the corporate board room, and the establishment of works councils at the enterprise level.

By most accounts, German "codetermination"--essentially, the enterprise-based works councils and union involvement on the board of directors--offers a successful model of cooperative labor relations. To the extent existing U.S. labor and corporate laws prevent unions and managements from voluntarily adopting similar institutional arrangements, or unnecessarily promote adversarial labor relations, those laws need to be overhauled.

However, to mandate German-style codetermination in the present circumstances would be a mistake. Works councils cannot simply be imposed on an overwhelmingly nonunion workplace that has yet to develop even a system of collaborative representation. As the French experience suggests, works councils do not work well where unions are weak and centralized collective bargaining has not taken hold. Moreover, for countries like the U.S., where collective bargaining takes place at the plant or enterprise level, a mandate establishing work councils is particularly difficult to reconcile with the existing legal protection to form unions. Our unions understand this and, except for limited-purpose employee committees to address matters such as safety, strongly resist such legislation. And unions cannot just be planted in corporate boardrooms in the absence of a labor-management culture based on cooperation and trust. The groundwork has to be laid before an American variant of codetermination can, if ever, take root.

Option 4: Canadian-Style Labor Law Reform. Should we enact Canadian-style labor laws to strengthen the hand of existing unions? New rules could be put in place to facilitate union organization by permitting certification on the basis of card showings in lieu of elections and using arbitrators to impose labor contracts on newly organized units where the parties cannot reach agreement. We could also boost union bargaining power by allowing secondary boycotts in aid of organizing drives and strikes, and we could ban the hiring of all permanent replacements (and perhaps temporary ones, as in Ontario and Quebec).

However, I prefer to enhance the penalties for retaliatory discharge of union supporters rather than to dispense with NLRB-supervised elections altogether. Except where the employer's illegality has precluded fair election conditions, a secret ballot is still the best way to determine employee preferences. NLRB policy over the decades has recognized that employees often sign cards (even when properly worded) under the mistaken impression that they are merely authorizing an election or simply to avoid a personal encounter with the union organizer. Moreover, the conversation between the employee and the union organizer is understandably one-sided; the arguments against union representation and collective bargaining are not presented.

As for other aspects of the Canadian-style package of proposals, I am skeptical that lasting improvements are possible simply by enacting aggressively pro-union laws that do not take account of the fundamental causes behind organized labor's current weakness. Consider, for example, the AFL-CIO's campaign to secure an absolute ban on the hiring of permanent replacements for economic strikers. Change is needed; an employer should have to show that operations could not be maintained with temporary replacements, and even then should be required to engage in collective bargaining for a significant period of time before resorting to permanent replacements. However, an absolute ban is a mistake. It will help unions prevail in particular disputes, but given the larger forces at work such a law is also likely to worsen the competitive position of union-represented firms, and thus accelerate the de-unionization process.

Option 5: Labor Law Reform for Competitive Product Markets. If labor law reform is to stand a reasonable chance not only of passing but also of promoting employee voice and encouraging a change in labor-management climate, it must take account of existing institutional arrangements. Whatever we may think of, say, the German system, we cannot simply wave the legislators' wand and mandate centralized collective bargaining over minimum terms, works councils in every enterprise, and tripartite labor courts.

Of the premises of the U.S. system, the commitment to decentralized collective bargaining and multi-employer labor organizations seems particularly entrenched. Legal reform can, however, substantially reshape the arrangements that exacerbate adversarial labor-management relations and mitigate the institutional insecurity of independent employee organizations.

The reforms I have in mind would remove legal restraints on the evolution of alternative workplace arrangements; strengthen the union option by stiffening penalties for employer illegality and enhancing union access to workers during organizing drives; and eliminate incentives that contribute to adversarial labor-management relations.

Amend the "Company Union" Prohibition. Under our labor laws, workers must choose between an independent union or no workplace representation at all. Companies that establish representative bodies, whether to hear employee grievances or to elicit employee input into managerial decisions, run afoul of the law. An employer who establishes a German-style works council for employees faces considerable legal obstacles, even if there is a union in the shop. Moreover, unions are skeptical of "employee governance" proposals, in part because--as faculty unions have learned--individual workers who participate in the making or implementation of managerial policy are deemed part of management and excluded from union representation rights.

