Employee Representation in a World of Global Competition

By Samuel Estreicher

Trade unionism in private companies is a declining phenomenon in nearly all developed countries. An enormous literature has developed to attempt to explain this phenomenon. Four categories of explanation have emerged: employer opposition; worker attitudes; structural changes in developing countries; and global product and labor market completion.

Two models of workplace representation. To help assess these explanations and provide a framework for evaluating proposals for altering existing labor law regimes, consider two basic models of workplace representation.

The first model is the “redistributive bargaining agent” model. Here, the interests of the employer and those of its workers are viewed as fundamentally antagonistic. It is a “zero sum” game: Worker gains detract from firm profits, and vice versa. What trade unions do is improve worker leverage or bargaining power in this distributional struggle over the division of the firm’s surplus. To obtain such enhanced bargaining power, unions need to function as militant organizations in which they simplify worker preferences into commonly shared goals and mobilize successful strikes.

Under this model, the achievement of industry-wide standards is essential to avoid losses for unionized firms. Wages must be taken out of competition (what I call the lesson of “Gompers 101” in honor of Samuel Gompers, the founding president of the American Federation of Labor). Where possible, the state is enlisted in this endeavor. Thus, trade tariffs, minimum-standards laws, immigration laws, and extension laws can help further the “Gompers 101” strategy.

A second model is the “integrative bargaining agent” model. Here, the objectives of the firm’s owners and those of its workers are viewed as largely complementary. The relationship most often resembles a “positive sum” game: Unions help firms achieve results that increase profits and hence enlarge the size of the “pie” available for distribution to workers and shareholders.

The organization of the integrative bargaining agent de-emphasizes militancy. In continental Europe and Israel, the inside-the-firm organization, often called a “works council,” is legally distinct from the redistributive bargaining agent organization. Participation in the works council is available to all workers irrespective of union membership. The theory of the law is that works councils are principally consultative organs; they do not engage in redistributive wage bargaining and cannot strike, which remains the provinces of the external trade union organization. The degree to which trade unions are involved in the conduct of works councils varies by country.

In the United States, Canada, and Great Britain, the same employee organization plays both redistributive and integrative roles. Because purely “integrative” bargaining agencies are not established by law in the United States, Canada, and Great Britain, and because, at least in the United States, employers actually violate the law if they attempt to form or encourage employees to form integrative groups even where no independent union represents, or seeks to represent, the employees, integrative activities will occur only when traditional unions agree to engage in them.

The challenge of global competition. Until the recent era, trade unions sought to pursue their redistributive objectives through a combination of industry-wide or sectoral collective bargaining and protective labor legislation. The theory underlying labor’s traditional objectives was that, although unionism did indeed create additional costs for firms, these costs need not harm the competitive position of unionized firms if, by a combination of industry pacts, extension, laws, and immigration and tariff barriers, they could be imposed on all competitors operating in the same product market.

In the United States, 1947 and 1959 amendments to federal labor law curtailed the unions’ ability to mount secondary boycotts and enlist neutral employers to agree not to handle products manufactured under nonunion conditions. Beyond legal intervention, with the revolution in communications and transportation, aided by computer technology, the increasing acceptances of “free trade” principles by nation states, and the spread of worldwide equity markets, “Gompers 101” may no longer be a viable strategy for any country.

Ultimately, if unionism creates net costs for an employer, and unions are not able to impose similar terms on the employer’s competitors in the United States and abroad, unionism must either change its objectives to take greater account of the costs of union demands or provide benefits to unionized firms not available in the non-union sector, or capital itself will “go on strike,” starving the union sector of capital needed for growth.

The current focus of the U.S. labor movement and its legislative allies is to seek the enactment of laws that will make it easier to organize workers and impose first-time contracts by legal fiat where agreements with employers cannot be reached. A general strengthening of the labor laws is indeed desirable to give practical effect to the federal guarantee of workers’ rights to engage in self-organization and collective bargaining.

Better remedies and stiffer penalties for labor law violations can slow the de-unionization process, but, as the Canadian experience suggests, the weakening of redistributive bargaining will continue apace, even in the face of strong pro-union laws.

One response to this state of affairs is suggested by the “social charter” campaign of the European Union. Organized Europe may be viewed as an effort to promulgate minimum labor standards that would apply to all companies doing business with “Europeland.” For other regions, similar efforts may take the form of the “labor side” agreement annexed to the North American Free Trade Agreement, the minimum labor standards in the Central American Free Trade Agreement, or initiatives within the World Trade Organization and the International Labour Organization. If pursued with a modicum of restraint informed by the benefits to domestic consumers and the needs of developing countries to pursue their comparative advantage through trade, minimum standards of international labor market competition can be a desirable development.

The challenge for public policy. The challenge for public policy extends beyond the achievement of such standards. Each country must examine its own capital mix to determine where its competitive advantage lies and must develop rules for labor market competition within its borders that, while consistent with national values, will help it achieve success in the worldwide marketplace.

One way to look for improvements in domestic labor market policy is to determine whether institutional arrangements can be restructured so that integrative models of workplace representation can compete along with redistributive bargaining agencies. Some possible moves include the following: (1) For workers who are employed in career jobs, the union’s focus has to turn to the enterprise level to promote worker objectives in a manner that improves the firm’s competitive position; (2) for workers who are employed in short-term, project-based “contingent” positions, unions must develop as career-based organizations that provide portable, interfirm health insurance and pension coverage, as well as training, information-sharing, and placement services for mobile workers; (3) greater flexibility is needed in U.S. labor law to allow a variety of forms of union organization to develop; (4) structural reform may be needed; (5) just as labor has a legitimate interest in insisting that U.S. production conforms to U.S. laws, it has a comparable interest in insisting that production in other countries at least conforms to the laws of those countries; (6) the costs of employment litigation are a growing concern—policy makers need to consider ways of empowering unions to act as inside-the-firm agents for enforcement of both contractual and statutory rights in a manner that accords true finality to the outcomes of arbitrations under collective bargaining agreements and also gives the bargaining agent a measure of flexibility to negotiate; and (7) corporate governance and executive compensation need to be reexamined.


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