Proceedings of the 62 Annual Meeting

Proceedings of the 62nd Annual Meeting January 3-5, 2010 Atlanta, Georgia

OFFICERS OF LERA FOR 2010 PRESIDENT: Eileen Appelbaum, Rutgers University PRESIDENT ELECT: Gordon Pavy, AFL-CIO PAST PRESIDENT: Joel Cutcher-Gershenfeld, University of Illinois at Urbana-Champaign SECRETARY-TREASURER: Peter Feuille, University of Illinois at Urbana-Champaign CO-EDITORS-IN-CHIEF: Françoise Carré, University of Massachusetts Christian Weller, Center for American Progress CHAPTER ADVISORY CHAIR: William Canak, Middle Tennessee State University EXECUTIVE DIRECTOR: Paula D. Wells, University of Illinois at Urbana-Champaign EXECUTIVE BOARD MEMBERS: Beth Almeida, National Institute on Retirement Security Rose Batt, Cornell University Scot Beckenbaugh, Federal Mediation & Conciliation Service Robert Chiaravalli, Strategic Labor & Human Resources Ellen Dannin, Penn State University Linda Ewing, United Auto Workers Richard Fincher, Workplace Resolution, LLC Jody Hoffer Gittell, Brandeis University John Godard, University of Manitoba Iain Gold, International Brotherhood of Teamsters Dennis Kuhl, The Boeing Company Bonnie Summers, BlueCross BlueShield Association Christian Weller, Center for American Progress Charles Whalen, Utica College LEGAL COUNSEL: Steven B. Rynecki, von Briesen, Purtell & Roper, S.C.

PAST PRESIDENTS OF LERA: 1948—Edwin E. Witte 1949—Sumner H. Slichter 1950—George W. Taylor 1951—William M. Leiserson 1952—J. Douglas Brown 1953—Ewan Clague 1954—Clark Kerr 1955—Lloyd G. Reynolds 1956—Richard A. Lester 1957—Dale Yoder 1958—E. Wight Bakke 1959—William Haber 1960—John T. Dunlop 1961—Philip Taft 1962—Charles A. Myers 1963—William F. Whyte 1964—Solomon Barkin 1965—Edwin Young 1966—Arthur M. Ross 1967—Neil W. Chamberlain 1968—George P. Shultz

1969—Frederick H. Harbison 1970—Douglass V. Brown 1971—George H. Hildebrand 1972—Benjamin Aaron 1973—Douglas H. Soutar 1974—Nathaniel Goldfinger 1975—Gerald G. Somers 1976—Irving Bernstein 1977—F. Ray Marshall 1978—Charles C. Killingsworth 1979—Jerome M. Rosow 1980—Jack Barbash 1981—Rudolph A. Oswald 1982—Milton Derber 1983—Jack Stieber 1984—Wayne L. Horvitz 1985—Everett M. Kassalow 1986—Lloyd Ulman 1987—Michael H. Moskow 1988—Phyllis A. Wallace 1989—Joyce D. Miller

1990—Robert B. McKersie 1991—James L. Stern 1992—Ernest J. Savoie 1993—George Strauss 1994—Lynn R. Williams 1995—Walter J. Gershenfeld 1996—Hoyt N. Wheeler 1997—Francine D. Blau 1998—F. Donal O’Brien 1999—Thomas A. Kochan 2000—Sheldon Friedman 2001—Magdalena Jacobsen 2002—John F. Burton, Jr. 2003—Paula B. Voos 2004—Marlene Heyser 2005—Stephen R. Sleigh 2006—David B. Lipsky 2007—Eileen B. Hoffman 2008—Anthony T. Oliver, Jr. 2009—Joel Cutcher-Gershenfeld

LABOR AND EMPLOYMENT RELATIONS ASSOCIATION SERIES

Proceedings of the 62nd Annual Meeting

January 3-5, 2010 Atlanta, GA

Françoise Carré and Christian Weller, Co-Editors

PROCEEDINGS OF THE 62nd ANNUAL MEETING Copyright © 2010 by Labor and Employment Relations Association. (Formerly the Industrial Relations Research Association.) Printed in the United States of America. No part of the book may be used without written permission, except in the case of brief quotations embodied in critical articles and reviews.

First Edition ISBN 978-0-913447-00-0

LABOR AND EMPLOYMENT RELATIONS ASSOCIATION SERIES (Formerly the Industrial Relations Research Association) Proceedings of the Annual Meeting Annual Research Volume Membership Directory (published every four years, latest in 2006) LERA News (quarterly e-newsletter) Perspectives on Work (published annually)

Inquiries and other communications regarding membership, meetings, publications, and general affairs of the Association, as well as notice of address changes, should be addressed to the LERA office. LABOR AND EMPLOYMENT RELATIONS ASSOCIATION University of Illinois at Urbana-Champaign 121 Labor and Employment Relations Building, MC-504 504 East Armory Avenue, Champaign, IL 61820 Telephone: 217/333-0072 Fax: 217/265-5130 E-mail: [email protected] Website: http://www.LERAweb.org ii

CONTENTS Officers of the LERA

Cover 2

Alphabetical List of Authors

320

LERA Membership Information

Cover 3 I. PRESIDENTIAL ADDRESS

The Future of Labor and Employment Relations in a Global, Knowledge-Driven Economy JOEL CUTCHER-GERSHENFELD

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II. NATIONAL LABOR COLLEGE STUDENT WORKSHOP: RESEARCH BY THE RANK-AND-FILE Ruth Ruttenberg, Presiding Coalition Bargaining: A Successful Bargaining Strategy for Rail Labor

FLOYD MASON

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III. LERA HEALTH CARE INDUSTRY COUNCIL MEETING Jody Hoffer Gittell, James R. Bialke, Jim Pruitt, and Dana Weinberg, Presiding Depending on the Angle: Perspectives on Conflict and Workplace Climate

KELLY I. PIKE

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CHICHUN FANG

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The Impacts of Resident-Centered Care on Conflicts in Nursing Homes EUN KYUNG LEE AND ERIK YOUNG

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The Dynamics of Health Insurance Coverage

IV. JOB LOSS AND EMPLOYMENT STABILIZATION — LERA LABOR MARKETS AND LABOR ECONOMICS SECTION MEETING Susan Helper, Stephen A. Woodbury, and Charles Whalen, Presiding Tackling the Crisis: The Italian Case in the E.U. Context MICHELE TIRABOSCHI AND SILVIA SPATTINI

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V. PERSPECTIVES ON THE FIGHT FOR LABOR LAW REFORM AND THE EMPLOYEE FREE CHOICE ACT — LERA LABOR STUDIES AND UNION RESEARCH SECTION MEETING Robert Bruno, Presiding The Ambiguities of History: The Employee Free Choice Act in the Context of Labor Law's History ERIC ARNESON

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VI. OUR CHILDREN’S BURDEN: GENERATIONAL CONFLICT AND SOLIDARITY IN THE 21ST CENTURY EMPLOYMENT AND RETIREMENT Michael Collins, Presiding The Challenge of Providing Retirement Security through Defined Contribution Plans: Evidence from Simulated Lifetime Projections MARK GLICKMAN

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Discussion

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ROBERT J. THORNTON VII. ALTERNATIVE FUTURES IN A NEO-LIBERAL ENVIRONMENT — LERA INTERNATIONAL SECTION MEETING I Mark Stuart, Presiding

Alternative Futures for West European Trade Unionism MARTIN UPCHURCH, GRAHAM TAYLOR AND ANDY MATHERS

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Transformation and Continuities in Urban Struggles: Urban Movements, Trade Unions and Migration in Spain MIGUEL MARTINEZ LUCIO AND HEATHER CONNOLLY

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VIII. CONCEPTUALIZING WORK — LERA INTERNATIONAL SECTION MEETING II Andrew Brown, Presiding The Marginalization of Work in Economic Theory

MICHAEL PERELMAN

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IX. COLLECTIVE BARGAINING UNDER INTERNATIONAL LAW: U.S. OBLIGATIONS AND U.S. PRACTICE Sheldon Friedman, Presiding Core Labour Standards and the U.S. Experience: Freedom of Association and the Right to Bargain TAYO FASHOYIN AND MINAWA EBISUI

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X. SOCIOTECHNICAL SYSTEMS: MOVING FROM THE 20TH TO THE 21ST CENTURY Betty Barrett, Presiding Tails and Dogs: Who’s Wagging? The Inversion of ‘Technical Conversion Processes’ and ‘IT Technical Systems’ PAMELA A. POSEY AND PETER J. SORENSON

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Bargaining Technology: Union Engineers Address Transformation

MONICA BIELSKI BORIS

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HEIKE NOLTE

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Work Organization and Problem Solving

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Discussant Remarks

BERT PAINTER

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XI. BEYOND THE RECOVERY: KEEPING JOBS AND WORKING FAMILIES AT THE CENTER OF THE NATION’S ECONOMIC AGENDA Charles Whalen, Presiding Discussion

CHARLES WHALEN

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XII. CHANGE AGENTS IN LABOR-MANAGEMENT SYSTEMS Thomas J. Schneider, Presiding Labor Mediator as Internal Change Agent

GARY HATTAL

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Activism and Willingness to Help in Union Organizing JACK FIORITO, GREGOR GALL AND ARTHUR MARTINEZ

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XIII. REFEREED PAPERS I Mark Stuart, Presiding

Militancy and Moderation in Teachers’ Unions: Is There a Fit between Union Image and Member Attitudes? TOM REDMAN AND ED SNAPE 180 U.S. Multinational Companies and Unionization Determinants in Ireland: The Influence of Home-Country Behaviors JONATHAN LAVELLE, PATRICK GUNNIGLE, J. RYAN LAMARE AND ANTHONY MCDONNELL 190 XIV. LEARNING FROM THE NEW DEAL Howard Wial, Presiding The Relevance of the Wagner Act for Resolving Today’s Job-Security Crisis Homeland Security: Theme of the New Deal

ANN MARIE LOFASO

205

DANIEL J.B. MITCHELL

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XV. LERA POSTER SESSIONS I AND II Robert C. Hoell, Presiding Mergers and Acquisitions: Industrial Relations Issues and Outcome

SEAN ROGERS

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Work Rights and the Millennium Development: Goals, Targets and Indicators GILLIAN MACNAUGHTON AND DIANE F. FREY

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A Comparison of Card Check Recognition in Illinois and Ohio TIMOTHY D. CHANDLER AND RAFAEL GELY

226

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Workplace Violence: Employee Perceptions of Acts and Perpetrators

JACK L. HOWARD

226

Once More: Why Enter a Female Dominated Occupation? PETER TOUMANOFF AND TIMOTHY KEAVENY

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An Analysis of Certification Elections in the Hospital Industry

227

EDWIN W. ARNOLD

XVI. INFRASTRUCTURE INVESTMENT AND HIGH-ROAD, GREEN CONSTRUCTION JOBS Joel Rogers, Presiding A Green Industrial Relations System for Construction: Challenges and Opportunities DAVID WEIL

228

XVII. REFEREED PAPERS II Stephen A. Woodbury, Presiding Revisiting Debt and Labor — Bailouts for Homeowners: Can the US Compel Public Service in Exchange for Debt Relief? MICHAEL LEROY 237 Evidence Regarding the Persistence in Gender Unemployment Gaps Across Countries HERVÉ QUENEAU AND AMIT SEN

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Firm Size and Employer-Sponsored Training in Australia

260

JEFFREY WADDOUPS

XVIII. CHINESE EMPLOYMENT RELATIONS: CHANGES IN THE NEW INSTITUTIONAL ENVIRONMENT 21ST-CENTURY

Kuruvilla Sarosh, Presiding The Heart of the Problem: Trucking in China’s Logistics Sector XIONG JUN AND DAVID BENSMAN

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XIX. EMPIRICAL STUDIES OF RETIREMENT PLANS: IMPLICATIONS FOR WORKERS, FIRMS AND PUBLIC POLICY Stephen A. Woodbury, Presiding Peer Effects and the Timing of Retirement: Evidence from Los Angeles School Teachers KRISTINE M. BROWN AND RON A. LASCHEVER

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XX. 2010 BEST DISSERTATION COMPETITION Constructing Institutions — Collective Bargaining in Multinational Companies in the U.S., Germany and Spain MARCO HAUPTMEIER 294

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XXI. LERA ANNUAL REPORTS Executive Board Meeting in Washington, DC, June 10, 2009

298

Executive Board Meeting Conference Call, December 9, 2009

301

Executive Board Meeting in Atlanta, GA, January 2, 2010

303

General Membership Meeting in Atlanta, GA, January 4, 2010

306

Annual Report for 2009

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I. Presidential Address

The Future of Labor and Employment Relations in a Global, Knowledge-driven Economy JOEL CUTCHER-GERSHENFELD University of Illinois at Urbana-Champaign1

Prologue When the World Congress for the International Labor and Employment Relations Association (LERA) met this summer in Sydney, Australia, the opening of each major session began with a formal acknowledgment of the original owners of the land—naming the specific aboriginal tribes who first inhabited the land on which we were meeting. In our own community, arbitrator–mediators Tia and Richard Denenberg regularly visit and honor Native American burial grounds wherever we have meetings. So, upon returning from Australia, I asked them about the original owners of the land on which we would be meeting here in Atlanta. Based on their information, I now acknowledge the Creek Tribe as the original owners of the land. Long before Europeans arrived to this area, there was a trail that was later named by Europeans for a tall lone pine tree known for its pitch or sap—hence we are meeting on the pitch tree trail (later corrupted to be “Peachtree Street”) established by the Creek Tribe, and we acknowledge them as the original owners of the land.

Introduction In the great sweep of history, I believe that ideas matter. It is ideas, large and small, that mark the twists and turns of civilizations over time. In my remarks today, I will focus on three concepts, each of which embodies ideas that are central to our field and each of which is in a state of fundamental change that will have implications for theory, policy, and practice in our field. To begin, I would like to share a brief story. This goes back to the early 1990s, when I co-led a team investigating the cross-cultural diffusion on new work systems, visiting a mix of unionized and nonunionized Japanese transplants in the U.S. One such facility made automotive heaters and air conditioners. With about 750 employees, it had what is called a kaizen-teian system, a suggestion system designed to support continuous improvement in operations. Each improvement suggestion would be brought to a team meeting, discussed, and, if agreed upon, submitted to the HR office, where it would be reviewed and, if approved, a work order written. Now many of you know what traditional suggestion systems are like—relatively few suggestions are ever submitted. This was different. At the time we visited the facility they were implementing an average of over 7,000 suggestions a year—nearly one per person per month. Not only that, but one of our team observed that the transfer lines moving parts around the facility were made of light gauge metal and not even bolted to the floor. He commented that they would only last three to four years. The person showing us around, who was the head of organizational development, responded, “Exactly! Our product life cycle is about three to four years, and after 20,000 to 30,000 continuous improvements we are ready to redesign the whole factory. That’s at the heart of our business model: lots of small improvements, followed by a complete redesign based on what is by then a deep knowledge of the system.”1 Author’s address: School of Labor and Employment Relations, 504 E. Armory Avenue, Champaign, IL 61820

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LERA 62ND ANNUAL PROCEEDINGS

Why do I share this story? First, it illustrates the concept of “knowledge-driven work,” which I will discuss shortly. But I share it also because it illustrates an approach to change that combines small, incremental adjustments and periodic systems redesign, all grounded in knowledge. It is with this change model in mind that I would like to turn to the first of the three core ideas that are the focus of my remarks.

Institutions To motivate this portion of my remarks, I begin with the visual image of a 15th-century French tapestry [Ed. note: in this and other instances, a piece of imagery was shown as part of the talk]. As you can see, different parts of the tapestry illustrate the monarchy and the military. These are depictions of Roman institutions, significant because it was right around this time in France that the word “institution” was coined. I am told that there is an older Sanskrit word for institution, but in the West these stabilizing aspects of society existed for 500 to 1,000 years before there was even a word to describe them. Why is this significant? I believe that it took a long time to coin a word for these arrangements because they emerged and took shape at a gradual pace, changing very little across the generations. They were a taken-for-granted part of life. By contrast, with the rise of the industrial revolution, institutions emerged and changed at a much more rapid pace. This included the emergence of constitutional monarchies, political parties, and labor unions along with other changes that took place at a pace almost an order of magnitude faster than the first wave of institutional arrangements. Major shifts happened in 50 to 100 years rather than 500 to 1,000 years. This shift in the pace of change threw the institutional arrangements into sharp relief, and it drew the attention of one of the founding scholars in our field, John R. Commons,2 who noted that changes in labor institutions were driven by underlying changes in markets and technology. It is in this context that I draw your attention to a second visual image, a picture of the shop floor of the Auburn Motor Company.3 How many here have heard of Auburn Motors? Few people have heard of the company, though they made an excellent product and later produced another well-known vehicle—the Cord—all in the town of Auburn, Indiana. I point to Auburn because around the time of this photo there were 140 car companies just in the state of Indiana. As you see from the photo, Auburn Motors did have some aspects of the mass production system. In the background there are interchangeable parts, one of the features of this system. In the foreground you can see that they had the concept of an assembly line at least for axle assembly, though they didn’t get the moving assembly line part of the system—overhead hoists are lifting the axles and moving them from sawhorse to sawhorse. We also know that the company originally manufactured carriages and that they were slow to shift from wood frame to metal frame bodies. In other words, they mastered parts of the new mass production system, but not the whole system. Organizations that pioneered the whole system have become household names. Today, a century later, Auburn is but a footnote on history. Why do I raise this example? I do so because we are experiencing what Piore and Sabel termed a second industrial divide,4 marking the shift from an economy led by mass production to something new—a second fundamental shift in markets and technology. With this shift we see an acceleration of the pace of change in markets and technology. If the first wave of institutions changed at a pace measured in millennia, and the first industrial divide accelerated to a pace of change measured over centuries, I suggest that the second industrial divide may bring institutional change yet another order of magnitude faster—change measured in decades, generating major shifts within a lifetime rather than across lifetimes. We have certainly seen how quickly executive compensation has moved onto the policy agenda, how quickly the Federal Reserve Bank has expanded its focus to include unemployment, not just inflation; how quickly the very nature of pensions and retirement has changed; how quickly traditional career ladders collapsed; how quickly it has become possible to have a career on eBay; how quickly the very nature of research and development in corporations has shifted. And there are also many aspects of our field that are on the table for discussion, even if they haven’t yet fundamentally shifted, from the employer-based system of health care to strategies, structures, and processes for worker representation to the regulatory roles of government. There is indeed evidence to suggest that changes in markets and technology are driving—or should I say, coevolving to drive—accelerated change in institutions, and this is my first challenge to the field.5 The idea of

THE FUTURE OF LABOR AND EMPLOYMENT RELATIONS

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institutions has been at the core of labor and employment relations, and we need to more fully and more deeply understand the changing nature of institutions in the present era. The importance of institutions is increasingly being recognized in the new institutional literatures in organizational behavior and economics,6 but this is mostly an appreciation of institutional dynamics in organizations or markets. This only partly helps us to understand the institutions themselves.7 Recently I was approached by one of our students in the School of Labor and Employment Relations at the University of Illinois, who connected my opening story about continuous improvement with a discussion of collective bargaining and labor law as institutions. She said, “Why don’t these institutions have mechanisms for lots of small improvements and then periodic redesign, just like the factory you described?” Similarly, in the LERA distinguished panel at these meetings, Michael Piore asked us how we might have institutions that reach beyond assumptions of the primacy of competition in order to enable cooperation.8 These are very good questions—they go to the core of the challenge for institutions and for our field: to understand how to provide needed stability in society while still being flexible and adaptable in a rapidly changing context.

Work Institutions represent one of the three core ideas in our field that I am highlighting in these remarks. To motivate the second idea, consider this painting by former WPA artist Lawrence Kupferman. During the 1930s and 1940s Kupferman was noted for highly representational works—images of workers and buildings. This painting, which was produced in the 1960s, reflected his growing interest in the remarkable advances that were happening in psychology, biology, and chemistry. The image, which is entitled “landscapes of the mind—portrait of Ruth,” reflects this interplay between the physiological and the psychological, the physical and the social. If Lawrence Kupferman were with us today, I believe he would have been delighted and fascinated by the way technology is interweaving with our understanding of the human mind, as well as by the increasing importance of knowledge in our society. Thus, I use this image to introduce the second idea that it central to our field—the nature of work itself. I will focus on the interweaving of the social and the technical and on the significance of work becoming more knowledge-driven. Economists tell us that the demand for labor is a “derived demand,” derived based on the demand for products and services. With traditional sources of competitive advantage, which are geography, capital, and technology, this is a pretty clear causal relationship. Increasingly, however, these traditional sources of competitive advantage are becoming less sustainable—geography is shrinking, capital flows quickly, and technology is soon replicated. Knowledge, reflected in capability and innovation, is emerging as the leading source of sustainable competitive advantage. It is the distributed knowledge of the whole workforce, not just the knowledge of a small group of experts and leaders, that is the key. Knowledge-driven work isn’t limited to consultants and high-level professions. As my opening story suggested, it is the distributed knowledge of the entire workforce that drives thousands of improvements in safety, quality, cost, schedule, and other metrics, as well as enables periodic total redesign. Continuous improvement based on knowledge—which is the definition of the term kaizen—becomes the business strategy. The demand for labor may still be a derived demand, but labor is much more tightly interwoven with the products and services themselves. In The Transformation of American Industrial Relations, Tom Kochan, Harry Katz, and Bob McKersie documented the increasing importance of the nonunion sector of the economy in shaping labor and employment relations—in both promising and troubling ways.9 On the troubling side was the ascendency of a more unilateral, managerial set of institutional arrangements without effective counterbalance. On the promising side was the rise of high performance work systems, which are, at their core, knowledge-driven. Looking back, I see that it is the ability to value and appreciate distributed knowledge that was at the heart of nonunion success stories, and it is that same ability that provides the potential for transformation in the unionized sector. Consider this chart, which is something that I found on the performance metric wall in a team meeting area in a UAW-Ford stamping plant.10 It depicts what they call “hit-to-hit” performance, which is the downtime between the last good “hit” with one set of stamping dies and the first good hit with a new set of dies after there has been a change. Performance is measured in minutes and, as you can see from this chart, they were averaging around 140 minutes, or well over two hours, between die changes at the beginning of this

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time period. Moreover, the process was highly variable. A foundational insight in the domain of knowledgedriven work comes from Dr. W. Edwards Deming, who noted two things—first, you have to reduce the variance in a system before you try to improve the system (otherwise you just get more variation), and, second, front-line knowledge properly engaged is central to reducing variance. This is exactly my point in sharing this chart. When I pointed to it on the wall out on the shop floor in this stamping plant, I asked about the right-hand side of the chart, where the variance had reduced and performance increased. I asked what had happened at this point, and the response was instant. They said, “Oh, that’s when the team leaders and the union committeepersons began to attend the daily shift-start meetings with the supervisors and superintendents.” This is a story about work becoming more knowledge-driven, which changes everyone’s roles. It is also a story about a closer connection between the social and the technical. It was over 50 years ago that the concept of “socio-technical systems” emerged,11 and I believe that the accelerating pace of change in technology requires us to revitalize this term and link it to the expanding importance of knowledge-driven work. To illustrate this point, here is a visual representation of Moore’s Law, using an exponential scale to represent an accelerating rate of improvement in computer processing speed. This is, I am sure, familiar to many of you. It is just one of many technologies that futurist Ray Kurzweil is following, and he reports that the rate of change for nearly every type of technology is moving exponentially.12 To illustrate the socio-technical and the knowledge-driven dimensions of this, consider a second chart drawn by Kurzweil, which shows the cost per sequenced pair of DNA. There are fewer points on this chart compared to the one on Moore’s Law, but there is a pattern of initially accelerating rates of change, followed by a leveling out after about five years, which is the mid-point on the horizontal axis. I have some insight into this story because a former doctoral student at MIT, Robert Nichols, became the director of operations at the MIT-Harvard Broad Institute at this time. What he noticed when he began work there is, frankly, something that any person in this room would likely notice. These fancy DNA sequencing machines were all organized in a linear fashion—just like the assembly line back in that picture of Auburn Motors. Each job was set up with one task following another. Nichols reorganized the equipment into related clusters, formed kaizen-teian teams, brought the test equipment manufacturers into the team meetings, and applied other principles of socio-technical systems design. That is where the right-hand side of the chart again accelerated. MIT-Broad won the race to sequence the human genome, and a new era of personalized medicine has opened up. Not only is this story important for illustrating the way social systems combine with technical systems to generate accelerating rates of change, it is also part of a still unfolding story of accelerating increases in life expectancy. If the rate of increase shifts from linear, as was the case for most of the last century, to curvilinear, then the implications for work are quite significant. At a curvilinear rate of change, active working lives could double in length within one generation—from 30 to 40 years to 60 to 80 years. This would raise fundamental questions regarding retirement, careers, returns to education, discrimination, and other matters. Thinking systematically about the nature of work has always been central to our field, and I am highlighting two fundamental changes here. First, as we have just discussed, the intersection of the social and the technical will be fertile ground, given that technology is changing at an accelerating rate. Second, I believe that knowledge-driven work will, in the 21st century, be the defining successor to the mass production and bureaucratic models of work organization.

Organizations The next image is a well-known painting by Jacob Lawrence, signaling the value of everyday work across a range of occupations. What is notable here, of course, is that all of these people are jumbled together, out of their organizational context. That is the third idea that I would like to highlight—the concept of organizations. A defining feature of the first industrial divide was the shift from craft-based organizations to the hierarchical form. There has been increasing attention to networks as an alternative to hierarchy, on the one hand, and to markets, on the other. However, there is much to be done to more fully understand


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network-based organizational arrangements. It is not just the absence of a hierarchy, as we saw was missing from this Jacob Lawrence painting, nor is it just networks of individuals. I call your attention instead to networks of stakeholders who are both independent and interdependent in various systems. Consider this next image. It may take a moment to recognize what this is—it is a representation of the 2003 power blackout in the Northeast.13 In a moment, I want to speak to the underlying organizational form associated with this, but first, I want to follow through on a personal commitment I made with respect to this presidential address. Let me say it now: this is the truth—the way we distribute power in this country is in need of a great deal of attention. That is the truth. There, I did something that I really wanted to do in this address—I spoke truth to power! [dramatic pause] More seriously, there is a great deal of work to be done by our energy industry council and other stakeholder groups. Look at this next image. It presents the power grid control areas. Each area is associated with a hierarchical organization, and for the power grid to operate effectively the organizations need to be able to communicate and coordinate. This sort of coordination across organizations has been characteristic of most infrastructure systems for a very long time. However, the scale and complexity of most of these systems has increased dramatically with globalization—this is the case for air, ground, and water transportation systems as well as natural resource systems for food, water, and emergency relief. It is also true for supply chains. Moreover, we have added new systems, such as the internet, mobile telecommunications, distributed systems for research and development, systems to address global climate change and, sadly, terrorist networks. Further, existing organizations are forging new, network-based arrangements. Consider how the Department of Professional Employees in the AFL-CIO has forged alliances around professional standards with a broad range of professional associations that are not involved in collective bargaining in any way. Many key systems in society have been deregulated in recent decades, including air transportation, trucking, banking, utilities, and others. In the process, society was making an implicit assumption that these complex socio-technical systems would operate more effectively on a market-driven model. In fact, there have been some consumer benefits of deregulation, but there have also been a number of what economists call externalities—additional costs to society not addressed by the market. The reality is that something more than market-based institutional arrangements is needed for these systems to maximize their effectiveness and mitigate the risk of catastrophic failures. I believe this is exactly what Michael Piore was signaling when he urged us to examine the core assumptions about cooperation and competition that are embedded in institutions. In my own research, I have focused on the lateral and cross-layer alignment of stakeholders in these systems. The ideas crystallized during a successful effort to generate a consensus vision for Congress on aircraft noise and emissions.14 For me, it is much like studying collective bargaining, only instead of two parties, there are n parties. Many of the same principles apply. There is a mixture of common and competing interests among the parties, generating integrative and distributive dynamics. Further, staying with the Walton and McKersie15 framework, attitudinal dynamics play a key role, since leadership happens in these systems more by influence than by authority. Intraorganizational bargaining is key—now it is n parties that need to achieve internal alignment in order to engage in lateral alignment. Trust in these systems provides an essential, if fragile, foundation. Even as many of us are working to update collective bargaining as an institution so that it is more flexible and adaptable,16 it is perhaps ironic that collective bargaining theory helps us to understand new, emerging institutional arrangements. My colleague Chris Lawson and I have developed a causal model to guide us in research on stakeholder alignment.17 I put this next image up not to go through it in any detail, but to call your attention to the right-hand side of the model. We argue that the outcomes include four aspects of alignment (or misalignment). First is behavioral alignment—reflected in communications, information sharing, decision making, leadership and other behavioral interactions. Second are structural aspects of alignment—reflected in incentives, forums, and other structural features of the systems. As we all know, structure drives behavior, so this is important. Third is the strategic intent and strategic moves by individual stakeholders and by the system as a whole. Finally, there is the cultural dimension. As my friends in industry readily point out, culture eats strategy for breakfast. But of course, the daily patterned behaviors define and change culture over time, so all the dimensions are interdependent.18 Not only that, but these systems of stakeholders are new

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LER RA 62ND AN NNUAL PRO CEEDINGS

nal arrangemeents, or a traansformation of older onnes—with huuman agency more visiblee and institution intentionaal than in mostt inherited insstitutions.

o stakeholderss are not new w. Their signifiicance in the 221st century w will, however, be far greaterr. The Systems of 20th centuury was defineed by individuual organizatio ons pursuing self-interest inn powerful neew ways, geneerating value, butt also generatiing a legacy of o various traggedies of the commons. Brroadly definedd, it is the wo ork of these systeems of stakeholders to morre fully value the commons,,19 and this willl, I believe (an nd I hope), beecome a definingg feature of th he 21st centurry. Thus, orgaanizations havve been a centtral focus of o our field, andd I call attention to an organ nizational form m—aligned stakeholders s iin complex systems—as worthy of ggreater a potentiallly, a defining organizational o l form for thee 21st century.. attention and,

Integrattion In n conclusion, I would like to share with h you two finnal images to motivate an iinterweaving o of the three ideass highlighted in i these remarrks—institutio ons, work, andd organizationns. This T chart has become an allmost iconic representation r n of the 20th century.20 Lett me review w what it stands forr and suggest how much ch hange will be needed n for thhe 21st centuryy. Each of thee three lines o on the chart is an n index of time-series data beginning b in 1947. 1 The top line, which iss green, is a prroductivity inddex; it illustrates remarkably consistent 3% year-over-yeaar productivityy gains. The bbottom line, w which is blue,, is an index of average a hourlyy earnings. Th he left-hand side s of this liine illustrates the post-Worrld War II fo ormula pioneered in the autto industry— —what was termed t the ““annual improvement factor”—that llinked ng for inflationn) with the 3% % productivitty gains. It waas also approximaately 3% wagee increases (affter accountin preceded a half-centuryy earlier by Henry H Ford’s $5 day—firstt making the connection b between workkers as both wagee earners and consumers. c As A you can see, however, byy the mid-19700s the connecttion began to break down, and d hourly earniings went flat.. The middle line, which is pink, charts tthe index for household in ncome, which con ntinued to risee for a little wh hile after wagees went flat— —marking in paarticular the in ncreased propo ortion of women n entering the workforce. By B the mid-19980s, howeverr, that too wennt flat. Houseeholds were aable to adjust for a while by taaking on increeased consum mer debt, whicch could be a fourth line o on the chart, which o reach its lim mits. There is some debate among econoomists as to w whether the in ndexes in thiss chart would also


7

should also include deflators, but even if they did, the pattern would be the same. A gap widens, and eventually we hit a wall, with the concurrent collapse in product markets, financial markets, and labor markets. I share this chart for two reasons. First, it speaks to the decline of good jobs and an effective system of labor relations in society. Prior to this meeting, former LERA president and former president of the Steelworkers Union, Lynne Williams, sent his regrets in not being able to be with us. As part of the e-mail correspondence, he stated, “The need to rebuild a successful manufacturing base in America becomes more pressing by the day. The role of a modern, democratic, empowering labor relations system is critical.” I also share the chart to ask a larger systems question. The $5 day and the annual improvement factor were both 20th-century innovations helping to align product markets with labor markets. My question centers on the 21st-century institutional arrangements that will bridge both product and service markets (which are not the same) with both labor markets and financial markets—all in an era of accelerating technological change. There are aspects of this that may seem, well, abstract, such as this painting by Lawrence Kupferman’s son, David Kupferman. But this work, which is part of his “Raga Series,” does reflect a complex interweaving and juxtaposition of images. That is how I would like to conclude my remarks, by interweaving the image and ideas covered in this address—each of which involves rethinking core assumptions.21 First, we focused on institutions—a defining dimension of our field and a topic of increased interest in a range of disciplines. If the rate of change in institutions is indeed governed by the rate of change in technology and markets, then we are entering an era where institutional arrangements will not necessarily span generations—we need to study and develop institutional models that provide needed stability, but that are flexible and adaptable in an era of accelerating rates of change. Further, we need to ask hard questions about the core values and assumptions embodied in the institutional arrangements. Second, we looked at work—the central focus of our field. We saw that the knowledge-driven aspects of work are becoming increasingly salient and that models that value distributed knowledge across a workforce may become dominant in the 21st century. Further, the interweaving of the social and the technical is a long-standing story that takes on new significance in the present era. Third, networks of stakeholders—aligned laterally and across levels in complex systems—represent an organizational form of new and increased importance. These systems are superseding individual organizations as the defining actors in our economy and our society. Indeed, these are becoming, in many ways, new institutional forms. The stakes are high. If we don’t pioneer new institutional models, anchored in new approaches to work and organization, we risk failures in these systems. As we have already seen, failures aren’t merely bad— they can be catastrophic. At the same time, success isn’t just good—it can be transformational. In conclusion, I share with you one final story. A number of years ago, my wife, Susan, and I were fortunate in providing some technical assistance to the South African Commission on Conciliation, Mediation and Arbitration (CCMA). More recently, a delegation from South Africa came to the U.S., and I was anxious to learn from them what was the main focus of labor-management relations in their country. The answer was simple and powerful: They said that they wanted to avoid being caught up in the global race to the bottom. As soon as they said that, I realized that some version of the American Dream can be found all around the world—increasingly, people everywhere want good schooling for their children and the hope that each generation can do better than the last. Ultimately, this gives hope and direction to the institutions we must build—institutions that combine good jobs with economic performance to make the American dream and its equivalent a reality around the world.

Notes Joel Cutcher-Gershenfeld et al. 1998. Knowledge-Driven Work: Unexpected Lessons from Japanese and United States Work Practices. New York: Oxford University Press. 2 John R. Commons et al. 1918–1935. History of Labor in the United States, Vols. 1–4. New York: Macmillan. 3 Lee Beck and Josh Malks. 1996. Auburn and Cord. Osceola: Motorbooks International. 1

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Michael Piore and Charles Sabel. 1984. The Second Industrial Divide: Possibilities for Prosperity. New York: Basic Books. 5 Note that this is not necessarily a simple causal relationship—clearly technology and institutions co-evolve, as suggested by Jon D. Wisman and James F. Smith in “American Institutionalism on Technological Change,” Journal of Economic Issues, Vol. 33, 1999. 6 Foundational publications on new institutionalism in organizational behavior include these: Peter L. Berger and Thomas Luckmann. 1966. The Social Construction of Reality. New York: Doubleday; Paul J. DiMaggio and Walter W. Powell. 1983. “The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields.” American Sociological Review, Vol. 48, pp. 147–160. Two foundational books on the new institutional economics are these: Oliver E. Williamson. 1985. The Economic Institutions of Capitalism. New York: Free Press; Douglass C. North. 1990. Institutions, Institutional Change and Economic Performance. New York: Cambridge University Press. 7 A notable exception is Elinor Ostrom, Understanding Institutional Diversity, Princeton. NJ: Princeton University, 1995. (See also note 19.) 8 Presentation by Michael Piore was part of the LERA Distinguished Panel on The Second Industrial Divide and The Transformation of American Industrial Relations: Looking Back and Looking Forward a Quarter Century Later, Atlanta, Annual meeting of the Labor and Employment Relations Association, 2010. 9 Thomas Kochan, Harry Katz, and Bob McKersie. 1986. The Transformation of American Industrial Relations. New York: Basic Books. 10 This chart is from the UAW-Ford Chicago Stamping plant, circa 2002. 11 Eric Trist. 1950. The Relations of Social and Technical Systems in Coal-Mining. Paper presented to the British Psychological Society, Industrial Section. 12 Ray Kurzweil. 2005. The Singularity Is Near: When Humans Transcend Biology. New York: Viking. 13 Note that this image was widely distributed just after the blackout with the notations on it suggesting it was an actual satellite image, but its authenticity has not been confirmed. 14 Ian Waitz, Jessica Townsend, Joel Cutcher-Gershenfeld, Edward Greitzer, and Jack Kerrebrock. 2004. Report to Congress, Aviation and the Environment: A National Vision Statement, Goals and Recommended Actions. Washington, DC: FAA/NASA. 15 Richard Walton and Robert McKersie. 1965. A Behavioral Theory of Labor Negotiations. New York: McGraw Hill. 16 Richard Walton, Joel Cutcher-Gershenfeld, and Robert McKersie. 1994. Strategic Negotiations: A Theory of Change in Labor-Management Relations. Boston: Harvard Business School Press. 17 Joel Cutcher-Gershenfeld and Chris Lawson. 2010. Stakeholder Alignment in Complex Systems: Valuing the Commons. Working paper. 18 This interdependency parallels and reaches further than the alignment across levels highlighted in Thomas Kochan, Harry Katz, and Robert McKersie, The Transformation of American Industrial Relations. New York: Basic Books, 1986. 19 E. Ostrom. 1990. Governing the Commons: The Evolution of Institutions for Collective Action. Cambridge: Cambridge University Press. 20 This is a version of the chart that I constructed for this address; data provided by Larry Mishel of the Economic Policy Institute. 21 This is a consideration of core assumptions in the spirit of Douglas McGregor, The Human Side of Enterprise (annotated ed.). Joel Cutcher-Gershenfeld, ed. New York: McGraw Hill, 2006. 4

II. National Labor College Student Workshop: Research by the Rank-and-File

Coalition Bargaining: A Successful Bargaining Strategy for Rail Labor FLOYD MASON International Brotherhood of Railroad Signalmen

Coalition Bargaining: A Successful Bargaining Strategy for Rail Labor The employees of the railroad industry are represented for collective bargaining purposes by 12 craft unions1 that bargain with the industry through a unique national process. These labor organizations have from 1986 to date negotiated with a formally structured and unified rail industry through combinations of efforts structured individually, in loosely formed coalitions, and most recently in a formal coordinated structure. Because rail labor has negotiated against a consistently coordinated industry, it has been disadvantaged. The rail industry’s information is centralized, and the industry speaks with a single spokesperson. In contrast, rail labor’s information is divided among the 12 separate craft unions and speaks through separate voices. It is my hypothesis that rail labor benefits when effort is coordinated and that centralizing factual bargaining information will improve the position of rail labor in its charge to bargain with a centrally coordinated national rail industry. Moreover, better information can save time and help resolve conflict, and so benefit both sides and the nation as a whole. Coalition bargaining presents challenges. Some of those challenges were overcome in the national bargaining round that ended in 2007 for rail labor organizations participating as the Rail Labor Bargaining Coalition (RLBC). This study compiles into one document much of the factual bargaining record of rail labor, particularly the data related to the RLBC and its approach to resolving its member organizations’ national bargaining issues. The document can serve two purposes: to provide a central reference point for the bargaining facts related to this most recent national rail bargaining round focused on the RLBC and its seven rail labor organization members,2 and to capture as a historical record the improvements and sacrifices accomplished through an approach formalized in the formation of a unique and successful coalition body.

Background of Coalition Bargaining Through years of bargaining history and at least one court decision (General Committee of Adjust v Burlington No Santa Fe 2002), national bargaining in the rail industry is conducted with those carriers that choose to join the National Carriers Conference Committee (NCCC) and to be represented by their spokesman and representative body, the chair of the National Railway Labor Conference (NRLC). Since at least 1982 each of the Class I carriers, which today include Class I carriers and a varying number of smaller regional and terminal railroads, come together under the collective banner of the NCCC and are represented by an independent body of full-time permanent employees that work for the NRLC. In 1982, 76 railroad carriers were part of national handling. In 2007 that number was 14. In the last bargaining round there were the five Class I carriers (listed in Table 1), their subsidiaries, and nine regional or



Author’s address: 2511 Smith Harbour Drive, Denver, NC 28037

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terminal railroads (Allen 2004). In the bargaining rounds since 1982, the vast majority of the rail industry has been represented by the NRLC, the differing numbers owing mainly to railroad mergers. TABLE 1 U.S. Class I Carriers CSX Transportation Norfolk Southern Railway Burlington Northern/Santa Fe Railroad Union Pacific Kansas City Southern

Major eastern railroad Major eastern railroad Major western railroad Major western railroad Midwestern railroad

In contrast, the number of rail unions has been relatively constant for recent rounds. There are 12 craft unions in the rail industry today. The number of bargaining unions has not changed since 1991. The Brotherhood of Locomotive Engineers and the Brotherhood of Maintenance of Way Employees, for example, have affiliated with the Teamsters, but each division is still responsible for collective bargaining agreements for its members. What has varied in recent rounds is the manner and combination of unions as bargaining units that negotiate with the nation’s rail carriers at the national level. Typically, each rail union negotiates separately with the NRLC, and if agreements are not reached, a Presidential Emergency Board (PEB) is appointed to resolve disputes without a strike. To deal with these disputes efficiently, the National Mediation Board—the independent government agency responsible for labor–management relations in the airline and rail industries—would assign multiple craft unions and the rail industry to a single PEB. For example, PEB 211, which led to the conclusion of the 1986 round, was assigned to resolve the collective bargaining differences of six rail unions with the NCCC. The NCCC represented the rail industry; the six unions were the Brotherhood of Railway Carmen (BRC), the International Association of Machinists (IAM), the International Brotherhood of Electrical Workers (IBEW), the International Brotherhood of Firemen and Oilers (IBFO), the Brotherhood of Maintenance of Way Employees (BMWE), and the Brotherhood of Railroad Signalmen (BRS). The PEB made recommendations to resolve the collective bargaining issues for each separate union and the industry (National Mediation Board 2008). In 1991, 11 rail unions were part of PEB 219.3 In these emergency board proceedings, the carriers made their arguments through their bargaining coalition, the NCCC, and the unions all made their arguments separately. In the hearing for PEB 219, each rail union represented thousands of employees and multiple collective bargaining agreements, yet received as little as 10 minutes to make its case in order to accommodate the large number of issues and parties. PEB 219 included a number of concessionary terms for rail labor, particularly train and engine service and maintenance-of-way employees (Harris 1990). It was this point in time that rail labor began to experiment with combinations that would eventually lead to stronger coalitions. In 1996, the BRS promoted and joined an informal coalition of shop craft unions that included the BRS, the IBEW, the IAM, and the Sheet Metal Workers International Association. The informal coalition remained together until near the end of the bargaining process, when the BRS left the coalition to pursue its own interests and to avoid some conflict with the IBEW over jurisdiction of work. An important factor here was the effort by the NCCC to call for separate discussions for the respective coalition members, leading to an eventual separation of interests. In the round that ended in the 2003 national agreements, the BRS again negotiated, and was successful in reaching agreement, independently. Shopcraft unions worked together as an informal coalition, but without the IAM. The IAM failed to reach agreement in the 2003 round, and an emergency board was not appointed. The failure of one craft to reach agreement in the round that ended in 2003 would lead to complications in the round that ended in 2007. Pattern bargaining is well established in the rail industry, causing complications when agreement is not reached by all parties in the same period. This independent bargaining by rail unions, the grouping of unions at PEB hearings, and the occasional grouping of some unions in informal coalitions led to mixed results. The round of bargaining that

COALITION BARGAINING

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led to the 2007 national agreements was to see a new and more formal approach to bargaining. In late 2004, nine of the 12 major rail unions began the formation of the Rail Labor Bargaining Coalition.

Bargaining History: The Struggle of Labor and Management The year 1982 may have been a turning point in industrial relations. At least this was the hypothesis posed soon afterward by Harry C. Katz (1984) of MIT. He looked for a transition from adversarial bargaining to one of “labor–management cooperation.” The rail industry, however, had not progressed to the ideals envisioned by Professor Katz. Katz drew three conclusions in his study: 1) innovative bargaining did not occur everywhere, 2) wage and work rule concessions were a common feature, and 3) “in a few cases the scope of innovative bargaining . . . involves enhanced participation.” Time has shown only conclusion 2 to stand the test of time, at least for national handling in the rail industry. This period was the era of Frank Lorenzo and Continental Airlines. The Airline Pilots Association struck Continental October 1, 1983, one week after Continental filed for bankruptcy under Chapter 11 and cut pay scales for union workers in half. This was a bargaining climate that pilots termed “do or die” in their effort to prevent the Lorenzo style of bargaining from becoming the norm nationwide (Business Week 1984). Terms like “backloading” (adding wage increases to the end of a contract) and “lump sums” became part of the dialogue that remains today. “Lump sum payments are not averaged into the hourly wage. In this way they give employers a lower bargaining ‘platform’ for the next contract and over the years, help depress wages in general,” explained a labor publication defining the new terms (Labor Notes 1986:1). The economic recovery that followed in the mid-1980s continued to leave labor out. “Despite an expanding economy, labor-management settlements continued to be low in 1984. Negotiators grappled with pressures to reduce or eliminate labor cost increases in the face of growing import competition, the spreading effects of domestic deregulation in transportation, and structural changes in other industries” (Ruben 1985). This was the beginning of deregulation, especially for transportation, and of the end of cost-of-living increases for many in major private industries. In this climate, bargaining had begun for 350,000 railroad workers. This new era of real deregulation and perceived labor–management cooperation was highlighted by unilateral wage cuts by Pan Am and Eastern. “Pan Am’s negotiator can anger 28 people by just walking into the room” (Arnold and Dubin 1985). This was also the beginning of the two-tier wage settlement. In 1985, 700,000 workers found two-tier wage concession clauses in their contracts. In a two-tier wage structure, new employees receive a lower wage than current workers. This was at a time when executive pay for major U.S. corporations rose 9%, to $679,000, and CEO pay averaged $1.2 million (Moody 1986). Union membership was at 21.5%, and health care cost containment and subcontracting had entered the fray as increased deductibles (Tarpinian 1986). Negotiators were faced with saving jobs through small wage increases, wage decreases, freezes, and lump sums (LaCombe and Borum 1987). The unions in the United States were faced with survival, and improvements had become secondary. In the years between the 1980s and 2004, when the current bargaining round began, labor within rail became less fragmented. In 1966, rail labor was represented by 45 different and distinct labor unions. By 1986, consolidation had cut the number to less than half that. By 2004 there were 12 major rail labor unions. Bargaining with an organized and coordinated alliance of rail carriers is disadvantaged by union fragmentation, but less so by 12 than by dozens (Shils 1964). Details of the major U.S. rail unions are depicted in Table 2. Both the number of rail unions and the number of represented members have declined significantly from 45 unions in 1966 to 12 unions by 2004. The decline in membership was also dramatic, from 350,000 rail members to less than 150,000 by 2004 (Table 2). The decline in membership, however, seemed to have reached a low point and is trending back up as far as signalmen are concerned. While the number of unions is not likely to increase, recent hiring for BRS and the industry outlook overall seems to bode well for rail union members (AAR Outlook, Table 3).

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Union ATDA* (American Train Dispatchers Association) BLE* (Brotherhood of Locomotive Engineers) BMWE* (Brotherhood of Maintenance of Way Employees) BRS* (Brotherhood of Railroad Signalmen) IAM (International Association of Machinists) IBB* (International Brotherhood of Boilermakers and Blacksmiths) IBEW (International Brotherhood of Electrical Workers) NCFO* (National Conference of Firemen and Oilers) SMWIA* (Sheet Metal Workers International Union) TCU (Transportation Communication Union) TWU (Transport Workers Union of America) UTU (United Transportation Union)

TABLE 2 Major U.S. Rail Unions Union affiliation Represented workers Independent, Train dispatchers and operators AFL-CIO Teamsters, Engineers Change to Win Teamsters, Track, building, and structure Change to Win employees Independent, “Signalmen” who install train AFL-CIO control, highway protection systems, and communication Independent, Locomotive and car mechanics AFL-CIO and machinists Independent, Shopcraft employees involved AFL-CIO in car repair Independent, Electricians in shopcraft and AFL-CIO communication SEIU, Change Laborers in the shopcrafts to Win Independent, Shopcraft employees AFL-CIO IAM, AFLClerks, carmen (BRC), CIO communication Independent, Carmen and shopcraft AFL-CIO employees Independent, Conductors, yardmasters, and AFL-CIO yard service employees

Membership 1,445 24,882 26,831 6,531

7,282 521 5,320 2,541 1,243 25,220 1,225 44,342

Based on Cooperating Rail Labor Employees data, December 2003. *RLBC member organization.

Year 1986 1991

General wage increase (%) 6.20 10.30

1996

14.80

2003 2007

13.40 18.10

TABLE 3 Value of Collective Bargaining Agreements, 1986 to 2007 Lump sum Cost-of-living adjustment Health and welfare $1,656 Consumer Price Index 4% cap Joint cost containment $2,000 Consumer Price Index 3% cap, Managed care offset for health and welfare $400 Not during term Coverage for dental and eye care added $0 Not during term Cash cost-sharing $1,975 $0 Not during term or after $3,297

Source: BRS National Agreements 1986 to 2007.

Term (months) 48 78 60 60 60


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Rail unions participated in PEB 219 and worked together on their joint wage proposals. In 1996 there was an informal coalition of shopcraft employees that included BRS. In 2003, BRS negotiated separately from other rail unions. The 2007 agreement was reached through the RLBC coalition. An illustration of wages is presented in Figure 1. FIGURE 1 Average General Wage Increase

4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 1986

1991

1996

2003

2007

Year Source: Author’s calculations, based on BRS National Agreements from 1986 to 2007.

Coalition Bargaining: Through the Rail Labor Bargaining Coalition There were three important challenges to the concept of a rail union coalition: 1) finding the means to keep the rail unions together through the complete bargaining process, 2) addressing in a national forum collective bargaining issues that were “local” in nature, and 3) addressing the issues that were “national” in nature in concert with rail labor organizations that were bargaining independently from the RLBC. There was some limited success of informal bargaining coalitions based on the experience of the BRS and other rail labor unions in 2004. As such, rail labor in 2004 began to debate the benefits and/or requirements of local vs. national handling and, importantly, the pros and cons of forming a coalition. Establishing a Formal Coalition Faced with the real effects of pattern bargaining in the rail industry and the fractured nature of rail labor in contrast to the relative cohesive structure of rail carriers the BRS and other labor organizations involved in national bargaining began discussions prior to the expiration of the moratorium4 on November 1, 2004. The unions in attendance were the organizations later identified as RLBC members (ATDA, BLE, BMWE, BRS, IBB, NCFO, and SMWIA) as well as the IBEW and the IAM. There were also discussions with the UTU and the TCU, although they did not participate formally. Discussed among these unions were issues related to national handling and local handling as they related to each organization’s specific needs, the potential for more influence to affect a higher general wage increase, the safety in numbers required to defend

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against pressure aimed at reducing health care benefits or increasing the share of the cost, and, importantly, how a coalition, if formed, would be structured. There was discussion about the informal model used by some organizations, including those in attendance, but the consensus was that pressure by an organized management to divide the organizations would continue to be a problem. In past informal coalition arrangements, the NCCC had successfully separated unions by holding separate talks, prompted by a willingness to address a issue of specific interest to the individual union. If a union is faced with an issue that its members want addressed, and that issue does not apply to other unions in the informal coalition, it is difficult, if not unlikely, that an organization faced with the potential to resolve such a problem would resist in solidarity with unions not responsible for its unique membership problem. Rail labor, in an unprecedented fashion, began discussions September 21, 2004, a date prior to expiration of the moratorium; these talks continued until the date of signing of a coalition agreement on November 22, 2004. This date followed what was also an unprecedented serving of formal Section 6 notices by national rail carriers5 on the various national rail unions. These discussions by rail labor leaders led to the development of a formal structure, memorialized by a written agreement under the heading National Bargaining Coalition Agreement. The executing group called their collective body the Rail Labor Bargaining Coalition. The structure of the group was similar to and indeed modeled after the coalition of rail carriers, the NCCC. The coalition agreement document included the IAM in its preamble and the IBEW and the IAM on its signature page. These unions expressed interest and were part of the discussions that developed the strategy; however, the executed agreement did not bear the signatures of these organizations. Both the IBEW and the IAM later bargained in the 2004 round6 (that led to the 2007 agreements) with a coalition headed by the TCU, which had become an affiliate member of the IAM.7 The principles spelled out by the RLBC members in their coalition document were as follows: 

For many years, rail labor conducted national bargaining with the nation’s Class I rail carriers via coordinated union coalitions. Using this method, the unions were able to achieve very beneficial changes in rates of pay, rules, and standard working conditions for the employees they represent.



In recent years, the organizations have strayed from that concept and have bargained for national agreements on an individual-organization basis, without coordination among the organizations; this has resulted in the frustration of bargaining goals, extended negotiations, and overlong mediation8 efforts, to the detriment of employees in all crafts.



It has become very evident that settlements of national wage and rules bargaining disputes will be reached more expeditiously and successfully if the organizations coordinate their bargaining efforts.



Coordinated handling of national bargaining issues can best be accomplished by creating a formal entity to which participating organizations grant their powers of attorney and pledge their cooperation and, where necessary, financial commitment.

As an advocate of a revised bargaining strategy, I can recall urging BRS president W. Dan Pickett to sign the RLBC document. Incidentally, committing in writing to pledge support to a rail labor coalition, with the concept being untested since at least 1991, in the form of a formal document takes a measure of courage. All of labor is familiar with the benefit of solidarity; however, committing to it in writing backed by a pledge of action and finance is quite another matter. One of the real concerns was how the group would decide when agreement was reached. The coalition agreement contained express language dealing with the consensus reached on issues of membership rights, voting procedures, financial support, professional assistance, and power of attorney. The power of attorney issue addressed the strongest point in the rail carriers’ coalition, and it addressed the greatest weakness that rail labor had experienced in the formation of informal coalitions. The language


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addressed concerns each organization had with respect to participation in the bargaining process. The provisions entitled representatives from member organizations to participate. Similar to the coalition of rail carriers (the NCCC), the rail unions would have a member or members present but would speak in a single voice through the selection of a spokesperson. As it worked out the organizations could not come to consensus on a spokesperson for the bargaining sessions and instead agreed to hire Roland P. Wilder, an attorney who was familiar with RLA bargaining procedures and who had in the past led a coalition of rail unions in talks with Metro-North, a commuter carrier engaged in local RLA handling. The RLBC, however, did elect a chairman, George Francisco, president of the NCFO and a longtime member of the Transportation Trades Department Rail Division (TTD/RD), the lobbying and regulatory advocate for rail labor. The NCFO is affiliated with the SEIU, an organization that withdrew from the AFL-CIO to join the Change to Win Coalition. In fact, two other RLBC members, the BMWE and the BLE, are affiliated with the IBT, also non AFL-CIO affiliates. The NCFO, however, made a special effort to retain membership in the TTD/RD. The BMWE and the BLE are members of the Rail Division of the Teamsters and as such do not participate with other TTD/RD members regularly on the many other issues that face rail labor. This, in my opinion, is another source of division but outside the scope of this paper. The important point here is that the RLBC brought together in a formal structure rail labor organizations, both AFL-CIO and non-AFL-CIO, for the collective purposes of the coalition. It also must be said that the IBT was very supportive and that their mobilization and communication efforts were important attributes of the coalition rail unions. Special provisions were negotiated into the coalition agreement to specify how agreements would be ratified, how an organization could withdraw from the RLBC, and how the coalition would respond if agreement was not reached and a Presidential Emergency Board9 was appointed. Interestingly, a prolonged difference between rail labor organizations about how to exercise authority as individual unions when acting collectively was resolved by language modeled after the functioning of the U.S. Congress. The long-standing difference was whether each organization should have one vote,10 a circumstance that would benefit a smaller organization like the BRS, or whether each organization would cast a vote weighted based on the size of its respective membership, which would benefit an organization like the BLE. The concept adopted paralleled the process used by the U.S. Congress: a vote based on each organization (paralleling the Senate) and a vote based on membership size (paralleling the House of Representatives), would decide the question of whether to submit an agreement for ratification by each organization’s respective members. This process was later tested and was stated in the coalition agreement as follows: No tentative agreement negotiated by the Coalition shall be submitted to the respective memberships of the Coalition’s affiliates for ratification until the decision to initiate the ratification process is approved by a two-thirds majority of the Coalition’s affiliated organizations on both a one-vote-per-organization basis and an overall membership basis.11 The language in the agreement allowed withdrawal from the coalition only with “the express written consent of every affiliate of the Coalition.” The obvious obstacle here was overcome, ironically by the fraternal nature of the affiliate unions. The language may have required written permission to withdraw, but the consensus was that if an organization really wanted out, other member unions would not interfere. This language, however, may have provided the necessary glue to hold together the coalition while it completed its task. Whether it was this term or not, the RLBC stayed together during some rough times. National vs. Local Handling Under the terms of the Railway Labor Act (RLA), the law that governs collective bargaining in the rail and airline industry, either labor or management may serve a notice, termed a Section 6 notice (named for the section of the statute), formally requesting to change the wages, rules, and working conditions of the represented employees. This may be done by either party or by both. Typically, labor serves the Section 6 notice first and management responds with a counterproposal. In the years since 1982 it has become customary for the rail industry (but not the airline industry) to resolve certain collective bargaining differences (wages, benefits, and health care) in a forum termed “national

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handling.” National handling is typically carried out at the offices of the National Railway Labor Conference (NRLC), which serves as the bargaining representative for those rail carriers that choose to belong to the formal coalition of railroads called the National Carriers Conference Committee (NCCC). Rail carriers, regardless of size, may participate as “national carriers” by joining the NCCC and giving a power of attorney12 over to the NCCC and paying a member fee. This national bargaining arrangement has evolved as a practice for handling “national issues” between the parties; however, it is not expressly provided for in the RLA or acknowledged as a legal requirement by labor. As such, the airline industry, also covered by the RLA, bargains carrier by carrier with its unions. Also, some rail carriers, but typically not Class I carriers since 1991, bargain locally (engage in “local handling”). This practice of national vs. local handling was addressed by at least one court decision (US Court of Appeals, DC Circuit 7-19-2002) and remains a matter of debate between the parties as to its requirement. The rail carriers assert that they decide national handling, and the rail unions contend that labor may require bargaining with its “general committees,” the railroad union intermediate body given bargaining authority to bargain through union constitutions. It is clear that the parties may agree to national or local handling, but the requirement is not a matter of law or well-established legal precedent. Collective bargaining issues involve a wide range of matters, ranging from issues that are clearly local, such as the handling of seniority on a particular roster defined by the terms of a specific collective bargaining agreement, to the terms contained in the rail employees national health care plan, a benefit applied to all employees covered by the plan. The parties must address issues of both local and national nature, and they must do so under the provisions of the RLA. If negotiations are conducted locally, all issues, both national and local, may be addressed by direct negotiation of local issues and standing-by for national issues. Using this arrangement, two parties, such as the Bessemer and Lake Erie Railway and the BRS, could negotiate and agree to the application of rules that would apply locally and yet stand-by for wage rate changes based on the application of the national BRS agreement (or alternatively accept negotiated rate changes and periods previously negotiated). An example of local terms could be an agreement to establish a minimum four-hour call-out rule for maintenance employees13 and a rule that requires construction employees to work over a seniority district that covers an assigned section of the railroad’s property in exchange for a fixed amount of travel pay. General wage increases and health care plan changes are typically negotiated nationally. If the agreement is subject to national bargaining and only matters of wages, benefits, or health care are subject to revision, the process works well for both sides. Many times work rule changes are not needed or desired, and both parties are satisfied to address only the issues well suited for national handling. A conflict may arise, however, if either party wants to address a local issue at the national level or vice versa. An example would be a national carrier’s desire to address subcontracting of work or other rules in specific agreements that affect assigned hours of work or assignment of workdays. These issues are considered work rule issues and are typically contained in individual collective bargaining agreements, therefore handled locally. Another example would be a general committee’s desire to adjust wage rates for a craft that is part of a railroad carrier’s workforce subject to a specific collective bargaining agreement. The latter is an example of a matter better handled nationally. The answer is for the parties to agree to a forum to resolve local issues involving those affected concurrent with the handling of national issues but in a separate forum. As indicated by the court decision cited above, the best answer to this question of forcing a type of handling on the other party is determined case by case, looking to the practice of the parties and to other factors. National carriers, despite their actions, have no clear authority to compel that local issues be waived by labor. Furthermore, the experience, based on the last round of bargaining, is that absent an agreement to handle local issues in a process agreed to by the parties, those issues, along with any national issues, will become a formal part of the mediation process.

Bargaining Authority Because the theme of this paper is the method to establish and execute a rail labor coalition, there is insufficient space to address all of the bargaining issues faced by the seven RLBC members, so the context will be the bargaining facts associated with resolving issues between the BRS and the NCCC within the RLBC structure. (See Appendixes 0 and 11 online; a web link is provided at the end of the paper.)


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It is important to note that the BRS started the RLBC process with eyes wide open to the conflict over local vs. national handling. Consistent with the effort of myself and BRS president W. Dan Pickett, the RLBC coalition agreement contained language limiting the authority of the bargaining coalition to national issues. Moreover, at its internal meeting to approve the Section 6 notices by its general committees, the BRS expressly requested bargaining authority limited to national issues, thereby preserving the authority to resolve local issues with the general committees. The BRS constitution, like other rail union constitutions, confers bargaining authority over individual carriers to the union’s general committees. The strategy behind the formation of the rail coalition is that bargaining authority for issues that as a matter of practice are handled at the national level are best handled nationally, provided the means to address local issues is not waived or excluded from the process. To that end, BRS president Pickett granted general committees authority to participate in the national bargaining process, with the understanding that local issues would be addressed by the committees under the direction of the international vice president. The RLBC was given power to resolve national issues. This point cannot be overemphasized; to make it clear, the coalition agreement contains the following language in its last section: Encouragement of On-Property Coalitions. Each affiliate shall encourage its subordinate bodies [BRS General Committees] to form and participate in similar bargaining coalitions to coordinate bargaining over local issues on the properties of all rail carriers participating in national handling. This Agreement does not affect the rights of affiliates to serve Section 6 notices upon carriers for local issues (National Bargaining Coalition Agreement 2004). The BRS intentionally had not gained power of attorney (bargaining authority) to handle local issues on behalf of General Committees. As such, the BRS position was that the authority to negotiate local issues remained vested in the General Committees as bargaining representatives defined by the BRS Constitution.

NCCC vs. BRS: The Test Is in the Courts The NCCC refused to respond or to meet further following the session where BRS local issues were presented, and each of the five Class I carriers and the Consolidated Rail Corporation (6 carriers total) filed a lawsuit against only the BRS in the U.S. District Court in the District of Columbia on March 20, 2006. (For discussion of the bargaining issues see Appendix 0 online; a web link is provided at the end of the paper.) The BRS through the RLBC answered and counterclaimed on May 16, 2006. This was an important test of whether rail labor would stand behind a single member when attacked, and it did. All RLBC members supported BRS with both time and finances against the litigation by national rail carriers. The entire coalition met with NCCC in the interim on April 11 and 12, 2006. The NCCC sought a declaratory judgment “with respect to Defendant’s [BRS’s] obligation to bargain with Plaintiffs’ authorized multi-employer collective bargaining representative on a national basis.” The six railroads also sought injunctive relief with respect to BRS’s “insistence that Plaintiff [the seven NCCC member railroads] bargained with it [BRS] on less than a craft-wide basis.” The railroads argued Section 2 First of the RLA.14 The BRS through its RLBC counsel denied the substantive allegations and offered as affirmative defense that the claim failed to state a cause of action, that declaratory relief should be denied on prudential grounds, that the Norris-LaGuardia Act deprives the court of jurisdiction, and that the injunctive relief was barred by the doctrine of unclean hands.15 The carriers responded, and the matter lay in the courts. The lawsuit was ultimately withdrawn under terms eventually agreed to by the carriers and the unions. The final side letter of the agreement reached commits the parties to withdraw their respective claims and counterclaims.

Coordination with Non-RLBC Member Unions The seven rail unions that were party to the RLBC made up around half of the membership engaged in national handling of Section 6 notices. The remaining members were represented by the United Transportation Union (UTU), a large union representing train and engine service employees, and the Transportation Communication Union (TCU), and in coalition with TCU were rail employees represented by

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IAM (with which TCU is affiliated) and rail employees represented by the International Brotherhood of Electrical Workers. The UTU president, Paul Thompson, and the TCU president, Bob Scardelletti, kept open communication with RLBC members. The RLBC had initially invited these unions to join the RLBC coalition and later expressed the desire to inform the other organizations about progress, or lack thereof, and to share with the non-RLBC members information related to specific bargaining proposals in an effort to discourage NCCC’s potential to divide or play one union against another. It is famous within the rail industry that the BLE and the UTU at times do not agree. In the 2004 bargaining round, communication was kept open, and particular credit should be given to presidents Don Haus of the BLE and Paul Thompson of the UTU for setting aside differences while the national bargaining process continued. In addition, rail labor benefited by the involvement of Scardelletti in his role as Cooperating Rail Labor Employees (CRLO) chairman. The CRLO is the coordinating body for rail labor with respect to health and welfare and other benefit plans. The participation of RLBC members in the CRLO and the willingness of the TCU to share information about their coalition’s effort, and vive versa, had a positive effect on the RLBC and on rail labor as a whole. (Resolution of bargaining issues is discussed in Appendix 11 online; a web link is provided at the end of the paper.)

Conclusion The completion of the bargaining round by a united coalition, successfully overcoming harsh bargaining tactics and a court challenge, supports the contention that a formal bargaining coalition like RLBC has advantages. The examination of average wage increases for the BRS in periods with and without the benefit of a bargaining coalition further supports this contention. This paper documents the development and execution of a strategy that employed a formal coalition bargaining structure suitable for use by railroad unions. The return to retroactive pay increases and placing reasonable limits on health care cost increases stand out as successes. This examination of a coalition strategy was developed and implemented during the course of an actual collective bargaining process. The process included developing and exchanging Section 6 notices, based on a limited authority granted to the International. This strategy gives direction about how local issues may be handled in the context of coordinated national multiemployer bargaining. If rail unions choose to coalesce into structured bargaining units, they can function with solidarity and continue to exercise their duty to represent their respective members while addressing craft-specific or less-than-craft-wide specific issues. Rail carriers operating as a multiemployer bargaining unit can be brought, albeit reluctantly, to terms of agreement that can be ratified by the coalition member unions. The BRS agreement was ratified by a strong margin, and all RLBC member unions similarly ratified their respective agreements in 2007. The effort of the RLBC member unions to establish a formal coalition is an important step in restoring an intended balance between labor and management in railway labor act bargaining.

