With Labor Power Will Come Labor Responsibility

Dear Oren,

You actually make the argument for sectoral bargaining quite convincingly!  Let me take your points one by one and add some thoughts of my own.

The Case for Sectoral Bargaining

Maintaining competitive balance. As you note, sectoral bargaining tends to “maintain the competitive balance.”  By standardizing labor costs, and the specific contours and details of labor agreements within a sector, firms are free to compete on everything else – the quality of their products and services, responsiveness to customers, price, innovation, etc., but without creating downwards pressure on worker wages and benefits.

This isn’t just good for workers.  It’s also good for the economy.   Workers whose employers aren’t incentivized to constantly find ways of minimizing labor costs will likely be compensated better, which means they’ll be better customers and taxpayers as well, and more able to save for a rainy day, for a child’s education, and for retirement.   Walmart may be famously opposed to unions, but its former CEO Lee Scott was an advocate of higher minimum wages for just this reason – the increased labor costs would be borne by all of its competitors as well, while its customers would have more money to spend at its stores.

Negotiating against themselves. As a long-time labor leader, I have a somewhat different take on your second argument, that sectoral bargaining disincentivizes workers getting “too good of a deal.”  On the one hand, of course this is correct.  When the UAW functionally bargained for all U.S. autoworkers from the 1940’s through the early 1970’s, its leaders had to be mindful of potential inflationary impacts of wage bargaining on the broader economy, and its contract demands related not only to wages but to the price of automobiles.  I have heard northern European union leaders describe the same pressures today, because they see themselves, along with business and government, as the stewards of their national economies, not just as the representatives of employees in a particular “bargaining unit.”

But virtually no-one in the U.S. today was even in the workforce the last time that private sector workers got “too good” of a deal (arguably following the inflationary strikes of the early 1970’s).  We have the opposite problem: union strength is so low that most workers haven’t benefited from the country’s economic growth for decades now.  Shareholders and the C-suite executives, by contrast, do seem to do exceptionally well regardless of the broader economy’s performance.

Sectoral bargaining solves both problems: by making unions co-stewards of the economy, their incentives change from “polishing the apple” and making the lucky few union members even better off, to focusing on the common good for all workers within an industry. (Longtime SEIU leader Andy Stern used to talk about “justice for all” unionism versus “just-for-us” or “I got mine” unionism.)  But more importantly, in my view, nearly universal union coverage helps mitigate the opposite (and today more prevalent) trends of short-termism, financialization, and cost externalization on the part of firms.

Industry self-governance and labor market flexibility.  I must say, you are sounding a lot like Louis Brandeis here, my friend! In the early 20^th century, union organizers and supporters imagined that where there was equivalency of power, workers and managers could solve most problems within their industries and worksites bilaterally, part of a vision of industrial democracy that ran in parallel with political democracy.  Rather than one-size-fits-all regulatory approaches, bargaining counterparts would be free to craft solutions that fit their crafts and industries.   Brandeis helped negotiate a landmark multi-employer agreement that covered the New York garment industry between 1910 and 1916, “the Protocols of Peace,” which explicitly set out to eliminate sweatshops, stabilize wages and prices, and empowered shop-floor labor-management committees to make real-time adjustments to solve problems as they arose at the worksite before they impeded production.  But the agreement ultimately failed in its objectives, in significant part because it wasn’t universal enough, and the standards could still be undermined by non-union employers.

Industry-specific labor-management innovation still occurs today in the few places where unions still have real density and engage in pattern or association bargaining covering a super-majority of employers in their market –the construction trades in many metro areas, the hospitality industry in Las Vegas, the hospital industry in New York, and the home care sector in Washington State (where I was the founding president of the union for those workers).  In these now anomalous examples, the level of partnership between unions and employers is exceedingly high and each party helps the other solve its problems. One CEO with whom I used to sit across the bargaining table described the union as his “most important strategic partner” in addressing issues facing his business and his industry.  But that was only possible because the union represented all his major competitors as well. It would have been nearly impossible had the union and the employers alike been constantly pressured by fissured work in competing franchises, gig platforms, and the like.

Risks: Competition and Sclerosis

You identify two major categories of risk about a potential shift to a more sectoral bargaining model in the U.S. I don’t think either one is unfounded, but that there is encouraging evidence that both can be avoided or mitigated to an extent that makes sectoral bargaining a better bet than either the existing U.S. model or a future with no meaningful collective bargaining.

