Checking Workers, Binding Employers

Union bosses will be the only winners under the Employee Free Choice Act

Shikha Dalmia | July 20, 2009

Big Labor is on a roll. With the installation of Minnesota Democrat Al Franken to the Senate, and another change of heart by Sen. Arlen Specter, the misnamed Employee Free Choice Act (EFCA) has just scored two more votes. To secure the remaining votes for a filibuster-proof majority, unions staged a massive rally in Arkansas to pressure Blanche Lincoln, the state's Democratic senator who has withdrawn her support for the bill, to pull a Specter and change her mind yet again.

Arkansas is ground-zero for unions because it is a right-to-work state with low union enrollment. EFCA's elimination of secret ballot elections for unionization has garnered most of the critical attention. But the bill contains another controversial provision: compulsory arbitration. This would be no less destructive to the rights of employers and workers, and the economy as a whole. Exhibit A: Michigan.

In 1969, the Wolverine State embraced a form of compulsory arbitration nearly identical to the one proposed in EFCA to resolve disputes with its police and firefighters. Years later, Detroit mayor Coleman Young—who had authored the original law as state senator—rued what he had done. "We now know that compulsory arbitration has been a failure," he lamented to the National Journal in 1981. "Slowly, inexorably, compulsory interest arbitration has destroyed sensible fiscal management and has caused more damage to the public service than the strikes it was designed to prevent."

Most citizens agree. Just seven years ago 54 percent of Michigan voters turned down a union-sponsored ballot proposition to extend compulsory arbitration to all state employees. Nearly every newspaper in the state—liberal and conservative—editorialized against it. Why?

Under normal circumstances, when employers and workers negotiate an initial contract they are required by law to bargain in good faith until they come to an agreement. If they reach an impasse, workers can call a strike. But because a strike is costly for both sides there is a strong incentive for them to concede as much as possible to reach a compromise.

However, since emergency personnel—firefighters, police and the like—are barred from going on strike in many states, about 20 states have embraced some form of compulsory bargaining. If the two sides can't agree on a contract within a prescribed time, either one can invite a three-member panel jointly selected by the union, city, and the state government to intervene and impose a settlement.

This process is supposed to install a contract expeditiously. But a review of 29 arbitration cases in 2005 and 2006 by the Michigan-based Mackinac Center for Public Policy found that the average time involved in a case was almost 15 months—not the four-and-a-half months that the law prescribed, defeating its whole purpose. Moreover, because an arbitration board doesn't have to live with the consequences of its decision, it has no reason to come up with a workable solution—just one that is politically expedient.

Thus a board, convened at the request of Detroit police and firefighters in 1978, ordered the city to pay $46 million in cost-of-living adjustments. This destroyed the city's already fragile budget, ultimately triggering layoffs of a quarter of its police force. The police eventually accepted a three-year wage freeze in 1981—but not before the crime rate, which had been falling before the layoffs, began soaring again.

Compulsory arbitration also nudged other Michigan cities, including the working-class towns of Hamtramck and Highland Park, into bankruptcy. In 1999 an arbitration panel awarded Hamtramck police officers $2.1 million in pay raises and back pay, pushing it into state receivership. Under receivership, which is only used in extreme situations, the state government takes over the city's finances and appoints its own manager to run the city. Hamtramck was ultimately forced to impose a combination of service cuts and tax increases, all of which accelerated the exodus of its residents. Highland Park, wishing to avoid similar arbitration, gave its public safety officers raises it couldn't really afford and was also forced into receivership.

A 2006 task force convened by Gov. Jennifer Granholm, who supports compulsory arbitration, found that local government costs in arbitration states are 3-5 percent higher compared to nonarbitration states. "While small in percentage terms, the impact in dollar terms is huge," the task force concluded. Given that local governments in Michigan alone spend over $23 billion annually, this works out to over a billion in extra spending for them.

