How Railroad Unions Almost Broke the Economy

The narrowly averted strike would have been an economic catastrophe. The story of how we reached the brink of that disaster is an illustrative one.

Freight railroads and unions representing nearly 125,000 workers reached a tentative agreement on a new labor contract that, for now, averts the possibility of an economically catastrophic strike.

The deal itself still needs to be ratified by union members before it becomes binding—and before the possibility of a strike that could have disrupted billions of dollars of daily commerce is put off for good—but both the unions and the Association of American Railroads, which represents the industry, have praised the deal. The details of the contract are not public, but the unions reportedly scored several of their top priorities, including graduated pay increases of 24 percent that will be doled out over several years and an average lump sum payment of $11,000 to all union members (a major carrot to get workers to approve the new deal). Much of the brinksmanship on display over the past week, however, had to do with a demand for paid medical leave—a demand that even the Biden administration opposed for being "too costly"—which was reportedly left out of the final deal.

That a strike was avoided is undeniably the most important thing, given the high economic stakes. But how we got to the brink of a major railroad strike is a fascinating, if convoluted, story as well—one that involves unions overplaying their hand in what they believed to be a favorable political environment, only to discover that Democratic politicians were not prepared to play ball.

This week's labor drama was a crescendo that started building back on June 14. That was the day that the National Mediation Board (NMB), a federal agency that exists solely to facilitate deals between unions and management in the railroad and airline industries, ended mediation between the railroads and the dozen unions representing their employees. The decision to cut-off mediation was an unusual one, and it set up a "ticking time bomb toward an economy-jolting national railroad shutdown," Railway Age, a trade publication, reported at the time.

It also appeared to be a politically motivated maneuver. The NMB voted 2–1 to end mediation, with both Democratic appointees in favor and the lone Republican on the board opposed.

Historically, Congress has had to step in and impose a third-party settlement when there is a breakdown in negotiations between railroads and their workers' unions when a strike looms. By cutting off mediation in June, then, the NMB ensured that a potential work stoppage and any associated congressional intervention would happen before the midterm elections in November.

"Speculation is that rail labor seeks to throw the dispute before Congress while traditionally labor-friendly Democrats still control the House and Senate," explained Railway Age contributing editor Frank Wilner. The unions seemingly confirmed that speculation a few days later with a statement in which they claimed to be "mobiliz[ing] our legislative departments" and "urging our members to begin reaching out to their" members of Congress.

In addition to having Democrats in control of Congress, the unions also likely believed they had an ally in the White House. After all, President Joe Biden scarcely seems to make a public appearance without talking up his pro-labor bona fides.

In both cases, they seem to have miscalculated. The Biden administration did indeed intervene—in August, Biden ordered the creation of an emergency board led by Labor Secretary Marty Walsh to draw up a deal for both sides to consider. That's the deal union members are now voting on, but the unions initially objected to the lack of paid medical leave in the deal.

The paid medical leave policy that the unions sought would be "an overly broad and
very costly proposal," Biden's board wrote in its final report on the agreement. If adopted, it "would create 15 paid days a year that, while nominally labeled as sick
leave days, would be structured to be used on demand as a means of permitting employees to better balance work-life needs and would effectively be personal days."

It was that part of the dispute that finally brought the threat of a strike to bear.

"The Presidential Emergency Board recommendation got it wrong," the heads of two of the unions involved in the dispute said in a statement on September 11. In the same statement, they issued an explicit threat to strike and called for more aggressive government action. "It's time for the federal government to tell the CEO's [sic] who are running the nation's railroads into the ground that enough is enough," they wrote.

Despite that, Congress was prepared to impose the board's agreement on both sides this week, until Sen. Bernie Sanders (I–Vt.) blocked a vote on the resolution. It is, of course, impossible to know if the political calculus would have changed in the event of an actual strike. It's possible that Sanders and pro-labor Democrats would have backed down rather than be blamed for letting the strike disrupt huge swaths of the American economy.

But the Biden administration was clearly not thrilled about that prospect. During a meeting in early September, Walsh reportedly issued a blunt message to union leaders: "Don't mess with the nation's fragile economy weeks ahead of mid-term congressional elections as neither Congress nor the Biden Administration will like it."

"Now the unions are getting a lesson in why government intervention isn't always a good thing," quipped Sean Higgins, a research fellow at the Competitive Enterprise Institute, a free market think tank.

It's a lesson they probably should have already learned. As Railway Age's Wilner highlighted months ago, a similar gambit during the last railroad strike in 1991 ended with Congress voting overwhelmingly against the unions' interests.

Congress may still have to get involved this time, but only if union members reject the tentative agreement. If that happens, it will be in a different political environment, because there will be a mandatory 60-day "cooling off period" before a potential strike. Any congressional action, therefore, will come after the midterms.

But it's probably best for everyone—the industry, the unions, and everyone else who could be affected by a national railroad strike—if it doesn't come to that.