The labor problem embodies the ultimate human resources and industrial relations problem: balancing efficiency, equity, and voice. To understand how to solve a problem, we need to analyze its underlying causes. But beliefs about the cause of the labor problem differ among four schools of thought: the mainstream economics school, the human resource management school, the industrial relations school, and the critical industrial relations school. Understanding and appreciating the basic assumptions of these four schools are essential for understanding not only labor relations, but also the entire field of human resources and industrial relations—past, present, and future.
The Mainstream Economics School
First let’s consider the mainstream economics school of thought. This school focuses on the economic activity of self-interested agents, such as firms and workers, who interact in competitive markets. In mainstream economic thought, efficiency, equity, and voice are achieved through free-market competition. Under some assumptions (such as perfect information), competition results in the optimal allocation and pricing of resources. Prices in a competitive market reflect the value of what’s being purchased, so outcomes are efficient. No one can be made better off without making someone else worse off. In the labor market, competitive outcomes are also seen as fair because the price of labor equals the value that labor contributes to the production process. In the words of a Nobel Prize–winning economist, low-paid labor is poorly paid “not because it gets less than it is worth, but because it is worth so appallingly little.” And voice is expressed through freely participating or abstaining from transactions—if you do not like your working conditions, vote with your feet and quit, and find an employer who treats workers better. From the perspective of the mainstream economics school, then, the conditions of the labor problem are not seen as exploitation if there is sufficient labor market competition. Employees are paid their economic value and are free to quit if they feel they are being exploited. But if MARKET FAILURE prevent competitive markets from working properly, what should be done? Ensure competition. In the mainstream economics school, the best protection an employee has against his or her current employer is not the government, a lawyer, or a union, but rather other employers. If there is insufficient labor market competition because of excess unemployment, the appropriate policy response is a macroeconomic policy to stimulate the economy and thus reduce unemployment. Or if competition is prevented because of a barrier such as government regulation, the appropriate policy response is to remove this barrier. As long as there is competition, employment outcomes are not seen as a “problem” (with its negative connotations) in this school of thought. Outcomes are value-free, so there may be a labor situation (which simply describes the outcomes) but not a labor problem (which implies that the outcomes are undesirable). What is the role of labor unions in the mainstream economics school of thought? Unions are seen as labor market monopolies that restrict the supply of labor and interfere with the invisible hand of free-market competition. By threatening to strike, unions use their monopoly power to raise wages above their competitive levels and thereby distort employment and output levels throughout the economic system. Moreover, the economics view of work is that it is a lousy activity endured only to earn money. As such, companies rely on the threat of unemployment to motivate otherwise disinterested workers. Unions are seen as interfering with the discipline of the market by protecting lazy workers. To those who believe in perfect competition, then, labor unions are bad because their monopoly power interferes with the efficient operation of the economy. This mainstream economics view is graphically captured by the cartoon from 1894 in Figure 2.1 . The cartoon portrays union leader Eugene Debs as a powerful king who is able to use a strike to control the railroads and therefore shut down shipments of food, passengers, mail, coal, and freight, and by extension to close factories. In other words, labor unions are powerful monopolies that harm the economy and the public. This mainstream economics view of labor unions rests on some strong assumptions about competitive markets, and relaxing these assumptions to make them more realistic results in a more nuanced economic model in which unions might not simply be harmful monopolies that always reduce aggregate economic welfare (see the “Digging Deeper” feature at the end of this article). Nevertheless, the mainstream view of monopoly labor unions is deeply ingrained in economic thought and continues to be the dominant view. Moreover, labor unions are not singled out; this dominant mainstream view applies the same reasoning to other government interventions in the labor market, such as minimum wage policies, and to monopolies in other sectors, such as corporate monopolies. The role of government is not to establish labor standards—only to promote competition. The role of law is to protect individual freedoms that are necessary for competition. This perspective is significant for understanding important arguments against labor unions and other labor market policies as solutions to historical and contemporary labor problems; but other contrasting perspectives must also be appreciated.