Appendixes The 12 appendixes listed here are available at http://www.scribd.com/doc/26751687. Appendix 0 Appendix 1 Appendix 2 Appendix 3 Appendix 4 Appendix 5 Appendix 6 Appendix 7 Appendix 8

The Bargaining Issues Publications—RLBC National Bargaining Coalition Agreement—RLBC Carrier Section 6 Notice, November 1, 2004 RLBC Section 6 Notice, December 1, 2004 Mediation Application—Bargaining Dispute Between NCCC and BRS, March 16, 2005 Case CA-6876—RLBC Response to NMB Request for Comments to NCCC’s Application for Mediation Services, April 4, 2005 Examples of Local-Issue Section 6 Notices Local Issues Lawsuit—Filed by the NCCC against the BRS, March 20, 2006


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Appendix 9

Beginning of Ratification and Tentative Agreement Reached between the NCCC and the BRS through RLBC, February 28, 2007 Appendix 10 National Signalmen’s Agreement—July 1, 2007, Reached through the RLBC Appendix 11 Resolution of the Bargaining Issues Appendix 12 Methodology

Notes The 12 craft unions are identified in Table 2. The seven RLBC members are identified in the background section. 3 The 12 craft unions are listed in Table 2. There are 11 rail craft unions responsible for representing employees throughout the U.S. rail industry; Transport Workers Union of America (TWU) is included in the 12 because it has a significant presence in the northeast and is active in rail labor. 4 The moratorium is the period during which neither side may serve Section 6 notices to formally start the RLA bargaining process. 5 At no time in the recollection of current rail leaders had national carriers first served Section 6 notices on rail labor. Typically rail labor organizations serve notice on the carriers. Speculation on this change centered on the favorability of the bargaining climate for rail carriers (i.e., the belief that the Bush Administration could mean favorable handling of the national bargaining process by the NMB, through its administration appointments. 6 A bargaining round is typically named for the year that bargaining begins following the serving of a Section 6 notice. 7 The TCU had the larger number of rail members, and its president, Bob Scardelletti, had greater national handling experience. The IAM and IBEW are larger unions, but with fewer rail members. 8 Mediation under the RLA is a formal process for which either side may apply and that is administered by the NMB. There is no time limit for completion of the mediation process, and bargaining can be delayed for eight years, as in the example of Amtrak and its rail unions. 9 Under the terms of the RLA the president of the United States may, and customarily does, appoint a Presidential Emergency Board to resolve collective bargaining issues that are determined to be at impasse after mediation efforts by the NMB have failed. A PEB requires a formal hearing process and continues to prohibit the parties from exercising self-help until the PEB process is concluded, recommendations are issued, and a subsequent 30-day cooling off period is observed. 10 Many years ago I drafted a set of bylaws for what was then the newly formed TTD/RD. The former rail labor body known as the Rail Labor Executives Association (RLEA) had ceased to function based on the burden of legal and building-related expenses. 11 Credit for the idea for this concept goes to Mike Wholly, the attorney who drafted the Coalition Agreement; he is an attorney specializing in RLA law and a designated RLA attorney for the IBEW. 12 In this context the power of attorney is bargaining authority to negotiate and sign collective bargaining agreements. 13 Local agreements made on the Bessemer and Union Railroads with BRS. 14˜Section 2 first places the obligation on both parties to make every effort to make and maintain agreements. 15 The “doctrine of unclean hands” provides that a party that has acted unethically with respect to the complaint may not seek relief. 1 2

References Allen, R. 2004. National Carriers Conference Committee Section 6 Notice. Arnold, B., and Reggi Dudin. 1985. “Eastern and Pan Am: Two Model Contracts Fly into Trouble.” Business Week. Business Week. 1984. “Continental Is Coming Out a Winner.” January 30, p. 21.

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General Committee of Adjustment v Burlington No Santa Fe. 2002, July 19. . [July 24, 2008]. Harris, R. 1990. Report to the President by Emergency Board No. 219. . [January 9, 2007]. Katz, H. 1984. “Collective Bargaining in 1982: A Turning Point in Industrial Relations?” "Compensation Review (1st quarter) pp. 38–49. Labor Notes. 1986. “Who Says Concessions Are a Thing of the Past?” June, p. 1. LaCombe J., and J. Borum. 1987. “Major Labor Contracts in 1986 Provided Record Low Wage Adjustments.” Monthly Labor Review (May), pp. 10–12. Moody, K. 1986. “Newswatch.” Labor Notes, June, p. 6. National Bargaining Coalition Agreement. November 22, 2004. National Mediation Board. 2008. Presidential Emergency Boards. . [September 23, 2008]. Ruben, G. 1985. “Modest Labor–Management Bargains Continue in 1984 Despite the Recovery.” Current Wage Developments 7/4. Shils, E. 1964. “Transportation’s Labor Crisis.” Harvard Business Review, (May–June), p. 85. Tarpinian, G. 1986. “Bargaining Trends.” Economic Notes Labor Research Assocication (April/May), pp. 1–5.

III. LERA Health Care Industry Council Meeting

Depending on the Angle: Perspectives on Conflict and Workplace Climate KELLY I. PIKE Cornell University1

Abstract This study closely examines the relationship between managerial perspectives on conflict and workplace climate during a time of great organizational change. That change, in this case, is the implementation of electronic medical records (EMRs) in nursing homes. A case study of eight nursing homes (on average 255 beds) in the New York City area is used to identify different workplace issues and managerial approaches to dealing with conflict. The research question examined is how organizations with the same types of conflict can experience vastly different workplace climates. Preliminary findings indicate that different perspectives, not merely types, of conflict were what shaped either a positive or a negative workplace climate. Two managerial approaches to dealing with conflict are identified, and workplace climate is illustrated in feedback from personal interviews with both managers and front-line staff at the eight homes. The findings are used to create a model for forecasting the likelihood of successful organizational change. Scholarship would benefit from additional research that tests the proposed model.

Introduction The guiding research question examined in this paper is how organizations with the same types of workplace issues are able to experience vastly different organizational climates. This paper supports previous research that has demonstrated a positive relationship between management style and organizational climate; furthermore, it adds to the literature by suggesting that perspective on conflict is a key feature of management style that cannot be ignored, as it has a distinct role in shaping workplace climate. By looking at how different styles are reflected in approaches to a variety of workplace issues—including the way discipline problems are handled, how decisions are typically made, and the use of teamwork—we will be better equipped to articulate this link. Workplace climate is delineated here by the nature of workplace relationships and environment, whether positive or negative. Previous research has suggested that certain types of conflict are good, while others are bad, having either a positive or a negative effect on workplace climate (Jehn 1995, Jehn and Mannix 2001). Current literature also suggests that different management styles shape different workplace climates. This paper builds on the well-established conflict literature to demonstrate that focusing only on whether conflict is good or bad is insufficient for understanding the nuances of organizational life and that a deeper investigation of the link between conflict and climate is warranted. It also focuses on articulating the link between management style and workplace climate by examining where conflict comes from and what contributions management makes to help conflict get diffused throughout an organization. Author’s address: School of Industrial and Labor Relations, Ithaca, NY 14853

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A case study of eight nursing homes in the New York City area is used to address this bigger question of conflict in organizations and how management influences perceptions of conflict in nursing homes. By fleshing out the feedback from personal interviews with administrators and front-line employees, I use this data to inductively come up with several findings. A model is proposed to better understand the question at hand, which will ultimately serve as a springboard for an analysis of the role that managerial perspective on conflict plays in the process of organizational change.

Literature Review Perspectives on Conflict Organizations in any industry have to deal with conflict, but not every organization views or addresses conflict in the same way. Some see it as an absolute negative, with the goal of preventing and eliminating it at all costs. This perspective, which has been referred to as the classical view of organizational conflict, is shared by theorists such as Fayol (1916/1949) and Weber (1929/1947), and implicitly assumes that conflict is detrimental to organizational efficiency and therefore should be minimized in organizations (Rahim 2001). Robbins (1974) describes this perspective as the philosophy of the classicists or traditionalists, which is based on the assumption that conflict is detrimental to an organization and should be reduced or eliminated (Rahim 2001). Others think that conflict is inevitable—part of the behavioralists’ philosophy, as well as the institutionalists’ in industrial relations—and, rather than focusing on how to get rid of it, try to come up with systems for managing it effectively. Mary Parker Follet noted the value of constructive conflict in an organization in saying “we can often measure our progress by watching the nature of our conflicts” (Follett, 1926/1940, p. 35). She strongly advocated for a problem-solving method for managing organizational conflict and believed that other methods of handling conflict, such as suppression, avoidance, dominance, and compromise, were ineffective in dealing with conflict. Similarly, Whyte (1967) reiterated that conflicts are an inevitable part of organizational life and stressed the importance of building conflict resolution procedures into the design of an organization (Whyte 1967). There are still others who view conflict as a positive, essential for sparking communication and innovation, which promotes efficiency at both individual and organizational levels. Conflict becomes an instrument of social change and influence, rather than a symptom of a breakdown in social relationships. Miles (1980) took a functional approach to conflict, viewing it in terms of how its presence inspired such things as feedback, coalition formation, growth, and innovation, which revealed something about both the centrality of conflict in organizational life and the complexity associated with its management, making it absolutely essential to understand the context in which organizational conflict occurs and the variety of techniques available for use in its management. Rather than strive to eliminate conflict, this approach recognizes the necessity of conflict in facilitating positive growth in the workplace. More recently, Karen Jehn has written on types of conflict, identifying which ones produce negative outcomes and which ones produce positive outcomes (Jehn and Mannix 2001). She makes a distinction between task conflict and relationship conflict and discusses how high and low levels of each type affect workplace outcomes in different ways. Jehn claims that task conflicts tend to be positive, as they spark debates that can lead to organizational improvement. Relationship conflicts, on the other hand, tend to be negative, as they deal with heated interpersonal issues that often make people feel angry or frustrated in the workplace. She also suggests that different conflict norms—having different levels of openness in the process of addressing conflict—have various implications for the organization. Sometimes having open and honest communication facilitates the effective resolution of conflict, primarily if it has to do with tasks. Other times, this same process can increase anxiety and frustration, proving counterproductive—as is the case with relationship conflicts (Murnighan and Conlin 1991, Jehn 1995). Rather than attempt to identify positive and negative types of conflict, this study identifies common types of workplace issues in nursing homes and then discusses how management’s perspective on conflict, as a part of management style, influences the workplace climate. This is illustrated through interview feedback

LERA HEALTH CARE INDUSTRY COUNCIL MEETING

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received from nursing home administrators regarding their particular styles of management and from frontline employees regarding workplace relationships, and how work gets done, in their homes. Workplace Climate A good portion of the literature on workplace climate debates how it compares and contrasts with the literature on organizational culture because the two are often, mistakenly, used interchangeably. Thus, a brief explanation for the specific reference to workplace climate in this study is warranted. The vast consensus is that culture is rooted in values, beliefs, and assumptions held by organizational members, which reproduces a symbolic world that gives culture great stability. Climate, on the other hand, is more temporary and subject to direct control, limited to those aspects of the social environment that are consciously perceived by organizational members. Culture researchers have looked at the evolution of social systems over time (Mohr 1982, Pettigrew 1979, Rohlen 1974, Schein 1985, Van Maanen 1979), the importance of underlying assumptions (Kunda 1992, Schein 1985), individual meaning (Geertz 1973, Pondy et al. 1983) and the insider’s point of view of the organization. Climate researchers have looked at the impact of organizational systems on groups and individuals (Ekvall 1987, Joyce and Slocum 1984), members’ perceptions of organizational life (Guion 1973, James and Jones 1974), along with the categorization of these practices and perceptions. While both accord value to the individuals’ view of the organization, climate deals with a more dayto-day perception of organizational life. How management implements, and how workers respond to, change in the organization is undoubtedly influenced by the values and beliefs of those therein. But how they experience those changes depends on many other factors that are not as deeply embedded, such as their perceptions of how and why a particular decision is being made, the extent to which they get along with their coworkers, and even socioeconomic issues. In addition to the culture versus climate debate, a good portion of the literature discusses the link between management styles and workplace climate, although it does not discuss the role of management’s perspective on conflict as an important piece of their style. The literature also looks at the link between workplace climate and workplace outcomes—for example, that a positive or negative climate will have different implications for job satisfaction and so on. This study relies on previous research that demonstrates the climate–outcomes relationship and instead focuses on the role of managerial perspective on conflict in shaping workplace climate.

Methods The Nursing Homes: Location, Selection, and Size This paper takes an inductive, qualitative approach to studying eight nursing homes in the New York City (NYC) region that received a grant in 2006 to implement EMRs. As a member of a small research team at Cornell that was asked to evaluate the project, I conducted approximately seven to 10 interviews at each of the eight homes, with members of both labor and management. Each of the nursing homes we visited was part of a 140-home bargaining unit represented by SEIU 1199, and the pilot project to adopt EMRs in fact grew out of a collective bargaining agreement in which a Quality of Care Oversight Committee (QCOC) had been established. The average number of beds in each home was 224. The lowest occupancy rate was 88 percent, and all of the others ranged from 93 percent to 99 percent. Table 1 breaks down the number of beds, number of residents, and occupancy rate in each home (www.ucomparehealthcare.com). The Interviews: Structure and Intentions Going into each of the homes, the goal was to get a sense of what life was like before the technology was implemented. Knowing that we would be dealing with a variety of employees—labor and management, those with supervisory roles and those without—we prepared three separate sets of interview questions: one for administrators, one for front-line employees, and one for union representatives. These questions allowed us to get a sense of what the managerial style was like in each home and what the climate was like for employment and labor relations.

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Home 1 2 3 4 5 6 7 8

TABLE 1 The Nursing Homes: Number of Beds, Number of Residents, and County No. of beds No. of residents Occupancy rate (%) County 320 303 95 Manhattan 270 267 99 Kings 240 236 98 Bronx 200 191 96 Bronx 200 189 95 Bronx 200 176 88 Queens 183 177 97 Queens 180 167 93 Nassau

Using the questions simply as a guide allowed the conversation to develop according to the unique perspective of the interviewee—for example, what the person perceived to be the main issues at the home or what the biggest concerns were for her or him personally. In addition to the feedback we got in response to specific questions, such as how work was done at each home, these tangential conversations were particularly interesting, as some employees expressed outlooks that were vastly different from other employees within the same home. In our interviewing at all levels, from administrators to nurses to CNAs and union representatives, several patterns started to emerge. First, we found that a few common workplace issues were most frequently alluded to throughout our interviews and in our observations while touring the inside of each nursing home. Second, while these issues existed in each of the homes, not every home had the same type of workplace climate. In this section, we extend our understanding of conflict and organizational climate by identifying these issues and discussing their role in the nursing home context and how they can be dealt with differently depending on one’s perspective on conflict. Identifying Types of Nursing Homes Combining direct interview feedback with our impressions of the more subtle workplace nuances, we began to notice both similarities and differences that either bridged homes or set them apart from one another. In one home, it appeared that decisions were made to gain tighter control of the staff. In particular with the implementation of electronic medical records, the goal was to heighten surveillance and discipline. Given the apparent desire of management to get rid of conflict by attempting to eliminate problem areas and dismiss other workplace issues, I identified such homes as having a negative perspective on conflict. Another home aimed to stay abreast of technology and improve overall efficiency of the organization, while at the same time improving the quality and skill set of the staff. Management attempted to empower employees through involvement in decision-making and teamwork on the floor. Such organizations are identified as having a positive perspective on conflict. Both types of homes had the ultimate goal of achieving higher quality of care, but each had its own unique style and approach to doing so. Continuing into the rest of the homes, it was evident that each one tended to display managerial characteristics and perspectives similar to at least one of the initial two homes, demonstrating a potential pattern. Based on impressions and feedback obtained in the first round of interviews, this pattern could be categorized by the two types of managerial perspective on conflict—negative and positive. The conclusion cannot be drawn that there must be only two specific types of nursing homes, or that there are only two particular types of management style. Rather, by providing an interpretation of the observations collected throughout the interviews, a model can be formed for understanding how perspectives on conflict relate to workplace climate. Negative perspective on conflict. Each of these homes had the common feature of having administrators who put control at the center of how they ran their organizations. This came out particularly in what they had


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to say about their decision-making processes and their relationships with the staff, union members, and officials. The managerial style was paternalistic, and the tactics for discipline were punitive. It seemed the approach to dealing with workplace issues was to minimize, if not entirely get rid of, anything that could potentially be problematic. Given these observations, the following is proposed: Proposition 1: Administrators with a negative perspective on conflict will have a management style of topdown decision-making and view mistakes as an opportunity for discipline, creating negative implications for workplace climate. Positive perspective on conflict. In each of these homes, key themes that emerged were employee empowerment through active involvement and a high degree of both teamwork and communication. Mistakes and errors were viewed as an opportunity for both individual learning and organizational improvement, and all employees were regarded with dignity and respect. Proposition 2: Administrators with a positive perspective on conflict will have high employee involvement in decision-making, with the goal of empowerment, and view mistakes as an opportunity to improve their organizational systems, creating positive implications for workplace climate. To illustrate these different perspectives, and subsequently how they influence organizational climate, in the following section I discuss how similar workplace issues are viewed by managers in each type of home. A good portion of the research in nursing homes has been conducted through the lens of anticipating technological change and its effect on organizational structure and workplace relationships. Within this, valuable insights can be gleaned from statements regarding how people feel about their roles in the workplace, what limitations they have, what opportunities exist for advancement, and how they relate to their peers and managers.

Results The homes were located in a cross-section of socioeconomically diverse neighborhoods, and, assuming that this has an impact on each home’s access to resources, one might expect there to be a disparity in terms of capacity for organizational change. Our semistructured interview process allowed for questions that addressed whether or not administrators would have done more or less if they were in a different socioeconomic situation. This is addressed in this study through feedback to questions regarding motivation for adopting the new technology and whether administrators would have made the change without the grant. While some stated that they would not have participated in the project without the grant, others proclaimed that they would have done it regardless—if not at that exact time, then some time in the near future. Interestingly, some of the homes in the latter category were economically on par with the homes who said it would be too expensive to implement EMRs without outside help. In the homes that were financially and geographically better off, we asked administrators and directors of nursing services if they felt their socioeconomic status influenced their choice to participate in the project. One home stated that they would have participated anyway because they felt this was the next necessary step in improving resident care and the working lives of their employees. Another home, although not as quick to answer, suggested that they, too, would have likely gone ahead with it. The inconsistency among these answers raised some skepticism as to whether socioeconomic issues played a primary role in management’s choice to adopt the technology. In other words, socioeconomic status did not immediately appear to hinder or improve capacity for organizational change, at least not on the point of access to resources. Where it did seem to be reflected was in the attitudes of employees regarding their preferences for a certain type of management style, their desire for change, and what they felt they were capable of. Management decision-making had less to do with socioeconomic drivers and more to do with values and beliefs about how to run an organization and the perceptions held by employees as to the type of climate created by this process.

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Illustrating Managerial Style Negative perspective on conflict. In the first home we visited, the administrator’s need for control came through in how he spoke about his staff and residents, with a heavy paternalistic tone. His expressions focused around knowing what was best for everyone, making decisions without input from others, and having impressive means for supervising both staff and residents. He took pride in the fact that he had over 50 video cameras placed throughout the nursing home and that he knew what was going on at all times because he would come in during the night to check up on people and have his staff report everything to him directly. The disciplinary style here was punitive, and measures for monitoring employees were implemented with the specific goal of identifying wrongdoers and punishing them accordingly. This created a tense atmosphere of fear and hesitation, with workers afraid to do anything outside of their job descriptions in case they were to make a mistake and get in trouble. Decision-making was more top-down than it was collaborative, and employment relations were poor, with a clear divide between those with supervisory roles and those without, sometimes even within those subgroups. There were issues of accountability, with each person out for him- or herself, doing only what was required and quickly pointing the finger at someone else when anything went wrong. The following statement by the Director of Nursing Services (DNS) at the second home with a similar perspective on conflict (designated “Negative2”) indicated that her primary purpose for supporting the adoption of EMRs was indeed for the benefit of tighter surveillance and monitoring: Negative2, DNS: “I want to know if and when residents are getting their meds. If there’s a problem, I want to know which nurses are involved. I may give them an in-service, then a warning. If they don’t like that, they can find a job somewhere else. There’s going to be better quality of life because people can be kept in check. If it’s not good for them, let them be afraid. The residents’ lives are in our hands. Now I will be having more eyes to see what is going on.” This provided some insight into the punitive disciplinary style and the state of employment relations at the nursing home, as tactics for discipline stem partially from levels of cooperation between management and front-line stuff. That is, management that perceives staff as being lazy, uncooperative, or difficult to manage will likely implement more punitive styles of discipline (e.g., warnings, terminations, watching for mistakes) rather than learning styles (e.g., in-service, re-education, looking at how the organization itself can improve). At another point during our meeting, one of the kitchen staff came in to bring us some milk for our coffee, and the DNS asked if she was excited about the technology. When she hesitated (the technology really wasn’t going to impact her job), the DNS pressed on: Negative2, DNS: “You’re excited about it right? It’s going to be great, right?” To which the staff member (Negative2, Kitchen staff) relented: “Yes, it’s going to be really good.” Positive perspective on conflict. Instead of top-down or even collaborative decision-making between labor and management, employees in homes with a positive perspective on conflict were largely involved in these workplace processes. Designating go-to leaders on each of the floors became a more effective way to reach employees, gain trust, and ultimately achieve great productivity. Positive1, DNS: “We use employees’ leverage to get others to perform, not my own.” When we spoke with the DNS at the first of these homes, she described how her managerial style had changed over the years to accommodate this high performance–type work system. She had recognized over time that this reaped greater organizational benefits than a more hierarchical system where management and staff were constantly at odds. She also noted that the administrator had experienced a similar transformation and that the home overall was now more geared toward empowering employees.


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In the homes with a positive perspective on conflict, to the extent that the technology would monitor behavior, it was viewed by management as an opportunity to learn how to improve what they were doing, on both individual and organizational levels. Positive1, DNS: “Expectation is positive rather than punitive. Can use [EMRs] as an audit tool but it needs to be more of a teaching tool. The way it was years ago, it would be punitive, but we have open management here. It will give more of a self-appreciation, confidence, and more time to chat. We use employees’ leverage to get others to perform, not my own.” While both types of home had the overall goal of improving productivity and resident care, the medium through which homes with a positive perspective on conflict aimed to achieve this was by empowering their employees through learning and skill development. Positive1, Administrator: “Education from this will be phenomenal. It will make people better at doing their jobs.” Positive2, Director: “[It] needs to be presented as a tool for them and less paperwork, etc. Enhances the camaraderie, team. In designing a care plan, they can do it at their own convenience.” Positive3, Assistant Administrator: “It will be easier to find trouble spots and patterns. This makes you look at your system.” As mentioned earlier, employees in these homes were more involved in the decision-making and the everyday work routines on the shop floor. Management found that this served as a more effective means of reaching employees, gaining trust and achieving greater productivity. Illustrating Workplace Climate Negative perspective on conflict. Having a negative perspective on conflict undoubtedly played a large role in creating a poor organizational climate in some of the homes. Handled from a negative perspective, conflict can damage relationships between labor and management or within subgroups of employees. It can reinforce status differences, lending itself to hostility and breakdowns in communication that disrupt the flow of important information, ultimately weakening organizational efficiency. When our research team arrived at the first home, which I later identified as having a negative perspective on conflict, the meeting room had been set up with a long table, and there was a group of six staff members—two Certified Nursing Assistants (CNAs), two Registered Nurses (RNs), a union rep, and the DNS. We met as an entire group, something the team hadn’t anticipated, and we immediately felt the tension in the room. The CNAs were quiet, sitting back with their arms folded across their chests, looking concerned and perhaps a bit disgruntled. The RNs seemed bitter, talking about the extra work they had to do to make up for what other staff should be doing and then having to face the consequences for something that wasn’t their responsibility. After discussing a few questions about employment relations at the home and talking about their impressions of the technology, the RNs and DNS left the room. Almost instantaneously, the CNAs broke out: Negative1, CNA: “They’re the ones that are the problem. They do nothing and expect us to do everything. We have too many residents to look after, and if we miss one thing, they won’t help out with it and we end up hearing about it. They’re so lazy and think they’re above everyone else.” There was a lack of teamwork and cooperation because of the employees’ fear of repercussions. If someone helped out and something went wrong, he or she would be to blame. This fear of discipline, deriving from a punitive managerial style, led to a lack of accountability and breakdowns in communication that left staff at odds with each other.

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LERA 62ND ANNUAL PROCEEDINGS Negative2, Physician: “I don’t know if we’ll ever get rid of the communication problem between staff, RNs, and physicians, especially at a top level.”

The staffing situation was poor in each type of home, but there was very little teamwork in these homes in order to ease the workload or improve the climate for recruitment and retention. Communication was low, as were levels of trust and attitudes toward temporary and older employees. Negative2, DNS: “We don’t take temp CNAs from outside because they don’t know what’s happening. Sometimes I will take 1 temp [LPN] and she’s mine. I know how to keep their mouth shut so it’s okay.” Negative2, LPN/charge nurse: “We have a younger crowd [of employees]. They don’t like rules and regulations, so they bounce [go away]. The [older] group . . . is more nervous. . . . They feel like it’s too late to learn.” Curiously, our meeting with the CNA from the labor–management committee was set up in the office directly adjacent to the DNS’s office, with the door propped open. She seemed mildly hesitant but, when asked how she felt about the new technology, she responded: Negative2, CNA from labor–management committee: “It’s about time the nursing home does something. Sixty percent of the staff is enthusiastic; the others are not as excited [older heads]. Older heads don’t like it, to adjust from paper. They feel like they won’t grasp it.” Nurses were concerned with the high turnover of staff from the agency (i.e., temporary staff). Someone would come in one day and the nurses would be in charge of training him or her, only to have the person return intermittently, if at all. To the nurses, this produced poorly informed employees on the shop floor and was a waste of the limited time they had to take care of their own routine tasks. Not only did this include providing care to the residents but, as we’ve mentioned, staying late to complete overwhelming amounts of paperwork. Positive perspective on conflict. In homes with a positive perspective on conflict, teamwork and empowerment were key features of the workplace, communication was high, and temporary and older employees were regarded as an essential part of the organization. In these cases we saw how conflict was viewed as a positive. Conflict can force employers to look at their own systems in order to see what they can do differently to make life easier and more functional for all parties involved. Staff at these homes recognized a basic need for positive relationships with each other, whether or not there was technology in place, for the overall well-being of the working environment. Employees at these homes reiterated the importance of teamwork without hierarchical discrimination. This was in stark contrast to the first authoritarian home we visited, where there were extremely low levels of accountability and resentment between employees with supervisory roles and those without. Positive2, CNA: “We’ve got psych and bipolar residents. We’re all here for a job. When you come in with an attitude, you can’t work. We’re got 40 females; we need to be able to go up and down on attitudes. There is no technology for that!” Positive3, CNA/orderly (22 years): “This home is the best—staff, the whole environment, once this new management came in. We’d have patients who would come in here and couldn’t do anything; then they walk out of here. It’s good because you see how this place helps people get back to living a normal life.”

Interpreting the Results Status Differences Within nursing homes, there are several classes of employees, both union and nonunion. Some of the nursing homes we visited used status differences to exploit other classes of workers, sticking only to what


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they needed to do and pointing the finger when things didn’t get done. Others saw less clearly defined lines between classes of workers, stressing the importance of everybody pitching in to keep the place running well and the residents cared for properly. If status differences are viewed as consisting of a variety of roles that create an opportunity for efficiently fulfilling tasks and cooperating with each other, this workplace issue could potentially work to the advantage of both the organization and the individual. The improved efficiency of the organization would have a positive impact on performance and resident care. The individual would be less overburdened and more satisfied with his or her job. On the other hand, if the variety of roles in a hierarchy were to be viewed from the perspective of holding more or less power, the division of classes might foster hostility toward each other. Ultimately, this could have a negative effect on both the organization and the individual. Individuals dealing with heavy workloads and bitter relationships would be less satisfied with their jobs and complete fewer tasks than they could if there were more assistance. As such, organizational efficiency would decrease and negatively affect overall performance, which could have repercussions for resident care. Staffing The staffing situation in the nursing home industry is already poor, with recruitment getting tougher given what some perceive to be the declining state of the field. In each home we visited, staffing was an issue to the extent that there were too many residents per nurse which made people feel overburdened and overwhelmed. In some cases, nurses viewed this as a reason for doing only what was required of them, sometimes out of fear of being held accountable for something they might do wrong, and other times so as not to burn out. This often led to hostile relationships between employees, as few were willing to help each other. Additionally, while recruitment and retention were issues in each of the homes, when we asked why people stayed, it seemed that, in the homes with a negative perspective on conflict, the most common reason among nurses was out of job necessity and the feeling that they had limited options. In the homes with a positive perspective on conflict, people tended to stay because they were genuinely happy with their jobs, resulting from an emphasis on teamwork and on making staff feel appreciated. The attitude among nurses in these homes was that everyone was there to make sure the residents received the proper care, whether that meant covering for another employee or doing a task that was someone else’s responsibility. This appeared to have a domino effect, where one person’s willingness motivated others to pitch in as well. Even though many were overburdened, morale was improved knowing that a group of people was there as a support system. Breakdowns in Communication Communication breakdowns can happen in any type of organization. In some homes, not knowing what was going on created a sense of confusion and hostility among employees, who felt that decisions were being made only at the top. In other homes, this same situation was viewed as an opportunity to ask questions and become more involved. Where management chose to involve employees and open up the flow of information, there tended to be increased awareness, which facilitated a high level of trust. The more informed the employees, the more trusting they appeared to be, and the smoother the operation of the facility. Implementing major organizational change is a prime example of a situation where good communication is necessary, especially where the implementation of technology is involved. As we’ve seen in other industries, the introduction of technology has a tendency to lead administrators to institute layoffs in an effort to maximize efficiency. Throughout the course of our research, several people outside of the project have inquired as to the involvement of the union. It seems counterintuitive that a union would be supportive of a major technological advancement in an organization that thrives on interpersonal interaction, communication, and hands-on care. An important finding was that most administrators recognized just how crucial it was to have the union on board, so that employees didn’t perceive the change as something management was arbitrarily imposing, thus increasing trust and lowering resistance. They recognized that their staff might be nervous with the idea of a major organizational change and that trust would be better built if they knew the union was working closely with management. Having the union on board facilitated collaboration among the variety of

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groups in the nursing home, particularly in homes that were accustomed to having a good flow of information. In those that did not, it was not always clear to the employees what effect the new technology would have on their workloads or their positions in the homes. Attitudes Toward Temps and Older Employees With any organizational change, some employees are going to be more fearful or receptive than others. Issues of fear around change could lead to a decrease in employee morale, which may in turn have a negative effect on job performance. In the homes with a negative perspective on conflict, some employees expressed concern over the ability of the older employees to learn the new technology and adapt accordingly. They were worried about them making mistakes and, in a few cases, mentioned a concern that some might leave because they would be afraid of having to use something they wouldn’t understand. They also voiced serious concern about the idea of temporary workers’ being trained on the new technology. The thought of someone’s coming in for a day and allocating time and resources to training only to have the trainee leave and never come back, was discouraging to say the least. Employees at the homes with a positive perspective on conflict viewed temporary and older employees with all the dignity and respect of full-time or technologically savvy employees. They recognized the necessity of everyone’s contribution to the home and were able to capitalize on this by allocating the appropriate time on training that each individual required in order to feel knowledgeable about the new technology and comfortable with it as well, whether that translated in to one week or four months.

Discussion As mentioned earlier, research has shown that conflict can be viewed from a variety of perspectives, demonstrated in the work of theorists dating back to the early 20th century (Fayol 1916/1949, Follet 1926/1940, Weber 1929/1947). In this paper, I have proposed that these different perspectives on conflict lead managers to address workplace issues in different ways, which plays a significant role in shaping organizational climate. Table 2 illustrates how negative and positive perspectives apply to the workplace issues examined in this paper. TABLE 2 Implications of Perspective on Conflict for Management Style and Organizational Climate Workplace issues Perspective on conflict Management outcomes Organizational climate Status differences, Negative: Conflict is Top-down decisionFear, hostility, low staffing, bad. Eliminate it. making, punitive accountability, trust, breakdowns in disciplinary style teamwork, communication communication, Positive: Conflict is High employee Empowerment, wellattitude toward good. Can be used to involvement, mistakes informed staff, high trust, temps and older improve organization used for organizational teamwork, communication employees self-check Implications for Different Types of Homes Negative perspective on conflict. In these homes, the underlying assumption was that conflict can damage relationships between labor and management or within subgroups of employees. It can create status differences and hostility, lending itself to breakdowns in communication that disrupt the flow of important information, ultimately weakening organizational efficiency. These homes used punitive disciplinary tactics and paternalistic styles of decision-making to run their homes. The staffing situation was poor in both types of home, but there was very little teamwork in the homes with a negative perspective on conflict, preventing the possibility of easing the workload or improving the climate for recruitment and retention. Communication was low, as were levels of trust and attitudes toward temporary and older employees.


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Decisions were made in order to gain tighter control of the staff, and in particular with the implementation of EMRs, the goal was to heighten surveillance and discipline. Positive perspective on conflict. In these homes, the underlying assumption was that conflict can force employers to look at their own systems in order to see what they can do differently to make life easier and more functional for all parties involved. Management focused on working through problems and creating systems to prevent further conflict, always looking for better solutions and new innovative ways of doing things. Teamwork and empowerment were key features of the workplace, communication was high, and temporary and older employees were regarded as an essential part of the organization.

Conclusion These observations illustrate that the existence of certain types of workplace issues alone does not necessitate negative consequences, unless the issues are viewed in a negative way. Administrators and organizational leaders have some influence in shaping workplace climate by changing their approach to dealing with workplace issues. That approach is proposed in this paper to be largely influenced by management’s perspective on conflict. Where conflicts are viewed as opportunities for growth and improvement, the work environment will be more conducive to fostering a sense of empowerment and learning, on both individual and organizational levels. This is the type of climate in which employees can thrive and, subsequently, in which organizations are better able to embrace organizational change.

Acknowledgment I would like to acknowledge colleagues David B. Lipsky and Ariel C. Avgar for their input and advice at each step of this research project. Correspondence concerning this article should be addressed to Kelly Pike, Department of Labor Relations, Law and History, School of Industrial and Labor Relations, Cornell University, Ithaca, New York 14853. E-mail: [email protected]

References Ekvall, G. 1987. “The Climate Metaphor in Organizational Theory.” In B. Bass and P. Drenth, eds., Advanced in Organizational Psychology. Beverly Hills, CA: Sage, pp. 177–90. Fayol, H. 1916/1949. General and Industrial Administration. London: Pitman. Follett, M.P. 1926/1940. The Psychological Foundations: Constructive Conflict. Geertz, C. 1973. The Interpretation of Culture. New York: Basic Books. Guion, R. 1973. A Note on Organizational Climate. Vol. 9, pp. 120–25. James, L.R., and Jones, A.P. 1974. “Organizational Climate: A Review of Theory and Research.” Psychological Bulletin, Vol. 81, pp. 1096–112. Jehn, K., and Mannix, E. 2001. “The Dynamic Nature of Conflict: A Longitudinal Study of Intragroup Conflict and Group Performance?” Academy of Management Journal, Vol. 44, No. 2, pp. 238–51. Jehn, K. 1995. “A Multimethod Examination of the Benefits and Detriments of Intragroup Conflict.” Administrative Science Quarterly, Vol. 40, No. 2, pp. 256–82. Joyce, W.F., and Slocum, J.W. 1984. “Collective Climate: Agreement as a Basis for Defining Aggregate Climates in Organizations.” Academy of Management Journal, Vol. 27, No. 4, pp. 721–42. Kunda, G. 1992. Engineering Culture: Control and Commitment in a High-Tech Corporation. Philadelphia, PA: Temple University Press. Miles, R.H. 1980. “Organizational Boundary Roles.” In C.L. Cooper and R. Payne, eds., Current Concerns in Occupational Stress. New York: Wiley, pp. 61–96. Mohr, L. 1982. Explaining Organizational Behavior. San Francisco: Jossey-Bass. Murnigahan, J.K., and Conlon, D.E. 1991. “The Dynamics of Intense Work Groups: A Study of British String Quartets.” Administrative Science Quarterly, Vol. 36, No. 2, pp. 165–86.

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Pettigrew, A.M. 1979. “On Studying Organizational Cultures.” Administrative Science Quarterly, Vol. 24, pp. 578–81. Pondy, L., Frost, P., Morgan, G., and Dandridge, T. 1983. Organizational Symbolism. Greenwich, CT: JAI Press. Rahim, M.A. 2001. Managing Conflict in Organizations. Westport, CT: Quorum. Robbins, S.P. 1974. Managing Organizational Conflict: A Non-traditional Approach. Upper Saddle River, NJ: Prentice Hall. Rohlen, T. For Harmony and Strength: Japanese White-Collar Organization in Anthropological Perspective. Berkeley: University of California Press. Schein, E. 1985. Organizational Culture and Leadership. San Francisco: Jossey-Bass. Van Maanen, J. 1983. “Observations on the Making of Policement.” Human Organization, Vol. 32, pp. 407–17. Weber, A. 1929/1947. Theory of the Location of Industry. Chicago: University of Chicago Press. Whyte, W.F. 1967. “Models for Building and Changing Organizations.” Human Organization, Vol. 26, No. 1/2, pp. 22–31.

The Dynamics of Health Insurance Coverage CHICHUN FANG University of Illinois at Urbana-Champaign2

Abstract In this paper I examine how health insurance coverage changes over the life cycle. Comparing to findings in cross-sectional studies that 16 percent of non-elderly U.S. population are not covered by health insurance, my analysis shows that only 2 percent of non-elderly male household heads are consistently uninsured between 1997 and 2006. Besides, only 70 percent of those in my sample are consistently covered by health insurance, which means around 28 percent are moving into and out of insurance coverage. This suggests a policy reform that focuses on providing continuous health insurance coverage in addition to covering those uninsured.

Introduction Two of the most imminent problems in the current U.S. health care system are high and rising health care expenditures and the high and rising number of people not covered by health insurance (Gruber 2008). In the year of 2008, American people spent more than $2.3 trillion dollars on health care, equivalent to 16 percent of U.S. gross domestic production (GDP). More surprisingly, health care expenditures actually surpass national defense spending—by four times. The United States spends much more in health care than most other developed countries do, and yet American people do not seem to have better health outcome in terms of life expectancy and infant mortality, according to the Organization of Economic Cooperation and Development Health Data (Organization for Economic Cooperation and Development 2009). Not only does the United States have the largest amount of spending in health care among developed countries, it also has the largest proportion of population not covered by health insurance. The proportion of U.S. population without health insurance went up from 14.1 percent in 2001 to 15.4 percent in 2008, as 46.3 million non-elderly people did not have health insurance (Executive Office of the President Council of Economic Advisors 2009; Gruber 2008). Affordability may be one of the major reasons contributing to this: the average health insurance premium was around $4,500 for a single and $12,000 for a family of four in 2007; meanwhile, the full-time equivalent federal minimum wage was $10,712 (Congressional Budget Office 2007, Gruber 2008, Executive Office of the President Council of Economic Advisors 2009), marking the first time that the health insurance premium for a family eclipses minimum wage. Indeed, one of the top policy priorities of the current U.S. administration is health care reform, with one of its main focuses being extending the coverage and improving the affordability of health insurance to those currently uninsured. Both the House of Representatives and the Senate passed their own health care reform bills separately late in 2009. Despite some discrepancies in how the reform should be financed and whether a public option would be offered, both bills proposed to provide health insurance to at least an additional 30 million American people by setting up mechanisms similar to a “health insurance exchange” in order to provide group-based plans to those who would not able to afford health insurance otherwise. In this study, I examine how health insurance coverage changes over time through the life cycle. Sixteen percent of the U.S. population is uninsured in each year, but whether it is the same 16 percent subpopulation that is not insured consistently over time or a subpopulation that varies year by year yields very different policy implications. In other words, just like the transitions into and out of poverty or unemployment, in this study I would like to assess the transitions into and out of health insurance coverage.

Author’s address: School of Labor and Employment Relations, 504 E. Armory Avenue, Champaign, IL 61820

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Previous Studies and Their Limitations There has been a huge body of literature in the study of health insurance coverage, especially in recent years. For example, Farber and Levy (2000) studied the recent trends of employer-sponsored health insurance plans by types of job. Gruber and Washington (2005) examined the impact of government subsidies to premiums of employer-sponsored health insurance on insurance coverage. Fairlie and London (2009) examined how individual and job characteristics influence the likelihood of gaining and losing health insurance. There are also studies focusing on the role of increasing insurance premiums on decreasing insurance coverage (Gruber and McKnight 2003; Avraham, Dafny and Schanzenbach 2009). Gruber (2008) provided possible resolutions to cover the uninsured in the United States as well. Valuable conclusions can be drawn from these studies using snapshots of cross-sectional health insurance coverage. On the other hand, the dynamics of health insurance coverage are surprisingly understudied. Bhandari and Mills (2003) found that 16 percent of full-time workers in the United States experienced at least 1 month without health insurance. Studies have shown that even short spells without health insurance are associated with less frequent use of preventive medical practices (Schoen and DesRoches 2000) and worse health outcomes (Sudano and Baker 2003). These studies combined suggest that the dynamics of health insurance coverage bear equally important policy implications to the cross-sectional studies of health insurance coverage. While Fairlie and London (2009) used matched Current Population Survey (CPS) data to study the annual transition into and out of health insurance, their study was restricted to a 16-month panel due to data limitation. Generally, CPS and Survey of Income and Program Participation (SIPP) do not have long enough panels to address the dynamics of health insurance coverage. The Medical Expenditure Panel Survey (MEPS) has a longer panel, but each wave still has only 36 months of health insurance information. Finally, while the Health and Retirement Study (HRS) is a long panel designed to study the dynamics of health status and retirement behaviors and is used extensively in health economics studies, its sample, made up of people over 50, makes it a less-than-desirable fit to study health insurance dynamics due to the mandatory coverage of Medicare at age 65. Overview of this Study In this study I used 1999 through 2007 waves of the Panel Study of Income Dynamics (PSID) to assess the dynamics of health insurance coverage. While the PSID was initiated in 1968, it did not collect information about health insurance coverage until 1999. Although the PSID has been conducted only every other year since 1999, it has information about the number of months covered by health insurance each year. This results in a 10-year panel of health insurance coverage, which is a significant improvement over past studies. Among my major findings are that, while it remains the case that 10 percent to 15 percent of male household heads aged 20 to 64 who were in the labor force did not have health insurance each year between 1997 and 2006, 70 percent of uncensored (those who stay in the panel for the full 10-year period) observations consistently had health insurance during the same span. Surprisingly, the proportion of observations that never had health insurance coverage is merely 2 percent. This suggests that almost 30 percent of the male non-elder working population lost health insurance coverage at least for 1 month during the 10-year span. Among these, half of them (15 percent overall) have insurance coverage between 0 and 9 months per year on average. Contrary to conventional wisdom, these 15 percent of people represent the working population pretty well—they have a mean labor earning of $35,500 (in 2008 dollars) and average 12.5 years of education. These results imply that besides providing coverage to those uninsured per se, government policies should focus more on providing continuous health insurance coverage to the working population of the United States. The remainder of this paper is structured as follows: the next section introduces the PSID data, how individual and family data are merged, and the cross-sectional health insurance coverage in the PSID. This is followed by the analysis of health insurance coverage dynamics. Policy implications are then addressed before I conclude the paper.


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Data The Panel Study of Income Dynamics The PSID is a longitudinal survey of representative U.S. individuals and the families they reside in. When it started in 1968, the PSID had two independent samples: a cross-sectional national sample and a national sample of low-income families. The cross-sectional sample was drawn by the Survey Research Center (SRC), having 2,930 households, and was an equal probability sample of U.S. families in contiguous 48 states. The sample from low-income families, also known as Survey of Economic Opportunity (SEO) sample, had 1,872 households and was conducted by the Bureau of the Census for the Office of Economic Opportunity (Hill 1991). The PSID core sample constitutes of these two samples. Between 1968 and 1996, PSID interviewed individuals from the households in the core sample. Household splits and merges were both tracked; adults were observed as they aged, and children were followed as they grew into adulthood and formed their own family units. Starting in 1997, PSID became biannual, and the most recent wave of PSID available was conducted in 2007. Many questions regarding health status and health care coverage were added to PSID questionnaires beginning in 1999, which makes the study an extremely valuable long panel to study the dynamics of health insurance coverage. Finally, since the composition of the U.S. population has changed dramatically since 1968, the PSID also provides sample weights to ensure its representativeness. I estimate the dynamics of health insurance using the 1999 to 2007 waves of the PSID core sample. Only male PSID household heads who are still in the labor force (self-reported as “working now,” “temporary laid off,” or “unemployed and looking for job”) and aged between 20 and 64 are included in the analysis. People who are older than 65 would be eligible for Medicare automatically and hence are dropped, since they would not contribute to the dynamics of health insurance coverage. Also, people who are younger than age 20 (22 if college graduates) are excluded because their job and income information may be noisy. Such noise does not impact the estimation of insurance coverage dynamics per se, but it may obscure the result when the income patterns of the most vulnerable group are estimated. Households that were part of the Survey of Economic Opportunities subsample are also dropped to obtain a random sample since the Survey of Economic Opportunities oversampled households in the lower social-economic status. Overall, 4,009 individuals and 14,502 records are used in the analysis. Numbers of records are 2,732, 2,870, 2,970, 3,011, and 2,919 in each biannual wave, starting from 1999 and ending in 2007. There are two major components of PSID data: individual survey and household survey. Individual characteristics, such as age, years of education, and types of health insurance, are obtained from the individual survey. Earnings in the previous year, hours worked/unemployed in the previous year, and number of months covered by health insurance are obtained from the household survey. Health insurance information, including type of insurance and length of coverage, are main outcome variables in this study and will be explained in detail later. Years of education is not available in all waves of PSID; in case of missing data, information from the most recent wave is used to fill in. Four types of earnings are available in PSID: labor earnings, unemployment benefits, Social Security benefits, and other transfer earnings. Only labor earnings are used in this study, and all the dollar amounts are deflated to 2008 U.S. dollars using the CPI-W. Descriptive statistics of these variables, weighed by the PSID sample weights to ensure the representativeness of the sample, are provided in Table 1. Health Insurance Coverage Information in the PSID Health insurance coverage information from both individual and household surveys is used. The individual survey has each individual’s type of health insurance at the time of the survey; 10 types of insurance are provided: not insured, employer-sponsored, directly purchased from private insurance market, Medicare, Medicaid, Military, CHAMPUS (Civilian Health and Medical Program of the Uniformed Services)/TRICARE/CHAMP-VA (Civilian Health and Medical Program–Veteran’s Administration), Indian Health Insurance, state-sponsored, and other government plans. I group the later seven categories as “publicprovided health insurance” to ease the analysis. Up to four mentions of types of health insurance are allowed in the survey, and information from all four mentions is used in the analysis. To give a rough idea of the distributions of health insurance sources, first-mentioned health insurance providers are tabulated in Table 2,

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weighted by the PSID sample weights. In order to utilize all four mentions of answers about the provider of health insurance, I follow Fairlie and London (2009) and only categorize an individual as having publicprovided health insurance when no employer-sponsored or directly purchased from private market are reported. An individual is categorized as having employer-sponsored insurance if it is reported in any of the four mentions. The distribution of more broadly defined types that incorporate all four mentions is given in Table 3, again weighted by the PSID sample weights.

Age Year of education Labor earnings Number of people Age Year of education Labor earnings Number of people

1999 40.95 (10.70) 13.73 (2.19) 61,123 (61,892) 2,732 1999 40.64 (10.76) 13.72 (2.19) 66,031 (61,758) 2,551

TABLE 1 Descriptive Statistics Panel A: Including records with zero labor earnings 2001 2003 2005 41.42 41.96 42.39 (10.75) (10.93) (11.36) 13.75 13.77 13.76 (2.16) (2.17) (2.16) 65,585 64,118 66,522 (78,696) (127,872) (101,934) 2,870 2,970 3,011 Panel B: Excluding records with zero labor earnings 2001 2003 2005 41.11 41.61 42.16 (10.79) (10.95) (11.36) 13.76 13.78 13.78 (2.16) (2.14) (2.14) 70,688 68,600 69,657 (79,642) (131,100) (10.,257) 2,696 2,811 2,889

2007 43.08 (11.43) 13.76 (2.12) 66,654 (79,967) 2,919 2007 42.79 (11.42) 13.80 (2.10) 71,038 (80,647) 2,787

Labor earnings in 2008 U.S. dollars. Standard deviations in parentheses. Observations are weighted according to the PSID crosssectional weights.

TABLE 2 First Mention Provider of Health Insurance, Male PSID Household Heads Provider Not insured Employer-provided Directly purchased from private market Medicare Medicaid Military/VA CHAMPUS/TRICARE/CHAMP-VA Indian Health Insurance State-sponsored Other government plans Number of people

1999 9.76% 81.75% 6.36% 0.33% 0.30% 0.78% 0.35% 0.09% 0.12% 0.17% 2,732

Observations are weighted according to the PSID cross-sectional weights.

2001 9.71% 81.13% 6.42% 0.10% 0.84% 0.69% 0.36% 0.00% 0.18% 0.59% 2,870

2003 10.32% 80.05% 6.65% 0.21% 0.62% 1.07% 0.51% 0.00% 0.44% 0.13% 2,970

2005 13.62% 77.49% 5.43% 0.10% 0.65% 1.12% 1.19% 0.00% 0.20% 0.19% 3,011

2007 12.39% 77.56% 6.21% 0.33% 1.08% 0.71% 1.26% 0.00% 0.18% 0.25% 2,919


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TABLE 3 Broad Types of Health Insurance, Male PSID Household Heads Provider Not insured Employer-provided Directly purchased from private market Public plans Number of people

1999 9.76% 81.88% 6.41% 1.95% 2,732

2001 9.71% 81.31% 6.36% 2.62% 2,870

2003 10.30% 80.50% 6.51% 2.69% 2,970

2005 13.62% 77.85% 5.25% 3.29% 3,011

2007 12.39% 77.83% 5.95% 3.83% 2,919


In addition to the type of insurance at the time of survey provided in individual data, household survey provides number of months each year that household head (and wife, if presented) is covered by health insurance 1 year and 2 years prior to the survey. Consequently, the 1999 wave of the PSID has number of months covered in 1997 and 1998, the 2001 wave has 1999 and 2000, etc. Combining five waves of PSID yields number of months each year that each PSID head and wife is covered by health insurance between 1997 and 2006. This is the main information that most analyses of health insurance dynamics rely on. Unfortunately, the type of health insurance is not available in the household survey and can only be inferred from the individual data at best. This is potentially problematic, as PSID actually has type of insurance at time t but coverage at times t-1 and t-2. I hence avoid connecting the dynamics of coverage to type of coverage directly in the subsequent analysis. Number of month covered is then divided into three categories: not insured (having health insurance coverage for zero months), fully covered (having coverage for 12 months), and partially covered (having coverage between 1 and 11 months). Table 4 shows the cross-sectional distribution of these three levels of coverage in each of the 10-year periods.

Year 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

TABLE 4 Cross-Sectional Health Insurance Coverage Not insured (%) Partially insured (%) Fully insured (%) 11.67 3.11 85.22 10.20 3.83 85.97 11.12 3.08 85.80 10.52 4.21 85.26 11.03 3.70 85.26 10.84 4.10 85.06 15.69 3.50 80.81 14.63 5.54 79.83 14.39 3.01 82.60 13.05 5.27 81.69

Number of people 2,732 2,732 2,870 2,870 2,970 2,970 3,011 3,011 2,919 2,919


Specific patterns in Table 4 imply some extent of heteroscedastic retrospective/measurement errors. Recall that the 1999 wave of PSID asked the length of coverage in 1997 and 1998, the 2001 wave asked about 1999 and 2000, etc.; this means information about 1997 and 1999 coverage may have more measurement error than information about 1998 and 2000, simply because 1997 and 1999 are farther from the time of the survey than 1998 and 2000. Table 4 suggests people are more likely to answer “not insured at all” or “fully insured” regarding the coverage in 1997, 1999, and later than in 1998, 2000, and later. This should not be surprising, since people are less likely to recall the exact amount of months covered by health insurance in

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earlier years and may just report either “not insured at all” or “fully insured” instead, especially if the exact number of months is close to 0 or 12. A histogram not reported here that illustrates relative frequency that people report 1 through 11 months of coverage in adjacent years also shows people are more likely to report 3, 6, or 9 months of coverage when asked about the coverage 2 years prior than the coverage 1 year prior to the survey, which is again consistent with the argument of heteroscedastic retrospect errors across time. Comparison with Other Commonly Used Data Results in Tables 2 and 3 suggest that health insurance coverage of PSID male household heads aged 20 to 64 in the labor force may be somewhat different than the coverage of nonelderly population in other data. Overall, around 10 percent to 15 percent male nonelderly population are not insured, 80 percent are covered by employer-sponsored plans, and 5 percent have individually purchased private insurance coverage, while the remaining have government-sponsored plans. Gruber (2008), for example, tabulates March CPS and shows that 17.9 percent of the nonelderly population are uninsured, 62.2 percent are covered by employer-sponsored plans, 6.8 percent have individually purchased plans, 13.4 percent are covered under Medicaid, and 5.2 percent have other public sponsored plans. The Executive Office of the President Council of Economic Advisors (2009), using data from the U.S. Census Bureau, reports similar statistics as Gruber (2008). The discrepancy between numbers in Table 2 and other data is likely due to the difference in the composition of sample: PSID only has insurance coverage information for household heads and wives, which automatically excludes children from my analysis, and I further restrict the sample to male household heads, of ages between 20 and 64 who are still in the labor force. Inclusion of those in the labor force only increases the likelihood of coverage under employer-sponsored plans (those who are switching to new jobs or are temporarily laid off may still be covered by employer-sponsor insurance through COBRA, the Consolidated Omnibus Budget Reconciliation Act); exclusion of female heads and children likely will exclude a great amount of Medicaid recipients. Hence the differences of health insurance coverage in PSID and other data sets seem to be reasonable.

Dynamics of Health Insurance Coverage Preliminary Analysis In order to assess the dynamics of health insurance coverage, I start with estimating how long people stay in “fully insured” (12 months a year) status before they transit into “not insured at all” (0 months a year) or “partially insured” (neither fully insured nor uninsured). Figure 1 shows the Kaplan-Meier survival curve of “fully insured” status, utilizing all observations between 1997 and 2006. Roughly, 5 percent of initially “fully insured” people drop out and become either not insured or partially insured each year, and only slightly less than 75 percent of people are still fully covered 9 years after first becoming fully insured. Given that around 80 percent of the observations are fully insured each year, this translates to around 60 percent of observations who stay fully insured for 10 years. I also estimate the duration of “not insured” spells, and the Kaplan-Meier survival curve is graphed in Figure 2. Around 20 percent drop out of the status annually and become partially or fully insured, resulting in 25 percent remaining after 9 years. This suggests that some 2.5 percent or 3 percent are not insured at all consistently. Combining with the result that around 60 percent of observations stay fully insured for 10 years yields a conclusion that around 35 percent people in the data lose their health insurance coverage for at least one month during the 10-year span. Although the survival curves give clear illustrations of transitions out of fully insured and uninsured states, they do not give any information regarding the “partially insured” group. Neither do the survival curves tell how these groups differ from each other in terms of observable characteristics such as years of education and earnings. Both of these are important questions to answer in order to identify the subpopulation most vulnerable to the interruption of health insurance coverage.


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FIGURE 1 Kaplan-Meier Survival Curve of Staying Insured

Kaplan-Meier Survival Curve

0.00

Proportion Remains Full Insured 0.25 0.50 0.75

1.00

Male PSID Heads 1997-2006

0

2

4 6 Year since First Fully Insured

8

10

FIGURE 2 Kaplan-Meier Survival Curve of Staying Uninsured

Kaplan-Meier Survival Curve

0.00

Proportion Remains Uninsured 0.25 0.50 0.75

1.00

Male PSID Heads 1997-2006

0

2

4 6 Year since First Uninsured

8

10

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The Main Results In the subsequent analysis I calculate mean annual amount of months covered by health insurance for each individual and divide the observations into six groups: 1) those who are never covered by health insurance, 2) those covered between 0 and 6 months annually on average, 3) those covered between 6 and 9 months on average, 4) those covered between 9 and 11 months, 5) those covered between 11 and 12 months, and 6) those always covered by a full 12 months. I then tabulate individual characteristics for each group. A potential sample selection problem could arise in the unbalanced panel: younger people will have fewer records due to the panel nature of PSID. Since people who are interviewed in all waves have to be at least 20 years old in 1999, people younger than that will not enter the panel until 2001 or subsequent years and hence will have fewer records. Younger people are more likely to have no health insurance coverage (Gruber 2008) and less earnings; consequently, those who have fewer records are also likely to have less health insurance coverage and earnings. I hence use only those who stay in the panel for the whole 10-year period to avoid the sample selection problem on health insurance coverage and earnings, and the results are shown in Table 5. TABLE 5 Individual Characteristics, by Average Length of Health Insurance Coverage Panel A: Including records with zero labor earnings Exact 0 0–6 6–9 9–11 11–12 Age 44.22 43.14 41.58 44.12 43.79 -10.39 -10 -8.32 -10.5 -9.65 Year of education 11.68 12.2 12.32 13.38 13.7 -1.76 -1.97 -1.8 -2.03 -2.05 Labor earnings 19,345 27,739 36,674 47,081 56,505 -10,155 -14,356 -17,708 -31,998 -33,299 Number of people 35 88 104 161 129 Percent of sample 2.00 5.04 5.96 9.22 7.39 Panel B: Excluding records with zero labor earnings Exact 0 0–6 6–9 9–11 11–12 Age 43.67 43.08 41.47 44.16 43.65 -10.02 -10.04 -8.28 -10.52 -9.55 Year of education 11.67 12.18 12.28 13.4 13.7 -1.78 -1.94 -1.75 -2.01 -2.04 Labor earnings 24,057 33,906 40,647 49,635 58,083 -14,864 -19,764 -20,437 -33.79 -35,440 Number of people 34 87 103 160 129 Percent of sample 1.97 5.03 5.95 9.25 7.46

Exact 12 47.77 -8.59 14.2 -2.05 82,429 -111,893 1,229 70.39 Exact 12 47.7 -8.58 14.2 -2.05 86,096 -118,483 1,217 70.35

Labor earnings in 2008 U.S. dollars. Standard deviations in parentheses.

The dynamics of health insurance coverage are captured clearly in Table 5. Those who either never had health insurance (averaged exactly 0 months of coverage) or never lost coverage (averaged exactly 12 months of coverage) between 1997 and 2006 only account for slightly more than 70 percent of the sample; in other words, almost 30 percent of the sample lost a certain amount of health insurance coverage during the 10-year span. This is a huge contrast to the cross-sectional coverage summarized in Table 4: the proportion of “partially insured” population is around 3 to 5 percent each individual year in column 2 of Table 4, but Table 5 suggests this number jumps to almost 30 percent (columns 2 through 5 combined) when the 10-year coverage history is examined. Also, Table 4 shows that some 10 to 15 percent are uninsured each year, while Table 5 shows that only 2 percent are consistently uninsured throughout the 10-year period. Additionally,


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Table 4 shows that around 85 percent are insured each year, but Table 5 shows only 70 percent are consistently insured. Comparing Tables 4 and 5 shows that, in contrast to the cross-sectional snapshot, proportions of the population who are “not insured” or “fully insured” decrease dramatically when 10-year dynamics of health insurance coverage are examined. A significant fraction of the population actually moves into and out of health insurance coverage over time. Besides, average length of coverage is positively correlated with labor income and level of education in Table 5—this by itself is not surprising and is consistent with findings in previous studies (Gruber 2008, Fairlie and London 2009). A closer inspection, however, indicates that people who on average lost three months of health insurance (only have 9 months or less of coverage) have more than 12 years of education and earn two or even three times above full-time equivalent federal minimum wage. People who lost on average less than one month of insurance coverage actually have mean earnings above the median labor earnings in the United States. Table 5 clearly shows that people who did not have health insurance coverage were from low-income families only; those who had their coverage interrupted for short spells are actually pretty typical American workers in terms of age, education, and earnings. Evidence in the table also suggests that in addition to “covering those uninsured” per se, public policy should address more on providing continuous health insurance coverage. Given the presence of COBRA (short for “Consolidated Omnibus Budget Reconciliation Act of 1985”), the results presented here are more striking. The act requires employers who provide group-based health insurance plans to offer most employees who lose or leave jobs the option to continue the coverage under the original plan for up to 18 months. While COBRA is associated with higher employee turnover and early retirement (Gruber and Madrian 1995, 1996), such “insurance portability” should significantly decrease the likelihood of health insurance coverage interruption due to job turnovers. And yet, a great amount of coverage interruption is still observed. Finally, as noted above, young people are less likely to have insurance coverage. Such improvement of coverage over life cycle may cause alternative explanations of numbers in Table 5, as what appears to be “less than 9 months of coverage on average each year” can be either interrupted coverage each year or no coverage in earlier years accompanied by full coverage in later years. One way of robustness check is to count the frequency of “low coverage,” defined here as “losing health insurance coverage for at least 3 months in a year.” Table 6 shows the individual characteristics of those who are in the data for 10 years but lost at least 3 months of coverage for 5, 6, 7, 8, 9, or 10 times during the 10-year span. The last column in Table 6 includes all people listed in previous six mutually exclusive columns. Overall, around 8.5 percent of people lost at least 3 months of coverage for at least 5 years between 1997 and 2006. This subpopulation is the most vulnerable to the lack or interruption of health insurance coverage. A natural comparison is to see how numbers in Table 6 (those who lost at least 3 months of coverage for at least 5 times in 10 years) deviate from numbers in the first three columns in Table 5 (those who lost at least 3 months of coverage each year on average in 10 years), and they turn out to be very similar. This suggests that the dynamics of health insurance coverage shown in Tables 5 and 6 are not only capturing the improvement of health insurance coverage over the life cycle. To summarize, I find that health insurance coverage of PSID male household heads aged between 20 and 64 in 1997 to 2006 is anything but static. On the one hand, tabulation of transition into and out of each type (in terms of lengths of coverage within the year) of insurance shows that bad outcomes are somewhat persistent: people who do not have a full 12 months of coverage tend to fare in a similar way in the very next year, but the pattern of transitions is far from deterministic. On the other hand, fewer people are consistently insured or uninsured at all than what is suggested in a cross-sectional tabulation. Almost 30 percent of people lost some amount of insurance in the 10-year span, but only slightly more than 2 percent of people are consistently uninsured. Those who are the most vulnerable to the loss of coverage can be categorized as the “working poor,” as their mean earnings are around $30,000, a figure much higher than full-time equivalence minimum wage but only 150 percent of federal poverty level for a family of four. A separate analysis not shown here indicates that if spousal income is also included, this group has a mean household income of $41,500, roughly twice the federal poverty level.

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LERA 62ND ANNUAL PROCEEDINGS TABLE 6 Individual Characteristics, by Number of Years Losing at Least Three Months of Coverage

Age Year of education Labor earnings Number of people Percent of sample

Age Year of education Labor earnings Number of people Percent of sample

5 43.43 -9.12 12.47 -2.06 40,823 -25,886 23 1.32

Panel A: Including records with zero labor earnings 6 7 8 9 10 44.14 41.85 42.78 41.64 43.96 -9.7 -8.6 -11.64 -9.1 -10.4 12.51 12.38 12 12.64 11.8 -2.04 -1.77 -1.82 -1.94 -1.87 34,677 29,272 26,731 26,487 20,245 -21,775 -11,070 -15,171 -9,446 -10,571 27 21 19 14 50 1.55 1.20 1.09 0.80 2.86

5–10 43.27 -9.8 12.2 -1.91 28,447 -17,778 154 8.82

5 43 -9.09 12.27 -1.85 43,096 -24,776 22 1.27

Panel B: Excluding records with zero labor earnings 6 7 8 9 10 43.96 41.85 42.78 41.64 43.57 -9.84 -8.6 -11.64 -9.1 -10.13 12.61 12.38 12 12.64 11.79 -2.02 -1.77 -1.82 -1.94 -1.89 40,962 36,291 31,842 35,010 24,712 -29,870 -19,551 -18,447 -13,966 -13,487 26 21 19 14 49 1.50 1.21 1.04 0.81 2.83

5~10 43.03 -9.72 12.19 -1.88 33,769 -21,305 151 8.69

Labor earnings in 2008 U.S. dollars. Standard deviations in parentheses.

Policy Implications The above results suggest that, in addition to focus on those who are consistently uninsured (which accounts for 2 percent of working population), government policies should address more those whose health insurance coverage is occasionally interrupted, which accounts for almost 30 percent of the working population. The advantages of such policy are twofold: on the one hand, short spells of lacking health insurance is associated with less frequent use of preventive medical practices (Schoen and DesRoches 2000) and worse health outcomes (Sudano and Baker 2003); on the other hand, since more than 90 percent of those who are insured through nonpublic plans have employer-provided health insurance coverage (Gruber 2008), provision of continuous coverage should decrease “job lock” (a situation where individuals are reluctant to find better job matches for the fear of losing health insurance) and increase labor market efficiency (Gruber and Madrian 1994, Gruber 2008). In other words, a policy on “insurance portability” that guarantees continuous coverage and portability of insurance policy among different employers and/or different states of employment should be one of the top priorities. COBRA provides a certain level of insurance portability, as described above. The act mandates that employers who provide group-based health insurance plans offer eligible employees, regardless of the reasons of turnover, an option to continue health-insurance coverage for up to 18 months after the termination of employment contract. Each year, around 10 percent of working people are eligible for COBRA, and 20 percent of those who are eligible take the option (Gruber and Madrian 1995). While COBRA is intended to provide insurance portability to improve labor market efficiency, there are some unintended results. Studies have shown that, while COBRA increases job turnover of people aged 55 to 64 (presumably moving to jobs with better matches), it also increases early retirement (Gruber and Madrian


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1995, Gruber and Madrian 1996). Since enrollment into the optional coverage is voluntary, COBRA is also associated with adverse selection issues. COBRA enrollees cost 50 percent more than what active employees do on average (Madrian 1998). COBRA beneficiaries also have 1.3 additional physician visits and consume 80 percent more prescription drugs compared to job separators experiencing temporary insurance loss (Zimmer 2008). Overall, the cost of COBRA to employers is estimated to be close to the amount of unemployment benefit paid by the U.S. government (Madrian 1998). Besides, numbers in Tables 5 and 6 also indicate that there is much room to improve in providing continuous health insurance coverage and insurance portability to the working population. Consequently, the COBRA policy needs some extent of reform as well in order to guarantee its efficiency.

Conclusion Despite important policy implications, the dynamics of health care coverage throughout the life cycle are not widely studied. This study examines the dynamics of health insurance coverage over a 10-year period using data from the Panel Study of Income Dynamics (PSID). I find a different pattern of insurance coverage than those observed using cross-sectional data. Only around 70 percent of the sample have the full 12 months of coverage consistently throughout the period; around 2 percent are never covered at all during the same span, which leaves some 30 percent who have their health insurance coverage interrupted occasionally. Comparatively, each year more than 80 percent of people are insured, 10 percent to 15 percent are uninsured, and those whose insurance coverage is interrupted only make up a small proportion of the sample. This suggests that policy reform should focus on providing continuous coverage to the working population along with coverage to those consistently uninsured. Those who are most vulnerable to the loss of coverage can be categorized as the “working poor,” as their mean earnings are close to $30,000, a figure much higher than full-time equivalence minimum wage but only at 150 percent of federal poverty level for a family of four. One of the limitations of this study is that the only information available in PSID is the number of months a person is covered by health insurance. Ideally, estimation of health insurance coverage dynamics should build on information about the duration of each health insurance coverage spell instead of yearly based information, especially when the intention of the study is to provide policy implications. Whether an individual is covered for 6 months, then uncovered for 6 months for 2 years in a row or is covered for 6 months, loses coverage for 12 months, then is covered for 6 months again has very different implications for the design of optimal health care coverage, risk to health status, and smoothing medical expenses. Also, health insurance is far more complicated than a dichotomy of covered or uncovered. Health insurance policies differ in their generosity and comprehensiveness, and there are huge idiosyncrasies in out-ofpocket medical expenses, namely amount of co-payment and deductibles and whether first-dollar coverage is provided. PSID data, unfortunately, does not provide information on these aspects. Medical Expenditures Panel Survey (MEPS) does have such information, but it suffers from the problem of short panels since individuals are interviewed for six times but within 2 years. In order to propose more sound, feasible, and efficient policy reforms, the generosity and comprehensiveness of health insurance policies should also be studied.

Acknowledgment I thank the Health Care Industry Council for providing the chance to present this paper. Comments from Adrienne Eaton, Adam Seth Litwin, Craig Olson, and Dana Weinberg are gratefully acknowledged, and I am responsible for all the remaining shortcomings. I also appreciate the encouragement from Eun Kyung Lee, my colleague at the University of Illinois.

References Avraham, Ronen, Leemore S. Dafny, and Max M. Schanzenbach. 2009. The Impact of Tort Reform on EmployerSponsored Health Insurance Premiums. NBER Working Paper 15371. Bhandari, Shailesh, and Robert Mills. 2003. “Dynamics of Economics Well-Being: Health Insurance 1996– 1999.” In U.S. Bureau of the Census Current Population Reports, 70-92: Government Printing Office.

