To Honor Labor, Rethink Unions

Lupe Martinez was a cook at the beachfront restaurant where I worked as a waiter after college. Late one night, my manager asked me to escort a routine drunk to the parking lot, where Lupe was taking his cigarette break. When Lupe saw the guy threaten me with a knife, he rushed over, howling and swinging his belt. The sight of a dervish in kitchen whites sent the frightened drunk stumbling to the beach unhurt. We were still laughing when our polyester-suited boss appeared. He fired Lupe on the spot.

Organizing a union to avenge Lupe’s firing launched my unlikely career. I spent the next decade organizing hospitality, hospital, and factory workers. After I became a machinist in a Sunnyvale defense plant, I tried to organize the early tech companies that sprouted in the orchards of Silicon Valley. One of my flyers denounced the brash CEO of a nearby computer company as “Nonunion Jobs.”

Struggling to help manufacturing companies laid low by the early-1980s recession, I discovered how little we understood as labor leaders about business strategy, operations, or finance. So I got an MBA, went to work at McKinsey, and learned enough about business to advise struggling unions. In 1993, President Bill Clinton appointed me to create the Office of the American Workplace and lead it as Assistant Secretary of Labor. Following Senate confirmation, I visited workplaces around the country and met with thousands of workers and hundreds of union leaders and managers.

The modern economy bears little resemblance to the one in which Lupe scared off a menacing drunk 50 years ago. Wages have stagnated, income inequality has grown, and millions of jobs that once supported families have become precarious. Recent successful organizing campaigns, new contracts with major wage increases, and rising popular support for unions have not made a dent in the seven-decade decline in worker power. In 1954, 35% of private sector workers belonged to unions. Today it is 6% and falling. This is less than half the pathetic rate that moved Congress to pass the National Labor Relations Act (NLRA) in the first place.

We are poorly served by an economy that has grown hostile to worker power. Even though unions can undermine workplace trust, protect poor performers, and stifle innovation, there are very good reasons to reform and revive them. Most economic research finds that unions increase pay for the lowest paid workers, thus moderating income inequality. Unions produce spillover effects like the pay raises given to nonunion auto workers following the recent UAW contract. If growing income inequality fuels many other cultural and political pathologies, unions are worth rethinking, and other labor market institutions worth building. Policymakers across the political spectrum should place a high priority on creating a legal framework that enables unions to grow, mobilize, and contribute in ways our current laws have never contemplated.

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Progressives have a reflexive, two-part explanation for why private sector unions collapsed. First, companies moved factories offshore. Then they broke the law to prevent new unions from organizing. There is abundant evidence for this account—but it’s not the entire story. It overlooks how both our legal architecture and union practices restrict union growth. It pretends that, but for management misconduct, laws written for the 1930s might somehow work in an economy that is radically digital, distributed, and diversified.

Congress built the NLRA on three assumptions that now weaken private-sector unions. The NLRA assumes that companies are nonunion by default, unless workers “organize.” It fragments bargaining by limiting it to a subset of workers in a single workplace within a single company. And it grants unions exclusive bargaining monopolies that limit worker choice and permit labor federations to restrict competition between unions.

The Nonunion Default Excludes Most Low-Income Workers

Under the NLRA, every company is nonunion by default. Owners, however, enjoy automatic representation. Investors (who hold their shares for ten months on average) have board representation and the right to a vote on important issues. We do not force investors to “organize” to secure these rights. Workers, who typically remain employed for more than four years, must win an organizing fight for representation if they want to bargain pay collectively. This requires them to instigate an industrial insurrection.

Union organizing is a brawl—surely one of the least productive activities ever encouraged by federal law. It almost always comes as a response to terrible managers like my boss who fired Lupe. Workers I helped organize were incredulous to learn that merely to confront arbitrary managers and bargain their pay as a group, the law required them to win a war at work. Organizing campaigns turn friends into enemies. They reduce trust, an irreplaceable asset in modern workplaces. They promote combative personalities into union leadership and often into management. For most workers, it is easier to change jobs than to join a union fight.

Union organizing is expensive and does not scale. Campaigns can easily cost more than the workers they organize will pay in dues. As a result, unions organize small groups that total between 40,000 and 90,000 private sector workers each year. This rounds to zero in a private-sector labor market of 135 million workers. Votes to unionize at 481 Starbucks cafes are impressive, but Starbucks operates 16,482 cafes in the United States. Reforming our laws to increase organizing tenfold would not improve the lives or paychecks of most American workers. And the process is a bureaucratic nightmare. The National Labor Relations Board struggles to keep up with today’s trivial levels of organizing.