Michigan's experience is hardly unique. Former Massachusetts Gov. Michael Dukakis also tried to limit public-sector compulsory arbitration during his first term. In 1977, Mr. Dukakis argued that compulsory arbitration "has removed legitimate management prerogatives in the area of staff assignments, (and) transfers from the control of municipal officials at a time when they are under severe pressure to improve their management and make savings." Mr. Dukakis failed to stop compulsory arbitration, but two years later Massachusetts voters approved a ballot initiative that effectively scrapped it.

Should EFCA pass, the costs of compulsory arbitration in the private sector will dwarf those in the public sector. That's because businesses, unlike government, can't just bill taxpayers to pay off unions. They have to compete.

In a dynamic economy, a business's survival depends upon its ability to constantly cut costs and innovate. But a company forced into binding arbitration will be frozen for two years (the duration of the initial contract) from making any changes to any aspect of its business that is covered by the contract. Literally every issue—from its 401(k) contributions to its reliance on outside labor—could potentially become subject to review by a government panel that has neither the company-specific knowledge nor the incentive to turn a profit.

Businesses are not the only losers in compulsory arbitration. Currently, any contract negotiated by union officials has to be ratified through a vote of rank-and-file members. Under compulsory arbitration, workers do not get this vote. In other words, the card check provision in EFCA will take away the right of workers to vote to form a union, and the binding arbitration provision will take away their right to vote on a contract.

The only clear winners under this law would be the union bosses, who will obtain new powers without any new accountability. If Michigan's experience suggests anything, it's that rank-and-file workers, businesses, and the American economy will suffer. Sen. Lincoln and her colleagues should bear this in mind before they make their final decisions.

Shikha Dalmia is a senior analyst at Reason Foundation and a Forbes columnist. An earlier version of this column appeared in the Wall Street Journal.

Comments

|7.20.09 @ 4:35PM|#

My understanding is that card check is out of the current bill.

But compulsory arbitration is as bad or worse. Basically, it amounts to having the government directly set wages in any union shop.

No, nothing socialistical-lefty-central-planning there. Nuh-uh.

Barry Loberfeld|7.20.09 @ 4:38PM|#

Instead of "allowing" workers to have an open ballot to see if they want a secret ballot, why not let them have a secret ballot to see if they'll vote for an open ballot?

|7.20.09 @ 4:47PM|#

The head of the PCUSA is on record as saying, on behalf of the denomination's Washington office, that not having the EFCA is incompatible with God's plan for humanity.

|7.20.09 @ 4:57PM|#

I could have sworn I've read this exact article before. Weird.

The Gobbler|7.20.09 @ 4:59PM|#

"With the installation of Al Franken in the Senate and yet another change of heart by Sen. Arlen Specter, Democrats might well have a filibuster-proof majority to secure the top item on Big Labor's wish list: The Employee Free Choice Act (EFCA)."

Does that include the vote by a dead Kennedy*.

*"This one's not dead yet."

"Well...he was coughing up blood this morning."

|7.20.09 @ 5:00PM|#

Oh, right. Here, which I thing was already linked to by Reason. Still, keep up the good fight.

|7.20.09 @ 5:03PM|#

But compulsory arbitration is as bad or worse.

Is it only bad in the context of unions vs. their employers? Or do you feel that way about the mandatory arbitration my Credit Card, Cell Phone and many other private businesses that consumers contract services with demand?

If mandatory arbitration is good for Chase, and AT&T why is it bad for unions and government? Or is mandatory arbitration only bad when the wrong party comes out on top (in this case the union members -- police firefighters etc)?

|7.20.09 @ 5:06PM|#

If mandatory arbitration is good for Chase, and AT&T why is it bad for unions and government?

Ummmmm.... Because govt doesn't FORCE you to have a Chase credit card?

|7.20.09 @ 5:08PM|#

That is probably the dumbest thing you have ever written Tom. There is a bit of a difference between the government mandating wage and benefits for entire industry and you having to go to arbitration over whether that $400 strip club charge on your AMEX is legit.

