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The classic economic analysis of unionization is that unions drive up wages for workers by limiting the supply of labor. They impact the labor market through a classic supply and demand impact on the cost of labor. This is really wrong and if you are in HR and you get caught by this error you will live to regret it. 

The error is essentially canonical doctrine.  Just about every scholar of labor law in the law and economics movement starts with this as the foundation for their work.  Law and Economics is the area of scholarship that gives the most thought to the question. Law and economics generally is the proposition that our law is economically efficient – over time the most efficient rules will prevail.  Efficiency is measured in terms of economics (the science of choice within the context of scarcity and risk).  There are several major law and economics thinker and a great overview for those interested is on Wikipedia.  For a more in depth look at law and economics on unionization, I recommend the blog of Richard Posner – start with the posting from which the following quote comes:

Unions, in other words, are worker cartels. Workers threaten to withhold their labor unless paid more than a competitive wage (including benefits and work rules), but unless their union is able to organize all the major competitors in a market, the cartel will be eroded by the entry of nonunionized firms, which by virtue of not being unionized will have lower labor costs. The parallel to producer cartels is exact–workers are producers.

This quote comes from a longer post Can the United Auto Workers Survive? Posner- read down into it to get the fundamental Posner premise.  Again though, while incredibly instructive, Posner is wrong.

The market that unions compete in is not about wages – the market is for employee representation.  Unions can’t magically produce greater wages.  At this point, unionized worker do in fact get more per hour than non-union workers – about $39/hour versus $30/hour (see the Bureau of Labor Statistics most recent data).  However, union membership continues to decline – less than 8% of private industry employees now belong to a labor union. (Source BLS.)  The argument that this shrinking group is increasing wages by reducing the amount of available workers with the rate of unemployment out pacing the rate of unionization by 2 points is foolish in the face of the facts.

The key is that unions don’t work to maximize wages for members – they work to maximize labor unions.  God bless’m, they are the same as any other business.  They maximize profit; they start with dues – revenue and go from there.   They sell representation services ala carte to employees the way HR departments “sell” representation to the same employees on a bundled basis as part of “working for this organization.”  The wages are driven by the economics of the organization and the broad market for talent.  The competition between unions and management is about the other stuff – personal representation.  Keep in mind, we are long past the idea of an ad hoc group of employees self-forming a union.  It just doesn’t happen.  When employees unionize it is with the engagement of professional union organizers and profession union management.  Organization of labor unions – and therefore EFCA issues and the like are not rights based issues – they are market issues.

What is the issue for the HR marketeer then?  If you really believe that a your workforce and the work place benefit from a direct relationship rather than one that runs through a union – understand that you are competing on the basis of the quality of your representation services.  Take that market dynamic seriously or go the way of all inferior competitiors in the market – lose.

Happy Labor Day from Human Markets.

No Comments | In: Employee Relations, HR Strategy, How to do HR, Labor, Multiple Markets | tags: Labor Day, Law and Economics, Unionization. | #

Is the Middle Class dying?  This recession may be increasing the possibility of that being true.

Here is may concern – we are in what others have called a “jobless recovery”.  Estimates of unemployment are commonly pegged, even two years out at 8% or more.  While we may be soon technically out of a recession because macroeconomic indicators are showing signs of growth, there is not enough confidence in the near term future to see employment levels increase enough to substantially knock down unemployment. 

My fear is that through the recession, many people have been living off of non-wage resources.  Extended unemployment benefits and the stimulus have produced some floor of economic activity.  I have to think that 401(k) balances and other savings are being depleted.  

Coming out of the recession truly, when employment does pick up again, what might we see?  I wonder if it will be more families living paycheck to paycheck, with no savings and with material debt.  At the same time, the people at the top of the corporate heap are already seeing signs of relief.  With a macro level recovery, they can expect to seen gains in bonus compensation and gains in equity awards.

We will also be down the line a bit more with the aging workforce and population.  More people in a more fragile economic situation relative to there earning potential and health.

In a nutshell, I am thinking a lot about whether the rich will get richer and the poor will get poorer.  What does that mean for HR in your organization?  What does that mean for talent?  What does that say about your customer base for your organization’s goods or services.  I think that forward leaning HR people need to consider that labor and customer markets could look very different in a few years. 

What do you think?

1 Comment | In: Compensation, HR Strategy, Labor, Multiple Markets, Recruiting | tags: Middle Class, Rich Get Richer. | #

Here is my crazy ass idea of the day.  Help America get out of the recession by tipping “more bigger”.  There is a couple of under-pinnings to our thinking here.  First off, support the working poor.  Yep, I am one of those people who don’t do a lot of hand outs on the streets.  I would rather write a big check to a social services agency and hope for sustainable change than meet an intense need in the moment.  Even better however, is helping to make working for a living in a sustainable, market-created job, easier.

