11 May 2009

Unmarkets and Government Shutdowns

The market for grocery story labor in Colorado doesn't look much like the one described in your first year economics textbook.

In your textbook, individual job applicants compete for jobs from competing employers in the industry and that application and acceptance process sets a market wage for their labor. In non-union shops, that is more or less how it works. But, a large share of the grocery store labor market in Colorado is unionized, so the labor market operates very differently for a large share of the market.

In the real world, the biggest three grocery store employers in the market, who normally compete with each other, enter into formal agreements to coordinate their negotiations with the United Food and Commercial Workers Local 7, which represents workers at all three. Until recently the American automobile industry operated in a similar manner. As I understand the matter (and neither anti-trust nor union-management negotiations are my personal speciality, I rely on others when it counts for these parts of the total picture), this would probably be a violation of anti-trust laws were it not for the fact that the employees are represented by a common union.

It is apparently possible that a strike by workers at one grocery store chain could cause workers at two grocery store chains, who are not on strike, to be locked out and replaced with "temporary replacement workers" just the way striking workers can be under American laws regulation union-management relations, so that employers can show solidarity with each other and strengthen their hand in negotiations.

Contracts covering about 17,000 workers represented by UFCW Local 7 at King Soopers, Safeway and Albertsons expire May 9. The grocers coordinate on contract talks but negotiate separately.

Safeway workers are voting Friday and Saturday whether to authorize a strike if a contract isn't reached. Safeway meat warehouse workers have already authorized one.

King Soopers and Safeway have been accepting applications for temporary workers on the Front Range, in case of a strike. Western Slope negotiations begin later this month.

Contract talks have been contentious before. Federal mediators have been involved in talks between the union and at least one grocery chain in the last two major rounds of talks dating to 1999.

In 1996, King Soopers and Safeway workers agreed to a contract after a 44-day strike.

Last week, UFCW Local 7 filed a complaint with the National Labor Relations Board alleging the three chains are violating labor law by not disclosing certain terms of their agreement to team up in the bargaining. Union leaders are particularly interested in whether the chains have agreed to lock out all employees if union members at just one chain vote to strike. The chains have said they routinely coordinate on bargaining.

The union also claims King Soopers' offer of $10.25 an hour for potential temporary workers violates federal law because the wage exceeds the pay for many union workers.

King Soopers spokeswoman Diane Mulligan has said the proposed pay is less than the average wage for regular employees.

The union says grocery chains are pushing for concessions despite profits, as people eat out less and buy food to cook at home.

King Soopers contends it faces competitive pressure from non-union or low-cost chains like Wal-Mart, plus rising health care costs and the effect of the economy on the value of pension funds.

Target is another major non-union grocery store in the area.

I'm not terribly impressed with either the non-union or the union-management negotiation approaches to setting employment terms between workers and their employers in area grocery stores. Union shops generally secure a better deal for employees than their non-union counterparts. But, union-management negotiations, when they lead to long strikes and lockouts before a deal is reached, are horribly disruptive to everyone in the local economy in a classic lose-lose-lose situation, in which both parties and third parties are worse off. The temporary replacement workers (aka scabs) may be a bit better off for a matter of weeks, but a very likely to lose their jobs in an indeterminate period of time, and they earn all the wrath, legal and illegal, that the union can muster.

Unionized employers rightly worry that paying their employees more than their non-union competitors can put them at a disadvantage, potentially one that could cause their businesses to fail. I am not convinced that this was the central cause of the current bankruptcy of Chrysler, the impending bankruptcy of GM if it can't meet a June 1 deadline against all odds to avoid that fate, or the earlier bankruptcy of Delphi, a major automotive parts supplier spun off from GM. Loss of market share, even when selling comparable vehicles for comparable prices, was more important. But, it is clear the unions in all three cases won contracts from their employers that gave them more than their economically declining employers were able to pay. Unions are leading creditors of automobile companies for all of the Big Three automakers.

It seems to me (and has since before I went to college) that there must be a better way to get a good deal for workers without bringing an entire segment of the economy to the brink of collapse every few years, although I don't claim to have any easy fixes.

Mandatory arbitration of employment contracts leaves open the option that one side or the other will get a deal that is truly unworkable for them, without regard to actual economic conditions, and can encourage negotiators to play chicken. Employee ownership has worked in some select situations, but those situations have some key elements (e.g. high levels of comparability between the contributions of each of the employee owners in a way that gives everyone very homogeneous interests) that many enterprises don't share. The German model gives employees a minority role in the company's board and often gives government an ownership stake (not unlike the model many bailed out American companies are approaching). The Japanese model, where employees are represented by relatively tame (illegal under U.S. law) company unions and shares risk with shareholders by receiving much of their annual compensation in profit sharing bonuses, in exchange for a stronger management commitment to limit management compensation and to provide lifetime employment to many employees if after all possible, is another approach which could work. The French model, with very powerful unions that frequently strike and often kidnap employers as a negotiating tactic, and where non-management workers are very hard to fire and have very generous vacations isn't obviously a good solution.

Most European countries simplify negotiations by providing many social welfare benefits through government rather than employers; Japanese and Chinese workers often have an even more comprehensive benefit package (often including employee housing and giving employers more of a role in employee's non-work lives, for example) than the neo-feudal American system where employees rely on employers for health care, many forms of insurance and pensions.

Notably, most governments operate the same way. Unless majorities in two legislative chambers agree, and often, until an executive branch officer decides not to veto appropriations bills, non-essential employees for the entire part of the government which lacks appropriations bills shuts down until there is a deal. Usually, as in union-management pacts, much of the deal making happens at the very last minute in some sort of omnibus deal as a shutdown looms. Every now and then, government shutdowns last for days or even months.

Indeed, it is something of a wonder that this doesn't happen more often. Nothing logically guarantees that there is a possible budget deal which can secure the necessary support from the right combination of elected officials, yet sooner or later, a deal is almost always reached. In contrast, with most other legislation, failure to act leaves a stable status quo legislative situation in place which can be determined unilaterally through the courts, so the survival of the government does not depend upon a deal being reached on any particular issue.

Part of the genius of federalism is that the vast majority of government employees in the United States work for local governments, with state government employees further divided by states and often by fiscally separate divisions of states (like public colleges and universities). The largest group of federal government civilian employees, postal workers, are also fiscally autonomous from the larger budget process. So, even when democratic government encounters that epic fail that is a government shutdown for some government, only a small portion of all government workers are furloughed and life goes on. This, of course, is also bad for government workers, despite the fact that it is almost never the fault of the government workers that elected officials can't agree on a budget.

The trick is how to decouple decisions so that they don't come down to potentially catastrophic must not fail individual negotiations, while at the same time, not getting a raw deal for workers and the public.

1 comment:

Michael Malak said...

I generally support the idea of labor unions despite the numerous faults in practice. One of them is the poltiical nature of unions, whereby the union bosses have to make a big show of a shutdown in order to prove their worth and win reelection.

If you can figure out how to organize collective action while avoiding the negative consequences stipulated by public choice theory, you would win a Nobel Prize.