I mean Jesus Tom. That is just pathetic.

EscapedWestOfTheBigMuddy|7.20.09 @ 5:10PM|#

Tom,

In the case of your bank and cell phone company, the arbitration is contractual: you agreed to it.[*]

In the case of the proposed bill, the arbitration would be imposed at the point of a gun. Which really is different.



[*] And I know, the whole industry likes it, so there are few or no choices. But if there was a viable alternative approach, you would expect someone to offer it, so the question is: "How much would you to (each month) to have that clause gone from the contract?" and the followup question is: "Have you looked for such a thing in particular?" If not, you don't actually care enough.

|7.20.09 @ 5:11PM|#

Card check is dead.

|7.20.09 @ 5:25PM|#

I guess I really don't understand what is so bad about binding arbitration? (Or at least the aspects discussed in this article)

Arbitration only kicks in when both parties can't reach an agreement. How do you propose resolving the impasse without binding arbitration?

In a dynamic economy, a business's survival depends upon its ability to constantly cut costs and innovate. But a company forced into binding arbitration will be frozen for two years (the duration of the initial contract) from making any changes to any aspect of its business that is covered by the contract.

How is this any different than a business who agrees to a labor contract and then their business starts to go south and now isn't happy with the contract?

|7.20.09 @ 5:30PM|#

Ummmmm.... Because govt doesn't FORCE you to have a Chase credit card?

The government doesn't force anyone into a union either.

And in fact the type of binding arbitration that EFCA would mandate is nowhere near as bad as the bullshit consumer arbitration clauses. The EFCA would allow both parties to pick a member of an arbitration panel. Consumers don't get that luxury.

The EFCA arbitration clause seems pretty fair to both parties(and much more fair than what libertarians support for consumers)

EscapedWestOfTheBigMuddy|7.20.09 @ 5:36PM|#

The government doesn't force anyone into a union either.

No, the government just forces the owners of the business to deal with the union.

It is as if the government came along and said: "Tom, 'ole boy. You will get you cell services from BigMuddy wireless. Or else."

|7.20.09 @ 5:38PM|#

The government doesn't force anyone into a union either.

Bull. Shit.

|7.20.09 @ 5:42PM|#

Bull. Shit.

I suppose all that forced union membership is why union membership is at an all time low and keeps getting lower and lower?

|7.20.09 @ 5:43PM|#

ChicagoTom, it's in the article:

In 1969, the Wolverine State embraced a form of compulsory arbitration nearly identical to the one proposed in EFCA to resolve disputes with its police and firefighters. Years later, Detroit mayor Coleman Young-who had authored the original law as state senator-rued what he had done. "We now know that compulsory arbitration has been a failure," he lamented to the National Journal in 1981. "Slowly, inexorably, compulsory interest arbitration has destroyed sensible fiscal management and has caused more damage to the public service than the strikes it was designed to prevent."

In other words, it sounds like a good idea, but doesn't work well (from the taxpayer's point of view, at least).

|7.20.09 @ 5:45PM|#

ChicagoTom, look up the definition of "closed shop." And the reason union membership continues to shrink (outside of government employee unions) is that unions tend to kill the industries they organize: steel, railroads, automakers, etc.

|7.20.09 @ 5:47PM|#

And the reason union membership continues to shrink (outside of government employee unions) is that unions tend to kill the industries they organize: steel, railroads, automakers, etc.

And employers leave states that enforce union wishes. Go buy a $7000 house in Detroit if you don't believe me.

|7.20.09 @ 5:48PM|#

And I know, the whole industry likes it, so there are few or no choices. But if there was a viable alternative approach, you would expect someone to offer it, so the question is: "How much would you to (each month) to have that clause gone from the contract?" and the followup question is: "Have you looked for such a thing in particular?" If not, you don't actually care enough.

