Milestone Two: Outline

timer Asked: Oct 18th, 2018
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Topic on a labor issue: Job Security Issues

In this milestone, you will submit a 1-2 page outline of the major ideas for your topic above to be presented in your final paper.You may provide an Outline of your Final Project for MILESTONE TWO: (sample may be Introduction, Definition, History, How used, Legal aspects, Protection under NLRA, How Employer & Unions view the topic, What future entails).

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University of Pennsylvania Law School Penn Law: Legal Scholarship Repository Faculty Scholarship 5-12-2003 Judging Unions' Future Using a Historical Perspective: The Public Policy Choice Between Competition and Unionization Michael L. Wachter University of Pennsylvania Law School, Follow this and additional works at: Part of the Economic Policy Commons, Labor and Employment Law Commons, and the Labor Economics Commons Recommended Citation Wachter, Michael L., "Judging Unions' Future Using a Historical Perspective: The Public Policy Choice Between Competition and Unionization" (2003). Faculty Scholarship. Paper 26. This Article is brought to you for free and open access by Penn Law: Legal Scholarship Repository. It has been accepted for inclusion in Faculty Scholarship by an authorized administrator of Penn Law: Legal Scholarship Repository. For more information, please contact Judging Unions’ Future Using a Historical Perspective: The Public Policy Choice Between Competition and Unionization Michael L. Wachter• University of Pennsylvania The prospects for private sector unionism, in the context of the prolonged decline in membership since the early 1950s, have long captivated labor economists, and deservedly so. Today, private sector union membership is less than 10 percent of private sector employment, far below its peak of 36 percent in the early 1950s.1 In the construction industry, a stronghold of private sector unions, union employment share is down from over 80 percent to approximately 20 percent.2 This unrelenting decline represents one of the most important institutional changes affecting the United States economy. In this paper I address the future of private sector unions in a broad historical and institutional context. In doing so I make extensive use of a recently published collection of papers on the topic, “The Future of Private Sector Unionism in the United States,” edited by James Bennett and Bruce Kaufman, which also adopted a broad focus in exploring the future of unions.3 The positions I develop are the following. First, although numerous issues have been cited for the decline in unions over the past three decades, in the end they all come down to a single question: the ability of unions to achieve their traditional goals in the economic environment they confront. I consider the primary goal of unions to be taking wages and working conditions out of competition, although in so defining the goal I am forcing a complex set of goals into a single statement.4 This, in turn, amounts to taking advantage of opportunities for obtaining economic rents or removing exploitative or monopsonistic elements from firms. Consequently, it is the continuing trend toward a more competitive United States economy that represents the critical economic factor in the multi-decade decline in unions. Second, to predict the future of unions, understanding their rapid rise to prominence between the 1930s and the early 1950s is at least as important as explaining their multi-decade decline. More specifically, to predict the near-term future the recent past is sufficient, but to understand what factors might be needed for a major resurgence in unionization, it is necessary to go back to the earlier period of rapid union growth. What factors were in place at that time? I argue that the high-water mark of unionization, rather than reflecting inevitable economy-wide forces, was itself highly dependent on the convergence of historical events that promoted unions. These include the anticompetition policies adopted during the Great Depression and the prevailing view that unions improved the efficiency and functioning of labor markets, making them less exploitative. By the time union employment reached its peak, however, the economy, including the labor market, was becoming more competitive, and the adoption of human resource management policies by nonunion firms was seen as successful in removing exploitative elements from the workplace of individual firms. 1 This view of unions is supported by the nature of the National Labor Relations Act (NLRA) and particularly by the collective bargaining apparatus that it created and supports. The collective bargaining apparatus, although ideally suited for protecting rents or attacking monopsonistic forces, is not well suited for a highly cooperative employment relationship. Contracts are a high cost method for organizing the employment relationship inside firms. Where the firm and its employees can cooperate using norms-or non-legally enforceable rules and standards--they can operate more efficiently than can a firm where the employment relationship uses the more costly and less flexible contract mechanism. The paper is organized along the following lines. In the first section I evaluate the evidence for the causes of the decline in unionization rate. The evidence appears overwhelming that if the institutional setting does not change, unions will remain less than 10 percent of the private sector workforce. In Sections 2 and 3, I discuss the longer run historical record and develop the point that the high-water mark of unionization fits the convergence of specific historical events. My discussion relies extensively on the accounts being written as the events were taking place. More important than a modern reinterpretation of the past, we need to know what the actors, at the time, actually thought was happening. In Section 4, I examine the improvements in human resource management and what those improvements imply for the union sector. In Section 5, I examine the costliness of the NLRA collective bargaining apparatus. The last section summarizes the paper and draws some conclusions. I. Economic Factors in the Decline in Private Sector Union Employment There is a virtually unanimous view that assuming no major changes in the institutional environment, union density in the private sector will remain below 10 percent, and perhaps fall to close to 5 percent. The major reasons for this have been extensively documented in the literature.5 First and foremost, the American economy has become much more competitive over the past 50 years. Factors include the growth of the internationally traded goods sector; the increase in multinationals with multi-country production loci such as European and Japanese car companies with plants in the United States; the efficiency of capital markets in