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Congressional Budget Office. 2007. The Long-Term Outlook for Health Insurance Spending. Washington, DC: Congressional Budget Office. Executive Office of the President Council of Economic Advisors. 2009. The Economic Case for Health Care Reform. Washington, DC: Executive Office of the President Council of Economic Advisors. Fairlie, Robert W., and Rebecca A. London. 2009. “Who Is at Risk of Losing and Gaining Health Insurance?” Industrial Relations, Vol. 48, No. 2, pp. 287–310. Farber, Henry S., and Helen Levy. 2000. “Recent Trends in Employer-Sponsored Health Insurance Coverage: Are Bad Jobs Getting Worse?” Journal of Health Economics, Vol. 19, No. 1, pp. 93–119. Gruber, Jonathan. 2008. “Covering the Uninsured in the United States.” Journal of Economic Literature, Vol. 46, No. 3, pp. 571–606. Gruber, Jonathan, and Brigitte C. Madrian. 1995. “Health-Insurance Availability and the Retirement Decision.” American Economic Review, Vol. 81, No. 4, pp. 938–48. Gruber, Jonathan, and Brigitte C. Madrian. 1996. “Health Insurance and Early Retirement: Evidence from the Availability of Continuation Coverage.” In David A. Wise, ed., Advances in Economics of Aging. Chicago: University of Chicago Press, pp. 115–43. Gruber, Jonathan, and Brigitte C. Madrian. 1994. “Health Insurance and Job Mobility: The Effects of Public Policy on Job-Lock.” Industrial and Labor Relations Review, Vol. 48, No. 1, pp. 86–102. Gruber, Jonathan, and Robin McKnight. 2003. “Why Did Employee Health Insurance Contributions Rise?” Journal of Health Economics, Vol. 22, No. 6, pp. 1085–104. Gruber, Jonathan, and Ebonya Washington. 2005. “Subsidies to Employee Health Insurance Premiums and the Health Insurance Market.” Journal of Health Economics, Vol. 24, No. 2, pp. 253–76. Hill, Martha S. 1991. The Panel Study of Income Dynamics: A User’s Guide. Thousand Oaks, CA: Sage Publications. Madrian, Brigitte C. 1998. “Health Insurance Portability: The Consequences of Cobra.” Regulation, Vol. 21, No. 1, pp. 27–33. Organization for Economic Cooperation and Development. 2009. “OECD Health Data 2009: Frequently Requested Data Organization for Economic Cooperation and Development.” . [October 21, 2009]. Schoen, Cathy, and Catherine DesRoches. 2000. “Uninsured and Unstably Insured: The Importance of Continuous Insurance Coverage.” Health Services Research, Vol. 35, No. 1, pp. 187–206. Sudano, Joseph J., and David W. Baker. 2003. “Intermittent Lack of Health Insurance Coverage and Use of Preventive Services.” American Journal of Public Health, Vol. 93, No. 1, pp. 130–37. Zimmer, David M. 2008. “The Effect of the Consolidated Omnibus Reconciliation Act of 1985 on Health Care Utilization of Employment Separators.” B.E. Journal of Economic Analysis and Policy, Vol. 8, No. 2, pp. 1–26.

The Impacts of Resident-Centered Care on Conflicts in Nursing Homes EUN KYUNG LEE ERIK YOUNG University of Illinois at Urbana-Champaign3

Abstract As the value in changing work practices has been recognized along with a shift to the new paradigm of customer-patients, many health care delivery organizations have been engaged in organizational initiatives to improve care quality. In this paper, we focus on resident-centered care (RCC) practices in nursing homes and examine how organizational practices affect organizational conflicts among employees and conflicts with resident families. In results, we found positive evidence that resident-centered care practices are negatively related to task conflicts among employees and that to the extent to which nursing home organizations implement RCC practices, employees experience less conflict with residents’ families over personal and resident care issues. Implications of these results are provided for future research on high performance work systems (HPWS) and conflict as well as for practice.

Introduction Among the most pervasive and enduring symbols of health care professions is a basic tool, the stethoscope. The introduction of this technology in 1817 allowed for more precise medical information to be gained; however, this added precision came at the cost—not wholly unintended at the time—of more impersonal and distant delivery of care (Starr 1982). Although it was impossible to foresee at the time, this invention and its implications are an apt microcosm of larger scale developments in health care that subsequently took place. Over the course of the century following, the balance of social forces shifted expectations surrounding health care delivery, and this shift, along with advances great and small—but always continuous—in medical technology merged to effectuate the inevitable shift in organizational and employment systems. This parallels the model hypothesized for manufacturing work and organizations (Piore and Sabel 1984). Thus, when viewed in retrospect from an industrial relations perspective, the social forces that gave rise to the modern paradigm of health care consumerism are at once obvious. The ascension of large, modern, and impersonal organizations delivering efficient, if conspicuously sterile, services is viewed not as a planned or organized drive, but rather as the inevitable end result of shifts within a system of interlocking markets (Rosenberg 1987). Communities increasingly shifted away from small, intimate settings, and institutions had to conform. Health care delivery, which increasingly served larger swaths of population while also needing to continuously manage its investments into new technologies, developed over time the need to implement bureaucratic administration. Work associated with health care delivery therefore also shifted along the same lines; physicians began treating patients within the walls of organizations rather than their homes—with greater clinical accuracy, but less personal closeness (Rosenberg 1987). As this organizational paradigm crystallized, institutional pressures reinforced the hierarchies in place and created incentives to protect investments. Thus, the modern archetype of health care delivery relies on the needs, goals, and values of key stakeholders in the Author’s address: School of Labor and Employment Relations, 504 E. Armory Avenue, Champaign, IL 61820

45

46


institution—third-party payers who fund the institution and principal medical staff who provide vital services; this is not unlike the model of publicly traded organizations in which managers seek to maximize shareholder value without regard to other stakeholder needs or preferences (Starr 1982, Rosenberg 1987). However, just as organizations in manufacturing (cf. Ichniowski, Shaw, and Prennushi 1997) and service types apart from health care (Batt 2002) have recognized the value in changing work practices, some health care delivery organizations have recently recognized that shifts in the organization of work, which reflects different organizational values that are precipitated by new turns in the gears of societal pressures, may create newfound increases in performance (Avgar, Givan, and Liu 2009). Wide dispersion of new technologies has allowed greater access to information about health care, and individuals are now more knowledgeable and vocal in their preferences than at any previous time (Ford and Fottler 2000). As a result, a new institutional paradigm is emerging in which health care delivery recognizes this democratization of medical knowledge, places value on the health care experience for consumers, and focuses delivery on the needs and preferences of those seeking care for themselves and their families (Lauver et al. 2002, Wolf et al. 2008). One important environment being given increased attention within health care is the nursing home. The close, chronic nature of contact with residents makes it a particularly prominent context for examining the impacts of innovative and personalized health care delivery (Rantz et al. 1998). Empirical examinations of these effects are in their infancy, however; in fact, consensus has yet to be established as to which variables may best illustrate the quality of nursing home experience for residents. There is also a paucity of evidence regarding the effects changes in nursing home work practices have on the caregiving employees. Our study seeks to fill these gaps by examining the link between implementation of resident-centered work practices and conflict. We view conflict to be an important relational phenomenon—one that serves to illustrate the quality of nursing home functioning (Rantz et al. 1998, Nelson and Cox 2003) as well as nature of functional professional relationships developed between employees (Heglund 1990, De Dreu and Beersma 2005).

Resident-Centered Care in Nursing Homes These are a part of a growing trend that finds many health care organizations expending considerable efforts in satisfying one of their key stakeholders—patients, by meeting their needs as a customer of the total health care experience as well as their clinical needs. The effort relates to a shift toward a new paradigm highlighting the view that the “patient is a customer of a health care experience that is more than a good clinical outcome” (Ford and Fottler 2000:23). Bergeson and Dean (2006) emphasize that hospitals should respond to their consumers with personalized, high-quality care and service excellence to thrive in the era of health care consumerism. In a similar line, Ford and Fottler (2000) proposed 10 principles of the new paradigm by which health care organizations might enhance their service capabilities and gain a competitive advantage. These include developing a customer-focused culture, training and motivating employees, designing an attractive service environment, and committing to continuous improvement. In related efforts to support a shift to a new paradigm of customer-patients, organizational initiatives for quality care have been noted and implemented in the hospital setting. Many researchers addressed the crisis in quality of patient care (cf. Kohn, Corrigan, and Donaldson 2000; Aspden, Wolcott, Bootman, and Cronenwett 2007), and examined a variety of different work and patient care delivery reorganization initiatives to improve quality (Lee and Alexander 1999; Aiken, Clarke, and Sloane 2002; Wolf et al. 2008). In line with the changing mode of patient care delivery, it is important to note that patient-centered care (PCC) implementations seek to change organization practices as well as the underlying philosophy of care (Avgar, Givan, and Liu 2009). Much attention has been paid to PCC dimensions and impacts on various organizational outcomes since the Institute of Medicine listed it as one of the six measures central to rebuilding the U.S. health system (Institute of Medicine 2001). Quality is often defined as providing the right care in the right way at the right time, but a patient-centered vision would make quality focused toward patient preferences—the care that a patient feels he or she needs, in the manner the patient desires, and at the time the patient desires (Davis, Schoenbaum, and Audet 2005). Therefore, the core notions of patientcentered care would be to depart from the physician- or institution-centered model and instead to enlarge patient engagement and coordination of care for the best quality of care (Avgar, Givan and Liu 2009).


47

There is considerable consensus about the notion and underlying logic of PCC, and there exist two common threads. One is to make health care delivery more responsive to patient needs (often by increasing the involvement of a patient in the care process), and the other is to modify or create new organizational work arrangements to deliver quality care. In other words, PCC implementation focuses on increased understanding of patients’ needs, preferences, beliefs, and expectations by allowing for more direct patient input and reinforcement of this personalization through work organization that stresses this tailoring of needs (Lauver et al. 2002). Restructuring of workplace practices, such as improved coordination between different organizational units, would be required for best quality care to patients in PCC (Avgar, Givan and Liu 2009). In sum, PCC is intended to shift fundamental aspects of how health care organizations operate and provide care for patients (Avgar, Givan and Liu 2009). A specific example of the change occurring in health care organizations generally is the combined effort by consumers, professionals, and policymakers currently being undertaken to improve quality of care and quality of life in American nursing homes (Bostick 2004). Several attempts to understand the specific aspects of nursing home quality have been put forth. For instance, Glass (1991) suggested a model with four major dimensions of quality: staff intervention, physical environment, nutrition/food service, and community relations. Rantz et al. (1998) conducted an exploratory qualitative study in a Missouri nursing home. The multidimensional model that emerged from their analysis mirrors the elements proposed by Glass in its major respects; however their analysis indicated that two core variables proved to be most important in driving quality perceptions: interaction of staff with residents and families, and odor (an important proxy for physical environment). These models remain highly theoretical and without the benefit of rigorous empirical testing. Also, while some studies examined the association between a lone organization practice and nursing home care quality (for example, see Bostick 2004), to our knowledge, the effect of implementing a comprehensive system of resident care quality in nursing homes has not been suggested nor tested.

Work Practices and Organizational Outcomes At its core, resident-centered care (RCC) is a human resource practice initiative aimed at gaining performance benefits. While there is still a great amount of heterogeneity in how the practices are defined in the health care setting (Garman et al. 2009), most prevailing labels for systemic implementations would be high-performance work practices (HPWP) or high-performance work systems (HPWS). Two important links can be made with this literature: organizational values as a driver for implementation, and the organizational outcomes associated with subsystems that tend to be included in HPWS implementation. Strategic implementation of employment initiatives aimed at achieving performance gains does not always carry the same underlying motivations. Organizations vary in their stimulus for employing HPWS, even when their ultimate general goal of improved organizational effectiveness is shared. A nascent trend holds that organizational values—a key component underlying the adoption of RCC and of innovative health care workplace practices generally—have been found to be a key driver of adoption of HPWS (Osterman 1994, Bae and Lawler 2000). Two empirical studies have found a positive impact of organizational values on adoption of HPWS. Bae and Lawler (2000:504) state that “high-involvement HRM [human resource management] strategy starts with management philosophies and core values that emphasize the significance of employees as a source of competitive advantage.” The authors found a significant positive relationship between organizational values on HRM and the adoption of high-involvement HR practices in a sample of South Korean firms. In a large sample of American organizations, Osterman (1994) found organizational values to be the strongest predictor of the adoption of innovative work practices. The main argument underlying HPWS is that they enable organizations to develop skillful, motivated, and committed employees, who can create superior value for organizations (Pfeffer 1994). Huselid (1995) argued that HPWS enhance employee skills and motivation and provide a work environment where the employees can best utilize their skills and discretion to achieve organizational goals. Using a cross-industry sample of 968 firms, he found that HPWS reduce workforce turnover and increase organizational productivity and financial performance.

48


It is important to note that an emerging body of empirical research indicates that HPWS have an effect on individual employee attitudes and behavior. For example, Macky and Boxall (2007) conducted a study of employees in New Zealand and found that HPWS increased affective commitment, trust in management, and job satisfaction. Agarwala (2003) also found HPWS to significantly predict managerial employees’ organizational commitment. Applebaum, Bailey, Berg, and Kalleberg (2000) conducted a large study of employees in the steel, apparel, and—most significantly for our purposes—medical technology industries, and found that employees’ experiences of individual HPWS practices positively influenced their organizational commitment, job satisfaction, stress, and trust in the organization. These findings provide depth to the notion that employment initiatives in health care are analogous to HPWS. Garman et al. (2009) provide several descriptions of subsystems of HPWP specific to health care settings, which naturally have implications for RCC. Their model included four subsystems: organizational engagement, staff acquisition/development, frontline control/freedom to challenge, and leadership alignment/development. Staffing in particular has been found to be of critical importance in RCC. It has been assumed that the quality of nursing home care relies heavily on the type and number of nursing staff (Bostick 2004), and there is some empirical evidence indicating that nursing staff have a direct influence on the quality of specific resident outcomes (Kayser-Jones 1997, Kayser-Jones and Schell 1997). Bostick (2004) emphasized the importance of staffing in nursing homes by contending a direct link between insufficient staffing and various physical and behavioral problems of residents (i.e., weight loss, incontinence, pressure ulcers). Often, nursing homes can be tempted to minimize costs at the expense of quality care by substituting lower paid nonprofessional staff for higher paid professional staff. However, this lacks important historical perspective in that the professionalization of nursing is viewed as the most vital driver in reshaping the patient health care experience (Rosenberg 1987). Thus, nursing homes need to maintain sufficient staffing levels as well as high commitment in order to provide the quality of care standards residents might expect with RCC. In addition, it is important to develop the workforce through continuous training. Bostick (2004) pointed out that today’s nursing facilities experience increased resident acuity level, which often leads to higher workload for staff, greater strain on staff resources, and reduced quality of nursing home care. A nursing home’s investment in developing high skilled staff is thus another means to offer high quality resident care. Lastly, important studies have begun to emerge linking HPWS within nursing home facilities. Eaton (2000), in a qualitative study of 20 nursing home facilities, identified three typologies for nursing home care, each with characteristic workplace assumptions and work organizations—and thus differing outcomes. A “regenerative” model engendered a focus on resident choice and preference as well as an effort to redefine the facility as more of a community than a health care delivery vehicle. Thus, the work arrangements for employees are unique among other types of nursing homes—workers engage in a greater variety of tasks, which means they must be offered more cross-training, and their efforts are better defined as as-needed support rather than as administrators of care. This model, while effective in its own ways, is relatively rare and distinctive. The two other models identified in Eaton’s work were found to be much more dominant: the low-quality care model, which made up the bulk (about 70 percent) of subject locations, and the high-quality care model. These models were described in much more familiar terms for organizational scholars. The lowquality care model was characterized by traditional, hierarchical features for line employees, such as low wages, little opportunity for voice and input, and high amounts of task supervision. The high-quality model, which was characterized as akin to a HPWP model, offered higher wages and a more adaptive team-based approach. This model resulted in lower annual turnover rates for these organizations compared with the lowquality care facilities. We believe the current study will add to the growing body of work looking into employment practice systems in the nursing home context. We believe further that it contributes to HPWP literature by adding a context-specific argument and added empirical evidence.


49

Impacts of RCC on Conflict Organizational outcomes examined in the studies addressing the impacts of work practices in health care organizations tend to view patient mortality rates as the most relevant dependent variable (for example, see West et al. 2002 or West et al. 2006). However, it has been noted that additional outcomes, such as patient satisfaction, employee outcomes, and other measures of quality of care, should be incorporated (Avgar et al. 2009). For example, Mead and Bower (2000) proposed that the effect of patient-centered care is mediated by the quality of the practitioner–client relationship. We believe that conflicts employees experience with other employees as well as with resident families are important variables to consider in understanding the relationship between resident-centered care practices and organizational outcomes. In previous human resources and organizational behavior research, conflict has been extensively studied with respect to its impacts on individual, team, and organizational outcomes (Amason and Schweiger 1997, De Dreu and Van Vianen 2001, Jehn and Mannix 2001, De Dreu and Weingart 2003, De Dreu and Beersma 2005). Despite the voluminous research that has been done, a debate still exists as to whether organizational conflict is beneficial or detrimental to organizational functioning. Specifically, task conflict has been often associated with positive effects in that it may increase group members’ tendency to analyze task issues and thus stimulate the processing of task-relevant information (Amason and Schweiger 1997; Janssen, Van de Vliert, and Veenstra 1999). Relationship conflict, on the other hand, has been negatively related to performance and individuals’ satisfaction because it distracts people from task efforts (De Dreu and Weingart 2003; Jehn 1995, 1997). However, the notion that task conflict may benefit team performance or decision quality has been also challenged by recent meta-analytic results and critical review of previous evidence (De Dreu and Weingart 2003, De Dreu 2008). Consequences of conflict in nursing home settings may have greater impact compared with traditional types of organizations because organizational conflicts among employees can be transferred to residents in some way. In other words, nursing home employees experiencing conflicts may not only experience individual negativity such as burnout, absenteeism, or job dissatisfaction, but they may also act out their frustrations through such actions as resident abuse (Hegland 1990). More importantly, conflicts between employees and residents would impede residents’ satisfaction with the care and nursing home. In this study, we focus on two types of conflict that may arise in nursing homes: task conflict among employees and employee conflict with resident families. Task conflict refers to the conflicts in the unit between peers, supervisors and employees, and employees and supervisors outside their unit over resident care issues. In the health care setting, resident care is the dominant task-associated focus (Avgar 2009), so we labeled conflicts among employees on resident care issues as “task conflict.” However, it is distinguished from task conflict described in a general organizational setting (Jehn 1995) by its narrowed focus, in our study exclusive to resident care issues (e.g., medication, surgical intervention, or care planning). Moreover, we believe task conflicts regarding resident care issues are not functional, as they might sometimes be in other organizational settings. That is, task conflict in other settings may be viewed as a facilitative process generating creative or higher quality ideas and solutions (e.g., Amason 1996, Amason and Schweiger 1997); however, disagreements over resident care issues can often result in delay of care, let alone result in personal tensions and emotional conflicts (Simons and Peterson 2000). Therefore, we view task conflict as basically negative to nursing home organizations. Furthermore, employees will likely experience fewer conflicts over resident care issues when nursing homes implement resident-centered care practices. RCC aims to make employees place greater value on resident care and agree on such shared goals. When most employees in a nursing home accept the values imposed by RCC and try to behave in a way that reinforces such value, they would be less likely to experience dissension with regard to resident care–related judgments. Instead, employees are likely to agree on means that maximize benefits for residents. That is, when nursing staffs share one common decision rule that only takes account of residents’ well-being and benefits—and that rule is held above any other consideration— employees will experience less task conflict regarding resident care issues. Based on this line of reasoning, we advance the following hypotheses regarding the impacts of RCC on task conflicts among employees in nursing homes.

50

LERA 62ND ANNUAL PROCEEDINGS Hypothesis 1: RCC practices will reduce the task conflict over resident care issues employees experience in their unit with supervisor. Hypothesis 2: RCC practices will reduce the task conflict over resident care issues employees experience in their unit with peers. Hypothesis 3: RCC practices will reduce the task conflict over resident care issue employees experience with other units.

Conflict with resident families is a specific form of dysfunction of nursing homes. Nelson and Cox (2003) found the roots of family and staff conflict to be in resident families’ guilt and negative affect about leaving the resident to a medical institution. Such negative emotions make the resident families more sensitive to and aggressive with frustrations stemming from perceptions of difficult staff or a nursing home institutional culture that does not allow family or resident influence. Furthermore, resident families are more likely to be truculent with nursing home staffs if they perceive low quality care. If such perceptions exist, we believe conflict is more likely to occur. We expect RCC practices to reduce the amount of conflict employees experience with resident families for several reasons. First, organizational commitment to RCC and employee participation in organizational initiatives are meant to change the culture of a nursing home from institution oriented to resident oriented. Nursing home employees become committed to delivering high quality care to residents overall, and they try to become more attentive to emotional and care needs. However, employee commitment to RCC does not by itself eliminate all potential problems with resident families. There should also be an appropriate level of professional staff who can deal with the demands or needs of residents. RCC implementations focused on sufficient staff and highly committed employees—through decreased use of agency staff—will support organizational efforts to provide quality care to residents and will in turn help prevent conflicts between employees and resident families. Finally, training is considered one of the most important conflict prevention strategies (Nelson and Cox 2003). As employees become more aware of how to deal with conflicts (or at least not to overreact), resident rights, and the causes of resident resistance and family stress, they can develop tolerant attitudes in dealing with issues of residents and resident families (Hudson 1992). In sum, adequately trained employees are likely to have enhanced interpersonal skills to manage rough situations as well as serve the needs of residents in a professional way. We offer the following hypotheses regarding conflict with resident families. Hypothesis 4: RCC practices will reduce the conflict with families of residents over personal issues. Hypothesis 5: RCC practices will reduce the conflict with families of residents over the way work is done. Hypothesis 6: RCC practices will reduce the conflict with families of residents over resident care issues.

Methodology Data We used survey data collected as part of a large research project in nursing homes. Interviews lasting approximately 30 minutes were administered to employees in 20 nursing homes in New York state. We excluded from the survey administrators and supervisors who were not in regular contact with residents and focused on direct caregivers (RNs, LPNs, CNAs, and allied professionals). Our response stands at approximately 50 percent, with 1,241 completed interviews.


51

Independent Variables Resident-centered care. The measurement of RCC incorporates measures for the five organizational work arrangements: 1) organizational commitment to RCC (“This nursing home is committed to supporting resident-centered care”); 2) employee participation in RCC (“Administration at this nursing home encourages all employees to participate in resident-directed care”); 3) focus on training (“My nursing home places a strong emphasis on training”); 4) use of agency staff (“My nursing home has many agency employees”; reverse coding); 5) sufficient staffing (“My nursing home has sufficient staff to provide good quality of care to residents”). A 5-point Likert scale (1 = strongly disagree, 5 = strongly agree) was used for each item. We used an aggregated measure for overall RCC. Dependent Variables Task conflict. This variable includes resident care conflicts from three different referents. The items asked respondents about the level of patient care conflict they experienced in their unit between peers, supervisors and employees, and employees and supervisors outside their unit (sample item: “For co-workers in your unit, how would you rate the degree to which there are disagreements over resident care issues”). Three types of task conflict are called “resident care conflict with supervisor,” “resident care conflict within the unit,” and “resident care conflict with other units.” A 4-point Likert scale (1 = not at all, 4 = large extent) was used for each item. Resident conflict. This variable measures conflicts with resident families. It includes three types of conflicts—conflict over personal issues, conflict over the way work is done, and conflict over resident care issues. A 4-point Likert scale (1 = not at all, 4 = large extent) was used for each item. Control Variables We include a number of control variables in the analysis for individual demographic factors, individual level employment status, and union membership because these are likely to have an effect on employee attitudes and perceptions. They are age (in years), gender (0 = female, 1 = male), education (1 = less than high school, 2 = high school degree or equivalent, 3 = some college, but no degree, 4 = associate degree, 5 = bachelor’s degree, 6 = master’s degree, 7 = doctorate), tenure (in years), employment status (1 = full-time, 2 = part-time), union membership (0 = no, 1 = yes), professional affiliation (1 = CNA, 2 = LPN, 3= RN, 4 = allied professional), and nursing home facility.

Results Table 1 reports the means, standard deviations, and correlations for all variables used in the study. The five RCC practices are significantly and positively correlated with each other. In addition, most of resident centered care practices are negatively correlated with task conflicts and resident conflicts at a significant level. It is also worth noting that task conflicts among employees are significantly and positively correlated with different types of conflicts with resident families. These positive relationships between task conflicts and resident conflicts may indicate positive interactions between employee and resident outcomes, such that employees’ conflicts roll over to conflicts with the residents and their families. Tables 2 and 3 present results of regression analyses to test the effect of RCC on organizational conflicts among employees and conflicts with residents. Hypotheses 1 through 3 predict that RCC reduces task conflicts that employees experience with supervisors, within the unit, and with other units. As seen in Table 2, RCC did significantly reduce resident care issue conflicts among employees, thus providing support for the hypotheses. However, the impacts are limited to a different set of RCC practices for different conflict types. In specific, focus on training ( = -.072, p < .05;  = -.152, p < .01) and less use of agency staff ( = .125, p < .01;  = -.148, p < .01) significantly reduce conflict with supervisor and conflict within the unit. On the other hand, for conflict with other units, less use of agency staff ( = -.136, p < .01) and sufficient staffing ( = -.080, p < .10) had a significant negative impact. Therefore, our results support hypotheses 1 through 3, but the relationships between RCC and conflicts are found with only two or three practices.

Resident conflict 17. Personal issues with families 18. How to get work done with families 19. Resident care issues with families * p < .05; ** p < .01.

Task conflict 14. Resident care issueswith supervisor 15. Resident care issueswithin unit 16. Resident care issueswith other units

Resident-centered care 9. Nursing home resident-centered care 10. Admin support resident-directed care 11. Strong emphasis on training 12. Nursing home lots of agency staff 13. Nursing home enough staff quality care

7. Union member 8. Professional affiliation

5. Tenure 6. Employment status

4 Control variables 1. Nursing home facility 2. Age 3. Gender 4. Education

0.99 1.01 1

1.97

1.96

1.99

1.04

1.97

1.19

3.61

1.08

1.21

3.09

1.98

1

3.85

1.07

0.8

4.2

1.97

0.68

4.26

7.54

10.6

47.8

7.91

SD

Mean

-0.04

-0.05

-.075*

-0.06

-0.05

-0.03

-.158**

.131**

-.121**

-.126**

-.139**

.083* -.118** 0.022

0.037 -0.01

-0.03 0.034

1

-0.03

0.037

-.069*

-0.05

-0.03

-0.02

-0.06

0.015 0.041

-0.02

0.002

-0.01

-0.03

-0.01

-.122**

-0.02

-.102**

-0.03

-0

-0.05

-0.07

-0

-0.06

0.062

0

-0.06

-0.04

0.051

-0.01

0.042

-0.02

.118** -.507** .675**

0.014 -0.06 .075*

-0.01

-.151**

4

.112** -0.01

3

-0

-0.05 .116** .502** .199** .092** -0.06

2

-0.02

0.006

0.036

0.026

0.049

0.013

-0.03

0.021

-0

-0.06

-0.02

-.271** .249** -.157**

5

0.004

0.021

-0.06

0.02

0.031

-0.01

-0.01

0.013

-0.03

-0.03

-.071*

-.230** 0.054

6

-0.03

0.012

0.037

0.012

0.038

0.053

0.059

0.059

0.047

-0.02

0.014

-.665**

7

.078*

0.017

0.015

0.006

-0.04

-0.01

-.116**

-0.03

-.107**

-0.02

-0.03

8

-.075*

-0.05

-0.03

-.135**

-.074*

-.128**

.373**

-.117**

.458**

.511**

9

-.069*

-.066*

-.106**

.578**

.518**

-.093**

.659**

.425**

-.147**

-.101**

.609**

12

-.068*

-.107**

-0.06

-.092**

-.101**

11

-.078*

.304**

-.081*

.457**

10

TABLE 1 Means, Standard Deviations, and Correlations for All Study Variables

.461**

.428**

.345**

.648**

13

.563**

.512**

.424**

14

.631**

.665**

15

.736**

16

TABLE 2 Regression Analyses for the Effects of RCC on Task Conflict Variable Control variables Age Gender Tenure Employment status Union member Resident-centered care Nursing home RCC Administration support for resident-directed care Strong emphasis on training Less use of agency staff Nursing home enough staff quality care R2

With supervisor SE B B 0.004 -.007┼ 0.116 -.196┼ 0.005 0.004 0.083 -0.008 0.121 .329**

Task conflict Within the unit SE B B 0.004 -.011** 0.118 0.025 0.005 .016** 0.084 0.102 0.122 .227┼

With other units SE B B 0.004 -0.004 0.117 -.211┼ 0.005 0.003 0.084 0.018 0.125 .271*

0.056 0.048

-.079** 0.018

0.057 0.049

-0.069 0.025

0.057 0.049

-.104┼ -0.037

0.038 0.029 0.03

-.072* -.125** -0.04

0.038 0.029 0.031

-.152** -.148** -0.046

0.028 0.03 0.031

-0.01 -.136** -.080**

0.09

0.118

0.11

┼

p < .10; * p < .05; ** p < .01. Dummies for education, professional affiliation, and nursing home facility were included in the analysis.

TABLE 3 Regression Analyses for the Effects of RCC on Resident Conflict Resident conflict Variable Control variables Age Gender Tenure Employment status Union member Resident-centered care Nursing home residentcentered care Administration support for resident-directed care Strong emphasis on training Less use of agency staff Nursing home enough staff quality care R2 ‡

Personal issues with families SE B B 0.003 -.006‡ 0.113 -0.03 0.005 .009‡ 0.082 -0.13 0.118 0.145

How to get work done with families SE B B 0.003 -0.005 0.112 -0.003 0.005 0.007 0.081 -0.037 0.118 0.204

Resident care issues with families SE B B 0.003 -.008* 0.111 -0.077 0.005 0.007 0.081 -0.084 0.117 0.141

0.055

-0.013

0.055

-0.067

0.054

-0.085

0.047

-.126**

0.047

0.002

0.047

-0.02

0.037 0.028 0.029

0.034 -.097** -0.023

0.037 0.028 0.029

-0.024 -.151** -0.031

0.037 0.028 0.029

-0.027 -.127** -0.031

0.059

0.089

0.074

p < .10; * p < .05; ** p < .01. Dummies for education, professional affiliation, and nursing home facility were included in the analysis.

54


As seen in Table 3, hypotheses 4 through 6 are also partially supported. With respect to resident conflicts, these hypotheses posit that organizational practices and commitment decrease employees’ conflicts with resident families. Our results generally support the direction of the hypotheses, but some RCC practices were found ineffective in reducing conflicts. For example, the hypothesized relationship was found between employee participation in RCC ( = -.126, p < .01) and less use of agency staff ( = -.097, p < .01) and conflicts with families over personal issues. On the other hand, only staffing-associated practices (less use of agency staff and sufficient level of staffing) were effective in reducing resident conflicts over the way work should be done and resident care issues.

Discussion and Conclusion Summary of Contributions The primary purpose of our study was to examine the effects of RCC practices in nursing homes on organizational conflicts among employees and conflicts with resident families. One underlying motivation was to extend our understanding of the impacts of high performance work systems (HPWS) by looking at RCC practices—essentially an applied form of HPWS in a health care context—by establishing effects on employee outcomes other than organizational financial performance. We found positive evidence that RCC practices are negatively related to task conflicts that employees experience with supervisors, within the unit, and with other units. Although the relationships seem to exist particularly with certain practices of RCC— focus on training, less use of agency staff, and sufficient staffing—the results provided general support for the hypothesized impacts of RCC. Our results also suggest that to the extent that nursing home organizations implement RCC practices, employees experience reduced amounts of conflicts with resident families over personal and resident care issues. Similarly, RCC practices addressing staffing issues were found most effective in reducing conflict. The negative relationship between organizational encouragement of employees’ participation in RCC and conflicts with families over personal issues was also supported. It is especially worth noting that staffing-related practices (less use of agency staff and sufficient staffing level) had strong impacts on both types of organizational conflicts. Staffing issues have been extensively discussed by many researchers, who have examined factors enhancing care quality of nursing homes. The importance of having committed staff as well as maintaining appropriate levels of staffing has been emphasized because staffing practices were found directly linked to care quality. Our study provides additional support for the claim that staffing is an important organizational arrangement by showing that staffing practices affect conflicts among employees and conflicts with resident families. This study makes an important contribution to HPWP literature. The relationship between work practices and organizational outcomes has been studied mostly in the manufacturing sector, and only a few studies have been conducted in health care service settings (Eaton 2000, 2002; Gittell, Seidner, and Wimbush, forthcoming). Many health care organizations, including nursing homes, have been committed to organization-level restructuring efforts to enhance the quality they provide and to change the focus of their service to patients or residents; however, the effects of such initiatives have been only limitedly explored. We provide some evidence as to the impacts of work practices to organizational conflicts and conflicts with residents, with a specific focus on the nursing home setting. Our study also contributes to conflict research. We examined task conflict—measured as the extent to which employees disagree over resident care issues—and conflicts between employees and resident families that determine the quality of residents’ care experience in a nursing home. Thus, we have attempted to understand the broad impacts of conflict within a specific context. Our study also has important implications for conflict management. We focused on conflicts as outcomes of a nursing home’s RCC practices; however, the negative relationships between RCC (specifically staffing practices) and conflict imply that many organizational conflicts may have roots in staffing levels and use of agency workers. Task conflicts that employees experience are not necessarily a process looking for an optimal solution in many situations, as some conflict scholars might argue. Organizations can actively take part in managing and reducing organizational conflicts through the implementation of human resource practices and systems.


55

Limitations Our study is not without limitations, of course. One of the main weaknesses was the use of a crosssectional design, which does not allow for an assessment of the impact of cause and effect. Another limitation relates to the source of data. The data are not free from the potential effects of common source bias because evaluations of RCC practices and two types of conflicts both came from the same rater source (i.e., employees). Future research thus might want to include ratings of RCC collected from human resource departments rather than employees or collect resident conflicts from residents or resident families. The third limitation concerns the issue of generalizability. We studied a sample of nursing home employees in one metropolitan region. Future research needs to include a broader sampling of organizations across different regions. Finally, it will be very meaningful if similar studies in nursing home settings take into account some resident outcomes. Specifically, if organizational conflicts among employees and conflict between employees and residents are employed as a mediating process of the relationship between RCC and resident satisfaction, and empirical evidence is provided, it will be a more complete explanation of the effects of RCC.

Conclusion In perhaps the most well-regarded study of the historical origins of modern medicine, Rosenberg (1987:8) claims that the professionalization of nursing is “the most important single element in reshaping” the delivery of health care. Our study seems to add empirical weight to this claim. Clearly, our results suggest that staffing practices, such as having highly committed health care delivery employees and maintaining adequate staffing levels, are important components of RCC. Additionally, innovative work systems not only ensure that resident needs are successfully met but also help to prevent potentially harmful conflicts and tensions within the organization. We believe that the implementation of RCC initiatives provides a work environment that opens the potential for compassionate professionals to deliver a higher quality health care experience.

References Agarwala, Tanuja. 2003. “Innovative Human Resource Practices and Organizational Commitment: An Empirical Investigation.” International Journal of Human Resource Management, Vol. 14, No. 2, pp. 175– 97. Aiken, Linda H., Sean P. Clarke, and Douglas M. Sloane. 2002. “Hospital Staffing, Organization, and Quality of Care: Cross-National Findings.” International Journal for Quality in Health Care, Vol. 14, No. 1, pp. 5– 13. Amason, Allen C. 1996. “Distinguishing the Effects of Functional and Dysfunctional Conflict on Strategic Decision Making: Resolving a Paradox for Top Management Teams.” Academy of Management Journal, Vol. 39, No. 1, pp. 123–48. Amason, Allen C., and David Schweiger. 1997. “The Effect of Conflict on Strategic Decision Making Effectiveness and Organizational Performance.” In Carsten K.W. De Dreu and Evert Van de Vliert, eds., Using Conflict in Organizations. London: Sage, pp. 101–15. Appelbaum, Eileen, Thomas Bailey, Peter Berg, and Arne L. Kalleberg. 2000. Manufacturing Advantage: Why High-Performance Work Systems Pay Off. Ithaca, NY: Cornell University Press. Aspden, Philip, Julie A. Wolcott, J. Lyle. Bootman, and Linda R. Cronenwett. 2007. Preventing Medication Errors. Institute of Medicine Report on Medical Errors. Washington, DC: National Academy Press. Avgar, Ariel C. 2009. After the Storm: Healthcare Restructuring, Conflict and Its Resolution in Hospitals. Paper presented at the annual meeting of the Academy of Management, Chicago. Avgar, Ariel C., Rebecca K. Givan, and Mingwei Liu. 2009. Patient Centered But Employee Delivered: Patient Care Restructuring, Turnover, and Organizational Outcomes in Hospitals. Paper under review. Bae, Jongseok, and John J. Lawler. 2000. “Organizational and HRM strategies in Korea: Impact on Firm Performance in an Emerging Economy.” Academy of Management Journal, Vol. 43, No. 3, pp. 502–17. Batt, Rosemary. 2002. “Managing Customer Services: Human Resource Practices, Quit Rates, and Sales Growth.” Academy of Management Journal, Vol. 45, No. 3, pp. 587–97.

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Bergeson, Steven C., and John D. Dean. 2006. “A Systems Approach to Patient-Centered Care.” Journal of the American Medical Association, Vol. 296, No. 23, pp. 2848–51. Bostick, Jane E. 2004. “Relationship of Nursing Personnel and Nursing Home Care Quality.” Journal of Nursing Care Quality, Vol. 19, No. 2, pp. 130–36. Davis, Karen, Stephen C. Schoenbaum, and Anne-Marie Audet. 2005. “A 2020 Vision of Patient-Centered Primary Care.” Journal of General Internal Medicine, Vol. 20, No. 10, pp. 953–57. De Dreu, Carsten K.W. 2008. “The Virtue and Vice of Workplace Conflict: Food for (Pessimistic) Thought.” Journal of Organizational Behavior, Vol. 29, No. 1, pp. 5–18. De Dreu, Carsten K.W., and Bianca Beersma. 2005. “Conflict in Organizations: Beyond Effectiveness and Performance.” European Journal of Work and Organizational Psychology, Vol. 14, No. 2, pp. 105–17. De Dreu, Carsten K W., and Allenies E.M. Van Vianen. 2001. “Managing Relationship Conflict and the Effectiveness of Organizational Teams.” Journal of Organizational Behavior, Vol. 22, No. 3, pp. 309–28. De Dreu, Carsten K.W., and Laurie R. Weingart. 2003. “Task Versus Relationship Conflict, Team Performance, and Team Member Satisfaction: A Meta-Analysis.” Journal of Applied Psychology, Vol. 88, No. 4, pp. 741–9. Eaton, Susan C. 2000. “Beyond ‘Unloving Care’: Linking Human Resource Management and Patient Care Quality in Nursing Homes.” International Journal of Human Resource Management, Vol. 11, No. 3, pp. 591–616. Eaton, Susan C. 2002. What a Difference Management Makes! Nursing Staff Turnover Variation within a Single Labor Market. Appropriateness of Minimum Nurse Staffing Ratios in Nursing Homes: Report to Congress, Phase II. Released June 12 by the Center for Medicare and Medicaid Services. Ford, Robert C., and Myron D. Fottler. 2000. “Creating Customer-Focused Health Care Organizations.” Health Care Management Review, Vol. 25, No. 4, pp. 18–33. Garman, Andrew N., Ann S. McAlearney, Michael I. Harrison, Paula H. Song, Dina Moss, and Megan McHugh. 2009. High Performance Work Practices in Healthcare Management: An Evidence-Based Review and Synthesis. Paper presented at the annual meeting of the Academy of Management, Chicago. Gittell, Jody H., Rob Seidner, and Julian Wimbush. Forthcoming. “A Relational Model of How HighPerformance Work Systems Work.” Organization Science. Glass, Anne P. 1991. “Nursing Home Quality: A Framework for Analysis.” Journal of Applied Gerontology, Vol. 10, No. 1, pp. 5–18. Hegland, A. 1990. “Nip Patient Abuse in the Bud: Aides Tackle Conflict Resolution.” Contemporary Long-Term Care, Vol. 13, No. 9, pp. 64, 113. Hudson, B. 1992. “Ensuring an Abuse-Free Environment: A Learning Program for Nursing Home Staff.” Journal of Elder Abuse and Neglect, Vol. 4, No. 4, pp. 25–36. Huselid, Mark A. 1995. “The Impact of Human Resource Management Practices on Turnover, Productivity, and Corporate Financial Performance.” Academy of Management Journal, Vol. 38, No. 3, pp. 635–72. Ichniowski, Casey, Kathryn Shaw, and Giovanna Prennushi. 1997. “The Effects of Human Resource Management Practices on Productivity: A Study of Steel Finishing Lines.” American Economic Review, Vol. 87, No. 3, pp. 291–313. Institute of Medicine. 2001. Crossing the Quality Chasm: A New Health System for the 21st Century. Washington, DC: National Academy Press. Janssen, Onne, Evert Van de Vliert, and Christian Veenstra. 1999. “How Task and Person Conflict Shape the Role of Positive Interdependence in Management Teams.” Journal of Management, Vol. 25, No. 2, pp. 117–42. Jehn, Karen A. 1995. “A Multi-Method Examination of the Benefits and Detriments of Intragroup Conflict.” Administrative Science Quarterly, Vol. 40, No. 2, pp. 256–82. Jehn, Karen A., and Elizabeth A. Mannix. 2001. “The Dynamic Nature of Conflict: A Longitudinal Study of Intragroup Conflict and Group Performance.” Academy of Management Journal, Vol. 44, No. 2, pp. 238– 51. Kayser-Jones, Jeanie. 1997. “Inadequate Staffing at Mealtime: Implications for Nursing and Health Policy.” Journal of Gerontology Nursing, Vol. 23, No. 8, pp. 14–21.


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Kayser-Jones, J., and Ellen Schell. 1997. “The Effect of Staffing on the Quality of Care at Mealtime.” Nursing Outlook, Vol. 45, No. 2, pp. 64–72. Kohn, Linda. T., Janet M. Corrigan, and Mollas S. Donaldson. 2000. To Err Is Human: Building a Safer Health System. Institute of Medicine Report on Medical Errors. Washington, DC: National Academy Press. Lauver, Diane R., Sandra E. Ward, Susan M. Heidrich, Mary L. Keller, Barbara J. Bowers, Patricia F. Brennan, Karin T. Kirchhoff, and Thelma J. Wells. 2002. “Patient-Centered Interventions.” Research in Nursing and Health, Vol. 25, No. 4, pp. 246–55. Lee, Shoou-Yih D., and Jeffrey, A. Alexander. 1999. “Managing Hospitals in Turbulent Times: Do Organizational Changes Improve Hospital Survival?” Health Services Research, Vol. 34, No. 4, pp. 923– 46. Macky, Keith, and Peter Boxall. 2007. “The Relationship Between ‘High-Performance Work Practices’ and Employee Attitudes: An Investigation of Additive and Interaction Effects.” International Journal of Human Resource Management, Vol. 18, No. 4, pp. 537–67. Mead, Nicola, and Peter Bower. 2000. “Patient-Centeredness: A Conceptual Framework and Review of the Empirical Literature.” Social Science and Medicine, Vol. 51, No. 7, pp. 1087–110. Nelson, H. Wayne, and Donna M. Cox. 2003. “The Causes and Consequences of Conflict and Violence in Nursing Homes: Working Toward a Collaborative Work Culture.” The Health Care Manager, Vol. 22, No. 1, pp. 85–96. Osterman, Paul. 1994. “How Common Is Workplace Transformation and How Can We Explain Who Does It?” Industrial and Labor Relations Review, Vol. 47, No. 2, pp. 173–88. Pfeffer, Jeffrey. 1994. Competitive Advantage Through People: Unleashing the Power of the Work Force. Boston: Harvard Business School Press. Piore, Michael J., and Charles F. Sabel. 1984. The Second Industrial Divide: Possibilities for Prosperity. New York: Basic Books. Rantz, Marilyn J., David R. Mehr, Lori Popejoy, Mary Zwygart-Stauffacher, Lanis L. Hicks, Victoria Grando, Vicki S. Conn, Pose Porter, Jill Scott, and Meridean Maas. 1998. “Nursing Home Care Quality: A Multidimensional Theoretical Model.” Journal of Nursing Care Quality, Vol. 12, No. 3, pp. 30–46. Rosenberg, Charles E. 1987. The Care of Strangers: The Rise of America’s Hospital System. New York: Basic Books. Simons, Tony L., and Randall S. Peterson. 2000. “Task Conflict and Relationship Conflict in Top Management Teams: The Pivotal Role of Intragroup Trust.” Journal of Applied Psychology, Vol. 85, No. 1, pp. 102–11. Starr, Paul. 1982. The Social Transformation of American Medicine. New York: Basic Books. West, Michael A., Carol S. Borrill, Carol, Jeremy Dawson, Judy Scully, Mathew Carter, Stephen Anelay, Malcolm Patterson, and Justin Waring. 2002. “The Link Between the Management of Employees and Patient Mortality in Acute Hospitals.” International Journal of Human Resource Management, Vol. 13, No. 8, pp. 1299–310. West, Michael A., James P. Guthrie, Jeremy Dawson, Borrill, Carol, and Mathew Cater. 2006. “Reducing Patient Mortality in Hospitals: The Role of Human Resource Management.” Journal of Organizational Behavior, Vol. 27, No. 7, pp. 983–1002. Wolf, Debra M., Lisa Lehman, Robert Quinlin, Thomas Zullo, and Leslie Hoffman. 2008. “Effect of PatientCentered Care on Patient Satisfaction and Quality of Care.” Journal of Nursing Care Quality, Vol. 23, No. 4, pp. 316–21.

IV. Job Loss and Employment Stabilization — LERA Labor Markets and Labor Economics Section Meeting

Tackling the Crisis: The Italian Case in the E.U. Context MICHELE TIRABOSCHI SILVIA SPATTINI University of Modena and Reggio Emilia 133

The Economic Crisis in European Union Between the second quarter of 2008 and the second quarter of 2009, the real GDP in the EU (27 member states) fell by almost 5%. Unavoidably, the real GDP fall caused reduced labor demand and therefore job losses (Massarelli 2009). TABLE 1 Member state EU27 Austria Belgium Bulgaria Czech Republic Cyprus Denmark Estonia Finland Germany France Greece Hungary Ireland

GDP (2008Q2– 2009Q2) –4.9% –4.5% –3.7% –4.9% –5.5% –0.7% –7% –15.8% –8.9% –5.9% –2.8% –0.3% –7.3% –7.3%

Employment (2008Q2– 2009Q2) –1.9% –1.1% –3.7% –1.8% –1.4% –0.5% –2.6% –10.2% –3% –0.1% –1.2% –1% –4.5% –8.3%

Member State Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Romania Slovakia Slovenia Spain Sweden United Kingdom

GDP (2008Q2– 2009Q2) –6% –17.4% –21.1% –5.3% –3% –5.2% 1.1% –3.7% –8.3% –5.4% –9% –4.2% –6.1% –5.5%

Employment (2008Q2– 2009Q2) –0.9% –13.1% –6.7% 1.3% –0.8% –0.8% –0.7% –2.7% –1.2% –1.3% –1.6% –7.1% –2.2% –2%

Source: Eurostat, Employment: National concept.

1

Author’s address: Centro Studi Internazionali e Comparati Marco Biagi, Università degli Studi di Modena e Reggio Emilia, Viale Berengario, 51, 41121 Modena, Italy

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JOB LOSSS AND EMPLOYMENT SSTABILIZAT TION

59

But if you com mpare the two series of data, the measure of the reducttion is differen nt, and in partticular job losses are limited byy comparison n with the decrease of real G GDP. As is w well known, in n fact, GDP ggrowth and emplo oyment generrally evolve differently, d sin nce employmeent reacts to economic deevelopments w with a certain tim me lag (Hijman n 2009). FIGURE 1 Trend T of Real GDP and Em mployment (2008Q2–2009 ( 9Q2)

Another A reason for this diiscrepancy is related to tthe choices oof employers and the dismissal protection n legislation of o each coun ntry. During economic e crisses, in order to protect th heir human ccapital employerss may reduce the t number of hours workeed or suspendd production. This strategy is indeed facillitated within countries wheree the State pays p financial support for income loss related to sshort-time wo ork or n of work. suspension These T schemes are in gen neral typical of o countries characterizedd by strict dismissal protection legislation. In fact, within countriees based on the traditionaal welfare sysstem (Spattin ni 2009), restrrictive legislation against econ nomic dismissal enables em mployees to kkeep their jobs, but at the same time a social security paayment is gran nted to suspen nded employeees in substituttion of their fuull pay. On O the contrarry, in countriees where the “flexicurity” ssystem is adoopted, the dism missal protecttion is lower and d the flexibilitty in dismissall is higher (Sp pattini 2009). Consequentlly, the system m foresees gen nerous unemployyment benefitss rather than social security payments in ccase of short-ttime work or llayoff. Now, N looking at a the unemplloyment rate increase, i it is cclear that it iss lower within n the member states adopting a traditional welfare w system with strict diismissal protecction legislatioon and short-ttime work or layoff support scchemes (Italy, Austria, Germ many).

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LERA L 62ND ANNUAL M MEETING TABLE T 2 Growth in Unemployme U ent Rate

Latvia Estonia Spain Lithuania Ireland Denmark Slovakia Bulgaria public Czech Rep Cyprus Sweden Portugal Hungary Finland

11.80 7.50 7 6.10 6 5.70 5 5.60 5 3.30 3 3.20 3 2.80 2 2.70 2 2.40 2 2.30 2 2.30 2 2.10 2 2.10 2

EU 27 countries c France Sloveniaa Poland United Kingdom K Luxemb bourg Greece Italy m Belgium Malta Netherlaands Austria Romaniia German ny

2.00 2.00 2.00 1.60 1.60 1.50 1.30 1.10 1.00 1.00 1.00 0.70 0.50 0.40

FIGURE 2

Norwayy Croatia Turkey Japan United SStates

00.50 1.60 22.00 1.30 33.60

JOB LOSS AND EMPLOYMENT STABILIZATION

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As a consequence of the GDP decrease, the unemployment rate within the EU member states has grown, but thanks to the anti-crisis measures, in the majority of member states this increase has been limited or not as high as could have been expected. In particular, with the purpose of minimizing the social consequences of the economic crisis and avoiding mass dismissals, most member states have adopted measures to maintain employment, especially short-time work and temporary layoff support schemes (Mandl and Salvatore 2009; Hurley, Mandl, Storrie, and Ward 2009), that turned out to be effective not only in maintaining jobs, but also in guaranteeing incomes, making real job security and income security. In order to take advantage of the low level of business activity while at the same time preparing enterprises and employees for the economic recovery, several governments support training measures for employees in short-time work or in layoff. Contributions are granted to fund training costs arising for the employer and to wage subsidies for the training time.

Anti-crisis Measures in Italy Thanks to a system of safety net provisions, known as “social shock absorbers” (ammortizzatori sociali), and mainly to public financial support measures (compensation) for income loss in case of short-time work and temporary layoff, Italy has succeeded in containing the job losses and the unemployment rate increase originated by the current economic crisis (Spattini and Tiraboschi 2009a). Wage Guarantee Fund The wage guarantee fund (cassa integrazione guadagni), which is one such financial support measure, is a public fund aimed at protecting workers’ income in case of suspension of work. Even if this measure dates back to the 1940s, it seems to be successful in preventing worker dismissals, guaranteeing job and employment security and income security. The fund is managed by the National Institute of Social Insurance (INPS) and works like insurance. It is financed by social security contributions paid by both the employers and the employees, and in case of total or partial suspension of the employment relationships due to interruption or reduction of the company’s activities, the enterprise applies for the wage guarantee fund in order to get a social security payment in substitution of the wage for the suspended employees. There are two types of fund: ordinary and extraordinary. With reference to the field of application, the wage guarantee fund operates in the industry sector. In particular, the extraordinary wage guarantee fund concerns industrial enterprises with more than 15 employees. As years went by, the field of application of the extraordinary wage guarantee fund was extended, for example to commercial enterprises with more than 50 employees. Enterprises can apply for the ordinary wage guarantee fund in case of suspension of productive activity due to unexpected and unavoidable circumstances that cannot be ascribed either to the employer or to the employees or to temporary market situations (lack of orders). The extraordinary wage guarantee fund is utilized in the case of a suspension of productive activity resulting from the restructuring, reorganization, or conversion of the activity, as well as in cases of severe financial difficulties for undertaking, bankruptcy, or liquidation. Within this system, suspended employees receive a social security payment amounting to 80% of their wage in substitution of their full pay. The duration of the measure related to the ordinary wage guarantee fund is up to 13 weeks; that relevant to the extraordinary wage guarantee fund is up to 24 months, with reference to the reason for the suspension. Derogations This system of compensation for short-time work and temporary layoff based on the wage guarantee fund has a problematic nature related to the non-universal coverage, since the field of application of this system is limited to the industry sector and some categories of employees (blue and white collars, with apprentices, for example, excluded). So in order to face the present economic crisis and extend the coverage of social protection provisions, the anti-crisis legislation has approved derogations of the existing law.

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LERA 62ND ANNUAL MEETING

These derogations allow applying compensation for short-time work and temporary layoff to the categories of employees excluded from the wage guarantee fund, because of the economic sector of the employer or by reason of their type of employment contract. Since these compensation measures are based on the derogation of the law, they are not funded by social security contribution as wage guarantee fund, but by taxes. Partial Unemployment Benefit With the same purpose of extending the coverage of social protection provisions in case of suspension of work, in 2009 a new kind of income support was introduced in the Italian legal system (Spattini and Tiraboschi 2009b). This new measure is funded not by social security contribution but by taxes and private funding. A partial unemployment benefit is paid to employees suspended from work for reasons of economic or employment crisis. This income support measure is applied to all categories of employees employed by enterprises not covered by the wage guarantee fund. The innovatory aspect of this kind of income support measure is represented by the co-funding by bilateral bodies, organizations in form of association within a particular economic sector for the joint administration of financial resources collected by employers’ associations and trade unions for the allocation of benefits to employees in certain critical circumstances (illness, accidents at work, mutual assistance in case of stoppage or reduction in working hours, etc.). According to this scheme, suspended employees receive a social security payment amounting to 60% of the previous wage from INPS and 20% of the benefit from the bilateral body. Suspended employees are entitled to the measure for up to 90 days. Welfare to Work Nevertheless, the Italian “social shock absorbers” system does not want to be a welfare system, based on social assistance; it aims instead at becoming a workfare system, founded on the idea of the integration between active and passive labor market policies (Tiraboschi 2008). In this perspective, a recent legal provision introduced a new form of the “declaration of immediate availability for the labor market or for a vocational retraining program,” that each benefit recipient has to sign up while applying for income support measures. With this provision the legislation aims at strengthening a system based on complementary rights and responsibilities, where the benefit is subordinated to the recipient’s actual availability for work and to his or her activation toward reintegration in the labor market. To encourage benefit recipients to actively search for work, to accept suitable job offers, and to participate in training programs, sanctions are foreseen in case the recipient does not comply with these obligations. In fact, in case of refusal of subscription of the declaration or of an acceptable job or vocational retraining program or even in case of failure to participate in the measures, the recipient loses the right to the income support measure or to the unemployment benefit.

References Hijman, Remko. 2009. The Impact of the Crisis on Employment. Statistics in Focus (Eurostat), no. 79. Hurley, John, Irene Mandl, Donald Storrie, and Terry Ward. 2009. Restructuring in Recession. ERM Report 2009. Dublin: European Foundation for the Improvement of Living and Working Conditions. Mandl, Irene, and Lidia Salvatore. 2009. Tackling the Recession: Employment-Related Public Initiatives in the EU Member States and Norway. Dublin: European Foundation for the Improvement of Living and Working Conditions. Massarelli, Nicola. 2009. Persisting Weakness in the EU Labour Market. Statistics in Focus (Eurostat), no. 87. Spattini, Silvia. 2009. “Social Protection Systems Reforms and Flexicurity from an European Perspective.” In Roger Blanpain, William Bromwich, Olga Rymkevich, and Silvia Spattini (eds.), The Modernization of Labour Law and Industrial Relations in a Comparative Perspective. Alphen aan den Rijn, The Netherlands: Kluwer Law International.

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Spattini, Silvia, and Michele Tiraboschi. 2009a. “Ammortizzatori sociali: istruzioni per l’uso dopo le misure anticrisi.” Guida al Lavoro, no. 18. Spattini, Silvia, and Michele Tiraboschi. 2009b. “Il decreto interministeriale di attuazione delle misure anticrisi.” Guida al Lavoro, no. 22. Tiraboschi, Michele. 2008. “Active Measures for Employability and New Forms of Security: The Italian Case.” In Germana Di Domenico and Silvia Spattini (eds.), New European Approaches to Long-Term Unemployment: What Role for Public Employment Services and What Market for Private Stakeholders? Alphen aan den Rijn, The Netherlands: Kluwer Law International, Chapter 16.

V. Perspectives on the Fight for Labor Law Reform and the Employee Free Choice Act — LERA Labor Studies and Union Research Section Meeting

The Ambiguities of History: The Employee Free Choice Act in the Context of Labor Law’s History ERIC ARNESEN The George Washington University1

Introduction I have long held that historians’ credentials grant those of us possessing them little by way of insight into the future; studying the past requires one set of skills, predicting the future a rather different set. Historians can, of course, render a valuable service to those engaged in contemporary political battles through our explication of context for understanding the present and how we got here. But the context that we offer is always filtered through our perspectives—our values, politics, and disciplinary skills; it is, in essence, an argument. We often hear the expression “history teaches us that . . .”; it is a phrase used promiscuously by historians and nonhistorians alike. I’m increasingly uncomfortable with the notion, however, for I don’t, in fact, think that history shows or teaches us this or that per se. History is about interpretation, and historians use the history they construct to make their interpretive points. And those who read history draw lessons from it . . . based on their values and politics. Both Jonah Goldberg and Howard Zinn, for instance, have written books dealing with historical topics, but it’s safe to say that they would hardly agree on what “history”—or anything else, for that matter—teaches us. (It is not always clear what “history”—as opposed to their own political agendas—has taught them either.) What I want to address in these pages are the ambiguities of history when it comes to thinking about the Employee Free Choice Act (EFCA) and the broader historical context of labor law. The labor movement is betting heavily on EFCA, viewing its passage as essential to leveling a profoundly unlevel playing field and turning around several decades of disastrous union decline. Pro-management groups have invested heavily in blocking its passage, recognizing that the current pro-employer status quo could indeed be threatened by the act. For both sides, the stakes are apparently quite high. My purpose here is not to speculate on whether EFCA will or will not pass or, if it does, what its precise impact will be (though I obviously have views on both issues). Rather, it is to suggest that history’s lessons are hardly clear cut and that, in at least one reading of the history of labor law in the United States, EFCA may well be important—but less important than its supporters and detractors claim. (For divergent views on EFCA from scholars supportive of organized labor, see Adams 2007 and Brody 2009.) Over the past century and a half, some Americans have either celebrated or castigated the law as applied to the American workplace and those who work in it. In the Gilded Age of the late 19th century, the worshippers of the market and the upholders of laissez-faire decried any and all legislative interference with what they saw as the sanctity of the market. For their part, labor reformers and radicals, still possessed a faith Author’s address: 801 22nd Street, NW, Phillips 331, Washington, DC 20052

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in the power of the ballot box, exercised their electoral strength and, in various places, pushed for laws at the municipal and state levels that regulated working conditions, shortened the working day, and (in one instance) banned cigar making in tenements. In that early showdown of labor v. capital, capital generally won, hands down. The courts assumed the role of guardian of the economic order, rolling back various labor-backed laws as unconstitutional infringements on liberty of contract. As legal historian William Forbath has shown, reformers across the nation had their efforts struck down “roughly sixty times” in this “era of rising judicial supremacy” (1991:3, 42). That legal regime had severe consequences, and different groups of Americans drew different lessons from their experiences, from their history. Some labor activists soured on political action altogether; turning to syndicalism, they joined the new Industrial Workers of the World in the early 20th century and advocated the overthrow of capitalism at the point of production. Others embraced political action but gravitated toward socialism. Yet others—the mainstream of the American Federation of Labor—rejected electoral politics and socialism for voluntarism; workers’ own skills and muscle power at the workplace, they believed, would deliver what the state could not. At least until the court’s early-20th-century repression of labor got too intense—the judicial attack on boycotts and the dispensing of injunctions to businessmen like Halloween candy pushed AFL leaders into the embrace of the Democrats, in the hope of trading electoral support for political favor (Dubofsky 1994, Greene 1998, Enyeart 2009). And they sometimes got something for their efforts. The railroad brotherhoods, in large part by flexing their economic muscle and threatening to shut down the nation’s transportation system in 1916, forced the Wilson Administration into passing the Adamson Act, which granted them at long last the coveted eight-hour day and time-and-a-half for overtime. The Clayton Act, passed two years earlier, turned out to be more of a disappointment. Hailed by Samuel Gompers and others as “Labor’s Magna Carta” (Gompers 1914), it declared that the “labor of a human being is not a commodity or an article of commerce” and promised to protect workers from injunctions and restraining orders in the event of labor conflicts. Finally, the rule of the courts was over; workers won the right to utilize their classic tactics of striking and boycotting. But a new day? Not really. The celebrations proved premature. The Act’s loophole—injunctions were, in fact, permissible if “necessary to prevent irreparable injury to property, or to a property right”—rendered the act ineffectual. As soon as World War I was over, business took off the gloves, the wartime regulatory apparatus governing labor relations was dismantled, titanic struggles ensued, organized labor’s gains were wiped out, and the judiciary threw itself back into the injunction-issuing business in a big way (McCartin 1997). On the ideological front, anti-unionism held sway, carefully packaged as “the American Plan.” The roaring ‘20s were not organized labor’s finest years (Frank 1994). Then came the New Deal era, when everything changed. In the old days of the new labor history, the 1960s and 1970s, one could find historians of various New Left persuasions bemoaning the passage of the Wagner Act for imposing a straightjacket on organized labor and channeling its otherwise radical inclinations into safer channels; radical academics in law schools called it “juridical deradicalization” (Klare 1978). Cooler scholarly heads eventually prevailed, and the rank-and-file vogue in the historiography largely diminished by the late 1980s. The “turbulent years,” in Irving Bernstein’s long-lived phrase (Bernstein 1969), weren’t so turbulent after all, some argued. Notwithstanding considerable social unrest, what workers wanted wasn’t the overthrow of the industrial order but stability, improvement of wages and conditions, a modicum of respect, and what had once been called “industrial democracy” (Dubofsky 1986, Brody 1993). And workers in the industrial sector finally got just that, with a bit of help from the government. Between 1933 and 1945, the size of the labor movement shot up fivefold, with new recruits flooding into not just the AFL but the new herald of industrial unionism, the Congress of Industrial Organizations (Lichtenstein 1989). These were heady days for organized labor. Its upward trajectory was facilitated—but not caused— by the passage of the National Labor Relations Act of 1935. For several years the Wagner Act’s constitutionality remained in question; its ideological force was initially greater than its legal force. Labor historian Howell Harris once aptly described the law as “something of a dead letter” in its first two years of operation (Harris 1985). But even with the Supreme Court weighing in in the Act’s favor in 1937, Harris reminds us, “[m]ore important was the uniquely favourable political context created by the ability and willingness of workers to help themselves . . . and the support or complaisance of public opinion.” Yes, in the years that followed, the National Labor Relations Board served, in many ways, as a facilitator of union

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organizing. Or at least federal agencies constituted a mechanism, particularly during the war, for enlisting workers in unions through maintenance of membership clauses (not exactly the same thing as “organizing” or signing up enthusiastic new members). We know how this story ends; that’s why the Employee Free Choice Act is on the agenda today. In the 1940s, the New Deal spirit sputtered, conservatives regrouped, the public grew tired of strikes, and Congress passed the Taft-Hartley Act over President Harry S Truman’s veto in 1947. Taft-Hartley clipped labor’s wings, to a degree, while “right-to-work” laws in the South made organizing an extremely arduous uphill climb in that already union-weak region. But it was only in the 1970s and subsequent decades that it all went to hell: Capital grew increasingly impatient with and resentful of the unions it had earlier bargained with; global pressures encouraged an anti-union esprit and concession bargaining; President Ronald Reagan gave the green light to union busters with his response to the PATCO strike in 1981; and anti-union consulting firms saw their business boom. Indeed, beginning in the 1980s, employers waged—and have now largely won—”one of the most successful anti-union wars ever,” in Business Week’s memorable and often quoted words from (May 23) 1994. The numbers of organized workers and strikes kept going down, down, down. Public sector unionization kept—and still keeps—the movement alive . . . but barely (Greenhouse 2008). So here we are: Conservatives have waged a fairly effective ideological offensive that has demonized organized labor; employers remain determined to resist unions at all cost; and the remnants of New Deal regulatory regime are in tatters. At the time of this writing, the Obama Administration can’t get the Senate to consider its nominee to the NLRB—Craig Becker; Senator John McCain, in defeat, gummed up the works by placing a hold on the nominations, and Senate Democrats, in the post–Scott Brown era, failed to muster enough votes to put Becker over the top. So, for organized labor, it now all comes down to EFCA. But history teaches us that . . . well, what does history actually teach us? In this instance, labor and business seem to have drawn a similar conclusion: that the Employee Free Choice Act will greatly facilitate union organizing, which is why labor is pushing so hard for it and business is pushing so hard against it. Then there have been other times when both sides have invested mightily in a legislative outcome they thought would transform the playing field. As we have seen, the Clayton Act hardly lived up to its reputation as labor’s Magna Carta. The passage of anti-child labor statutes or later legislative increases in minimum wages hardly drove business out of business. Denunciations by labor leaders notwithstanding, the Taft-Hartley Act was no “slave labor law,” though it did kick unions in the stomach. The list could go on. Hopes and fears, centered on legislation, have sometimes proved exaggerated. This is not to say that law made no difference—of course it did. But the larger context—involving political economy, the disposition and practices of organized labor and business, and the broader ideological terrain—also matters greatly. I want to end with one example about labor, law, and public policy that offers evidence for multiple interpretations. On the eve of World War II, black Americans surveyed the industrial scene and noticed the obvious: the war build-up was ending the Great Depression for whites, but not for African Americans. And, as the war preparations progressed, certain economic sectors experienced labor shortages while black Americans, locked out, looked on, unemployed. A. Philip Randolph, the anticommunist civil rights activist and the president of the all-black Brotherhood of Sleeping Car Porters, chose this moment—early 1941—to gamble: Unless the President banned Jim Crow in the armed forces and put an end to discrimination in war industries, he would lead 10,000—he then upped the number to 100,000—black Americans on a “pilgrimage” to “wake up and shock official Washington as it has never been shocked before” (“A. Philip Randolph,” Chicago Defender, February 1, 1941; Barber 2002). Randolph’s “March on Washington Movement,” based on mass mobilization, would exert “[p]ower and pressure . . . the foundation . . . of social justice and reform” (“A. Philip Randolph,” Chicago Defender, February 1, 1941). If FDR failed to put an end to discrimination, he concluded, they could at least “tear the mask of hypocrisy from America’s democracy.” (“Tear The Mask of Hypocrisy from Democracy, Says A. Phillip [sic] Randolph,” Seattle Northwest Enterprise, March 21, 1941). Black periodicals predicted that thousands would “invade Washington, D.C., the nation’s capital and the fountain head of racial prejudice, in a mammoth mass demonstration” (Michigan Chronicle, June 28, 1941; Chicago Defender, June 7, 21, 1941). Long story short: Randolph and FDR squared off, and FDR blinked first. Randolph got Executive Order 8802 banning discrimination in defense industries but doing nothing about the military. Call it half a loaf? Randolph seized the moment as a victory. Some described the order, which created a Fair Employment

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Practice Committee, as the “most significant move on the part of the government since the Emancipation Proclamation”; it did, after all, boldly position the government against employment discrimination, in defense industries, at any rate. Three decades later, an historian termed it “the greatest single Negro victory since the Civil War,”1 (Sitkoff 1971: 679) while another later described it as “so weak as to have hardly any impact” at all (Harris 1982:117). As for conservatives at the time, they were beside themselves, bursting blood vessels in their denunciation of the agency as a harbinger of government mandated “social equality” and government abridgement of managerial prerogatives. The FEPC was no emancipation proclamation; nor was it a harbinger of racial amalgamation or government control over the hiring process. It had limited success in cracking the racial bar in employment in some industries, in some localities (Kersten 2000). More important, I would suggest, was its role as both a catalyst for political mobilization and in making fair employment an ideologically legitimate demand, at least among growing numbers of white liberals (Arnesen 2001). Over the next two decades, numerous states in the North and West passed their own (weak) fair employment laws (Wolfinger 2007, Schultz 2008). Discrimination persisted. But in 1964, over two decades after Randolph’s threatened march, Title VII of the Civil Rights Act outlawed employment and union discrimination once and for all. That too hardly resolved the matter, and battles over what was and was not discrimination played out in the EEOC and the courts. Those battles involved individual black workers, individual firms, entire industries, civil rights organizations, and, of course, many, many trade unions (Stein 1998). But that’s another story. My point in recounting this brief narrative? The wartime FEPC hardly ushered in an era of racial equality. Nor did the passage of the 1964 Act. Both have had their critics, on the right and the left. While the sun neither immediately set nor did a new day instantly dawn, Executive Order 8802 and the Civil Rights Act did transform the playing field and altered the ideological terrain in a way that allowed the battle to be conducted—and some victories to be won—over a long period of time. As we think about the passage of the Employee Free Choice Act, these examples—I hesitate to call them “lessons” for the reasons I shared at the outset—might serve as cautions to both supporters and critics of the legislation that law is only a part of the story. Here, going against my own advice, I venture my tentative prediction: Should EFCA pass, the celebrations and the wailing will likely be short-lived, for the day after is when the next battle over its meaning and implementation will begin.