The Human Resource Management School
The second school of thought to consider is the human resource management school , which was formerly called the personnel management school. In short, this school of thought believes that the labor problem stems from poor management. This is easy to remember: “PM” can stand for both personnel management and poor management. Recall from our earlier discussion that in the early 1900s foremen used the drive system— motivation by intimidation and fear—to manage workers. This was an autocratic, authoritarian management system in which workers were viewed as a commodity or a machine, and thus were exploited. A common mind-set was to drive employees to get maximum production for the least cost, and when they broke down (from exertion, age, or injury), discard them and get fresh workers to replace them—as you would with a machine. Hence there was little concern with how low the wage rates might be, how long the hours, how dangerous the conditions, or how arbitrary the hiring and firing procedures. Moreover, scientific management and the movement to large-scale mass manufacturing and assembly lines tended to reduce workers’ tasks to their simplest components; this emphasis on specialization led to monotony, boredom, and deskilling. This school of thought, therefore, presents a different underlying cause of the labor problem than does the mainstream economics school: poor management. The resulting solution to the labor problem is simple: better management. This solution to the labor problem is reflected in today’s human resource management philosophy: Align the interests of workers and the firm via better management. To create motivated and efficient workers, firms should design and implement better supervisory methods, selection procedures, training methods, compensation systems, and evaluation and promotion mechanisms. If workers want justice, security, respect, and opportunities for advancement, then design human resource management policies that are responsive to these needs to create motivated and efficient employees. With these new policies, workers will be motivated and productive, proponents claim, and efficiency will be achieved. Because management policies are responsive to the needs of employees, equity will also be achieved. Voice is typically informal, such as in open-door dispute resolution procedures in which workers individually discuss complaints with their managers. The human resource management philosophy is depicted in the cartoon from a 1928 issue of Forbes shown in Figure 2.2 . The pilgrim, representing business, brings home the Thanksgiving bounty to stockholders, workers, and the government. Business is clearly depicted as the provider, with passive roles for both labor and government. Note that the pilgrim’s gun is labeled “new methods.” The methods of the personnel management school, which were considered new in the 1920s, along with other newly improved business practices in accounting and other areas, are depicted as producing healthy returns for all stakeholders. To consider the role of unions in the human resource management school of thought, it is important to distinguish independent labor unions from nonindependent employee organizations. The term union in most Western Societies today and throughout this text refers to independent labor unions—those that are legally and functionally independent of employers and governments. Independent labor unions have the power to elect their own leaders, collect and spend their own dues money, establish their organizational objectives and strategies, and lead strikes. Nonindependent employee organizations lack such authority and are controlled by employers (like the company unions in the United States in the 1920s) or by governments (as traditionally is the case for unions in China). In the human resource management school, independent unions are seen as adversarial and inimical to cooperation. A popular saying in human resource management circles is that “companies get the unions they deserve.” If companies are following the human resource management school’s ideas of effective management, workers will be satisfied and will not support a union. But if a company is practicing bad management (recall the drive system, for example), workers will seek Unionization to combat these poor practices. In other words, unions are a fever—a sign of unhealthy human resource practices—and a healthy company shouldn’t have one. This reveals a significant irony and tension within human resource management: Human resource professionals have greater influence in companies when there is a threat of unionization, but an important objective is often to keep unions out. In fact, critics see human resource management as nothing more than a sophisticated (albeit gentle) antiunion device. The human resource management school of thought also believes that independent unions are unnecessary “third parties” that prevent employers and employees from getting “closer together.” This remains a popular theme today. It is interesting to note, however, that in the 1920s many in this school of thought felt that workers should have some type of voice and representation. Having representation, it was believed, would help companies treat employees with respect, create a cooperative, constructive relationship, and foster loyalty—which are all important goals in the human resource management school. Companies therefore created “company unions,” though a better label is “nonunion representation plans.” Management would meet and confer with worker representatives; but there would be no bargaining, and the representation plans had no authority outside management. In China, unions are similarly controlled not only by managers but also by the government. They are generally not seen as independent bargaining agents for workers, but are instead viewed as promoters of the common good. In sum, for adherents of the human resource management school of thought, labor problems are best solved with effective management practices. Part of this desired management strategy for creating a motivated, productive workforce might include structures that are called unions, such as the 1920s-style company unions or traditional Chinese unions. But these unions are not the independent unions of today’s Western societies, which the human resource management school sees as adversarial and inimical to cooperation.
