If the US is going to make a big dent in income inequality and raise living standards for the middle class, it is going to need a multipronged approach. Higher taxes and more spending on healthcare would help. Minimum-wage laws can raise pay for workers at the bottom without reducing employment much, but they only benefit a relatively small slice of the workforce. However, something else is needed.
One big idea is to bring back unions and collective bargaining. Several teams of economists have examined the historical record and concluded that unions were important in reducing inequality. However, although unions are still important in the public sector, in the private sector they have been almost wiped out.
People argue about the cause of the decline. Some blame weak enforcement of labor laws or the rise of state right-to-work laws. Others blame global competition and technology.
However, Martin Manley, an entrepreneur who previously served as assistant secretary of the US Department of Labor under former US president Bill Clinton, thinks he has the answer.
In a new book titled A Better Bargain: Organizing Employers and Workers to Grow America’s Middle Class, Manley argues that the US union system was doomed from the start.
Before 1935, Manley said, there were several types of collective bargaining in the US.
However, the one that ended up being enshrined in law, in the National Labor Relations Act, was called enterprise bargaining. Under that law, workers at each workplace have to vote to unionize; if they do, all workers at that workplace are covered by the union contract. However, if they reject the union down, there is no collective bargaining.
This system has a huge downside: competition. Suppose the workers at a McDonald’s want to form a union. The managers know that if the workers unionize, wages will go up and prices for hamburgers at that McDonald’s will rise. That will put the restaurant at a competitive disadvantage versus the non-unionized Burger King down the street, eventually resulting in layoffs. The managers will make this argument to the workers, who probably will find it convincing.
If both the McDonald’s and the Burger King could coordinate and unionize together, competition would be no problem; wages would rise and the profits of the two giant corporations might fall while consumers paid higher prices for burgers.
However, because US labor law forces each workplace to act independently on unionization, they cannot effectively coordinate. The situation is even worse for companies such as General Motors (GM) that face international competition, because there is no way for GM workers to coordinate with Volkswagen workers in Europe or Toyota workers in Asia.
Manley has a two-pronged solution to this problem. Both pieces would require a major rewrite of US labor law, and both would involve a shift from enterprise-level bargaining to sectoral bargaining, with negotiations taking place in an entire industry, not individual workplaces or companies.
The first piece is industry associations — groups of companies in the same industry and region that bargain collectively with their workers all at once.
Though it might seem counterintuitive to let employers collaborate like this, it would remove the competitive threat that unions represent, because the resulting agreements would constrain all businesses equally.
Manley suggests that industry associations could also collaborate to create more efficient and flexible labor markets by providing worker training, sharing knowledge about workers across company lines and so on.
Second, Manley would make unions non-exclusive. Under his preferred system, an industry association would bargain simultaneously with all the organizations that workers in that industry belonged to, be they unions, worker co-ops, professional associations or advocacy groups.
The various worker groups would be awarded representation at the negotiating table proportional to their membership, which could overlap.
Manley envisions various worker groups competing with each other for members by offering services other than wage bargaining.
These are good ideas. To really be effective, they will require one crucial element: that workers who do not belong to any organization are all covered by the contracts that result from sector-level labor negotiations.
A law like this is the reason that the French and German workforces are still mostly covered by collective bargaining, despite falling unionization.
If combined with Manley’s idea for competing labor organizations and proportional representation in negotiations, sectoral bargaining would undo the decades-long decline in private-sector collective bargaining almost overnight.
It would not require unions to rebuild their membership; all it would need is a few worker organizations to pop up and start bargaining on behalf of everyone. At first, these early movers would get almost all the seats at the negotiating table, which would induce other workers to form other organizations to get a piece of the action.
US presidential candidates, such as South Bend Mayor Pete Buttigieg and US Senator Elizabeth Warren, have backed sectoral bargaining, showing that the idea is catching on.
Innovative ideas like Manley’s could allow sectoral bargaining to take root even faster and to be carried out in a way that many employers would embrace. Ultimately, a more cooperative relationship between workers and management would result in a more sustainable system for supporting the middle class.
Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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