References Adams, Roy J. 2007. “The Employee Free Choice Act: A Skeptical View and Alternative.” Labor Studies Journal, Vol. 31, No. 4 (Winter), pp. 1–14. Arnesen, Eric. 2001. Brotherhoods of Color: Black Railroad Workers and the Struggle for Equality. Cambridge, MA: Harvard University Press. Barber, Lucy. 2002. Marching on Washington: The Forging of an American Tradition. Berkeley: University of California Press. Bernstein, Irving. 1969. The Turbulent Years: A History of the American Worker, 1933–1941. Boston: HoughtonMifflin. Brody, David. 1993. “The New Deal, Labor, and World War II.” In David Brody (ed.), In Labor’s Cause: Main Themes on the History of the American Worker. New York: Oxford University Press, pp. 175–219. Brody, David. 2009. “Against Company-Dominated Elections: The Need for EFCA.” Dissent, April 29. . [February 15, 2010]. Dubofsky, Melvyn. 1986. “Not So ‘Turbulent Years’: A New Look at the 1930s.” In Charles Stephenson and Robert Asher (eds.), Life and Labor: Dimensions of American Working Class History. Albany: State University of New York Press, pp. 205–23. Dubofsky, Melvyn. 1994. The State and Labor in Modern American. Chapel Hill: University of North Carolina Press. Enyeart, John P. 2009. The Quest for ‘Just and Pure Law’: Rocky Mountain Workers and American Social. Democracy, 1870–1924. Stanford, CA: Stanford University Press. Forbath, William E. 1991. Law and the Shaping of the American Labor Movement. Cambridge, MA: Harvard University Press.

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Frank, Dana. 1994. Purchasing Power: Consumer Organizing, Gender, and the Seattle Labor Movement, 1919–1929. New York: Cambridge University Press. Gompers, Samuel. 1914. “The Charter of Industrial Freedom,” American Federationist, Vol. 21 (November), pp. 971–2. Greene, Julie. 1998. Pure and Simple Politics: The American Federation of Labor and Political Activism, 1881–1917. New York: Cambridge University Press. Greenhouse, Steve. 2008. The Big Squeeze: Tough Times for the American Worker. New York: Anchor Books. Harris, Howell. 1985. “The Snares of Liberalism? Politicians, Bureaucrats, and the Shaping of Federal Labour Relations Policy in the United States, ca. 1915–1947.” In Steven Tolliday and Jonathan Zeitlin, eds., Shop Floor Bargaining and the State: Historical and Comparative Perspectives. Cambridge: Cambridge University Press, pp. 148–91. Harris, William H. 1982. The Harder We Run: Black Workers Since the Civil War. New York: Oxford University Press. Kersten, Andrew. 2000. Race, Jobs, and the War: The FEPC in the Midwest, 1941–46. Urbana: University of Illinois Press. Klare, Karl. 1978. “Judicial Deradicalization of the Wagner Act and the Origins of Modern Legal Consciousness.” Minnesota Law Review, Vol. 62, No. 265, pp. 265–339. Lichtenstein, Nelson. 1989. “From Corporatism to Collective Bargaining.” In Steve Fraser and Gary Gerstle, eds., The Rise and Fall of the New Deal Order, 1930–1980. Princeton: Princeton University Press, pp. 122–52. McCartin, Joseph A. 1997. Labor’s Great War: The Struggle for Industrial Democracy and the Origins of Modern American Labor Relations, 1912–1921. Chapel Hill: University of North Carolina Press. Schultz, Kevin. 2008. “The FEPC and the Legacy of the Labor-Based Civil Rights Movement of the 1940s.” Labor History, Vol. 49, No. 1 (February), pp. 71–92. Sitkoff, Harvard. 1971. “Racial Militancy and Interracial Violence in the Second World War.” Journal of American History, Vol. 58, No. 3 (December), pp. 661–81. Stein, Judith. 1998. Running Steel, Running America: Race, Economic Policy, and the Decline of Liberalism. Chapel Hill: University of North Carolina Press. Wolfinger, James. 2007. “ ‘An Equal Opportunity to Make a Living—and a Life’: The FEPC and Postwar Black Politics.” Labor: Studies in Working-Class History of the Americas Vol. 4, No. 2 (Summer), pp. 66–7.

VI. Our Children’s Burden: Generational Conflict and Solidarity in 21st-Century Employment and Retirement

The Challenge of Providing Retirement Security through Defined Contribution Plans: Evidence from Simulated Lifetime Projections MARK GLICKMAN U.S. Government Accountability Office1

Introduction Employer-sponsored pensions represent an important component of retirement income. Since the early 1980s, while the percentage of workers participating in a pension plan has remained flat across the private sector work force, pension coverage has seen a noticeable shift away from “traditional” defined benefit (DB) plans, in which workers typically accrue benefits based on years of service and earnings, toward defined contribution (DC) plans, in which participants accumulate balances in personal accounts. DC plans provide participants tax-preferred savings vehicles, portability, and the transparency of known account balances. However, they shift many key responsibilities and risks of saving for retirement from employers to employees. Under such plans, workers may receive limited or no contributions from their employers, spend accumulated savings prior to retirement, or choose not to participate in a pension plan at all. Workers typically manage the investment of plan assets throughout their lives, a risk that was brought into stark focus by the stock market decline from late 2007 to early 2009. DC plans present the possibility that participants, even those lucky enough to be offered a plan through most of their working career, may arrive at retirement with low retirement savings, plus the additional responsibility and risk of managing those savings to make them last throughout retirement. Potential reforms to Social Security to address that program’s long-term solvency could reduce benefits for future retirees, possibly increasing the future role of DC plans, as well as other personal savings, in providing retirement income.1 This paper examines recent levels of savings in DC plans and projects balances for younger workers likely to retire in the 2050s.2 Part of our original analysis used the 2004 Survey of Consumer Finances (SCF). The stock market and the economy have since undergone tremendous upheavals; while stock market indexes are trading at similar levels today as in late 2003, balances for DC participants may have changed sharply depending on how much workers had saved prior to the 2007–2009 crash, with different implications for retirement for workers of different ages. Even using the 2004 survey, we found that, regardless of the age of the individual, and at most income levels, DC account participation was low, and the account balances of workers participating in DC plans were modest. Because DC plans have become prominent retirement savings vehicles for only a portion of the careers of today’s retirees or workers near retirement, we also perform simulations of DC-plan account accumulation for a generated sample of young workers over their careers. Our projections indicate that DC plans could replace, on average, about 22 percent of annualized career earnings at retirement, but with projected replacement rates varying widely across income groups and with changes in certain assumptions.

Author’s address: U.S. Government Accountability Office, San Francisco, CA

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Sponsored Pensioons Backgroundd on Employer-S Employer-spon E nsored pensio ons fall into two major caategories: DB B and DC plaans. DB plan ns pay benefits th hat are typicaally set by fo ormula, with workers w receiiving benefitss upon retirem ment based o on the number of o years workked for a firm m and earnin ngs in years prior to retirrement.3 In D DC plans, wo orkers accumulatte savings thro ough contribuutions to an in ndividual accouunt. (Hence thhe distinction n between the plans, with one defined by th he benefit at retirement r and d one definedd by the conttributions whiile working.) These accounts are a tax-advanttaged in that contributions c are a typically exxcluded from current incom me, and earnin ngs on balances grow g tax-deferred until theey are withdraawn.4 An empployer may alsso make conttributions, eith her by matching employee’s co ontributions up u to plan or leegal limits, or on a nonconttingent basis. Like DB plans,, DC plans op perate in a volluntary system m, with tax inccentives for em mployers to o offer a plan and for f employees to participatee. Contributions to and earnnings on DC plan accountss are not taxedd until the particiipant withdraw ws the moneyy, although paarticipants maaking withdraw wals prior to age 59½ mayy incur an additio onal 10 percen nt tax.5 Accorrding to Whitee House estim mates, the proojected tax expenditure from the exclusion of contributio ons to certain DC plans willl amount to $$65.7 billion inn 2009 and rise to $100 billiion by 2013.6 In addition, the government offers a nonrrefundable taxx credit to quualifying low-aand middle-in ncome w make contributions, thee saver’s credit.7 workers who Most M DC planss are types off cash or deferrred arrangem ments (CODA A), in which em mployees can direct pretax do ollars into an account, alo ong with any employer coontributions, with contribuutions and reeturns growing taax deferred un ntil withdrawaal. The 401(k) plan is the moost common ffeature, coverring over 85 peercent of active DC particip pants. DC pllans offer wo orkers a deggree of contrrol over theiir retirement asset orkers can ofteen decide on their t contribuution amounts, how the money is investedd, and managemeent, in that wo how much h to withdraw w.8 Savings in n DC plans are portable inn the sense thhat a particip pant may keep p plan balances in n a tax-advantaged accountt upon leavingg a job, eitherr by rolling ovver plan balances into a new w plan or an IRA A, or in some cases c by leavin ng money in an a old plan.9 W Workers may have access to o plan savingss prior to retirement, through either e loans orr withdrawals;; participants m may find suchh features desirable. Each E of the potential beneffits of DC pllans carries a flipside risk. Control oveer participation and contributions means th hat many workkers do not participate, p or they contribuute very little. Investment cchoice Hidden also carriees investment risk, particulaarly for those that overinveest in risky stoocks close to retirement. H fees may erode savinggs accumulateed in DC plans.10 Accesss to preretirement savingss in DC plan ns for m lead to low wer retiremen nt savings andd possible tax penalties. DC C plans also present withdrawaals or loans may risks for retirees r in deccisions they make m about ho ow to receivee and managee the decumullation of theirr plan assets. An nnuitization am mong workers with DC pllans is rare, m meaning that aalmost all retiirees depending on savings in DC plans muust manage account withdraawals to last thhroughout rettirement.11 Figgure 1 illustrattes the he benefits ulttimately providded by a DC p plan. major facttors and decisiion points thaat can affect th FIGURE F 1 Mechanics of o Accumulatin ng Retirementt Savings in D DC Plans

Source: GAO O

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DB plans, which offer benefits set by formula and place funding and investment responsibility on the employer, have their own unique risks. Participants in DB plans, including retirees, may see their expected benefit drop from plan freezes or the termination of underfunded plans.12 While DB plans offer longevity insurance by paying benefits as an annuity, private sector benefits are rarely indexed to inflation, and hence the value of the benefit declines over time. While DB benefits typically are insured by the Pension Benefit Guaranty Corporation (PBGC), events of this decade, and particularly in the last year, have brought into question PBGC’s long-term solvency. The agency recently announced a net financial condition, roughly its assets less the current value of future benefit obligations it owes to participants of terminated plans, of -$21.9 billion for its insurance programs as of September 30, 2009. Table 1 summarizes some of the primary differences between DC and DB plans. TABLE 1 Key Characteristics of Defined Contribution and Defined Benefit Plans Defined contribution plans

Defined benefit plans

What determines the level of benefits? What does the employee have to do to participate and earn benefits in the plan?

Contributions into a personal account and the return on assets. May require waiting for eligibility and sign-up by employee. Participants may need to work up to 6 years to fully vest in employer matching contributions

How are contributions made?

Typically, employee decides how much to contribute from current wages; employer may also contribute. The employee, in most plans.

A formula, typically based on years of service and salary history. Eligibility and participation are typically automatic. Those working at least 1,000 hours a year earn years of service toward benefits. Participants may need to work for up to 7 years to fully vest in benefits. Typically by employer only, except in some public sector plans.

Who manages assets and assumes risks of investing? What happens to benefits when employee leaves the job? Are benefits insured?

Plan sponsor; private benefits are PBGC-insured up to certain limits.13 Can be left in plan, rolled over to Sometimes unavailable until an IRA, or cashed out (often with a beneficiary reaches specified penalty if done before age 59½) retirement age. No Yes, subject to guarantee limits offered by the PBGC.

Over the past three decades, by most measures DC plans have become the dominant type of private sector employee pension. According to Department of Labor statistics, in 1980, private DB plans had 38 million participants and DC plans had 20 million. DC participation in private plans first exceeded that of DB plans in 1992, and as of 2006 DC plans had 79.8 million participants, with 42.1 million in DB plans. Further, over 82 percent of private sector DC participants in 2006 were active participants (in a plan with their current employer), while over half of DB participants had separated from their sponsoring employer or retired. According to the Employee Benefit Research Institute (EBRI), among families with an employer pension, from 1992 to 2007, coverage in an employer-sponsored pension plan remained almost completely flat in around 40 percent of households, yet the type of plan coverage shifted markedly toward DC plans and away from DB plans. In 1992, 37.5 percent of households covered by a plan had only a DC plan in 1992; by 2007, this figure grew to 60.3 percent, while over this same period, coverage in a DB plan among those with any plan fell from 62.5 percent to 39.7 percent of households.14 DB plans had more assets than DC’s as recently as 1995, but as of the second quarter of 2009, DC plans had $2.8 trillion in assets while DB plans had $1.9 trillion. In addition, assets in IRAs, accounts that are also tax protected and include assets from rolled-over balances from employer-sponsored plans, measured over $3.7 trillion.

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Retirement Savings Adequacy There is little consensus about how much constitutes “enough” savings to have going into retirement. We may define retirement income adequacy relative to a standard of minimum needs, such as the poverty rate, or to the consumption spending that households experienced during working years.15 Some economists and financial advisors consider retirement income adequate if the ratio of retirement income to preretirement income—the replacement rate—is between 65 and 85 percent. Retirees may not need 100 percent of preretirement income to maintain living standards, for several reasons. Retirees will no longer need to save for retirement, retirees’ payroll and income tax liability will likely fall, work expenses will no longer be required, and mortgages and children’s education and other costs may have been paid off. However, some researchers cite uncertainties about future health care costs and future Social Security benefit levels as reasons to suggest that a higher replacement rate, perhaps above 100 percent or higher, would be considered adequate.16 To achieve adequate replacement rate levels, retirees depend on different sources of income to support themselves in retirement. Social Security benefits provide the bulk of retirement benefits for most households. As of 2006, annuitized pension benefits provided 17.9 percent of total income to households with someone age 65 or older, while asset income provided 14.9 percent.17 Social Security benefits remain the dominant form of income for those 65 and over, accounting for 36.7 percent of total household income and for over 50 percent of total income for 63 percent of households. Table 2 shows estimated replacement rates from Social Security benefits for low and high earners retiring in 2007 and 2055, as well as the remaining amount of preretirement income necessary to achieve a 75 percent replacement rate.18 These figures give rough guidelines for how much retirement income workers might need from other sources, such as employer-sponsored pensions, as well as earnings and income from other savings or assets. TABLE 2 Estimated Social Security Replacement Rates for Workers Turning 65 in 2007 and in 2055 (Percent of Career-Average Earnings)

Source of replacement rate income Social Security Replacement from other sources to achieve 75 percent replacement rate

Year in which a 65-year-old retires 2009 2055 Low earner High earner Low earner High earner 54.0

33.2

49.0

30.1

21.0

41.8

26.0

44.9

Source: 2009 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, Table VI.F10. Note: Based on scheduled benefits under intermediate assumptions of Social Security projections. Replacement rates represent benefits as a percentage of career-average earnings for low and high earners.

It is important to keep certain economic principles in mind when evaluating the effectiveness of retirement accounts, or any pensions, in providing retirement income security. First, balances accumulated in a DC plan may not represent new saving; individuals may have saved in another type of account in the absence of a DC plan or its tax preferences. Second, evaluating worker income security should consider total compensation, not just employer contributions to DC plans. All else equal, we should generally expect more generous employer-sponsored pension benefits to lower cash wages and that the split between current wages and deferred compensation is largely a reflection of labor market conditions, tax provisions, and worker and employer preferences.

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Analysis off 2004 Survey off Consumer Finances An A analysis of DC D plan coveerage and acco ount balances using the 20004 Survey of C Consumer Fin nances illustrates starkly some of o the fundam mental insufficciencies of DC C plans in helpping workers save for retireement. Accordingg to the 2004 SCF, only 366 percent of working w individduals were acctively particip pating in a DC C plan (Figure 2). Data indicateed similar participation ratees for workingg households, as 42 percentt of householdds had ne member witth a current DC D plan. at least on FIGURE F 2 Percentage P off Working Ind dividuals Particcipating in Cuurrent DC Planns by Age Gro oup, 2004

Souurce: GAO anaalysis of 2004 Survey of Connsumer Finannces Even E for workers who particcipated in a pllan, overall baalances in DC plans were m modest, suggessting a potentiallyy small contriibution towarrd retirement security for m most plan paarticipants andd their households. However, since DC plaans were less common befo ore the 1980s , older workeers would not have had acccess to these plan ns their wholee careers. In order o to apprroximate lifetiime DC balannces when diiscussing meaan and median DC balances in n this report, our o analysis off the 2004 SC F aggregates tthe “total balaances” of DC C plans w former em mployers that have been lefft with the forrmer employeer, and with a currrent employerr, DC plans with any retirem ment plans wiith former em mployers that have h been rollled over into a new plan o or an IRA.19 F For all workers with w a curren nt or former DC plan, th he median tootal balance w was $22,800 (Figure 3). F For all household ds with a curreent or former DC plan, the median total bbalance was $$27,940.

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FIGURE F 3 Total DC Balances for Working Individuals with w a Current or Former DC C Plan, by Agge Group, 20004

Source: GAO analysis of 20004 Survey of Consumer Finnances The T 2004 SCF data also sho owed very low w participationn and savings in DC plans among lowerr-wage workers. Only O 25 perceent of workerss in the lowesst income quaartile were offfered any typee of retiremen nt plan by their employer, and among thosee offered a retirement plann, 60 percent elected to parrticipate, com mpared bution with 84 percent amongg workers of all income levvels. Workerss in the lowerr half of the iincome distrib ormer DC plans had total median m balancees of $9,420 (F (Figure 4). with eitherr current or fo Older O workers who were lesss wealthy also o had limited retirement savvings. Workerrs with a current or former DC C plan aged 50 5 to 59 and at a or below th he median levvel of wealth hhad median to otal savings o of only 21 $13,800. Workers with a current or o former DC C plan, aged 660 to 64 and at or below tthe median leevel of mited supplement to wealth, haad median total savings of $18,000, a levvel that could provide at beest only a lim retirementt income. If converted into o a single life annuity a at age 65, this balannce would pro ovide only $1332 per month—aabout $1,600 per p year. Notably, N workeers with low DC D balances were w actually leess likely to haave a DB pen nsion to fall baack on than workkers with high her DC balancces. Among alll workers partticipating in ccurrent or form mer DC planss, only 17 percent of those in the t bottom quuartile for tottal plan savinggs also were covered by a ccurrent DB pllan. In 3 percent off those in thee top quartilee for total DC C savings alsoo had DB co overage. Amo ong all contrast, 32 workers with w a current or former DC plan, the pllan balances ffor those withh DB coveragge were higherr than for those without DB coverage. c Thee median DC balance for w workers with a DB account was $31,560, while the median n DC balancee for someone without a DB B account wass $20,820.

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FIGURE F 4 To otal DC Plan Balances for Working W Indivviduals with a Current or D Plan, by Ho ousehold Weaalth Quartiles,, 2004 Former DC

Sourcce: GAO analyysis of 2004 Suurvey of Conssumer Financees Leakage Evidence E on leeakage, or cashing out accuumulated retirrement savinggs for nonretirrement purpo oses, is relatively spotty, s but some data show w that it adverrsely affects acccount accum mulation for a small percentaage of DC particcipants, particcularly for lo ower-income workers withh small accoount balances. Participantss who withdraw money from a DC plan beefore age 59½ ½ generally paay ordinary inncome taxes o on the distribuutions, plus an ad dditional 10 peercent tax in most m circumsttances. Similarrly, participantts who do not roll their DC C plan balances into i another tax-preferred d account wh hen they leavee a job also face potentiaal early withddrawal penalties. As of 2004, 21 percent of o households in which thee head of household was under 59 hadd ever m previous job bs’ retirementt plans. Amonng these houseeholds that recceived received luump-sum distributions from lump-sum m distributions, 47 percent had h cashed outt all the fundss, 4 percent caashed out som me of the fundds, and 50 percen nt preserved all a the funds by rolling theem over into another retirrement accoun nt.22 Workerss were more likelly to roll overr funds when n the balancess were greaterr. Among houuseholds that had cashed o out all retirementt plans with former f employyers, the med dian total valuue of those fuunds was $6,8000. For houseeholds that had rolled r over all retirement pllans with form mer employer s, the mediann total value o of rolled-over funds was $24,2000.23 Impact of 2007–2009 Finnancial and Econnomic Crises on Retirement Secuurity Of O course, the financial and d economic world w has channged drasticallly since the 2004 SCF, andd even more so from f the 20077 survey. The experience off both the stoock market annd the labor m market over th he last two years has illustrated d in stark term ms the downsiide of this riskk. Since the U U.S. economy w went into receession ber 2007, major stock indexxes fell over 50 5 percent froom their peakss late that yeaar until March 2009, in Decemb and with these contracctions DC plaan balances feell substantiallly. Accordingg to estimatess by the Centter for nt Research att Boston Colllege (CRR), retirement r acccount losses (including IR RAs and the ffederal Retiremen

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government’s Thrift Savings Plan) totaled $2 trillion in the year following the market’s peak in October 2007. Stock markets have since done a remarkable turnaround, regaining over 60 percent of losses, even while the rest of the economy barely creeps out of the recession’s trough. Even though stock market levels are around those of late 2003, about the time the 2004 SCF was conducted, this does not imply that all DC participants’ account balances are roughly where they were then (which would be harmful enough, with workers with six fewer years to save before retirement). The impact of the financial crisis depends on many factors, such as precrash account balances, age, and job tenure—in general, older workers and those at their current job longer had higher account balances and therefore have endured higher losses. Still, while lower-income workers may have suffered lower absolute losses, their losses may take longer to recover, especially considering the increased chances of losing a job or losing DC coverage. EBRI estimates that median DC balances for participants with household annual income of at least $100,000 lost 22 percent, approximately $22,000 from the time of the 2007 SCF until June 2009. Over that same period, median balances among DC participants for those earning $10,000 to $25,000 fell 33 percent, or $1,300. Similarly, losses for older DC participants were not only larger, but they may be harder to make up given their closer proximity to normal retirement age.24 The CRR estimated a sharp rise in their national retirement risk index, which seeks to measure the share of Americans at risk of falling short of their preretirement standard of living in retirement. By their estimations this index, which has risen steadily since 1983, rose from 44 percent in 2007 to 51 percent in 2009 (compared with 31 percent in 1983, at the onset of the 401[k] era).25 The decline in the stock markets has reduced participant account balances so much because stocks remain the major investment of DC plans. According to EBRI, participants in 2007 held 48 percent of 401(k) assets in equity funds, but also 11 percent in their own company’s stock, and another 15 percent in balanced funds, which mix stocks and fixed-income assets.26 Holding company stock in a retirement account carries unique risk since if employee contributions in both plans are largely in employer stock, employees risk losing not only their jobs should the company go out of business, but also a significant portion of their retirement savings; 10 percent of retirement assets in company stock is generally considered to be the maximum any person should hold. About 60 percent of participants offered company stock in their 401(k) held no more than 10 percent of their balances in company stock, but for almost one-fourth of participants, company stock represented 30 percent of the 401(k) balance. However, EBRI reported that, while the relative share of 401(k) money invested in equities has remained stable, the percentage of plan assets invested in company stock has declined steadily since 1999. In addition to investment losses, reduced contributions over the last two years have reduced workers’ DC balances and potential retirement security. According to the CRR, many sponsors of DC plans have reduced or suspended their matching employer contributions in response to the current crisis.27 Plans with over 100,000 participants whose sponsors have suspended or reduced contributions include FedEx, Sears, UPS, and Starbucks, and it is uncertain when or if they will resume. Of course, workers who have lost their jobs face not only suspended employer contributions, but also cannot contribute to their own plans. Further, past declines in asset markets have led to slower growth in DC contributions (see Figure 5). While this result is at least partially driven by lost income and employer contributions, it may also reflect fear among participants of investing when stock prices are falling, despite the common advice to consider retirement saving a long-term endeavor and to pay little attention to short-term market fluctuations. Removing or reducing employer matched contributions may also reduce the incentive for participants to maintain their own contribution levels.


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FIGURE 5 Annual Changes in DC Plan Contributions and S&P 500 Index 50 40 30

Percent

20 Contributions

10

S&P 2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

-10

1989

0

-20 -30 Year

Sources: Department of Labor; Standard and Poor’s.

Despite the severity of losses to existing savings, assuming the economy and markets recover in the near future, we could expect many workers’ retirement savings to have suffered little lasting damage to their retirement security. Younger workers, who are less likely to have accumulated large plan balances prior to the market decline, may not need very much time to make up losses. EBRI estimates that, for example, workers age 25 to 34 with a DC plan as of the end of 2007 experienced an increase in average account balances over 2008, because for many of these workers’ ongoing contributions were more than able to make up for investment losses. 28 Further, these workers have many years to make contributions to their DC accounts; the decline in asset prices makes these ongoing contributions cheaper, raising the prospect that younger workers that stick to regular, long-term plan contributions may benefit from the recent financial turmoil. In addition, measures in the Pension Protection Act of 2006 (PPA) may facilitate more widespread use of automatic enrollment, contribution escalation, and default investments that may increase participation, contributions, and investment efficiency in the future. Simulations of Lifetime Savings in DC Plans Admittedly, a key reason why we might see low balances in DC plans is the relatively short period of time that workers have been able to save in 401(k) plans. Since the 401(k) did not become widespread until the late 1980s, very few retirees or workers near retirement have participated in these plans for their entire careers. To see how much workers might be expected to save in DC plans over an entire working career, we ran simulations on a hypothetical cohort of workers born in 1990. Simulations of projected retirement savings in DC plans suggest that a large percentage of workers may accumulate enough over their careers to replace only a small fraction of their working income, although results vary widely by income levels and depend on model assumptions. Projected savings allow us to analyze how much workers might save over a full working career under a variety of conditions in a way that analyzing current plan balances cannot, since DC plans have become primary employer-sponsored plans only relatively recently. Baseline simulations of projected retirement savings for a hypothetical 1990 birth cohort indicate that DC plan savings would on average replace about 22 percent of annualized career earnings but provide no savings to almost 37 percent of the working population, perhaps because of different factors—working for employers who do not offer a plan, choosing not to participate, or withdrawing any accumulated plan savings prior to retirement.29 Further, projected DC account balances vary widely by income quartile, with workers in the lowest-income quartile saving enough for about a 10 percent replacement rate, while those in the highest quartile save enough for a

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34 percent replacement rate, on average. Assuming changes in certain plan features, individual behavior, or market assumptions, such as increased participation or account rollover rates, increased projected average savings and increased the number of workers who had some DC plan savings at retirement, especially for low-income workers. Other scenarios, such as assuming higher contribution limits or delaying retirement, raised average replacement rates, but with more of the positive impact on higher-income workers and with little effect on reducing the number of workers with no savings at retirement.30 We should note that we would expect the performance of the stock market of the last two years to have little impact on these projections, since they focus on workers who would just be entering the labor force now and would thus have accumulated little in savings. Unless one thinks that stock market returns of 2007 to 2009 change the longterm trajectory of future returns, we would expect little impact on our simulations. Baseline Projections for DC Balances at Retirement Our projections show that 1990-cohort workers would save enough in their DC plans over their careers to produce, when converted to a lifetime annuity at the time of retirement, an average of $18,784 per year in 2007 dollars (see Table 3).31 The projections assume that all workers fully annuitize all accumulated DC plans balances at retirement, which occurs sometime between age 62 and 70. Participants always invest all plan assets in life cycle funds, and stocks earn an average real annual return of 6.4 percent. This $18,784 annuity would replace, on average, 22.2 percent of annualized career earnings for workers in the cohort. Savings and replacement rates vary widely across income groups. Almost 37 percent of workers in this cohort have no projected DC plan savings at retirement, which brings down overall average replacement rates. Workers in the lowest income quartile accumulate DC plan savings equivalent to an annuity of about $1,850 per year, or a 10.3 percent replacement rate, and 63 percent of this group have no plan savings by the time they retire. In contrast, highest income quartile workers save enough to receive about $50,000 per year in annuity income, enough for a 33.8 percent replacement rate. Even in this highest-income group, over 16 percent of workers have zero plan savings at retirement. In all cases, our replacement rates include projected savings only in DC plans. Retirees may also receive benefits from DB plans, as well as from Social Security, which typically replaces a higher percentage of earnings for lower-income workers. Projected household-level plan savings show a higher average replacement rate of 33.8 percent, with about 29 percent of households having no plan savings at retirement. When we assume that plan assets earn a lower average real annual return of 2.9 percent, average replacement rates from DC plan savings fall to about 16 percent for the sample. Under this assumption, workers in the lowest-income quartile receive 7.1 percent replacement income from DC plans, while highest-income quartile workers receive an average 25 percent replacement rate. Lower rates of return affect the percentage of workers with no accumulated DC plan savings only slightly, perhaps because on the margins some participants might choose (or have their employers choose) to cash out lower balances. Table 3 also shows savings statistics for subsamples of the cohort who have a better chance of accumulating significant DC plan savings, such as those workers who have long-term eligibility to participate in a plan or who work for many years. As expected, these groups have higher projected savings; replacement rates also show more even distribution across income groups, compared to those in the full sample. However, we still see a significant portion of the workers with no DC savings at retirement. First, we limit the sample only to those workers who are eligible to participate in a plan for at least 15 years over their careers. Average replacement rates for this group measure 33.5 percent, with rates ranging from 21.7 percent for lowest= income-quartile workers to 42.3 percent for the highest quartile.32 Even with such long-term eligibility for plan coverage, however, 15.6 percent of these workers, and almost one-third of lowest-income workers, have nothing saved in DC plans at the time they retire. This could result from workers choosing not to participate or from cashing out plan balances prior to retirement.


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TABLE 3 Projected Average Annuity Equivalents and Replacement Rates from DC Plan Balances at Retirement, by Income, under Baseline Assumptions By income quartile 1 2 3 Overall Individual-level results Annuity equivalent (per year, 2007 dollars) 18,784 1,850 6,554 16,635 Replacement rate (percent) 22.2 10.3 18.2 26.3 Workers with no DC savings (percent) 36.8 63.0 39.8 27.9

50,098 33.8 16.4

Household-level results Annuity equivalent (per year, 2007 dollars) Replacement rate (percent) Workers with no DC savings (percent)

24,664 33.8 28.8

4,176 18.7 48.1

11,918 30.3 30.7

25,560 40.9 21.8

57,000 45.5 14.5

Only workers eligible for a DC plan for 15+ years Annuity equivalent (per year, 2007 dollars) Replacement rate (percent) Workers with no DC savings (percent)

29,844 33.5 15.6

5,133 21.7 32.6

13,629 30.2 16.6

30,178 39.7 9.1

70,437 42.3 4.1

Only those working 25+ years full-time Annuity equivalent (per year, 2007 dollars) Replacement rate (percent) Workers with no DC savings (percent)

25,533 26.5 28.8

4,447 16.3 46.7

11,407 23.3 31.8

25,610 31.7 22.8

60,668 34.9 14.5

Assuming 2.9 percent real annual return on stocks Annuity equivalent (per year, 2007 dollars) Replacement rate (percent) Workers with no DC savings (percent)

13,803 16.1 37.2

1,277 7.1 63.3

4,687 13.0 40.3

12,145 19.2 28.3

37,100 25.1 16.7

4

Source: GAO projections using PENSIM model. Note: All results are individual level, except as indicated. Model assumptions include the following: 1) workers fully annuitize all accumulated DC plan balances at retirement, between age 62 and 70; 2) participants invest all plan assets in life cycle funds; 3) stocks earn an average annual 6.4 percent real return, except where specified. Replacement rates equal annuitized income from lifetime DC plan savings divided by annualized career earnings. See the appendix for more details.

We also analyze the prospects of workers with long-term attachment to the labor market, for which we use people who work full-time for at least 25 years, without regard to plan coverage or participation. Among these workers, average DC plan savings at retirement account for a 26.5 percent replacement rate. Still, almost 29 percent of these workers have no projected savings. This suggests that while DC plans have the potential to provide significant retirement income, saving may be difficult for some workers who work for many years, even among those whose employers offer a plan. Effects of Universal Participation and Account Rollovers Our simulations indicate that increasing participation and reducing leakage out of DC plans may have a particularly significant impact on overall savings, especially for lower-income workers. Of the changes in the model assumptions that we simulated, these had the broadest effect on savings because they not only raised average savings for the entire sample but had a relatively strong impact on workers in the lowest income

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quartile and on the number of workers with no DC plan savings at retirement. While these assumptions represent stylized scenarios, they illustrate the potential effect of such changes on savings. We project DC plan savings assuming that all employees of a firm that sponsors a DC plan participate immediately, rather than having to wait for eligibility or choosing not to participate.33 In our baseline projections, 6 percent of workers whose employers sponsor a plan are ineligible to participate, and 33 percent of those eligible do not choose to participate; therefore, this assumption significantly raises plan participation rates among workers. Accordingly, average DC savings rise by almost 40 percent, raising average replacement rates to 35 percent, and the percentage of the population with no savings at retirement drops by half, down to 17.7 percent (see Table 4). TABLE 4 Projected Average Annuity Equivalents and Replacement Rates from DC Plan Balances at Retirement, by Income, under Different Model Assumptions By income quartile 1 2 3 Overall Baseline results, individual-level Annuity equivalent (per year, 2007 18,784 1,850 6,554 16,635 dollars) Replacement rate (percent) 22.2 10.3 18.2 26.3 Workers with no DC savings (percent) 36.8 63.0 39.8 27.9 Instant eligibility/participation Annuity equivalent (per year, 2007 dollars) Replacement rate (percent) Workers with no DC savings (percent) Participants always roll over balances upon job separation Annuity equivalent (per year, 2007 dollars) Replacement rate (percent) Workers with no DC savings (percent)

4 50,098 33.8 16.4

26,265

4,243

11,142

24,370

65,305

35.0 17.7

25.4 30.0

31.3 18.4

38.8 13.7

44.7 8.6

20,797

2,428

7,892

18,949

53,918

25.6 27.0

13.8 48.8

22.0 28.1

30.1 19.3

36.6 11.6

Source: GAO projections using PENSIM model. Note: See note under Table 3 and the appendix for more details.

Assuming automatic eligibility and participation raises projected plan savings significantly for lowerwage workers, more than doubling the annuity equivalent of retirement savings for the lowest-income quartile. Workers in the highest income group also increase savings under this scenario, with plan savings rising by 30 percent. This change in projected savings suggests that automatically enrolling new employees in plans as a default could have a significant positive impact on DC balances, especially for low-income workers whose jobs offer a plan—although this stylized scenario likely describes a more extreme change in eligibility and participation than plans are likely to implement under automatic enrollment—and that higher participation and savings would raise employer’s pension costs, perhaps leading to a reduction in benefits or coverage. Another stylized scenario we model assumes that all workers who have a DC plan balance always keep the money in a tax-preferred account upon leaving a job, either by keeping the money in the plan, transferring it to a new employer plan, or rolling it into an IRA, rather than cashing out any accumulated savings.34 Eliminating this source of leakage raises average annuity income from DC plans by almost 11 percent and average replacement rates from 22.2 percent in the baseline to 25.6 percent; it also reduces the


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percentage of the cohort with no DC savings at retirement by over 25 percent. As with the instant participation scenario, “universal rollover” raises annuity savings and reduces the number of retirees with zero plan savings by the biggest percentages among lower-income workers, suggesting that cashing out accumulated plan savings prior to retirement may be a more significant drain on retirement savings for these groups. These results indicate that policies to encourage participants to keep DC plan balances in taxpreferred retirement accounts, perhaps by making rollover of plan assets a default action in plans, may have a broad positive impact on retirement savings. Effects of Changing Retirement Decisions or Contribution Limits Other changes we make in our projections related to plan features or individual behavior affect average replacement rates overall, but with less impact on lower-income workers’ replacement rates and on the number of workers with zero plan savings at retirement. These scenarios include assumed changes in annual contribution limits and retirement decisions (see Table 5). TABLE 5 Projected Average Annuity Equivalents and Replacement Rates from DC Plan Balances at Retirement, by Income, Under Different Model Assumptions By income quartile 1 2 3 Overall Baseline results, individual-level Annuity equivalent (per year, 2007 dollars) 18,784 1,850 6,554 16,635 Replacement rate (percent) 22.2 10.3 18.2 26.3 Workers with no DC savings (percent) 36.8 63.0 39.8 27.9

4 50,098 33.8 16.4

Raise annual contribution limits Annuity equivalent (per year, 2007 dollars) Replacement rate (percent) Workers with no DC savings (percent)

21,056 23.6 36.7

1,879 10.5 63.0

6,583 18.3 39.9

16,999 26.9 27.9

58,763 38.5 16.2

Workers delay retirement 1 year Annuity equivalent (per year, 2007 dollars) Replacement rate (percent) Workers with no DC savings (percent)

19,873 23.3 36.9

1,876 10.5 63.5

6,895 19.0 40.3

17,826 28.0 27.2

52,895 35.6 16.3

Workers delay retirement 3 years Annuity equivalent (per year, 2007 dollars) Replacement rate (percent) Workers with no DC savings (percent)

22,710 25.7 36.8

2,151 12.1 63.1

7,623 20.7 39.9

19,897 30.5 28.5

61,170 39.4 15.7

Source: GAO calculations using projected savings from PENSIM model. Note: See note under Table 3 and the appendix for more details.

We model projected retirement savings assuming that annual DC contribution limits for employees rise from $15,500 to $25,000, and the combined employer–employee maximum contribution level rises from $45,000 to $60,000, starting in 2007.35 Higher annual maximum contributions affect projected savings almost exclusively among the highest-income group, indicating that few workers earning less are likely to contribute at existing maximum levels. The highest income quartile replacement rises from 33.8 to 38.5 percent, while replacement rates hardly change in the lower income groups. Similarly, this scenario has almost no impact on the percentage of workers with DC plan savings at retirement.

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Finally, we model retirement savings in two scenarios in which workers delay retirement by 1 or 3 years. Encouraging workers to retire later has been suggested as a key element in improving retirement income security, by increasing earnings, allowing more time to save for retirement, and reducing the length of retirement. In our projections, delaying retirement not only provides more years to contribute to and earn returns on plan balances but also might raise annual retirement income because older retirees receive more annuity income for any given level of savings, holding all else equal. In our projections, working longer modestly raises retirement savings in our projections. Working one extra year changes projected annuity income by 5.8 percent, but it has little effect on the percentage of people with no DC savings in our projections. Delaying retirement by 3 years raises annuity income from DC plans by 20.9 percent on average, with replacement rates rising from 22.2 percent in the baseline to 25.7 percent overall.36 The 3-year delay increases annuity levels somewhat evenly across income groups, with higher-income workers showing slightly higher increases. Overall, working an extra 3 years raises average replacement rates about as much as universal account rollover would, but with little reduction in workers with no retirement savings. Thus, while working longer would likely raise workers’ incomes, and in most cases retirement benefits from other sources such as Social Security, our projections show that this change alone would have a modest impact on retirement income from DC plans, particularly regarding lower-income workers and those not already saving in DC plans in the baseline.

Conclusions The DC plan has clearly overtaken the DB plan as the principal retirement plan for the nation’s private sector workforce, and its growing dominance suggests its increasingly crucial role in the retirement security of current and future generations of workers. The current DC-based system faces major challenges, like its DB-based predecessor, in terms of coverage, participation, and lifetime distributions. Achieving retirement security through DC plans carries particular challenges for workers, since accumulating benefits in an account-based plan requires more active commitment and management from individuals than it does for DB participants. Since workers must typically sign up and voluntarily reduce their take home pay to contribute to their DC plans, invest this money wisely over their working years, and resist withdrawing from balances prior to retirement, it is perhaps to be expected that even those who have the opportunity to participate save little. While our results on both current and projected plan balances suggest that while some workers save significant amounts toward their retirement in DC plans, a large proportion of workers will likely not save enough in DC plans for a secure retirement. The current financial and economic crisis undoubtedly lays bare many of the weaknesses of a retirement system that places the responsibility and risk of saving on individuals. The decline in asset values is, at the very least, unsettling to workers who have watched their retirement account balances drop precipitously in the last year and a half and wonder how long it will take them to make up the deficit, never mind get back on track toward meeting their retirement savings goals. It is important, however, in assessing the effect of the market downturns on retirement security to put observed drops in account balances in the context of the long-term goal of saving for retirement during a worker’s career. While losses and the anxiety they cause all workers are serious, for many, especially younger ones with many years left until retirement age, even steep declines in account balances from investment losses can probably be overcome through future continued steady participation and contributions. Of particular concern are the retirement income challenges faced by lower earners. Many of these workers face competing income demands for basic necessities that may make contributions to their retirement plans difficult. Further, the tax preferences that may entice higher-income workers to contribute to their DC plans may not entice low-income workers who have plan coverage, since these workers face relatively low marginal tax rates. Our projection results suggest that other measures, such as automatic enrollment and rollover of funds may make a difference for some lower income workers. Should pension policy, as embodied by recently legislated automatic enrollment provisions in the Pension Protection Act of 2006, continue to move in this direction, it should focus on those workers most in need of enhanced retirement income prospects.


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Appendix: Methodology37 Survey of Consumer Finances The 2004 Survey of Consumer Finances (SCF) surveyed 4,522 households about their pensions, incomes, labor force participation, asset holdings and debts, use of financial services, and demographic information. The SCF is conducted using a dual-frame sample design. One part of the design is a standard multistage area-probability design, while the second part is a special oversample of relatively wealthy households. This is done in order to accurately capture financial information about the population at large as well as characteristics specific to the relatively wealthy. The two parts of the sample are adjusted for sample nonresponse and combined using weights to provide a representation of households overall. In addition, the SCF excludes people included in the Forbes Magazine list of the 400 wealthiest people in the United States. Furthermore, the 2004 SCF dropped three observations from the public data set that had net worth at least equal to the minimum level needed to qualify for the Forbes list. The SCF collects detailed information about an economically dominant single individual or couple in a household (what the SCF calls a primary economic unit) where the individuals are at least 18 years old. We created an additional sample containing information on 7,471 individuals by separating information about respondents and their spouses or partners and considering them separately. When we discuss individuals in this document, we are referring to this sample. When we refer to all workers, we are referring to the subpopulation of workers within this individual sample. In households where there are additional adult workers, beyond the respondent and the spouse or partner, who may also have earnings and a retirement plan, information about these additional workers is not captured by the SCF and therefore is not part of our analysis. It is also important to note that the SCF was designed to be used as a household survey, and some information could not be broken into individual-level information. Where that was the case, we presented only household-level information. We defined “worker” relatively broadly and opted to begin with the set of all those who reported that they were both working and some other activity, including, for example, “worker plus disabled” and “worker plus retired.” We then excluded from our analysis those workers who reported that they were self-employed. Our definition of DC plans includes the following plans: 401(k); 403(b); 457; thrift/savings plan; profitsharing plan; portable cash option plan; deferred compensation plan, n.e.c.; SEP/SIMPLE; money purchase plan; stock purchase plan; and employee stock ownership plan (ESOP). Our analysis of the 2004 SCF yielded slightly lower participation rates than other data sets that consider pensions. For example, 2004 Bureau of Labor Statistics (BLS) data indicate a somewhat higher rate of active participation in DC accounts, 42 percent, compared with our finding of 36 percent. One possible factor contributing to this difference is that BLS surveys establishments about their employees, while the SCF surveys individuals who report on themselves and their households; it is possible that the SCF respondents may be failing to report all retirement accounts, while BLS is capturing a greater proportion of them. Also, the SCF considered both public and private sector workers, while the BLS statistic is only for private sector workers. Differences may also be explained by different definitions of workers and participation, question wording, or lines of questioning. The SCF appears to provide a lower boundary on the estimation of pension coverage among four major data sets.38 PENSIM Microsimulation Model To project lifetime savings in DC pensions and related retirement plans with personal accounts and to identify the effects of changes in policies, market assumptions, or individual behavior, we used the Policy Simulation Group’s (PSG) Pension Simulator (PENSIM) microsimulation models.39 PENSIM is a dynamic microsimulation model that produces life histories for a sample of individuals born in the same year.40 The life history for a sample individual includes different life events, such as birth, schooling events, marriage and divorce, childbirth, immigration and emigration, disability onset and recovery, and death. In addition, a simulated life history includes a complete employment record for each individual, including each job’s starting date, job characteristics, pension coverage and plan characteristics, and ending date. The model has been developed by PSG since 1997 with funding and input by the Office of Policy and Research at the Employee

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Benefits Security Administration (EBSA) of the U.S. Department of Labor, with the recommendations of the National Research Council panel on retirement income modeling. PENSIM sets the timing for each life event by using data from various longitudinal data sets to estimate a waiting-time model (often called a hazard function model) using standard survival analysis methods. PENSIM incorporates many such estimated waiting-time models into a single dynamic simulation model. This model can be used to simulate a synthetic sample of complete life histories. PENSIM employs continuous-time, discreteevent simulation techniques, such that life events do not have to occur at discrete intervals, such as annually on a person’s birthday. PENSIM also uses simulated data generated by another PSG simulation model, SSASIM, which produces simulated macrodemographic and macroeconomic variables. PENSIM imputes pension characteristics using a model estimated with 1996–1998 establishment data from the BLS Employee Benefits Survey (now known as the National Compensation Survey [NCS]). Pension offerings are calibrated to historical trends in pension offerings from 1975 to 2005, including plan mix, types of plans, and employer matching. Further, PENSIM incorporates data from the 1996–1998 Employee Benefits Survey (EBS) to impute access to and participation rates in DC plans in which the employer makes no contribution, which BLS does not report as pension plans in the NCS. The inclusion of these “zero-matching” plans enhances PENSIM’s ability to accurately reflect the universe of pension plans offered by employers. PENSIM assumes that 2005 pension offerings, including the imputed zero-matching plans, are projected forward in time. PSG has conducted validation checks of PENSIM’s simulated life histories against both historical life history statistics and other projections. Different life history statistics have been validated against data from the Survey of Income and Program Participation (SIPP), the Current Population Survey (CPS), Modeling Income in the Near Term (MINT3), the Panel Study of Income Dynamics (PSID), and the Social Security Administration’s Trustees Report. PSG reports that PENSIM life histories have produced similar annual population, taxable earnings, and disability benefits for the years 2000 to 2080 as those produced by the Congressional Budget Office’s long-term Social Security model (CBOLT) and as shown in the Social Security Administration’s 2004 Trustees Report. According to PSG, PENSIM generates simulated DC plan participation rates and account balances that are similar to those observed in a variety of data sets. For example, measures of central tendency in the simulated distribution of DC account balances among employed individuals is similar to those produced by an analysis of the Employee Benefit Research Institute (EBRI)Investment Company Institute (ICI) 401(k) database and of the 2004 SCF. GAO performed no independent validation checks of PENSIM’s life histories or pension characteristics. In 2006, EBSA submitted PENSIM to a peer review by three economists. The economists’ overall reviews ranged from highly favorable to highly critical. While the economist who gave PENSIM a favorable review expressed a “high degree of confidence” in the model, the one who criticized it focused on PENSIM’s reduced-form modeling. This means that the model is grounded in previously observed statistical relationships among individuals’ characteristics, circumstances, and behaviors, rather than on any underlying theory of the determinants of behaviors, such as the common economic theory that individuals make rational choices as their preferences dictate and thereby maximize their own welfare. The third reviewer raised questions about specific modeling assumptions and possible overlooked indirect effects. Assumptions Used in Projecting DC Plan Balances at Retirement PENSIM allows the user to alter one or more inputs to represent changes in government policy, market assumptions, or personal behavioral choices and analyze the subsequent impact on pension benefits. Starting with a 2 percent sample of a 1990 cohort, totaling 104,435 people at birth, our baseline simulation includes some of the following key assumptions and features. For our report, we focus exclusively on accumulated balances in DC plans and ignore any benefits an individual might receive from DB plans or from Social Security. Our reported benefits and replacement rates therefore capture just one source of potential income available to a retiree.  Workers accumulate DC pension benefits from past jobs in one rollover account, which continues to receive investment returns, along with any benefits from a current job. At retirement, these are combined into one account. Because we focus on DC plan balances only, we assume all workers are ineligible to participate in DB plans and do not track Social Security benefits.

OUR CHILDREN’S BURDEN 





 

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Plan participants invest all assets in their account in life cycle funds, which adjust the mix of assets between stocks and government bonds as the individual ages. Stocks return an annual nonstochastic real rate of return of 6.4 percent, and government bonds have a real return of 2.9 percent per year. In one simulation, we use the government bond rate on all plan assets.41 Using different rates of return reflects assumptions used by OCACT in some of its analyses of trust fund investment. Workers purchase a single, nominal life annuity, typically at retirement, which occurs between the ages of 62 and 70. Anyone who becomes permanently disabled at age 45 or older also purchases an immediate annuity at their disability age.42 We eliminate from the sample cohort members who 1) die before they retire, at whatever age, 2) die prior to age 55, 3) immigrate into the cohort at an age older than 25, or 4) become permanently disabled prior to age 45.43 We assume that the annuity provider charges an administrative load on the annuity such that in all scenarios the provider’s revenues balance the annuity costs (i.e., zero profit). Replacement rates equal the annuity value of DC plan balances divided by a “steady earnings” index. This index reflects career earnings, calibrated to the Social Security Administration’s age-65 average wage index (AWI). PENSIM computes steady earnings by first computing the present value of lifetime wages. Then it calculates a scaling factor that, when multiplied by the present value of lifetime earnings for a 1990 cohort member earning the AWI from ages 21 to 65, produces the individual’s present value of lifetime earnings. This scaling factor is multiplied by AWI at age 65, then adjusted to 2007 dollars. Using this measure as opposed to average pay for an individual’s final 3 or 5 years of working minimizes the problems presented by a worker who has irregular earnings near the end of his or her career, perhaps because of reduced hours.44 For household replacement rates, we use a combined annuity value of worker-spouse lifetime DC plan savings and a combined measure of steady family earnings. Starting from this baseline model, we vary key inputs and assumptions to see how these variations affect pension benefits and replacement rates at retirement. Scenarios we ran include the following: 1. Universal rollover of DC plan balances. All workers with a DC balance roll it over into an Individual Retirement Account or another qualified plan upon job separation, as opposed to cashing out the balance, in which case the money is assumed lost for retirement purposes. 2. Immediate eligibility and participation in a plan. A worker who would be offered a plan has no eligibility waiting period and immediately enrolls. This does not necessarily mean that the participant makes immediate or regular contributions; contribution levels are determined stochastically by PENSIM based on worker characteristics. 3. Delayed retirement. Workers work beyond the retirement age determined by PENSIM in the baseline run. In one scenario, workers work up to one extra year; in another, they delay retirement for up to three years, although 70 remains the maximum retirement age. 4. Raised contribution limits. We set annual contribution limits starting in 2007 at $25,000 per individual, up from $15,500 under current law, and $60,000 for combined employer– employee contributions, up from $45,000 under current law. These limits rise with cost-ofliving changes in subsequent years, as is the case in our baseline model.

PENSIM Cohort Summary and Cross-Sectional Statistics Lifetime summary statistics of the simulated 1990 cohort’s workforce and demographic variables give some insight into the model’s projected DC savings at retirement that we report (Tables 6 and 7). The 78,045 people in the sample who have some earnings, do not immigrate into the cohort after age 25, live to age 55, and retire (or become disabled at age 45 or older) work a median 29.4 years full-time and 2.1 part-time, with median “steady” earnings of $46,122 (in 2007 dollars). Those whose earnings fall in the lowest quartile work full-time for only a median 14.1 years, while working part-time for 9.1 years, and 13.4 years for their longesttenured job; this group’s median annual steady earnings measure $16,820. In contrast, those in the highestquartile of earnings work for a median 34.8 years, including 19.5 years for their longest job, and have median

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steady earnings of $126,380 per year. The results also show that pension coverage varies somewhat across income groups. About 83 percent of workers in the lowest income quartile have at least one job in which they are covered by a DC plan throughout their working careers, and they are eligible for DC plan coverage for a median 9.4 years. In contrast, at least 90 percent of workers in the highest three income quartiles have some DC coverage during their careers. Those in the highest income quartile are eligible for DC participation for a median 25.2 years throughout their career.

Demographic variables, full sample

TABLE 6 Summary Statistics, PENSIM 1990 Cohort By income quartile Full 1

2

3

4

19,511 73.8 High school graduate

19,511 55.6 High school graduate

19,512 44.8 Some college

19,511 28.2 College graduate

90.4

83.2

90.8

92.7

95.1

73.3

56.3

71.7

79.2

86.2

sample

N, full sample N for replacement rate calculationsa Percent female Education (median)

% who work for at least one DC sponsor during career % whose longest-held job offered DC pension

104,435 78,045 49.5 Some college

Source: GAO calculations of PENSIM simulation of 1990 cohort. Note: Percentage female and education medians are for entire sample; all other statistics are for only those used in the replacement rate calculations. aExcludes cohort members who have no lifetime earnings, immigrate after age 25, die prior to retiring or becoming disabled, or become disabled prior to age 45.

TABLE 7 Sample Summary Statistics, PENSIM 1990 Cohort, Medians By income quartile Workforce variables

Full sample

Years working full-time Years working part-time Steady earnings (annual, 2007 dollars) Number of jobs over lifetime Duration of longest job (years) Retirement age Years eligible for DC pension

29.4 2.1 46,122 5.0 17.2 63.0 18.5

1 14.1 9.1 16,820 5.0 13.4 62.0 9.4

2 27.9 2.2 34,950 5.0 16.9 63.0 17.6

3 31.8 1.1 60,777 5.0 18.3 63.0 21.2

4 34.8 0.5 126,380 5.0 19.5 64.0 25.2

Source: GAO calculations of PENSIM simulation of 1990 cohort.

Cross-sectional results of the sample cohort also provide some insights into the model’s assumptions, as well as some further insights into the relatively low projected sample replacement rates (Table 8). These statistics describe the working characteristics for each employed individual at a randomly determined age sometime between 22 and 62 in order to provide a snapshot of a “current” job for most of the sample. Among those employed at the time of the survey, 61.8 percent had an employer who sponsors a DC plan. Of these workers with a plan offered, 94 percent were eligible to participate, and among those eligible 67 percent


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participated. Taking all of these percentages together, this means that at any one time only 38.9 percent of the working population actively participated in a DC plan in our projections. Even among these participants, only 56.9 percent reported making a contribution to the plan in the previous year, while 45.7 percent had an employer contribution. Median combined employer–employee contributions in the previous year were 6.2 percent of earnings in our simulation. TABLE 8 Cross-Sectional Pension Characteristics of Sample Average Age at survey Percent of sample employed Current job duration (years) Job offers DC plan Among offered, percent eligible to participate Among those eligible, percent participating Past year’s employee contribution (percent of earnings) Past year’s employer contribution (percent of earnings) Total contribution (percent of earnings) Cumulative returns per year in plan (2007 dollars) Cumulative returns in current plan (2007 dollars) Among those eligible, percent contributing in past year Among those eligible, percent with employer contribution in past year

42.1 71.5 8.0 61.8 93.9 67.0 4.3 3.1 7.4 1,303 22,318 56.9 45.7

Median 42.1 5.9

3.9 0 6.2 383 180

Source: GAO calculations of PENSIM simulation of 1990 cohort. Note: Results reflect one time snapshot of each member of the sample at a randomly determined age between 22 and 62.

Notes Further, the Social Security normal retirement age for receiving full benefits has begun rising from age 65 until reaching age 67 starting in 2027, which will reduce benefits, relative to current rules, for those retiring at a given age. 2 This paper derives from the GAO report Private Pensions: Low Defined Contribution Plan Savings May Pose Challenges to Retirement Security, Especially for Many Low-Income Workers (GAO-08-8, Nov. 2007), available at http://www.gao.gov/new.items/d088.pdf. 3 A typical “final average pay” plan might set annual benefits equal to 1.5 percent of the average of the employee’s final 5 years of earnings multiplied by the employee’s tenure at the firm in years. 4 Beginning in 2006, plans were permitted to allow employees to designate some contributions to Roth 401(k) plans, which are not excluded from current income but allow for tax-free withdrawals in retirement. 5 The Internal Revenue Code (IRC) sets limits on annual contributions to DC plans by both employees and employers. In 2007, an employee may make up to $15,500 in tax-deductible contributions into a DC plan, and employee and employer combined contributions cannot exceed $45,000. A worker age 50 or older may contribute an additional $5,000 in annual “catch-up” contributions. The IRC exempts distributions from DC plans from an additional 10 percent tax if taken for certain purposes. For example, if the employee becomes disabled or needs funds for medical purposes, or if the distribution is taken upon separation of service at age 55, the additional tax does not apply. 6 This tax expenditure includes 401(k) plans, Keogh plans, and special employee-stock-ownership plan rules. Summing these figures does not take into account any interactions. In addition, the projected tax expenditure in 2009 for DB plans is $46 billion and $11.7 billion for IRAs ($41.6 billion and $15.2 billion in 2013). 7 The saver’s credit is a credit against federal income tax available to low-and middle-income taxpayers based on their qualified contributions to 401(k) and other retirement savings plans and to IRAs. 1

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The Pension Protection Act of 2006 (PPA; Pub. L. No. 109-280) made the saver’s credit permanent and indexed qualifying taxable income levels for inflation. 8 About 87 percent of all 401(k) plans generally allow participants to choose how much to invest, within federal limits, and to select from a menu of diversified investment options selected by the employer sponsoring the plan, such as an assortment of mutual funds that include a mix of stocks, bonds, and money market investments. 9 A DC plan sponsor may make an automatic distribution of a participant’s account balance when the participant leaves a job if the balance does not exceed $5,000. However, if the balance exceeds $1,000, the sponsor must automatically roll this money over into a default IRA or keep the balances in the plan, unless the participant explicitly chooses otherwise. 10 For more discussion of plan fees, see GAO Private Pensions: Changes Needed to Provide 401(k) Plan Participants and the Department of Labor Better Information on Fees (GAO-07-21, November 16, 2006). 11 A 2003 GAO report found that among DC participants retiring from 1992 to 2000 with a choice of how to receive benefits, only 7.5 percent chose to annuitize benefits. See GAO, Private Pensions: Participants Need Information on Risks They Face in Managing Pension Assets at and during Retirement (GAO-03-810, July 2003). 12 For more analysis of recent DB plan freezes, see GAO, Defined Benefit Pensions: Plan Freezes Affect Millions of Participants and May Pose Retirement Income Challenges (GAO-08-817, July 2008). 13 For plans that terminate in 2009 and 2010, PBGC guarantees benefits up to $4,500 per month for a 65-year-old worker. This guarantee is higher for those retiring older than age 65 and lower for those retiring younger. For example, the 2010 guarantee is $2,025 per month for someone retiring at age 55, and $13,680 per month for a 75-year-old. 14 Craig Copeland, “Individual Account Retirement Plans: An Analysis of the 2007 Survey of Consumer Finances, With Market Adjustments to June 2009” (EBRI Issue Brief #333, August 2009). 15 Many factors affect how much a person will need: age at retirement, life expectancy, living expenses, health expenses, investment returns, inflation, and personal tolerance for risk. For summaries of this research through 2002 and 2003, see GAO, Private Pensions: Improving Worker Coverage and Benefits, GAO02-225 (Washington, DC: April 9, 2002, pp. 41–4); and Congressional Budget Office, Baby Boomers’ Retirement Prospects: An Overview (November 2003). 16 Data reported by the Social Security Administration (SSA) do not consider lump-sum withdrawals from retirement accounts, such as DC plans or IRAs, as income, and hence these statistics do not include nonannuitized savings. 17 Because data reported by the SSA do not consider lump-sum withdrawals from retirement accounts, such as DC plans or IRAs, as income, these statistics do not include nonannuitized savings. 18 The SSA defines a low earner as someone whose career average earnings are about 45 percent of the national average wage index (AWI), while a high earner has career average earnings of about 160 percent of AWI. 19 Retirement plans rolled over from a former employer could have originally been either DC or DB plans. Also, any retirement plans from a former employer that were converted into an annuity would not be captured in these “total balance” statistics. 20 We calculated this yearly income, as an annuity equivalent using the Thrift Savings Plan calculator (http://calc.tsp.gov), assuming an interest rate of 5.25 percent, single life benefits beginning at age 65, no joint survivor benefits, and level payments. 21 Since some older workers may have reduced their hours or are both retired and working, they may be earning less than they had been through most of their working life. Household wealth can more accurately reflect their financial situation than income can. 22 Households included in this analysis of lump-sum distributions are restricted to those where the head of household is under age 59 in order to approximate those that would be subject to penalties for cashing out the retirement funds. Percentages do not add up to 100 percent because of rounding. 23 These rollover and cash-out figures look at all cash settlements from past jobs. The SCF does not specify the original account type, so the analysis includes all retirement plans or pensions that were converted into a lump-sum distribution or settlement.


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Craig Copeland, “Individual Account Retirement Plans: An Analysis of the 2007 Survey of Consumer Finances, With Market Adjustments to June 2009” (EBRI Issue Brief No. 333, August 2009). 25 Alicia H. Munnell, Anthony Webb, and Francesca Golub-Sass, The National Retirement Risk Index: After the Crash (Center for Retirement Research at Boston College, Number 9-22, October 2009). 26 Jack VanDerhei, Sarah Holden, Luis Alonso, and Craig Copeland, “401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2007” (EBRI Issue Brief, no. 324, December 2008). 27 Alicia H. Munnell, Francesca Golub-Sass, and Dan Muldoon, An Update on 401(k) Plans: Insights from the 2007 SCF (Center for Retirement Research at Boston College, Number 9-5, March 2009). 28 Jack Vanderhei, “The Impact of the Financial Crisis on 401(k) Account Balances” (EBRI Issue Brief, no. 326, February 2009). 29 See the appendix for further details about details and assumptions in our PENSIM analysis and calculations. For comparisons of our projections to those of other studies, see Appendix II in GAO-08-8. 30 Other studies that do similar balance projections for DC plans that focus primarily on workers with continuous plan coverage generally find higher savings levels and replacement rates than we report in this section. For more discussion of these studies and how they compare with our projections, see GAO-08-8 Appendix II. 31 For various summary statistics describing our sample, see the appendix. 32 We recalculate income quartiles for the subsamples, and thus the income cut-offs for each quartile differ from those in the full-sample baseline. 33 While this scenario eliminates waiting periods for eligibility and participation among workers of firms that sponsor plans, it does not necessarily imply that workers are making a contribution to a plan each period, nor does it affect the likelihood that a firm will offer a DC plan. PENSIM determines periodic contribution levels among participants based on plan features and worker characteristics. See the appendix. 34 In our baseline scenario, workers cash out account balances 36 percent of the time when leaving a job. 35 The baseline projections assume that annual contribution limits continue to rise in the future from 2007 limits of $15,500 for employee contributions and $45,000 for combined employer–employee contributions. 36 We would expect the effect on annuity income to exceed that on replacement rates because working longer may also raise the measure of career earnings that we use in the denominator of the replacement rate calculation. 37 For more details about the methodologies for our analysis using the SCF and PENSIM, see Appendix I in GAO-08-8. 38 Comparison data sets are the Survey of Income and Program Participation, the Current Population Survey, and the Department of Labor Form 5500 series. See Geoffrey Sanzenbacher, “Estimating Pension Coverage Using Different Data Sets” (Center for Retirement Research, August 2006) for additional discussion on this topic. 39 For more information on PSG microsimulation models, see http://www.polsim.com. For more details on PENSIM, see Martin Holmer, Asa Janney, and Bob Cohen, PENSIM Overview, available from http://www.polsim.com/overview.pdf. 40 While these models use sample data, our report, like others using these models, does not address the issue of sampling errors. The results of the analysis reflect outcomes for individuals in the simulated populations and do not attempt to estimate outcomes for an actual population. 41 Since our projections do not stochastically model stock returns, assuming a rate of return on assets equal to the historical return on stocks does not capture the risks associated with stock returns; we therefore also model DC savings under a scenario in which all assets return the government bond rate of return. For more discussion of the appropriate rate to use in projections, see Analysis of H.R. 3304: Growing Real Ownership for Workers Act of 2005 (Congressional Budget Office, September 13, 2005, pp. 63–5). 42 We classify as retired those workers who become disabled after age 62. We do not classify as disabled those workers who recover from a disability prior to age 62. 24

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We drop cohort members who die before retiring because we assume annuitization at retirement, but someone who dies before retiring would never annuitize DC savings. We apply the other conditions because such cohort members are likely to have fewer years in the workforce to accumulate DC plan savings. 44 The income quartile subsamples used in this report are based on “steady earnings.” 43

Discussion ROBERT J. THORTON Lehigh University2

Introduction In his paper “The Challenge of Providing Retirement Security through DC Plans: Evidence from Simulated Lifetime Projections,” Mark Glickman has given us a nice profile and background picture of defined contribution (DC) pension plans today—their scope of coverage and benefit levels as well as their variation across income groups. He has also provided future projections of the same: DC plans’ coverage, benefit levels, and variation across income groups for the cohort of workers born in 1990 who will be retiring in the 2050s. This is the paper’s major contribution. His projections, by the way, can probably best be described as “worrisome” or even “gloomy,” although Mark himself has not used these terms. For example, he projects that DC plans will replace only about 22% of average earnings for those retiring in the 2050s. On the other hand, I couldn’t help but coming away feeling much better about my own (soon to be realized) DC pension plan, even with the major hits that such plans have experienced in the last few years. I have a couple of questions and suggestions that I would like to offer. First, there is a statistics issue. Mark states that “since the early ’80s the percentage of workers in a pension plan has remained flat across the private sector labor force [although DC plans have grown while defined benefit [DB] plans have shrunk].” But a little later, he provides some numbers from the Department of Labor. In 1980 private DB plans had 38 million participants, while DC plans had 20 million. That’s a total of about 58 million participants. In 2006, DC plans had about 80 million participants, and DB plans had 42 million. These 2006 numbers amount to 122 million participants and represent more than a doubling of the total in 26 years. But the labor force over this time grew by only about 50%—from about 100 million in 1980 to about 150 million in 2006. These figures don’t seem to square with Mark’s assertion that participation in pension plans was flat over this period. My second question refers to the life expectancy data that Mark used. It wasn’t clear from the paper whether the annualized benefit levels that he projected for the 2050s were based on current life expectancies or projected life expectancies 40 years from now. If it is the former, and if the secular rise in life expectancies observed in the past continues into the future, then his average earnings replacement figure of 22% would seem to be upwardly biased (and my own pension begins to look even better.) Although it’s probably beyond the scope of the paper, I wondered what policy changes Mark would suggest that would raise the low pension coverage rates as well as the low earnings replacement rates. Among the possibilities that come to my mind is employer mandates for private pensions, along the same lines as employer mandates for health insurance that are currently being debated in Congress. I believe a fair number of countries have initiated this kind of mandate in recent years: Germany, New Zealand, and Norway, to name a few. There is also the Netherlands, as Sharon Hermes has discussed in session with her presentation “Intergenerational Risk Sharing in Retirement: A Case Study of the Netherlands Private Pension System.” In fact, right before our session began I came across a just-published monograph by John Turner, Legislating Pension Policy: The Search for Better Solutions, put out by the Upjohn Institute. Finally, although it is again probably beyond the scope of Mark’s paper, it would be interesting to estimate how much his 22% earnings replacement rate in 2050 would change with expected Social Security benefits added in. Even though projecting Social Security benefits 40 years down the road is a daunting task, it’s the combined total of the two that of course must be compared with the target or “ideal” replacement rates that Mark discusses—whether that “ideal” replacement rate is 65%, 85%, or even 100%. In addition to the retirement income worries facing the members of the next generation, a host of other economic challenges loom before them, as David Yamada explained in his presentation “Generations Author’s address: 621 Taylor Street, Bethlehem, PA 18015-3117

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Hexed: A View from the Kids’ Table.” Among these challenges are rising student loan debt (a result of tuition outstripping inflation), student loans replacing tuition grants, and older workers remaining for a longer time in the workforce (thereby leaving fewer work opportunities for younger workers). There is also the growing tax burden that rising Social Security and medical care costs will impose on the next generation as demographic change continues. As David points out, “Many of these concerns were in play before the recession, but the economic meltdown has intensified all of them.” In any case, he fears that we face a “long period of generational strife that will play out in our workplaces, boardrooms, and legislatures.” My first reaction to David’s listing of the schooling, workplace, and taxation challenges that the next generation is likely to face was one of relief that my own children were not present for what might be facing them down the road. Together, these challenges seem to presage a “perfect storm.” However, my economist’s instinct also tells me that the outcomes may not turn out to be as bad as we fear. Even with seemingly ever-increasing tuition costs coupled with rising student loan debt, the fact remains that the rate of return to a college degree continues to remain high, at around 15%. And as for the fear that if older workers remain longer in the workforce there will be fewer job opportunities for younger workers, the old “lump of labor” fallacy should be called to mind. The number of jobs is not really “fixed,” as those who commit this fallacy sometimes claim. Rather, if older workers do remain in the workforce longer, their higher incomes and purchasing power will work to create additional jobs as well (although not necessarily on a one-to-one basis). With my two qualifications I am not implying that David has necessarily overestimated the dangers that face the next generation. As he admits, “The exact mix of these factors remains speculative.” Still further discussion of these issues can be found in his recent Perspectives on Work essay, “The Looming Twenty-First Century Generation Gap: Economic Challenges Facing Younger Workers” (Yamada 2010).