You can support that market solution both by helping the small business owner (or a big one for that matter) while having a direct impact on the life of a person working hard at a hard working job.  If you tip a full 20% for reasonable service; maybe if you do 20% and then round up to a nice number, you are making an impact on people who need the money.  They get the satisfaction of work and reward.  They become more optimistic.  They then spend that money elsewhere.  The become more a market player. 

This is not just a restaurant thing.  Tip a paper delivery service; tip a service technician in your home; tip the lady who shows you to your seat at the ball park; tip a maid.  The point is – tip service people in low paid jobs more and the ripple through will be good for our country.  It is a better mechanism and better incentives than handout.  It builds self-esteem through working.

Why you?  Because you can.  You know it and I know it. People reading this blog are generally more affluent than average.   You probably have a college education, if not more.  You spend money on discretionary items.  You can find a way to share your success in the market with those that are still reaching for something you have already passed by.  Also, you will have the satisfaction of knowing that you are helping others, helping the country and contributing to a more sustainable market-based society for everyone.

4 Comments | In: Compensation, Ethics, Labor | tags: Market Solutions, Stimulis, Sustatinablity, Tipping. | #

 Last week, His Holiness Pope Benedict XVI released a “papal encyclical”.  Essentially this is a “white paper” from the Pope.  This particular one is entitles, Caritas in Veritate(Love in Truth) deals with economics and finance.  It makes some broad statements about the ethics of economic activity and is very clear about markets.  His Holiness makes some powerful and to me, surprising points.  His intellectual power as well as his firm grasp of the reality of the “real world” come through in the document.  Frankly, I would not recommend it as a read for the uninitiated.  It is hard to get through and papal encyclicals are written as much for a “technical” theological and philosophical audience more than for the average person on the street or “in the pew”.

An excellent summary of the encyclical can be found by Robert Sirico.  Sirico is a Catholic Priest and the President and CEO of the Action Institute.  The review appeared on the opinion page of the Wall Street Journal.

Here is my take on what is being said.  They are great lessons for anyone in business; especially so for HR.  You certainly don’t have to be Catholic to want to follow them and they will make you better professionally regardless of what if any religious sensibilities you hold.

We are economic beings.  Participation in economic activities and specifically in market economics for goods, services and labor is a good an natural part of the human condition.

It is unhealthy and unnatural to seperate your economic self from your real self.  “In truth” is the point.  We are, “in truth”, meant to recognize that there are standards in life.  Truth is not relevant.  Now if you buy in to a Catholic Christian theology that might mean one thing to you.  Even if you don’t it may come down to the ‘golden rule”  – being fair; being honest are absolutes.  Bottom line economic market activity is good and natural but you don’t get a pass from holding yourself to absolute moral standards just because you are acting in a market based, economic activity.

Finally, His Holiness call on us to act with Charity.  Beyond just ethics or doing no harm, he calls us to our real selves and our inherent charitable essence.  Does this mean that we can’t compete in a market?  That we have to only cooperate in our economic activity.  No.  He teaches that the Church has not technical advise to give about economic activity only that we we need to bring our integrated selves to the market.  Be the person that you know you should be, doing what you know you should be doing.

My own take on this is compete away.  Sometimes that means getting the better of the other guy.  It means getting the best price.  It means winning.  It doesn’t mean lying.  It means giving what you said you were selling.  It means telling the whole truth and then letting your customers or sellers deciding. 

For me, if in HR I fire somebody because business is bad, I can look myself in the mirror.  If I fire somebody because the boss is tired of having an extramarital affair with them, I can’t   I am only one person – economic and spiritual.  I have only one market.

I am a Catholic.  I like being Catholic and proud to be a Catholic.  This encyclical will help me be a better one and a better business person in HR.

2 Comments | In: Ethics, Labor, Multiple Markets | tags: Encyclical, Ethics, Love In Truth, markets, Pope. | #

Phil Spector has been found guilty of killing his wife.  Don’t let Arlen go down the same murderous path regarding the good fight against EFCA.  Let’s support the senator so that he supports the reasonable middle ground that is his legacy in American politics.

I have to think that as we get closer to Labor Day something is going to happen with EFCA.  There has not been much in the way of public debate and the politicians are way too quiet.  The last news was just about when Pennsylvania’s Republican then Democratic Senator Arlen Spector made his party shift.  He was floating ideas out there as to what a new and improved EFCA might look like.

Since then, Al Franken has joined the “Greatest Deliberative Body in the World”, and the Democratic now have a solid, filabuster-proof majority.  It would seem that this means that the time to play if you feel strongly about EFCA, is now, prior to to a bill being introduced and not after the shape is fixed and the Democrats can sweep it through.

As much as anyone, Arlen Spector is in a position to shape EFCA and therefore shape a critical market-within-the-labor-market.  Spector has always seemed like someone who spoke and voted his mind.  He is no one’s patsy – he didn’t support the Republican machine and I can’t imagine that he will support the Democratic machine. 