At least you're honest enough acknowledge that most consumers don't have a choice.

And there are viable choices. Manadatory Consumer Arbitration is a relatively recent phenomenon. The reason why businesses prefer it over the viable options (like going to court) is because the deck is stacked against the consumer. The business picks the arbitration company (who presumably wants more business from said company in the future -- and that wont happen if they rule against the company), the business picks the location (they can make the consumer travel to any state on their own dime) and the arbitrators are unaccountable to anyone. The whole system is rigged to favor the company over the consumer, regardless of the facts (which is why many appeals courts have recently started void some mandatory arbitration clauses and overturning arbitrators rulings)

So my choices are live without a credit card (not feasible in America today if I want to book a flight or rent a car, or do any number of things), or take the ass fucking that is binding arbitration? If consumers have to live with it, business should have to live with it too.

If consumers have to live with it, I am not gonna shed a fucking tear that businesses and unions have to deal with it too. They deserve a taste of their own medicine.

|7.20.09 @ 5:55PM|#

ChicagoTom, look up the definition of "closed shop." And the reason union membership continues to shrink (outside of government employee unions) is that unions tend to kill the industries they organize: steel, railroads, automakers, etc..

So the reason why these industries closed is unions? That's what you are going with?

Despite the libertarian (and club for growth) fairy tales, Chrysler and GM didn't fail because of the unions. (Isn't Ford unionized??) They failed because they had piss poor management and no fucking vision. They were dinosaurs whose best days of innovation were behind them.

Even in the absense of unions, the steel mills were gonna close -- one could argue that globalization and free trade killed those industries.

The Gobbler|7.20.09 @ 5:56PM|#

"I suppose all that forced union membership is why union membership is at an all time low and keeps getting lower and lower?"

If unions are so great, then why do you think Americans don't want to be in unions, Tom? That's the question you should be asking.

My answer would be that unions are selling a very shitty product that only the infirm or feeble would buy.

|7.20.09 @ 5:57PM|#

In other words, it sounds like a good idea, but doesn't work well (from the taxpayer's point of view, at least).

I don't think it's a good idea for mandatory arbitration for all industries. I would prefer the union to strike, and then they can play their game of chicken.

But when certain public sector jobs aren't allowed to strike? Then what? Then the employer holds all the cards. If you aren't allowed to strike, then you should binding arbitration is appropriate.

EscapedWestOfTheBigMuddy|7.20.09 @ 5:58PM|#

Tom,

This is your chance to make your fortune. You've identified an under-served market. All you have to do is exploit it.

Hell, with the economy on the cusp of a recovery (or borrowing driven stagflation), this is good time. Get a business plan together and approach a VC group. You can be the [Southwest Airline|Jet Blue] of credit cards or wireless, or whatever.

And I'm not being facetious. I would really like to trust a Credit Card company. I'm not quite as desperate on the cell phone front, but I'm not really happy with my current provider there either.

So bring it on.

But you're going to have to deal with a certain amount of fraud and misuse from your costumer base, so be sure to plan for that.

|7.20.09 @ 6:04PM|#

If unions are so great, then why do you think Americans don't want to be in unions, Tom? That's the question you should be asking.

Do Americans really not want to be in a union? Or do most americans feel they are being treated fairly and don't have a need for them?

As someone who works in a white collar profession the reason I don't care about being in a union is because my employers have traditionally given me a good salary and good benefits. But if my employer were to start doing stuff I and my co-workers disapproved of and told us to take it or leave it, we would consider it.

|7.20.09 @ 6:49PM|#

Of course the management of the Big Three are not without blame, but management and their decisions are relatively easy to change. Union contracts and Wagner Act work rules are not. And saying "globalization and free trade killed those industries" just goes to my point: when the foreign competition got tough, U.S. unions were too sclerotic and inflexible to adapt. The UAW seems to prefer that GM and Chrysler die rather than adjust wages and work rules to match the transplant factories.