References Turner, John. 2010. Legislating Pension Policy: The Search for Better Solutions. Kalamazoo, MI: Upjohn Institute. Yamada, David. 2010. “The Looming Twenty-First Century Generation Gap: Economic Challenges Facing Younger Workers.” Perspectives on Work, Vol. 13, No. 2, pp. 22–4.

VII. Alternative Futures in a Neo-Liberal Environment — LERA International Section Meeting I

Alternative Futures for West European Trade Unionism MARTIN UPCHURCH Middlesex University GRAHAM TAYLOR ANDY MATHERS University of the West of England1

Abstract We explore developments in trade unions in four countries—Sweden, Germany, Britain, and France—to test emerging strategic initiatives in adapting to or confronting the new neo-liberal political economy. While aware of the importance of supportive state institutions for union health, we would suggest that political strategy might indeed be a necessary weapon in unions’ arsenal if they are to restore their power and influence. Strategic choice for unions will include both industrial and political considerations, and social movement theory can provide insights for our understanding these choices. We display the alternatives open to trade unions on two dimensions. On the first dimension, an industrial one, West European trade unions can opt between an integrative approach, by exploring productivity coalitions with employers and social pacts with governments, and an oppositional approach, by developing combative and militant mechanisms of protest and dissent. A second dimension, the political, varies from the continuance of a national orientation to problem solving to an international one. The national approach continues to rely on the maintenance or (re)creation of sympathetic government support for the aims and objectives of organized labour, while the international approach supplements national solutions by the addition of multinational or supranational support structures. Our first three alternative futures represent reformulated scenarios for social democracy, while a fourth scenario is framed within a rejection of the social democratic form and the development of radicalised political unionism.

Introduction: A Crisis of Social Democratic Trade Unionism? Recent debate on trade union renewal in the Global North focuses on the impact of more than two decades of neo-liberal restructuring and globalization. In the North American context, debate has focused on the extent to which these developments are shifting the strategic orientations of trade unions away from “business unionism” towards “social movement unionism” (Dreiling and Robinson 1998, Robinson 2000, Voss and Sherman 2000). In Western Europe, the impact of neo-liberal restructuring and globalization has produced a different form of crisis with a divergent trajectory of reorientation. This reflects the institutional Author’s address: Business School, The Burroughs, Hendon, London NW4 4BT, United Kingdom

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specificity of the relationship among trade unions, political parties, employers, and the state that has predominated in postwar Western Europe, producing nationally specific forms of “social democratic trade unionism.” Such social democratic trade unionism has been characterised as a “specific social structuration” (Moschonas 2002:17) marked by a historically specific and contingent relationship among a growing industrial working class, trade unions, reformist socialist and labor parties, and the nation-state. In Western Europe neo-liberal restructuring has also acted to curtail the industrial strength and bargaining power of trade unions through the process of deindustrialization, union marginalisation, and the marketisation of public services. One consequence is that in many states unions have struggled against a decline in trade union density, particularly in manufacturing sectors exposed to global competition. In addition, the ability or willingness of the nation-state to offer concessions to labour has become severely constrained by the dynamics of global competition. Capital has been forced by the exigencies of international product market competition to increase rates of both intensive and extensive exploitation of their workforces. Rather than challenge capital directly, social democratic political parties have become increasingly attracted to neo-liberal policy prescriptions geared towards national business competitiveness. Where concessions to labour remain, these take the form of defensive or “dented shield” forms of social pacts associated with “competitive corporatism,” in which trade unions attempt to mitigate the worst effects of neo-liberal restructuring (Rhodes 1998). Such a reaction reflects the embedded nature within many union leaderships of the ideology of social partnership (Wahl 2004). The continuation of “partnership” practice and competitive corporatism has in turn acted to weaken the traditional social democratic union–party nexus. “Partnership,” in this context, represents a denial and/or suppression of class conflict and a direct appeal by the state to workers’ “self-interest” at the enterprise level. Keynesian social democratic settlements also involved the “statization of society” (Panitch 1986:189) or “statization of social life” (Poulantzas 1978), with “Habermasian” integrating mechanisms typologised as “pluralist” industrial relations. Neo-liberal restructuring, in contrast, by its very belligerence encourages the “opening up” of civil society through dilution of these traditional institutions. This process of opening up presents trade unions with three principal avenues of strategic and ideological reorientation. First, unions have the option to embrace the associational politics of the “third way” and continue the strategy of social partnership (Cohen and Rogers 1995, Ackers and Payne 2003, Prabhaker 2003, Upchurch 2008). Second, unions may seek to lobby the “party of labour” for a return to “traditional social democracy.” Third, we suggest here that unions might exploit this opening up in order to liberate themselves from the institutional and ideological fetters of the Keynesian welfare state so as to reestablish themselves as autonomous “movements” in civil society. The dominant partnership ideology creates distinct institutional barriers to this latter reorientation and, as Rainnie and Ellem (2006) suggest, “labour movements at whatever level have to experience near terminal crisis before the rigidities of old structures, attitudes and activities can be opened up to new and challenging ways of organizing.” The recent work of Burgess (2004) applied to the cases of Mexico, Venezuela, and Spain is an attempt to explore these questions through a rational action approach premised on the cost–benefit decisions of party political and trade union actors. In this paper, we present an alternative analysis. We argue the importance of institutional path dependency in the development and decomposition of party–union alliances and the importance of ideology in framing union identities. Western Europe can only be understood in the context of a crisis of the specific and particular form of social democratic trade unionism. We focus on two interrelated processes of reorientation. First is the extent to which strains within the party union nexus are producing division and fractures within, and between, unions on the basis of an accommodation to, or resistance against, neo-liberalism. Second is the extent to which a weakening of the party union nexus is resulting in the emergence of new union identities framed on a radicalised and politicised unionism. We suggest that there are three important variables that are likely to determine the extent of reorientation and division. First is the ability of unions to repoliticize their relationship with social democratic parties and governments. Second is the ability of unions to open up their internal procedures and modes of representation. Third is the willingness of union members to engage in new and challenging ways of organizing, deemed necessary for wider political and oppositionist engagement. Our case relates primarily to the examples of Sweden, Germany, Britain, and France, and some reference is made to Europe-wide developments through the European Trade Union Confederation (ETUC).

ALTERNATIVE FUTURES

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Variations National variance within Western Europe is already well articulated by Crouch (1993) and Hyman (2001). Continuity and change are likely in terms of both “path dependency” and “path shapers” (Nielsen, Jessop, and Hausner 1995). Variance flows from the perceived need for trade union leaderships to maintain the “balance” between sectional (or class) interest and (bourgeois) national interest contained in specific political settlements whereby government concessions were granted to the union leaders in return for their exerting some discipline over rank-and-file wage militancy (Flanders 1970, Hassel 2003). In consequence, variable forms of neo-corporatism were de rigeur throughout most Western European economies, well entrenched in the “strong” social democratic states of Scandinavia and weakest in the “liberal market” economies of the United Kingdom and Ireland (Padgett and Paterson 1991). Tension was located in the development of bureaucratic forms of representation emanating from the “institutionalization” of trade unions within “pluralist” industrial relations systems. Indeed, it is suggested that such institutionalization and bureaucratization has the potential to erode union legitimacy and mobilizing capacity (Darlington 1994, Müller-Jentsch 1986, Offe and Wiesenthal 1985), and to constrain unions’ ability to enact innovative techniques in parallel with the “newer” social movements (Touraine 1981, Melucci 1989). Sweden, for example, is a case of unparalleled intimacy between the unions and main party of labour—the SAP (Social Democratic Party)—even though this relationship suffered a divorce in 1987. Germany represents an example of informal alignment, where a dominant party union nexus was established between the SPD (Social Democratic Party) and unions but remained informal due to the importance attached by the unions to maintaining good relations with parties other than the SPD. Britain, in contrast, is an example of formal affiliation, where union party links are most established, but where consensus-based neo-corporatist practices have nevertheless been much weaker. France represents a case of fragmentation, where no dominant party union nexus of the social democratic type has been firmly established, where union density is lowest, but where the state has encouraged forms of bipartism and sometimes tripartite neo-corporatism. There are differences between these countries in terms of the strategy of the “party of labour” when in power. In the United Kingdom, following the hubris of the 1980s and 1990s, New Labour attempted to introduce a new “shared value” centred on partnership and consensus. In Germany, France, and Sweden, in contrast, the new capital accumulation strategy of the state has involved a shift to confrontation. In Germany, the crisis is more severe than in Britain because of the depth of division within the SPD created by the identification of the Partei with the retreat from the social model. The institutional “thickness” of the codetermination model means that the challenge of industrial restructuring and withdrawal of welfare “rights” would inevitably be a direct affront to the class interests of workers. In contrast, trade unions in Britain have been less integrated into the post-war body politik (Crouch 2003). Longer-term societal stability in the United Kingdom has meant that the state has been less inclined to create a settlement with organized labour to ensure continuing stability, and the institutions supporting the interests of organized labour are “thinner” as a result. Hence, neo-liberal marketization has been less of a shock in the United Kingdom, and the political ramifications of this in terms of fractures within the party of labour have been less severe. In addition, the major period of restructuring in Britain took place during the Thatcher/Major Conservative regimes. The spectre of a return to a Conservative regime can be more effectively used by the New Labour leadership to maintain its ideological and organizational grip over the unions. Trade unions affiliated to the British Labour Party may also perceive that they have more power over the party than their equivalents in the SPD because of more formalized nature of the party–union link. This may help explain why the development of trade union dissidence through the “awkward squad” in Britain continues to be divided between a majority who wish to “reclaim Labour” and a minority who have either suffered expulsion from the Labour Party or have sought to explore alternatives outside of the dominant party union nexus (McIlroy 2009). What is common to both countries (and the French example) is the open hostility to neo-liberalism from dissident union and political groupings. Central to the dissidence has been a rejection of the retreat of the state from its former role and functions, manifested in Germany in opposition to the Hartz Reforms, in France to pension and labour law reform, and in the United Kingdom in opposition to continued privatization and private sector interest in public service provision. This opposition works to draw sections of the unions both to oppose state policy and to seek alliances with global justice organizations and public service user groups within a

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wider popular movement. The fractured nature of unions in France and their alignment with alternative parties of the Left has meant that the crisis of the French social model has been met with a more complex response focused “on the streets” (Gordon and Mathers 2004). Opposition crystallized around debates on the future of the European Union Reform Treaty, reflecting a more generalized popular reaction to neoliberal market agendas (Grunberg 2005). Union support from the major union federations (CFDT, CGT, and FO) for the protests has been ambivalent, sometime supporting the protests, sometime opposing, and sometimes remaining neutral (Andolfatto and Sabot 2004). The process of union vacillation has also been overlain with differences between the union confederations, involving a “depoliticization” of the CFDT and a turn to militancy by the FO. In the wake of the collapse of the PCF (French Communist Party) and its hegemony over organized labour, a space has opened up to the left of social democracy that has been filled partially by new unions such as SUD and others in the “Group of 10” that offer consistent opposition to the neo-liberal reforms. This development (so far) has not been matched on the political field, where the space to the left of social democracy has remained highly competitive (Damesin and Denis 2005). As with both Britain and Germany, the protest movements have been distinctly anti-neo-liberal in their orientation, and worker opposition to NLR has been intertwined with that of social protest movements outside of and more often than not opposed to the major parties of social democracy. These tendencies within unions have played a critical role in the development of a transnational or European-level challenge to the neo-liberal dynamics of European integration. Our research framework postulates that the reformulation of social democracy under the impact of neo-liberalism presents itself with three possible alternatives for unions. These alternatives range from Third Way “business”-type unionism to attempts to restore variations of tradition social democracy at the national or international level. An alternative scenario envisages a slow process of decay of the social democratic model of trade unionism and a corresponding attempt to revive unionism through radical, political, and oppositional programmes and identities.

Toward Alternative Futures? We suggest that the alternatives open to trade unions may be displayed on two dimensions. On the first dimension, trade unions can opt between an integrative approach, by exploring productivity coalitions with employers and social pacts with governments, and an oppositional approach, by developing combative and militant mechanisms of protest and dissent. Our second dimension varies from the continuance of a national orientation to problem solving to an international one. The national approach continues to rely on the maintenance or (re)creation of sympathetic Government support for the aims and objectives of organized labour, while the international approach supplements national solutions by the addition of multinational or supranational support structures. In Figure 1, Sections I, II, and II represent reformulated or continuing scenarios for social democracy, while Section IV represents a scenario based on a rejection of the social democratic form and the development of an alternative political identity. Of course, any such twodimensional model runs the risk of boxing-in alternatives too tightly. In reality there may be ebb and flow between alternatives, as well as tensions within unions as to which direction is desirable.

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FIGURE 1 Alternative Trade Union Typologies NATIONAL I Third Way Partnership (minimal likelihood of SMU activity)

II Traditional Social Democracy (constrained SMU activity)

INTEGRATIVE

OPPOSITIONAL III IV Cosmopolitan Social Radicalised Political Unionism Democracy (maximum likelihood of SMU (likelihood of alliances and coalition activity) building) INTERNATIONAL

Third Way (Integrative, National) Our first variant, the Third Way, is symbolized by a propensity of unions to adopt the policy of risk minimization. Such minimization, espoused by theorists such as Beck (1992) and Giddens (1998), manifests itself in the attenuation of class conflict and its replacement by progressive workplace consensus between employees and employer. Such risk sharing provides the ideological impetus for mutual gains in the workplace, whereby employees work collaboratively with employers to protect the organization from business failure. In the advanced capitalist economies, risk to both employer and employee is minimized by a supplyside strategy that focuses on the upgrading of skills. As such, protagonists argue, social democratic trade unionism might reformulate itself as a protector of worker interests in a globalized economy. Writing within the UK context, Ackers and Payne (1998) also regard collaborative partnership between unions and employers as an extension of pluralist principles within which trade unions can achieve new societal and workplace legitimacy and mitigate risk. In Germany, the transition to Third Way was symbolized by Gerhard Schröder’s collaboration with Tony Blair in authoring Die Neue Mitte/Third Way (Schröder and Blair 1998). Critics have argued that rather than risk being shared, it is transferred to the employee through work intensification, stress, and increased precariousness. This is explained by Third Way partnership having been adopted by governments and employers as a strategic approach to capital accumulation, rather than any benign desire to befriend organized labour. This Third Way variant reformulates the traditional characterization of social democratic trade unionism by releasing the fetters placed on “business unionism” through the promotion of partnership-based consensus ideology. It produces a rubric whereby trade unions act to restrain class solidarity when it threatens the national interest, expressed in terms of national business competitiveness, while at the same time suppressing sectional interests sometimes expressed as business unionism. Such a reformulation is promoted not only by the union leaderships but also by the state, as it seeks to bypass class solidarity and appeal directly to labour to support national business interest. Evidence of such Third Way approaches within sections of the German trade unions (such as IG BCE—the mining, energy and chemical workers’ union; Dribbusch and Schulten 2008), in Britain, with the establishment of the TUC “Partnership Institute” and New Labour government support for “Union Learning Representatives” and workplace partnership initiatives (McIlroy 2008), and in France with the orientation of the CFDT since its “Liberalism or Statism” conference in 2000 (Béroud and Mouriaux 2001). In such cases the emphasis has been on establishing national business competitiveness and relegitimising trade unions through their support for such a project. Traditional Social Democracy (Oppositional, National/EU) Leggett (2007) identifies a strand of thought within social democracy that he labels as critical traditionalists. This he describes as a “discernible model of social democracy” from which “Third Wayists” have now departed. This variant seeks to return to the values of “old social democracy,” exemplified by the

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Keynesian Welfare State and a positive relationship between party and unions. It is not accepted that “there is no alternative” to capitalism’s love affair with neo-liberal globalization (Garrett 2003; Hirst, Thompson, and Bromley 2008; Wickham-Jones 2000). This scenario envisages within the European context a possibility of an EU-wide restraint on neo-liberalism and the restoration of defence of the public realm. For trade unions, such a position would entail projects to “reclaim social democracy” and to continue to fight left–right battles within the national party machinery. Early indications of this tension were already apparent in the divorce of the LO union federation from the SAP in 1987, whereby the formal connection between the two was untied but pressure continued to be exerted on the SAP from the unions at workplace or sectoral levels. A strategy of internal lobbying is now seen as the way forward for many “left” trade union leaders in the United Kingdom, who wish to reclaim the Labour Party (Leopold 2006, McIlroy 2009). Such battles have also been reflected in the SPD’s Keynesianism debate in Germany, as well as in the militant turn of the FO in France and in the ongoing realignment of the CGT. The strategy depends on activating party members and challenging the leadership while continuing to hold the line of trade union class solidarity against pressures to conform to the interests of national competitiveness. In the process, unions at the national level are drawn into opposing state policy as it relates to modernization and retrenchment of the public sector. Elements of such a strategy form part of the policy approach at the EU level, where the European Federation of Public Service Unions has been active in coordinating a federated campaign for a legal framework on public services (European Federal of Public Service Unions 2005). The credibility of any revival of traditional social democracy is also clouded by a more complex theoretical debate on contemporary capital accumulation strategy. The traditional social democratic position assumes that the specificities of neo-liberalism can be divorced from the generalities of capitalism. From this perspective it would be possible to reconstruct social democracy within the confines of capitalism, most specifically by a revival of Keynesian economic prescription. Some neo-Marxist writers outside of traditional social democratic circles adopt a similar overview. David Harvey (2003), for example, suggests that neo-liberalism is a particularized strategy of privatization, marketization, and state retrenchment pursued by belligerent capital as “accumulation by dispossession.” Pierre Bourdieu (1998) suggested something similar with regard to the state when writing that in withdrawing the “left hand of the state,” governing parties in Western Europe have deliberately sought to distance themselves from class solidarity and labour interest in a drift towards “social liberalism.” Critics of this optimistic scenario suggest that the processes of social democracy’s subservience to international capital actually predate the death of Keynesianism and the onset of globalization (Callaghan 2002). From a classical Marxist position, both Harman (2007) and Albo (2007) argue that neo-liberalism, rather than being a variant of contemporary world capitalism, is now central to capital accumulation, and is an overall response by western-based capital to falling rates of profit that became evident throughout the 1970s and 1980s (Brenner 1998, Duménil and Lévy 2005). As a result, social democracy’s positive relationship with capitalism makes it extremely difficult if not impossible for these parties and allied trade union leaderships to challenge neo-liberalism without a direct challenge to the power of capital. Indeed, as both Bieler (2006) and Mathers (2007) suggest, in these circumstances the reinvigoration of “Social Europe” is unlikely to be state-led through “Euro-Keynesianism” but instead is dependent on trade unions developing and expanding class struggle both within and across nation-states, whereby key aspects of the dominant EU social democratic politik need to be challenged from below. Cosmopolitan Social Democracy (Integrative, International) Our third scenario is cosmopolitan social democracy (CSD), which can be characterized as both a meta-version of the Third Way and an international version of traditional social democracy. Held and McGrew (2002) identify right–left variants between “global transformers” who wish to encourage “multi-level democratic cosmopolitan polity” and “radicals” who wish for “bottom up social change” and the “reform of governance, from the local to global level.” CSD embraces prescriptions of institutional reform and corporate social responsibility in which “globalization can be better and more fairly governed, regulated and shaped” (Held and McGrew 2002:107). Again, many proponents of CSD envisage the European Union as a key potential agent for such re-regulation. Partnership between employers and employees is often central to the project and is even conceived as a form of new governance typifying the ethos of the European Social Model (Kristensen 2001). At the European level, the ETUC have articulated this CSD “Third Way” position

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through its uncritical support for social dialogue, European Works Councils, and the European Employment Strategy. In its “left” version, the route map to achieving CSD is dependent on a challenge to the neo-liberal imperative, even though the solution to the problem may be constructed in terms of institutional reform. Neo-Gramscian concepts of civil society are utilised to propose agitation “from below.” New forms of participative and associative democracy are deemed necessary because of a decline of societal solidarity allied with the risk society, which in turn has created a crisis of representative democracy (e.g., Cohen and Rogers 1995). In the Third Way vision of CSD, the motive for promoting new forms of participative democracy comes from a position of relative pessimism. Old forms of representative democracy, associated with mass state provision of goods and services and “traditional” social democracy, are no longer deemed appropriate to peoples’ needs. The CSD project becomes in essence Giddens’ (1998, 2006) “social investment state,” whereby the role of the state mutates to one that discourages welfare dependency while at the same time providing incentives for personal advancement via education and training. Translated to the restructured workplace, CSD offers something similar to Third Way prescription. The process of participation is again postulated as key to economic and production efficiency, either as pluralist networks of stakeholders in the corporation (Hirst 1997; Kelly, Kelly, and Gamble 1997) or in terms of economic democracy expressed through Works Councils. It is in this segment of reformed trade union identity that we can locate the emphasis on initiatives such as that calling for “Decent Work,” international framework agreements, corporate social responsibility, and core labour standards (see Dimitrova and Petkov 2005 for an insight into the Decent Work approach). This strategy, adopted by many of the Global Union Federations (GUFs) and the International Trade Union Confederation (ITUC), has as its objective the regulation of labour standards worldwide through agencies such as the International Labour Organization (ILO) or even the World Trade Organization (WTO). Such a strategy of engagement for change with the institutions has been accompanied with a push by unions at international level to ally with NGOs and social movements in a process of lobbying. The Decent Work initiative was a central component of the intervention of the ITUC and some unions (e.g., IG Metall) at the 2007 World Social Forum in Nairobi. This strategy internationalizes the unions’ march through the institutions and parallels strategies of the GUFs and ITUC to engage not only with employers through international framework agreements (Croucher and Cotton 2009, Hammer 2005, Hassel 2008), but also with the international financial institutions. However, Bieler (2007) notes a potentially debilitating top-down and hierarchic approach to achieving “Decent Work,” which contrasts with the more radical and rank-and-file– based initiatives associated with alternative campaigns at the forum, such as the “Proposal for a Labour Network.” Such tensions are at the heart of debates about the origins and direction of new labour internationalism. Hyman (2005) identifies a labour diplomacy model that is based on cooperative relationships among international union leaderships, governments, and institutions but might stand in contrast to workplace-based international solidarity. Martínez Lucio (2007) also writes of a “managerialist” mode of labour internationalism, which displays a tendency of horizontal networking at the level of union leaderships established to enact change through institutional structures. Within Western Europe, such institutionally based managerial internationalism is inevitably geared towards a defence of the “European Social Model” and exhibits traits of our “traditional social democracy” model of nationally based oppositionism. In essence, while trade union strategic identity associated with CSD might represent a process of internationalization and engagement with social movements, its potential to challenge neo-liberalism may be constrained by its focus on institutional reform and employer willingness to comply. Radicalized Political Unionism (Oppositional/International) Our fourth segment represents a break to the left from social democracy. It is tempting to identify this fourth scenario as simply that of an international social movement unionism already identified by Peter Waterman (1991) and Kim Moody (1997). Our formulation of radical political unionism, however, implies a refinement of what is commonly (mis)understood as social movement unionism. In particular, we define RPU as class-oriented, high-risk politicised activism, centred in particular on opposition to contemporary neo-liberalism. We suggest that much of the literature on social movement unionism is depoliticized and fails to address the necessary ideological aspects of oppositionist trade unionism deemed necessary to challenge

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neo-liberalism. Indeed, much of the literature adopts an emphasis on spontaneity and voluntarism, which, while perhaps correctly placing emphasis on the rank-and-file, tends to omit questions of ideology or political leadership within the union (see Gapasin and Yates 1997). Part of the confusion over whether social movement theory is applicable to trade unions or not may also lie in the preoccupation of many social movement theorists with “postindustrial” analyses of society that deemphasize traditional class struggle approaches based on the antagonism between capital and labour. Such postindustrial analysis reifies information and knowledge above materialist concerns (e.g. Touraine 1981, Castells 1996). In challenging these approaches Dunn (2007) has issued a plea for greater consideration of the objective circumstances of labour within capitalism. Trade unions are class-centred social products of capitalism and are rooted in the everyday exploitation of the capital–labour relationship. As such, trade unions are here for the long haul. We suggest, as have others (Edwards 2008, Tucker 1991), that trade unions are beginning to embrace contemporary injustices as part of the global justice agenda, and, in any case there is a rich history of unions pursuing the sword of justice. Tilly and Tilly’s edited collection Class Conflict and Collective Action (Tilly 1981), for example, devotes itself to examining these relationships over time. Furthermore, as Barker and Dale (1998) have argued, there may not be anything particularly new about the “new social movements” when examined historically in terms of mass protest waves, which more often than not include organized labour as a central component. The diffusion of ideas and innovation as new movements arise makes networking activity a central component of the ability of social movements to thrive and grow (Passy 2003). The architecture of networking is also subject to bureaucratic constraints within the union machine, and in particular to fear of loss of control by the trade union leaderships. A progressive networking approach requires the loosening of bureaucratic stricture to allow active cross-fertilization of ideas within and between unions and, importantly, between unions and other agents within civil society who can help labour’s cause through coalitions and alliances. For the union leaderships such a process may be a high-risk strategy unless, we suggest, there was some left-oriented political congruence throughout the union that marries the aspirations, expectations, and frames of reference of both union leadership and activists. Such left political congruence is more rather than less likely as the crisis of social democratic trade unionism deepens. When combined with high levels of union participation, strong networking encourages “high-risk activism” (McAdam 1986), which in turn acts to politicize union members as their propensity to mobilize correspondingly increases. In such a fashion, shared “repertoires of contention” would include strikes, campaigns, rallies, and, in contemporary circumstances, agitational internet-based activity (see Hogan 2006). This will reinforce oppositionism through willingness and propensity to be active rather than passive members of the union. Examples of the approach outlined above might be the militant orientation of the SUD and others in the G-10 in France over the pensions issue and public sector cuts (Gordon and Mathers 2004, Damesin and Denis 2005), the willingness of left-oriented sections of the IG Metall and Ver.di in Germany both to engage with the Die Linke and to mobilize against the Hartz reforms (Jüncke 2007), and the real growth in mobilising capacity (and sometimes membership) of the “rejectionist” Fire Brigades Union (Fitzgerald 2005), the Communications Workers Union in the Royal Mail (Beale 2003), the RMT (Darlington 2007), and PCS (Upchurch, Flynn, and Croucher 2008) in their fight against public service deterioration in the United Kingdom. Our position must be seen in contrast to more pessimistic quantitative analyses of aggregate strike statistics, which may be utilized to prove the continuance of labour quiescence, declining worker consciousness, and dormant class struggle in Western Europe. Gall and Allsop (2007), for example, in presenting recent strike statistics across Western Europe, acknowledge the problems of purely quantitative analysis and emphasize qualitative assessment. But despite this acknowledgment they slip into pessimism when they dismiss ongoing class polarization by arguing that the gathered quantitative evidence “does not lend support to the perspective of extant social and political polarization leading to increasingly frequent and widespread mass mobilizations, of which strikes are a central component.” Our argument is that our radicalized political unionism is an emergent minority rather than majority identity within the unions, but that it nevertheless represents a qualitative shift in union strategy and political orientation. We identify this qualitative shift as a propensity of unions or sections of unions and their activists to politicize their industrial struggle. Such politicization focuses on anti-neo-liberalism, is formed within a framework of hostility to government policy, and is often associated with defence of threatened public services.

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Within our typology of radicalized political unionism we suggest that leadership will inevitably be to the left of contemporary social democracy. The rejectionist position taken by unions to neo-liberal restructuring must include left political opposition to the accommodation of social democracy to those same forces of neo-liberalism. Furthermore, the type of high-risk activism demanded by this model implies congruence between the aims and aspirations of a politicized union leadership and the majority of activists. Politicization of the struggle manifests itself in a willingness to engage with agents beyond the workplace, often accompanied with new ways of working, which in turn reinforces the tendency for industrial struggle to become embellished with political oppositionism. The high-risk strategies cannot afford to rely on membership passivity, as high levels of union mobilization against state and employer are necessary to sustain the model both practically and ideologically. This may place limits on the potential for radicalized political unionism simply because union members are at varying levels of consciousness, up to and including the working class Tory portrayed in writings on British social history (see Rose 2001 for a review). Within an increasingly polarized society there is also the danger that working people may adopt the ideas of the extreme right. Fichter, Stöss, and Zeuner (2002), for example, have already cautioned about the recent growth of such extreme right-wing ideas and organization within German trade unions. Recent strikes in the UK construction sector in February 2009, which were initially grouped around the slogan “British Jobs for British Workers” (before the slogan was disowned by the strike leadership), also stand in stark contrast to the explicitly anti-neo-liberal strikes and demonstrations that occurred in France and Greece during the same period. Such nuance of leadership has long been recognized in studies of union activists. Batstone, Boraston, and Frenkel (1977:11), for example, in their classic study of British “shop stewards in action” typologize shop stewards within a range of personal and leadership characteristics, but they also make the point that stewards’ ideological position may support basic principles of trade union unity “at a number of levels” ranging from a “demand for a socialist society and workers’ control” to “fostering co-operation with management.” Values and goals of activists are likely to be elastic, and so congruence of political vision cannot be guaranteed.

Some Conclusions The different historical, economic, and political contexts of our countries have shaped and tempered the search for alternative political visions and more radical union identities. The German case, encapsulated in the development and progress of the Left Party, is clearly the most advanced. The new party has managed to secure commitment from minority but nevertheless substantial elements within the trade unions while at the same time bridging our traditional social democracy model (in the guise of “left” Keynesianism) with more left radical politics that imply a clear break with the SPD. This may be an unstable coalition of identity, which will be put to the test as electoral success intervenes and the “responsibility” of government creates new strategic and tactical dilemmas. In Britain we observe much less significant breaks with social democracy, but nevertheless a gathering critique and mutual distancing between New Labour in power and the trade union leaderships. As in most of Western Europe, dissent is most focused in the public sector, where disputes against “modernization” have by necessity been imbued with a politicized flavour. In the United Kingdom, too, there appears more union experimentation with new organizing techniques and a greater openness to coalition and alliance building beyond the workplace, perhaps reflecting the more intensified process of NLR and capital–labour confrontation within this Anglo-Saxon variant of capitalism identified by Robinson (2000, 2002). In Sweden we can observe a continuing thread within the unions of a unique “folk tradition” that has survived outside of other experiences. The linkages between union and community rested on a defence of social democratic values against the values of Anglo-American individualism. In this context, the peculiarities and specificities of Swedish social movement unionism can thus be seen as a product of the enduring hegemony of social democratic values and the enduring legacy of the centralized decentralization of the Swedish labour movement. Finally, in France, despite the vacillations of the main union federations, aspects of the new trade unionism, such as participatory democracy and a focus on issues beyond the workplace, have been strongly present in the G-10 and in SUD. SUD has consistently offered material and political support to the movements of the “san papiers” and has developed alliances with the Confédération Paysanne. The G-10 participated in the European Social Forum in Paris more than any other federation, and it was engaged particularly around matters such as immigration, gender equality, and ecology in contrast to the Decent Work

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approach of the mainstream. SUD has also played a significant part in revealing neo-liberalism as an ideological project, demonstrating how SUD has emphasized the development of a broad social movement that articulates an alternative societal project. However, although developing as a social movement union par excellence, SUD remains small and on the fringe of French trade unionism. In summary, our review supports the contention that the crisis of social democracy has transformed into a potential crisis of the social democratic model of trade unionism. This marks a qualitative change from previous crises in which challenges to social democratic trade unionism from below were always contained within the party–union nexus or neutralized by the institutions of industrial relations. This is not to argue that these processes of containment and institutionalization of conflict no longer exist or no longer work, but rather to suggest that the limits of the process have been breached to various degrees of significance in each of the countries under observation. We detect new formulations of union identity, engagement beyond the workplace, and newly politicized union strategy. Of course, such new formulations remain fragile and open to division, political tension, and subsequent reformulation. They may also swing between a party-based response and a more syndicalist response. Nevertheless, we suggest that the continuing adaptation to neoliberalism as a means of capital accumulation by social democratic parties in power will mean a continuation of the crisis, and a parallel opening-up of workers’ organized political dissent within wider civil society.

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Transformation and Continuities in Urban Struggles: Urban Movements, Trade Unions, and Migration in Spain MIGUEL MARTINEZ LUCIO HEATHER CONNOLLY University of Manchester2

Abstract Spain was one of the countries at the heart of the work of Manuel Castells, due to its history of urban struggles and labour–urban-based alliances. It formed one of the key examples of city movements and the democratisation of urban spaces. The 1960s and 1970s were seen to throw up a range of new types of urban mobilisations and engagements, in part based on issues of internal migration and its urban and employment impact. With the changes in Spain during the late 1970s and 1980s—which were economic, political, and social—this dimension of urban politics steadily fell away, although Spain continued to exhibit very unique organisational forms at the level of local state and local civil society. Civic politics were linked to local associations in a curious way, but the extent of mobilisation had changed due to the steadily institutionalisation of urban and labour movements (and a weakening of their relations). However, this civic dimension began to reemerge with the strong wave of immigration beginning in the mid-1990s, when Spain transformed from a country with one of the lowest levels of first-generation immigrants to the European country with one of the highest levels. We focus on the way migrant organisations and trade unions have organised in relation to migrants in the labour market, showing how the legacy of previous mobilisations and structures continues to provide a framework for the politics and inclusion of migrant communities. However, we also argue that much of the new urban politics of migration has been influenced by a service delivery and hierarchical politics of inclusion—leading to a set of outcomes similar to that faced by the indigenous urban movements of the 1960s and 1970s. This is of theoretical significance to how we see network and urban politics in relation to unions and employment relations.

Introduction Spain was one of the countries at the heart of the work of Manuel Castells, due to its history of urban struggles and labour–urban-based alliances. It formed one of the key examples of city movements and the democratisation of urban spaces. The 1960s and 1970s were seen to throw up a range of new types of urban mobilisations and engagements, in part based on issues of internal migration. With the changes in Spain in the late 1970s and 1980s—which were economic, political, and social—this dimension of urban politics fell away, although Spain continued to exhibit very unique organisational forms at the level of local state and local civil society. Civic politics continued to be linked to local associations in a curious way, but the extent of mobilisation had changed due to the steadily institutionalisation of urban and labour movements (which had found a greater link in the past). However, this civic dimension began to reemerge with new forms of

Author’s address: Manchester Business School, Booth Street West, Manchester M15 6PB, United Kingdom

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immigration beginning in the mid-1990s, when Spain transformed from a country with one of the lowest levels of first-generation immigrants to the European country with one of the highest rates. We focus on the way immigrant organisations and trade unions have organised in relation to migrants in the labour market, especially the latter. Our paper illustrates how the legacy of previous mobilisations and structures continues to provide a framework for the politics and inclusion of migrant communities. However, we also argue that much of the new urban politics of migration has been influenced by a service delivery and hierarchical politics of inclusion—leading to a similar set of outcomes and issues as faced by the indigenous urban movements of the 1960s and 1970s. The theoretical significance of this relates to the issue of how we see network and urban politics. We thus aim to show that the urban and spatial dimension of union strategies in relation to the workforce is subject to a range of experiences and factors. It is not the outcome of some clear rational choice-type decision making (see UpChurch, Taylor, and Mathers 2009 for a critique) but of historical circumstances, political factors, and legacies of regulation and of the challenges brought by new workers and social changes. We show that the role of the state is a key factor in terms of how it develops its social service provision in both quantitative and qualitative terms—and in terms of how it supports and links with social actors and institutions in civil society. This is missing in a great part of the community union debate, which ignores how the community is structured and developed in terms of different templates of community strategies and structures (Tattersal 2006). In turn, how unions relate to these community dimensions and state interventions is significant. Hence, we start with an outline of the employment relations debate in relation to the community and spatial dimension, leading to an outline of the way democratic union strategies emerged in Spain after the mid-1950s and developed through to the 1970s transition from the Francoist dictatorship to a new liberal democracy. This will show how the community and urban dimensions of the labour movement were central to the movement’s structures and identity. However, the impact of political imperatives and industrial restructuring led to a decline in the centrality of community structures and politics to the labour movement during the midto late 1990s. The growing disconnection between work-based union politics on the one hand and the local community and aspects of the labour market on the other came to the fore in the context of changing migration patterns since the 1990s. This leads to a section on immigration in Spain and the way in which community centres have been developed as part of a strategy to provide information and social support. These centres are predominantly union centres that have a strong degree of state funding. We assess the extent of state dependency, the nature of the services provided, and the way different union strategies have been using such new structures. The tension between different views related to the urban and spatial dimensions of the labour market will be discussed in relation to questions of union autonomy, competing systems of representation and voice within immigrant politics, and the changing nature of the state’s role. The City, Migration, and Labour There is an ongoing concern within the study of trade unionism and employment relations broadly speaking with the failure to conceptualise local, community and spatial dimensions in terms of worker representation. The emergence of the industrial relations discipline during the early to mid-20th century has been focused on forms of job regulation such as collective bargaining and workplace informal bargaining (Clegg 1976). The focus is on the formal and informal mechanisms of job regulation through collective bargaining and informal negotiation processes. This focus on the rules and regulations of the workplace and the industrial sector has been mirrored even by prevailing critical approaches such as that of the Labour Process. Based on evaluating and explaining the way workers are controlled, monitored, and exploited within the workplace by employers and managers—and, indeed, at times by unions—the focus has been on how workers are progressively deskilled and alienated within the capitalist labour process (Braverman 1974, Thompson and Newsome 2004). In effect, the question of work and trade union representation has been addressed through the “primary” processes and relations at work at the heart of such analysis. While some would question such a characterisation, due to the counter traditions that exist within industrial relations and that are more interested in conflict and instability in the employment relation, one can nevertheless state that the study of trade union roles and relations have focused on the sphere of work in relative isolation from social and political issues (Martinez Lucio 1988).

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However, within the traditions of labour history, issues around local community have been significant to a range of traditions. The role of established occupational communities located in specific geographic spaces has been seen as important to the development of working class identity in sectors such as docks, steel, and mining (Thompson 1963). There are traditions of labour history that through their technological or economic determinism have not always been sensitive to such issues, but an increasing interest in the social within labour history has tended to correct this since the 1960s. Recent studies of restructuring and change have within labour sociology referenced the significance of occupational identity even in shaping the restructuring of those communities (see MacKenzie et al. 2006). Within geography the role of the spatial in shaping labour markets and labour market politics has also been emphasised (Massey 1995). Labour exists in particular spaces and areas,and the impact of capitalism and employer strategies is experienced in different ways according not just to sector but to local spaces and traditions (Peck and Tickell 1995). Yet regardless of such traditions the study of labour and trade unions is not always open to these traditions, tending to focus on the relation with the employer around specific elements of the employment relation through formal or informal processes. A debate on community unionism has emerged during the past decade in Australia, United Kingdom, and the United States due to the argument that such structures may be more relevant to a more decentralised form of work organisation, postindustrial development, and weakening of traditional trade union politics, with their focus on collective bargaining and formal mechanisms of job regulation. The debate on community unionism is linked to changes in labour markets and migration along with displacement and change in traditional established communities (Stewart et al. 2009). In collective terms, more or less, we see that such constituencies may organize in a variety of ways—and not solely through traditional forms of trade unionism. Fine (2006) is concerned with cataloguing the phenomena of worker centres in the United States. These are centres that provide a range of services, social and cultural spaces, and support for marginalised communities. Trade unions are but one part of the narrative of struggles for rights within these communities. There are a series of characteristics that Fine draws out from these centres and that form an interesting tapestry of “new actors” and spaces of employment relations. These centres are based on hybrid organisation, service provision, advocacy, organising, a base in places rather than work sites, strong ethnic and racial identification, leadership development and internal democracy, popular education, global thinking, a broad agenda, coalition building, and small and involved memberships. These characteristics provide us with an interesting challenge. Many groups through such independent agendas and networks of centres are filling a major social gap in the United States. Trade unions are not the sole player, given the role of various social and religious organisations. The community union debate (see Tattersal 2006, Wills 2004) that has evolved in recent years is an attempt to see how unions can actually approach migrant communities, among others, with a view to providing broader and socially based forms of representation. So both in social and institutional terms we are seeing a major rethinking of how we understand the community and migrant dynamic within industrial relations. However, regardless of such competing traditions within the study of labour, and trade unionism in particular, the question of the urban dimension and changing labour markets linked to the urban dimension is not always studied in terms of the strategic and political developments within the labour movement. Moreover, the recent turn toward community remains marginal to the study of industrial relations, regardless of the emphasis placed on the urgency of such an approach (Wills and Simms 2004). Yet the recent drive toward researching migration in the past 10 years has forced many to begin to study migration and unions in relation to spatial actors. Findings in the context of the United Kingdom and the United States have been stretched by two extremes: the way unions “reach” migrants through services and established systems of regulation (Martinez Lucio and Perrett 2009) and the way migrants and “other actors” (see Heery and Frege 2006) organise around independent organisational spaces such as workers centres (Fine 2006). Yet mainstream debates on union renewal, “organizing” union strategies, and new forms of trade union service activity rarely touch the question of space (see the collection in Frege and Kelly 2004). It is increasingly clear that the spatial dimension of work is vital for an understanding of how trade unions organise and relate to migrant communities, especially in the current context of a relatively disorganised capitalism and decentred approach to labour deployment and use (see Lash and Urry 1987 for discussions on this economic context). First of all, the declining presence in the United Kingdom and United States of larger industrial workspaces

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capable of integrating immigrant labour into the industrial process challenges the spaces around which unions regulated and organise. Hence, the urban spaces that “surrounded” such workplaces provided a spatial context—albeit at times racially segregated—that allowed clearer and stable relations between trade unions and the local workforce and labour market. This was especially the case in terms of the context of stable employment during the 1950s through to the 1970s in the Western European context, for example— although this does not mean that segregation or exclusion within such spaces did not exist (Jenkins, Martinez Lucio, and Noon 2002). Second, the presence of new forms of informal and illegal economic activity create more hidden and “hard-to-reach” spaces where immigrants are in part employed. This means that the relatively smaller scale and less regulated character of employers in such cases make for a more complex pattern of relations with communities being less stable and more mobile. Third, the failure by trade unions to develop an urban or spatial dimension within their structures and strategies that was externally facing and clearly located within urban communities—beyond administrative offices or occasional drinking venues— meant that the new employment dynamics within urban spaces with an immigrant presence were disconnected from the work and influence of trade unions. Hence, the urban or spatial dimension becomes more precarious in employment terms, fragmented in terms of sectoral and employment identities and forms of work, and disconnected from the traditional forms of worker representation.

Research Methods The research for this paper comes from two distinct sources and time periods, hence allowing for a longitudinal study of the development of trade union strategies in Spain with regard to local community issues. The first emerges from a dataset of interviews on the Madrid Region of Spain gathered in the 1980s. This dataset consisted of 200 semistructured and unstructured interviews and was conducted by Miguel Martinez Lucio (1988). It was focused on the emergence of union strategies within the context of the Spanish industrial, social, and political transition of the 1960s through to the 1980s; this was part of an Economic and Social Research Council PhD research programme. The second set was collated in 2008–09 and consists of 20 interviews conducted in a number of different regions in Spain as part of a wider project by Heather Connolly and Miguel Martinez Lucio studying trade unions, migration, and social exclusion/inclusion in the Netherlands, Spain, and the United Kingdom and funded by the Leverhulme Foundation. The research methodology for both sets of data has been qualitative, with a focus on gaining an in-depth understanding of the evolution of trade union strategies in Spain. Interviews, both semistructured and unstructured, have been conducted with trade union officials and activists at various levels of the Workers Commissions and the Union General de Trabajadores. The research has also included some participant observation of trade union congresses and visits to trade union offices and union-run migrant worker information centres. The City and Labour Movement in Spain: Internal Migration, Worker Representation, and Urban Mobilisation, 1960 to 1980 The Spanish context in historical terms is relevant because it is one of the few instances in the European context where, regardless of the repression of trade unions during the rule of General Franco from 1939 to 1975, there is a strong tradition of community engagement and activity in spatial and urban terms based on resistance and mobilisation. The emergence of an independent trade union movement during the last 20 years of regime was haphazard and prone to periodic repression from the state (Ellwood 1976). The attempt to develop an independent union approach, which nevertheless attempted to infiltrate the formal positions and “shop steward” roles of the official organs of the state, was driven by a range of left-wing movements (especially the illegal Spanish Communist Party) and a range of libertarian Catholic groups (Martinez Lucio 1998). The attempt to influence the pseudo- and uneven collective bargaining system that had been emerging since the late 1950s met with variable success. In the latter period of the regime, new, less military-oriented policy elites prepared the ground for a post-Franco scenario with democratisation as an option, although levels of repression remained, if less intense than those of the 1940s and 1950s. In terms of the urban and local spatial dimension during this period, Castells (1977, 1978) was one of the pioneers in studying the Spanish context of urbanisation and urban movements. Informed by research and his own experience as a Spanish academic and left intellectual, he pointed to the significance of the urban

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movement and neighbourhood associations in Spain during the 1960s and 1970s. His studies outlined the development of a strong mobilisation and collective dimension to the urban movements during that period. This was partly driven in other countries by the crisis in collective welfare provision, but in the case of Spain in its absence and slow development (see also Navarro 2002). Castells spoke of a politics of collective consumption that paralleled the politics and contradictions of collective production. Much of this was configured around welfare and work issues due to the nature of internal migration patterns within Spain during the 1950s through to the 1970s, where large numbers of migrants left regions such as Extremadura, Murcia, and Galicia to relocate in Madrid, Bilbao, and Barcelona, for example. This brought rapid changes in labour markets and an intensive period of urbanisation in key areas. Hence, social infrastructure and social welfare issues came to the fore of the agenda of urban protest. So while there was an extensive phase of industrialisation and growth in industrial employment, it was not clearly paralleled by a phase of coherent and consistent urbanisation. Hence, urban movements mobilised on a range of issues—and what is more, through a variety of internal and participative democratic means, such as the assembly (Villasante 1984). This had two effects on the character and structure of trade unions as they emerged from the dictatorship, especially the Workers Commissions. The basis of this newly emerging trade union movement, beyond the strategy to infiltrate local state union offices and positions, was twofold. First, it was “assemblyist”—being driven or highly influenced by the role of mass open meetings in the workplace or local communities. This was a prevalent feature of the communist and left of communist dimensions of the Spanish labour movement (Fishman 1990, Ruiz 1988). The role of the assembly was at times conditioned by local tiers of independent trade unionists to one extent or another, but there was a realisation that the role of mass worker meetings was essential for participation and communication within the newly independent streams of the labour movement. It represented the reclamation of public space in the context and wake of the authoritarian tradition in Spain: the assembly was a way of reclaiming a new democratic dynamic, and its real and mythical status among the workers at that time cannot be underestimated. Second, the link with local urban movements and demands was a further dimension of the newly emerging labour movement. In fact, many members of the Spanish Communist Party and other Marxist groups played a role inside the urban and labour movement—acting as a link between the two, alongside other left activists. Hence, the local urban issues of working class communities were linked to their workplace issues—and common mobilisations were not unusual. This is what configured both informally and formally the notion of the Workers Commissions union (CCOO) as a socio-political union—although over time this would be redefined in various ways. Thus in terms of union identity, the spatial and the community dimensions were significant features. In organisational and structural terms the CCOO—and other unions such as the Union General de Trabajadores (UGT)—had a range of local offices throughout the major cities and local agricultural centres. This created local organisational spaces that were not merely administrative, as in cases such as the United Kingdom, but that served as political and cultural spaces that interfaced with the local urban movement and its politics, especially in the CCOO. This dynamic has remained, in one form or another, a feature of the Spanish labour movement (Martinez Lucio 1998, 2008). The CCOO have represented this dynamic more clearly than the more social democratic currents within the labour movement such as the UGT, which reemerged in the 1970s after the dictatorship as a significant force, having been a major union during the pre-Francoist period (although Maravall [1978] questions and challenges the way the UGT is depicted by many observers as being marginal during the dictatorship, pointing to the group’s work in Spain during the period). However, in the late 1970s, the changing political context and the national consensus generated between the left and new centre-right democratic government began to “privatize” and close these newly emerging public spaces (Aguila and Montoro 1984). De-industrialisation and the Decline of the Urban Dimension, 1978 to 1990 The alternative and new dynamics of Spanish organised labour in the period from the 1960s to the late 1970s was in great part an outcome of the circumstances and politics of the period. Identities in some of the key left unions and their structures were driven by particular views of organised labour but also by the way history and context shaped its urban, spatial, and social identity (see Foweraker 1989). Yet the political and economic pressures of the 1970s and 1980s tested this embryonic and alternative view of labour organisation.

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First, the need for political consensus and stability during the first years of its liberal democracy meant that unions signed a series of national agreements and engaged with a general politics of demobilisation (Arramberri 1979). The political break of the late 1970s was meant to limit the negative impact of strikes and union-led mobilisations. This meant that the more sociopolitical features of key aspects of union activity were redefined. A more passive approach developed. Traditional workplace and bargaining activities became more central to these consensus-generating processes (Martinez Lucio 1998), putting into question the community and local features of trade union politics. A crisis of union resourcing and membership in the early 1980s began to accelerate the closure of many local union offices, and union bureaucrats focused activity on a limited number of local facilities. This had a knock-on effect on the community role of the labour movement. Second, the economic crisis in Spain during the 1970s and 1980s meant that unions were focusing local community-based mobilisation on challenging restructuring in traditional industrial sectors. This focused attention for the moment on restructuring, away from a broader approach to community politics. Trade unions found themselves divided on how to deal with restructuring in terms of negotiations and mobilizations, with the CCOO and the UGT entering a period of open competition with each other as the UGT felt that a closer relation to the state and the new Socialist government (1982–1996), with its politics of “pacted” industrial restructuring, was to be preferred due to promises of social support and employment creation. The unanticipated emergence of a market-oriented social democratic government, supportive of more monetarist and privatisation-based views of industrial and economic policy (Rand Smith 1996), meant that trade unions were unable to work consistently and closely with the state around a more progressive set of social strategies beyond providing retraining services and some minor regulatory roles in questions such as labour contracting. The steady distancing between all unions and the state on broad social and industrial policy after the 1988 general strike did not lead to a return to locally based sociopolitical approaches to community and the city. If anything, the declining activist base of the union, which had not been as extensive to start with given historical circumstances and political constraints, meant that unions were forced to mobilise around short, focused general strikes on the one hand and an acceptance of new state funding for union development and services such as learning and training to workers on the other. Memories of the link with urban movements and a broader politics of citizenship (see Alonso 2007) did not explicitly contribute to configuring new union strategies. The role of local offices was steadily becoming focused on services in legal and social information and developing training centres. Within the two main confederations, such offices did not have a major bearing on young workers or women workers, who were in relative terms still relatively excluded from the labour market in the 1980s. Some minority unions, such as the anarcho-syndicalist National Confederation of Labour (CNT) and General Confederation of Labour (CGT), were able to attract newer generations of workers to their offices, but these were in the main weak unions in terms of their general presence. The Impact of Immigration and the City in Spain, 1990 to 2010 The relative disconnection between union structures around gender- and age-related issues at that time in the 1970s and 1980s (especially related to youth) was not a genuine challenge to the Spanish labour movement because it was one that could be sustained socially due to the role of the family and traditional social relations in Spain, even if this was rapidly changing in the 1980s and 1990s (Meil Llandwerlin 2005)— and because the primarily male activist and leadership base was focused on changes in established industrial sectors. However, during the course of the 1990s the situation in Spain in relation to the labour market began to change with the context of an older workforce, increasing females in the labour market, and a sudden increase in immigration. Whilst unemployment had rarely been below 15 percent in the first 25 years of the new democracy, the structure of the labour market made for a very uneven and low level of worker participation in terms of labour market entry. The 1990s began to see a variety of sectors such as construction, agriculture, and hospitality turn to immigrant labour sources. Spain’s immigration level up until the 1990s was one of the lowest in Europe, with the country having emerged from a relatively closed and internally looking economy under the dictatorship in terms of labour markets. If anything, the regime prioritised emigration as a way of sustaining managed urban development and growth during the 1960s and 1970s. However, during the 1990s, immigration from North Africa, Latin America (especially Ecuador and

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Columbia), and Eastern Europe (Romania and Poland in particular) meant that a new workforce was arriving and settling in key urban areas and agricultural towns. In 1996 1.4 percent of the population was born overseas, whereas by 2008 the rate was 11.33 percent (Aragon Medina et al. 2009). According to various trade unionists, this reality led to a range of challenges for the labour movement due to a broad presence of the immigrants in the informal economy—hospitality and agriculture—and an increasing use of migration in key sectors such construction. Trade unionists from the CCOO and the UGT were encountering a range of bad employment practices, health and safety hazards, and low pay levels emerging amongst small and medium-sized firms who employed immigrants that were relatively more significant to the Spanish economy compared with countries such as the United Kingdom and Germany. There was a growing awareness that as workers, immigrants were subject to high levels of exploitation and susceptible to greater risks in terms of health and safety issues, whilst also placing pressure on the system of regulation within labour markets, such as collective bargaining, by undercutting wages. Spanish unions had developed internal organisational structures for emigrants but had not really considered immigrants during the 1980s. Antiracist initiatives at work and in society were not a priority within the labour movement; in part this was due to initially low levels of immigration and a preference—according to our research—to see exploitation in mainly class terms. Immigrants were seen to be exploited due to their precarious employment relations and low levels of social inclusion mechanisms in society. This was the main narrative within both main unions (although anarcho-syndicalist trade unions have been more focused on the impact of racism and xenophobia within society). Various national and local union interviewees in larger unions felt that the major challenge was extending and enhancing the mechanisms for regulating work that were already in place in terms of sectoral-, regional-, and company-level bargaining, along with a body of union representation within the firm. However, whilst there are works council and union elections in Spain every four years that determine worker representation in the firm and receive 80 to 90 percent turnouts from the workforce, in smaller and medium-sized firms the role and scope of the representatives have always been challenges and in parts limited (Martinez Lucio 2008). Yet the scale of immigration, its intensity in a short period of time, and its impact on the regulation of work brought a range of responses from Spanish unions in the 1990s. Unions began developing immigrant sections aimed at raising the question of immigration and the levels of support for immigrants within the union, as in the case of the CCOO, where the department for emigration mutated into one that was dealing with immigration. This occurred with the involvement of immigrant members. These sections were secretariats, and unlike counterparts in certain unions as in the United Kingdom, for example, they did not have systematic internal representative mechanisms and democratic processes such as annual conferences for immigrant members. Interviews with various senior members in the relevant secretariat during 2008 and 2009 revealed that the idea of autonomous immigrant sections was not “on the table and neither should they be.” This was a response from both immigrant and nonimmigrant union officials. However, most of Spain’s leading and majority trade unions have developed and involved a series of immigrant activists. A series of leading figures have begun to play a role within these sections, although in national conferences and congresses of the unions the presence of immigrants is not visible to any great extent. These new voices— whilst still less apparent at the leadership level—have been central to developing a range of campaigns on questions of legality and legalisation. Unions have been at the forefront of pushing governments—both on the right and left—into wide-ranging amnesties for illegal immigrants and blanket legalisation of particular immigrant constituencies on a mass scale. The last decade has also seen the development of national tripartite institutions at the level of the state where unions, employers, specific immigrant bodies, and other “social partners” work alongside government representatives at the level of the state on a range of advisory projects for government initiatives and research projects. These bodies have become a form of neocorporatist dimension of immigrant economic and social interests, which involve strong union engagement and advice. These are bodies that serve to provide a network for communicating concerns and discussions—creating a topography of representation, albeit not always clearly connected with civil society (yet bodies such as these and the role of the agreements they lead to in broader terms is one the features of such systems of interest intermediation in the context of Spain—Guillén Rodriguez, Gutiérrez Palacios, & Gonzalez Begaga 2008). Trade unions have taken this further through an institutional strategy that has called for and gained resources for learning and support—including that of the local level of state administration, where unions

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have developed information services, local social services for younger workers, emergency housing, and others (Aragon Medina 2009). Yet the major unions have developed their services with new immigrant communities in mind, with special reference to information and learning. They have begun to use their leverage with respect to learning and training funds (see Rigby 2002) as a way of developing courses on language and basic information relevant for immigrants in terms of labour markets. This service approach varies according to region, but both Socialist and Conservative regions have developed high levels of commitment in terms of support—albeit within a welfare state context that remains underdeveloped by west European standards in key areas such as housing and social services (see Alonso 2007). Yet at the heart of these developments is the systematic creation in recent years of information centres throughout the Spanish nation. Trade Unions and the Role of Community Initiatives in Relation to Migration: Renewing the Community Dimension The role of the union local information centres for immigrants in Spain is for many a major “benchmark” and source of interest throughout Europe. Spain is seen as a country coming late to the debate on immigration but which has learnt most from other experiences, especially when compared to France. Various unions, especially the CCOO and the UGT, have developed a network of information offices and centres throughout virtually every major Spanish city. They are normally located in local union offices, and their role is to act as a first port of call for immigrants in relation to work and other social or labour-related concerns. There are many immigrant centres and law firms focused on these types of activity, but none can compare to the sheer extent and breadth of the union network—something that is unusual in most European nations. One of the features of this new form of engagement with immigrants is that the state provides a wide range of the funding for such resources. This allows trade unions, which have been identified as being a key part of the provision of such services, to develop these trade union–oriented information centres and a strategy of support centres more generally. Such centres provide a range of information services in relation to employment, citizenship, social rights and housing—amongst others. The unions in the main are expected to keep clear records of such activities. A range of individuals—not always from an immigrant background—are employed in such centres, and in some cases there can be anything up to half a dozen people working in one capacity or another, although numbers vary among offices. Our research covered various cities in the centre and north of Spain, along with visits to the centres and interviews with their staff and the relevant union. These offices were not always located in areas where immigrant communities would reside but in the main trade union offices. However, there is a tradition of visiting such offices due to the legal and training services required. Hence one could argue that such offices were integrated within the main structures of the union in spatial terms. In a place such as Oviedo, the CCOO’s offices (CITEs) would attend to at least 3,000 individuals a year. It is clear that as worker centres they are mainly information-based and formal in their approach to attending to immigrants. They do not organise in themselves broader social activity or coalition building with the local immigrant groups. This is driven mainly by the immigration departments of the unions themselves and those coordinating some of the offices in question. Hence, one sees that the actual service provision element is divided from the broader immigration-related strategies of the unions. This means that there may be less of a role than at first anticipated as centres for bringing workers into the trade union movement who are from an immigrant background. In the geographic areas researched, links with organised immigrant groups were sporadic as far as the unions were concerned, due to the problems of sustainability that such groups had. This varied according to the extent and politics of different immigrant communities. Hence, in the case of the region Castille Leon, coalition building was a problem even if the CCOO union had organised a range of regional-level cultural events. There were concerns within the CCOO locally that a need existed to connect traditional CCOO work into the CITE and the “clients” they had. In the case of the UGT in Oviedo, there was an acknowledgment that the service had become more detached and that there was a need to rethink such service provision. The CCOO began in 2009 to fuse its immigration section into its employment section, which led to a joint department at the national and regional levels—although this mirrored developments in certain state departments. This was seen as a vital step for integrating the issue of immigration into the mainstream of the union’s work. There were also discussions of building a more proactive network of CITE

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activists throughout the country, with the aim of using that as a link into and an information gathering role vis-à-vis the immigrant population. However, it was not seen as the basis for a stand-alone section or autonomous body along the lines of the Black Worker sections in the United Kingdom, according to senior members of the CCOO. This question of fusing the community dynamic into broader strategies around social inclusion and union activism is therefore a challenge, even if the experience of information centres such as Spain’s is one of the most elaborate in Europe. For the UGT this was a greater problem, with the CITE offices being considered to be part of the servicing logic of the union, and the work they did was seen as more technical and ideological in approach. Specific activists in the specific regional union structures were, for example, concerned with the way local regional leaders were increasingly disconnected generally from the local dimension and community dimension of the union. In this instance, it was recalled how union officers in the regional union would visit the local town and city offices more regularly and be more connected to the local dynamic—instead now the interviewees felt that it was only during the trade union elections every four years (see above) that people from the union offices and even the larger workplaces visited local communities and small to medium-sized employers. Hence the new “community union” dimension and the link to the past tradition of the union is not so clear in such developments. In the CCOO this dilemma has in recent years been especially apparent given its history. The CITEs are not contextualised in terms of the sociopolitical identity of the union—itself a changing object of internal union politics within the CCOO—and therefore remain ambivalently linked to the union’s overall work and activities. This could be what led to the organisational meditation about how immigrant work was linked to employment policy, international development, and others. The CCOO has begun to see the CITE as a vital port of entry into the mainstream activity of the union—allowing seasonal agricultural workers to be supported and logged when they visited different offices in different regions according to the harvesting calendar. So whilst CITEs and local immigrant activists took on causes, they were not always part of the broader political landscape of the union. Hence, whilst they form a vital part of support for immigrants in terms of their rights, recent strategies have been developed to fuse such activities more clearly. This demonstrates the way such highly elaborate structures of worker support were ambivalently linked to the union and a broader politics of community unionism—leading to internal political discussions.

Conclusion The role of the urban and spatial dimension within the question of worker representation is significant to the case of Spain. Spain’s trajectory of union development has been bound up with spatial and local issues since its resurrection in the late 1950s and early 1960s during the dictatorship. The role of community-oriented strategies has formed part of the identity of trade unions such as the CCOO— something that was the case with the anarcho-syndicalist traditions in the earlier 20th century as well. Yet the paper has suggested that such community traditions cannot be seen in some static sense—that is to say, they cannot be seen as being some straightforward alternative to “traditional” workplace or industrial politics. The community itself is structured and restructured in strategic and ideological terms across time. Emerging as a way of connecting to broader issues and experiences within a nascent working class, they formed a vital backdrop to the workplace mobilisations and struggles against employers and the state. They were part of a system of coalition building that led to specific views of work and labour politics that were broader and more inclusive. Hence, the notion of community needs to be seen in dynamic terms. It is a concept that is moulded and structured in different ways throughout recent history. With the demands on union leaders and emerging bureaucracies during the late 1970s and early 1980s to stabilise and even control the panorama of industrial relations through formal mechanism, the sociopolitical dimension began to be rewoven (Martinez Lucio 1998, 2008). This in turn was reinforced by a systematic restructuring of the key areas of trade union organisation and historic mobilisation, such as mining, steel, and others. The link to the community—broadly speaking—was reduced in strategic and structural terms. Hence, the development of immigration during the 1990s found a trade union movement less connected to the local labour market and local urban and rural spaces as it had once been. The concentration of immigrant labour in sectors with relatively weaker trade union traditions meant that the community dimension reemerged within the discourse of trade unionism. However, it reemerged and was remade in a more instrumentally supportive, social, and service-driven

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direction. The link into the immigrant community and through local offices was therefore constructed as a primary stage of the regulatory process dealing with immediate issues and concerns. It was a functional link into the more established “internal” workplace and collective bargaining–based regulatory systems of the union—it was in effect a subservient dimension of the regulatory function of unions detached from issues of identity and purpose—and in effect broader renewal. These developments dovetailed as a discourse with state concerns about social order, labour market regulations and control, and legality and exclusion. This led to the “majority” union movement being offered resources by the state to develop the offices and centres discussed above, mainly within established union centres. The community dimension was remade, but whereas once it was against the state it is now related to the state—albeit a very different state. This could be due to the perceived weakness of civil society and associational cultures (Perez Diaz 1990) or the failure of the state to systematically develop strong welfare support (Navarro 2002). Either way, the state through various agencies enters the debate on communityrelated representation. To this extent, the politics and autonomy of community initiatives are central to any discussion of the role of urban and spatial politics within the labour movement and within immigrant communities. Yet a curious development is that the trade union movement has begun to rethink its view of such new community initiatives, once more showing us how community and spatial issues are the subject of political and ideological intervention and invention. How these community initiatives fit into the broader dynamic of trade union politics, how immigrants are linked to in active and open and not just passive and service delivery terms, and how a broader strategy of coalition building emerges appears to be a new agenda that recognises the risk and tensions of using state resources. The community dimension is therefore the subject of political intervention: its structures are articulated and provided with meaning through the combination of different spheres (Martinez Lucio 1988). It is not therefore a simple opposite or simply definable concept vis-à-vis “noncommunity” strategies (for a parallel discussion on organising and partnership, see Martinez Lucio and Stuart 2008). The urban may be a silent dimension of industrial relations and labour studies—emerging at certain times in debates within urban studies and geography—but it has been a very explicit dimension of labour movement history in certain contexts. It has also been a dimension that has its history, dynamics, and ironies.

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Jenkins, S., M. Martinez Lucio, and M. Noon, 2002. “Return to Gender: An Analysis of Women’s Disadvantage in Postal Work,” Gender, Work and Organisation, Vol. 9, No. 1 (January), pp. 83–104. Lash, S., and J. Urry. 1987. The End of Organised Capitalism. London: Polity. MacKenzie, R., M. Stuart, C. Forde, P. Perrett, and J. Gardiner. 2006. “All That Is Solid? Class, Identity and the Maintenance of a Collective Orientation amongst Redundant Steel Workers.” Sociology, Vol. 40, No. 5, pp. 833–52. Maravall, J.M. 1978. Dictadura y Disentimiento Político. Madrid: Alfaguara. Martinez Lucio, M. 1988. PhD thesis. Coventry: University of Warwick. Martinez Lucio, M. 1998. “Spain: Regulating Employment and Social Fragmentation.” In A. Ferner and R. Hyman (eds.), Changing Industrial Relations in Europe (2nd ed.). Oxford: Blackwell, pp. 426–58. Martinez Lucio, M. 2008. “¿Todavía Organizadores del Descontento? Los Retos de las Estrategias de Renovación Sindical en España,” Arxius (Summer). Martinez Lucio, M., and R. Perrett. 2009. “Strategies in Search of a Structure: Community Union Initiatives and BME Workers.” In J. McBride and I. Greenwood (eds.), Community Unionism. London: Palgrave, pp. 75–92. Martinez Lucio, M., and M. Stuart. 2009. “Union Organizing and Narratives of Change: An Assessment.” In G. Gall (ed.), Union Revitalisation in Advanced Economies: Assessing the Contribution of “Union Organizing.” Basingstoke, UK: Palgrave MacMillan. Massey, D.B. 1995. Spatial Divisions of Labor: Social Structures and the Geography of Production (2nd ed.). New York: Routledge. Meil Llandwerlin, G. 2005. “The Feminization of Work, Changes in Family Structure and the Transformation of the Welfare State in the Post-Fordist Environment.” In L.E. Alonso and M. Martinez Lucio, eds., Employment Relations in a Changing Context. London: Palgrave Macmillan. Navarro, V. 2002. Bienestar Insuficiente, Democracia Incompleta. Anagrama: Madrid. Peck, J., and A. Tickell. 1995. “Social Regulation After Fordism: Regulation Theory, Neo-liberalism and the Global-Local Nexus.” Economy and Society, Vol. 24, No. 3, pp. 357–86. Rand Smith, W. 1996. The Left’s Dirty Job. Pittsburgh: Pittsburgh University Press. Rigby, M. 2002. “Spanish Trade Unions and the Provision of Continuous Training: Partnerships at a Distance.” Employee Relations, Vol. 24, No. 5, pp. 500–15. Ruiz, D. 1988. Historia de Comisiones Obreras (1958–1988). Madrid: Siglo XXI. Stewart, P., J. McBride, I. Greenwood, J. Stirling, J. Holgate, A. Tattersal, C. Stephenson, and D. Wray. 2009. “Introduction.” In J. McBride and I. Greenwood, eds., Community Unionism. London: Palgrave, pp. 3– 20. Tattersall, A. 2006. There Is Power in Coalition: A Framework for Analysing the Practice of Union–Community Coalitions. . Thompson, E.P. 1963. The Making of the English Working Class. London: Victor Gollancz. Thompson, P., and K. Newsome. 2004. Labour Process Theory, Work and the Employment Relation. In B.E. Kaufman, ed., Theoretical Perspectives on Work and the Employment Relationship. Ithaca, NY: ILR Press. UpChurch, M., G. Taylor, and A. Mathers. 2009. The Crisis of Social Democratic Trade Unionism in Western Europe. Farnham, UK: Ashgate. Villasante, T. 1984. Comunidades Locales. Madrid: Instituto de Administracíon Local. Wills, J. 2004. “Campaigning for Low Paid Workers: The East London Communities Organisation (TELCO) Living Wage Campaign.” In W. Brown, G. Healy, E. Heery, and P. Taylor, eds., The Future of Worker Representation. Oxford: Oxford University Press, pp. 264–82. Wills, J., and M. Simms. 2004. “Building Reciprocal Community Unionism in the UK.” Capital and Class, Vol. 82, No. 1, pp. 59–84.