providing seed capital for new ventures to enter industries that earn super-competitive returns; and the decline in the number of industries that are regulated where government rules have protected firms from competition. The result is that few sectors of the economy are insulated from competition. As a consequence, these sectors cannot serve as a source of reliable rents for business and labor to negotiate over.6 Increased competition produces more winners than losers, but it does produce losers. Among the losers are the companies and their employees with cost structures that are above those of competitors and potential entrants. Losses are also suffered by companies and their employees who are being deregulated and who survived in the past 2 because of government protection from competition. To the extent that a primary goal of unions is to take wages and working conditions out of competition, they become primary losers as well. Second, the overwhelming evidence supports the contention that unions do indeed raise wages above competitive levels. For a time, some researchers contended that the increase in union wages reflects an increase in productivity, but there has never been any reliable evidence to support this conjecture. The result of the wage premium is to put unionized firms at a competitive cost disadvantage. All else equal, one would expect that the union compensation premium would decline as industries became more competitive. In fact, the reverse occurred, particularly over the 1970s and early 1980s. Although the union wage premium has declined from historically high levels reached in the early 1980s, the premium or percentage wage differential is still above levels existing in earlier decades. In other words, while the American economy is much more competitive than say in the 1950s or 1960s, union wage premiums are higher today.7 Third, the private-sector American economy is becoming increasingly an economy where job creation occurs in industries and occupations and among nonunion firms and among demographic groups where unionization rates have historically been low. Based on the accounting methodology of Farber and Western (2002), American jobs are disproportionately being created in the service-producing sectors rather than the goods-producing sectors, and in professional and managerial occupations rather than in blue-collar occupations. In addition, the American labor force is increasingly better educated and more mobile, whereas unions have traditionally been strongest among lesseducated and less-mobile workers. The compositional effects are partly exogenous, but each of the elements leverages the effects of competition and the rising union wage premium. Although the growth in service sector employment is largely an exogenous factor, most service sectorproducing industries are highly competitive. As the economy becomes more service oriented, it becomes more competitive at the same time. But the high wage premium also contributes to the compositional shift between union and nonunion firms within a given sector. At least partly as a result of the higher costs, R&D expenditures and new capital investments in unionized firms lag behind levels in nonunion firms. Consequently, new employment opportunities, whether through the construction of new establishments or the startup of new businesses, occurs primarily in the nonunion sector. Since newly established firms start off as nonunion, the more dynamic the economy, the faster unions have to organize new plants simply to maintain a constant share of employment. In the union sector, one observes a slow decline in rates in industries where unions have been strong. If an existing plant is unionized, it is likely to stay so, barring a major battle to dislodge it. An existing plant does generate rents (i.e., revenue greater than variable--but not necessarily fixed--costs) over which the parties can bargain without the plant being closed, and the workings of labor law make it difficult for management to 3 move the capital without first bargaining over the topic and possibly taking a strike. But little in the way of new employment is created in these plants and ultimately they are closed. Similarly, a more mobile population is itself a result of the fact that the economy is competitive with considerable job turnover as new firms develop and old ones lose market share. Finally, a better educated population makes the supply side of the labor market more informed. This makes it difficult for firms to establish monopsonistic niches that can rely on the ignorance of the labor force of prevailing wages, benefits, and working conditions. A fourth factor is that management opposition to unions' organizing efforts has been an important factor in explaining the difficulties unions have faced in meeting the requirements to hold a certification election and the lack of success in winning the elections that are held (Kleiner, 2002). Here again, although management opposition may be somewhat of an exogenous factor, it also ties closely with the theme of the effects of increased competition. In a competitive economy, higher wages and benefits and a loss of flexibility as a consequence of work-rule rigidities in collective bargaining agreement should be expected to generate management opposition. Similarly, the claim that management opposition is higher today than in the past is predicted by the fact that the wage premium remains high and product markets are more competitive. The issue becomes more complex to the extent that management opposition includes an increased use of unfair labor practices. From a purely economics perspective, one can attribute the growth in unfair labor practice claims against management to a similarly rational cost-benefit calculation on the part of management. Still, the issue is highly controversial, largely because of the normative questions it poses. A final factor involves the failure of unions to organize enough workers to offset the job losses that normally occur in a dynamic economy. Given the dynamic nature of the economy, jobs are being created and destroyed at a high rate. With more jobs disappearing than being created in already unionized firms, unions must be able to organize large numbers of new workers simply to retain even existing levels of employment. This they have been unable to do. On a purely accounting basis there are too few elections, in too many small units, and the union win rate is too low. With little in the works indicating a much higher level of successful union elections, the percentage of union employment in the private sector, on this purely accounting explanation, is likely to continue to decline (Farber and Western, 2002). The above analysis focuses on economic factors and holds constant the underlying institutional features of the economy. Clearly, changes in the latter are also important, particularly the legal rules that structure the unionization and bargaining processes, the historical factors such as the confluence of forces in the 1930s, and the mission or function of unions. 