1. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. C2-1 CHAPTER TWO LABOR UNIONS: GOOD OR BAD? The objectives of the employment relationship are efficiency, equity and voice. Employee representation through labor unions and collective bargaining is one way to achieve a balance of these objectives. Whether unions are thought to be “good” or “bad” depends on how one thinks labor markets and the employment relationship works.

2. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. C2-2 Workplace Governance Options MechanismKey FeatureQuestions Competitive Labor Markets Competitive markets promote efficiency and provide protections against abuses. Are markets competitive? Should Ees be solely at the mercy of markets? Human Resource Management HR policies can align interests and promote efficiency and equity. What prevents managerial abuses? HRM with VoiceEmployee participation in decision- making adds voice to HRM Is management-controlled voice meaningful? Worker ControlWorkers’ interests served by having them in control. What prevents exploitation of investors? How is efficiency achieved? Independent Employee Representation Collective bargaining can equalize power while involving both sides in decision-making. Are unions adversarial and harmful to efficiency? What if unions are weak or absent? Government Regulation Uniform standards not dependent on the vagaries of markets, mgmt, or power. Do regulations stifle efficiency?

3. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. C2-3 THE LABOR PROBLEM Neoclassical (mainstream) economics view –Free markets and competition promote optimal (efficient) outcomes –“Labor problem” stems from market failures or is perhaps “labor’s situation” (unions interfere w/ markets) HRM view –HR policies can align interests of Ers and Ees –“Labor problem” would be poor mngt (unions unnecessary/conflictual) Industrial relations view –Inherent conflict of interests, unequal bargaining power –“Labor problem” stems from unequal power and lack of unions a/o gov’t leveling of playing field (unions necessary) Critical view –“Labor problem” stems from capital’s control of social institutions (unions important mechanism, may be co-opted)

4. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. C2-4 THE LABOR PROBLEM U.S. political and legal thought during the 1800s and 1900s dominated by laissez faire views consistent with neoclassical school of economics. Great Depression (1930s) called into question wisdom of laissez faire legal and economic philosophies. FDR’s “New Deal” policy embraced Industrial Relations school of thought, assumed that labor unions and collective bargaining counter corporate bargaining power and provide Industrial Democracy.

5. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. C2-5 FUNDAMENTAL ASSUMPTIONS OF HUMAN RESOURCES AND INDUSTRIAL RELATONS Different possible underlying causes of labor problems of early 20 th century lead to different views of labor unions. Underlying these views are four fundamental assumptions of how markets work and nature of employment: Is labor a commodity? Are employers and employees equals in self-regulating, competitive labor markets? Is there an inherent conflict of interest between employers and employees? Is employee voice important?

6. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. C2-6 THEORIES OF THE LABOR MOVEMENT The several views of labor unions give rise to several categories of theories (or views) of the labor movement, based on social roles of labor unions: Harmful Labor Market Cartel (monopoly) Institution for Economic Protection Agent for Extending Industrial Democracy Agent of Revolution Special Interest Group in a Pluralist Society Instrument for Achieving Psychological Needs Agent for Moral and Spiritual Reform

7. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. C2-7 WHAT DO LABOR UNIONS DO? Are unions good or bad? –Ultimately, no single answer to question. –One way to address issue is through influential model of unionism developed by economists Freeman and Medoff. Model states that labor unions have two faces, a monopoly face and a collective/institutional response face. With two faces, unions can have both positive and negative effects on diverse list of workplace and societal dimensions

8. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. C2-8 WHAT DO UNIONS DO? (efficiency) DimensionEstimated Effect of U.S. Unions Job Satisfaction Union workers are less satisfied (but also less likely to quit) TurnoverReduced turnover ProductivityMixed evidence—controversial effects ProfitsReduced profitability

9. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. C2-9 WHAT DO UNIONS DO? (equity) DimensionEstimated Effect of U.S. Unions Wage LevelsHigher wages (15 percent higher, on average) Wage DistributionCompressed (less unequal) wage structure BenefitsIncreased likelihood of benefits being offered Just Cause Discipline and Discharge Nearly universal in union contracts; rare elsewhere Public PoliciesAssistance with exercising rights (e.g., workers’ compensation) SeniorityIncreased importance of seniority provisions in personnel changes

10. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. C2-10 WHAT DO UNIONS DO? (voice) DimensionEstimated Effect of U.S. Unions Collective Negotiations Management required to bargain with certified union Grievance Procedures Nearly universal presence of formal grievance procedures in union contracts; few nonunion procedures with same level of due process and representation

11. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. C2-11 THE LABOR PROBLEM IN THE 21 ST CENTURY Chapter Two lays out schools of thought, discusses historical “labor problem” Relevant as well for contemporary labor relations –Economic and social debates such as globalization Are modern sweatshops a problem? If so, what should be done? –See “Workers in Bondage”“Workers in Bondage” –See www.aflcio.orgwww.aflcio.org –See www.ilr.cornell.edu/trianglefirewww.ilr.cornell.edu/trianglefire