Not every employee needs a union. Workers with distinctive skills, experience, and relationships have the market power to bargain their own pay. They are especially common in tradable sectors like technology, research, finance, and professional services. But about 70 million Americans earn less than $25 an hour (most earn less than $18 an hour). They concentrate in lower productivity, non-tradable sectors like health care, retail, construction, hospitality, education, government services, transportation, and distribution. Brookings finds that low-wage workers are more likely to be parents and are usually the sole earners in their families.

Fragmented Bargaining Weakens Unions

The NLRA allows a union to bargain only for a subset of workers within a single company. The National Labor Relations Board (NLRB) decides which workers share common interests. They have no idea. Many bargaining units are gerrymandered compromises between unions and companies trying to win a representation election. This process is bureaucratic and often makes for silly decisions, as when the NLRB created a unit of perfume counter sales staff separate from the store’s other retail employees.

Fragmentation undermines solidarity, the virtue that unions prize above all others. Unions tolerate this because tiny bargaining units are easier to organize (half of all NLRB bargaining units last year contained fewer than 21 workers). Fragmented bargaining is poorly designed to address employee concerns, which occur at three levels: at work, company-wide, and by all companies in a sector. Scheduling and workplace issues need to be addressed on the job. Policies that govern multiple workplaces within a company need the attention of senior managers or boards. And wages, training, and skill standards that affect all companies in an industry are best worked out at the sector level.

The NLRA is not designed for this. It has declared workplace consultative arrangements like European works councils an unfair labor practice. It rarely lets unions bargain for all employees in a company like Starbucks that has many locations. It never enables unions to bargain for all workers in a sector. It has no ability to assign labor a seat on a company board.

Labor Monopolies Deny Worker Choice and Dampen Innovation

The NLRA not only fragments workers into tiny bargaining units, but also imposes one-size-fits-all representation. When workers vote for representation, the NLRB grants the union an exclusive bargaining right—meaning that no other union has a right to negotiate for these workers. Exclusive bargaining restricts worker voice and reduces worker choice. It has done serious damage to the cause of organized labor.

Workers vary a lot, and so do their preferences. Given a choice, many employees will want to join a large union in their industry. Some may value the training and networking offered by a professional association or craft union. Others may prefer an organization that advocates for women, veterans, parents, libertarians, or Muslims in all sectors. Some workers may simply want to get through their shift and go home. Exclusive representation forces one organization to be all things to all workers. It confuses solidarity with homogeneity and makes for weaker, less coherent unions.

Even a group of well-organized workers cannot necessarily choose their own union because the AFL-CIO is legally permitted to restrict how its affiliates compete for new members. After Lupe got fired, we asked the Service Employees to help us organize. But the AFL-CIO ruled that we could only work with the Hotel Restaurant Workers (now UNITE HERE). This is a solid union today, but at the time its leadership was under FBI investigation for corruption.

Preventing inter-union competition was the main reason that the AFL merged with the CIO in 1955. Until then, labor organizations competed for members. They fought each other as well as companies. After World War II, union leaders came to view these battles as “raids,” a fratricidal violation of class solidarity. So they created a cartel that could override worker preferences.

There are good reasons for unions to build federations, but forming a labor cartel was a profound mistake. Competition between unions prior to 1955 helped unions grow at the fastest rate in history. Union rivalries were not zero-sum. They forced unions to differentiate and experiment. They produced dynamic and important leaders. Recall what happened to organized labor’s market share when unions stopped competing.

By historic accident, schoolteachers took a different route, and their unions thrived. Two unions competed to represent teachers: the American Federation of Teachers (AFT) and the National Education Association (NEA, which never joined the AFL-CIO). They fought frequently and hard. The fights were often expensive, but competition forced both unions to replace ineffective local leaders and to absorb weak locals into stronger ones. Both developed impressive grassroots political operations and reputations for highly engaged members. Both grew strong in right-to-work states. Today, for better and sometimes for worse, 70% of public school teachers belong to unions. The NEA is America’s largest labor organization. There is little doubt that decades of competition helped to produce two of America’s strongest unions. Many factors drove labor’s decline, but to this day very few union leaders appreciate how competition and choice complement solidarity.