VIII. Conceptualizing Work — LERA International Section Meeting II

The Marginalization of Work in Economic Theory MICHAEL PERELMAN California State University1

Introduction In my training as an economist, I have been taught that the core of my subject is to understand how people’s subjective state leads them to consummate a transaction. In the words of William Stanley Jevons, one of the founders of this type of analysis, “the theory presumes to investigate the condition of a mind” (Jevons 1871:86). According to this version of economic theory, the economy is a collection of individual firms and consumers, each of which has an initial endowment of capital or wealth, respectively, which they use to make voluntary exchanges. Transactions occur only when both seller and buyer think they will be better off by completing the exchange. Accordingly, economists are supposed to ignore what Karl Marx appropriately called “the hidden abode of production” (Marx 1977:279). They might take note of workers entering the factory gates and the finished goods appearing on the shipping deck, but economists’ view of what happens inside the factory is limited to the accountant’s office, where profits and losses are calculated. There, only the shadow of work exists, in the form of a wage bill. Jevons insisted that this new theory properly excluded considerations of work, workers, or working conditions: “Value always depends upon degree of utility and labour has no connection with the matter, except through utility” (Jevons 1874:485). Lionel Robbins (1969) published the most influential book ever written on the proper way to do economics—in his words, “to delimit the subject-matter of Economics” (p. 1). In that book, he expressed his contempt for those who might veer off the righteous path of transaction-based economics in the direction of work, workers, and working conditions: “We have all felt, with Professor Schumpeter, a sense of almost shame at the incredible banalities of much of the so-called theory of production—the tedious discussions of various forms of peasant proprietorship, factory, organization, industrial psychology, technical education” (p. 65). This approach has been very fruitful in allowing economists to develop a very sophisticated theory, backed up by elaborate mathematical analysis, but it severely limits economists’ understanding of the real economy. The current financial crisis demonstrates the danger of this particular approach to economics. By ignoring the process of production, economists interpreted the combined financialization and deindustrialization as a sign of economic health, when they should have been warning about the continual Weakening of the economy.

Jevons’s Misstep Although no mainstream economist has ever directly challenged Robbins’s position, those who have wandered off the reservation have been harshly rebuked. Ironically, well before Robbins, Jevons himself broached the subject of work, extending his analysis of mind to the subjective states of workers.

Author’s address: Economics Department, California State University, Chico, CA 95929

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Jevons may have been more willing to go beyond the traditional limits of economics because he was something of a polymath. Anticipating Taylor’s research on scientific management, Jevons experimented with repeated movements in order to develop a scientific measure of the relationship between muscular fatigue and work. Jevons did not publish his results in an economic journal, but in the premier British science publication, Nature (Jevons 1870; see also Maas 2005). Even worse from the standpoint of conventional economists, Jevons was theoretically willing to consider incorporating workers’ direct utility or disutility from the job itself. He went so far as to acknowledge that work need not be unpleasant and that under certain circumstances work could actually be a source of gratification (Jevons 1871). For Jevons, [l]abour . . . is any painful exertion of mind or body undergone partly or wholly with a view to future good. It is true that labour may be both agreeable at the time and conducive to future good; but it is only agreeable in a limited amount, and most men are compelled by their wants to exert themselves longer and more severely than they would otherwise do. When a labourer is inclined to stop, he clearly feels something that is irksome, and our theory will only involve the point where the exertion has become so painful as to nearly balance all other considerations. Whatever there is that is wholesome or agreeable about labour before it reaches this point may be taken as a net profit of good to the labourer; but it does not enter into the problem (Jevons 1871:189). Jevons’s timing was unfortunate. He began this research on work shortly before the Paris Commune was about to intensify the ideological stakes of economic theory. Economists were to trying to craft an ideological justification of the status based on what they considered to be “scientific” economics, which backed up by sophisticated mathematics. For that reason, this part of Jevons’s research might seem unexpected. After all, Jevons, more than anybody else in the English-speaking world, was responsible for moving the focus of economic theory away from production in favor of consumption. Jevons himself was highly ideological—although I do not think that he saw himself that way. Even so, he was also very interested in practical matters of science and efficiency. Downplaying labor, while emphasizing transactions, seemed to be an urgent priority for the defenders of the new economic theory. These economists realized that taking account of the labor process would fatally complicate the simple analysis that they were proposing. Besides, their ideology insisted that any efforts at improving economic performance, except through commercial transactions, would be sure to make matters worse. In this climate, considerations of working conditions would seriously muddy the theoretical elegance, while threatening to weaken the ideological force of economics. In particular, economists treated employment as a more or less voluntarily transaction, but, once an employee is on the job, voluntarism disappears. Instead, work proceeds according to the commands of the employer. Overbearing supervision might turn work that could otherwise be enjoyable into an ordeal. As a result, the social relations between labor and capital will affect how disagreeable work may be. In effect, Jevons’s idea suggests that economists should take into account workplace utility, which is not the result of an arms-length transaction, such as the purchase of an object at a store. Even worse, once economists take the step that Jevons suggested, they would have no way to “scientifically” measure their subject. Economists might be able to finesse the measurement of consumers’ utility by presuming that they maximize their utility. Theoretically, prices offer a metric by which consumers might make their decisions, but workplace utility would create a challenge comparable to measuring the utility of a marriage. Taking matters even further, close attention to working conditions threatens to create sensitivity to the lives of the most downtrodden members of the working class, including the often difficult and stultifying conditions on the job. Economists understand that because working conditions are difficult to quantify, addressing that subject could make economics appear more subjective and consequently seem less scientific. One other factor may have made Jevons’s work objectionable. The German tradition of the science of work influenced Jevons’s analysis of labor (see White 2004). Hermann Ludwig Ferdinand von Helmholtz, the great German scientist, was the major figure in this German effort to study the energetics of work.

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Helmholtz’s concept of labor power also provided a key for the development of Karl Marx’s economic theory (Rabinbach 1990). Not surprisingly, mainstream economists were not particularly appreciative of this part of Jevons’s approach, which harkened back to his earlier mention to a possible role for the utility of the labor process. In an 1892 letter, Alfred Marshall wrote, “I think Jevons did great harm by talking of . . . measuring disutility.” Marshall mocked Jevons by suggesting that considerations of the utility of labor might be appropriate only in the case of a child snacking berries in the wild, echoing Jevons’s earlier association between utility and labor. The youth could continue as long as the benefit would be worth the effort, but for a more modern product, such as “aneroid barometers,” Jevons’s method would not make any sense. A group of orthodox economists from Austria launched a more influential attack, denouncing Jevons while dogmatically defending the ideological purity of their existing utility-based economics, which intentionally excluded working conditions. Economists were only supposed to think in terms of consumers’ introspection, not workers’ production. The demand that considerations of the workplace were unacceptable soon virtually won over the entire community of economists (Spencer 2009). In short, Jevons’s “sin” was not that his analysis was imperfect, which it was. Instead, his offense was that he opened a window on the imperfection of the emerging economic consensus about economic theory.

Minimum Analysis of Minimum Wages In 1944 Richard Lester published an article questioning whether labor markets actually operated in the manner that mainstream economics suggested. Lester had extensive experience in industry after having recently served as chair of the Southern Textile Commission of the National War Labor Board. Using government data as well as surveys of industry leaders, Lester (1944) found evidence at odds with the assumptions of mainstream economic theory. For example, his results suggested that an increase in the minimum wage would do little or nothing to increase unemployment, a conclusion that infuriated major defenders of the faith. George Stigler, a leader of the deeply conservative Chicago school of economics and a Nobel laureate, led the attack (see Prasch 2007). Thomas Sowell, an admiring student of Stigler and an important figure in the conservative movement, once likened Stigler’s style of debate to a “Demolition Derby” (Sowell 1993:787). This debate provided confirmation of that characterization. As usual, Stigler “made unequivocal claims that lacked any strong empirical evidence, as if such statements were so intuitively obvious as to brook no argument” (Freedman 1995:194). Symbolic of his combative nature, Stigler captioned a picture of John Stuart Mill, describing him as “perhaps the fairest economist who ever lived: He treated other people’s theories at least as respectfully as his own, a mistake no other economist has repeated” (Stigler 1976:99). Stigler and his allies used enough invective to satisfy their colleagues that Lester must be wrong because his data was inconsistent with their theory. That challenge to orthodoxy was effectively silenced, so much so that looking back at his performance almost three decades later Stigler could write with evident pride, “The idea that minimum wage laws were the expression . . . of the well-informed desires of particular regions and classes of workers was not seriously considered by economists” (Stigler 1975:x). The following year, he proudly boasted, “One evidence of professional integrity of the economist is the fact that it is not possible to enlist good economists to defend minimum wage laws” (Stigler 1976:60). Yet, in the 1990s Alan Krueger of Princeton (currently Assistant Secretary of the Treasury for Economic Policy) and David Card of the University of California, Berkeley resumed work on the minimum wage, stirring up the hornet’s nest (Card and Krueger 1994). As might be expected, they too met with fierce criticism from fellow economists, some sponsored by the fast food industry. Card and Krueger were both distinguished economists. In fact, Card had won the prestigious John Bates Clark award from the American Economic Association, given to the outstanding economist under the age of 40. Moreover, their work stood up well under harsh scrutiny, but that was not enough to satisfy mainstream economists. For example, two Nobel laureates commented on their work in the editorial page of the Wall Street Journal. The milder of the two, Merton Miller (1996), responded that “it sure plays well in the opinion polls. I

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tremble for my profession.” The second, James Buchanan (1996), consoled his readers, “Fortunately, only a handful of economists are willing to throw over the teaching of two centuries; we have not yet become a bevy of camp-following whores.” By inference, Card and Krueger did fall into that category. In the face of such hostility, Card eventually dropped this line of research because of the personal costs of challenging the discipline. He explained: I’ve subsequently stayed away from the minimum wage literature for a number of reasons. First, it cost me a lot of friends. People that I had known for many years, for instance, some of the ones I met at my first job at the University of Chicago, became very angry or disappointed. They thought that in publishing our work we were being traitors to the cause of economics as a whole (Clement 2006). Nobody need be surprised that Card went on to say that he “thought it was a good idea to move on and let others pursue the work in this area,” but any career-minded economists would be well advised not do so (Clement 2006). It was not because of errors in their work that Krueger and Card failed to convince their fellow economists. Most economists either ignored their results or, worse yet, rejected them out of hand because they conflicted with cherished beliefs. Stigler’s colleague Milton Friedman once wrote, “Nothing is harder than for men to face facts that threaten to undermine strongly held beliefs, to change views arrived at over a long period. And there are no such things as unambiguous facts” (Friedman 1968:14, cited in Diesing 1985:61). For example, another Chicago economist, Sherwin Rosen, was quite open about his refusal to take Card and Krueger’s study seriously. In an October 1997 interview with Craig Freedman, an economist working out of Australia, Rosen admitted that if someone comes up and tells me now that everything I know is wrong I tend to be defensive. I naturally believe that the claim is probably erroneous. [laughs] Given your lifetime investment. . . . That’s right, given my investment, given what I’ve read over the years. When somebody tells me now that an increase in the minimum wage increases employment, there’s just been a study out on that [presumably, the Card and Krueger study], I’m very skeptical of that claim. I don’t believe it!. (Freedman 2008) In fact, the Chicago style of economics is famous for rejecting empirical evidence out of hand. Deirdre McCloskey (1985), a former Chicago faculty member, recounted how people who used data that called the theory into question would “be met by choruses of ‘I can’t believe it’ or ‘It doesn’t make sense.’ Milton Friedman’s own Money Workshop at Chicago in the late 1960s and the early 1970s was a case in point” (p. 140). Melvin Reder, another Chicago faculty member, offered further insight in the way that Chicago refuses to give ground in the face of evidence that calls the micro-foundations into question: Chicago economists tend strongly to appraise their own research and that of others by a standard that requires [inter alia] that the findings of empirical research be consistent with the implications of standard price theory. . . . The major objective is to convert non economists to their way of thinking. . . . However imaginative, answers that violate any maintained hypothesis of the paradigm, are penalized as evincing failure to absorb training (Reder 1982:13, 18, 19). Charles Kindleberger, a distinguished economist from MIT, observed that in Chicago, “Modifying the theory was the last resort, evaded as long as possible” (Kindleberger 2000:235 n). Economists frequently regard such stubborn resistance to be good science. Predictably, the troubling questions that Krueger and Card raised had no effect. Economists’ beloved micro-foundations and their faith in market efficiency remained invulnerable. No wonder that economists today rarely bother to publish research that might cast doubt on the core of economic theory. In this environment, economists can continue to use their transaction-based theory without the inconvenience of dealing with work, workers, or working conditions; however, by removing these critical aspects of life from their theory, economists blind themselves—and those who defer to their advice—to the kind of inefficiencies that this book shows.


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A Twisted Reflection of Working Conditions Richard Thaler of the University of Chicago is perhaps the world’s best-known behavioral economist. Here is how he has explained his own work: I am not your usual sort of economist. I practice what has come to be called behavioral economics. We behavioralists differ from our more traditional brethren in the way we characterize agents in the economy. Traditional economics is based on imaginary creatures sometimes referred to as “Homo economicus.” . . . Real people have trouble balancing their checkbooks, much less calculating how much they need to save for retirement; they sometimes binge on food, drink or high-definition televisions. . . . Behavioral economics is the study of Humans in markets (Thaler 2009). Thaler did not begin as a behavioralist. Instead, he was a promising doctoral student at the University of Chicago. In 1974, he published a Ph.D. dissertation at the University of Chicago that found a correlation between wage rates and the probability of dying on the job and then published his results in an article with his advisor, Sherwin Rosen. Based on this correlation, and assuming that higher wages were a reward for accepting the risk of death, Thaler proposed that one could assume that workers were communicating through their transactions on the job market how much they thought their lives were worth. Thaler estimated that workers were demanding $200 a year (in 1967 dollars) for each 1-in-1,000 chance of dying. This method is seriously biased downward because poor people, especially immigrants, with few alternatives are more likely to accept low-wage, dangerous jobs. For example, a government report on workplace deaths concluded that “during 1992–2006, . . . the death rate for Hispanic workers was consistently higher than the rate for all U.S. workers, and the proportion of deaths among foreign-born Hispanic workers increased over time” (Centers for Disease Control and Prevention 2008). A different kind of study would arrive at a very different result. If, for example, economists had the capacity to plumb the minds of students who were about to graduate with MBAs from elite universities, they could investigate how much more the students would expect from hypothetical investment banking jobs with an annual 1 percent chance of workplace fatality. If such a study were somehow possible, the value of a “statistical life” would certainly be higher than estimates for a pool of potential applicants for jobs as farmworkers. Thaler quickly realized the weakness of his results. His friends told him that they would never accept anything less than $1 million in return for increasing their chances of dying by 0.1 percent. Paradoxically, the same friends would not be willing to sacrifice any income to reduce the probability of dying on the job (Lowenstein 2001). This apparent inconsistency soon left Thaler disenchanted with his work, but his recognition that economics’ central assumption of rationality was flawed moved him in the direction of behavioral economics. Although Thaler lost confidence in his work, he was almost alone in this respect. Instead, his work resonated with the objectives of opponents of regulation, including business interests and their armies of lobbyists, who along with a number of conservative think tanks and some conservative economists tirelessly work to weaken regulations. One of the major strategies of the antiregulators is to argue that the benefits of regulations are less than their costs. To make that point in the case of regulations to protect human lives, antiregulators want to find ways to diminish the importance of any deaths that regulations might prevent. To meet this need, economists constructed an influential literature to measure the value of a “statistical life.” Most people resist putting a monetary value on human life, but Thaler’s idea of a “statistical life” had a twofold benefit: it gave a human life a lowball value, while putting scientific gloss on the antiregulators’ arguments. Once the idea of assigning a monetary value is accepted, anti-egulators could work to create even lower estimates, further minimizing the consequences of workplace fatalities, as well as deaths from consumer products. Government agencies embraced this technique (Borenstein 2008). This practice is only one part of a three-pronged strategy, which also includes overestimating the costs of regulation; then the antiregulators

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finally cap their case, with a flourish, suggesting that money spent on regulation would do far more good in other areas, such as vaccinating children. For example, in pushing this third prong of antiregulatory rhetoric, John D. Graham, a fervent opponent of regulation who became President George W. Bush’s head of the Office of Management and Budget’s Office of Information and Regulatory Affairs, even went so far as to claim that spending money on regulations instead of vaccinating children is tantamount to “statistical murder” (Graham 1995). Ironically, I know of no case when the antiregulators have come out in support of any program to actually vaccinate children, perhaps preferring to be able to recycle vaccination as a straw man to wield against all regulation. The example of a statistical life illustrates the opportunistic ways that unscrupulous economists mostly avoid looking into questions regarding work, workers, and working conditions, except where they can cherry-pick some useful results. Thaler’s career is interesting in this regard. Much like David Card, Thaler paid a personal cost for straying from the mainstream fold. His thesis advisor, the same Sherwin Rosen who refused to take Krueger’s work seriously, loved the dissertation but expressed deep disappointment that Thaler’s later work in behavioral economics wasted his career on trivialities. Another University of Chicago professor, the same Nobel laureate who was so critical of the work of Card and Krueger, Merton Miller, even refused to talk with Thaler. Ironically, Thaler’s behavioralism is now coming into favor in Democratic circles. With co-author Cass Sunstein, Thaler has promoted the idea of “libertarian paternalism” instead of outright regulation (Thaler and Sunstein 2003). For example, the two suggest that business could “nudge” people to increase their rate of personal savings by requiring workers to opt out of 401(k)’s instead of opting in (Thaler and Sunstein 2008). Such suggestions of noncoercive actions are politically attractive because they seem to be doing something positive without inconveniencing business. At the same time, nudging tends to emphasize personal rather than social behavior. The irony was redoubled when President Obama nominated Cass Sunstein to take the job that John Graham had held. Thaler’s experience is doubly relevant to this publication because it suggests that even in those rare cases when well-meaning economists do trespass into questions of work, workers, or working conditions— territory usually proscribed by the discipline—their work is unlikely to be helpful with respect to workers’ interests. If such work will help the workers’ cause, it will be rejected; however, if it can be wielded to harm labor, economists are likely to embrace it as they did Thaler’s dissertation. In this case, economists used Thaler’s work by reducing the benefits of saving a worker’s life to undermine efforts to improve workplace safety. If Thaler had come up with numbers that had supported greater workplace protections, he probably would have experienced ostracism earlier in his career.

Conclusion: A Plea to LERA The Labor and Employment Relations Association might help to rescue economics from itself. By shedding more light on the hidden abode of production, you may be able to help loosen the grip of the dead hand of abstract economic theory.

References Borenstein, Seth. 2008. “How to Value Life? EPA Devalues Its Estimate.” Sacramento Bee (July 13), p. D1. . Buchanan, James M. 1996. “Commentary on the Minimum Wage.” Wall Street Journal (April 25), p. A20. Card, David, and Alan B. Krueger. 1994. “Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania.” American Economic Review, Vol. 84, No. 4 (September), pp. 772–93. Centers for Disease Control and Prevention. 2008. Morbidity and Mortality Weekly Report (June 6). Work-Related Injury Deaths Among Hispanics—United States, 1992–2006. .


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Clement, Douglas. 2006. “Interview with David Card.” The Region, Federal Reserve Bank of Minneapolis (December). . Diesing, Paul. 1985. “Hypothesis Testing and Data Interpretation: The Case of Milton Friedman.” Research in the History of Economic Thought and Methodology, Vol. 3. Greenwich, CT: JAI Press, pp. 61–89. Freedman, Craig. 1995. “The Economist As Mythmaker—Stigler’s Kinky Transformation.” Journal of Economic Issues, Vol. 29, No. 1, pp. 175–209. Freedman, Craig. 2008, August 18. Personal communication. Friedman, Milton. 1968. Essays in Dollars and Sense. Englewood Cliffs: Prentice-Hall. Graham, John D. 1995. Comparing Opportunities to Reduce Health Risks: Toxin Control, Medicine and Injury Prevention. Dallas: National Center For Policy Analysis. . Jevons, William Stanley. 1870b. “On the Natural Laws of Muscular Exertion.” Nature, Vol. 2 (June 30), pp. 158–60. Jevons, William Stanley. 1871, 1970. The Theory of Political Economy. Baltimore: Penguin. Jevons, William Stanley. 1874. “The Mathematical Theory of Political Economy.” Journal of the Statistical Society of London, Vol. 37, No. 4 (December), pp. 478–88. Kindleberger, Charles. 2000. Manias, Panics, and Crashes. New York: Basic Books. Lester, Richard A. 1944. “Notes of Wages and Labor Costs.” Southern Economic Journal, Vol. 10, No. 3 (January), pp. 235–8. Lowenstein, Roger. 2001. “Exuberance Is Rational or at Least Human.” New York Times Magazine (February 11). Maas, Harro. 2005. William Stanley Jevons and the Making of Modern Economics. Cambridge: Cambridge University Press. Marshall, Alfred. 1892. “Letter to Francis Ysidro Edgeworth (28 August).” In John K. Whitaker, ed., The Correspondence of Alfred Marshall, Vol. 2: At the Summit, 1891–1902. Cambridge: Cambridge University Press, 1996, pp. 71–2. Marx, Karl. 1867, 1977. Capital, Vol. 1. New York: Vintage. McCloskey, Deirdre. 1985. The Rhetoric of Economics. Madison: University of Wisconsin Press. Miller, Merton. 1996. “Commentary on the Minimum Wage.” Wall Street Journal (April 25), p. A20. Prasch, Robert E. 2007. “Professor Lester and the Neoclassicals: The ‘Marginalist Controversy’ and the Postwar Academic Debate Over Minimum Wage Legislation: 1945–1950.” Journal of Economic Issues, Vol. 41, No. 3 (September), pp. 809–25. Rabinbach, Anson. 1990. The Human Motor: Energy, Fatigue, and the Origins of Modernity. New York: Basic Books. Reder, Melvin W. 1982. “Chicago Economics: Permanence and Change.” Journal of Economic Literature, Vol. 20, No. 1 (March): pp. 1–38. Robbins, Lionel Charles. 1969. An Essay on the Nature and Significance of Economic Science (2nd ed). London, Macmillan. Sowell, Thomas. 1993. “A Student’s Eye View of George Stigler.” Journal of Political Economy, Vol. 101, No. 5 (October), pp. 784–93. Spencer, David. 2009. The Political Economy of Work. London: Routledge. Stigler, George J. 1975. The Citizen and the State: Essays on Regulation. Chicago: University of Chicago Press. Stigler, George J. 1976. “Do Economists Matter?” Southern Economic Journal, Vol. 42, No. 3, pp. 347–54; reprinted in The Economist as Preacher. Oxford: Basil Blackwell, pp. 54–67. Thaler, Richard H., and Cass R. Sunstein. 2003. “Libertarian Paternalism.” American Economic Review, Vol. 93, No. 2 (May), pp. 175–9. Thaler, Richard H., and Cass R. Sunstein. 2008. Nudge: Improving Decisions about Health, Wealth, and Happiness. New Haven, CT: Yale University Press. White, Michael V. 2004. “In the Lobby of the Energy Hotel: Jevons’s Formulation of the Postclassical ‘Economic Problem.’ ” History of Political Economy, Vol. 36, No. 2 (Summer), pp. 227–71.

IX. Collective Bargaining Under International Law: U.S. Obligations and U.S. Practice

Core Labour Standards and the U.S. Experience: Freedom of Association and the Right to Bargain TAYO FASHOYIN MINAWA EBISUI International Labour Office, Industrial and Employment Relations Department1

Introduction Globalization has led to significant changes in the world of work, resulting in fundamental effects on the forms and patterns of work and a growing population of precarious and nonregular workers. Globalization has also given rise to widening income inequality, with the rich becoming richer and the poor becoming poorer. Negative effects such as these have been observed in developing but also in the advanced market economies, including the United States, the world’s largest economy, where labour law protection has long been criticized as inadequate. The present global economic crisis has created adverse effects on jobs, further worsening the employment prospects of the poorest and most vulnerable groups in most countries. As globalization intensifies competition, many national governments have sought to change the context of labour relations, work arrangements, and dispute resolution mechanisms, most notably at the individual rather than the familiar collective level. In the process, union membership and representation have been declining worldwide. These changes have accelerated the perception of workers’ rights as fundamental human rights as exists in national, regional, and international instruments. At the international level, the concept of “core international labour standards” has emerged over the past decade and has been reflected broadly in the work of the International Labour Organization (ILO) and other international organizations, the activities of nongovernmental organizations (NGOs), and codes of conduct in the private sector. Among the set of core labour standards, those relating to freedom of association and the right to bargain collectively—Conventions 87 and 98—are among the most important fundamental rights. These two conventions enable workers and their organizations to have their voices heard in the workplace. Indeed, these rights constitute a core ILO value, and they are enabling rights that make it possible to promote democracy, sound labour market governance, and decent working conditions. In the face of the current global jobs crisis and its impact on the poorest and most vulnerable groups, the ILO’s Global Jobs Pact,1 adopted at the 98th Session of the International Labour Conference in June 2009, recalls that respecting fundamental principles and rights at work is critical to economic recovery and development in the postcrisis world. The Global Jobs Pact affirms that “international labour standards create a basis for and support rights at work and contribute to building a culture of social dialogue particularly useful in times of crisis”, and that in order to prevent a downward spiral in labour conditions and build the recovery, it is especially important to recognize that “respect for fundamental principles and rights at work is critical for human dignity. It is also critical for recovery and development.” The aim of this paper is, first, to give an overview of the development of core labour standards, highlighting reflections on the impact of the 1998 ILO Declaration on Fundamental Principles and Rights at Work. This declaration identifies a set of ILO conventions as core labour standards and reviews a variety of Authors’ address: Industrial and Employment Relations Department, CH-1211, Geneva 22, Switzerland

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COLLECTIVE BARGAINING UNDER INTERNATIONAL LAW

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approaches in their implementation, such as in international human rights law and private self-regulation. Second, the paper considers one of the ILO’s core values, namely freedom of association and the right to collective bargaining, and presents how ILO’s technical cooperation programme, such as the Better Factories Cambodia, has created positive synergies in improving core labour standards. Third, we briefly examine U.S. approaches and contributions to the promotion of core labour standards in member states, with particular reference to freedom of association and the right to bargain collectively, and contrast these with U.S. attitude to adopting and applying these standards at home. The paper concludes by presenting how such synergies also contribute to global economic recovery, drawing from the findings of the Better Factories Cambodia.

The ILO’s Core Labour Standards Reflections on the Impact of the ILO’s 1998 Declaration The ILO conventions, which cover a broad range of subjects concerning work, employment, social protection, social policy, and related human rights, have long served as instruments to regulate the domestic labour and employment laws in member states upon their ratification. While the ratification of ILO conventions creates binding obligations, including giving effect to the standards domestically, ILO recommendations provide guidance for action by governments and employers’ and workers’ organizations but are not intended to create obligations. Despite the fact that over 180 conventions have been adopted, their enforceability has been limited, since many of them are ratified by very few countries. After the end of the Cold War, the United Nations (UN) organized a series of global summit meetings. The World Summit on Social Development (Copenhagen, 1995), for example, identified four categories of core labour standards and reaffirmed their basic human rights status. A year later, the first World Trade Organization (WTO) Ministerial Conference (Singapore, 1996) renewed states’ commitment to observing internationally recognized core labour standards, and the ILO was mandated as the competent body to set and deal with these standards. With the social dimension of globalization high on the agenda of the international community at the end of the 20th century, the need for another instrument giving greater focus to the goal of having social progress and economic growth move hand in hand led to the adoption in 1998 of the ILO Declaration on Fundamental Principles and Rights at Work (FPRW) and its follow-up.2 The 1998 declaration was adopted as a promotional instrument to encourage efforts by the member states to respect a set of core values that lie at the heart of the ILO’s mandate, and since its adoption it has attracted public attention to the ILO’s core labour standards.3 The declaration identifies a set of eight “core” conventions and commits member states to respect and promote the principles and rights in four categories, whether or not they have ratified the relevant conventions, namely: 1. Freedom of association and the effective recognition of the right to collective bargaining (C87, C98) 2. Elimination of forced or compulsory labour (C29, C105) 3. Abolition of child labour (C138, C182) 4. Elimination of discrimination in respect of employment and occupation (C100, C111) The declaration’s follow-up provides three ways to help countries, employers, and workers achieve the full realization of the declaration’s objectives. First, there is an Annual Review composed of reports from countries that have not yet ratified (http://www.ilo.org/declaration/follow-up/annualreview/ annualreports/lang--en/index.htm) one or more of the ILO conventions that directly relate to the specific principles and rights stated in the declaration.4 Second, a Global Report (http://www.ilo.org/declaration/ follow-up/globalreports/lang--en/index.htm) submitted each year provides a dynamic global picture of the current situation of the principles and rights expressed in the declaration. The global report is an objective view of the global and regional trends on the issues relevant to the declaration and serves to highlight areas that require greater attention. It also serves as a basis for determining priorities for technical cooperation. Third, technical cooperation projects (http://www.ilo.org/declaration/follow-up/tcprojects/lang--en/

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index.htm) are designed to address identifiable needs in relation to the declaration and to strengthen local capacities, thereby translating principles into practice.5 The declaration is one social response by the ILO regarding how to govern the social dimension of globalization, and it indeed affirms the human rights status of a core set of rights and clearly states that these core labour standards are universal and that they apply to all people in all states, regardless of the level of economic development. The declaration was followed in 2004 by the report of the World Commission on the Social Dimension of Globalization.6 The core labour standards also serve as one of the four pillars of decent work on which the ILO’s current activities are constructed,7 and they are further endorsed in the ILO’s recent Declaration on Social Justice for a Fair Globalization, adopted in 2008.8 The promotional efforts of the ILO to make the instrument more universal and better understood, together with technical assistance offered under its follow-up, have also contributed to motivating countries to ratify the core conventions and implement them; indeed, the increase in the level of ratification of these core conventions has been significant. For example, with respect to freedom of association (C87) and the right to collective bargaining (C98), 150 out of the total 183 member states had ratified the former, while 160 countries had ratified the latter, by 3 November 2009.9 Another noteworthy observable impact has been the considerable increase in external donor contributions to ILO technical cooperation on promoting core labour standards. The need to respect these labour standards has indeed been highlighted by the global economic crisis (hereafter, “the crisis”). Thus, the 2009 ILO Global Jobs Pact (GJP) sets out “promoting core labour standards” as one of the principles that support economic and jobs recovery and development, as will be shown later. Multidimensional Approaches to Promoting Core Labour Standards Since the adoption of the 1998 declaration, the eight core labour standards have been widely cited outside the ILO and promoted through multidimensional approaches by several actors, including international and regional organizations and policy makers, as well as private organizations, including enterprises, NGOs, monitoring/verifying bodies, and litigants. In this regard, the declaration has clearly had a promotional impact globally, and the identification of core labour standards can be considered one of the most significant developments in the protection of workers’ rights. Core Labour Standards as Human Rights One factor which has served as a driver of such multidimensional support is the evolution of international human rights since the end of the Cold War, which has seen the recognition of human rights as “universal” and “indivisible” rights, consistent with the Vienna Declaration in 1993.10 The Universal Declaration of Human Rights (UDHR), which the UN General Assembly unanimously adopted in 1948, is an important precedent for treating civil, political, and social rights as human rights in a uniform manner, but the instrument is not legally binding. Due to the Cold War context, however, “individual” civil and political rights and “collective” social, economic, and cultural rights had long been dealt with separately, as reflected in two separate UN Covenants that contain legally binding obligations: the International Covenant on Civil and Political Rights (ICCPR) and the International Covenant on Economic, Social and Cultural Rights (ICESCR), both adopted in 1966. In the European context the European Convention on Human Rights (ECHR, 1950) may be contrasted with the European Social Charter (ESC, 1961).11 However, given the growing official recognition regarding integration of the parallel tracks in international human rights after the Cold War, such integration has not been fully reflected in practice,12 while the ILO never made this distinction in the human rights community.13 Instead of treating the two tracks in an integrated manner, core labour standards have come to be recognized and caught public attention as a set of core workers’ human rights in the international community, despite a number of criticisms posed by academics, such as over the exclusion of other workers’ rights, the review mechanism, and the selection of core labour standards.14 Workers’ rights can also be found in other regional human rights instruments. In the Americas, the American Declaration of the Rights and Duties of Man (ADRDM) was adopted in 1948, but it is not legally


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binding either. The American Convention on Human Rights (ACHR), which was adopted in 1969, contains legal obligations and was supplemented by a protocol relating to economic, social, and cultural rights in 1988. In Africa, the African Charter on Human and Peoples’ Rights (ACHPR) was adopted in 1981. Linking Core Labour Standards to International Trade In order to regulate unfair labour competition and promote social justice, efforts to link core labour standards to the world trade system have also been promoted. A growing number of bilateral and multilateral trade agreements as well as regional economic integration arrangements make explicit references to international labour standards. The advanced economies are allowed to offer tariff preferences to beneficiary states under a generalized system of preferences (GSP). Thus the United States and the European Union (EU) operate trade schemes that offer incentives for developing economies to access markets at reduced tariffs, conditional on compliance with certain labour standards. Under the EU’s GSP, developing countries that ensure respect for core labour standards in line with the ILO’s core conventions are eligible for additional trade preferences.15 For example, while the EU withdrew GSP benefits in 2007 from Belarus because of its violation of C87 and C98, it granted GSP benefits to El Salvador upon its ratification of the same conventions.16 In Latin America, Argentina, Brazil, Paraguay, and Uruguay have made commitments to the Social and Labour Declaration of the Common Market of the Southern Cone (MERCOSUR), which was signed in 1998. In 2006, the Bolivarian Republic of Venezuela also became an associate member. The Social and Labour Declaration of MERCOSUR proclaims support for the ILO’s 1998 declaration and reaffirms the commitment to respect, promote, and implement the rights and obligations set out in the core conventions.17 In 1994 the United States, Canada, and Mexico signed the North American Agreement on Labor Cooperation (NAALC) as a side agreement of the North American Free Trade Agreement (NAFTA), concluded in 1992. The NAALC lists 11 labour standards to be complied with by member states, subject to their domestic law.18 Since the conclusion of NAALC, the United States has included labour provisions in all bilateral and regional free trade agreements (FTAs) it has negotiated. Examples include agreements with Chile, Jordan, Morocco, and Singapore. Indeed, FTAs were given new impetus following the signing by the U.S. Congress of the Trade Act of 2002, which included “the authorization to promote trade.” More recently, the New Trade Policy for America (agreed to by the U.S. Congress and the Bush Administration in May 2007) states that specific labour provisions are to be included in FTAs, covering an obligation to strive to ensure in the domestic legislation the labour principles as outlined in the ILO declaration and internationally recognized labour rights, as well as an obligation to effectively enforce domestic labour laws containing internationally recognized workers’ rights.19 There has been ongoing debate about whether these labour standards should be enforceable under a dispute settlement mechanism.20 Some recent agreements also provide for dispute resolution mechanisms as well as funds and parallel labour cooperation. Indeed, a growing number of bilateral free trade agreements— particularly those signed by Canada, the United States, and the European Union—contain social and labour provisions along those lines.21 One sophisticated example of linking bilateral trade agreement to market rewards conditional to systematically and publicly monitored increasing compliance with labour standards, with the involvement of the ILO, is ILO’s technical cooperation projects: Better Factories Cambodia. This issue is explored below.

Private Voluntary Initiatives to Promote Core Labour Standards Codes of Conduct and Other Private Self-Regulatory Initiatives Expanding activities of multinationals that operate globally beyond national borders have contributed to the development of corporate codes of conduct, primarily in response to growing expectations on the part of the international community that they meet corporate social responsibilities (CSR). A shift in power away from national governments to businesses, NGOs, and cross-border/transnational groups, for example, is also underpinning the development of core labour standards, and such nonstate actors have actively contributed to their promotion.

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Leading international instruments providing guidelines for the behaviour of multinationals are the ILO’s Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy (the MNE Declaration) and the OECD Guidelines for Multinational Enterprises, both of which were established in the 1970s and have served as nonbinding international instruments. Then, in the late 1980s, trade unions and NGOs began to pressure large and brand-name enterprises over their labour standards. Widely used campaigns included boycotts against such companies as Nike, Reebok, and Adidas, whose production was criticized as being based on “cheap labour” or “sweat shops.” Facing the threat of damage to their brand image from such public pressures, a number of enterprises developed their own codes of conduct. The lack of effective international tools imposing legally binding obligations on multinationals to comply with international labour standards thus brought about a dramatic rise in private self-regulatory initiatives for the purposes of assessing and improving the multinationals’ labour practices in the 1990s. The trend toward wider acceptance of the centrality and universality of the ILO’s core labour standards has also underpinned the increase in various kinds of regulatory initiatives, including codes of conduct that multinationals adopt for their own operations, but also those that are developed by a variety of actors, such as trade unions, NGOs, and businesses, at national, regional and global levels, and in each case involving bipartite and tripartite commitments. At the same time, different self-regulatory private initiatives have emerged in order to monitor corporate compliance with these codes of conduct. Some undertake external monitoring or auditing, while others provide verification or labeling. Law firms have also started providing preventive legal services and developing risk-management tools. In the United States, for example, some management-oriented law firms known to their detractors as union busters have changed their business strategies over time due to the decline in union density and now tend more toward dispute avoidance by providing training programmes and other compliance products and by drafting risk prevention policies for their clients.22 New Developments in International Tools These various private initiatives have in turn stimulated renewed action among international organizations. The ILO and the OECD have revised their guidelines. The ILO’s MNE Declaration23 was revised in March 2000 to include in its annex a cross-reference to the 1998 declaration.24 The revised guidelines oblige the parties—governments, workers, employers, and MNEs—to “contribute to the realization” of the ILO Declaration on Fundamental Principles and Rights at Work and its Follow-up (http://ilo-mirror.library.cornell.edu/public/english/standards/decl/declaration/index.htm). On the other hand, the OECD Guidelines for Multinational Enterprises were revised in 2000 to establish a specific procedure that allows for complaints to be brought where companies are not following the guidelines. The revised guidelines also committed adhering countries to establishing a national contact point (NCP) to promote the guidelines and manage the complaints relating to companies registered in or operating within their borders. Where the NCP considers that a company has breached the guidelines, it will issue a statement on the nature of the breach and make recommendations to the company on how it could bring its practices in line with the guidelines in the future.25 The UN also established the UN Global Compact (GC) in 2000 as both a policy platform and a practical framework for companies that are committed to sustainability and responsible business practices. The GC asks companies to embrace, support, and enact, within their sphere of influence, a set of core values in the areas of human rights, labour standards, the environment, and anti-corruption. The GC’s labour principles are derived from the ILO’s 1998 declaration.26 However, while the GC is not legally binding but rather a voluntary instrument, the number of participants has grown to 6,700, including over 5,200 businesses in 130 countries around the world as of 30 June 2009. Finally, the International Organization for Standardization (ISO) is also developing a guidance document on social responsibility. The resulting international instrument, ISO 26000, is scheduled to be adopted in September 2010. In line with the ISO-ILO Memorandum of Understanding (MOU), the Draft International Standard has been developed with ILO inputs. The draft text highlights, among other international instruments, the MNE Declaration, the ILO 1998 declaration, the ILO Declaration on Social Justice for a Fair Globalization, and international labour standards concerning employment promotion and


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respect for workers’ rights, as well as many broader economic and social development issues identified in the 2007 International Labour Conference conclusions concerning the promotion of sustainable enterprises.27 Concerns over Voluntary Self-regulatory Initiatives and the Role of the ILO These various attempts contribute to promoting and respecting core labour standards in mutually reinforcing and complementary ways, albeit with limitations and risks of misuse. Thousands of codes of conduct, guidelines, and ethical principles have been adopted, and the monitoring and verification business is booming. This in turn implies expanding business opportunities for certain private actors to “sell labour standards.” When they are either misinterpreted or omitted in order to meet enterprises’ own risk management needs, the coherence and legitimacy of international labour standards may be endangered. As a World Bank study revealed, there were significant variations in the ways CSR initiatives interpret workers’ rights.28 Some address international labour standards, while others cover either narrower or wider workplace issues. With respect to freedom of association and the right to collective bargaining, for example, there are often cases where CSR initiatives marginalize or simply omit these rights.29 Some identify compliance with national legislative regimes that often conflict with the core labour standards. The processes can involve workers’ participation, while codes can also be drafted at management level or by external consultants without workers’ involvement. Codes could also cover the individual company’s supply chains and, in most cases, they are developed as a risk-prevention measure in order to maintain the company’s reputation and avoid negative exposure or scandals. Thus, codes tend to be more effective in high-profile large companies, while the incentives for small and medium-sized enterprises to draft such codes seem to be few. These shortcomings suggest that private self-regulatory initiatives may create confusion rather than advance labour rights. There has also been growing concern both from companies and civil society over the efficacy of code implementation systems, in particular the quality of the assessments conducted and the role they play in promoting the principles that global companies espouse in their CSR policies.30 Such concerns include misinterpretation of core labour standards, duplication of audits, inconsistencies that exist between the assessment protocols, lack of transparency, and availability of credible information on social audits, as well as shortcomings in the methodology used in social audits, which are often undertaken without consultation with workers and their representative organizations, thus excluding them from the process of improving the workers’ working conditions.31 These concerns pose further issues regarding how to effectively coordinate the roles of private selfregulation with public labour inspection, which most often has weak capacity. The ILO Labour Inspection Convention (C81) adopted in 1947 envisaged in its Article 5 that “the competent authority shall make appropriate arrangements to promote: effective co-operation between the inspection services and other government services and public or private institutions engaged in similar activities.” The governing body of the ILO in 2006 reaffirmed that “private self-regulatory initiatives can be an important complement to public regulation and inspection, but not an alternative” as envisaged in C81.32 The ILO is internationally recognized as having legitimacy and experience in interpreting and implementing international labour standards, while voluntary forms of self-regulation, including codes of conduct and CSR initiatives, often lack such capacities. The challenge for the ILO, therefore, is how to promote effective cooperation among them in order to ensure that they are developed and assessed with the effective participation of workers. The role of the ILO lies in collaboration with the other existing relevant international organizations, including the OECD and the UN, to encourage and cooperate with private regulatory initiatives so as to ensure that these codes incorporate the existing ILO standards in a coherent and consistent manner. The ILO’s Better Factory Cambodia technical cooperation demonstrates a successful example of how effective cooperation between private regulatory initiatives and the ILO can lead to better compliance with labour standards. The methodology and approach taken under Better Factory Cambodia were bridged into a global programme named Better Work, launched in 2006. The following section presents an overview of ILO technical assistance and technical cooperation to give effect to the declaration, followed by a detailed description of Better Factory Cambodia and Better Work.

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The ILO’s Technical Assistance: Freedom of Association and the Right to Bargain Collectively Overview of the ILO’s Technical Cooperation Related to the Declaration Technical cooperation constitutes one of the three follow-up activities to give effect to the declaration by strengthening local capacities to implement core labour standards. ILO’s technical assistance in this respect comprises advocacy, awareness raising, training, advisory services, and technical cooperation projects for institutional development and capacity building. Technical cooperation projects in respect of freedom of association and the right to collective bargaining aim at ensuring results through the following six interrelated instruments of change:33 1. 2. 3. 4. 5. 6.

Labour law reform Building capacity of labour administrations Strengthening employers’ and workers’ organizations Developing tripartism and institution building Dispute prevention and settlement Advocacy and information

Technical assistance and cooperation projects promoting these rights are implemented by different units in the ILO, including these:34 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Programme for the Promotion of the Declaration (abbreviated hereafter DECLARATION) International Labour Standards Department (NORMES) Industrial and Employment Relations Department (DIALOGUE) Labour Administration and Inspection Programme (LAB/ADMIN) Bureau for Workers’ Activities (ACTRAV) Bureau for Employers’ Activities (ACTEMP) Sectoral Activities Branch (SECTOR) Multinational Enterprises Programme (MULTI) Regional Offices of the ILO (RO) International Training Centre of the ILO in Turin (TURIN)

Since the establishment of the DECLARATION, funding from donor states to implement projects regarding freedom of association and the right to collective bargaining has amounted to about US$58 million. However, there has been a gradual decline in expenditure by DECLARATION on projects in this area, from a peak of about US$10 million in 2003 down to some US$2.5 million in 2007, while total extrabudgetary approvals for all ILO technical cooperation projects reached a peak of US$243 million in 2006. Funds available for technical cooperation in this area have long been significantly limited as compared to the funding for the elimination of child labour or forced labour, despite the high demand from tripartite partners for related capacity-building activities.35 However, since the launch of Better Work by the ILO in partnership with the International Financial Corporation (IFC) of the World Bank Group, the funding for this programme has increased. ILO Better Factories Cambodia One of the innovative examples of an ILO technical cooperation project is Better Factories Cambodia, which operated January 2001 through January 2009.36 Its goal was to improve working conditions in Cambodia’s export garment factories through factory monitoring and reporting according to national and international labour standards, as well as capacity-building. Under this project, increased trade and systematically and publicly monitored compliance with labour standards have created positive synergies. The project was established to help the sector make and maintain these improvements. It was managed by the ILO, with support from the Royal Government of Cambodia, the Garment Manufacturers’ Association in


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Cambodia (GMAC), and trade unions. Its funding came primarily from the U.S. Department of Labor (USDOL), the United States Agency for International Development (USAID), the French Development Agency (AFD), the GMAC, and the Royal Government of Cambodia, as well as international buyers. The project grew out of the U.S.–Cambodia Textile Agreement (UCTA) of 1999, which provided better market access in exchange for improved working conditions in the garment sector. The ILO’s responses included independent, consistent, and transparent labour monitors in all the firms exporting textile and clothing products, direct remedial assistance, and capacity-building for tripartite constituents. What made this project unique was the fact that the ILO played the role of monitoring labour standards at factory sites for the first time, which contributed to maintaining the public legitimacy of labour monitoring. Another factor that contributed to the success of the project was its foundation on the principle of social dialogue.37 The project, together with another ILO project for institutional capacity for dispute resolution, has contributed to both by improving working conditions and establishing a sound system of industrial relations.38 Impact examples include a 28% increase in employment levels, increased unionization from 25 to 30 percent to 43 percent, and improved working conditions.39 In 2004, when the UCTA expired, the Cambodian government, unions, and employers adopted a strategy of turning Better Factories Cambodia into a self-supporting and autonomous local institution, and it was decided that the project should become autonomously operational by the end of 2010, when the ILO’s direct management comes to an end.40 From Better Factories Cambodia to Better Work Building on the successful approach and methodology developed in the Better Factories Cambodia project, the ILO launched a global “Better Work” programme in 2007 in partnership with the International Financial Corporation. The aim of Better Work is to improve labour standards and competitiveness in global supply chains, founded on cooperation among its stakeholders, namely governments, employers’ associations, trade unions, and key international buyers.41 The Better Work programme operates at (developing) country level, while global activities are supported by a pool of technical experts from its global team. The latter is responsible for developing and supporting country-level activities, managing impact assessment reporting, knowledge management, coordination, stakeholder engagement, ongoing quality control, resource mobilization, strategic management, and policy advice. Country programmes, on the other hand, combine independent enterprise assessments with enterprise advisory and training services to support practical improvements through workplace cooperation. The key to success depends on the degree of cooperation between the stakeholders. The country programmes are expected to become self-financing within five years. Better Work country programmes are typically integrated into the United Nations Development Assistance Framework (UNDAF), and their activities are also coordinated with the relevant national Poverty Reduction Strategy Paper (PRSP). For example, Better Work Vietnam is part of the ILO’s Decent Work Country Programme (DWCP), which contributes to the One UN plan for the country. Better Work has received support from both donors and private partners, amounting to US$12.7 million since February 2007. Donors to the global programme include the Netherlands, Switzerland, Ireland, Japan, and the United States Council Foundation, while donors contributing to country programmes include the largest donor—the United States—Australia, Canada, the European Union, Finland, Ireland, Japan, New Zealand, the Netherlands, Norway, and Sweden, as well as Switzerland, France, Jordan, and Cambodia. Better Work brings benefits to a range of people and organizations in the following ways: to workers, through better protection of their rights, improved working and living conditions, and increased opportunities for employment; to enterprises, through increased market access resulting from demonstration of their labour standards compliance to international buyers, enhanced reputation, reduced labour turnover and improved productivity competitiveness, and fewer audits; to governments, through export growth as a benefit from trade agreements that reward good labour standards performance, increased employment, a more competitive industry, business-enabling environment reforms, and improved capacity in labour administration; and to international buyers, through credible information on labour standards compliance in supplier factories, support for suppliers taking action to remedy compliance gaps, reduced risk of labour

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violations in the supply chain—which can impact brand value—and more competitive suppliers with higher productivity and better-quality products and services.

The U.S. Experience The U.S. Position on Ratification and Implementation of C87 and C98 The United States is one major country that has ratified neither C87 nor C98, though the former has obtained ratification by 150 and the latter by as many as 160 member states.42 Of the eight core conventions identified in the 1998 ILO Declaration, the United States has ratified only C105 and C182. The broad consensus on one principal reason for nonratification is its monistic system of law, under which ratified international treaties become legally binding in domestic law without incorporation. In the United States, where generally treaties are “supreme law of the land,” the administration or Congress may determine that a specific treaty is “non-self-executing.” In this case further legislative or other measures are taken in line with the treaty, which itself becomes unable to be invoked in the courts.43 With specific regard to C87 and C98, the official U.S. position is that its domestic labour laws and practices already ensure freedom of association and the right to collective bargaining, in line with these two conventions and that some elements of U.S. federal and state labour laws conflict with the requirements under the conventions. However, the criticism has been leveled at U.S. labour practices that freedom of association and the right to collective bargaining are denied to large segments of American workers in both the public and private sectors. The ILO’s Committee on Freedom of Association (CFA) has been considering a number of such complaints for years.44 C87 provides that “workers and employers, without distinction whatsoever, shall have the right to establish and, subject only to the rules of the organisation concerned, to join organisations of their own choosing without previous authorization.” C98 declares that “workers shall enjoy adequate protection against acts of anti-union discrimination in respect of their employment” and that ‘workers’ and ‘employers’ organisations shall enjoy adequate protection against any acts of interference by each other. . . . Machinery appropriate to national conditions shall be established, where necessary, for the purpose of ensuring respect for the right to organize.” It states further that “measures appropriate to national conditions shall be taken, where necessary, to encourage and promote the full development and utilisation of machinery for voluntary negotiation between employers or employers’ organisations and workers’ organisations, with a view to the regulation of terms and conditions of employment by means of collective agreements.” The ILO’s 1998 declaration, which incorporates the two conventions, among others, is supported by a follow-up procedure, under which member states that have not ratified one or more of the core conventions are asked each year to report on the status of the relevant rights (annual review). The challenges identified in annual reviews in relation to realizing these core labour standards in the United States include the following:45 The National Labor Relations Act (NLRA) excludes many categories of private sector employees from its scope, such as agricultural and domestic workers, supervisors, and independent contractors— 1. At the federal level, in the public sector, approximately 40% of all workers are still denied basic collective bargaining rights, and the statutes outlaw strikes. 2. The law allows employers to replace striking workers permanently. 3. Employers have a legal right to engage in a wide range of anti-union tactics that discourage the exercise of freedom of association. 4. The penalties are too weak to deter employers that have violated labour laws from doing it again. 5. The year 2005 brought a disturbing trend of employers using the bankruptcy system to declare collective bargaining agreements no longer valid. 6. Several restrictions have made it difficult to enforce trade union rights on behalf of undocumented workers.


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7. State and local legislation fails to cover in any significant way workers excluded from coverage under the NLRA, and thus there is no statutory protection for the enforcement of their two key collective rights. The NLRA guarantees the right to collective bargaining, and measures provided under the statute are in line with international labour standards. These rights are recognized also under the first, fifth, and fourteenth amendments to the U.S. Constitution, adopted in 1791, which provides that “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press, or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.” However, there are two issues arising from U.S. application of these conventions. The first relate to the constitutional issue that inhibits the ratification of C87 and C98, and in effect excludes a large proportion of workers from the benefits of the rights granted by the conventions. The second has to do with the organizational, administrative, or enforcement processes that disallow certain groups of workers from enjoying these rights. For example, as shown in the annual review, the new forms of employment relationship have created millions of contingent or precarious workers (e.g. part-time, temporary, subcontracted workers) whose freedom of association and right to bargain collectively are frustrated under the current labour law.46 Also, administrative, organizational or legalistic processes have frustrated the practical application of the legal provisions on a large number of workers. Clearly, while the former might require constitutional reforms, the latter require better practice of employment relations, such that the administrative and legal processes that tend to frustrate the enforcement of the fundamental human rights of the affected workers are removed. U.S. Promotion of Core Labour Standards Elsewhere Despite such reluctance to adopt and apply them at home, the United States has been eager to use both public and private means of promoting international labour standards abroad, including its foreign aid contributions, transnational trade agreements, domestic laws, and private initiatives. Follow-up to the Declaration: The U.S. Contribution47 As shown earlier, the ILO’s 1998 declaration promotes technical cooperation activities as one of the follow-ups, though the capacity to carry them out depends critically on the willingness of donor states. For the period 1995 to 2008, three-quarters of the total U.S. contribution to the ILO (US$380 million) has been allocated to IPEC projects to combat child labour. During the same period, as a reflection of the U.S. government’s support both for the promotion of core labour standards and for links between trade and international labour standards, the ILO has received US$80.9 million toward projects implemented by the ILO programmes to promote the ILO declaration (DECLARATION) and social dialogue (DIALOGUE). An impact review of these programmes was published in 2007s and was well received by the government and the social partners in the United States, as well as by leading think-tanks, policy makers, and the media. However, U.S. funding to promote the declaration was cut in 2004, though USAID, the U.S. Department of State, and USDOL have since been able to fund one or two DIALOGUE/DECLARATION projects each year. At the same time, U.S. support for the ILO-IFC Better Work Programme is growing. In other words, the United States has been the single largest donor to ILO extrabudgetary technical cooperation projects overall. The total extrabudgetary contribution it pledged to the organization in the period 1995 to 2008 amounted to US$508 million, or 23% of total extrabudgetary contributions of US$2.25 billion. Apart from the U.S. extrabudgetary contribution to the ILO, core international labour standards are also added under the amendment to the Foreign Assistance Act, which governs funding for economic development grants overseas by USAID. Incorporation of Workers’ Rights into U.S. Trade Legislation The importance of core international labour standards and obligations regarding freedom of association and the right to collective bargaining has also been affirmed in U.S. trade legislation. Thus, the

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United States identifies a list of five workers’ rights in its trade laws as prerequisites for receiving special trade benefits under the GSP: 1. 2. 3. 4. 5.

The right to association The right to organize and bargain collectively A prohibition on the use of any form of forced or compulsory labour A minimum age for the employment of children Acceptable conditions of work with respect to minimum wages, hours of work, and occupational safety and health48

The five rights are considered in the U.S. statutory definition of “internationally recognized workers” but have been criticized for not being grounded in the UN or ILO instruments.49 Among the four categories of the ILO’s core labour standards, nondiscrimination is excluded, while other workers’ rights are added. There has also been criticism that the suspension of GSP benefits is used more out of concern for U.S. trade interests than observance of these workers’ rights.50 Furthermore, the U.S. FTAs, for example, with Jordan, Chile, Singapore, and Morocco, provide that “the Parties reaffirm their obligations as members of the International Labour Organization (‘ILO’) and their commitments under the ILO Declaration on Fundamental Principles and Rights at Work and its Follow-up. The Parties shall strive to ensure that such labour principles and the internationally recognized labor rights set forth . . . are recognized and protected by domestic law”.51 They further state that “recognizing the right of each Party to establish its own domestic labor standards, and to adopt or modify accordingly its labor laws and regulations, each Party shall strive to ensure that its laws provide for labor standards consistent with the internationally recognized labor rights set forth . . . and shall strive to improve those standards in that light.” Labour laws are defined as statutes and regulations, or provisions that are directly related to the same “internationally recognized labour rights” as the five items listed above. In the North American Accord on Labor Cooperation (NAALC),52 a side agreement to the North American Free Trade Agreement (NAFTA), on the other hand, “labor law” is defined as laws and regulations, or provisions that are directly related to the following 11 rights to be complied with by member states, subject to their domestic law: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Freedom of association and protection of the right to organize The right to bargain collectively The right to strike Prohibition of forced labour Labour protections for children and young persons Minimum employment standards, such as minimum wages and overtime pay, covering wage earners, including those not covered by collective agreements Elimination of employment discrimination on the basis of grounds such as race, religion, age, sex, or other grounds as determined by each party’s domestic laws Equal pay for men and women Prevention of occupational injuries and illnesses Compensation in cases of occupational injuries and illnesses Protection of migrant workers

Though covering a wider range of workers’ rights than the ILO core labour standards, the NAALC has also been criticized for weak enforcement and for its symbolic status.53 No reference is made to the ILO’s 1998 declaration. Insufficient enforcement, poor implementation capacities, and discrepancies with the ILO standards under the trade legislation resulted partly in a flood of activities on the part of labour and human rights groups and other NGOs. Finally, the current global economic crisis is a source of hardship to many working men and women. At the same time, it provides a rare opportunity for policy changes in the world of work. Thus, the Global


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Jobs Pact stresses that “in order to prevent a downward spiral in labour conditions and build the recovery, it is especially important to recognize that respect for fundamental principles and rights at work is critical for human dignity. It is also critical for recovery and development. Consequently, it is necessary to increase . . . respect for freedom of association, the right to organize and the effective recognition of the right to collective bargaining as enabling mechanisms to productive social dialogue in times of increased social tension, in both the formal and informal economies. The ILO is committed to strengthening activities to promote and monitor international labour standards and working to meet this end in the postcrisis world in a more coordinated manner, with the support of its constituents in the United States and other countries. Indeed, ILO Better Factories Cambodia also demonstrates good practice in contributing to effective crisis recovery in conformity with the GJP. According to the ILO Better Factories Cambodia 23rd Synthesis Report,54 published in December 2009, the Ministry of Commerce data for the period between October 31, 2008, and 2009 shows generally high levels of conformity with labour law and international labour standards, despite increased pressure due to the crisis, to which can be attributed 70 factory closures and the shedding of approximately 70,000 jobs. Better Factories Cambodia is working with both employers and unions to ensure that if workers must be laid off, it is done in a responsible manner. Better Factories Cambodia and several UN agencies also are working to capture the impacts of the crisis on individual workers and develop sound policy responses and measures to help those who are affected by it. For example, in cooperation with the United Nations Development Programme (UNDP), Better Factories Cambodia is overseeing a study that will look at the social and economic impacts of the crisis on a group of 2,000 garment workers, including both employed and unemployed workers. The ILO is also assisting the Ministry of Labour and Vocational Training in the creation of regional job centres to provide vocational training and help unemployed workers find new work.

Conclusion The ILO Declaration of 1998 on rights at work, and related international treaties on a set of core labour standards represent universally agreed labour rights, with particular reference to freedom of association and the right to bargain collectively. Undoubtedly, the United States has, through its trade policy and technical cooperation, been at the forefront of the promotion and application of these core labour standards in ILO member states. However, the contradiction between U.S. restrictive domestic labour policy on the one hand and its endorsement of core labour standards in member states on the other is noticeably demonstrated by the country’s support for ILO technical cooperation programmes such as Better Factories Cambodia, and then the Better Work. These two projects, and several others, have been implemented with significant support from the United States. Since the adoption of the 1998 declaration, U.S. contributions to ILO technical assistance in promoting and giving effect to core labour standards have been substantial, and through these the US has enormously contributed to the advancement of labour rights and poverty reduction in those countries. In contrast, millions of Americans suffer from persistent poverty, inequality and an inadequate social safety net without legal rights or their voices even being heard. The global economic crisis has, in all countries including the United States, hit the poor and vulnerable workers much harder. In the United States, a total of 7.2 million job losses have been reported since the recession began in December 2007. In that country, the pace of job loss is higher than in any recession since the late 1950s. And yet freedom of association and the right to collective bargaining are denied to large segments of American workers in both the public and private sectors. This calls for a rethinking of the orientation of the relevant U.S. legislation, for concrete steps to promote and implement core labour standards at home just as it has actively done abroad, with great success.

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Endnotes Recovering from the Crisis: A Global Jobs Pact, June 2009. For the full text, see the ILO website: http://www.ilo.org/wcmsp5/groups/public/@ed_norm/@relconf/documents/meetingdocument/wcms_1 15076.pdf. 2 See the ILO website for the full text: http://www.ilo.org/declaration/thedeclaration/ textdeclaration/lang--en/index.htm. 3 http://www.ilo.org/declaration/thedeclaration/background/lang--en/index.htm. 4 http://www.ilo.org/declaration/thedeclaration/textdeclaration/lang--en/index.htm. 5 http://www.ilo.org/declaration/thedeclaration/textdeclaration/lang--en/index.htm. 6 See the ILO website for the full text: http://www.ilo.org/public/english/wcsdg/docs/report.pdf. 7 See for example, Reports of the Director-Generals to the 87th and 89th sessions of the ILC: http://www.ilo.org/public/english/standards/relm/ilc/ilc87/rep-i.htm and http://www.ilo.org/public/ %20english/standards/relm/ilc/ilc89/rep-i-a.htm. 8 See the ILO website at http://www.ilo.org/wcmsp5/groups/public/---dgreports/--cabinet/%20documents/publication/wcms_099766.pdf. 9 See the ILO website at http://www.ilo.org/ilolex/english/docs/declworld.htm. 10 Tonia Novitz and Colin Fenwick, “The Application of Human Rights Discourse to Labour Relations: Translation of Theory into Practice.” In Colin Fenwick and Tonia Novitz, eds., Workers’ Human Rights: Legal and Regulatory Perspectives (forthcoming, Hart Publishing, 2010), p. 4. 11 Tonia Novitz and Colin Fenwick, “The Application of Human Rights Discourse to Labour Relations: Translation of Theory into Practice.” In Colin Fenwick and Tonia Novitz, eds., Workers’ Human Rights: Legal and Regulatory Perspectives (forthcoming, Hart Publishing, 2010), pp. 39–40. Also Bob Hepple, “Rights at Work,” International Institute for Labour Studies, 2005, pp. 15–6. 12 Op. cit., No. 11, p. 40. 13 Gerry Rodgers, Eddy Lee, Lee Swepston, and Jasmien Van Daele, The ILO and the Quest for Social Justice, 1919–2009, ILO, p. 39. 14 For more details, see op. cit., No. 11, pp. 43–4. 15 Freedom of Association in Practice: Lessons Learned—Global Report under the Follow-up to the ILO Declaration on Fundamental Principles and Rights at Work, Report of the Director-General, ILO, 2008, p. 39. 16 Freedom of Association in Practice: Lessons Learned—Global Report under the Follow-up to the ILO Declaration on Fundamental Principles and Rights at Work, Report of the Director-General, ILO, 2008, p. 39. 17 Freedom of Association in Practice: Lessons Learned—Global Report under the Follow-up to the ILO Declaration on Fundamental Principles and Rights at Work, Report of the Director-General, ILO, 2008, p. 39. 18 http://tcc.export.gov/Trade_Agreements/All_Trade_Agreements/exp_005872.asp. 19 http://www.cpath.org/sitebuildercontent/sitebuilderfiles/newtradepolicyoutline5-10-07.pdf. 20 Op. cit., No. 16, p. 40. 21 See the ILO website: http://www.ilo.org/global/What_we_do/InternationalLabourStandards/ %20InformationResources/fta/lang--en/index.htm. 22 See Susan Bisom-Rapp, 2004, “Exceeding Our Boundaries: Transnational Employment Law Practices and the Export of American Lawyering Styles to the Global Worksite.” Comparative Labour Law & Policy Journal, Vol. 25, p. 257. 23 The full text is available at http://www.ilo.org/wcmsp5/groups/public/---ed_emp/---emp_ent/ %20documents/publication/wcms_094386.pdf. 24 See the ILO website: http://ilo-mirror.library.cornell.edu/public/english/standards/relm/ gb/%20docs/gb279/pdf/gb-12.pdf. 25 The full text is available at http://www.oecd.org/dataoecd/56/36/1922428.pdf. 26 The full text is available at http://www.oecd.org/dataoecd/56/36/1922428.pdf. 27 ILO, GB.306/MNE/1. 28 The World Bank Group, 2003, Company Codes of Conduct and International Standards: An Analytical Comparison. 29 Op. cit. no. 16, p. 38. 1


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Susan Hayter and Corinne Vargha, March 2008, “Strategic Partnerships to Promote Decent in Global Supply Chains,” p. 2. Presented at the IIRA Regional Congress for Africa in Cape Town. 31 Susan Hayter and Corinne Vargha, March 2008, “Strategic Partnerships to Promote Decent in Global Supply Chains,” pp. 26. Presented at the IIRA Regional Congress for Africa in Cape Town. 32 ILO, GB.297/ESP/3, 2006. 33 Op. cit. n 16, p. 63. 34 Op. cit. n 16, p. 63. 35 Op. cit. n 16, p. 63. 36 http://www.betterfactories.org. 37 Op. cit. n 31, p. 13. 38 Op. cit. n 31, p. 13. 39 Op. cit. n 16, p. 93. 40 Op. cit. n 31, pp. 17–18. 41 See Better Work Programme, Stage II: July 2009–June 2012, available at the Better Work website: http://www.betterwork.org/public/global. 42 Extracts from the ILO intranet at http://www.ilo.org/ilolex/english/newratframeE.htm. 43 See Constance Thomas, Martin Oelz, and Xavier Beaudonnet, 2004, “The Use of International Labour Law in Domestic Courts: Theory, Recent Jurisprudence, and Practical Implications,” in Mélanges Nicolas Valticos, ILO, p. 264. 44 See ILO’s LibSynd website at http://webfusion.ilo.org/public/db/standards/normes/libsynd/ index.cfm?Lang=EN&hdroff=1 and ILO’s Country Baseline under the ILO Declaration Annual Review (2000–2008): United States regarding Freedom of Association and the Effective Recognition of the Right to Collective Bargaining at http://www.ilo.org/wcmsp5/groups/public/---ed_norm/---declaration/documents %20/publication/wcms_decl_facb_usa.pdf. 45 Ibid. 46 See James A. Gross, ed., Workers’ Rights as Human Rights, ILR Press, 2003, p. 32. For the most recent in-depth paper regarding U.S. regulatory challenges in ratifying C87 and C98, see Lance Compa, “Legal Protection of Workers’ Human Rights: Regulatory Changes and Challenges: The United States,” in C. Fenwick and T. Novitz, eds., Workers’ Human Rights: Legal and Regulatory Perspectives (forthcoming, Hart Publishing, 2010). 47 ILO PARDEV. 48 “Developments in the Law: Jobs and Borders.” Harvard Law Review, 2005, Vol. 118, No. 7, pp. 8–9. 49 Lance Compa, “Legal Protection of Workers’ Human Rights: Regulatory Changes and Challenges: The United States,” in C. Fenwick and T. Novitz, eds., Workers’ Human Rights: Legal and Regulatory Perspectives (forthcoming, Hart Publishing), pp. 496–8. 50 Don Wells, “ ‘Best Practice’ in the Regulation of International Labor Standards: Lessons of the U.S.–Cambodia Textile Agreement,” Comparative Labor Law and Policy Journal, 2006, Vol. 27, No. 3, p. 359. 51 A list of specific U.S. FTA labour rights and social provisions is available at the ILO website: http://www.ilo.org/global/What_we_do/InternationalLabourStandards/InformationResources/fta/lang-en/WCMS_115531/index.htm#P0_0. 52 Full text can also be found at the ILO website: http://www.ilo.org/global/What_we_do/ InternationalLabourStandards/InformationResources/fta/lang--en/WCMS_115531/index.htm#P0_0. 53 Op. cit., No. 50, pp. 12–3. 54 http://www.betterfactories.org. 30

X. Sociotechnical Systems: Moving from the 20th to the 21st Century

Tails and Dogs: Who’s Wagging? The Inversion of “Technical Conversion Processes” and “IT Technical Systems” in Designing Organizations PAMELA A. POSEY PETER J. SORENSON Socio-technical Systems Roundtable1

Introduction In an era of economic turmoil and ongoing uncertainty, we need all the help we can get to develop workable plans for creating, strengthening, and sustaining effective organizations. To solve the challenges created by this “turbulent field” (Trist 1981) in which we find ourselves, we must identify and sort the complexities and interdependencies that increase the uncertainty and focus more clearly on the root causes of the challenges presented. As we seek out areas in which we can repair damage done and/or improve our efforts and outcomes, we must start with a clear understanding of the systems that underlie our organizations. In a recent Harvard Business Review article, Rosabeth Moss Kanter (2009) commented on what Peter Drucker might say about causes and effects of the massive global challenges businesses face today. She suggested that after saying ‘I told you so,’ he would then take “a broad look at the context surrounding organizations, noting the jarring events he called discontinuities. Next, . . . he might follow up by telling us, ‘Look at the underlying systems.’ ” Kanter continued, writing, “Drucker rarely named or blamed individuals [for problems and failures]; he saw root causes in the design of organizations—in their structures, processes, norms, and routines.” It is just this challenge, the impact of organizational design choice on outcomes, which is addressed in this paper. Design choices about systems and structure create the organization and define how it works; they drive performance and must, therefore, be selected carefully with specific performance outcomes in mind. If we can visualize an organization as a dog, for the moment, then we need to design the dog (the overarching organization) paying particular attention to how it can wag its tail (use the systems that are part of its design) so that the entire dog works effectively— the dog must be in charge of wagging its tail. Organizationally, this means that we should design our organizations as whole systems whose parts work in concert to achieve the goals we define as critical to success. The systems that make up the organization should be jointly designed with these ends in mind. Socio-technical systems theory is an open-system design paradigm for organizations; its power is based on the concept that organizations are composed of both social systems (related to human efforts, relationships, and connectedness) and technical systems (processes and technology) that must be jointly optimized to create the most effective organizations. Organizations that favor one type of system over the other are unbalanced and will not achieve optimal performance or results. If the social systems are given design priority over technical system design, the organization will probably have strong values and high levels of participation among members and be considered a great place to work, though it may Author’s’ address: 4835 W. Glenhaven Dr., Everett, WA 98203

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not achieve its desired performance and outcome results. If technical systems are given priority over the human systems, we find ourselves in a system that becomes so focused on process that it does not utilize the power of social systems to get the work done. This can lead to shortsightedness and a loss of focus on organizing systems to keep the organization strong, as well as poor results.

