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Collective Bargaining and its Impact on Workers, Employers, and Society

Subject Area: World Studies

Research Question: How does the ability of workers to unionize and participate in collective bargaining affect their individual socio-economic health, as well as that of the greater

community?

Candidate #:

May 2013

Word Count: 3 999

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Abstract ... 3

Introduction: History Repeating Itself ... 4

Abbreviated History ofUnions and Collective Bargaining in the United States ... 6

Effect of Unions and Collective Bargaining on Workers ... 8

Effect ofUnions and Collective Bargaining on Employers ... 13

Study of the Effects of Unions and Collective Bargaining Regulation in Australia, New Zealand, and Britain ... 15

Conclusion: Beneficial, or Not? ... 18

Bibliography . . . . ... 19

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Abstract

Research Question: How does the ability of workers to unionize and participate in collective bargaining affect their individual socio-economic health, as well as that of the greater community?

This paper is an analysis of the possible socio-economic effects that the unionization of workers and their right to collectively bargain with their employers over a variety of work conditions and social benefits can create for individuals as well as the greater community. The thesis of this paper is that the influence of collective bargaining on workers and the greater society can be socially and economically beneficial, but this outcome is dictated by the nature and extent of federal regulation of the bargaining process and that of the resistance of

management to change in the workplace.

It

explores the positive and the negative effects of

unions from the points of view of both the worker and the employer, mainly through a discussion

of the outcomes collective bargaining has on both parties. The relevance of collective bargaining

in modern industrial society is an issue of global importance as it is a fixture of stability and

equality for the working class, the backbone of a democratic society, and therefore makes it

acceptable as a World Studies Extended Essay topic. As several developing nations are coming

into themselves politically, socially, and economically, they will face disputes over labor unions

and how best to keep them in check while still allowing them to prosper. Therefore, this paper

includes pertinent discussion of the history, economics, and social anthropology surrmmding

unions and collective bargaining.

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"Labour, it must always be remembered''- Adam Smith, The Wealth of Nations

Introduction: History Repeating Itself

One driving force that influences most citizens in the United States of America to work their hardest to reach personal and societal achievement is their strong belief in the American Dream. The idea that any person, if they have the work ethic and skill necessary, can achieve social and economic prosperity and equality, regardless of gender or ethnicity, is a pervasive theme of American political and popular culture. But is this ideal achievable in today's world, or is it truly just a dream?

Currently the European Union and the United States, and subsequently the rest of the globe, are suffering through one of the worst economic downturns since the Great Depression.

This has required many world leaders to apply different measures to ensure that their individual nations can survive in such trying times, and this implies the need to cater to Big Business and companies that are considered necessary to stabilize economies. Specifically in the United States, industry is placing part of the economic blame on labor unions and their collective bargaining rights, claiming that the cost of fulfilling the unions' demands is hmiing their bottom line. Due to these claims, several states have passed laws and regulations that prohibit the right of workers to organize and petition management in order to prevent worsening the recession.

Ironically, one of the strongest breakthroughs for the labor movement occurred during

the Great Depression, an era when mass tmemployment pushed many families into poverty and

despair. Out ofthis gloom, former President Franklin Delano Roosevelt ushered in a series of

programs known as the "New Deal" in order to place American industry back on track, many of

which were aimed at providing oppressed workers greater rights in the workplace. Through these

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measures which helped to form a strong middle class, the American economy began its long road to recovery. As it appears to many economists that history is beginning to repeat itself, one of the most evident and potentially influential questions out there today is the fate of the worker at the hands of industry and the political sphere.

This essay intends to discuss the nature of the impact the unionization of workers and their right to collectively bargain over issues in the workplace has on employees, employers, and society as a whole. The following pages investigate and analyze the beneficial socio-economic effects that labor unions pose for both workers and management, as well as the possible

detriments. In this age where labor and much of the middle class is under intense pressure, labor

unions need to prove their worth and state why they are necessary, not only for the status of

workers, but for the greater global community. This area of research is significant in that third

world nations, countries ravaged by the War on Terror, and North African governments seeking

to rebuild themselves after the Arab Spring, look to developed democracies such as the United

States, Britain, and Australia for inspiration. These three countries have a strong history of labor

and the power of the middle class in shaping a democracy, and in drafting legislation in regards

to restricting unions, developing nations need to understand both the positives and negatives that

labor reform has on social and economic health. As history comes once again to a period of

economic distress, political leaders and their constituencies must take a closer look at worker

rights to collective bargaining and whether or not they are necessary and to what point should

they be controlled.

