New York MTA Contract Negotiations Show Dangers of Binding Arbitration

In most jurisdictions, government employees responsible for public safety and other essential government services are not allowed to strike. In exchange for unions giving up the strike weapon, states and localities have agreed to submit such union contract negotiations to a third party arbitrator in case of an impasse.

This has proven a bad deal for taxpayers, as government employee unions have used the binding arbitration process to gain ever more generous pay and benefits. That’s because an arbitrator will never give anything less than management’s final offer. So, even when local elected officials do not agree to more generous compensation, the union comes out ahead.

This scenario now threatens New York City’s Metropolitan Transit Authority (MTA), whose contract with Transport Workers Union Local 100, covering 38,000 bus and subway workers, expires on Sunday. New York, like other localities in the current struggling economy, needs to find savings, and labor costs account for 70 percent of the budget. So what is the union to do?

The Manhattan Institute’s Nicole Gelinas presents a possible scenario in The New York Post:

A walk-out like that of December 2005 would be illegal. Last time around, as punishment, the union lost its right to automatically collect dues from workers’ paychecks, which crippled union finances. A repeat offense so soon makes it less likely the courts would restore those privileges after just a couple of years, as they did last time. And public support is hardly assured.

Yet the MTA might still snatch defeat from the closing doors of victory.

How? By agreeing with the TWU to disagree, and sending the whole thing to an independent “arbitration” panel. That’s how the last contract came to pass — which allowed for 11.4 percent raises over three years, even though inflation has been less than half that.

Binding arbitration essentially gives union negotiators a backup tool for maintaining the upward ratchet effect on wages that government unions generally create. As long as it remains an option, state and local governments will continue to face needless difficulties in bringing their finances into order. (Thanks to Iain Murray for the NY Post link.)

For more on public sector unions, see here and here.