Exclusive bargaining rights are like fentanyl for unions—addictive and deadly. Unions now depend on dues revenue associated with exclusive bargaining. If workers were free to join any union they pleased (or none at all), unions would have to recruit more widely and develop new revenue models. This is tough for a union to do when NLRA organizing rules prevent it from growing, ban it from earning revenue from outside services, require it to represent non-members, allow only fragmented bargaining, and award only exclusive bargaining rights. The NLRA has unions trapped—and reforms that make organizing easier won’t help.

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The alternative to NLRA sclerosis is for the United States to follow most other developed countries and make collective representation guaranteed and broad-based. We should also make it competitive. The essential reform that enables this is wage boards backed by wage subsidies. Wage boards enable a coalition of unions to negotiate with a coalition of employers to establish labor market standards for their sector and region. Wage subsidies boost the pay of the lowest paid workers and make the economics of sector bargaining attractive.

Wage boards are not a new idea, even in the U.S. During the late 1930s and early 1940s, the U.S. Department of Labor convened dozens of “industry committees” to test a form of sectoral bargaining. Unions and companies agreed to raise the minimum wage in several sectors. The Second World War, union politics, and a conservative backlash ended the experiment. But several states still have legislation enabling wage boards. California is testing wage boards with home health and fast food workers. These boards engage business, labor, and public leaders to set statewide standards.

Wage subsidies can facilitate bargaining and make wage boards more attractive. Wage subsidies help employers hire people that they might not hire otherwise by covering part of their compensation. Today, the federal Work Opportunity Tax Credit (WOTC) gives employers an incentive to hire disadvantaged workers. Targeted workers include veterans, ex-felons, rural residents, and recipients of food stamps or social security income.

Economists like wage subsidies because they maintain worker income, increase hiring, grow skills, and prevent layoffs. Wage subsidies granted via wage boards would enable employers to bargain wage increases without bearing the full financial burden. To boost low-end wages, the subsidies would enable states to target sectors with the most low-paid workers. Subsidies would phase out for higher-paid jobs. The details matter, but done well, wage boards can use subsidies to structure a race to the top in labor markets that employ a lot of low-wage workers.

We should give states flexibility in how to use wage subsidies, as the WOTC does. Some states might decide to target the subsidies to regions with high poverty rates. Others might focus on industries facing downturns or on sectors that build training programs. A wage subsidy can create a strong incentive for industry and labor to reach agreements that benefit both sides.

The agreement would be binding on all employers in the industry, including subcontractors, staffing agencies, gig work platforms, and franchisees. Undoubtedly, this entails tradeoffs and will bring unintended consequences. This is one reason to test and refine wage boards and subsidies at the state level, and allow states to adapt them. For example, wage boards might weaken union contracts that benefit some workers today. They could undermine support for a minimum wage. And they will force businesses to organize.

Outside of lobbying, American companies rarely form associations to shape labor markets. Indeed, the law generally prohibits them from doing so. But wage boards create a powerful incentive for companies to organize by sector and often by region. Won’t organized companies collude to keep wages lower? Of course they will. But far better for companies to bargain wages with labor representatives and public oversight than to collude in private using consultants and wage surveys.

Employer associations can have many benefits. They can establish training and certification standards that enable local colleges to provide workers with missing skills. Companies organized by sector at the state level can construct on-the-job training and internship programs far more easily than individual companies can. Associations help place competitors on a level playing field, ensuring that a union contract does not penalize any single employer.

By standardizing labor costs, associations nudge employers to compete by improving products, services, or productivity. McDonald’s pays workers in Denmark more than $20 per hour, offers six weeks of vacation, and provides pensions not because it is charitable, but because it knows that a sector agreement requires that its competitors do the same. In turn, McDonald’s can attract and retain better workers and invest more in their productivity. Denmark does not even bother to legislate a minimum wage; the Danes have found private bargains do a better job protecting low-wage workers. And according to The Economist, a Big Mac costs the same in Denmark as in the U.S.

