Labor Unions: Good or Bad?

By Budd, J.W.

Edited by Paul Ducham


Because there is more agreement that unions were once useful, this section considers the historical example of the labor conditions of the early 20th century, which were labeled the “labor problem.” Turning then to the question of how to solve this labor problem provides the opportunity to consider four different schools of thought about the employment relationship. Understanding these four intellectual perspectives is the basis for a reasoned rather than stereotypical or naïve consideration of labor unions and labor–management relations. It is easier to tackle these perspectives in a historical context because we have fewer preconceived ideas; but at the end of the discussion, the strong relevance for contemporary labor relations should also be clear. Today’s critical issues in human resources and industrial relations are perhaps familiar to you:

• Growing labor market disparities.

• Problems of low-wage workers trying to move out of poverty and support families.

• Corporate pressures for cost control, quality, and flexibility to compete in a global, information-rich economy.

• The need to educate individuals as lifelong learners because of ever-changing technologies.

• Problems of work–life balance, especially for working mothers.

But what about at the start of the previous century? The critical human resources and industrial relations issue in the early 1900s was the labor problem: undesirable outcomes that stem from an inequitable and contentious, or perhaps even oppressive and exploitative, employment relationship. Many important dimensions of the labor problem are captured, in the observers’ and participants’ own words, in the testimony from around 1900 reported in Table 2.1 .

The first entry in Table 2.1 highlights the long hours that were often the norm. Workweeks of between 54 and 57 hours were common. In the iron and steel industry, over 40 percent of laborers worked more than 72 hours per week, and about 20 percent worked more than 84 hours per week. These long hours were often for low pay (see the second entry in Table 2.1 ). Around 1910 most male workers earned less than $15 per week, which meant that at least half of working-class families had annual incomes below the $800 that was estimated “as a reasonable minimum for healthful, efficient, and decent living.” Households were therefore forced to resort to a patchwork of methods for earning income to survive—renting rooms to boarders, sewing garments or doing other tasks as home-based subcontractors, using children to earn wages—and yet poor living conditions were widespread (see the third entry in Table 2.1 ).

Conditions in the workplace were also unsanitary, if not downright dangerous. In March 1911 a fire at the Triangle Shirtwaist Company in New York City killed 146 workers because of inadequate and locked fire exits. A 1915 federal study in New York City found shocking rates of tuberculosis among low-paid garment workers. One source estimates that industrial accidents resulted in 25,000 deaths, 25,000 permanent disability cases, and 2,000,000 temporary disability cases per year—which implies that U.S. casualties during World War I were greater in the workplace than on the battlefield. The long hours at low pay in dangerous and unsanitary conditions were also marked by great insecurity. Many lived with constant fear of injury and unemployment. Companies might hire workers on a short-term basis, perhaps for only one day at a time with the foreman selecting the day’s employees each morning from among those massed outside the factory gate. 13 A 1909 government investigation of nearly 30,000 male workers found that only 37 percent did not have any time lost from work during a full year; half of the workers lost four or more months. 14 And in the foreman’s empire system of complete management control, there was the fear of arbitrary dismissal (see the fourth entry in Table 2.1 ). Workers could be—and were—fired for any reason: poor performance, absenteeism, ethnicity, union sympathies, age, failing to provide the foreman with extra services (such as raking his leaves . . . or worse), or simply as a demonstration to others of the foreman’s absolute power.

These important dimensions of the labor problem—long hours, low wages, unsafe conditions, and insecurity—were reinforced and worsened by the managerial mind-set of “workers as machines.” Labor was frequently viewed as just another production input—no different from machines or raw materials. With mass manufacturing methods emphasizing repetitive, narrowly defined tasks by individual workers to achieve high output, workers had no contact with the final product and minimal control over the content of their jobs. This is reminiscent of Adam Smith’s famous example of the 18 steps used to make a single pin; even in 1776 Smith recognized that this efficient division of labor rendered human beings “stupid and ignorant.” The final entry in Table 2.1 describes how the production of a shoe was divided into 100 specialized operations; the worker who, for example, nailed heels to 4,800 shoes in a single day was “a mere machine.” In modern human resource management terms, employees had no ownership in their work. And if workers are simply machines, they are not entitled to equity or voice; the sole concern of the owner of a machine is efficiency.