Spector was supposed to have a easier time with re-election as a D.  Because Joe Sestak – (D) would have presumably taken a step aside in his aspirations to run for the Senatoral seat.  The Rebublicans are presumably running Pat Toomey who almost beat Spector in the Rebublican primary last time.  Toomey and his conservative base are the presumptive reason that Spector changed parties when he did.

 Spector is a reasonable man and a smart guy.  With him we likely dodge the bullet of card check and arbitration.  Sen. Spector is the perfect person in the perfect spot to kill the worse proposals of EFCA while crafting something that Big Labor will allow the other 59 senators and the White House to support. 

Call your senators and congressmen; encourage them to work with Senator Spector for a reasonable EFCA compromise.  If your organization is big enough to have a government affairs group, talk to them too.  We want Spector to kill (the Senator on EFCA; not the wall of sound guy.)

No Comments | In: Labor | tags: EFCA, Politics, Spector, Wall of Sound. | #

I missed this one when it first published.  For an excellent, succinct reveiw of the economic analysis of EFCA go see Becker and Posner. (Posner is Richard Posner who I have reference many times. I recommend him in my own posting: EFCA – You Bet It Would!)

No Comments | In: Employee Relations, Labor, Uncategorized | tags: Becker, EFCA, Labor Law, Law and Economics, Posner. | #

By now you know about EFCA,  or you should know about it.  (N.B. the headline is only funny, or for that matter comprehensible if you pronouce “EFCA” as “F – KA”),

If you don’t here are a couple of good places to learn.

• One of my favorite blogs: The Human Capitalist has been doing great stuff on EFCA for a while. Get a great overview useful links there.
• For a nice overview about some of the personal  impact of the issues and great counself on communication regarding EFCA, of course, you want KnowHR
• An for someone extremely passionate about the subject, try Fist Full of Talent and what Jessica Lee is fdoing over there.

I am not going to pile on about corporate democracy, competitiveness, politics, etc…  the sources above are really good.  Here is a different angle. Why is EFCA wrong from a legal perspective?

Unions want people (workers, the public, government, etc…) to think of  “the labor movement”.  They want to cast the legal context for unions, organizing and collective bargaining as essentially a civil rights issue. It isn’t. Labor law is market law; labor law is market regulation. The difference is important.

EFCA would transform labor law from market regulation – which is a good context,  to rights -which is a bad context. The reason it is bad, is because workers don’t unionize. Unions unionize. Unions are businesses – just like someone selling soap. Unions sell representation to a worker’s manager and employer, so the worker doesn’t have to do it herself. And that is absolutely fine, unless you mistake what they do, as some altruisitic “fighting the suits”, “fight the man”, David and Goliath social cause.  Government action has taken many, although far from all of the “rights fight” out of the hands of unions.  The romance of the little guy being stood up for is a romantic branding by unions of their product.

Bottom line – unions are market players, not civil rights advocates – just like employers.

Labor relations law is organized very similarly to other market regulation.  Labor law sets up rules for communication, transparency, timing, counting, eligibility. It explicitly recognizes roles – employers, workers and unions.  A key concept is that by properly understanding labor law as market regulation it makes clearer the three key roles involved – unions are sellers – they sell representation and sometimes benefits; employers are sellers – the sell represenation and rewards. Employees are buyers. They “buy” represenation of themselves from one of these two sellers.  (I get that workers “sell” their labor to employers – but that is a different market than the one we are talking about today.)

To do its job the best, labor law should be indifferent between the two market players.  Its goal should be to reduce transaction costs for the buyer.  Increase information and transparency to the buyer, by forcing the sellers to provide it in an honest, accurate, and structured manner.  Labor law should reduce everyone’s transaction cost by setting procedure and process in place ex ante so that it is reliable, can be invested to and planned to.  Other market regulation does this and does it well.  Securities law, in warm cooperation with exchanges rules (themselves regulated) make the flow of capital through securities efficient and effective because it sets the rules for communciation, process, and roles in the securities markets.  (For an excellent overview of the concept of how market regulation reduces transaction costs, try The Economic Analysis of Labor Law by Richard Posner.)

The problem with EFCA is that it moves labor law from being a neutral regulator of a market for employee representation to the notion that the right to join a union needs special protection.  Creating the ability for a union to market its product in secret, leaves the individual in the dark about the other side of the market.  The best protection of the truth, and of workers’ free choice among transparent choices for representation is the campaign and secret election process. 

EFCA is a market bias that will result in bad outcomes that people would not have chosen on their own.  When that happens, companies no longer compete to have HR and management programs that are competitive to represent employees back to the company well.  The bias will hurt workers, hurt employment and hurt our economic society and benefit a market player – unions.  And that… is a sub-optimal outcome as the economist would say.

There is a market for the representation of employees.   Let’s keep it fair and open and efficient for the benefit of all who work; all who employ them; good unions who serve them; and all of the rest of us too.

7 Comments | In: How to do HR, Labor | tags: EFCA, HR, Labor. | #