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Abbreviated History of Unions and Collective Bargaining in the United States

Labor has been alive in the United States since its initial colonization. When the colonies were first settled, workers had little to no rights and protection against the whims of unfair employers. They worked from sundown until sunset for whatever pay was afforded them, hoping

it

would be enough to support their growing families in the New World. Many people could only travel to the colonies by selling themselves to the captains of ships as indentured servants in exchange for passage across the Atlantic Ocean. Once they landed, the captains would sell them to the highest bidder, for whom they would do unpaid labor for the next several years. During this time, there were no laws that governed the treatment of workers, so indentured workers knew no freedom nor rights. In fact, "as many as half of the indentured servants in the American colonies died during their first two years"(Skurzynski 7). Even those workers who were not indentured servants but free men and women had to fight to for their own rights. For example, the first strike in the colonies took place in Jamestown, Virginia, where skilled Polish workers were kept from voting for the House of Burgesses in 1619 due to the fact that they were a Catholic minority amongst a Protestant majority. By refusing to work, English officials were forced to grant them enfranchisement in order to prevent a skilled labor shortage.

This extreme behavior of a strike was necessary because there was no form of collective

bargaining, or "a type of labor negotiation in which authorized union representatives bargain

with management over wages, hours, and work rules applicable to all union members for a

specified length of time"(Hillstrom 213). In other words, there was no channel of communication

present between the Polish workers and their employers in which they could peacefully argue

their case without leading to conflict. In fact, the first instance of collective bargaining occurred

in 1792 Philadelphia, when shoemakers formed their own 'society', in order to portray their

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agitation towards management. In that time, it was common for certain industries to be prui of a larger organization in order to better represent their opinions in politics. Unfortunately, these organizations, known as 'guilds', consisted of a select few senior 'masters'. Instead of employees moving up amongst the ranks, the masters would pass on their seniority to their relatives. Tired of their views being misrepresented, the lower ranks of shoemakers broke away and formed their own union in order to find a system of bargaining and expressing their views to the guilds. This system of collective bargaining is now one of the most widely used methods for settling a dispute between employers and employees.

The next few hundred years of American history consist of upheavals and innovations, such as the American Revolution, the Civil War, and the Great War. During this time, the

Industrial Revolution and the accelerated changes it brought to labor left employees in dangerous working conditions which threatened their safety daily, all for an unsuitable wage and no

benefits or job security. After the First World War and the Great Depression brought America economically to its knees, as aforementioned, Roosevelt initiated sweeping refonns and economy-stimulating programs, one of which was the National Labor Relations Act of 1935, also known as the Wagner Act, which granted workers many rights and protections. Specifically, section 7(a) of the Wagner Act states that "Employees shall have the right of self-organization, to fom1,join, or assist labor organizations, to bargain collectively through representatives oftheir own choosing, and to engage in concerted activities, for the purpose of collective bargaining or other mutual aid or protection"(National Labor Relations Act). The following section goes on to prevent employers from interfering with any future attempt of the workers to organize

themselves and present their management with an appeal for bargaining. This act is definitively

one of the most important legislations relating to the legality of unions and collective bargaining

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as it offers the government's approval of workers' rights. Despite this, in recent years, several states have attempted, and some succeeded in, revoking the right for workers to collectively bargaining in the public sector. In other words, collective bargaining and unions in general are under attack from conservatives and industry. Certainly, any labor decisions made in the recent future would be a turning point in labor history.

Effect of Unions and Collective Bargaining on Workers

In general, the unionization and related collective bargaining rights of workers are thought to offer two polarizing qualities: the substantial social and monetary benefits they provide workers, as well as the monopolistic face and agitation they pose for employers.

According to the Government Accounting Office, in a recent report conducted on behalf of the U.S. Senate, it is believed that "about 103 million workers (have) collective bargaining rights in their primary job ... these workers constitute about 77 percent of the 135 million people in the civilian workforce"(Collective Bargaining Rights). These lucky 77 percent enjoy several benefits over the other 32 million nonunion workers present in the United States today.

