Proposed Labor Law Overhaul Would Decrease Worker Choice, Increase Union Power

The Center for American Progress (CAP) released a report yesterday that calls for an overhaul of U.S. labor law. It cites increasing income inequality and dwindling union membership as the reason to make a change.

CAP argues that growing income inequality is a problem in itself and that it hurts economic growth. The report lists a variety of statistics to prove its point, including that the top 1 percent of earners have seen their incomes triple in the last four decades. They go on to point out that “the share of the nation’s total income that the middle class receives is about as low as it has ever been.”

In sum, CAP states that the lack of workers’ ability to organize (and the power that comes with it) does not allow them to share in firms’ profits and overall economic growth.

One reason the share of income going to the middle class is declining, however, is that the middle class is getting richer, as shown in a recent Pew Center for Research report. As a Reason article points out:

It is true that the proportion of households that are classified as lower class has increased from 25 percent to 29 percent. But it is also true that the proportion of households that are classified as upper class has increased from 14 percent to 21 percent.

And, depending on who you ask, the answer to how well the middle class is doing is dramatically different. CAP says they are not getting a fair shake for their contributions, but Scott Winship, fellow at the Manhattan Center, points out “middle-class incomes are also at historic highs.”

Further, as Winship also notes, even CAP, in previous work, says that the economic literature surrounding income inequality’s impact on economic growth in developed countries is inconclusive.

However, whether or not income inequality is a problem, the solutions put forth by CAP are unlikely to help anyone.

The CAP plan to modernize labor law includes:

  1. replacing enterprise wage bargaining with multiemployer bargaining for an industry or region;
  2. expanding workers’ voice in the workplace by including organizations such as works councils;
  3. encouraging membership in worker organizations;
  4. and safeguarding basic rights for all workers.

First, they claim that organizing industry-wide as opposed to the firm level is a way to raise wages and gives workers a greater voice. That by allowing unions to negotiate industry-wide would reduce the negative impacts of the “monopoly face” of unions and detrimental impacts of that on the economy.

However, it is unclear from the report whether workers would gain a greater voice or simply be forced into union representation and dues payments.

All told, only around 6 percent of current workers actually voted for the union that represents them. And many of these workers who never voted for union representation live in the 24 states without right-to-work laws, which means they must pay union dues as a condition of employment. In reality, the CAP proposal to permit industry-wide unionization would simply force more workers into a union arrangement that they did not vote for and may not want. That does not seem like the “voice” most workers want.

In contrast, a Clinton era labor law reform proposal could give workers a greater voice without forcing an unwanted third party into the workplace or force expensive union dues on workers.

In 1993, the Teamwork for Employees And Managers Act, or TEAM was introduced that would exempt employee involvement programs, which were set up in the past to deal with absenteeism, no smoking policies, communications, pay progression, and attendance bonuses, from Section 8(a)(2) of the National Labor Relations Act, which prohibits company dominated unions. Unfortunately, NLRB precedent has outlawed many forms of collaboration that were constructed to determine work issues between workers and management without a union presence.

Simply, the TEAM act would allow companies and workers to “address matters of mutual interest (including issues of quality, productivity and efficiency).” This would increase efficiency and worker satisfaction in a more peaceful manner than collective bargaining that inherently brings conflict.

Aside from a stronger worker voice, CAP says that industry-wide bargaining would contribute to raising wages, increase productivity and lessen the usually conflictual relationship between union and employer and bring efficiencies to the decision making process.

But as discussed in the report, unions possess monopoly power. This leads to “uncompetitive pay and inefficiencies that ‘lower the productivity of labor and capital,’ such as through ‘restrictions on tasks performed.’”

So it is unlikely that by giving labor unions greater monopoly power that inefficiencies from collective bargaining would decrease. While in the U.S. industry-wide bargaining is uncommon, it does take place.

For example, the hotel industry in New York City is covered by the Industry Wide Agreement (IWA), which is a multi-employer collective bargaining agreement. The IWA does not cover every hotel like the CAP proposal suggests, but is pretty close as three of every four NYC hotels work under the agreement.

The results from this agreement are not pretty. A Wall Street Journal report on NYC hotels highlights the increased costs associated with industry-wide bargaining:

Labor at union hotel shops is 40% more expensive than at their rival unorganized counterparts, a cost structure that can’t compete except through the enforced monopoly of the IWA. The union enjoys captive employers, above-market wages and work rules that require more workers and thus pad union rolls.

As CAP says in the report “[T]here is a need and an opportunity for a bold agenda that delivers both higher wages and greater productivity.” And that is something everyone can agree upon, but granting greater monopoly power to unions and lessening worker choice is not the way to go to bring about greater productivity and economic growth.