Dogs and Tails We have spent the last 25 or so years chasing technology and the solutions it offers to our complex business problems. The proliferation of computer systems of all sizes and development of complex information technology (IT) systems has thrust us into spasms of technologically driven, adaptive change in many aspects of our lives and work. In some cases, these changes are absolutely right and necessary: they fit our goals and strategies, and they move us in directions consistent with our vision and values; they are designed to fit our systems and processes and help us achieve our goals. These are the technologically driven, adaptive changes we refer to as the dogs—those changes in which the animal as a whole (the dog) is consistent with and drives change in appropriate directions, directions that are consistent with our mission, goals, systems, and culture. In other instances, we find technology driving change in unanticipated, undesired directions: for example, we sometimes find that the centralization of information consistent with strong IT systems counteracts decentralized decision making, or that the cost of the technology far outweighs the actual benefit to the organization. These are situations in which the tail begins to wag the dog, and moves it along unintended paths, toward different goals than may be anticipated. Consider, for example, the impact on our organizations of the adoption and integration of information technology systems. These systems provide great benefits, typically at a high dollar cost, and they often have an associated high opportunity cost that is hidden from plain view—a hidden cost that causes the tail to wag the dog instead of having the dog lead the initiative. To what extent does your IT constellation (hardware, software, and connecting-ware) require you to change your technical conversion processes, resources and desired outcomes, strategies in the marketplace, or social and organizational arrangements? Has it been designed as one component of a coherent system, or added on so that it forces unanticipated changes in other systems? Is it a dog or a tail impersonating a dog? Examples of the Tail Wagging the Dog For common examples to illustrate the tail wagging the dog, we need look no farther than two events that touched most of us in unintended ways. The first example is Microsoft’s conversion from Windows 97 to Windows Vista (2009). For Microsoft, the problem to be addressed was that the original Windows 97 operating system had too many bugs and failures and hence needed replacing or updating. It was decided that new code would be written to avoid replicating problems with the old system. Vista was installed on all new machines delivered after a particular date. Remember that the intent was to remove the bugs and limitations of Windows 97. The installation of Vista on new machines limited access to prior work for buyers of new/updated equipment. Microsoft did not support the conversion; they supported the two operating systems separately. Some thirdparty software was available that helped somewhat; but this transition was very difficult and frustrating for users. It added unintended time and expense to the transition process. This is a situation in which a technological solution (development of Windows Vista) to an existing problem (bugs and errors in Windows 97) created a whole new set of problems for users rather than solving the original problem. This is an example of the tail wagging the dog. Another example is found in electronic voting systems in the United States, which were implemented in various places to eliminate problems with other systems of voting. As was discovered, though, there were many problems with the new systems. Look at the Gore vs. Bush Presidential race—the problem of the hanging chads and the difficulty of counting the Florida election results. The Supreme Court had to get involved to determine implications for a democratic electoral process. There were recommendations by the National Association of Secretaries of State regarding voting procedures, and some states changed their fundamental voting processes in reaction to these issues, a clear case of the tail (the solution) wagging the dog (driving unintended consequences and creating more work than anticipated).

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The Technology Tail Wagging the Corporate Dog On an organizational level, “tails wagging dogs” is not the intended outcome to design, change, or performance improvement initiatives. In fact, most change initiatives that result in tails wagging dogs are entered into because there is a significant problem to solve. Consider the case of a small multinational company (whose identity it has asked us to withhold) with manufacturing plants scattered throughout the United States, Canada, and Great Britain. The company has spent more than a decade developing its manufacturing and sales organizations into what was then called a “high performance—high participation” system. Decision-making responsibility had been pushed to the lowest level having adequate information to make appropriate decisions, a team-based system of operation had been implemented in most sites and at headquarters, on-site ownership of outcomes and results was high, and the systems in place had been designed using an approach that balanced the needs and capacities of the social system with the technical system of the operation. The system had been designed in good times, where it appeared to work well, and had not been tested in a tight economic environment. Over a couple of years, as the business climate tightened, cost control became a clear priority for the organization. Senior leadership determined that implementation of an enterprise resources planning (ERP) system would give everyone in the corporation better insight into their costs and better inventory control; they envisioned a system that delivered cost and profit information on a just-in-time basis. They selected a system and vendor and proceeded with the implementation. Problems began to crop up almost immediately. The technical ERP system had been designed with the goals of cost and information control as central tenets; code had been written; the system had been implemented. At each “go-live” date, individual plants began to lose control of their own inventories, their costs, and their ability to manage their own work within the network of the organization. Installation of the ERP system technology recentralized decision making and control and worked against the structure and systems that had been designed to decentralize operations. The multimillion-dollar investment in the ERP technology was too large to abandon, and in the end it was allowed to drive a decentralized organization with a participative organization structure and systems into a centralized command-and-control operation. The tail (ERP technology) here too clearly wagged the dog. Examples of the Dog in Charge While some projects end up in different places than intended, there are good projects in which IT is brought in as one component of a large-scale change and carefully integrated into the process, rather than driving it. Despite evidence to the contrary, it is possible for a large IT system to become one with the dog instead of becoming the tail that wags it. In the computer world, look at Mac versus Windows. The Mac (and its operating system) is designed to enable the user’s work process rather than to force the user to conform to the software’s constraints, and it functions this way. Windows seems much the opposite, with many comments from users about the challenges of having to conform to idiosyncrasies in the software. One has only to look at the differences in current ad campaigns for Mac and Windows to see this difference. In addition, as Apple developed new technology and new products, it designed them to be consistent with existing platforms, creating nearly seamless introduction and application in the marketplace. It takes a solid and effective organization, clearly focused on its own strengths and designed to deliver what its customers need and want, to create this kind of success in today’s operating environment. Through attention to good design, Apple has done well at making sure the dog is wagging the tail. To ensure that the dog is in charge, it is imperative to pay careful attention to the design of an organization, making it consistent with the overarching mission, vision, values, and goals. Design builds, supports, and enhances organizational culture by creating operating systems that get the work done in the most effective way possible. One powerful design methodology that focuses on creating effective organizations through development of clearly focused operating and technical systems and strong supporting cultures is socio-technical systems design.


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Socio-technical Systems Design Socio-technical Systems Design (STS) is a whole-systems approach to designing organizations. It takes into account both the social systems (people, relationships, policies and procedures related to managing people) and technical systems (tools, methods, and means of production and delivery of product or service) of an organization in order to jointly optimize the entire system for peak performance and outcome. Many other design processes focus on one element of an organization and maximize that element’s contribution over the contributions of other elements. STS, however, seeks to jointly optimize both social and technical systems to improve overall performance throughout the entire system and simultaneously improve the quality of working life in that system. It is a design approach driven by values, principles, and results. STS designs are developed according to a clear set of principles. The STS process creates organization designs for system optimization and designs all systems simultaneously (joint optimization). It corrects for errors as close to the source as possible (variance control). It addresses multiple goals with each design choice (multifunctionality), it specifies only those design elements that are critical (minimum critical specifications), and it makes design choices that work to maintain alignment of all system elements (system alignment). STS design relies on a number of tools and methods to achieve effective organizational designs. It works from both top-down and bottom-up perspectives in order to capture the variety of experiences in a system. STS design begins with an environmental scan that informs the design with current internal and external contextual data that will have an impact on the work of the organization. Variance analysis, social system analysis, and technical system analysis are performed to best understand challenges within the system as well as challenges with its external environment. These analyses are used to perform the whole system design and contribute to the ongoing, continuous renewal process. STS design has been used successfully in a wide variety of organizational settings and types ranging from for-profit to not-for-profit, from manufacturing to service sector, and from very old coal-mining operations to brand-new knowledge work applications. It may be especially appropriate in knowledge work settings since these often tend to be driven by the technological imperative rather than a more effective whole system approach. STS is a proactive design process that seeks the best joint solutions for the entire enterprise. It pays attention to the entire system simultaneously to ensure solutions for part of the enterprise will not do damage to another part. It essentially scans the environment (internal and external) to understand the context for operation, utilizes that information to create a vision of the future and the environment in which the organization must operate, and makes design recommendations based on the needs of all systems within the organization. It is a holistic approach to design.

IT-Dictated Design In contrast to the approach of STS design, IT-dictated design (design by default) often creates challenges and unexamined, unanticipated, and unintended consequences. Too often, technical systems are the first to show stress in an organization that needs design help. An organization, for example, discovers that it needs new capacity or new information in a new market segment. A common approach is to go out and buy new software or even a new IT system in an effort to resolve the problem, and then to believe the problem has been solved or the organization designed. Instead, the new IT system has dictated the new design, and leaders have neglected their stewardship of designing the organization. Embedded within the new software is a set of assumptions, premises, and trade-offs that define the associated processes and arrangements of the IT package. These assumptions and premises will define the major support system that is in operation, and will therefore make choices that define processes and arrangement tradeoffs, thereby constraining design choices. Just look at the earlier examples of the corporate technology tail wagging the dog. That organization has spent nearly a decade creating a decentralized, fully coordinated system of operations based on a particular set of values that included the concept of trusting organization members at all levels to make decisions that directly affected their work. The operating systems had been designed to provide appropriate information to organization members to enable them to make good decisions at the

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source. The system design also created supportive structures to help organization members work together well and to achieve results through tight coupling with the customer. Instead, the technological imperative drove information higher in the organization, took control out of the hands of those who were in the best place to make decisions, and moved much of the joint work of the teams in the organization to higher decision levels. This became an exercise in design by default, and the organization lost much of the deliberate design strength and culture it had spent years developing.

What’s the Problem? Some might suggest that the differences in the design approaches for the organization and for the technology are not significant enough to matter, or that it is simply another choice of approach. We contend, however, that the core difference here is the challenge that arises with a design-by-default approach (tail wags dog) versus a design-by-choice approach (dog wags tail). Implementation of information systems as a response to the challenges of organizational design needs results, most often, in design-by-default; it takes an information processing technology, overlays it on an existing system and culture, and allows it to drive the design and operation of the organization in a direction different than what was planned. This gives rise to a set of unintended, unanticipated, and unexamined consequences that derail or prevent the careful design of systems and operations. STS design, on the other hand, is a cognitive-processing approach to organization design, requiring a thorough analysis of all systems within and outside the organization that will be used to support informed cognitive choice around all design elements. This includes anticipating and designing to the desired outcomes. It is design-by-choice. The problem for our organizations is that we stand to lose a great deal by falling into design-by-default. Large IT systems (e.g., ERP systems like SAP, Baan, PeopleSoft, JD Edwards, Oracle, etc.) can become the tail rather than the dog if not handled appropriately as a segment of a larger integrated design process like STS. These systems can move from enabling the technical conversion process of a large-scale design to strangling it, and they can do so quickly and without planning. In fact, all types of electronic interventions that fall under the definitional umbrella of IT (and not just the category of IT known as ERP or customer relationship management [CRM] or human resources information systems [HRIS]), can hamstring whole-system design in this way if not utilized appropriately. Such interventions can enable (automate) processes to enhance design efforts and performance, or they can replace existing work systems and organizational processes. If they replace such processes and systems without exploring the implications and consequences of those choices, then design-by-default has occurred and may cause significant unexpected damage to the organization. Over the past 15 years or more, we have seen much about the reengineering of work processes. In too many instances, these reengineered processes have been created to solve specific problems and address crises of the past. Hence they are not always well crafted or designed to fulfill the organization’s vision, mission, and values or to be aligned with the customers and marketplace of today or tomorrow or to achieve results. Automation for the sake of automation has often automated inappropriate or outdated processes that should have been replaced instead of automated forward—much like the old adage “garbage in, garbage out” from early computer days suggests, if one automates trash, one gets more trash faster. To avoid such dilemmas, organizations need to take more care to design (or redesign) processes to fit our needs now and for the future.

Likely Outcomes of IT Primacy Over STS As one designs, configures, and implements new software (and hardware) solutions, it is common to discover that existing work processes are not doing what they are supposed to do and that they are getting in the way of desired outcomes. Yet too many continue forward with the IT projects, ignoring the systemwide implications of not revising processes that no longer fit. Today’s large organizations cannot get into the game without ERP systems for managing their supply chains; they need such systems to manage the data required to compete on a global basis—there is too much transactional data to manage in any other way. The trend in the market has been to turn over business process management to contractors who have these ERP systems


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rather than using the contractors as enablers to get the processes needed for success up and running internally. Too many organizations think a large IT system will solve their organizational design issues (and, in fact, many companies selling these IT systems deliberately sell them this way), so those organizations needing ERP solutions do not take ownership and their performance outcomes are suboptimized or their operating designs are compromised. In addition to the simple fact that these systems are not always compatible with existing wholesystem designs, ERP systems are so complex that they create a barrier for organization designers who do not always understand the structures of the IT constellation or the software code, so they abdicate or simply lose their design responsibility. The reality is that few people understand the big picture of the entire IT constellation, and few broadly understand the structure of the software modules in large enterprise-wide systems that enable supply chains. The magnitude and scale are difficult to comprehend, and our design approaches and methodologies have not kept up with the scale of the organizational design task. Complicating this, the primary way that consultants with behavioral science backgrounds have been brought into such projects is as change agents rather than as designers, so they become perpetrators and co-felons rather than the design consultants they were invited to become. Even where they do understand the full implications of a massive ERP implementation, they are often the lone voice of caution on a train running full steam ahead.

Discussion and Conclusions It is not difficult, then, to see where the conflict comes from between organization design by choice and organization design by default. Yet how do we avoid the potential for design-by-default that accompanies large IT installations in many cases? How do we avoid the unintended consequences that often occur when we retrofit a complex IT system over our existing structures and systems? We could look to Jim Collins’s work in the arena of “Good to Great” for some initial insight. Collins tells us that companies that have gone from “good” to “great” think about technology and technological change differently than do other organizations. They select appropriate technologies carefully and apply them even more carefully, often pioneering them. These successful companies, which adopt a hedgehog approach, in Collins’s terms, carefully define what they can be best at (the core of the hedgehog concept), and then determine whether there is a fit with the technology under consideration. If there is a fit, they move into application; if not, they are not afraid to leave it alone. For good-to-great companies, technology accelerates momentum; it does not create it. It is never a root cause of greatness or decline (Collins 2001). So for effective organizations, technology and technological decisions enhance the organization and its operations; they support the existing or desired systems and processes, rather than defining them. To resolve the dilemma that allows IT technical systems to take over design in organizations, we also need a clearly defined organizational design system and process to help us ensure the efficacy of our design. Solid organizational design systems and processes are based on good theory and rely on solid methodology to achieve strong results. They must exercise both design discipline and creativity while holding tightly to organizational purpose and desired outcomes. The STS approach does this effectively. The “socio” segment of STS refers to the design of the social system—the orchestration of people and organizations. The “technical” segment refers to the physical or knowledge-based conversion process by which inputs and resources are converted to outputs or outcomes. Once an organization (a system) is clear about its unique contribution to the marketplace, it can effectively assess and adopt appropriate application(s) of technology (IT) to support its organization’s technical conversion processes with full understanding that the IT process helps support that conversion process—the IT process does not comprise the technical conversion process, but rather is a support system for it.

Lessons from the Dog and the Tails The lesson for leaders, followers, designers, and implementers is not that IT and large IT system implementations are bad. In fact, these systems can provide significant, powerful, and critical data that supports organizations in achieving their goals. Some would say that large IT system constellations are “must

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have” or “table stakes” in some lines of business. Yet the systems are only as good as the process that is designed to integrate them into an organization. And for the design to be a good one, it is imperative that it be a whole-system, deliberate design, not a design that occurs by default. Designers and implementers of IT systems must pay attention to the intent of the design into which they are fitting their systems. They must look for the likelihood of unintended, unexamined, and unanticipated consequences and design around them. For anyone fortunate enough to be involved in the design, it is imperative to identify the dog up front, to understand the system as it is intended to function, and to maintain the values, culture, and operating principles of that system as designed through the whole design and execution process. It is just as important to identify the tail, and to identify any possibilities for the tail to take over the dog. This is the only way to ensure a system design in which the dog wags its tail. A note of caution is important here. IT systems are, by nature, large and powerful, and they create a momentum of their own when implemented into organizations. IT system designers often respond to quite different design specifications and criteria than do organization designers, and many are simply not aware of the fundamental havoc an IT system can wreak on an unsuspecting, unprepared organization. Because the social and technical (operating) systems of organization are often designed separately from the IT systems (and by different people), there is high potential for conflict when the two are brought together: each group has a vested interest in doing its respective work well. And if the two groups cannot work together on a common design, this conflict often boils over. and people involved on both sides need to be prepared to face opposition to their ideas and potentially great turmoil during the planning and implementation phases. Remember, vested interests are not easily given up, no matter who holds them. Success comes from clear and carefully planned collaboration in both design and implementation phases. Organization system designers and IT system designers must work toward the same mission, goals, operating philosophies, and values of the target organization. Organization designers need to learn more about the underlying assumptions and capabilities of the technological (IT) systems being implemented in organizations, and IT system designers need to learn more about the purpose, goals, and desired outcomes of the organization designs into which they are placing their systems. Only with such joint collaboration, and a clear sense of how the outcome will function, can all designers be certain that they are creating dogs capable of wagging their tails.

References Collins, Jim. 2001. Good to Great. New York: Harper-Collins. Kanter, Rosabeth Moss. 2009. “ ‘What Would Peter Say?’ ” Harvard Business Review, Vol. 87, No. 11 (November), pp. 64–70. Trist, Eric. 1981. The Evolution of Socio-Technical Systems: A Conceptual Framework and an Action Research Program. Issues in the Quality of Work Life. Occasional paper #2, Ontario Quality of Working Life Centre, Toronto, June. Also available online at http://stsroundtable.com/wiki/Evolution_of_sociotechnical_systems.

Bargaining Technology: Union Engineers Address Transformation MONICA BIELSKI BORIS University of Illinois at Urbana-Champaign2

Abstract This paper explores the relationship between engineers and unionism. Based on intensive interviews and archival analysis, I present a case study examining the efforts of unionized engineers at a large utility company in the western U.S. to impact an employerinitiated business transformation process through collective bargaining. While union representation addressed the engineers’ economic concerns and provided job security, enabling them to provide honest input regarding their company’s transformation process, the engineers were not able to influence the implementation of the process. This case highlights a limitation of U.S. industrial relations, the lack of influence unions have in impacting business strategy.

Introduction In analyzing the relationship between engineers and unionism, the appropriateness of union representation for engineers must be addressed. Are engineers too management-oriented or too firmly rooted in the middle class to be drawn to unionization? Would professional associations serve their interests more effectively? Does collective bargaining provide a means for engineers to address their employment concerns? The low rate of unionization among engineers in the U.S. points to a possible mismatch between the engineering profession and labor unions, but in Europe engineers are heavily unionized. I became interested in the role of unions in engineering while conducting research at a large American utility company on the west coast, where engineers were actively organizing using both a neutrality agreement procedure and the traditional National Labor Relations Board (NLRB) process. These newly organized engineers and their union were also actively engaged in collective bargaining with their employer. In this paper, I present an overview of some of my initial findings regarding the engineers’ use of collective bargaining to address their concerns around an extensive business transformation process initiated by their employer.

Literature Review Industrial relations literature provides a historical overview of unionization among engineers. Between 1943 and 1947 a considerable number of engineers organized unions, in part to stave off being subsumed by the industrial unions of the Congress of Industrial Organizations (CIO). Engineers who worked for companies where the frontline and nonprofessional employees were heavily unionized feared this the most. When the Taft-Hartley Act became law in 1947, it protected professional employees from being forced into the same bargaining unit as nonprofessional employees, thus halting the momentum behind union organizing among engineers. Some of the engineering unions also dissolved, and only a small number remained and actually grew, including the Seattle Professional Engineers Association (SPEA), representing engineers at Boeing (Strauss 1964). Author’s address: School of Labor and Employment Relations, 504 E. Armory Avenue, Champaign, IL 61820

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Engineering unions struggled with whether they should include nonprofessional technical employees, and many engineers expressed strongly a desire to maintain some distinction as professionals separate from other employees. Engineers also debated whether they should be represented by labor unions or professional associations. This debate revealed the tensions for engineers between their employee and professional orientations. Strauss found that engineers in the 1960s often faced factory-like working conditions involving oversupervision and limited autonomy and had serious economic interests related to wage compression; that these factors caused engineers to unionize (Strauss 1964). Strauss also found that engineers identified with others in their profession (as opposed to identifying with their employer as management employees do) and that engineers wanted to advance in their careers with merit pay increases and higher positions, possibly into management, a much more likely career route in the mid-20th century. In a study examining the levels of managerial aspirations and union loyalty among engineers, unionized engineers expressed greater loyalty to the union than anticipated. They also participated more in their unions when dissatisfied with some aspect of their work (Gordon, Beauvais, and Ladd 1984). The tension between professionalism and unionism for engineers was posited to be the driving force behind low unionization rates in engineering. Engineers were found to want an organization to produce the same economic outcomes as a union but did not want the organization to be structured like a union (Kleingartner 1969). Among union engineers, collective bargaining at times proved challenging because of the engineers’ tendency toward reliance on logic and reasoning and their discomfort with applying economic pressure on employers to have their demands met (Kleingartner 1967). A later study also found that low rates of unionization among engineers were related to their professional status and a lack of bargaining power due to their unwillingness to strike (Latta 1981).

Research Methods In this study, I begin to explore the current status of unionized engineers’ relationship to their unions and collective bargaining. While engaging in this research, I remained mindful of the changes in the engineering field involving globalization, outsourcing, technological advances, and increasing demands for more education. I interviewed engineers at a large utility company in the western United States. In addition, I interviewed technical employees working alongside the engineers, representatives from the union representing the engineers, and labor relations managers who worked directly with the engineers and their union. I also had access to archival data and analyzed company and union documents made available to me.

Initial Findings The company and the two major unions representing the workers had negotiated in 2005 a neutrality agreement that let the unions organize eligible workers using a majority signup process (also referred to as card check) without company interference. (The neutrality agreement was allowed to expire in December 2008.) Most of the company’s employees (approximately 70 percent), including a number of the engineers, were already represented by unions, but in the span of approximately three years the International Federation of Professional and Technical Employee (IFPTE) organized 1,000 new members, the majority of whom were engineers. The successful organizing among the engineers was not anticipated. The engineers reported that they sought union representation because of concerns over economic issues and working conditions. Workers with more seniority had experienced a leveling of pay and wanted to see an increase in their incomes. A portion of their salary was also derived from incentive pay, and the engineers disliked this because they argued that performance level was not fully in the worker’s control. They reported that they were generally pleased with their benefits, especially retirement benefits, so were not willing to leave the company even though they were unhappy with their pay. In addition to dissatisfaction over pay, the engineers expressed frustration over the hours and conditions of their work. As management salaried employees, they worked long hours, on average 220 hours per month. The engineers also felt oversupervised and wrongly disciplined for even minor mistakes. Some engineers reported that managers used favoritism and a “buddy system” to assign work. The relationship with their supervisors was strained in part because of an influx of new managers who had not “come up from the ranks.” They were also concerned about job security


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and saw the drafters and planners who were represented by the union and worked beside them as getting a better deal. The union employees assisted in organizing the engineers and in collecting signed cards, and the organizing process progressed smoothly. Not all engineers were covered under the neutrality agreement, but this did not deter union organizing. A group of over 150 nuclear engineers at the one of the utility’s power plants, a group not included on the appropriate-to-organize list generated by the company under the neutrality agreement, organized under an NLRB election in April 2008. This was a real shock to the company because the nuclear engineers are a very elite group of employees, and their organizing was a strong indicator that employees wanted union representation. The working conditions at the power plant were reported to be very strenuous, with an aggressive management team that ruled the plant with a heavy hand. The management style and economic concerns motivated the nuclear engineers’ organizing. The engineers were also concerned about an ongoing business transformation process initiated by the company. A large consulting firm with 300 to 400 consultants was brought in to improve the overall rate of work and level of customer satisfaction. The consulting firm wanted to “centralize, consolidate, and automate” through the standardization and computerization of work processes. They also proposed downsizing and outsourcing, which they predicted would lead to the loss of 2,000 union jobs. (This prompted the neutrality agreement because it would allow for the unions to recoup their lost members.) The process began without the knowledge or input of employees, but after about six months, employees were invited to attend meetings to provide feedback on the transformation plan. Many of the engineers participating in these meetings pointed out flaws in the technological changes proposed, especially in the computerization plan for establishing and maintaining energy services. They also expressed that the time provided for the implementation of these changes was insufficient. The engineers felt that the company did not heed their concerns or listen to them during the feedback meetings. One engineer who attended the meetings revealed that “employee input was often rejected even though employees were thinking like managers and had the company’s best interests in mind.” The whole process was not transparent, with union and employee engagement happening only after key decisions had already been made. There were also important decisions and changes where the employees and unions were completely left out of the process. The business transformation effort ended in failure, costing the company approximately one billion dollars. As predicted by the engineers, the computerization system had serious problems that could not be easily resolved. The closing of customer service centers in an effort to consolidate only resulted in a lowering of customer satisfaction; the centers were eventually reopened, and the employees who were let go rehired. What caused the business transformation to fail? In addition to the lack of genuine employee engagement in the process, the role of top management proved critical. The highest levels of managers in the company had a high turnover rate, and many of the newly hired managers did not possess a utility background or experience working in unionized settings. Throughout the transformation process, the engineers remained frustrated with not being heard, and they turned to their union in hopes of leveraging some influence. The union was actively participating in bargaining with the employer over the economic issues and working conditions of the newly organized engineers. At the bargaining table, the union achieved some significant gains for the engineers, including pay increases through the introduction of overtime and recognition of seniority in pay determination. In some instances, engineers were also able to maintain their superior retirement plans as salaried employees while also gaining the pay increases that came with joining the bargaining unit. Unionization also provided increased job security, something the engineers were growing more concerned about given the business transformation process’s focus on consolidation and changes in the engineering field that made outsourcing much more accessible for employers. The job security provided by union representation contributed to the engineers’ ability to fully and honestly participate in the business transformation meetings, without concern of retribution. Unionization, however, did not provide them with the influence over the decisions being made regarding the transformation that they so wholeheartedly desired.

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Conclusion This case study’s initial findings illustrate the ongoing tension for unionized engineers between their roles as professional employees and as union members. The engineers in this study did benefit from union representation in terms of their economic concerns and through collective bargaining were able to gain an increase in wages, improvement in benefits, and extension of job security. Union representation also provided an alleviation of the poor working conditions the engineers confronted by curbing the employer’s desire to demand extensive hours of work with the introduction of overtime pay and by remedying the supervisors’ use of favoritism and oversupervision with the establishment of a formal grievance procedure. During the time of this study, however, the central issue for the engineers was the employer’s introduction of an unpopular business transformation plan. The engineers participated in the feedback sessions on the plan held by the employer, and although their feedback was solicited, it was not incorporated into the higher level decisions. The business transformation went forward, despite the engineers’ strong warnings, and failed. During the transformation process, the engineers turned to their union to increase the likelihood that their feedback would be genuinely received by upper management. The union did openly express the engineers’ concerns about the transformation process at the bargaining table, but the employer did not wish to bargain over anything relevant to the business transformation plan. There was nothing that legally compelled the employer to do so, as these decisions were deemed the right of management and not a mandatory subject of bargaining. In this instance, union representation could not serve the interests of the engineers. Would the engineers have been better served in their efforts to have input into the employer’s transformation plans if they were not bargaining unit employees but still considered “managerial” employees? This question brings us back to the earlier industrial relations literature on unionism in engineering. As was the case in the mid-20th century, some engineers are still not able to wield managerial power and influence, so they seek unionization as a means to better their positions. There are then limits to what unions can accomplish for engineers because of the restricted role unions are given when dealing with strategic business decisions. This remains a powerful limitation of the U.S. model of industrial relations. Given the turbulent economic climate and the difficult positions confronting employers in the U.S., reconsidering the role of unions in business strategy formation seems only more relevant.

References Gordon, Michael E., Laura L. Beauvais, and Robert T. Ladd. 1984. “The Job Satisfaction and Union Commitment of Unionized Engineers.” Industrial and Labor Relations Review, Vol. 37, No. 3, pp. 359–70. Kleingartner, Archie. 1967. “Unionization of Engineers and Technicians.” Monthly Labor Review, Vol. 90, No. 3, pp. 29–35. Kleingartner, Archie. 1969. “Professionalism and Engineering Unionism.” Industrial Relations, Vol. 8, No. 3, pp. 224–35. Latta, Geoffrey W. 1981. “Union Organization among Engineers a Current Assessment.” Industrial and Labor Relations Review, Vol. 35, No. 1, pp. 29–42. Strauss, George. 1964. “Professional or Employee Oriented: Dilemma for Engineering Unions.” Industrial and Labor Relations Review, Vol. 17, No. 4, pp. 519–33.

Work Organization and Problem Solving HEIKE NOLTE University of Applied Sciences in Emden3

Introduction This paper presents preliminary results of an ongoing research project, part of a larger study of the “Reflective Organization,” a cybernetic organizational model intended to increase a firm’s flexibility by utilizing employees’ problem solving capacity (see Nolte 2007, 2010). In order for such a model to succeed, the work organization needs to provide an unusually high level of autonomy to the basic units the firm consists of. The individual position identified with the single employee is regarded as the basic unit in this sense. Since the core problem is to transfer the individuals’ problem-solving capacity to the level of the firm as a whole, the integration of the basic units is predicated on intense flows of information. While related work organization systems are widely discussed in the conventional literature on knowledge-based firms, such as high-performance work systems in law firms or the consulting industry, and are seen as a prerequisite for this kind of firm to survive in its dynamic environment, there are only very preliminary attempts to introduce work organizations based on employees’ cognitive capacities in industrial mass production. This paper documents the first steps in introducing a knowledge-based work organization on the assembly line level of a mass producer of cars, Volkswagen. These efforts are presented in the context of the firm’s strategy. A vital question is the balance of autonomy and integration. The core hypothesis states that greater autonomy leads to more and better problem solving. The paper is based on interviews with assembly line workers that took place on November 30 and December 1, 2009, in the main plant in Wolfsburg, Germany.

The Research Problem: Changing a Car Producer Toward a Knowledge-Based Work Organization On the Practical Level In 2010 the Volkswagen Group had a world market share of 11.4 percent, a 1.1 percent increase over 2008 (Volkswagen Group 2010). Volkswagen sees itself in competition with Toyota, which it hopes to pass as the world’s largest car producer by 2018 (Moneycab 2010). In 2009 Volkswagen was able to take more advantage than their competitors of the varying “cashfor-clunker” programs set up around the world. It is believed that the main reason for this is the company’s flexibility. The cash-for-clunker programs increased the demand for smaller cars, and Volkswagen was able to adjust the production of the Golf model to this demand and take advantage of this temporary opportunity. Although Volkswagen had had short-time work (“Kurzarbeit”) in spring 2009 for one week, never in history had they produced more Golfs in a year. It may be assumed that there were two main reasons why Volkswagen was able to react so flexibly to this abrupt change in demand: co-determination and the first steps on the “Volkswagen-Weg.” Co-determination Having its headquarters in Germany, the Volkswagen conglomerate is under the law of “Unternehmensmitbestimmung,” co-determination on the corporate level. This means that half of the 20 Author’s address: Department of Business Studies, Constantiaplatz 4, 26723 Emden, Germany

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votes on the supervisory board are those of employees’ representatives; the other half are those of the owners. By law, at least seven of the employees’ representatives have to actually work in the conglomerate; the other three, for example, might be union officers. In the case of the Volkswagen conglomerate, two of the owners’ votes belong to the federal state of Lower Saxony, for historical reasons. This means that of the 20 members of the supervisory board, 10 represent employees’ interests, two represent the state/region, and only eight represent the shareholders. So in the end, in case of a conflict, job security has more support than profit: profit is a means, not an end. In a time when the entire world is shaken up by a severe economic crisis, this can be an important point. In December 2009 Volkswagen decided that the members of top management will no longer get stock options as part of their variable income and that this variable income will not depend on share prices. Instead, if the firm makes a profit, the variable income will depend on customer satisfaction, employee satisfaction, development of market share, and rents. (See, for example, Automotive News Europe 2009.) These are also the areas covered by the firm’s “Strategy 2018,” now renamed “18 plus.” Volkswagen-Weg, the new work organization, is one of the major instruments for pursuing this strategy (Volkswagen Group, no date). The four objectives the variable income will depend on show a predominant commitment to stakeholders. Co-determination at the level of the conglomerate’s individual firms and on the shop-floor level is very highly developed, too. Within the firm (not conglomerate) of Volkswagen, the works council has more influence than is provided by law. Volkswagen has a long history of successful co-management of the works council and management. In the end, no management decision is made without close consultation with the works council. This might slow management decision making and limit the freedom of managerial action, but it also means that when a decision is finally made, it is supported by everyone. In 2009 this extensive codetermination showed its strength when it was possible to implement extra shifts each second weekend in the German Golf plants. A core element of the Volkswagen strategy is to increase market share, given its expected increase in productivity. Otherwise Volkswagen would have redundant employees in Germany in 2018 even if it takes advantage of natural turnover as much as possible. For political reasons layoffs are impossible. Layoffs would also destroy the valuable collaboration between workers’ representatives and management as well as the commitment of employees: these core assets would be endangered. So the alternative solution is to increase the number of cars sold. But at the same time. new production sites in countries with lower labor costs are being set up, both by Volkswagen and its competitors. If the German production sites want to remain competitive, they have to profit from capabilities others do not have and actually treat them as assets. Volkswagen-Weg The obvious differences between the low-cost production sites and those in Germany are the Germans’ low worker turnover, high level of qualification, and high commitment. For example, in India high turnover is a severe issue for car manufacturers. High turnover means that the employees cannot develop any tacit knowledge about the production process, so each step needs to be made explicit. If each single task needs to be described, taught, and monitored, there are enormous costs of “hierarchy.” At the same time, this leads to inflexibility since changes mean a lot of effort. An additional if subtle cost is that, if each single step is made explicit, this renders production methods in a form in which they can be easily imitated by competitors. While it is seen as a prerequisite to meet Toyota’s benchmark, Volkswagen’s idea to maintain, or even enhance, its competitive position is to build it upon the workers’ tacit knowledge and their commitment to the firm. These personnel-based resources are assumed to lead to a higher level of flexibility. In order to do so the workers need to acquire a higher degree of autonomy, whereas the degree of automation needs to be reduced. This new work organization is called “Volkswagen-Weg” (Volkswagen 2007, Volkswagen Group 2009); its implementation will take several years. Volkswagen-Weg can be translated either as “the way one works at Volkswagen” or “the Volkswagen path of development.” Its core components are the following: Continuous improvement cascade. Workshop activities take place in production and supportive units as well as the supply chain. The topics are set top-down, but within the scope a bottom-up approach is pursued. The goal is to improve existing standards. The participants come from different hierarchical levels, and


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specialists are included as well as assembly line workers. The works council is involved in planning these workshops and gets feedback, especially regarding the effect of their results on personnel and implementation practices. Continuous improvement workshops. The topics for these workshops are set bottom-up. They aim to solve clearly defined problems, no matter what kind. Each employee can propose a workshop like this, and the participants and the involvement of the works council are similar to the cascade. The intent is to put them into effect within a short time after they are proposed. Teamwork. Teamwork was implemented at Volkswagen years ago. But in contrast to these existing teams, the “new” teams gain a higher degree of autonomy. They are supposed to contribute to continuous improvement, assure the attainment of existing standard processes and quality standards, take responsibility for the maintenance and performance of machines, provide order and cleanliness, manage the organization of their own work and the provision of material, develop new quality objectives, and in general facilitate a continuous production process. The management-by-objective system is extended to these assembly line teams, so they are involved in defining their own goals, deciding how to pursue them, and monitoring their progress in achieving them. This is connected to an ongoing process of task optimization. The teams organize their rotation on the assembly line by themselves, and they are in charge of their own qualification process, communicating performance indicators within the team, and the communication within the team, as well as the communication to other teams and to supervisors or special units. A team spokesperson is the contact for management and has to make sure that the team’s tasks are fulfilled. The team can propose one of its members to be the spokesperson, but he or she needs to be approved by management. Currently that person is supposed to have two hours per day on average away from the assembly line for the specific spokesperson tasks. He or she has also to facilitate the biweekly team meetings of 30 minutes, which follow a standardized agenda. Newly appointed team spokespeople receive training. New role of the Meister. The team spokesperson gets the role the “Meister” used to have to some extent. A Meister in the industry is somebody who typically has an apprenticeship of three years and has passed an extra exam after at least two years of work experience and 1,200 hours of learning (partly in classrooms), covering basic management skills and specific technical knowledge. Since teams are acquiring more autonomy, the traditional role of the Meister is changing. He or she is becoming more an expert for special issues. This person is also getting more of the management tasks employees in supportive units used to have. Idea management. The program of idea management will continue to exist. This means that workers’ ideas concerning improvement of the production process are rewarded financially, depending on the resulting savings. But—in contrast to the traditional system—the focus is on small ideas. Currently each team has the goal of submitting two ideas per month. The introduction of the Volkswagen-Weg has started only recently. Not all the elements are fully working yet. The research presented in this paper can be seen as part of a formative evaluation of the Volkswagen-Weg, monitoring its introduction and results and thus giving advice about improvements or necessary changes. On the Theoretical Level In the introduction I mentioned that work organizations with a high level of autonomy can be found in knowledge-based firms. Typically these firms pursue a differentiation strategy: inefficiencies caused by the high level of autonomy of the units are more than compensated by meeting the specific needs and thus providing extra value for the customer. But how does the situation look in industrial mass production? In a market where global players compete by prices? Where rents are traditionally sought through standardization? In an industry whose rise was based on the systematic removal of skill and autonomy from the line worker?

Theory: Balance of Autonomy and Integration The core hypothesis is that greater autonomy leads to more problem solving by the basic units, thus by the workers or the teams. In order to avoid inefficiencies it is necessary to find a balance of autonomy and integration. Moreover, in spite of the fact that by its nature integration is limiting autonomy, integration can be

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designed in such a way that it transfers the individual problem-solving capacity to the organizational level. The basic system—which refers to the individual’s subjective theory as a specific form of strategic knowledge—has a certain structure that enables it to cope with the complexity of its environment. This structure of strategic knowledge is supposed to be transferred to the organizational level, to enable that level to cope with its complexity, too. The complexity of this more comprehensive system needs to reflect its more diverse environment, in the end being the essence of the environments of the individuals this unit consists of. Since the starting point consists of the individual subjective theories, as much of these as possible needs to be preserved on the more comprehensive levels; this calls for integration—which necessarily requires that individual autonomies are restricted by one another. On the other hand, a high degree of autonomy is necessary to enable the basic systems to act according to their subjective theories. A second limit to autonomy is set by the goals of the organization—although, in the end, these goals are also supposed to be developed from the bottom up as well if one takes seriously the challenge of coping with complexity in all its dimensions. In a previous empirical project, part of the research program of “Reflective Organization,” I interviewed 11 consultants and managers of the Swiss and German subsidiaries of the world market leader in its segment of business software. The main tasks of these consulting units is to identify necessary organizational changes and software customization in order to enable the client-firm to work with this software. The interviews, semistructured and very intense, took one to two hours. The survey was run in winter 2005–2006. The results of this survey illustrate the autonomy–integration issue in the following sections. (See Nolte 2007, 2010.) Autonomy on the Individual Level as a Prerequisite for Coping with Complexity The starting point consists of the work-related subjective theories of individual employees. Subjective theories are strategic knowledge, which can be reconstructed in a parallel way to “objective”—scientific— theories.. Thus they comprise the elements of description, explanation, and technology (Groeben and Scheele 1982). The concept of subjective theories is based on a view of the individual as constructing his or her reality in a manner that is bounded and subjective. As a consequence, the individual is to some extent autonomous with respect to stimuli from outside (Groeben and Scheele 1977). These subjective theories are only “true” (valid) for the single individual—he or she doesn’t change them as long as the contradictions do not get too obvious—but they can be improved by exchanging some of their parts for elements of “objective” (empirically tested) theories. This can be achieved by traditional learning or training, but it occurs mainly by counseling and thus evoking reflection. Subjective theories are very interesting in the work context, because due to their “technology” aspect they lead directly to action—and this occurs immediately. Subjective theories signify that the information an individual receives from his or her environment is categorized. The more experience an individual has (whether direct, or indirect via an educational program), the more elaborated this categorization schema is. Depending on the categorization of the stimulus, a subjective theory, with its description, explanation, and technology, is triggered. Because of the “technology” part of the process the individual knows which action needs to be taken. This works without any noticeable delay—even fast enough for professional sport competitions. The argument that reflection can be fast enough even in competitive sports is well founded by empirical research run in the field of subjective theories (see Wahl 1991 regarding speed chess and table tennis) or the research program in sports at the University of Hamburg (for instance, for rowing: Lippens 2005, 2009). This is in clear contradiction to Schön’s statement: “There is not time to reflect when we are on the firing line; if we stop to think, we may be dead” (1983:277). It may happen that a stimulus cannot be categorized mechanically. In these cases reflection is necessary, thus deriving new subjective theories from existing ones. Typically this also transpires so quickly that one can hardly notice it from outside. Only in rare cases does the individual actually need to search for external input to develop adequate subjective theories to cope with a stimulus he or she is not familiar with. This search can consist of trying to get access to “objective” theories or to the subjective theories of others— asking co-workers or consulting a newsgroup, for instance. By deriving new subjective theories from existing ones or integrating “objective” or subjective theories of others into his or her own personal system, the


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individual is continually adjusting the complexity of this system to the complexity of his or her environment. Consequently, he or she is able to cope with even high levels of environmental complexity. In order to allow subjective theories to adjust to environmental complexity, the individual must have enough autonomy to validate these theories—to test whether an action (a technology) actually leads to the expected outcome. If this is not the case, new reflection is required to adjust the system of subjective theories. This means that the individual needs a scope within which he or she can decide independently which action is appropriate in this situation, and the corresponding opportunity to make a mistake. In the previous survey in the IT consulting business, the results indicated a high level of autonomy: Decision making. The consultants reported they are given a wide scope for decision making. In the end, it is limited only by clients’ demands and by decisions made earlier. Self-organization for problem solving. Superiors or specialized positions (for personnel planning, for instance) get involved only if self-organization does not lead to a solution. Innovation. The consultants have a lot of room for improvisation, and they state that this is also obligatory to adjust to the individual client. Improvisation would be their “daily business.” Integration by Information Exchange Between Organizational Units The first step of integration means mainly that information about the individual subjective theories is exchanged, and perhaps intersubjective theories are even developed. “Intersubjective theories” emerge when a consensus about subjective theories is achieved—when several individuals regard the same subjective theories as valid and are aware of this fact. As a result, their actions are better coordinated. This integration is also provided by the simple fact that individuals learn from another—their specific environments, their reflections, and their actions taken—incorporating this information into their own reflection and action. Of course, the main tool is communication. It is self-understood that this communication does not need to be verbal; it can also happen, for instance, by observing or learning about the results of the actions that have been taken by others. Thus this communication incorporates formal and informal aspects. Examples of a formal exchange of subjective theories can be found in continuous improvement workshops. Informal aspects play a role in break talks or in close collaboration. The consultants’ statements in the previous survey can be summarized as follows: Self-organizing substituting for formal structures. Formal hierarchy is of no practical importance; organizational structure resembles a network, not a pyramid; high importance is given to informal organization; typically a project team is established by self-selection/asking co-workers if they wish to join; competence of teamwork is mandatory; close collaboration is sought in case of a problem; co-workers participate in decision making. Very dense communication. There are many meetings; meetings go beyond project limits; meetings have space for informal communication; clients’ co-workers are included in the (informal) communication; spatial closeness encourages communication; communication skills are essential for project managers; several kinds of knowledge databases are assembled. Specialists are working closely together. Typically business consultants and IT specialists are working together in projects; co-workers of the clients are part of the project team; specialists are members of different teams at the same time; project managers are generalists. Integration by Rules and Monitoring If a firm tries to pursue a competitive advantage based on the problem-solving capacities of the workers, the rules and the monitoring system of the whole also need to be founded on these cognitions, since rules represent constraints for actions taken on the individual level. If these constraints are also derived from individual subjective theories, the specific conditions of each position/unit are taken into account in these rules and the monitoring system. Thus the complexity of their specific environment on the one hand and the complexity of the position’s/unit’s problem-solving process enabling it to cope with this are preserved, too. Of course, it is necessary to “condense” the complexity reported from the individual level—otherwise the system would explode in an endless loop of increasing complexity. This process of condensation consists in

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developing intersubjective theories, consisting of shared assumptions and agreement on which actions need to be taken and perhaps how. Monitoring means receiving information about the actions taken on the individual level and comparing them with the rules. Thus monitoring is a function directly derived from “rules” and the communication mentioned above. This also means that “monitoring” depends on well-functioning communication. The consultants reported in the earlier survey about the following elements: Close monitoring of billable days. There is a rigid system of management by objectives, in which only the (very high) number of billable days is taken into account; monitoring is similar to someone who is selfemployed; importance is attached to meeting the goals; weekly reports, time registration, forecasts, and contracts are employed. Strong corporate culture. In case of a goal conflict between units, solutions are found informally; there are hardly any standards or defined processes; subordinates are asked to take care of their own interests (for instance, regarding the choice of project), but during the project the firm’s interest has priority; the style of situational leadership is adjusted to the individual co-worker; decisions are made with discussions; a very strong culture is established encompassing mutual help; there is very low power-distance and a strong feeling of mutual belonging; few optimize on self-interest alone; and an organization of trust emerges, so that problems can be dealt with frankly. Thus monitoring is implicit in the cultural matrix despite the impression that there is no monitoring at all. Integration for Coping with the Future A strategy to build a competitive position upon employees’ problem-solving capacities means to integrate their expectations regarding the future, too. This results in planning. Beside this, organizational learning can provide individuals with technologies to cope with expected future complexity. The term “technology” refers once again to the aspect of subjective theories that leads to action. These technologies may be derived from “objective theories,” from other individual subjective theories, or from intersubjective theories. It is also possible that individuals generate their private technologies after being exposed to the expectations regarding the future of others. The interesting management challenge is to establish a system that leads to a quasi-automatic development of subjective theories oriented to future complexity. In the previous survey the consultants’ statements regarding coping with future complexity covered these two aspects as follows: Organizational learning. In this industry (IT-linked consulting) strong organizational learning is a prerequisite, as is continuous learning; tacit knowledge is transferred by close collaboration; learning on the job is common; project reviews and sales cases are employed to support organizational learning. Subordinates participate in planning. Each year the head of a business unit drafts a business plan (encompassing strategy, focus, development of the team, and qualitative goals) that is discussed in a team meeting and possibly changed before it is transferred to the next level of hierarchy; the ideas of the project managers are taken into account to some extent in the planning, and sometimes also those of the ordinary consultants.

Methodology: Structure-Laying Technique A qualitative approach seems to be appropriate since this current research project is explorative: It aims to identify possibilities to balance autonomy and integration on the assembly line level. As a side effect it can provide advice for adjustments of the Volkswagen-Weg. Moreover, the works council (which needs to agree on any survey involving interviews with workers) wished to minimize the exposure of the work force to questionnaires. The management as well as the works council preferred the kind of problem-centered interview I proposed: Since the focus of this project is the relationship between work organization and problem solving and thus on a kind of strategic knowledge, I decided to use a simplified form of structure-laying technique (e.g., Flick 2009). The core idea of this interview technique is that the interviewer gives a stimulus (for example, a problematic situation typical of everyday worklife) and the interviewee describes how he or she


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copes with this problem, such as the kind of strategies he or she uses to solve it. This initially takes the form of an ordinary problem-centered interview; then the interviewer categorizes it in a general manner, and one or two weeks after the first meeting the interviewer presents the categorization on cards, where the logic of the argumentation given in the interview can be visualized. The idea is to make the subjective theories explicit and to give the interviewee the chance to check if his or her subjective theories are presented correctly. It is important to offer the interviewee an opportunity to change the content or the logic the interviewer has interpreted from the initial interview. This way the structure-laying technique is a tool for validation. This technique has been developed in interviews with teachers and athletes, typically with interviewees with some time flexibility. The current survey focuses on assembly line workers. It was impossible to get the same respondents off the assembly line twice within a precise time frame for meetings of at least one hour. This made it necessary to simplify the structure-laying technique so that the initial interview and the validation both take place as part of the same meeting. The solution was to apply elements of the popular discussion-facilitating method “Metaplan,” in which arguments are written down on cards and put on large paper walls. One step in this process is to reorganize the cards according to the rule that the person who had originally given an argument is the “owner” of the card and can decide where it is supposed to hang. To be able to reveal the subjective theories and validate them within the same interview session, the interviews were conducted by teams of two: one interviewer introduced the problem setting and kept the narrative going by asking questions (like “What do you do next,” “Who do you involve,” and especially “Why.” The second, an assistant, wrote down the arguments and put them on the wall paper so that the interviewee could see them while talking. While doing this, the assistant tried to create a visualization of the structure of the respondent’s argument by the placement of the cards. After about two-thirds of the available time the actual interview stopped and the validation process started: the interviewee was asked to look at the cards and correct whatever did not present his or her ideas properly, with the possibility of adding more cards. Typically the interviewee resumed the explanation when a topic was mentioned that was especially important for him or her. Thus the argumentation conveyed in the interview became more elaborated. Sometimes the interviewees asked to express arguments differently or to remove cards from the wall paper. Going through the arguments on the wall papers was also an opportunity for the interviewer to ask whenever he or she was not sure if he or she had actually understood the argument. It turned out that this simplified structure-laying method worked very well since all the interviewees had already taken part in group discussions facilitated with Metaplan, so the wall paper, the cards, and the role of a second person to take notes on these cards and rearrange them were familiar. This first wave of interviews was supposed to take place as close to the start of the Volkswagen-Weg as possible. A second wave is planned for spring 2010, a third one for fall 2010. The Volkswagen-Weg is introduced incrementally. In practice there has been a delay in getting it to work, caused by lack of excess capacity: although the world economy is suffering from one of its most serious crises since the 1930s, the Volkswagen plant is operating at a high resource utilization. This is due to the artificial demand caused by the various “cash-for-clunker” programs around the world. The bottleneck has developed at the role of the team spokesperson, which is crucial in the Volkswagen-Weg. These people need to be trained, and they need to have sufficient time to fulfill their extra tasks. Due to the high workload, team spokespeople were not trained as originally scheduled, and they cannot depend on getting time off the line to do their extra jobs the way the role was originally planned in the Volkswagen-Weg. Although it is surely very favorable that plant utilization is very high, this also had a negative impact on the number and length of interviews in the first wave: after several rounds of bargaining, I was allowed to run 16 to 20 interviews of 60 minutes with assembly line workers from the four assembly lines ML 1, ML 2, ML 3 and ML 4 (ML = Montagelinie = assembly line.) From each assembly line I was supposed to get four or five interviewees. Since discussion continued until the works council and the privacy officer agreed, the interviews did not take place before November 30 and December 1, 2009. The research was very carefully supported by the unit that is in charge of implementing and developing the Volkswagen-Weg. That unit contacted the shift supervisors and asked for volunteers, and 16 interviewees were eventually selected. They came from the morning and the afternoon shifts of the two days and represented the four assembly lines. It turned out that 14 of these 16 interviewees were team spokespersons, one was a works-council member and

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worked only a quarter of his work time on the assembly line, and only one had no special tasks (but he had finished his apprenticeship only recently). It also turned out that sometimes the original interviewees could not come to their appointments because of a lack of personnel on their teams. In these cases either the shift supervisors or the Meister sent substitutes. The population of this research project was supposed to be the assembly line workers at the Volkswagen plant in Wolfsburg. The sample for the interviews consists mostly of team spokespersons, who are ordinary assembly line workers but with some extra tasks. In theory, they are off the assembly line an average of two hours a day to do these tasks, but when personnel are scarce they work full-time on the assembly line. By education and similar attributes, team spokespersons do not differ from other workers. The only difference is that they are nominated by the team and have to be approved by the management, so one can assume that they are regarded as trustworthy and reliable by both sides. After having become team spokespersons they are supposed to get training to fulfill their extra tasks, including how to facilitate team discussions. Team spokespersons do not have any supervising tasks, and in general their wage is just a little higher than that of the other workers. Viewed as a sample, then, the team spokespersons can be assumed to represent a subpopulation that differs from the universe of assembly line workers by virtue of being more trustworthy and reliable and having higher communicative skills. Since the research focuses on the balance of integration and autonomy—which differs between the assembly lines—and there is no bias derived from having different proportions of spokespersons across the lines, one can assume that the predominance of team spokespersons in the sample will not have a substantial impact on the results. Interview comments indicate that team spokespersons predominated in this survey because it was easier for them than for the other workers to get some time off the assembly line. I conducted the interviews with assistance from four students from master’s programs in management consulting or business management. Since problem-centered interviews require the interviewer to be open to each move the interviewee wants to take and to be very familiar with the topic the interview focuses on, we had trained for these kind of interviews with Emden students who had work experience on the assembly line in the Emden Volkswagen plant. It turned out that this was sufficient preparation for the actual interviews. Except for me, the interviewers were not familiar with the responses of the IT consultants in the earlier project described above.

Results: Automation and Time Perspective Influence Autonomy and Integration The four assembly lines differ tremendously. ML 1 started to operate about 18 months ago. It is designed to be a “flexible” line, on which it is possible to produce different models at the same time, although because of demand it currently produces only one model. Its working conditions are considered to be good; the work cycle is within the ordinary range, but on the upper end. The workers were recruited from other Volkswagen assembly lines for this new line. ML 2 has the reputation of being an ordinary assembly line. It has shorter work cycles than ML 1, and it can produce only one model at a time. ML 3 has not gone through major changes since the early 1980s. At that time it was the benchmark for highly automated car production. Later it became apparent that the degree of automation was too high, since it was able to produce cost-efficiently only at close to 100% of capacity. Today it remains highly automated. The work cycles are relatively short, and the working conditions have a bad reputation: crowded, hot, loud, and stressful. It can produce only one model at a time. Teams there have undergone a lot of ups and downs recently: first the number of workers was supposed to be reduced, and a lot of personnel left for other assembly lines. It then turned out that the number of remaining workers was too low. Currently additional workers leased from a Volkswagen plant in a different town are working on this assembly line. They will return to this other plant in the future. ML 4 is a special case, since it was an independent firm within the Volkswagen conglomerate until the end of 2008, even though it occupies the same hall as ML 1. This firm—called “Auto 5000”—was started in 2002 as an experiment. Only the previously unemployed without any experience at car manufacturing were allowed to apply for jobs there. One out of 10 applicants was hired. In the beginning they had three hours a week of “qualification time,” at the end two. The workers could fill the qualification time with topics they


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regarded as important; a few were obligatory. Typically they organized their qualification within their teams. They had a lot of support for these qualifications—for example, elaborated knowledge management tools. The teams used to have a high degree of autonomy, with the Meister having rather general management tasks. This assembly line has only a fourth of the typical number of robots. The work cycle is about twice as long as on the other lines, and the ratio of support to production units is very favorable. The entire firm was set up in such a way that close communication between production and support units took place. The workers were given a quota for each shift; if necessary, they were supposed to work additional hours without extra pay— but this never happened. The salaries were lower than in the rest of the Wolfsburg site, the working time longer. Although their performance indicators cannot be compared in detail, one can assume that the production cost per car was lower at Auto 5000 than on the other assembly lines—even if one factors out the lower wages. (For detail see Schumann, Kuhlmann, Sanders, and Sperling 2006.) Since January 2009 Auto 5000 has been integrated into Volkswagen. This means that the payment, the working time, the role of the teams and the Meister, and so on are formally aligned with the assembly lines ML 1 to ML 3. The qualification time has been abolished as well as the quotas for the number of cars produced on each shift. One research question is to see if the Auto 5000 structure continues to exist informally. This is especially interesting since Volkswagen-Weg incorporates elements of Auto 5000 even though it was not developed from the experience of the Auto 5000 project. The results presented in this paper are only preliminary; moreover, it is not yet possible to compare the interview statements with performance indicators of the different assembly lines. But one can assume that the hypothesis that greater autonomy leads to more problem solving by the basic units (the workers or the teams) is supported. But, of course, one needs to have a closer look. In Table 1, the assembly lines are sorted according to the degree of autonomy of the workers or the teams. At ML 4 the experienced level of freedom is higher than the formal level. For instance, the workers have not yet noticed that since January 2009, when Auto 5000 was integrated into Volkswagen, the Meisters have much more power and the teams much less. So ML 4 is located on the right end of the table, while ML 3—the highly automated assembly line with the short work cycles—is on the left.

Discussion: The Quality of Problem Solving Increases with Autonomy The problem-solving level is higher when the degree of autonomy is also relatively high (ML 1 and ML 4). In the case of ML 3 and to some extent ML 2, external control dominates, and workers seldom act on the basis of their reflections. This is also reflected in the issue of how much the other teams are taken into account. An extreme example is the story reported from ML 3 that the solutions of some teams hinder the work of others. On the other end of the spectrum, teams search with one another for joint solutions, even if this means extra work for them. Similarly with communication concerning the entire assembly line or the plant in general, the workers who are more involved in problem solving also communicate more with other teams or with workers from other lines. At this point one must stress that the “objective” conditions are similar for all of these workers, since they are working according to the same rules in general. One exception must be made: since they are located closer to each other it is easier for ML 1 and ML 4 to communicate, while ML 3 is located on the edge of the site, very far away from the main production hall.

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LERA 62ND ANNUAL PROCEEDINGS TABLE 1

Problem-solving

ML 3 Teams involve superiors solve problems and develop ideas

ML 2 Teams solve their problems and develop new ideas with some involvement of superiors Communication with other shifts about solutions

ML 1 Developing new ideas and problem solving are part of the everyday job

ML 4 High level of individual problem solving

Problem solving and developing of new ideas are done in teams

Joint solutions over the different shifts are sought

Hardly any communication with other teams

Primarily communication with teams of the other shifts with the same tasks (sometimes requiring extra work); hardly any communication with other teams; hardly any knowledge of (and no interest in) the entire assembly line or the plant

Good communication with teams of the other shifts with the same tasks (commonly requiring extra work); hardly any communication with other teams; hardly any knowledge of the entire assembly line or the plant

Good communication between the teams and across shifts; good knowledge of other parts of the assembly line and the plant

Only scattered knowledge about the entire assembly line or other parts of the plant

In case of a problem, direct communication with the unit in charge, ignoring the official line of control; superior is only informed

In case of a problem, direct communication with the unit in charge, ignoring the official line of control; superior is only informed

Used to receive a lot of management information, but not any more

No communication with other shifts about solutions Integration by information exchange between organizational units

Integration by rules and monitoring

Future oriented integration: organizational learning and planning

External control

Personnel turnover hinders learning

Quantitative self-control due to reputation and the impact on working conditions. Informal power is important

Lack of slack hinders organizational learning Smaller steps are better because of feedback loops

Quantitative and qualitative self-control Impact on working conditions is important Power of the team is important Lack of slack hinders organizational learning Hardly any resistance to change

In case of a problem, direct communication with the unit in charge, ignoring the official line of control; superior is only informed Currently transitioning from selfcontrol (assisted by clear goals and feedback) to external control

Past experience of working on problems is very important for solving new problems

Similar observations can be made about the differences regarding rules and monitoring: while the teams on ML 3 seem to have difficulties in developing effective solutions and barely communicate, in effect they are calling for external control. This relationship between weak innovation and external control looks rather like a textbook example. On the other hand, there are the other assembly lines with


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increasingly efficient problem solving and a higher degree of self-control—and at the same time a better overview of the production process due to their communication with other teams, extending possibly to workers from other parts of the plant. The different motivations for self-control are interesting as well: they can be based externally on (informal) appreciation by others (ML 2), internally by the desire to improve (ML 1), or a sports-like competition between teams (ML 4). In the case of ML 4, one needs to take into account that until the end of 2008 the teams were necessarily self-controlling: each shift had to determine for itself how it would meet its quota. This is also the background for the practice of the teams on ML 4 having received team-specific performance indicators. One other big difference between ML 3 and ML 4 should be stressed again in the context of rules and monitoring: ML 3 is highly automated, ML 4 relatively less so. When it was still Auto 5000, labor on what is now ML 4 was also cheaper than normal for Volkswagen. So more autonomy—and thus fewer external rules and less monitoring—was less risky at Auto 5000 than, for instance, on ML 3. ML 4 is currently experiencing the introduction of more external control (for instance, MTM). It looks like (another) textbook example in that, corresponding to this process, general tasks (like cleaning up the workplace) go undone; in other words, the degree of commitment has gone down. When Auto 5000 was set up in 2002, it was designed as a learning organization. This still has some impact on the current situation, when, for instance, one interviewee stresses the importance of past problem solving for the present. The teams of Auto 5000 learned explicitly to go through PDCA circles whenever they worked on a problem. In other parts of the factory, problem-solving circles are seldom taught explicitly. However, the experience at Auto 5000 that the results of PDCA workshops were used for intensifying the work has turned the abbreviation “PDCA” into a taboo. It is interesting that in general it is reported that the resistance to organizational change is typically only temporary and easily overcome. It looks as if the main obstacle to implementing the Volkswagen-Weg and thus a work organization focusing on the problem-solving capacities of the workers is the current market success of Volkswagen: it is difficult to have continuous improvement workshops and give the team spokespersons the time needed for tasks to carry out self-organization within the teams, with a high level of resource utilization. In the end, this points back to the argument at the beginning of this paper: the benefits of a knowledge-based strategy need to overpass the costs of the slack that this strategy requires.

Conclusion: A Knowledge-Based Work Organization in Mass Production Is Possible In general the results show that a knowledge-based work organization can be found not only in an industry following a differentiation strategy like the IT-consulting case, but also in one that targets cost leadership, such as a car producer—even in highly standardized assembly line work. But the case of the Volkswagen-Weg also points to some limitations. Reflection and acting according to the results of these reflections or by problem solving is clearly possible on the level of the individual assembly line workers and their teams. The workers reported a lot of examples, one even stating that “developing new ideas is part of the everyday job.” Compare this with an excerpt from the interviews with the IT consultants: “Innovation is part of the everyday job.” The more autonomy the workers on the assembly line have, the more independently they develop new ideas. When the level of the autonomy is low (as in the example of the highly automated ML 3), superiors are more involved. The results regarding information exchange between organizational units point in the same direction. In the case of the IT consultants the main issue was spatial distance. For the assembly line workers the most serious problems were caused by time differentiation: the lack of communication between teams from the different shifts. The more autonomous teams were more interested in communicating with the teams of the other shifts and thus searching for self-organized integration. For this purpose, even extra work is common. But even the more autonomous teams like those of ML 1 have difficulties in learning about how the work is done on other parts of the assembly line, not to mention the entire plant. So autonomy goes together with an interest in getting an overview of the process or in horizontal communication, but this may fall short of actually achieving it. ML 4 is a special case in this regard, since Auto 5000 was set up as a learning organization, so being familiar with the entire production process was fundamental. Aside from this, one can

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assume that the workers of Auto 5000 were very interested in the other parts of the plant, since they had heard about the higher wages and shorter working hours there. Vertical communication in event of a problem does not follow the line of control: in general, the teams try to solve problems by themselves. If it goes beyond their means, they contact the specialists directly, and the supervisor—the Meister—is only informed. In general, all the teams state that communication within the team is good, although it became obvious that there are also outsiders in the teams and that the closeness within the teams differs. Closeness within a team can help to coordinate by fostering a strong organizational culture with its shared values and norms. The reports from ML 3 were quite revealing in this regard: it is not only that this line offers a lower degree of autonomy but also less closeness within the teams, due to the high proportion of leased personnel from other plants. So it is not surprising that more difficulties are encountered in this line in solving problems autonomously and that workers call for external control. We were offered an anecdote that a team on one shift uses one trolley for screws on one side of the line, a team on the second shift uses two trolleys on both sides of the line, and a team on the third shift does not use the trolley at all but puts the screw boxes on the ground (and does not put them back into a trolley at the end of the shift)—and thus hinders the next shift—and that the three teams have not managed to find a joint solution by themselves and therefore demand that supervisors solve this problem for them. This is not surprising after learning about the history of these teams. This example shows that, on this line, the teams do not try to have impact on the rules. Due to the ups and downs of this assembly line in the past, its uncertain future and the high proportion of temporary workers from other plants, the degree of commitment seems to be relatively low. On ML 2—an “ordinary” assembly line—self-control is important but the incentives for it are external. This is apparent from the fact that the teams on this line do not really monitor the quality of the ideas they submit, and that the motivation to work on problems is to look good. On ML 1, which provides a higher degree of autonomy, self-control covers not only quantitative goals but also quality monitoring. In this case the team is more important than its individual members. This reinforces the role of organizational culture for coordination. ML 4 is currently in the process of change from self-control, supported by clear goals and feedback, to external control. Although monitoring and coordination on these four assembly lines differ tremendously, corresponding to differences in the degree to which teams engage in self-control, there is nevertheless a clear difference from the results of the study of IT-consultants: the teams on the assembly lines have little impact on the rules and the standards of monitoring. In the end, it is only a question of the extent to which they follow the letter of these standards or rules as against also caring about their meaning - and thus, for instance, take the quality of ideas into regard as well. So the impact of the assembly line workers on the rules and monitoring is in the interpretation they give to externally set rules and standards, not in formulating them themselves. Here we find a difference in the case of IT-consulting, where, even though the impact of the individual consultant on the standards and rules was minor, it definitely existed. The main reason for this was that there were hardly any explicit rules, but rather most were derived from organizational culture. There is also a big difference between IT consulting and car manufacturing that goes beyond the interviews: the impact of institutionalized co-determination. In IT consulting there was only a very weak works council, which had little impact on the rules, the standards, or the monitoring for them. At Volkswagen the rules and the procedures for monitoring are always set up under conditions of full co-determination, which means that the works council agrees to them, typically as the outcome of a bargaining process. Thus the teams do have indirect bottom-up impact on rules and monitoring. Regarding organizational learning and planning the problems stemming from the lack of slack become obvious: in the current phase, as the plant is operating at a high level of resource utilization, labor from other Volkswagen plants is joining the teams. These workers are able only to do a minimum number of jobs, so rotation, which is one of the main planning domains of the teams, breaks down. Organizational learning is also hindered, as we saw before. Organizational learning is an essential part of the concept of Volkswagen-Weg, but the slack required for it is unavailable in times of high customer demand. Taken all together, one can conclude that a knowledge-based work organization can also be found in mass production but that there also some limits and distinctive characteristics: Reflecting and acting according to the results of the reflection are possible at the level of assembly line workers and their teams. Communication between the organizational units can be structured to some


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extent even in the context of assembly lines with rigid work cycles, but personal commitment is necessary. Such communication is also essential to avoid absurd results due to autonomy, as we saw in the anecdote about the trolleys. Top-down rules and monitoring are given, while one can assume that the quality of selfcontrol rises with the autonomy provided. For self-control to actually function there is also a need for permanent teams with a long-term perspective. There is hardly any bottom-up impact from the teams in setting the rules and the standards of monitoring. Only where the team has a strong organizational culture can it monitor quality. But one needs to see the context: rules and the standards of monitoring are defined in a co-determined process, so, while individual workers are not consulted, representatives of them are. Organizational learning and incorporating workers into planning calls for slack, which is not the case at the present time. In general, one can say that these interviews administered in November and December 2009 provide initial evidence for a knowledge-based work organization in mass production. They also show, however, that the model needs to be adjusted to the specific environment of the firm, including legal and cultural factors like co-determination and the market factors that put a price on the maintenance of slack. It will be interesting to go deeper into the applicability of the model by validating the subjective constructions reported in the interviews with objective performance indicators. In addition, a second wave of interviews is planned for spring. The objective is to see the changes in perceived work organization when the Volkswagen-Weg is implemented to a fuller extent.

