The Corner

Why Public-Employee-Bargaining Laws Must Be Reformed

The battles over public-employee collective bargaining won’t end in Wisconsin, Ohio, and Indiana. The collective-bargaining statutes in most states are, at best, anachronistic, and in need of serious reform. Almost all are based on a flawed assumption: that public-sector bargaining is virtually the same as private-sector bargaining.

Governor Walker has been asked why he continues to insist that Wisconsin’s public-employee-bargaining laws be modified now that the unions have signaled a willingness to increase the employees’ contributions to their medical and pension plans. After all, the argument goes, now that the fiscal issue of immediate concern has been addressed, there’s no need to reform collective-bargaining rights.

But Governor Walker knows that any concessions on public-employee benefits are merely a short-term fix — if they’re even a fix at all. That’s because the very structure of Wisconsin’s public-employee-bargaining laws — like those of many other states across the country — will almost inexorably reproduce the situation Wisconsin faces today.

The reason for this is that most states’ public-sector-bargaining laws are based on a private-sector model. Yet  many of the concerns that drive private-sector bargaining are wholly absent from public-sector bargaining. A few examples:

  • Monopoly Power. Private-sector bargaining is constrained by competition. If the  Madison Widget Co. agrees to a compensation package that drives its costs appreciably higher than those of its competitors, Madison Widget loses business and some, if not all, of its employees will be laid off. Both Madison Widget and its unions know this and bargain accordingly. Conversely, the City of Madison has no direct competition. Both the city and its unions know this and bargain accordingly.


  • Globalization. Private-sector negotiations are constrained by the cost of labor in Mexico, China, and India. If Madison Widget agrees to an imprudent compensation package, it may eventually be forced to outsource some, if not all, of its operations. Both Madison Widget and its unions know this and bargain accordingly. On the other hand, the City of Madison cannot readily outsource its trash pick-up or fire-rescue operations to India. Both the city and its unions know this and bargain accordingly.


  • Conflict of Interest I. Private-sector management has an irreducible interest in keeping labor costs on a par with competitors. After all, they’re playing with their own money. Public-sector management has an interest in keeping costs low also. But their incentives are different. After all, they’re playing with your money.


  • Conflict of Interest II. Public-sector unions contribute millions to the campaigns of the very individuals who will be negotiating the contracts with the unions. Both management and labor know this and understand it’s happily ridiculous. Imagine if unions gave millions of dollars to the negotiators for Madison Widget. That’s right: Lots of folks would wind up in jail.


  • Stability of Management. Top-level management in the public sector generally changes much more frequently than in the private sector. This affords public sector unions enormous strategic bargaining advantages not replicated in the private sector. It also results in the perpetuation of sclerotic work rules and past practices that reduce operational flexibility and substantially increase costs.


  • Difficulty in Discipline and Discharge. Labor lawyers often joke that to sustain a discharge of a public-sector employee he must be caught on tape shooting his supervisor in a public square. I’ve arbitrated hundreds of cases in both the public and private sectors. Sustaining disciplinary actions against public employees is usually far more challenging than in the private sector. This has serious implications for morale, productivity, and labor costs. The public sector does not have a monopoly on dead wood. But it’s harder to address the problem.


  • Fact Finding, Mediation, and Arbitration. Public sector collective bargaining agreements can be affected by third parties who have the authority to peg contract terms to the prevailing practices of other public sector contracts in the state. This can amplify and perpetuate the worst practices and the highest costs for employers throughout the state.

These are only a few random differences, and not necessarily the most important ones. Gaining a concession here and there from unions will not address the fundamental problems facing public employers today. Public-sector collective bargaining should be reformed to recognize the differences between the public and private sectors; otherwise, state legislatures will have to confront the same problems over and over again.

— Peter Kirsanow is a former member of the National Labor Relations Board.