First and foremost, unions and collective bargaining rights allow union members to

bargain and communicate with their management in a non-threatening way, while still displaying

their solidarity and effectiveness. They can voice their positions and opinions, hear and consider

their employers' rebuttals, and hopefully come to a consensual agreement that pleases both

parties. In this way, any form of violent confrontation can be avoided that would lead to a

disruption in the workplace. These actions of good will help form stable trusting relationships

between employer and employee, and this can lead to greater worker participation and

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productivity. Ultimately, unions are the physical manifestation of worker pride and need to voice their own opinions to fight for their greater social rights.

I.

i I

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I

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(Mike Konopackl)

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Unions and collective bargaining have made great strides in recent years in improving the lives of their members. Firstly, through collective bargaining agreements, "unions raise wages of unionized workers by roughly 20% and raise compensation, including both wages and benefits, by about 28%"( Labor Unions (Opposing Viewpoints) 49)

. By insuring this increase in salary,

workers can lead lives with more economic security, which allows them to fmancially support their families and have the courage to invest their money back into the economy. "In general, if consumers' incomes are boosted ..

. they will save some and spend the rest. The part which is

spent becomes income for someone else, who in tum spends and saves. The process is repeated and the multiplier effect makes everyone better off'(The Economist Guide to Economic

Indicators 80). Additionally, since unions mainly consist of low- and middle- wage workers, they

successfully reduce wage inequality, which begins to build a foundation for a stronger middle

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class. In fact

, unionism "

is the single best ticket into the middle class, especially in today' s economy"(Skurzynski 93). With the income gap between the lower and upper class in the United States significantly widening, a strong middle class is something that America and the rest of the world greatly needs

. The table below illustrates the immediate differences in hourly

wages that exist between union and nonunion members. In many cases, this difference in wage is what keeps the union members above the poverty line.

Unions Help Bring Low-"\Vage Workers Out of Poverty

AvercJge liourl)' Earning5 of U11io11 (IIJd 1•lommion Workers in Selected

Oc~upatiom, 2006

Cashiers

i Child Care Worlers

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^Cleaners^ofVihkks^;;nd

Equipment

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Combined Food Preparation 211d S!.'rYing Workr!>,

l Including Fa5t l'ood

I Cooks

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1

Dinins Room and Cafen:rm :\ttrndants and Bartender

1 Helpers

!

Food Preparation"\Vor'>'ers

l

Food Server:;, Nonretaruant

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Library A'0i55tanl'!', Ckrkal

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^:\·^{!aids a}nd HousekeepiJJg 1 Ck-aners

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Other Protective Servke

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Worker:;, Jnduding life Guard$

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Packers and Packagers, Hand

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Personal and 'Home Care -~id~

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Refuse and Recrdable :Material

I

J Collectors

l l Waiter5 and Waitresses

!

Union Nonunion

Hourly Wage

{$)

AmountAbovc Hourly

$JU57 .$1D.I34

$13.34

$10.09

$12.45

$10A3

$11.95

$13.45

$13.94 5!!.91

$14.73

S1L62

$]0.33

$21.50

514.30

Poverty Wage

Line($) (S)

5 4,075

$ 1,932

$ 7,132

$ 372

s

5,231

s

1,079

s

^7,361 s 8,330

$ 4,158 :510,{)23

s

3,555

$ 975

$24,105

s

9,129

58.11 53.59 58.37

$8.00

58.61

$7.98 59.39

$9.76 59.0()

$9.65

$9.36

$9.15

$9.12

$9.81

I

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! J

'Th ~ury.u-~ th~ pO~crly kvd for a fillruly of four, a v;or}.cr n.:.:ds 10 cam anhourly1>-.:gc of zt k-a:;t $9.92 (full-time, y.:-ar rmmd;. 'The pv·;rny·lia~ in 2006 fo: a family .,f fom

;•;'ZS 520,615.

l i

TAKEN FROM: BarrvT. Hir:;ch and DavidA. MacPherson, Union

I '

!

Member~hip nnrl Enming~ Data Book, BNA, 2007, forthcoming, US.

1 Census Bureau, Preliminary Estimales of1Neighted AYerage Poverty

I

Thre5ho]ds for 2006, Jan. 24, 2007. Prepared by t1Je AFL-ClO.

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Fortunately for nonunion members, the very presence of unions in an area increases the standard of living of other workers in the community, whether or not they are part of a union.

