Labor & Employment Law

Richard Posner Offers Economic Analysis of Employee Free Choice Act

The impending passage of the "Employee Free Choice Act" has received a great deal of publicity in recent months.  The Act would essentially eliminate secret balloting in union representation elections and allow government arbitrators to impose contract terms when negotiations reach an impasse. 

The conventional wisdom is that the Act will make it far easier for unions to obtain recognition and press for higher wage rights.  Passage is considered a virtual lock because Obama and the new Democratic majority are under irresistible pressure to "payback" unions for their massive support in the '08 election.

To the extent that any political argument could slow the "Free Choice Act" juggernaut it may be that the beginning of a potential economic depression is simply not the right time.  In this regard, Richard Posner, who is both an economist and a sitting Seventh Circuit Justice, draws an interesting historical analogy to the New Deal/Great Depression era in his recent post on The Becker-Posner Blog.  

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.

Incidentally, for those interested in a high-level policy discussion concerning the economic impact of law and legislation The Posner-Becker Blog is first-rate.

Full post as published by California Labor & Employment Defense Blog on January 27, 2009 (boomark / email).