President Obama is committed to pragmatism and reforms that “work” for the improvement of the economy. The president’s commitment faces a tough test in one congressional proposal now on the horizon.
The bill, known as the Employee Free Choice Act (EFCA) represents one of the most fundamental and sweeping changes in labor laws in the United States. A principal provision of the bill is a change in the way unions are certified.
Currently, unions wishing to represent workers have to obtain signatures from 30% of workers. Once this is achieved, the National Labor Relations Board (NLRB) oversees a secret-ballot vote to certify the union. The process allows the union and employer to make their case. To protect the integrity of the process, there are a host of penalties the NLRB can impose for improper behavior. The union is certified if a majority of workers vote in favor.
Supporters of the EFCA, including most major unions and a majority of congressional Democrats, want to change this process. Specifically, the EFCA would automatically certify unions without a secret-ballot vote if 50%plus one sign union cards in the first step, referred to as card check. This change obviously creates a more confrontational system for certification since it eliminates the requirement for anonymous and private voting.
The bill also includes a provision for mandatory first contract arbitration. This means that arbitration between a union and an employer is mandatory for the first contract once a union is certified when a voluntary agreement cannot be reached. This would represent an almost unheard-of intervention by the government in private-sector bargaining. The incentive for any newly installed union is clear: push hard for large-scale concessions by the employer. The result is equally clear: expect an increase in labor disputes.
These changes would tilt the balance of power in favor of unions, and come at the expense of workers, employers, and the overall economy. We know from a substantial body of research that the key to a prosperous labor market is adaptability, both on the part of employers and employees. Indeed, a growing body of research confirms that such adaptability or flexibility in labor markets demonstrably results in better job creation, investment, and prosperity compared to more heavily regulated labor markets.
For example, Harvard professor Rafael Di Tella, along with his Princeton counterpart Robert MacCulloch, looked at 21 industrialized countries from 1984 to 1990 to ascertain the influence of labor market flexibility. They found that flexible labor markets enjoyed lower rates of unemployment, and in particular lower rates of longer-term unemployment.
More specific to the issue at hand, professors Timothy Besley and Robin Burgess examined the influence of changes in labor laws in the manufacturing sector. They concluded that changes moving the balance of power toward collective representation (unions) resulted in lower output, less employment and investment, and lower productivity.
President Obama should recognize the serious costs associated with implementing EFCA, which include lower rates of job creation and investment — both badly needed now. In addition, his team of advisers should realize that the successes of the Clinton presidency they aim to emulate all occurred when he (Clinton) demonstrated independence from congressional Democrats and led from the political center, where governing must occur.
Passing EFCA might placate the unions and large portions of the Democratic caucus but it will impede recovery, retard economic prosperity in the future, and further alienate President Obama from the mainstream. On all counts, the EFCA fails as a pragmatic reform that works for the betterment of the economy. To keep his commitment, President Obama will need resolve against the narrow interests of specific groups for the benefit of workers and society as a whole.
Jason Clemens is the director of research at the San Francisco-based Pacific Research Institute (www.pacificresearch.org).