These labor problems were widespread and not limited to manufacturing industries in urban areas. Thousands of Mexican-Americans and Mexican immigrants migrated through the Southwest and Midwest following agricultural planting and harvesting seasons, earning perhaps $1 a day and living in appalling conditions. In the public sector, police officers regularly worked more than 70 hours per week out of vermin-infested stations. Across the private and public sectors, the poor conditions of the labor problem were a problem for two broad reasons. First is the societal or human perspective. Put simply, people should have better lives than this. This is partly an economic issue—workers should be able to afford decent housing, clothing, food, and the like; in other words, equity is important. But as emphasized by employee voice, the labor problem is more than a material concern. In particular, one should question whether treating workers as commodities, even as valuable ones, in an autocratic relationship, even if benevolent, fulfills the standards of a democratic society.

There is also the business perspective on the labor problem. Are the workers motivated? Loyal? Productive? Absenteeism and turnover were costly. At Ford the absenteeism rate in 1913 was 10 percent, and the annual turnover rate was 370 percent; Henry Ford offered the then-large sum of $5 a day in 1914 as an attempt to tackle these problems. Also, with significant numbers living below the poverty line, a second business problem was that they lacked consumer purchasing power. In the words of one union president in 1899, “as the workingman is himself the consumer, he can not purchase unless he has that with which to purchase.” The unskilled workers at Ford, for example, couldn’t afford to buy the cars they produced until the $5-a-day plan was implemented. Finally, strikes and other forms of industrial conflict that resulted from the labor problem in both the private and public sectors were costly to business and to society more generally.

Table 2.1


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?

Table 2.2

Figure 2.1

Figure 2.2

Figure 2.3

Figure 2.4


Thinking about differing views of labor unions and the four models of the employment relationship that underlie them is usefully pursued in the historical context of the labor problem. Our views of today’s employment relationship are powerfully shaped by our limited personal experiences, so it can be easier to acknowledge the poor working conditions of earlier eras and think more open-mindedly about various causes and solutions. But this is not intended as a purely historical exercise; although conditions for many workers have improved over the last 100 years, the fundamental issues surrounding the four schools of thought about the employment relationship are timeless and apply to today’s employment relationships as much as 100 years ago.

To understand labor unions and labor relations, it is imperative to understand the beliefs of the different schools of thought about the labor problem. These four intellectual frameworks provide the keys to a reasoned rather than stereotypical understanding of labor unions and to appreciating the basis for differing views about whether unions are good or bad (recall Table 2.2 ). More generally, these four schools of thought continue to be the key frameworks for analyzing all aspects of the employment relationship in the 21st century and for thinking about how to improve employment issues. In fact, how to balance the employment relationship goals of efficiency, equity, and voice is a critical question for all eras. The focus of this book is how employee representation and collective bargaining help and hinder the achievement of these goals, but there are other options for structuring the employment relationship that do not involve labor union representation. Some might argue that human resource management, government laws, or unregulated, competitive markets are better mechanisms for balancing efficiency, equity, and voice. To better understand labor unions, it is important to explicitly compare collective bargaining to these alternative methods for determining wages and other terms and conditions of employment.

Workplace Governance

All workplaces need rules. In addition to standard rules of behavior and performance, these rules also include compensation and benefits, as well as policies and procedures. Some of these rules might be, for example, written in an employee handbook or a union contract, or posted on a bulletin board. Others might be unwritten. Some might simply be “The workers must do whatever the boss says.” But at a more fundamental level, who gets to make these rules? In other words, what are the rules for making the rules? Are they dictated by the marketplace? Are they established unilaterally by management? Are they mandated by government laws? Or do they result from negotiations between employers and labor unions? Whoever gets to make the rules gets to rule (or govern) the workplace. Thus a comparison of the alternative rules for making rules is the question of workplace governance. This determines the nature of the balance that is struck among efficiency, equity, and voice. And though it is called workplace governance because of the focus on how workplace rules are determined, note that the ramifications are much broader and determine the quality of life for retirees, spouses, dependents, and communities. Analyzing workplace governance is particularly instructive for understanding labor relations because it provides the context for evaluating whether unions are good or bad. The statement that unions are good is really the belief that unions achieve a better balance among efficiency, equity, and voice than do alternative mechanisms. The assertion that unions are bad is actually the belief that alternative mechanisms strike a better balance. Moreover, analyzing workplace governance reveals that these evaluations are critically related to the underlying assumptions about the nature of markets and employment outlined earlier. Supporters of free markets, human resource management, or labor unions have different fundamental beliefs about the value of work, how labor markets work, and the nature of conflict between employers and employees. Understanding these differing beliefs is essential for understanding the evolution of the U.S. labor relations systems, the operation of the processes in practice, and the possible need for reform. There are five major possibilities for creating workplace rules—that is, for governing the workplace: competitive labor markets, human resource management, worker control, bargaining with independent employee representatives (labor unions), and statutory government regulation. These five alternatives are summarized in Table 2.3 . Laissez faire reliance on competitive labor markets includes two central critical features: mainstream economic theories plus common-law legal rules that protect individual liberties to enter contracts. Workplace rules—broadly defined to include implicit and explicit rules governing compensation, benefits, working conditions, and performance standards— result from self-interested individuals interacting in competitive markets. Workplace rules will favor management (lower wages, less generous benefits, shorter vacations, and the like) when labor demand is low and/or labor supply is high; rules will favor employees (higher wages, good benefits, training opportunities, and the like) when labor demand is high and/or labor supply is low. But the rules always result from the invisible hand of market forces. This can be thought of as a system of individual representation—workers looking out for their own interests in competitive markets—in contrast to the union model of collective representation.

