In
light of all the recent discussions about collective bargaining and
public employee unions, I would like to spend a little time
discussing the affects of collective bargaining, and explaining why
collective bargaining by public sector labor unions is not a good
idea.
Collective
bargaining is simply the process by which an appointed entity
(usually a labor union, represented by a handful of officials chosen
by its members) negotiates worker compensation with an employer. The
entity negotiates on behalf of the entire group of workers that it
represents, and each represented worker receives equal pay and
benefits (or an agreed-upon variable pay scale based on merit,
tenure, etc.) under the agreement. Usually this is done on a
contractual basis, where contracts are in force for a certain amount
of time and must be re-negotiated when they expire.
When
unions are allowed to collectively bargain with employers, the
resulting contracts generally guarantee that workers are receiving a
fair share of the income generated by the company. Overall this is
not a bad thing. Satisfied workers are more productive and more
willing to assist the company in efforts to become more profitable.
And when similar union contracts are signed among competitors, these
contracts prevent one company from “cherry-picking” the labor
force of its competitors by offering disproportionate compensation.
Labor contracts also help employers by providing a fixed cost for
labor, thus allowing companies to plan better financially.
Yet
collective bargaining also has serious drawbacks. First and
foremost, it gives unions the power to resist cutbacks and other
austerity measures, even when such measures are crucial for the
financial well-being of the company. During the 1950’s the ‘Big 3’
automakers signed labor contracts with the UAW that were the envy of
America: generous wages, retirement benefits, health care, protection
from lost income due to strikes, accident insurance, extended
vacation and sick leave time, annual cost of living raises, and so
on. At that time, the ‘Big 3’ owned 95% of the domestic automobile
market share. Detroit was literally awash in a sea of money, and
could easily afford that level of employee compensation.
But
the good times didn’t last forever. When the price of oil spiked in
the early 1970’s and the US economy soured, Detroit automakers found
themselves in dire financial straits. Certainly they tbore a great
deal of the responsibility for their predicament – they failed to
listen to their customers and virtually ignored potential competition
from foreign car companies, and they created their own insulated
internal bureaucracy that rewarded company loyalty over merit or
performance.
Yet
when GM attempted to introduce austerity measures and restructure
operations at its massive new Lordstown, Ohio assembly plant in the
early 1970’s, workers viscously revolted, staging wildcat strikes,
taking unscheduled leaves of absence, ignoring build quality on the
assembly line, and in some cases deliberately sabotaging cars.
Discipline was lax because the United Auto Workers protected assembly
line workers from retribution or dismissal by GM. This episode
effectively ruined the Chevy Vega and cost GM over $150 million in
production losses. The attitude of the Lordstown UAW members toward
GM is known today as “Lordstown
Syndrome.”
Although the misbehavior ended, the
Lordsdown attitude continued among UAW leaders and members, who
continually pushed automakers for bigger and more generous
compensation packages. Only within the last two years, as GM and
Chrysler collapsed and had to be bailed out by the government, and
Ford Motor Company suffered a nearly fatal financial code blue, has
the UAW finally allowed car companies to make significant reductions
in employee compensation. (But at the same time, the UAW received a
generous number of shares of “New GM” and Chrysler/Fiat stock;
also, their investments in the old company pension funds were made
whole by the government, and they negotiated a generous “profit
sharing” plan for employees with the new car companies – UAW
workers at the Big 3 are already slated to receive their first checks
based on 2010 company performances.)
Taking all of this into consideration,
we need to ask a tough question: how will the history of union
resistance to austerity measures affect public employee unions, whose
workers are employed by the government, and whose compensation is
funded by our tax dollars?
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