Legal Commentary

The Employee Free Choice Act--Posner

By Richard Posner

In 2007, the House of Representatives passed the Employee Free Choice Act, a law to promote unionism. The bill failed in the Senate because of Republican opposition. Obama in his presidential campaign urged passage of the bill, and with greater Democratic control of the Senate as a result of the recent election there is a good chance that it will be passed, though not a certainty in view of the fierce opposition of the business community and the Republican senators, who could filibuster the bill; but the Democrats might persuade enough of those senators to defect, to have enough votes to shut down the filibuster.

The Act would do three things. The first is strengthen the very weak machinery for enforcing the prohibition in the National Labor Relations Act (the Wagner Act) of unfair labor practices, such as employers' discriminating against employees who support unionization. This part of the Act is uncontroversial. The second thing the Act would do is dispense with the requirement of a secret election to determine whether the employer must recognize a union as the representative of his workers (more precisely, of a "bargaining unit" consisting of workers having similar jobs; a large employer might have a number of such units). Recognition means that the employer must try in good faith to negotiate a binding collective bargaining agreement with the union that will specify terms and conditions of employment. The Act would require the employer to recognize the union if the union obtained signed union-authorization cards from a majority of the workers in the bargaining unit. This is the most controversial provision of the bill. The remaining provision, which is also controversial, would require that if within a specified period (including a period for mediation) union and employer could not agree on the terms of a collective bargaining agreement, their dispute would be submitted to binding arbitration. The arbitrators would thus determine those terms.

The card-signing provision would undoubtedly make it easier for unions to organize companies in which there was considerable union support but not quite enough to assure victory in a secret-ballot election. Supporters of unionization are likely to feel more strongly than opponents, and so will be more likely to exert pressure on waverers to sign cards than opponents will be to exert pressure on them not to sign. Compulsory arbitration would also promote unionization, and perhaps more so than the card-signing provision of the Act. It would eliminate the costs of striking against a stubborn employer, and would appeal to workers because an arbitrator could be expected to be more generous in setting terms and conditions of employment than the employer, though there will be cases in which a union could extract more from an employer by striking or threatening to strike than an arbitrator would be likely to give it.

I doubt that the Act would have a great effect on unionization. Unions have been in steady decline in the private sector for decades and now account for only about 7 percent of nonfarm workers in that sector (farm workers are not covered by the National Labor Relations Act). Elaborate government regulation of workplace safety and health has reduced the value of unions to workers, as has greater job mobility and the increasingly technical and individualized character of many jobs, which makes it difficult for workers to agree on the terms and conditions of employment that they should be seeking. International competition has reduced the power of unions to extract supracompetitive wages, benefits, or work rules, as has the deregulation movement, which has made the formerly regulated industries, such as transportation, more competitive. Unions have little power in a competitive industry, because a supracompetitive wage, by increasing the employer's cost, will shift his output to competitors. We are seeing this happen in the automobile industry, where union intransigence has been a factor in the decline of the Detroit automakers, now on federal life support.

These economic forces will not be changed by passage of the Employee Free Choice Act, and so the Act's effect on unionization and therefore on the economy will probably be marginal. But whatever the magnitude of the economic effect, that effect will be negative. This is not because all unionization is bad. One should distinguish between nonadversarial unionism and adversarial unionism. In nonadversarial unionism the union recognizes that it is in partnership with the employer and focuses on activities that are supportive of rather than antagonistic to the efficient operation of the company. These activities include protecting workers from abusive supervisors and coworkers, forwarding the concerns of workers to management, assisting workers to obtain skills necessary for their advancement, providing social amenities, interpreting management to the workers, and, in short, mediating between the workforce and the management. One might think that these are functions that the employer itself could perform, and often this is true. But an independent union (company unions are forbidden) may have a degree of credibility with the workers that the employer lacks and may reduce agency costs by monitoring the behavior of supervisors over whom the employer has limited control.

The Act will not promote nonadversarial unionism, because an employer will not resist being unionized by a union that will make his company operate more efficiently. It will promote, though one hopes to only a limited degree, adversarial unionism, illustrated by the relation between the United Auto Workers and the Detroit automakers. The union is determined to squeeze the companies for all it can get for the shrinking number of workers employed by the companies--the union being responsible in significant part for the shrinkage. Adversarial unionism is also conspicuous in education. More of that we do not need.

We especially do not need an uptick in adversarial unionism during what increasingly appears to be a depression. The fact that Democrats in Congress should be pressing for a revival of the union movement at this time indicates a lack of understanding of the economics of depressions. A depression involves a severe reduction in output, resulting in a reduction in inputs, including labor inputs: hence increased unemployment. Adversarial unions increase unemployment, by obtaining wage increases that reduce employers' output by increasing labor costs. A similarly incoherent New Deal program of fighting depression combined sensible measures like going off the gold standard, expanding the money supply, and increasing employment by public-works programs with output-restricting programs like the National Industrial Recovery Act, which encouraged the formation of producer cartels, the Agricultural Adjustment Act, which curtailed agricultural output in order to raise farmers' incomes--and the National Labor Relations Act (the Wagner Act), which encouraged the formation of workers' cartels: adversarial unions such as the United Auto Workers. Some economists believe that such measures prolonged the depression. They certainly did not shorten it.

Full post as published by Becker-Posner Blog on January 25, 2009 (boomark / email).