In the human resource management model of workplace governance, managers establish employment conditions. They are perhaps constrained to a range of alternatives established by the marketplace, but within this range managers choose specific terms and conditions of employment. For example, salary surveys always indicate that wages are not equal, even for a single occupation in a single location; managers decide whether to set salaries below, at, or above the market average. The prime mover of workplace rules is therefore not markets but management. This option of workplace governance contains a variety of human resource management strategies or philosophies and may or may not include nonunion forms of voice. Any voice mechanisms, however, are established and directed by management. Regardless of the specific strategies used, the distinguishing feature of the human resource management model of workplace governance is that the policies, practices, and conditions are unilaterally determined by management.

The opposite possibility is worker control, such as in producer cooperatives or models of worker control and ownership under socialism. This is more than Employee Participation—it is employee control over organizational objectives and rule making. This is also more than many Employee Stock Ownership Plans in which employees have a financial stake, but not control rights. Rather, workers instead of managers unilaterally establish the terms and conditions of employment. Perhaps the leading U.S. example of worker self-governance was the craft union model of the early 20th-century unions, before the dominance of mass manufacturing. These unions often unilaterally established work rules and enforced them by refusing to work on any other terms and by fining or expelling members who undermined these standards. Another possibility for governing the workplace is to replace the unilateral authority of the human resource management or worker control models with a system of shared, bilateral authority in which employee voice is independent of managerial authority. The major example of this shared control mechanism is collective bargaining. Workplace rules are not determined by competitive markets or unilaterally by either managers or workers; they are determined via negotiations between two parties with broadly equal bargaining power. Finally, workplace rules can be set by government regulation. Major U.S. examples of governing the workplace include the Fair Labor Standards Act (to establish a minimum wage and maximum work hours), Title vii of the civil rights act (to provide equal opportunity), and the Occupational Safety and Health Act (to establish minimum safety standards). Ideally this system protects everyone, and standards can be determined by rational debate rather than bargaining or market power. On the other hand, regulations are determined by a central authority, not the workplace participants—so it can be difficult to shape agreements to fit particular needs and situations, and enforcement can be inconsistent, lax, and expensive.

What determines which system of workplace governance is best? To answer this question we need to put these governance alternatives together with the intellectual models outlined earlier (see Figure 2.5 ). In other words, individual opinions about the preferred system of workplace governance are rooted in how one thinks the employment relationship works. If, as assumed in the mainstream economics school of thought, labor is simply an economic factor of production (in other words, just another commodity) and employers and employees are economic and legal equals, then the appropriate workplace governance mechanism is reliance on competitive markets. Similarly, the assumptions of the human resource management school of thought lead to a human resource management model of workplace governance, and the assumptions of the critical industrial relations school lead to worker control or socialism as the preferred workplace governance model. Or if one believes that the employment relationship is characterized by unequal bargaining power as in the industrial relations school, there are two important governance mechanisms for balancing the goals of employers and employees: statutory government regulation and labor unions. Government regulation can try to establish labor standards, but it does not involve employee voice; labor unions can try to counter corporate bargaining power and also provide voice that is independent of managerial authority. Understanding the linkages among the key assumptions of human resources and industrial relations, the four schools of thought about the employment relationship, and the various alternatives for governing the workplace is the key to understanding all aspects of employment, evaluating and designing solutions to historical and contemporary labor problems, and considering whether labor unions are good or bad.

