As you may already know, Professor Richard Epstein is not President Obama's biggest fan. Obama favors some economic regulations that Epstein does not. In his Chicago's Best Ideas talk on Tuesday, January 27, Professor Epstein spoke about three proposed laws in the area of labor relations: the Employee Free Choice Act, the Lilly Ledbetter Fair Pay Act, and the Paycheck Fairness Act. Epstein spent most of his time on the Employee Free Choice Act (EFCA), so my attention will focus on that law. (Epstein has a column about the Lilly Ledbetter Act on Forbes.com.) The EFCA is an amendment to the National Labor Relations Act (NLRA).
Epstein started with the word "free" in the EFCA's name. Back in the nineteenth century before the New Deal, "free" meant free for both sides of the labor relationship: employer and employee. An employer could not force the employee to accept a particular wage, and the employee could not, even if represented by a union, force the employer to hire him at a given wage. The NLRA was passed at the height of the New Deal in 1935. (Epstein is, not surprisingly, no fan of the New Deal.) The Act provides that unions can prompt a unionization vote by getting at least 30 percent of employees to show support by signing cards, called the card check. The vote is a simple majority vote by secret ballot. If the union is approved, the employer must negotiate with the union. Freedom under the NLRA is one-sided because employers must negotiate with a valid union.
The rate of unionization spiked immediately after the passage of the NLRA but has steadily decreased since then. Why the decline? Epstein posited a couple reasons. First, globalization puts downward pressure on wages. Greater competition forces a firm to lower its prices, so it has less money to pay its workers. Second, the employment structure of a firm has become more heterogeneous--that is, a firm has a greater variety of positions rather than several employees at parallel positions. The older industrial model put several employees with similar tasks along an assembly line. The new greater variety of employment reduces the common interests shared by all employees. Negotiating employment terms becomes more difficult when the terms must be different for each employee, so workers become more skeptical of the benefits a union can provide. For both of these reasons, unionized firms are less able to compete and fall out of the marketplace.
Unions put forth a different story for the seemingly inexorable slide. They point to sharp campaign tactics during unionization drives at companies. This general frame of mind explains the impetus for the EFCA; if the unionization rate is controlled by law rather than by economics, then legal changes can fix it. The law contains three main provisions. The first beefs up sanctions against employers for threatening to shut down in the face of unionization. Employers are allowed to predict that they will have to shut down from higher costs if the union forms. The inquiry is difficult and complicated whether a statement is a threat or merely a (frequently correct) prediction. This provision thus makes a bad thing worse but doesn't really change the game.
The second provision permits union formation through the card check alone rather than by secret ballot. Employees against unionization often feel pressure to sign cards because they do not want to alienate pro-union coworkers or potential union leaders, so, currently, budding unions typically wait until they obtain cards from 55 to 60 percent of the workforce before asking for a ballot because some workers change their minds in the voting booths. Furthermore, workers cannot take back cards, so the nascent union can keep the cards on file for extended periods of time in order to build up a majority. Thus, this provision lets unions form when most of the employees do not want a union.
The third provision creates a series of timeframes for collective bargaining: the employer must begin bargaining within ten days of the certification of the card check; if the employer and union do not agree within ninety days, either party can request federal mediation; thirty days of disagreement later starts binding arbitration. Thus, if the sides are unable to reach agreement after a mere 130 days, the employer may have to swallow a government-crafted contract under rules and regulations that have yet to be determined. The arbitration panel can set the terms of employment for the next two years, and that decision is not subject to judicial review. Epstein argues (and has argued) that the inability of the employer to refuse a deal constitutes a taking under the Fifth Amendment. A forced hiring at twice the rate the employer wants to pay is equivalent to a forced purchase of real estate for twice its value.
When we are in a deep recession, legislation that creates jobs is what is needed, not legislation to protect people who already have jobs. When an employer finds it more difficult to adjust its workforce, that employer is less likely to hire workers to begin with. The employer may look overseas, resort to automation, or simply fold. The EFCA is exactly what we do not need now.