The Industrial Relations School
The third school of thought is the industrial relations school , formerly called the institutional labor economics school. In this school the labor problem is believed to stem from unequal Bargaining Power between corporations and individual workers. Recall that at the turn of the century in 1900, the modern economic system was still emerging. The emergence of large corporations, which separated the owners of the production process from a new wage-earning class who did the manual work, was relatively new. Institutional labor economists accepted this modern corporation as an efficient organization of mass production, but they rejected the mainstream economics belief in perfect competition. Rather, institutional labor economists saw many market imperfections: persistent unemployment; company towns dominated by a single employer; lack of worker savings and other safety nets; and large, monopolistic employers with undue influence in markets, politics, and the legal system. In other words, “often the invisible guiding hand of competition is all thumbs.” As a result of these imperfections, individual wage earners have vastly inferior bargaining power relative to employers. With greater bargaining power, employers can pay low wages for working long hours under dangerous working conditions. This greater bargaining power also allows managers to be autocratic and authoritarian. In short, in the industrial relations school, unequal bargaining power is the primary cause of the labor problem. The labor market is characterized not by competition but by bargaining, and society is worse off if either side has too much power. These problems are compounded by business cycles that create additional insecurities. The struggle for a balance between labor and management is richly illustrated in Figure 2.3 . The laborer, clad only in shorts and a headband, is struggling with the capitalist, complete with ruffled collar and puffy pantaloons, for power, as represented by the pendulum. When there is a balance of power in the middle of the spectrum labeled “equity,” there is an abundant harvest for both to share. However, when capital has too much power, the result is despotism, and the cornucopia flows with the weapons of dictators such as shackles. At the other end of the spectrum, when labor is too powerful, anarchy results, and the cornucopia is filled with the weapons of anarchists, such as daggers and bombs. This is a great characterization of the industrial relations school of thought—and for much of this book, and the study and practice of labor relations. This pendulum imagery will also be important later on as labor law struggles to balance the rights of employers and labor. Compared to the other schools of thought, in the industrial relations school the causes of the labor problem are very different, and so the solutions also differ. Most important for labor relations, if the labor problem stems from unequal bargaining power, the solution is to increase workers’ bargaining power by forming independent labor unions and pursuing collective bargaining.
The Critical Industrial Relations School
The fourth school of thought to consider is the critical industrial relations school, traditionally labeled “Marxist industrial relations” and also referred to as a radical perspective. The “critical” label comes from being critical of existing societal institutions and social orderings. The critical school emphasizes that capitalist institutions do not simply exist but are created by society (such as through laws governing market transactions or business incorporation, and through social norms governing acceptable behaviors). This school of thought focuses our attention on how dominant groups design and control institutions to serve their own interests, albeit imperfectly due to resistance from competing groups. For example, in the 1880s railroad titan James J. Hill set up trust funds to create and manage a Catholic seminary to train local priests so that these priests could in turn Americanize Irish immigrants and preach to them about the importance of diligence and respect for authority—values that Hill wanted in his largely Irish-American Catholic workforce. As a contemporary example, a program at George Mason University funded by corporations, wealthy individuals, and conservative foundations has provided free training for several thousand judges to help them see legal theory through the lens of mainstream economic thought that prioritizes commercial and corporate interests. Even initiatives that appear to benefit workers can be seen as reflecting class interests. For example, a labor law that legally protects workers who try to unionize is seen as an attempt to mollify the working class and prevent it from agitating for deeper changes in the capitalist system. Corporations can therefore shape the broader social context of labor relations to serve their own interests and, in the view of the critical school, perpetuate their control over labor. Within their own organizations, employers are similarly seen as structuring the organization of work and Human Resource Management Practices to serve their interests at the expense of labor. The division of labor is viewed as a strategy to make labor easily replaceable and therefore weak. Fair treatment through progressive human resources policies, the perception of input through nonunion voice mechanisms, and the creation of pro-company attitudes through the development of distinctive corporate cultures are interpreted as strategies to prevent workers from unionizing. Race, gender, and other identities are similarly seen as being manipulated to undermine worker solidarity and foster managerial control. In the critical school, then, the cause of the labor problem is believed to be the control of society’s institutions and the means of production by specific groups or classes. In this school of thought, the solution to the labor problem is therefore a significant restructuring of the nature of capitalism—such as replacing capitalism with socialism. The critical perspective is illustrated by the 1909 May Day poster shown in Figure 2.4 . The “liberty” figure at the center holds a torch of enlightenment, as does the Statue of Liberty. The principles of enlightenment that radiate from the May Day torch are those of socialism. Moreover, liberty is achieved by killing the serpent—representing capitalism—that is controlling and strangling the earth’s working families. In contrast with Figure 2.3 and the industrial relations paradigm, it is not a balance that is sought, but rather a significant change in the capitalist system. Labor unions can be important in critical industrial relations. Strong, militant unions can aid workers’ struggles with capitalism by mobilizing and raising the consciousness of the working class and fighting for improved compensation, better working conditions, and greater control over workplace decision making. The anarcho-syndicalist perspective within the critical school also sees radical unions as the key revolutionary vehicle for overthrowing capitalism and creating a society managed by workers. In contrast, proponents of socialism envision a political rather than revolutionary movement away from capitalism; and under socialism, unions would no longer be needed as representatives of the working class (though they might still exist to help the state educate and mobilize workers). In spite of these differing views, many adherents to the various perspectives within critical industrial relations are critical of the pragmatic, collective bargaining focus of U.S. unions (and many unions around the world), which does not do enough to challenge capital’s power in the workplace and which reinforces capitalism rather than educating and leading the working class toward worker control or socialism.