Solving Labor Problems

U.S. political and legal thought during the 1800s and early 1900s was dominated by laissez faire views consistent with the mainstream economics school, especially the supremacy of the freedom to enter any type of economic relationship—including employment—without government or union interference. Few laws were passed that set even minimal labor standards, and many of those enacted did not last long because they were ruled unconstituthe District of Columbia’s law unconstitutional because the law violated the rights of parties to freely enter economic relationships (generally referred to as the “freedom to contract,” where contract is widely defined as an economic relationship and is not limited to written contracts).

The severity of the Great Depression in the 1930s, however, called into serious question the wisdom of the laissez faire legal and economic philosophy. During this time period, as part of President Roosevelt’s New Deal, U.S. labor law was fashioned and upheld by the courts. As a consequence, U.S. laws pertaining to labor unions and collective bargaining reflect the central belief of the industrial relations school that unions are needed to counter corporate bargaining power and provide industrial democracy . National labor policy is based on the assumption that the pluralist conflict in the employment relationship is best resolved via collective bargaining to balance efficiency, equity, and voice. This is supplemented by government laws establishing additional standards and safety nets. For example, the Fair Labor Standards Act of 1938 established a national minimum wage, mandated overtime for hours above a standard workweek (now 40 hours), and restricted child labor. The Social Security Act of 1935 not only established old age assistance and insurance but also effectively created a system of state unemployment insurance programs. Collective bargaining was an important model of workplace governance in the postwar period, but in the latter part of the 20th century, the nonunion human resource management model came to dominate. This transformation resulted from the growth of nonunion companies and from heavily unionized companies becoming less unionized by the construction of new nonunion plants in the southern United States. Consistent with a human resource management workplace governance model, in the period after World War II, new government laws to strengthen worker bargaining power through unions and social safety nets have been largely nonexistent. In contrast to the New Deal policies of the 1930s, post-war public policies concede employees’ dependence on employers by avoiding mandating specific benefits and instead requiring nondiscrimination and disclosure requirements for employer-controlled terms and conditions of employment. As just one example, rather than requiring employers to provide health insurance or pensions, government regulations require those that do to file annual reports so employees can monitor these plans. More recently, the free-market model of workplace governance is again becoming dominant (as it was before the New Deal). With little threat of unionization or new Employment Law in the United States, finance has trumped human resources in many organizations. Public policies that support free trade and deregulation further increase the emphasis on competitive markets.

Each of these shifts represents different views about how to solve that generation’s labor problems consistent with changing beliefs about how the employment relationship works (recall Figure 2.5 ). Despite the rise of the nonunion human resource management model and the reemergence of the free-market model, the U.S. system of labor relations is founded on the beliefs of the industrial relations school in the context of the early 20th-century labor problem. Understanding the development of the New Deal industrial relations system, therefore, grows out of an examination of the early 20th-century labor problem. Moreover, because contemporary labor relations continue to be dominated by laws rooted in the industrial relations school’s principles, understanding the logic of current practices and strategies requires an appreciation of this school of thought. But again, all four schools of thought continue to have great practical relevance. The laissez faire emphasis of mainstream economics dominates national and international policy debates under the guise of the neoliberal market ideology; today’s corporate human resource policies are rooted in the principles of the human resource management school of thought; the critical model underlies the movement to revitalize unions by transforming them into aggressive champions of the working class. And the principles of the industrial relations school continue to appear in practice in many places around the globe, such as in New Zealand’s Employment Relations Act of 2000, which is based on the belief that “there is an inequality of bargaining power in many employment relationships” such that “employers and employees share many common interests, but they also have separate interests”— which means that “productive employment relationships depend on . . .promoting areas of common interest and managing competing interests in a way that maintains and builds relationships.”

Finally, although some details may have changed, the United States and every other developed and developing country in the 21st century continue to struggle with the modern equivalent of the labor problem. All three dimensions of efficiency, equity, and voice are relevant to today’s employment relationships. Modern sweatshops, in the United States and elsewhere, continue to exist and exploit workers. Wage and income inequality increased at the end of the 20th century. The arbitrary power of supervisors persists, as illustrated by the thousands of complaints of quid pro quo sexual harassment filed with the U.S. Equal Employment Opportunity Commission. Workers in many occupations want a stronger voice in the workplace, and there is increasing recognition that this is a fundamental human right. At the same time, private and public sector organizations continue to struggle with issues of competitiveness, productivity, and quality. Efficiency, equity, and voice continue to be crucial themes for policy makers and practitioners, workers and employers. The seemingly historical discussion of the labor problem continues to have great relevance for us in the 21st century both intellectually and practically.

 Table 2.3

Figure 2.5