Alternatives to traditional unionism can never emerge if the law insists on one form of collective representation or none at all. The law should narrow the definition of "labor organization" to reach only bodies that engage in a form of collective bargaining. Coercive or deceptive practices would still be prohibited, and workers would still have the right to seek representation by independent unions.

Stiffen Penalties for Retaliation Against Union Supporters and Enhance Union Access to Employees. To prevent employer-based schemes from becoming mere tools to manipulate workers, the option to choose a union must be a realistic one. Unless firms are penalized for illegal tactics, it is too easy to frustrate employee free choice by firing union supporters.

When pro-union workers are improperly fired, delay in achieving redress can undermine the most determined organizing drive. By the time the case works its way through the appeals process, the original workers are often long gone, and management has succeeded, albeit illegally, in dampening the organizing campaign. The NLRB should be authorized to impose strict penalties to deter flagrant unfair labor practices. The agency should also be able to obtain preliminary injunctions to reinstate improperly discharged union supporters, pending the outcome of later hearings. In addition. Congress needs to make clear that in cases of egregious anti-labor behavior the NLRB has the right to impose an order that the company bargain with a union even without an election, whether or not there has been employee turnover. The Labor Board also should streamline pre-election procedures to ensure that elections are held promptly after a petition has been filed.

In addition, we need to improve the access rights of unions in order to ensure that the NLRB-supervised election provides an accurate poll of employee preferences. Parking lots in shopping malls and department store cafeterias, for example, are generally open to the public and should be available to union organizers for non-disruptive solicitation and handbilling. The NLRB should be authorized to allow unions access to names and addresses well before an election is scheduled, absent a showing of union misconduct and provided the union secures card signatures from 30 percent of the employees.

Encourage Alternatives to Strikes. Strikes are sometimes necessary to resolve disputes but they are often the product of bargaining failures. They promote an adversarial climate, and too often result in pitched battles destructive of entire communities and yielding little social benefit. Reform is needed to improve the flow of information and to encourage the parties to consider alternatives to strikes.

Both workers engaged in a strike and employers responding to a strike should make an informed decision: As a precondition to a lawful strike, all of the employees in the bargaining unit (whether or not they have joined the union as such) should have a statutory right to vote by secret ballot on the employer's final offer and whether or not they authorize a strike.

Interest arbitration--the use of neutral arbiters to resolve disputes over the content of labor contracts--can help too. But while it is common in the public sector, it is rarely used in the private sector and is not within the scope of mandatory bargaining under current law. This barrier should be removed and other incentives to experiment with strike alternatives explored.

Allow Free Collective Bargaining. Existing law draws a sharp distinction between "mandatory" and "permissive" subjects for collective bargaining. Companies have a duty to bargain over such traditional issues as wages, hours and working conditions. But management is not required to bargain over issues affecting control of the scope and direction of the enterprise, such as plant closings or capital investments; nor is the union allowed to strike over such issues. If collective bargaining is to succeed, the parties should be able to shape a deal that meets their needs without government deciding which subjects can be deal-breakers. Such reform might unleash the creative potential of collective bargaining--for example, agreements whereby unions trade flexibility over wages and job-bidding rights for a seat on the corporate board and enforceable guarantees of job security.

Lengthen and Broaden Union Horizons. Labor laws should narrow, not widen, the divergence of perspective between the firm and union. For starters, long-term contracts should be encouraged. The typical term of labor agreements is three years, but lately innovative contracts have broken new ground. The Steelworkers Union-Magna Copper contract runs for 15 years (with provision for interest arbitration at five-year intervals) and the union is pursuing long-term agreements in current talks with major steelmakers. Employers should be allowed to waive by contract their (not the employees') right to challenge the union's authority for any agreed-upon period.