This is due to the "union threat effect", where companies or industries without unions are afraid of them forming, so they attempt to provide their employees with enough benefits and incentives to keep them from ever wanting to organize. In effect, "unions have set norms and established practices that become more generalized throughout the economy, thereby improving pay and working conditions for the entire workforce"( Labor Unions (Opposing Viewpoints) 52).

Along with unionization, collective bargaining wins many outstanding benefits for workers, including the eight-hour work day, the five-day work week, paid vacations and leave time, retirement pensions, enormous healthcare coverage, controlled grievance procedures, and important safety regulations.

In

fact, union members "are more likely than their nonunionized counter parts to receive paid leave, are approximately I8% to 28% more likely to have employer provided health insurance, and are 23% to 54% more likely to be in employer-provided pension plans"( Labor Unions (Opposing Viewpoints) 49). With these benefits, it is evident that union members with collective bargaining rights lead better lives, where they can provide health coverage to their families without fmancially crippling themselves and can look forward to their retirement.

Finally, unions and collective bargaining work to exterminate discrimination in the

workplace on the basis of gender and ethnicity. Through negotiations with management, unions

have spent countless hours attempting to equalize wages for women and workers of color, to

varying effectiveness. Additionally, through affirmative action programs, they see that women

and minorities are encouraged to hold higher-level work positions and finance their further

education. During the collective bargaining process, clauses can specify antidiscrimination

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policies and programs are put into effect to equalize both pay and status, unlike in some

industries without a strong union presence, which are often familiar with the situation presented in the cartoon below. Specifically for women, parental leave policies and onsite childcare, or a given salary set aside for childcare, can help women be both mothers and workers.

-·--~

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I{Ktt · I ---~ ~ - - ,. - ~J

Overall, "an America with fewer unions and union members will result in a lower

standard of living for all Americans"(Dine X). The United States would not be the way it is

today if not for its strong background in worker protection and value in its recent history, when it

fought against hazardous working conditions, unpaid overtime, and arbitrary discipline on behalf

of management, and should serve as a model for labor in other nations.

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Effect of Unions and Collective Bargaining on Employers

Employers and workers have often disagreed when it comes to the necessity of labor unions and collective bargaining, particularly since they believe that they interfere with making a larger profit and sometimes suppmi policies that are not in the best interest of the company. Due to these notions, many businesses have fervently campaigned against unions and union power in the workplace through spreading propaganda throughout its own worker population as well as sponsoring politicians who support their labor policies in both local and federal government.

Currently, nine states are considering restrictions on collective bargaining rights and unions:

Wisconsin, Ohio, Idaho, Iowa, Michigan, Indiana, New Han1pshire, Kansas, and Tennessee.

Pressure from industry is certainly a powerful force in legislation, but how does collective bargaining actually affect employers?

One of the main disagreements that plague worker relations between employers and workers is the issue of wages. A major rationale for unions and collective bargaining is the fight for wage equality for all workers, where all union members would be paid the same hourly wage or yearly salary, despite differences in productivity. Employers disagree with this position, for they favor the scientific management model where "differential wages (are) paid to those workers who showed themselves most efficient"(Dray 232). In other words, workers would be paid on a sliding scale, in which the most efficient and productive employees would be paid more than the less-skilled workers. This model would "encourage maximum effort" from its employees and allow the management to spend less funds on employee income (Dray 232).

For many employers, unions and collective bargaining restrict managements' ability to

terminate worker contracts. Unions often seek regulations guiding the actions and processes that

employers must go through to validate the need to fire an employer, such as with teachers and

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other public sector positions. These regulations can make it very difficult for employers to get rid of workers that are shirking their responsibilities or not being as productive as they should be, since many workers are protected by tenure or seniority. This forces management to deal with and continue to pay workers that are not as effective as employees seeking job opportunities.

Though the Wagner Act of 1935 requires employers to enter into collective bargaining proceedings "in good faith", or with the intent to reach a wmihy compromise with the union that will please both parties, this does not always come to pass. Instead, many employers attempt

"surface bargaining" in which they put on the pretense of trying to reach an agreement with unions, but are really attempting to mess with and postpone the proceedings. Many businesses see this as necessary to keep unions from gaining more power, and although it is technically illegal, evaluation of the complaint would take many months and only a small fine would be levied on the guilty party.