But when certain public sector jobs aren't allowed to strike? Then what? Then the employer holds all the cards.

Ahahahaha! Right, all those poor public sector workers, who these days have wages and benefits and pensions and job security that most of us can only dream about, must be quaking at their desks in fear of their meany bosses who can rarely even fire them for cause!

Sean W. Malone|7.20.09 @ 7:28PM|#

Besides - who's not "allowed" to strike... Anyone is allowed to do that - I'm allowed to do it today. I'd either get fired or convince my boss that my complaints are worth looking into. At least I recognize that I'm not owed a job.

Please enter a name before sub|7.20.09 @ 7:28PM|#

"Do Americans really not want to be in a union? Or do most americans feel they are being treated fairly and don't have a need for them?"

Mountains of both. Unions are an anachronism.

|7.20.09 @ 8:25PM|#

Yes card check is dead thank you. Dailykos of course absurdly put it like this...

"So it looks like the Moderate Democrats in the Senate have screwed the American People again with their threats and whining that 'The little people are going to gain an upper hand against those wittle Powerful Corporations'."

Yes it's all about us little people right? Us little people who just loved being asked to sign for the union by goons with tire irons. It couldn't possibly be entirely about union power, at the expense of the little guy could it? Thank you blue dogs and moderates. My knee caps thank you too.

|7.20.09 @ 10:40PM|#

I guess I really don't understand what is so bad about binding arbitration? (Or at least the aspects discussed in this article)

Arbitration only kicks in when both parties can't reach an agreement. How do you propose resolving the impasse without binding arbitration?

Are you really this dense? Arbitration will virtually always kick in when the unions know they can get a sweetheart deal from the arbitrator. This is exactly what happens here in Hawaii. The unions don't even attempt to resolve matters outside arbitration.

Why negotiate when you can get the government to force a settlement in your favor, essentially at the point of a gun?

|7.20.09 @ 10:42PM|#

Arbitration only kicks in when both parties can't reach an agreement. How do you propose resolving the impasse without binding arbitration?

It's called negotiation. If they can't agree, the union can strike -- and management can tell them to bugger off -- and whoever needs the contract more can give in first.

qwerty|7.21.09 @ 1:24AM|#

Employee Free Choice Act

Orwell himself couldn't have come up with a better name. Perhaps the agency that enforces it will be called the Department of Liberty.

|7.21.09 @ 2:53PM|#

Do Americans really not want to be in a union? Or do most americans feel they are being treated fairly and don't have a need for them?

That's not the point. If people want to join unions they shouldn't be prevented. If people don't they shouldn't be forced to. If a business and a union want to make a deal they should. If either does not they should not be forced to.

Your problem is you don't see that a union is a business. It tries to corner the labor market in a given context. There's nothing intrinsically wrong with that so long as the government doesn't abet the monopoly. When it does you have usurped a person's right to choose and you have resource misallocation and the business suffers. No different from government abetting a job monopoly of an employer, as used to happen.. and the legitimate purpose of unions was to contest those monopolies.

If you don't understand what a union actually is you really can't really comprehend the issue you are attempting to understand.

Government enforced monopolies and monopsonies are the problem. Regardless of the commodity.

Dan Clore|7.22.09 @ 8:53AM|#

Readers might also like to consult my Nolan Chart column "A Libertarian Alterntative to the EFCA":

http://www.nolanchart.com/article6060.html

|7.22.09 @ 1:47PM|#

That's a bad idea. There's nothing preventing a union from existing. Also you are granting incorporation to one business (the union) but denying it to another.

Why not then deny incorporation to a union who rejects a deal offered by an employer? It's just as arbitrary as your proposal.

The government just needs to get out of the business of propping up business. A union is simply a business that provides labor, nothing more. Why would you grant government monopoly to that business over the smaller business.. the individual worker who wants to provide better quality for less?