Current law also encourages information hoarding rather than sharing. Constructive bargaining over major corporate decisions, such as plant closings, is hampered by doctrines penalizing candor and excluding subjects affecting job security from information sharing and bargaining duties.

If the parties have learned to work together, here too they can negotiate around the law. For example, the agreement between General Electric and the electrical workers union (IUE) provides for advance notice and consultation rights over plant closings and use of subcontractors. But the law can help reverse the distrust that mars other relationships. An employer should be required to give advance notice of and consult with the union over major investment decisions, plant shutdowns, and so on. Meaningful reform must also address legitimate employer concerns, by preventing unions from using disputes over information to protract bargaining and from sharing proprietary information with rival firms or the general public.

Promote Union Institutional Security. Responsible unionism requires institutionally secure unionism. UAW's innovative agreement with GM's Saturn division was negotiated before any of the employees were hired for the new Tennessee facility. By stipulating to the UAW's bargaining authority in advance, the Saturn management encouraged the union to experiment with broadened job classifications and a participative "team structure" at variance with the national UAW-GM agreement.

Saturn's success should not obscure the fact that this agreement was of questionable legality under the NLRA. The law should encourage, not hinder, labor-management cooperation experiments in new plants by relaxing the prohibition of pre-hire agreements with an opportunity for a later secret-ballot poll of the affected employees.

Employers should not be able unilaterally to withdraw recognition from unions. Current law allows the company to claim that the union no longer represents the members and to stop bargaining with it as soon as the current contract expires. Such a move risks unfair labor practice charges, but in the three years it takes to resolve the issue the union may be gone. The law should require a secret-ballot NLRB election to determine employee wishes before the firm may withdraw recognition.

Under current "successorship" doctrine, union workers can lose their jobs if a firm purchases their employer's assets but not their employer's stock. The rule should be changed to ensure that firms that buy company assets maintain the same work force, even if they do not purchase stock as well.

Finally, the NLRA authorization for states to enact "right to work" laws (Section 14b) should be repealed. Right to work laws permit those who benefit from unions a "free ride," thus hampering unions' effectiveness as bargaining agents.

Lengthen and Broaden Employee Horizons. Tax laws should promote "gain sharing" and profit sharing in compensation packages as a way to enhance worker productivity and to facilitate job stability during difficult economic times. Employees and unions understandably resist productivity improvements that may cause job loss. To promote greater receptivity to changes that will improve the health of the firm and, in the long run, the competitiveness of U.S. industry, public policy must address the problem of job security. The government should make job transition easier, by offering relocation assistance and retraining workers for employment in growing sectors of the economy.

Lengthen and Broaden Management Horizons. Management attitudes and practices also need overhauling. We must prevent companies from using the "quick fix" of hiring permanent replacements during a strike. Replacing striking workers with permanent employees short-circuits the company's incentive to continue bargaining. The company has a legitimate need to keep operating during a strike, but it can usually meet this with temporaries. Even where this cannot be done, companies should have to wait six months before permanently replacing strikers, as was the law until recently in Ontario.

Many states prohibit direct representation of employee interests on corporate boards. Federal law is needed to allow union-management agreements providing for employee directors. The secretary of labor and the president could use their bully pulpit to promote changes in labor-management culture. The government could publicize employee involvement programs in which unions have played an integral role, such as those between Xerox and Amalgamated Clothing Workers and AT&T and the Communications Workers.

Finally, we need to change stock market incentives that promote labor-management antagonism. Management's obsession with short-term share price spurs work force reductions that undermine the atmosphere of trust essential to cooperative unionism, wage flexibility, and long-term productivity. The debt-load legacy of the 1980s suggests that the benefits of the market for corporate control are vastly overrated. Tax and corporate law rules need redirection to promote longer term perspectives.

There are bright spots in the current scene--employee involvement programs in the nonunion sector and labor-management cooperation experiments in one-time mass production industries eliciting the guarded approval of unions like the UAW, Steel Workers, and Rubber Workers. We need a revitalization of our labor laws--one responsive to the forces of competitive product markets--so that collective voice for employees in high-quality firms becomes the norm and not the exception.

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