Workers should have the simple right to petition for a non-contractual advisory council in any workplace with more than 100 employees. This is common sense, but weak bargaining rights lead some unions to feel threatened by company efforts to engage employees in improving product or service quality. During the 1980s, I was in charge of subverting corporate efforts to engage members of the Machinists Union in improving product quality. I designed ten ridiculous demands to make sure these initiatives never got off the ground. (It worked until a savvy aerospace executive called my bluff by agreeing to them all.) Sector bargaining and workplace collaboration weaken incentives for this kind of gamesmanship. Unions in countries that bargain for an entire sector spend little time protecting incompetent workers, sowing distrust, or otherwise impeding experimentation and growth.

It is also worth testing employee representatives on corporate boards. True, boards are not parliaments and board representation is not a panacea for anything. Research suggests that, by itself, having labor representatives on a board does not raise pay. In my experience as a worker representative to a board, these roles are mainly symbolic and informational. But symbols and information matter. The odds of enlisting employee support for difficult measures in a crisis are higher if a trusted labor representative can advocate worker views and summarize board deliberations. Without board representation, it is unlikely that German workers would have proposed kurzarbeit, shorter work-weeks instead of layoffs, during COVID or when the economy hit a recession.

Letting workers choose their union would introduce healthy competition into the labor movement. Large unions would become stronger, while smaller ones would innovate, specialize, or merge. Workers would be better served by the choices that a robust union ecosystem would offer.

Unions that compete to recruit low-wage workers can grow much larger than those that try to organize for exclusive bargaining rights. Indeed, many membership-based organizations grow large this way. The U.S. has 14 million union members, but the AARP alone has 38 million members. Of course, voluntary membership introduces a free-rider problem, as it already does in right-to-work states. Workers will be tempted to enjoy the benefits of broad union representation without contributing to the cost. This is a non-trivial concern. It may require union security measures that divide payments between unions. It could force labor organizations to develop new services and revenue models such as health and safety training or benefit administration. It would reward efficiency measures that enabled unions to represent more workers for less money. Solving this problem is a small price to pay to enable unions to recruit from millions of low-wage workers.

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The reforms sketched here leave open many important details. Who decides what makes up a sector? Which unions and which companies take part? How are agreements ratified and enforced? How can we define a scope of bargaining to maximize trust, experimentation, and performance? Who has the right to what payroll and job information? Smart answers exist, but this is an excellent opportunity to use our states as the “laboratories of democracy” that Louis Brandeis declared them to be. For federal policymakers, the important steps now are to remove outdated obstacles to such attempts, and to provide funding for wage subsidies to play a role.

The immediate question is whether a legislative coalition of companies, unions, and affected workers exists for replacing the NLRA with a legal architecture that gives workers true choice, voice, and representation. Winning business support might be possible, but is not likely in the short term because most business leaders treasure autonomy. In my experience, few CEOs embrace independent-minded unions, regulators, board members, analysts, journalists, activists, or customers. I felt this way during my decade as CEO of a fast-growing e-commerce company.

Most current unions also find the prospect of a new labor architecture disconcerting. Many depend on dues obtained under exclusive bargaining rights. Most are reluctant to seek new service and revenue models, and efficiency measures. Some may be allergic to the idea of corporate tax credits because companies will bargain to keep some of it. Many prefer to take their chances on passing the Protecting the Right to Organize (PRO) Act, in hopes that it will become easier to organize minuscule bargaining units.

Unions would do well to reflect on the last time that a major structural shift threatened them. During the early 20th century, the rise of large-scale manufacturing and transportation companies overwhelmed craft unions built for a more artisanal economy. These unions could not accommodate large numbers of less-skilled, often immigrant industrial workers. To grow again, unions had to create a new form of bargaining.

Unions did not invest five decades in legislation making it easier to form guilds. Instead, they built industrial unions. They fought for laws like the NLRA that created a legal framework to support unions appropriate for a mass production economy. This required a civil war within the house of labor as well as sharp confrontations with many companies. During this time, unions not only fought companies for recognition, they fought each other for members. It wasn’t always pretty, but it worked, and they grew like crazy.

What will move organized labor to rethink collective bargaining for an economy unrecognizable to the one that gave it birth? Nobody knows, but legislative coalitions come together in surprising ways. Roosevelt backed the NLRA not only out of sympathy for striking workers, but also because he believed that industrial unrest compromised America’s ability to confront the growing menace of German fascism. Between the perceived fading of the American dream that motivates much of our era’s populism and the need to reindustrialize in the face of China’s rise, perhaps enterprising politicians can find the right catalyst for today.