The Fundamental Assumptions of Human Resources and Industrial Relations
The labor problem of the early 20th century—low wages for long hours of dangerous work under autocratic supervision and periods of insecurity—can be traced to four possible underlying causes: market failures, poor management, unequal bargaining power between employers and individual employees, or the domination of labor by the capitalist class. In turn, these lead to four different views of labor unions (see Table 2.2 ). Underlying these views are three fundamental assumptions about how markets work and the nature of employment:
1. Is labor just a commodity?
2. Are employers and employees equals in competitive labor markets?
3. What is the nature of conflict between employers and employees?
Each of the four schools of thought answers these questions differently. First, what is the nature of labor? Mainstream economics views the purpose of the economic system as consumption. Work is an unpleasant activity that one endures only to earn money, which can then be used to buy things (including leisure), but it does not provide intrinsic rewards. Labor is just another commodity or machine in the production process. The other three schools (human resource management, industrial relations, and critical industrial relations) reject the belief that labor is just a commodity and instead see labor as human beings with aspirations, feelings, and rights. Work fulfills important psychological and social needs and provides more than extrinsic, monetary rewards that support consumerism.
Second, are employers and employees equals in the labor market and the legal arena? The assertion that employers and employees are equal is equivalent to believing that the fundamental assumptions of mainstream economics, such as perfect information and no transaction costs, are fulfilled. The other schools of thought, however, assert that employers and employees are not equals, either in the labor market or in the legal arena. Imperfect Information, mobility costs, and tilted benefit structures can give firms monopsony (single-buyer) power. Lack of worker savings and persistent unemployment can cause individual workers to have inferior bargaining power relative to employers. These factors can turn perfect competition into excessive or destructive competition that creates substandard wages and working conditions. In the legal arena, individual workers with imperfect information or without the resources to purchase legal expertise will be at a disadvantage. Admittedly, inequality of bargaining power is difficult to observe; but as one scholar notes, “it is almost unheard of. . . that an employee abuses his power to quit at will by using it to coerce his employer to violate its legal obligations or forfeit its statutory rights.”
Third, what is the nature of conflict between employers and employees? Three different answers distinguish the human resource management, industrial relations, and critical industrial relations schools of thought—and are therefore important. The human resource management school has a unitarist view of employment relationship conflict. Conflict is not seen as an inherent or a permanent feature of the employment relationship; conflict is seen as a manifestation of poor human resource management policies or interpersonal clashes such as personality conflicts. Fundamentally, employees and employers have a unity of interests, and therefore effective management policies can align these interests for the benefit of all—recall the imagery in Figure 2.2 of the pilgrim (business) bringing home plenty of turkey for all stakeholders to share when business uses correct management practices.
In contrast, the industrial relations school sees the workplace as characterized by multiple interests—that is, a plurality of legitimate interests akin to a pluralist political system—so this school embraces a pluralist view of conflict in the employment relationship. Some of these interests are shared—both employers and employees want their organizations to be successful—but for other issues there is an inherent conflict of interest between employers and employees. In its simplest form, employers’ drive for higher profits conflicts with labor’s push for higher wages. To be clear, the pluralist belief in an inherent conflict of interest does not mean that all workplace issues involve conflict, but rather is a rejection of the unitarist view that all workplace issues can be structured as shared interests. In other words, the pluralist view is that employment relationship conflict features mixed motives; some issues are conflictual and some involve mutual interests. Employees want their employers to be profitable, but their desires for higher wages, better benefits, increased security, favorable working conditions, and input into decision making (equity and voice) clash with employers’ pressures for lower labor costs, flexibility, and high output (efficiency).