First of all, you point to risks associated with competition to employers covered by sectoral bargaining agreements from those who are not.   One scenario is that a sectoral bargaining system would be too porous, leaving too many avenues for work to shift to non-union competitors domestically.   The other is that, absent other mechanisms, powerful unions in trade-sensitive sectors such as manufacturing could make U.S. industry uncompetitive globally.

With respect to domestic risk from non-covered employers, you nailed it perfectly when you wrote that “part of the problem with examples of American ‘pattern bargaining’ may have been that the system only went halfway.”  In order for a sectoral system to work, it should be as universal as possible.  If a firm can avoid the costs of bargaining coverage by shifting work to a subcontractor, a franchisee, or a differently-classified worker, then the model struggles. This is, of course, one of the principal weaknesses of the current enterprise- and workplace-based system. In a strong sectoral bargaining system, one important role of government is to guarantee compliance with sectoral coverage.  One could envision a future National Labor Relations Board, no longer burdened with adjudicating representation and decertification cases for tiny bargaining units and endless unfair labor practice complaints, responsible for determining which sectoral agreement most appropriately covers each group of workers.  But however one achieves it, maintaining high levels of coverage is a necessary design element in any sectoral bargaining system.

With respect to global competition, while I’m not a scholar of comparative global labor relations, I find the examples in northern Europe to be compelling.  Germany compensates its autoworkers at double the rate of the U.S., and sells twice as many cars.  In part this is because a powerful union, IG Metall, helps set the compensation standards, and in part because through cooperative works councils, labor and management solve production problems together at the workplace.   Because Germany is the larger manufacturing economy, the unions in Scandinavia benchmark their wage demands to IG Metall’s.

In the U.S., there are already entire categories of manufacturing that have been offshored and are unlikely to return. About 95% of our clothing was domestically produced in 1960, but by 2008 it was about 5%.  But Germany’s heavy industrial sector is significantly larger as a percentage of overall employment that ours in the U.S., which leads me to believe that in the context of a permanent, mature bargaining relationship, labor and management can partner for productivity and growth – a partnership that is hard to envision in the win/lose, adversarial system in the U.S., characterized by high levels of distrust among bargaining parties.

It’s true that we may never be able to compete on the price of fabric, toys, or electronic components with low-wage developing countries, but I’m not sure we need to in order to have a robust manufacturing sector with high levels of employment and family-sustaining wages. Further, as you imply, raising standards for the multiples-larger domestic service sector and the tens of millions of low-wage workers it employs would be bottom-up economic stimulus that doesn’t require a dime in new government program spending.

With respect to “sclerosis,” I do think that, as you write, “assumptions established at a time when competition was not a concern produced institutional inertia that precluded adaptation.”  But sclerosis isn’t a problem limited to unionized companies. Does anyone really blame unions for the downfall of Compaq, Nokia, Blockbuster, Borders or the old IBM? (I hope not – they weren’t unionized!)  And of course everyone can find their favorite example of an outdated work rule in an old union contract (“it cost me $400 to move a potted plant to the conference room”), but it took two bargaining parties to agree to every single one of them.  The lesson here, I think, is more about the need for organizations (including unions) to constantly adapt.   Works councils, a common feature in sectoral systems in Europe, have been credited with helping companies become more productive and adaptive by identifying and solving problems at the point of origin.

If anything, evidence suggests that unionized firms are more productive than non-union firms.  This may be because turnover is lower, workplaces are safer, morale is higher, worker voice is more taken into account , or because union firms invest more in their workforce. It even could be the case, as with UPS, that higher (and more fixed) labor costs provide a strong incentive for companies to adapt and innovate in other cost-saving strategies. In the enterprise bargaining context, of course, it’s also likely that union firms are less profitable than non-union competitors, but that problem is solved with a sectoral approach.

My experience has been that the biggest impediment in the U.S. to the kind of joint labor-management cooperation that we see in Europe is the enterprise bargaining system itself.  By strongly incentivizing both union avoidance and race-to-the-bottom economics, our system virtually guarantees zero-sum adversarialism that makes trust difficult to build and collaboration difficult to sustain.   The best examples of high level collaboration and partnership within the U.S. context occur almost exclusively in high-density sectors and geographies.

I hope I’ve put a dent in some of your concerns.   Looking forward to your response, and to your questions!

Fraternally,

David Rolf