4 II. Historical and Institutional Factors—Government Policy Toward Competition The above section focuses on the prolonged decline in unions over the last several decades. To understand whether unions are likely to see renewed growth in the future, it is at least as important to understand the reasons for the rise in union density from the 1930s through the early 1950s. In a fascinating paper, Kaufman (2002) discusses the developments of the 1930s by going back to the AEA presidential speech given by George Barnett in 1932. In that speech Barnett predicted that “unionism is likely to be a declining influence in determining conditions of labor.” The reasons cited by Barnett include reasons given today, primarily a shift in the composition of demand toward sectors in which unions have been largely unsuccessful in organizing workers and a steady increase in real wages. Of course, Barnett’s prediction was wrong for the time, in the sense that the steep upswing was about to begin. Kaufman’s punch line is that Barnett got it right, he was just forty years too early. Indeed, Barnett himself would have gotten it right if he had only made his prediction conditional on his theory. Barnett believed that the steady rise in real wages had eroded workers’ interest in unions during the 1920s, but real wages were already beginning their depression decline in 1932—hence he would have made a conditional prediction that membership would indeed begin to rise. One of the many virtues of the Kaufman paper is to encourage humility in those who write about the decline of unionism today—believing it to be a single event rather than possibly a cyclical phenomenon. Kaufman also should remind us that hand wringing over the decline in unionism is not predicated on the unions’ fall from being a mass movement in the 1950s. When Barnett was wringing his hands, union density was at a peak of less than 20 percent of employment. Another virtue of the Kaufman article is to remind us that reading what the ancients actually thought in the 1930s might be useful. With this as incentive, I returned to some of the older texts, including Barnett’s. But, having done so I want to quarrel with Barnett on two points. First, even though Barnett's prediction ultimately was realized, it was for different reasons than those he outlined. But his errors are instructive. For example, the compositional shift emphasized by Barnett was the trend in employment away from craft workers, a group that historically had the highest rates of unionization. Predicting future developments based on compositional shifts is highly informative, but only if the economy is not undergoing important shifts. Barnett entirely failed to see the emerging unionization of industrial workers, a group that remains relatively highly unionized to this day. Similarly, a compositional shift analysis would have entirely missed the unionization of government workers beginning in the 1960s.8 More important, I believe that there is an alternative message in the historical data. The alternative message is that the sharp upswing in union density from the 1930s 5 to 1953 was itself highly dependent on a number of historical events coming together. While Barnett and his emphasis on the real wage decline would stress the Great Depression and the resulting passage of the NLRA as the causal factors, I would emphasize less the Great Depression and more the government’s response to the Great Depression: namely a series of legislative measures that severely restricted competition. It was widely accepted at the time that government policy during the Great Depression was anchored by two formidable trends: first, protection against foreign competition through measures such as the Smoot-Hawley tariffs (1930), and second, protection against competition at home appearing under the euphemism “fair trade practices.” The National Industrial Recovery Act (1933), the Robinson-Patman Act (1936), the Davis-Bacon Act, the Miller-Tydings Act (1937), as well as state and local price-maintenance laws, were some of the policies driving attempts to “stabilize business” through reducing competition, otherwise known as “fair trade practice.”9 Stabilizing business through fair trade was the presumed solution to the economic ills. While such a policy might appear to be a pro-business policy to modern readers, this was very much not the case.10 The fair trade policies of the 1930s were based on a particularly dark view of the large corporations that had been developing since the early 1900s. It was a strongly held belief that these large corporations were more efficient than the existing smaller companies with which they competed and would win open competitive battles.11 The large corporations were also viewed as wielding considerable political clout arising from the domination of economic markets. “Fair trade,” during this period meant attempting to counterbalance the existing power of large corporations. The National Labor Relations Act, in its original form, was a reflection of the times. At a time when business firms were seen as having considerable power, the NLRA was intended to level the playing field by giving workers some offsetting power.12 Unquestionably, the NLRA was an enormous causal factor in the spike in union density. However, its overall impact might have been a good deal less if it had been drafted in a more competitive environment. The NLRA, as amended today and as interpreted in several decades of case law, is clearly a very different measure than the original Wagner Act. While it is less supportive of unions, it is also much more in keeping with the more competitive economy promoted by today’s government policies. Unions flourished in the years between the passage of the Wagner Act and the subsequent amendments adopted in the Taft-Hartley Act. Indeed, the rapid increases in unionization came to an end in 1948, the year that the Taft-Hartley Act was passed. After 1948, unionization rates only crept slightly higher, reaching a peak in 1953, before turning negative. The timing of the passage of Taft-Hartley is consistent with the hypothesis that legal rules matter a great deal. But my point is that legal rules have to be vi ...
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School: University of Maryland




Job Security Issues- Outline
Course Code:


Introduction and Definition

Job security is defined as an assurance, by law that an individual will maintain
their status of employment without risk or fear of termination. This assurance would be
regarding the collective bargaining agreement, contracts and terms of employment or legislation
that prevents unlawful termination ("Job Security Law and Legal Definition | USLegal, Inc.",
The history of j...

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