Believers in pluralist Workplace Conflict therefore see government laws and labor unions as balancing this conflict—striking a balance among efficiency, equity, and voice (recall the image of a plentiful harvest in Figure 2.3 when bargaining power is balanced). Because some conflict is inherent, it is unwise to rely on managerial goodwill to protect workers and to rely on management-initiated programs to provide employee voice. When times get bad enough, even enlightened managers can be tempted to put their interests above those of the workers—”recessions, depressions, and major industrial downsizings are a mortal threat to advanced, mutual gain [human resource management] systems and can quickly transform employees from high-valued human resource assets to low-valued disposable commodities.” And unlike the mainstream economics school, the industrial relations school does not believe it is sufficient to rely on economic markets to check this conflict of interest because of market failures. Labor unions, independent of managerial authority, provide checks and balances in the workplace and are therefore essential for protection and participation—equity and voice.
The view of employment relationship conflict also distinguishes the critical industrial relations school. This school believes in an inherent conflict between employers and employees, but it is significantly broader than the limited economic conflict in the pluralist view. Conflict is not limited to higher wages or better benefits; it is a social conflict of unequal power relations or class conflict. As such, the critical industrial relations school believes that the pluralist limitation of the concept of “power” to bargaining power, rather than greater social relations, is superficial. Unequal social relations are believed to pervade all capitalist institutions, and it is therefore inadequate to think about balancing the conflict between labor and management because management always has the upper hand—their domination is built into the entire political, legal, economic, and social structure, as captured by the capitalist serpent strangling working families in Figure 2.4 .
The power of these alternative perspectives on the true nature of the employment relationship is that they yield different visions of the practice of human resource management, diversity initiatives, public policies on work, and of particular importance here, employee voice mechanisms. Employee voice is an important component of many contemporary human resource strategies; and with a unitarist view of conflict, workplace voice can successfully be provided through policies that encourage individual voice or through a nonunion employee representation plan. As the name suggests, an employee representation plan is like a labor union to the extent that employee representatives communicate employee interests to management, but it is not independent. Managers, not employees, typically control how the plans are structured, when meetings occur, and what topics are covered. Company management can unilaterally create and disband nonunion employee representation committees.
In contrast, if employment relationship conflict is in fact pluralist (the industrial relations belief in the existence of some inherent conflicts of interest), it follows that industrial democracy can be achieved only by traditional labor unions that are independent of management. Only independent unions can fight for the protection necessary for industrial democracy such as free speech and due process protections. Taking this one step further, if labor–management conflict is embedded throughout society and is not limited to the employment relationship (as believed by the critical industrial relations school), then labor unions ultimately are inadequate for challenging the power of employers. The sometimes-intense debates about nonunion employee representation plans, independent yet conservative labor unions (that is, unions that focus on collective bargaining in a specific workplace rather than on a more general class struggle), and more militant unions continues to be an important issue in U.S. labor relations. Differing assumptions about employment relationship conflict underlie these debates. Understanding these assumptions is therefore critical for understanding labor relations.
HR Strategy Employee Voice
There are a number of reasons why human resource managers might want to develop a strategy for providing employee voice. Here are some possibilities:
• Learning about employee ideas for improved productivity, quality, and cost savings.
• Increasing employee satisfaction and loyalty (therefore Improving Productivity and reducing turnover).
• Decentralizing decision making to improve responsiveness and flexibility to changing business needs.
• Providing a substitute for a union. (Is this ethical?).
• Increasing employees’ problem-solving, communication, and decision-making skills.
• Making work more democratic.
Choose a specific nonunion business situation (such as a hotel, automobile assembly line, retail food manufacturing marketing group, or insurance company sales force) and determine what type of employee voice mechanism should be implemented. Why? Outline the structure of the employee voice mechanism (voluntary or mandatory, individual or group, decision-making authority or just talk, and so on) and a strategy for making it successful.
Now consider the same business situation in the presence of a union. How might the voice mechanism you developed improve with a union? How might the voice mechanism be less effective with a union? Do your answers to these two questions reflect the perspective of the company or the employees?