Legal Commentary

Governor Scott Walker of Wisconsin has raised a major ruckus by proposing draconian limits on the scope of collective bargaining with public employees. As the two or three people who regularly read this blog know, I am no fan of public employee unions. In particular, I believe that, given politicians' short time horizons, some sort of procedural constraints on collective bargaining agreements are needed to control politicians' tendency to give away the store with contractual benefits that do not vest until those politicians are out of office.

This said, Governor Walker's proposals to limit scope of bargaining strike me as pointless. The Nollan-Dolan line of cases in land use regulation tells us why. Nollan-Dolan ostensibly limit the power of government officials to demand conditions for land-use development that bear no "roughly proportional" nexus to the impacts of that development. For instance, under Nollan-Dolan, New York City is not supposed to demand that a developer, say, hire a certain percentage of minority employees as a condition for building an extra-tall tower in Manhattan unless there is some way in which the tower would adversely affect the employment opportunities of minority employees.

Of course, as any serious landuse lawyer knows, this doctrine has imposed no serious constraint on what local governments exact from developers: New York City and every other local government demands such unrelated conditions in return for development rights all the time. Why? Because such limits on the scope of bargaining are senseless impediments to efficient freedom of contract. Developers do not sue to enforce such Nollan-Dolan limits, because they interfere with a deal that the developer wants to close.

Although I'll defer to Joe Slater or other experts in this area, my prediction is that limits on the scope of collective bargaining will be just as pointless, wasteful, and ultimately unenforced as Nollan-Dolan.

Imagine that Governor Walker succeeds in limiting the scope of bargaining to base wages. Now he has to negotiate a deal with, say, the Nurse's Union. Obviously, any wage proposal will be negotiated in the shadow of other compensation that nurses might get: If they get less sick leave and vacation time or fewer health benefits or smaller pensions, then they'll demand higher base pay. The governor might, for genuinely sensible reasons of policy believe that it would be better for the people of Wisconsin to make concessions on these other aspects of compensation than offer higher wages. The nurses might actually agree: they'd actually prefer to have lower pay but more secure pension benefits in, say, a defined benefit plan. If, however, the governor's hands are tied by taking these other issues off the table, then the governor has to offer higher wages. This leaves both parties worse off. It is as if the law required nurses to be paid in bananas rather than cash: The limit on the scope of bargaining would simply impose a dead-weight loss on everyone.

Winks and nudges would follow: Informal commitments on non-wage issues would be made -- because efficient bargaining requires that they be made. Would these be unenforceable? If so, then Wisconsin would have to pay a higher wage premium similar to the default premium that bondholders exact for taking "unenforceable" moral obligation bonds. The losers, in the end, will be the taxpayers of Wisconsin, who end up footing the bill for this ridiculously complex minuet.

Precisely the same minuet is danced every day between developers and local governments under Nollan-Dolan: Governments are officially barred from demanding fire trucks, schools, playgrounds, etc, in exchange for building permits -- but developers offer them all the time, and, lo and behold, they get a permit and give a benefit that bears no "roughly proportional" nexus to any cost that the proposed development imposes.

Rather than engage in this limit-on-scope-of-bargaining farce, why not directly address the problem of future benefits like pensions and health benefits? Allow unions and government to bargain over them, but make sure that the ultimate agreement is ratified in a highly salient, public way -- a referendum, for instance. This procedural solution would reduce the real "agency cost" danger that politicians will give away the store when negotiating future liabilities. But the procedural solution avoids the silliness of taking obviously relevant issues off the table.

In any case, this is why I am inclined to believe that Governor Walker has picked the wrong fight with the unions. But maybe I am missing something special about the collective bargaining context that distinguishes it from landuse regulation? If so, I hope that either public-employee experts like Joe Slater or libertarian-minded bargaining-with-the-state experts like Richard Epstein will set me straight and explain why the limits on bargaining topics proposed by Governor Walker with unions will work better than Nollan-Dolan limits on scope of bargaining have worked with developers.