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Labor Law Reform as a Policy Response to Economic Inequality

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Temple University and Georgetown Law (Visiting)

WHAT HAS CAUSED THE RECENT MASSIVE GROWTH in economic inequality within the U.S.? From one perspective, it has been driven largely by apolitical or exogenous factors. Those include the globalization of product and labor markets, as well as technological advances that eliminated millions of blue-collar and white-collar jobs, while increasing competition for highly skilled workers. As a result, today’s working class is no longer in factories, but rather in building services, health care, hospitality, childcare, and other sectors where wages remain quite low.


Yet comparative studies of advanced economies suggest that technological change, the growth of services, and globalization cannot fully explain the growth in income inequality. After all, income and wealth inequalities, and the incidence of precarious work, vary significantly across wealthy nations today. Workers have been especially hard hit in the “liberal market economies” such as the U.S. and U.K., as compared to both continental European countries and the Nordic states. The overall story is of course very complicated, but the basic trends are clear. This suggests that political-economic differences among nations helped to shape their responses to globalization and technological change. In particular, in both Continental Europe and the Nordics, unions have been far stronger than in the U.S. in two key ways. First, union membership has generally been much higher in those countries. It is highest in Belgium, Denmark, Finland, and Sweden; that seems due largely to the “Ghent System,” where unions manage unemployment insurance. But it remains significantly higher in most European countries compared to the U.S., where membership has fallen to 7% in the private sector.


Second, and perhaps more importantly, in most European nations there is a difference between rates of union membership on the one hand, and collective bargaining coverage on the other. In the U.S., the numbers are virtually identical, because our labor laws and industrial relations traditions have emphasized firm-level or even worksite-level collective bargaining. Verizon workers negotiate with Verizon, and AT&T workers with AT&T, or even with the management of their individual jobsites. In most European countries, unions instead negotiate at the sectoral level: telecom workers negotiate with all telecom companies at once. Such “sectoral bargaining” systems often emerged in the shadow of the law, following massive strikes in the early twentieth century. But they have been protected and encouraged by “extension laws” and other legal mechanisms that bind all companies within the sector to those agreements. Plus, since sectoral bargaining mitigates companies’ abilities to compete on the basis of labor costs, those companies have fewer incentives to resist unionization than their American counterparts.


Numerous studies have found that sectoral bargaining tends to reduce wage inequality. This seems to occur through several mechanisms. Sectoral bargaining tends to compress wages within firms, both among workers and between workers and managers. Unions in sectoral bargaining systems can also set and enforce a high wage floor. Indeed, they have been so effective in this regard, that some nations with powerful and encompassing unions, including Sweden, don’t have a statutory minimum wage. Finally, the (often grudging) acceptance of sectoral bargaining by employers has turned unions into important social partners for both employers and governments, giving them a powerful voice in other aspects of economic policy including education, worker training, industrial policy, and public benefits.


In short, levels of economic inequality and precarious work are closely correlated with measures of union strength; that strength, in turn, is shaped by policy choices to encourage or discourage union membership and collective bargaining. Labor law reform may therefore help reduce economic inequality going forward. In a report I co-wrote for the Roosevelt Institute last year, my co-author and I argue that three such reforms are especially urgent. The first three would make it far easier for workers to unionize (increasing union membership), while the third would encourage sectoral-level bargaining (increasing union coverage). Many of these reforms, it bears noting, would simply reverse an Act of Congress that was specifically designed to reduce unions’ strength.


First, labor law should protect all vulnerable workers, in all industries. This is not the case today. Like many other statutes of the time, the 1935 National Labor Relations Act or NLRA, (which governs union organizing and collective bargaining), and the 1938 Fair Labor Standards Act or FLSA (which sets minimum wages, overtime protections, and protections against child labor), reflected a compromise between northern liberals and southern segregationists within the Democratic Party. Those Acts thus failed to protect what were then predominantly African-American occupations: agricultural work and domestic work. While such workers have gained some wage and hour protections over the years, they are still wholly unprotected by the NLRA. Many other workers are also excluded from coverage, including many lower-level supervisors, and workers misclassified as independent contractors such as Uber drivers. Other workers are covered by the NLRA but have no real rights vis-à-vis the companies that actually control their working conditions. That list includes employees of temporary agencies and subcontractors, and employees of franchisees such as McDonalds’ locations and many hotels. The net effect of these exclusions is that labor law protections are denied to today’s most vulnerable workers.


Second, a long series of decisions from the National Labor Relations Board (NLRB) and the Supreme Court have made it exceptionally difficult for workers to organize enterprise-level unions. For example, employers can require employees to attend anti-union meetings during work hours while excluding union representatives from their premises; they can discipline or even terminate union supporters or leaders with relative impunity given the NLRB’s weak remedial powers; they can typically delay union elections by months or even years in hopes that support for a union will dissipate; and they can stonewall at the bargaining table with little consequence. This means that U.S. workers must endure a pitched battle just to win certain core elements of workplace citizenship—such as rights to due process, or to a voice in their working conditions—that in many other countries are guaranteed under law.


Third, U.S. workers sharply limited rights to strike, which is their most basic economic weapon. To name just a few restrictions: unions can picket for recognition only in limited circumstances; unions can only strike or picket against their immediate employer; they typically cannot engage in intermittent strikes that substantially disrupt their employer’s operations; and workers who strike over economic issues can be “permanently replaced” by their employers, which typically amounts to termination.


Fourth, as noted above, our labor law encourages localized bargaining, in which unions represent workers primarily at the enterprise or even worksite level. Notably, there are important exceptions in our history. The FLSA, as originally passed, enabled the Department of Labor to form “wage boards,” administrative bodies populated by workers, companies, and government representatives with the power to set minimum wages at the sectoral level. By taking wages out of competition, those bodies had helped to stabilize sectors where workers found it difficult to unionize. By giving workers a nascent voice in wage setting, wage boards also served as proto-unions. Other exceptions include the “pattern bargaining” in the auto industry. But the difficulty of organizing individual shops, and doctrines that make it very difficult for unions to merge bargaining units together, have made localized bargaining the general practice.


In recent years, many labor law scholars and labor leaders have suggested reforms to address our hyper-localized bargaining structures. Presidential candidates including Bernie Sanders, Pete Buttigieg and Beto O’Rourke have joined the call. For example, lawmakers could make it easier for workers to build multi-employer bargaining units, which could lead to sectoral-type bargaining at the local or regional level. Or lawmakers could supplement our system of enterprise bargaining with wage boards once again, setting a higher wage floor and giving workers some voice in their own working conditions even if they have not unionized. Either reform would be especially helpful in today’s low-wage economy, where workers are often employed by relatively small companies, in geographic and legal isolation from one another.


Importantly, rebuilding unions in these ways would pay dividends beyond the workplace. During their heyday in the New Deal and the postwar era, unions did more than negotiate and enforce contracts. They also represented workers in politics and civil society. In that role, they helped to deliver higher minimum wages, workplace safety laws, higher income taxes on top earners, and limits to executive compensation. With unions’ decline, accordingly, workers and the broader polity have suffered a quadruple blow: deteriorating working conditions, greater economic inequality, less economic mobility, and dominance of our politics by wealthy interests. This shift in our political economy has been especially harmful to African-American workers and other racial minorities, who benefitted disproportionately from unionization in the 1960s and 1970s. While addressing economic inequality will require efforts on many different fronts, fundamental labor law reform is clearly essential to that project.

Brishen Rogers will speak at the Reverberations of Inequality Opening Conference, Panel 3: Policy Responses to Inequality, September 20, 3:20-5:00 pm, 3501 Sansom Street. Click here to register.

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