Overall, the largest grievance put forward by management towards unions is the cost of all the benefits and safety measures deemed necessary by the union members, which they know ultimately cuts into their profits. But "the management of some organized companies have cited positive impacts of unions on their business"(Freeman 4). For example, the former Chairman of General Motors, Thomas Murphy, commented that the UAW or United Auto Workers tmion

"may have introduced the sit-down strike in America, but in its relationship with GM

management it has also helped to introduce ... mutually beneficial cooperation ... in such

directions as providing greater safety and health protection, in decreasing alcoholism and drug

addiction, (and) in improving the quality of work life"(Freeman 4). In effect, although unions

can be expensive to have in a workplace, they greatly improve worker quality of life and

happiness, which can be beneficial for management as well as employees.

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Additionally, unions allow employers to recognize and address workplace issues with ease and procedure, rather than dealing with employee complaints on an individual basis.

Unionization and collective bargaining promote a sense of job security amongst members, which can reduce the labor turnover rate and therefore limit the cost to management of replacing

workers. Finally, by encouraging worker participation in the decision making process, collective bargaining can prevent industrial disputes and worker conflict.

In reality, collective bargaining has both negative and positive effects on the workplace environment and management.

Study of the Effects ofUnions and Collective Bargaining Regulation in Australia, New Zealand, and Britain

Crucial to the success of unionization and collective bargaining in any society is the system of governmental regulation put in place to oversee the process and outcomes of collective bargaining within that nation. The United States is one model, but there are several others to choose from which have varying levels of regulation in place, from highly regulated as with Australia and New Zealand, to less regulated within Britain. This section of the essay will go over the systems of legislation in place for each country and evaluate their effectiveness and to what success they could be applied to developing nations. A majority of this information comes from an essay called "Regulating Collective Bargaining in Developing Countries: Lessons From Three Developed Countries", published in 1996 and written by John Pencavel, who teaches labor economics, development economics, microeconomics at Stanford University.

Pencavel starts by stating that "it is important to recognize that the law's general goal is

to facilitate interaction between people, to set up the rules of the game in which parties operate,

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and not specify in detail how they behave"(Pencavel 9). Yet many governments pass heavy legislation against unions for they fear the disruptions that organized labor can cause, such as costly labor strikes, and how they may come to affect the economy. Several legal codes and mandates are subsequently put into effect that would guide both parties on how to best solve disputes, yet these systems are not often efficient in solving the underlying problem. Such central control of collective bargaining is found in the legislations of Australia and New Zealand.

Before the 1980s, New Zealand attempted to limit the number of strikes throughout the nation by making it illegal and by setting up a federal court that would handle all bargaining and arbitration between unions and employers by settling the dispute through court orders, which neither party could hope to appeal. More often than not, the court, known as the Arbitration Court or the Industrial Commission, sided with the employers and only granted the unions small increases in their overall wages. This agenda was planned to limit wage differentials amongst different industries, therefore limiting the potential for one union to have an advantage over others and decrease jealousy. Unfortunately, the number of strikes throughout the mid 1970s to 80s remained constant, hinting at the failure of this regulation system.

As for Australia, before the 1980s federal tribunals imposed pre-determined wages,

hours, and other conditions of work on employees whether or not there was any existing dispute

between unions and management. Pre-existing unions were granted bargaining rights, but newly

formed unions were not allowed to participate unless they merged with a union recognized by

the Australian government. This caused certain unions to gain increasing power and appear

monopolistic, which was threatening to industry. Several employers began to join employers'

associations to protect their interests. Again, this system was designed to keep wage differentials

at the same previous levels. And again, it failed as strikes remained just as consistent. This

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implies that federal intrusion into the bargaining between unions and employers in the forn1 of arbitration courts tend not to work as a way of fending off strikes.

By the 1980s, both nations deemed union and economic reform necessary, as over the past century, their GNPs or Gross National Product had fallen drastically. In Australia, the Labour Party came to power in government and passed the Industrial Relations Reform Act of 1993, which decentralized the collective bargaining system, but still the federal tribunals remained the key power in the bargaining process. As for New Zealand, radical labor reforms were passed as the Labour Party gained increasing control. Restrictions on what unions could do were lifted and striking was made legal. The 1991 Employment Contracts Act allowed workers to choose the method in which they would bargain with management, whether or not they were part of a union. This in effect, made union membership unnecessary. This increase in 'enterprise level bargaining' has led to a decrease in union membership, although collective bargaining remains the most utilized form of arbitration.

Britain, on the other hand, provides an example of a system where collective bargaining is not controlled centrally by the federal government. There is no law specifically stating that workers have a right to strike, nor a law requiring employers to bargain with unions, or

determining what size a union should be. "The general position taken by the law on these issues is that they are best determined by the parties concerned and there is little need for regulation by the state"(Pencavel 31 ). This is not to say that the British government had no interest in

collective bargaining, in fact it has consistently encouraged the growth of unionism. Although all three nations have different approaches to unionism and collective bargaining, all three have high levels of social and economic health, according to the HDI. The HDI, or the Human

Development Index, was first introduced in 1990 and is a "a new way of measuring development

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by combining indicators of life expectancy, educational attainment and income into a composite human development index ... a frame of reference for both social and economic

development"(Human Development Index and its Components). As of2011, Australia has the second highest HDI, while New Zealand holds fifth place, while the United Kingdom is in 28

¹h

place due to its low mean years of schooling. All three nations hold high places in the HDI and portray the prosperity of their citizens. Though these high placings are not completely due to collective bargaining, unionization has been proven to increase an individual's, and their family's, standard of living. As for the best way to go about introducing governmental policies that will help regulate collective bargaining, it appears there needs to be a balance between complete centralization and a laissez-faire policy.

Conclusion: Beneficial, or Not?

In conclusion, unionization and collective bargaining can have both positive and negative

effects on the economy as a whole, as it takes money from the rich but provides for the lower and

middle class, but as for its effect on the individuals who are union members, their influence is

overwhelmingly beneficial. Collective bargaining improves workers' socio-economic status by

allowing them to petition employers for fairer pay, adjusted work schedules and grievance

procedures, and health insurance. All of these attributes lead to a better quality of life not only

for union members, but indirectly for their families and nonunion members. Additionally, by

forming a constant channel of communication between management and employees, collective

bargaining creates a more organized and stable work environment on a national scale. In essence,

the ensuing industrial harmony created by the end of the exploitation of employees greatly

increases a developing nation's potential for social and economic growth. "Unionism generally

serves as a force of social and economic good"(Freeman 247).

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Works Cited

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1.

Detroit: Gale, 1999. 189. Gale Virtual Reference Library. Web. 11 July 2012.

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Cronon, William. "Wisconsin's Radical Break." New York Times 22 Mar. 2011: A27. Global Ls·sues In Context. Web. 11 July 2012.

Davey, Monica. "Wisconsin Senate Cuts Bargaining By Public Sector." New York Times 10 Mar.

2011: Al(L).Global Issues In Context. Web. 11 July 2012.

De Silva, Sryan. "Collective Bargaining Negotiations." International Labour Organisation, 1996. Web. 9 July 2012.

<http://www.ilo.org/public/englishldialogue/actemp/downloads/publications/srscbarg.pdf

>.

Dine, Philip M. State of the Unions: How Labor Can Strengthen the Middle Class, Improve our Economy, and Regain Political Influence. New York: McGraw-Hill, 2008. Print.

Dray, Philip. There Is Power in a Union: The Epic Story of Labor in America. New York:

Doubleday, 2010. Print.

Freeman, Richard B., and James L. Medoff. What Do Unions Do? New York: Basic, 1984. Print.

Hillstrom, Kevin. Workers Unite!: The American Labor Movement. Detroit: Omnigraphics, 2010.Print.

"Human Development Index and Its Components." Human Development Report, 2011. Web. 9

July

2012.

"Human Development Reports- United Nations Development Programme (UNDP)." Indices

&

Data. Web. 09 July 2012. <http://hdr.undp.org/enlstatistics/hdi/>.

Wagner, Viqi. Labor Unions: Opposing Viewpoints. Gale, 2012. Print.

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National Labor Relations Act. 29. USC. Sec.7a. 1935. Print.

O'Rourke, P. J., and Adam Smith. On The Wealth ofNations. New York: Atlantic Monthly, 2007. Print.

Pencavel, John. "Regulating Collective Bargaining in Developing Countries: Lessons From Three Developed Countries." Stanford University: Department ofEconomics, Sept. 1997.