References Automotive News Europe. 2009. “Volkswagen Links Executive Pay to Customer and Staff Satisfaction.” . [November 17, 2009]. Flick, Uwe. 2009. An Introduction to Qualitative Research (4th ed.) London: Sage. Groeben, Norbert, and Brigitte Scheele. 1977. Argumente für eine Psychologie des reflexiven Subjekts. Darmstadt: Dr. Dietrich Steinkopff Verlag. Groeben, Norbert, and Brigitte Scheele. 1982. “Einige Sprachregelungsvorschläge für die Erforschung subjektiver Theorien.” In H.-D. Dann, F. Krause, W. Humpert, and K.-Chr. Tennstädt, eds., Analyse und Modifikation Subjektiver Theorien von Lehrern (pp. 13–39). Universität Konstanz, Zentrum I Bildungsforschung, SFB 23, Forschungsbericht 43. Lippens, Volker. 2005. “Inside the Rower’s Mind. ” In V. Nolte, ed., Rowing Faster. Champaign, IL: Human Kinetics, pp. 185–94. Lippens, Volker 2009. “Ist die “Innensicht” out? Zur Rekonstruktion der Eigensichten beim Bewegen.” Leipziger Sportwissenschaftliche Beiträge, Vol. 50, pp. 13–33. Moneycab. 2010. VW will bis 2018 weltgrößter Autobauer werden. [January 11, 2010]. Nolte, Heike. 2007. Die reflexive Organisation. Von Managementbildung zu Unternehmensflexibilität. München & Mering: Rainer Hampp Verlag. Nolte, Heike. 2010. “Reflective Organization.” Cybernetics and Human Knowing, Vol. 17 (in press). Schön, Donald. 1983. The Reflective Practioner. London: Temple Smith. Schumann, Michael, Martin Kuhlmann, Frauke Sanders, and Hans J. Sperling, eds. 2006. VW-Auto 5000: ein neues Produktionskonzept. Hamburg: VSA-Verlag. Volkswagen. 2007. Dr. Horst Neumann stellt den Volkswagen-Weg vor. Zur Umsetzung vier Betriebsvereinbarungen beschlossen. Press release, April 12. . Volkswagen Group. 2009. Annual Report 2008. . Volkswagen Group. 2010. Volkswagen Group reports delivery record for 2009. . [January 11, 2010].

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Volkswagen Group. No date. Group Strategy 2018. . [January 31, 2010]. Wahl, Diethelm. 1991. Handeln unter Druck. Der weite Weg vom Wissen zum Handeln bei Lehrern, Hochschullehrern und Erwachsenenbildnern. Weinheim: Deutscher Studien Verlag.

Discussion BERT PAINTER Royal Roads University The papers presented in this symposium highlight emergent characteristics of sociotechnical systems (i.e., work organizations) moving into the new context of the 21st century. At the same time, the studies illuminate the continued, and perhaps, increased relevance of sociotechnical system design principles. Although the current project at the Volkswagen plant in Wolfsburg, Germany, described in Heike Nolte’s fine research paper on “Work Organization and Problem Solving” incorporates many aspects of 20th-century sociotechnical systems (STS) development of “high performance/high commitment” organizations, the objective of increasing a firm’s “flexibility” (i.e., organizational agility) is a distinctive and necessary response to the “turbulent” (and even “hyperturbulent”) environment of the 21st century. Similarly, the strategy of utilizing employees’ problem-solving (and innovation) capacity is not new, but what is representative of 21st-century sociotechnical systems thinking is the concept of industrial mass production through a “knowledge-based” work organization. Indeed, Nolte appears to derive her core and significant hypothesis, that “greater [worker] autonomy leads to more and better [employee] problem solving,” from study of high performance work systems in IT consulting and other forms of professional and semiprofessional knowledge work that are among the fastestgrowing job sectors of 21st-century developed economies. However, Nolte combines this finding from knowledge-based firms with a vital understanding of a sociotechnical systems principle that requires in industrial mass production a “balance of autonomy and integration.” The STS principle is “joint optimization” of both the human/social and technical dimensions of work. This principle implies synergistic interaction between social and technical dimensions, so that overall human and production outcomes are optimized. Nevertheless, “joint optimization” may limit the singular optimization of each of the human or technical aspects, as in Nolte’s reference to integration through compliance to organizational goals acting as a limit to autonomy, or contrariwise, the need for production slack in order to enable autonomy. Nolte’s description of the methods of “integration” (e.g., training, communication, self-organizing, monitoring, planning, and organization learning) is also revealing, of the 21st-century reality that all work systems exhibit characteristics of network organization where design must focus on processes as much as structure. Furthermore, as Nolte so rightly says, integration is predicated on “intense flows of information.” This is one of the defining characteristics of sociotechnical systems in the 21st century. Information and communication technology (ICT) has become a key (if not the primary) technical infrastructure of work organization. We see this again in a presentation by Robert Bruno on the “Social Impacts of Taxicab Technologies,” which provides many useful insights into the work perspective of big city taxi drivers who as “independent operators” serve as a metaphor for an increasing number of workers in the 21st-century economy, namely those who are self-employed, individual contractors, or contingent part-time labor. Even many full-time employees function now as temporary members of diverse virtual teams that may span the globe. Although each of these individuals may appear to be a social isolate, as Bruno reveals, their “independence” is significantly circumscribed. Within the taxi driver’s context, as the industry migrated from the traditional corporate structure of the mid-1960s to today’s “independent owner–operator” structure, fleet management is now accomplished more through technology like computerized dispatch and in-car GPS systems. (In the same way, IT systems are viewed by some organizations as the integrating force for virtual teams or for managing individual contractors at a distance.) Moreover, the taxi industry was once basically self-regulated, whereas today, rules and regulations are tightly enforced by city personnel. In Bruno’s account, taxi drivers say that “freedom applies to doing things outside of the job” in terms of starting and stopping

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work when they want, as compared with the “lack of job control” and the many risks they experience in actually doing the job. There is, however, another perspective that permeates through Bruno’s account of the social impacts of taxicab technologies, which is the vital and prevalent nature of human intervention by taxi drivers, to overcome the imperfections of technology like the in-car GPS system (that has inaccurate maps or cannot foresee sudden traffic congestion) or to treat the taxi vehicle itself as “a kind of companion” that must be driven very “consciously” in order to maintain one’s livelihood. Bruno’s findings from his survey and interviews of Chicago taxi drivers suggest that there is much about taxicab technologies (from the specific design of a driver’s front seat to the complex in-car navigation systems) that cannot be understood operationally without the perspective of the drivers. Indeed, one of the enduring principles of sociotechnical systems thinking is that built into the design of a technology are human assumptions about what workers will or will not do or experience with the technology, and these “subjective theories” need to be validated or revised with the users themselves. A case in point is the report by Monica Bielski Boris regarding the experience of a unionized group of engineers in “bargaining technology,” where the engineers were invited to provide feedback on the business transformation plan proposed for their utility. Despite the flaws perceived by the engineers in the proposed technological changes, a decision to proceed with the transformation plan (as recommended by a large consulting firm) was made by top management, who had a lack of technical knowledge and industry background. Unfortunately, there were problems with the computer system, and the transformation proved to be a failure for customers, employees, and the business. From a 21st-century sociotechnical systems’ perspective, this story is significant. Within the coming years, there will be an increasing number of workers in healthcare, education, and other fields who are in professional or semiprofessional roles, like this group of engineers, who are bound to experience information/communications technology change continuously transforming their knowledge-based work. This experience can be positive or negative or both. Although there can be no guarantees either way, one means to influence the outcome in a positive direction for both people and the enterprise is to apply a key sociotechnical systems principle that people participate in the design or redesign of their work. Clearly, in the reported case of the unionized engineers, this principle did not apply or was optional rather than essential in the change process. It is also clear from this case that collective bargaining/unionization, by itself, does not establish such a participative STS design principle, especially in the American context, where institutions such as “works councils” do not generally apply. Nevertheless, there do exist in Canada and the United States isolated cases where unions and employers have negotiated specific contract language that supports participative work design. A 21st-century challenge for us could be to learn from this experience. Finally, Posey and Sorenson remind us of an inheritance that many 21st-century organizations have acquired from the last quarter of the 20th century, namely, a fascination or desperation to rely on IT systems to solve our organizational problems. Although IT systems are increasingly relevant in this age of emerging network and virtual organization of work, a failure to understand and incorporate the interdependencies among technology, processes, and people leads so often to painful human frustration and costly suboptimal delivery of service or productivity. The authors point to examples in which organizations did not understand how the functioning of a chosen technology was interrelated with the environment and operational conditions of the organization. In other words, no one recognized the necessity for using a “systems” perspective. Viewing the organization as a “sociotechnical system” enables analysis of the context within which people and the technology will be deployed. In this 21st century, when software will likely become more prevalent and influential than hardware, the wonderful irony is that much greater opportunity exists for flexibility and real “choice” of technology. “Technological choice” combined with a systems perspective can help us design organizations that achieve a best fit between technology and people, and therefore “joint optimization” of human and economic outcomes.

XI. Beyond the Recovery: Keeping Jobs and Working Families at the Center of the Nation’s Economic Agenda

Discussion CHARLES WHALEN Utica College and Cornell University1

Introduction When this LERA panel was organized in early 2009, as session organizer I was under no illusion that the serious U.S. economic downturn, now widely called the Great Recession, would have given way to a robust recovery. However, it was clear that the Federal Reserve and the U.S. Treasury would continue aggressive action to stabilize the nation’s financial system. It was also clear that a federal stimulus package would be in place to exert a moderating effect on the unemployment rate. The unknowable element was whether those actions would be enough to keep joblessness from skyrocketing well above 10 percent. Given that uncertainty, this panel was designed to consider our economic future “beyond the recovery.” Even in the event that aggressive monetary and fiscal policies had managed to put the economy on a clear path to recovery, there would still need to be national attention to the issues of concern to working families. When the panel convened in Atlanta, though, panelists were in agreement that recovery was still a considerable way off. Thus, as the first presenter indicated, perhaps the most pressing need of early 2010 was to focus on strategies that would keep working families at the center of attention through the recession and recovery. That panelist was William E. Spriggs, assistant secretary for policy at the U.S. Department of Labor. Spriggs, an economist on leave from Howard University, described the Obama administration’s initiatives to promote recovery and reinvestment. He highlighted efforts aimed at spurring development of renewable energy resources and stressed the Labor Department’s commitment to expanding employment opportunities throughout the nation. Heather Boushey, senior economist at the Center for American Progress, followed Spriggs. She addressed the immediate economic problem, the nation’s long-term economic goals, and elements of a constructive agenda for policy action. Boushey highlighted the severity of the Great Recession by drawing attention not only to the extent and average duration of recent unemployment relative to past recessions, but also to the high level of joblessness indicated by broad measures of unemployment. However, she also pointed to an encouraging sign in the expansion of employment in the temporary help sector, usually an indicator of future job growth. Looking beyond the recession, Boushey expressed concern about trends in median family income and suggested that essential elements of a long-term policy agenda include financial regulatory reform, paid family leave, and labor law reform. Lisa Jordan, education director for the United Steelworkers, stressed the need for concrete action and a “real strategy” aimed at the needs of working people. She was critical of federal employment and training policies that are long on intentions and short on an ability to deliver family supporting jobs. She emphasized the importance of integrating “green jobs” initiatives with coherent industry and trade policies and explained how some domestic attention to renewable energy production is actually creating job growth in China rather than the United States. Jordan also expressed alarm that Congress was considering a tax that would saddle union families with much of the burden of financing healthcare reform. Author’s address: 1600 Burrstone Road, Utica, NY 13502

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I then set the stage for remarks by Beth Almeida, executive director of the National Institute on Retirement Security. I stressed that the nation faces a Great Recession on top of a Silent Depression, which has been creeping up on us since the mid-1970s. I recalled that Hyman Minsky and others drew attention to this deeper problem in the 1990s by highlighting what Minsky called “money manager capitalism” (characterized by the rise of institutional investors and their growing impact on the economy). A key feature of this new stage of U.S. economic development is increasing economic insecurity for working families— insecurity that has spilled over from the realm of jobs and wages and into the realm of retirement. It might have been possible to ignore the concerns of these economists in the 1990s, but that is more difficult today, especially with Paul Krugman writing about “financialization” on a regular basis in The New York Times. Almeida picked up on my introduction by stressing that the long-term problem of growing retirement insecurity has only been “made worse” by the recent financial crisis and economic downturn. Almeida described the retirement policy challenge ahead as expanding coverage, improving definedcontribution plans (in ways that make them more like defined-benefit plans), and “retooling” defined-benefit plans so they can survive in the coming decades. She explained that the majority of Americans (51 percent) are currently “at risk” of being unable to maintain their pre-retirement standard of living—and that the fraction “at risk” has been trending upward since the early 1980s (31 percent in 1983). In introducing the final presenter, Robert Chiaravalli, a management attorney and principal consultant at Strategic Labor and Human Resources, LLC, I noted that Almeida maintains “group-based” retirement plans are more efficient than defined-contribution plans, which put the burden and risk of retirement planning on individual workers. I recalled that during the Great Depression, businessman Edward A. Filene often wrote that “business needs the New Deal” because the power of the government was needed to pressure employers to do what they knew was in their long-term best interest. Without public involvement to ensure a level playing field, Filene argued, business leaders often found it difficult to take such action—such as raising wages, refusing to hire child labor, and devoting attention to worker safety. I suggested that the same might be true today in the realm of retirement. I observed that the panel was fortunate to have Chiaravalli provide a business perspective on the current crisis, and he mentioned one of the reasons at the outset: he brought to the panel more than 30 years of experience in labor relations, human resources, and the law, including work for the United Auto Workers and the National Labor Relations Board. Chiaravalli anxiously suggested that the current state of the economy could represent “the new normal” for an extended period of time and that business, labor, and government might need to adjust to that reality. He also stressed that individuals and institutions in the United States must do a better job of planning for the unexpected. According to Chiaravalli, companies, unions, schools, and government agencies have been “derelict” when it comes to teaching Americans about business literacy and personal financial management. Chiaravalli also suggested that the nation has failed in marshaling its collective resources to ease the hardship on workers affected by restructuring. For example, many unionized workers have been offered substantial “buyouts” as incentives to accept labor–management contracts with diminished wages, pensions, and retiree healthcare benefits—and they have often had little time to make decisions about accepting and managing the buyout proceeds. Chiaravalli pointed out that it serves the interests of all stakeholders not only to fashion a widely acceptable restructuring plan, but also to provide meaningful assistance to affected employees. A lively period of questions and discussion followed the panelists’ formal remarks. The main question asked by attendees seemed to be this: Why is not more academic and practitioner attention—in and out of LERA—focused on the challenges and prospects facing America’s working families? Offering a ray of hope, I closed by pointing to the theme of the 2011 LERA Annual Meeting—“Employment Relations for Economic Recovery and Sustained Growth.”

XII. Change Agents in Labor-Management Systems

Labor Mediator as Internal Change Agent GARY HATTAL Federal Mediation and Conciliation Service1 My mostly misunderstood myriad meandering mediator musings: As a labor mediator, I find myself frequently injected, for very short but intense durations, as an internal change agent. We mediators seldom seek to establish ourselves as part of the furniture—we much prefer to make a strong initial impact and then leave (returning if necessary)—and even less frequently do we permit ourselves to become a part of the permanent landscape. As such, our greatest asset is our ability to quickly find acceptance among the parties, offer conduits for discussion and debate, and establish pathways to achieve resolution. Further, we must achieve all of these without damaging the ongoing relationship between the factions within the organization. We are servants of the mediation process, not the two (or multiple) sides, and we firmly believe we will be able to discern only some, but certainly not all, of the facets and politics in play. So we are neither fish nor fowl. We are not employed by the organizations with which we work, nor are we hired on a contractual basis as external consultants. Rather, we work with all of the legitimate parties— often the same characters in a variety of settings—to aid them in attaining their own contract. We may return in a facilitative role to help them initiate or develop a “labor–management committee” of permanent status, provide one to three or even five days of training to enhance their communication or skill set (e.g., contract administration), or to them resolve an internal grievance prior to an EEO investigation, or very frequently an arbitration hearing. Within the above framework, and immersed in this context, we have a variety of choices to make concerning not just our role and methodology but our long- and short-term goals as well as we seek to find common ground. We attempt to both gain labor and employment peace and to shape expectations around dialogue going forward. Thoughts concerning perceived problem perception areas, key points about conflict, and a tool that has proved useful follow for those who find themselves on a similar journey with the challenges inherent in such a quest. I make the assumption (I know that we have all been taught just how dangerous those are, but I revel in some of them anyway) that most people, most of the time, will forgive their own reasons for engaging in conflict and concurrently accuse others roundly. We remember competitive acts by others but choose not to notice our own aggressions. We do not modify, ameliorate, or mitigate our demonstrations around power until the relative status between us and others is roughly even or of potentially strong negative consequence, and, conversely, collaboration is most likely when parties are roughly equal in power. In short, change agents, temporarily employed to ply our trade as neutrals, tread a precarious path wherein we have enhanced status—since we are obligated to no one for our daily bread—but concurrently we must not abuse our authority with behavioral bias. We generally bring both a wide breadth of experience from the world of conflict to a particular environment and a deeper understanding of the motivations behind the actions that are taking place. And because we have no proverbial “dog in the hunt,” we have no personal stake in outcomes. Thus we occupy the unique position of floating above the fray and working dispassionately for the greater good of the many who reside in the organization. Author’s address: 2001 Sixth Avenue, Suite 2500, Seattle, WA 91821

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The ability to speak to people in a language they understand and to establish an initial comfort level creates a connection and a bond that strengthens and sustains the participants when uncomfortable change may be required. The change agent’s talent to be heard may rely upon his or her ability to transition among three broad regions of mediation: the directive/evaluative, the facilitative, and the transformative. The directive/evaluative style obligates the mediator/change agent to provide substantive ideas for resolution, occasionally pushing and prodding participants to conclusion even at the expense of the relationship links. The facilitative style is more interrogatory, enabling participants to come to their own conclusions and establishing options based on their particular life experiences, preferences, and ideas; it really is a balance between doing the deal and preserving personal bonds. The third style—transformative—pays little heed to a settlement or conclusion and emphasizes the accommodation among the individuals in the extreme. Just as the change agent fluxes between and among styles, placing the problem in the proper category may provide a fresh perspective for the participants and allows them to rest upon an anchor of stability. These problem categories are the following: relationships, values, interests, bureaucratic, and data/informational. It is understood that not all problems are relationship oriented. But we all know of some problems that exist because we just don’t like each other. This is the most complex problem category. Value is the next one in complexity. Sometimes we really don’t share the same values as others (e.g., work ethic, sense of mission, etc.). Oh, we like them well enough, but perhaps we don’t trust them. Next are the interests: those we share, those we oppose, and those that don’t matter to us at all. Often these are reflected in organizational needs in the distribution of its resources. The fourth category is the bureaucratic, or the rules and policies by which we live. This type of problem area deals with structure and reporting, rules and regulations, span of control, and how we manage work. Too few rules, and there is chaos. Too many, and we choke off both creativity and productivity. And, finally, the simplest type of problem area to address is the quantifiable: data and information. It is the only one that is objective and readily observable. It answers the root question, Are we even on the same page? A major challenge for the internal change agent is to discern when and if the problem at hand has moved from the fifth area of data and information all the way to a relationship controversy at the top through the process of attributing a malevolent intent to the transition. In other words, has the lack of clarity concerning data carried with it an inference on the part of the initial receiver and a negative connotation that has now damaged the relationship because of a reticence, reluctance, or inability to address a conflict? Where this has occurred and been allowed to flourish like a noxious weed, the relationship often becomes a downward, warring spiral, wasting time, money, energy, and good will. The good change agent, as mediator, redirects this flow and clarifies between the parties what the actual intent of the action was and what the impact of the resultant behavior is in each case. An important secondary tool to achieving this is the Three R’s of communication: restating, reflecting, and reframing. The first of these requires the change agent to encourage the initial communication around a dispute or question, a sharing of a restatement in each party’s own words around what has been said to obtain accuracy and the certainty that each has been heard. The second R, reflecting, resides in the emotional knowledge that the intensity of feeling has been recognized and that each party can then empathize and value what has been shared. Finally, the third R, that of reframing, provides assistance and support in expressing ideas so that they too can be heard with an open and nonprejudicial mind as the parties seek to move forward in their relationship and collaboration around option expansion. Thus far in these musings, I have touched upon three of what I call the “Rules of Three”:  Three styles of mediation and change: directive, facilitative, transformative  Three R’s of Communication: restate, reflect, reframe  Three types of interests

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I have also lightly hit upon the five problem types: relationship, values, interests, bureaucracy, and information. There are additional “threes” that I challenge and encourage mediators and other internal change agents to consider, in other forums, for additional study and reflection. These have also served me well as I flit from confrontation to dispute to conversation to planning and partnerships:  Three areas of the brain: neocortex problem solving, the limbic emotional, and the often hijacked amygdala (the visceral area for survival, fight or flight)  Three types of listening: empathic, for connection; “catalytic”—asking questions and providing the catalyst for change; and prescriptive, for offering options  Three personality areas: values, which are hard-ingrained; attitudes, which may change with circumstance; and beliefs, upon which we take our actions  Three ego states found in most communication endeavors (from transactional analysis): child, adult, and parent (corresponding to id, ego, and super-ego), which often determine our mindset as the communication process forever flows  Three time frames for credibility: prior assumptions, based on information about a speaker before the interaction commences; process, from the moment the nonverbal happens until the persons disengage; and post, for what is remembered until the next communicative event  Three types of trust: calculus trust—literally based on a calculation, exchange, or quid pro quo; knowledge trust—based on experience, positive or negative, between the parties over time; and identification trust, wherein one party truly can speak for the other, on the others’ behalf  And finally, for now, the concept of power, achievement, and affiliation, focusing on basic human needs to control ourselves and impact our environment and vision, our need to gain commensurate respect and tangible goods for ourselves and our family, and our need to be liked and appreciated—in short, to give and get love among those with whom we work and reside. We have all three of these basic human needs, and we have them in infinite amounts and proportion—hence the simplicity and complex conundrum all in one (very Zen-like). To sum up, the luxury of entering the universe as a change agent in order to make some small contribution to the human interaction in an enterprise cannot be overestimated and is humbling. To be positioned to play a positive role in the lives with whom we come in contact is an honor to be cherished. To take the experience we have hard-won and apply it in real world settings is a joy to be undertaken with a notion of responsibility and ethical obligation that it is important work. And while it is certainly taxing at times, it is also a fascinating way to invest one’s time while we are here. At least that’s my opinion.

XIII. LERA Refereed Papers I

Activism and Willingness to Help in Union Organizing JACK FIORITO Florida State University and the University of Hertfordshire1 GREGOR GALL University of Hertfordshire ARTHUR D. MARTINEZ Florida State University

Abstract Member activism and willingness to help unions organize are arguably invaluable constructs for unions and union renewal. We investigated four antecedents to these variables: pro-union attitudes, perceptions of union instrumentality, collectivism beliefs, and ideological orientation, controlling for demographic and other influences. A member’s prounion attitude appeared to be the most crucial factor, with a relatively large effect size. There was some suggestion in the results that pro-union attitude may be more important for willingness to help organize than for more general activism, and more important than union instrumentality perceptions for both activism outcomes. Implications and suggestions for future research are discussed.

Introduction Lay member activism is a critical variable for union vitality, both before and after union certification elections. Activism is required during an organizing campaign to help persuade voters to elect the union (Dickens, Wholey, and Robinson 1987) and afterward to keep the union operating successfully (Kuruvilla and Fiorito 1994). Much of the work behind a successful certification campaign (arranging meetings, creating and distributing information, etc.) requires volunteer efforts. The ordinary functioning of unions outside of organizing campaigns also requires volunteers to hold union offices, staff committees, monitor contract compliance, and perform numerous other duties (Kelloway and Barling 1993, Kuruvilla and Fiorito 1994, McShane 1986). The substantial decline of union density in the United States, as well as other parts of the world, begs for the investigation of important factors associated with potential renewal (Fairbrother 2000). Activism has been linked to union renewal (Fairbrother 2000, Fiorito 2004, Heery 2003). Member participation and activism is required to effectively influence others (in workplaces, governments, and elsewhere), and to grow membership. Paradoxically, while activism is integral to union vitality, it is also elusive and not well understood. An important aspect of activism is that it is truly discretionary. There are usually no immediate or explicit monetary rewards associated with union activism (but there are personal and political rewards and selfAuthor’s address: Department of Management, College of Business, 244 Rovetta Business Building, MC:1110, Tallahassee, FL 32306

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actualization), and there are typically no explicit punishments for withholding efforts (e.g., see Olson 1971), although there is possible social shunning, demotion, and the like, for not being on the “right side” or “doing one’s share.” A meta-analysis conducted by Bamberger, Kluger, and Suchard (1999) showed that there are important psychological inducements for union commitment, a critical antecedent of participation, including pro-union attitudes and perceived union instrumentality. If unions want to induce their members to participate, they must first understand the nature of the activism construct and its most significant antecedents. In this paper, we investigate some important antecedents to both general activism and a more specific measure of activism intent—willingness to help unions organize. In fact, we offer what may be the first direct empirical investigation of a “willingness to help organize” construct. This may be considered a specific manifestation or facet of a broader “willingness to work” construct (Gordon et al. 1980, Kuruvilla and Fiorito 1994), that is, the willingness to perform unpaid “work” on behalf of the union. There may also be differences, as organizing of unorganized workers is more likely to be a conflict-bound situation, and even recruiting among free-riders in workplaces with union recognition will likely face individual resistance. We argue that attitudes toward unions are more important predictors of activism (and activism intent) than union instrumentality beliefs. The results suggest that the nature of inducements for participation go well beyond pragmatic concerns. Further, we base our findings on a broad sample of union members across the United States. Hence, we present relatively generalizeable results on a crucial set of union variables.

Theory and Hypotheses Intentions and Behaviors Behavioral intentions and actual behaviors are intimately linked (Fishbein and Ajzen 1975). One dependent variable in our study is a general class of behaviors (activism), while the other is a more specific behavioral intention (willingness to help the union organize). Helping unions organize is a specific behavior that falls within the overall activism domain, so we suggest that our two dependent variables will share antecedents, such pro-union attitudes. Helping unions organize is part of overall activism. There is, however, an obvious divergence in specificity. Ajzen and Fishbein (1977) showed that to have strong attitude–behavior correlations, the two must be compatible in their specificity along four dimensions: target, activity, context, and time. Therefore, we expect that there may be differences in the degree to which common antecedents relate to our dependent variables. Antecedents from Union Commitment and Participation Literature Activism is largely synonymous with participation. Union participation includes activities such as holding union offices, serving on committees, participating in meetings, talking to union leaders, voting on union matters, and reading union literature (Kelloway and Barling 1993). Activism is also sometimes about policy development and consequent implementation as well as recruitment, retention, and achieving participation and mobilization. Activism often distinguishes between truly active forms of participation (e.g., McShane’s distinction [1986] between “administrative” participation and more passive forms, such as reading newsletters). Both constructs assess helping behaviors on behalf of the union. Therefore, activism and participation will share common antecedents. Union commitment and participation are distinct constructs that are significantly related (see Bamberger, Kluger, and Suchard 1999). Union commitment includes a “willingness to work for the union” dimension (e.g., Gordon et al. 1980). “Willingness to help organize” is part of the union commitment construct domain, especially the “willingness to work for the union” dimension. Consequently, “willingness to help organize” should share common antecedents with the union commitment construct, and particularly its “willingness to work” facet. Bamberger and his colleagues (Bamberger, Kluger, and Suchard 1999) conducted a meta-analysis of the important antecedents of union commitment and participation. They found that pro-union attitudes and union instrumentality perceptions were the most important, especially pro-union attitudes. In fact, they noted that pro-union attitudes were stronger predictors of union commitment than instrumentality perceptions. Professed theoretical explanations of the results were complex, as the best-fitting model represented an integration of dominant perspectives.


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The first perspective is that union commitment is predominantly ideology-based (Tetrick 1995). The second is that union commitment is predominantly instrumentality-based (Kochan 1980; Kochan, Katz, and McKersie 1986). Another view is that commitment is both ideology- and instrumentality-based, but it is established upon instrumentality beliefs (Newton and Shore 1992). The conclusions of Bamberger, Kluger, and Suchard (1999) conclusions seemed to most confirm the view of Newton and Shore. Following results from previous studies (i.e., Bamberger, Kluger, and Suchard 1999), and assuming that “willingness to help organize” is part of the union commitment domain, we hypothesize that activism and “willingness to help organize” will correlate with pro-union attitudes and perceptions of union instrumentality as follows: H1a: Activism is positively related to pro-union attitudes. H1b: Willingness to help organize is positively related to pro-union attitudes. H2a: Activism is positively related to perceptions of union instrumentality. H2b: Willingness to help organize is positively related to perceptions of union instrumentality. Again, the activism hypotheses are not new, as participation is already known to correlate with these antecedents. However, “willingness to help organize” is new. We included general activism in our analyses to contrast results with the “willingness to help organize” results. Ideological Orientation and Collectivism Beliefs as Antecedents Activism and especially “willingness to help organize” are likely associated with perceptions of challenging the status quo. Wright, Taylor, and Moghaddam (1990) reasoned that the degree of social change varies on two dimensions: individual vs. collective and normative vs. non-normative. Collective and nonnormative actions, such as organizing a union to change the social structure, are perceived to be the most socially disruptive and difficult. The easiest actions are individual and normative, such as meeting with a supervisor one-on-one. According to system justification theory, political ideology is a significant predictor of social change resistance, where conservatives are typically more resistant to social change than liberals (Jost, Glaser, Kruglanski, and Sulloway 2003). Union voting literature also supports the assertion that conservatives would be less likely to advocate social change (Hemmasi and Graf 1993). Consequently, we expect that union members with a Democratic Party (liberal) “leaning” will be more likely to be inclined to activism. For these reasons, we contend the following: H3a: Activism is positively related to collectivism beliefs. H3b: Willingness to help organize is positively related to collectivism beliefs. H4a: Activism is positively related to Democrat ideology (i.e., liberalism). H4b: Willingness to help organize is positively related to Democrat ideology. To summarize, we argue that activism and “willingness to help organize” likely share antecedents. Union commitment literature suggests that pro-union attitudes and union instrumentality perceptions will correlate with both outcome measures. Further, ideological orientation and collectivism beliefs will also correlate with our dependent variables.

Method Data Peter D. Hart Research Associates, Inc., conducted a telephone poll in 2003 on behalf of the AFLCIO. Self-reported data were collected from a stratified random sample of 1,602 adults (age 18 and over) across the United States. Respondents were selected using random-digit dialing of households. Sponsorship of the telephone poll was not revealed to respondents. The authors were not involved in any aspect of the data collection. The survey included both union members and nonmembers. Our analysis used only

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responses from union members. Case-wise deletion was used for missing data. This left a sample of 326 union members for our study. Descriptive statistics reveal that the sample was diverse and fairly representative of U.S. union members. The sample’s 326 union members consisted of approximately 36 percent females, 6 percent Hispanics, 8 percent, Blacks, 71 percent married persons, 21 percent professionals or managers, 24 percent other white collar workers, 51 percent public sector workers, and 96 percent fulltime workers. Mean values for age group and schooling variables indicated that the modal age fell in the 45- to 49years range and modal schooling was some college or a two-year degree, but less than a four-year degree. These figures are based on unweighted values. Measures Our study includes two dependent variables, four focal antecedents (or independent variables), and several control variables. Ordinal variables were treated as interval variables because they possessed equalappearing interval scales (e.g., see Schwab 2005:99–100). 

Activism. Union activism was assessed with one item: “How active and involved would you say you are in your union—very active, fairly active, not that active, or not active at all?” Responses were recoded such that 1 = not active at all, 2 = not that active, 3 = fairly active, and 4 = very active.



Willingness to help organize. This variable was operationalized with one item: “How interested would you personally be in working through your union to help nonunion workers to organize and gain union representation—very interested, fairly interested, just somewhat interested, or not interested?” Response options were recoded such that 1 = not interested, 2 = just somewhat interested, 3 = fairly interested, and 4 = very interested.



Pro-union attitudes. Attitudes toward unions were measured with one item: “Rate your feelings toward [labor unions] as either very negative, somewhat negative, neutral, somewhat positive, or very positive.” Response options were recoded such that 1 = very negative, 2 = somewhat negative, 3 = neutral, 4 = somewhat positive, and 5 = very positive.



Union instrumentality. Union instrumentality was captured with one item: “Overall, how effective do you think labor unions are these days in improving wages, benefits, and working conditions for their members—not very effective, just somewhat effective, fairly effective, or very effective?” These responses were recoded such that 1 = not very effective, 2 = just somewhat effective, 3 = fairly effective, and 4 = very effective. This question is obviously “double-barreled,” having multiple foci, though it is representative of the construct.



Collectivism beliefs. One item was used to assess collectivism beliefs: “Do you think that employees are more successful in getting problems resolved at work when they bring these problems up as a group or when they bring them up as individuals?” The response options were recoded such that 1 = more successful as individuals, 2 = makes no difference or not sure, and 3 = more successful as a group.



Democrat ideology. This item was captured by asking respondents to indicate their political party affiliations: “How would you describe your overall point of view in terms of the political parties? Would you say that you are mostly Democratic, leaning Democratic, completely independent, leaning Republican, or mostly Republican?” The response options were recoded such that 1 = mostly Republican, 2 = leaning Republican, 3 = completely independent, 4 = leaning Democrat, and 5 = mostly Democrat. Hence, higher scores corresponded with higher degrees of liberalism, or at least “Democrat-leaning” ideology.



Pro-employer attitudes. Impacts of pro-employer attitudes on constructs such as union commitment and participation have been somewhat ambivalent. For example, Bamberger, Kluger, and Suchard (1999) reported that correlations between pro-employer attitudes and union commitment range from moderately negative to strongly positive. We control for pro-employer attitudes to avoid confounding and rule out a potential alternative explanation. Attitudes toward employers were


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operationalized with one item: “Rate your feelings toward [your employer] as either very negative, somewhat negative, neutral, somewhat positive, or very positive.” Responses were recoded as 1 = very negative, 2 = somewhat negative, 3 = neutral, 4 = somewhat positive, and 5 = very positive. 

Controls. Additional variables were included to help avoid confounding and rule out alternative explanations. For example, previous studies have suggested that women may be less likely to commit to union activism due to outside constraints such as child care responsibilities (Snape, Redman, and Chan 2000).

Analyses Techniques Correlation and regression analyses were used to test the hypotheses. Ordered logistic regressions and weighted regressions were employed to check results for sensitivity to estimation method. The results did not differ appreciably. To provide a clearer discussion of results, we only report weighted correlation and weighted ordinary least squares (OLS) regression analyses. Our sample size (N = 326) provided over 80 percent statistical power for the correlation and regression models with a .05 alpha level, two-tailed tests, and medium effect sizes (see Cohen 1992).

Results Correlation Analyses Sample characteristics and simple correlations for the variables of main interest are summarized in Table 1, using sample weights provided with the data. Pro-union attitudes demonstrated strong positive correlations with both dependent variables. The positive correlation between pro-union attitudes and activism (r = .43, p < .05) provided initial support for H1a. Also, the large correlation between pro-union attitudes and “willingness to help organize” (r = .50, p < .05) provided initial support for H1b. TABLE 1 Means, Standard Deviations, and Simple Correlations for Selected Study Variables (N = 326a) Variable Activism Willingness to help organize Pro-union attitudes Union instrumentality Pro-employer attitudes Collectivism Democrat ideology

M 2.55 2.27 3.96 2.87 3.83 2.72 3.3

SD 0.47 0.56 0.56 0.39 0.63 0.35 0.83

1 -– .48* .43* .39* 0.07 0.09 .15*

2

3

.50* .36* 0.02 0.05 .26*

.57* .27* .13* .22*

4

5

6

.27* 0.11 0.07

-0.1 -0.08

0.05

a The

number of union members’ responses remaining after case-wise deletion for missing data was 326. Figures shown are based on calculations using sample weights, but they did not differ importantly from figures using unweighted calculations. Correlations between all predictors and the outcome variables are shown in Table 2. Correlations among all variables and other study details are available from the first author. *Significant at the .05 level or better, two-tailed tests.

Perceptions of union instrumentality had moderate correlations with both dependent variables. The positive correlation between perceptions of union instrumentality and activism (r = .39, p < .05) provided initial support for H2a. The positive correlation between perceptions of union instrumentality and “willingness to help union organize” (r = .36, p < .05) provided initial support for H2b. Collectivism beliefs showed nil to weak relations with both dependent variables. The correlations between collectivism beliefs and activism (r = .09, NS) and between collectivism beliefs and “willingness to help organize” (r = .05, NS) failed to support H3a or H3b.

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Democrat ideological orientation correlated positively with activism (r=.15, p < .05) and “willingness to help organize” (r = .26, p < .05). This provides modest initial support for H4a and H4b. In sum, correlation analyses offered some preliminary support for most hypotheses. Clearly, prounion attitudes dominated with regards to effect sizes, followed by union instrumentality perceptions, then Democrat ideology, with no support for the hypothesized collectivism influence. Multiple Regression Analyses Regression models provide more formal bases for evaluating our hypotheses. Table 2 provides the results of the weighted OLS regression analyses for the activism and “willingness to help organize” outcome variables. (Weighted simple correlations for all predictors with the outcome measures are also shown for reference.) The model explained approximately 26 percent of the variance in activism and 34 percent of the variance in “willingness to help organize.” Standardized beta estimates suggested that the pro-union attitude variable was the most influential for both general activism ( = 0.33, p < .05) and for “willingness to help organize” ( = 0.39, p < .05) after controlling for numerous other predictors. Union instrumentality perceptions was also important for both outcome variables, with a modest positive effect (0.15 < < 0.20). Results for other predictors, including controls, diverged somewhat for the two activism-dependent variables, although there is general similarity across the two equations. For general activism, age appeared to be an inhibiting factor ( = -0.13, p < .05), and Black ethnic/race group was associated with greater activism ( = 0.14, p < .05). Neither collectivism beliefs nor Democrat ideology evidenced a significant impact on general activism. For “willingness to help organize,” pro-employer attitude and being female appeared to be inhibiting factors ( = -0.12 and  = -0.15 respectively, p < .05 for each), while Democrat ideology and being a nonprofessional and nonmanagerial white collar worker (relative to the omitted group, blue collar) appeared to be facilitating factors ( = 0.12 and p < .05 for each). TABLE 2 Simple Correlation (r) and Multiple Regression Results (Standardized Beta Coefficients, ) for Activism and Willingness to Help Organize (N = 326a) Variable Activism Willingness to help organize r r   Pro-union attitudes .43* .33* .50* .39* Union instrumentality .39* .20* .36* .15* Pro-employer attitudes 0.07 -0.07 0.02 -.12* Collectivism 0.09 -0.01 0.05 -0.03 Democrat ideology .15* 0.04 .26* .12* Age -0.1 -.13* .11* 0.07 Education level -0.03 -0.02 -0.08 -0.04 Female -0.07 0.02 -.21* -.15* Hispanic -0.02 0.01 0.06 0.09 Black .16* .14* 0.1 0.06 Married 0.07 0.06 0.08 0.05 Full-time -0.04 -0.01 0.02 0.01 Professional or manager 0.02 0.05 -0.04 0.1 Other white collar -0.08 -0.01 0.01 .12* Public sector -0.09 -0.04 -.14* -0.05 0.26 0.34 R2 0.23 0.31 Adjusted R2 F-ratio 7.36* 10.74* aFigures

shown are based on calculations using sample weights, but did not differ importantly from results using unweighted calculations. Additional details on results are available from the first author. *Significant at the .05 level or better, two-tailed tests for correlations and regression coefficients.


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In sum, the results of the OLS regression analyses provided consistent support for two hypotheses: 1) pro-union attitudes predict union activism (H1a), and pro-union attitudes predict willingness to help organize (H1b); and, 2) union instrumentality perceptions predict union activism (H2a) and willingness to help organize (H2b). In addition, the hypothesis on ideology effects was supported for the “willingness to help organize” outcome (only). It also may be notable that certain control variables showed statistically significant effects on the outcome variables. Hispanic and Black race/ethnic group, being female, and age were all found to have significant effects for at least one outcome measure.

Discussion In this paper, we investigated two potentially valuable constructs for unions and union renewal: activism and member willingness to help unions organize. We derived hypotheses concerning potential antecedents to these variables using the union commitment and participation literature, system justification theory, and related research. Specifically, we hypothesized that pro-union attitudes, perceived union instrumentality, collectivism beliefs, and liberal ideological orientations would lead to activism and willingness to help organize. Our analyses suggested that the pro-union attitudes factor was dominant, although union instrumentality beliefs were also important. Also, at least for willingness to help organize, ideological orientation was a statistically significant factor. A general conclusion from our study may be that activism reflects both ideology-based and instrumentality-based perspectives (consistent with Newton and Shore 1992 and Bamberger, Kluger, and Suchard 1999), but perhaps more so the attitudinal- or ideology-based perspective. Pro-union attitudes showed relatively stronger relationships with the dependent variables, whereas union instrumentality perceptions related only moderately with them and may have been partially mediated by pro-union attitudes. Implications Union renewal researchers frequently conclude that member activism plays a critical role in union renewal (Fairbrother 2000, Fiorito 2004, Heery 2003). The current study implies that pro-union attitudes also play a critical role, as they are strong predictors of member activism and willingness to help organize. Perhaps unions should continue to broaden their scope of influence to include the general public—possibly reinforcing perceived legitimacy, union reputation, and overall public approval would inspire members. Because activism is not solely instrumentality-based, perhaps others, especially people who are more ideologically inclined to do so but are not union members, might be willing to work on behalf of unions. Our results suggest that important ideology factors were in part already captured by the union attitude construct. Admittedly, we did not hypothesize, a priori, that the pro-union attitude construct would mediate other effects. However, previous research that offers theoretical explanations for these results does exist, mostly from the political science and social psychology literatures. For example, Converse (1964) argued that political ideologies signify clusters of related values and attitudes and hence are higher-level constructs relative to attitudes. And Maio and Olson (1995) concluded that values and ideologies influence attitudes directly and indirectly. Limitations The most significant threats to internal validity included the cross-sectional design for data collection; all variables were self-reported by the same respondents. The cross-sectional design made the study vulnerable to measurement context effects (see Podasakoff, MacKenzie, Lee, and Podsakoff 2003 for a review of common method biases). Self-reports from the same respondents may have produced some artificial covariance due to common rater effects (biases from moods, social desirability, etc.). Also, the crosssectional nature of the data suggests caution in drawing causal inferences. And finally, the single-item measures made it impossible to assess construct reliabilities, and they limited certainties around content validity. The study also possessed some potential threats to external validity. Two concerns were that all data came from respondents in one nation and that the telephone interview situation may have interacted with

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respondents. Caution thus must be exercised if one wants to generalize the results to union members from other nations. Strengths Despite limitations, the study also possessed considerable strengths. First, the data represented a relatively broad and representative sample of union members across the United States. This is particularly notable because most studies concerning union participation have relied on single-site analyses. We offer results that thus are comparatively more generalizeable. Also, we brought into focus a new and potentially valuable construct to unions and union researchers: willingness to help unions organize. This variable taps into a much more specific aspect of the union commitment domain and directly relates to important union renewal efforts. Future Research Immediate opportunities for research include development of better measures. For example, a worthwhile project might be the development of a psychometrically sound scale to assess volunteer willingness to help unions organize. Also, longitudinal data or experimental data may provide a stronger foundation for causal inferences. Another potentially fruitful area for future research is to look at possible consequences, in addition to other antecedents. Does the intention to help organize actually lead to specific organizing behaviors? And do these behaviors meaningfully affect union renewal? Hickey, Kuruvilla, and Lakhani (in press) contend that member activism’s role may be overstated in union renewal efforts, whereas Gall and Fiorito (2009) maintain that activism is vital. Researchers could also determine if different solicitation strategies affect a member’s willingness to help organize (or overall activism level). Do different types of invitations to participate matter? For example, should union leaders directly or indirectly ask their members to participate? If so, how should they ask (considering parameters such as frequency, accountability, personal vs. impersonal appeals, etc.)? Finally, future research should continue to explore potentially important antecedents to pro-union attitudes. They predict an employee’s likelihood of voting for a union during a certification election (Getman, Goldberg, and Herman 1976; Martinez and Fiorito 2009). They also predict a union member’s union commitment and participation in union activity. In this study, we showed that pro-union attitudes are a relatively strong predictor of activism and of the likelihood of a member’s willingness to help organize other potential members. Conclusion Unions necessarily rely on their members for effectiveness and survival. Perhaps as important as receiving dues, unions need their members to volunteer their ideas, creativity, resourcefulness, passion, and effort to keep their unions running efficiently and effectively. Union renewal requires members, and others, to care about all present and future union members, even those outside of their own bargaining units. Researchers need to help unions understand the forces that induce their members to participate. This study investigated overall union activism and the willingness to help unions organize and found that pro-union attitudes are a necessary prerequisite. Perceptions of union instrumentality were also important but somewhat secondary. Democrat (liberal) ideological leanings were found to influence willingness to help organize, but not general union activism. So to mobilize workers, unions are advised to focus more on attitudinal and ideology-based perspectives rather than solely on instrumentality-based perspectives.

Acknowledgments The authors are grateful to Sheldon Friedman and the AFL-CIO for assistance in obtaining the data used in this paper and to anonymous referees for comments on an earlier draft.


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Militancy and Moderation in the Teacher’s Unions: Is There a Fit Between Union Image and Member Attitudes? TOM REDMAN University of Durham ED SNAPE Hong Kong Baptist University2

Abstract We compare member attitudes in the Professional Association of Teachers (PAT) and the National Unions of Teachers (NUT), seen as the most “moderate” and “militant” English teacher unions, respectively. PAT members were higher in job satisfaction and both organizational and professional commitment, with NUT members higher in union citizenship behavior (UCB) and pro-union attitudes. For NUT members, pro-union beliefs had a stronger effect on union commitment, and union commitment on UCB. These findings are consistent with the images of the two unions, and with the suggestion of Bamberger, Kluger, and Suchard (1999) suggestion that the nature of the membership will moderate the antecedents of commitment and participation.

Introduction Multi-unionism, defined as when employees at a particular workplace are represented by more than one union, is a declining but distinctive feature of British industrial relations (Cully, Woodland, O’Reilly, and Dix 1999). Aside from the fact that it may provide employees with a choice of union representation, multiunionism has raised concerns. From a union perspective, it may fragment union resources, increase competition between unions, and undermine union effectiveness. From an employers’ perspective, multiunionism complicates collective bargaining processes and is associated with strikes, reduced business efficiency, and reduced productivity (e.g., Machin, Stewart, and Van Reenan 1993). In the 1960s, the Donovan Commission was concerned that multi-unionism would result in strikes due to jurisdictional disputes, and there was a fear that unions would seek to be seen as more militant than their rivals in order to attract members. However, more recently unions have competed in “beauty parades,” whereby employers select unions for recognition on the basis of their moderation and potential for cooperative partnership. Furthermore, unions with no strike pledges, such as the Royal College of Nursing and the Professional Association of Teachers (PAT), bucked the trend of union decline in the United Kingdom with sustained membership growth (Kessler and Heron 2001). Such developments have led to debates on the relative efficacy of “militancy” or “moderation” (e.g., Kelly 1996). Given all this, it is surprising that few studies have examined members’ attitudes in allegedly “militant” and “moderate” rival unions. Beaumont and Elliot’s study (1989) of employee choice of unions in nursing and Bacon and Blyton’s study (2002) of Iron and Steel Trades Confederation (ISTC) and Transport and General Workers Union (TGWU) attitudinal militancy and moderation in the steel industry are the main exceptions. However, Beaumont and Elliot’s work (1989) examines a limited range of attitudes, with just four Author’s address: Durham Business School, 515 Mill Hill Lane, Durham, DH1 3LB, United Kingdom

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single-item scales, and Bacon and Blyton’s (2002) study was restricted to a very small sample of shop stewards (n = 49), rather than rank and file employees, and their militant–moderation scale appears to have limited reliability. In this paper, we go beyond the existing research by using larger samples of rank and file union members and established attitudinal scales to examine the extent to which the different organizational orientations of two competing teachers’ unions (PAT and the National Union of Teachers [NUT]) are reflected in their members’ attitudes and in the antecedent processes of commitment and union citizenship behavior (UCB) in the two unions. The PAT and NUT have been characterized as the most “moderate” and “militant” of the teachers’ unions, respectively, and our concern is to establish the extent to which these images are reflected in the pattern of member attitudes and participation.

Union Membership in Teaching There are four main teachers’ unions in England. Three are affiliated to the Trade Union Congress (TUC): the National Association of Schoolmasters/Union of Women Teachers (NASUWT), the Association of Teachers and Lecturers (ATL), and the NUT. There is also a non-TUC union, the Professional Association of Teachers (PAT). The NUT is the largest union and has been the most militant (Seifert 1987). Our concern is with the PAT and the NUT. Each union has cultivated a distinctive image as part of recruitment competition. PAT’s website informs potential members that “PAT doesn’t believe in sound-bites, histrionics or threats but does believe in a professional approach and achieving results through determined negotiation.” A recruitment video stresses that PAT “resolves problems by communication and negotiation not conflict” and ends by stating it is “the independent non-striking association” and urging potential recruits to “Speak to the professionals.” In contrast, the NUT’s recruitment message is more unionate. In the “Ten Good Reasons to Be in the NUT” pamphlet (National Union of Teachers 1999), potential members were told that the “NUT is demanding a proper national contract that protects teachers and improves their conditions of service.” Union image may influence an individual’s choice of union (Craft and Abboushi 1983, Beaumont and Elliot 1989). Teachers choose a union early in their careers, and survey evidence from new qualified teachers (NQTs) suggests that their factual knowledge of individual differences between teacher unions is rather limited and that the decision of which union to join is very much influenced by the union images portrayed (Riley 1996, Labour Research Department 2005). For example, the Labour Research Department survey (2005) found many NQTs were unaware of differences between the teacher unions on key policy areas, but that overall image, such as being impressed with the recruitment message, were highly influential in joining decisions. There has been pressure for further union mergers in teaching, and the goal of one union for all teachers has been widely debated. Explanations for the lack of progress on merger tend to centre on historical differences in policy and the resistance of general secretaries and executive committees. However, a key reason why mergers have not been successful is that unions’ images may be difficult to reconcile (Riley 1995). The unions with perhaps the most well-defined and distinct images are the PAT and NUT. The Professional Association of Teachers The PAT describes itself as an independent trade union and professional association for teachers. It was founded in 1970, in the same year that the NUT first affiliated to the TUC, by two Essex-based teachers during a period of increased industrial action by teachers. The guiding principle in the formation of the union was a pledge to uphold professional standards in teaching, and in particular not to take strike action (Bryant and Leicester 1991). The union’s motto is “children first,” and the no-strike pledge is enshrined in the “Cardinal Rule,” rule 4 of its constitution, which states that “members shall not go on strike in any circumstances.” The union has a “Code of Professional Action” to guide members in disputes. This emphasizes dispute resolution by negotiation and lobbying, with the strongest form of action being to demonstrate outside working hours. PAT has a devolved, regional structure and recruits college lecturers in addition to teachers. It also has two specialist sections, the Professional Association of Nursery Nurses (PANN), recruiting nursery


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nurses, nannies and other child carers, and the Professions Allied to Teaching section (PAT), recruiting school support staff. PAT had around 35,000 members in 2005, approximately evenly split between teachers and the other two sections. PAT’s teacher membership tends to be older than in other teaching unions, and it seems that many identify politically with the Conservatives (Riley 1996). The National Union of Teachers The NUT is the oldest and largest teachers union in England and Wales. It was founded in 1870 as the National Union of Elementary Teachers. For the last quarter of the 19th century the union had more male members than female, but in the 20th century the position was reversed, with women coming to form the majority of the membership, and this has been so ever since. In 2004, the NUT had some 240,000 members, 76 percent of them female. Among teachers unions, the NUT has traditionally taken the most adversarial stance on policy and employment issues. Examples include the union’s opposition to Trust Schools and Academies and its resistance to performance-related pay (threshold payments) for teachers. The NUT has a relatively strong and longstanding left-wing bloc of activists and has the most militant orientation of the teaching unions (Seifert 1984). Despite militant teacher unionism suffering badly in the 1980s, resulting in the loss of national pay bargaining rights, there has been a resurgence of the left in the NUT, and the deputy general secretary elections in 2005 were won by a left-wing candidate. The NUT’s militant orientation is reflected in newly qualified teachers’ (NQT) perceptions. Riley (1996) reported the perception of the NUT as the union with the most distinct image, as a supporter of Labour and a staunch defender of teachers’ rights, and as having a left-wing, political, and collectivist culture. The Labour Research Department (2005) survey of 1,500 NQTs found that perceptions of militancy were important in union joining decisions and that the NUT was perceived as the most militant teacher union.

Union Commitment and Participation Based on their meta-analysis, Bamberger, Kluger, and Suchard (1999) found support for an “integrative” model of union commitment and participation. According to their model, the impact of job satisfaction on union commitment is partially mediated by organizational commitment and the impact of union instrumentality by pro-union attitudes. Finally, union commitment has a direct effect on union participation. Union instrumentality refers to the perceived impact of the union on outcomes valued by members (Fullagar and Barling 1989). In contrast, pro-union attitudes are defined as the desirability of unions in general (McShane 1986), rather than attitudes towards the individual’s own particular union. Bamberger, Kluger, and Suchard (1999) find that pro-union attitudes have a larger direct effect on union commitment than does union instrumentality. Since pro-union attitudes reflect perceived mutual support and solidarity, this implies that unions should pay greater attention to social exchange aspects of the member–union relationship, rather than seeing their relationship with members as a purely economic exchange. They argue that unions need to adopt a campaigning approach, based on rank and file and community involvement and on building pro-union attitudes. Bamberger, Kluger, and Suchard (1999) found evidence of dual commitment to union and employer, in that there was a positive relationship between organizational and union commitment. They also found a positive relationship between job satisfaction and organizational commitment and a negative relationship between job satisfaction and union commitment. However, findings on the latter relationship have generally been mixed (e.g., Fuller and Hester 1998, Tan and Aryee 2002). Bamberger, Kluger, and Suchard suggest that “researchers should begin to focus their attention on how multivariate union commitment models may vary with the nature and composition of the workforces examined” (1999:315). They suggest that the nature of the membership may influence the relative importance of pro-union attitudes and instrumentality. We focus on the members of two teaching unions, PAT and NUT, the former a relatively moderate union emphasizing “professionalism,” the latter a more ostensibly “unionate” organization (Blackburn and Prandy 1965; Prandy, Stewart, and Blackburn 1983), emphasizing vigorous representation of members’ interests and not necessarily eschewing militant action. While the occupation and industrial relations context is common for both unions, they are nevertheless attempting to

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present very different images. Our primary research question is whether these organizational orientations are reflected in members’ attitudes and in the antecedent processes of commitment and union citizenship behavior (UCB) in the two unions. Our model is based on the “integrative” model of Bamberger, Kluger, and Suchard (1999), and we conceptualize union participation as a form of UCB. This is consistent with the recent literature (e.g., Fullagar, McLean Parks, Clark, and Gallagher 1995; Skarlicki and Latham 1996; Tan and Aryee 2002). We also test an alternative version, replacing organizational commitment with professional commitment. Our interest in professional commitment is based on longstanding debates about the significance of professional commitment as an antecedent of union orientations. One strand of research suggests that professionals make uneasy union members, as the competing roles of professional and member pull in opposite directions. Corwin (1970) describes the tension teachers face between commitment to profession and union as akin to a “split personality.” Shedd and Bacharach have argued that the distinction between union and professional issues for teachers is artificial and that there is an implicit anti-union undertone to much of the debate, with “professionalism” being a veil for “cooperation” and “servility” (1991:180–81). Whatever the merits of these views, during the 1960s and 1970s teachers in many countries, including the United Kingdom and the United States, turned increasingly to unions (Jessup 1978) and to militant union action (Cox 1980, Fox and Wince 1976). Explanations for this have included the changing social origins of teachers, growth in school size and the associated bureaucratization, increased feelings of powerlessness in decision making, and reduced job influence (Bacharach, Bamberger, and Conley 1990; Fox and Wince 1976). However, there has been little formal testing of the impact of professional commitment on union outcomes. What few studies there are have provided mixed findings, reporting both negative and positive correlations between professional commitment and outcomes such as militancy (Alutto and Belasco 1974, Black 1983, Kadyschuk 1997).

Method Samples and Procedure PAT sample. A self-completion questionnaire was mailed to a sample of 3,500 members in England. Questionnaires were returned by respondents directly to the university in sealed reply-paid envelopes. We received 1,256 completed responses, a rate of 36 percent. In this paper, we focused on main scale teachers only, excluding heads (n = 19), deputy heads (n = 82), and senior teachers/others (n = 2). We also excluded six respondents who were members of other unions as well as PAT. Along with cases with missing values on the study variables, this produced a sample of 1,086 cases for analysis. The mean age of this sample was 49.41, with an average of 22.67 years working in teaching and 13.93 years of PAT membership. Over 90 percent were female, 81 percent were married or living as married, 30 percent worked part-time, 3 percent were supply teachers, and almost 8 percent were on fixed-term contracts. Discussion with senior officers suggested that our sample was broadly representative of the union, which included 90 percent females. NUT sample. A questionnaire was mailed to 1,174 members, the full membership of two divisions of the union. Questionnaires were returned directly to the university in reply-paid envelopes. We received 420 responses, a response rate of 36 percent. We excluded heads (n = 2) and deputy heads (n = 15), and deleting cases with missing values provided a sample of 386, with mean age of 43.34, an average 17.20 years in teaching, and 15.67 years union membership. Seventy-three percent were female, 80 percent were married or living as married, 11 percent worked part-time, 2 percent were supply teachers, and 4 percent were on fixedterm contracts. Union leaders assured us that our sample was representative of the membership of the two divisions surveyed. For example, 75.8 percent of the union’s members were female. Measurement Unless otherwise mentioned, responses were on a seven-point scale of “strongly disagree” (1) to “strongly agree” (7). Job satisfaction included three items from the Michigan Organizational Assessment Questionnaire (Spector 1997). Organizational commitment focused on commitment to the school, with four items reflecting Meyer, Allen, and Smith’s affective dimension(1993). Professional commitment included four items from their affective occupational commitment scale.


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Union commitment also involved four items and paralleled those for organizational commitment. Union instrumentality was measured using Sverke and Kuruvilla’s “instrumental rationality-based commitment” (1995), a self-interested commitment based on the satisfaction of salient personal goals. We included eight items, each formed by taking square root of the product of two items, one such as “The union’s chances of improving my pay are great” and a corresponding one such as “To get higher pay is . . .” (The second set of items had a seven-point scale from very unimportant to me [1] to very important to me [7].) We added an additional pair of items, referring to the provision of membership benefits by the union. General pro-union attitudes reflect general attitudes towards the union movement as a whole (McShane 1986). We measured this with six items, such as “Unions are a positive force in this country.” Union citizenship behavior (UCB) reflects members’ extra-role behaviors and was measured as a response to the question, “Think about how you behave in relation to the union and your work colleagues. How often do you do each of the following?” Responses were on a five-point scale of “not at all” (1) to “at every available opportunity” (5). Exploratory factor analyses of the 10 items suggested an interpretable threefactor solution in each sample. “Activist UCB” included four items: attending union meetings; helping with union campaigns or elections; volunteering to be a union official, committee member, or delegate; and attending a union rally. “Rank and file UCB” included three items: reading union literature, voting in union elections, and speaking well of the union. Three items reflected “individual-oriented UCB”: advising work colleagues on union-related matters, advising them on grievances, and helping them put their case to management.

Results Measurement Model We estimated a measurement model with each of the above constructs measured by the individual questionnaire items. The nine-factor measurement model (job satisfaction, organizational commitment, professional commitment, union commitment, union instrumentality, pro-union beliefs, and three dimensions of UCB) provided a reasonable fit for the PAT sample (2 = 2510.993; df = 666; CFI = 0.914; RMSEA = 0.051). All indicators loaded significantly (p < 0.001) on their latent variables. A single-factor model provided a poor fit (2 = 14175.053; df = 702; CFI = 0.372; RMSEA = 0.133), with a significant deterioration in chisquare relative to the hypothesized model (change in 2 = 11664.060; change in df = 36; p < 0.01). A reasonable fit was also found for the NUT sample (2 = 1378.946; df = 666; CFI = 0.911; RMSEA = 0.053), with all indicators loading significantly (p < 0.001). A single-factor model provided a poor fit (2 = 5860.596; df = 702; CFI = 0.360; RMSEA = 0.138), with a significant deterioration in chi-square relative to the hypothesized model (change in 2 = 4481.650; change in df = 36; p < 0.01). These findings provide support for the measurement model in both samples. Comparison of Attitudes and UCB A comparison of our two samples on the study variables reveals that while union commitment and perceived union instrumentality were not significantly different between the PAT and NUT members, PAT members were significantly higher in job satisfaction, organizational commitment, and professional commitment, while NUT members were higher in all three dimensions of UCB and in general pro-union attitudes (see Table 1). These findings were essentially unchanged when we controlled for gender, age, job level, school type, and part-time, supply, and temporary contract status. This accords to some extent with the relative images of the two unions: it appears that PAT members are more satisfied with their jobs and more highly committed to their employers (their schools) and to their profession (teaching), while NUT members are more pro-union in general and more prone to participate actively in their union, although not necessarily having higher commitment or perceived instrumentality for their union.

TABLE 1 Means, Standard Deviations, Correlations, and Reliabilities PAT

NUT

1. UCB– Activist

Me an 1.1 2†

St d 0. 38

Me an 1.6

St d 0. 71

.76/. .30* 66 **

2. UCB– Rank and file

3.1 3†

1. 02

3.2 8

0. 98

3. UCB– Individual

1.9 9†

1. 09

2.1 6

4. Union commitment 5. Union instrumentality 6. Pro-union attitudes 7. Job satisfaction

4.5

8. Organizational commitment

4.3 3 4.9 1† 5.5 2† 5.2 2†

0. 97 0. 89 0. 96 1. 27 1. 19

9. Professional commitment

5.8 5†

0. 99

1

2

3

4

5

6

7

8

9

.38* **

.29* **

.12*

.30* **

.26* **

.69/. .44* 70 **

.43* **

.27* **

.35* **

.36* ** .12*

.14* * 0.05

1. 08

.33* **

.42* **

.83/. 85

.27* **

.14* *

.30* **

1. 09 0. 97 0. 93 1. 58 1. 36

.23* ** .10* * .13* ** 0.02 .06*

.53* ** .30* ** .34* ** 0.04

.37* ** .23* ** .25* ** 0

0.01

0.02

.76/. 80 .48* ** .49* ** .09* * .10* *

.49* ** .92/. 93 .40* ** .10* * .11* **

.51* ** .36* * .84/. 79 .08* * .07*

.13* * 0.03 0.08

0.05

4.5 3 4.3 5 5.6 4 4.7 2 4.5 8

.24* ** .17* * .15* * 0.03 0.06 0.08 .86/. 88 .63* **

0.07 .70* ** .75/. 78

5.2 8

1. 28

0.06

.08* *

.18* **

.16* **

.18* **

.67* **

.48* **

.08*

0.03 0.09 0.02 .69* ** .49* ** .81/. 83

Note. Correlations for PAT below the diagonal, for NUT above the diagonal. Reliability coefficients are shown on the diagonal (PAT/NUT). 2-tailed tests. PAT, n = 1,086; NUT, n = 386. * p < .05; ** p < .01; *** p < .001. †Shows that the PAT and NUT means are significantly different (.05 level of significance or better, on an independent samples T-test).

Our analysis of survey respondents’ open-ended written comments suggests that, for PAT members, legal protection was essential in an increasingly litigious climate, and this was the key reason, and only reason in many cases, for joining a union. PAT was then their union of choice because of its no-strike clause. For example: “I belong to PAT only because I need to belong to a union for insurance protection.” “I belong to PAT because it is the only one I can join that won’t ask me to strike.” In sharp contrast to the PAT responses, no NUT members mentioned legal protection as their reason for choosing the NUT. Respondents’ comments in the NUT surveys reflected a different set of issues. The most frequent issue raised was that the union should be doing more to deal with key concerns of workload, work–life balance, and working conditions. Some PAT members also noted these concerns, but they did not link them to criticisms of the union; rather they blamed the government for the problems of the teaching profession. Many NUT members felt that their union should be more active in engaging government to bring about the necessary reforms. For example: “The profession is on the verge of collapse as result of serious exploitation of teachers. We are too stressed, over-worked, and under-valued and constantly under pressure to achieve. The union should do more to support us in issues where it really matters.” A small number of PAT members said that they were considering switching to the NUT, not because of any conviction that this was the right thing to do, but because of friction with NUT teachers in their schools. Their concern was that they were made to feel like free-riders on the more militant actions of NUT members. As a PAT member put it: “My biggest area of concern at the moment is the relationship in my

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school with NUT members. They feel that they earn the benefits for teachers by threatening strike action and the like, and PAT members freeload on their efforts. It makes my life in the school very uncomfortable.” Structural Models Turning to our analysis of the antecedents of union commitment and UCB, we estimated two structural models, one including organizational commitment and the other including professional commitment (Figures 1 and 2). Constructs were measured by individual questionnaire items, apart from UCB, where for the sake of parsimony the three UCB dimensions referred to above were used as indicators of a single UCB construct. We estimated two-group structural models, with PAT and NUT members forming the groups—an unconstrained model, with all parameters free to vary across the two groups, and then a model with the structural parameters constrained to be equal. To assess whether the structural relationships differed between the PAT and NUT samples, we compared the fit of the two models. For the organizational commitment analysis, the unconstrained model provided quite a good fit (2 = 2468.003; df = 684; CFI = 0.917; RMSEA = 0.042), which was superior to that provided by the constrained model (change in 2 = 20.432; change in df = 8; p < 0.01). This suggests that there are significant differences in the structural parameters between the PAT and NUT groups. Figure 1 shows the results for the unconstrained model. For both PAT and NUT members, job satisfaction was positively associated with organizational commitment, but neither were significantly associated with union commitment. Union instrumentality predicted union commitment directly, and also pro-union attitudes, through which there was an additional indirect positive effect on union commitment. Finally, union commitment positively predicted UCB. We examined the critical ratios for differences in specific parameters. Just two of the structural parameters were significantly different between the PAT and NUT groups: that from pro-union beliefs to union commitment and that from union commitment to UCB. In each case, the parameter was significantly higher for the NUT sample. These findings suggest that prounion beliefs were more salient among NUT members and that union commitment was more likely to translate into active participation among NUT members than among members of PAT. Turning to the analysis involving professional commitment, the unconstrained model provided quite a good fit (2 = 2492.711; df = 684; CFI = 0.916; RMSEA = 0.042, again superior to the constrained model (change in 2 = 22.433; change in df = 8; p < 0.01). Findings for the unconstrained model appear in Figure 2. The findings were similar to the analysis for organizational commitment, except that the path from professional commitment to union commitment was significant. Again, the structural parameters from prounion beliefs to union commitment and from union commitment to UCB were significantly higher for the NUT sample.

Discussion In this paper, we have compared PAT and the NUT, commonly perceived as the most “moderate and “militant” teacher unions, respectively. Our comparison of member attitudes revealed that union commitment and perceived union instrumentality were not significantly different, the latter suggesting that the two unions were not viewed fundamentally differently by their members in terms of effectiveness. However, other attitudes did differ, with PAT members higher in job satisfaction and in organizational and professional commitment and NUT members higher in union citizenship behavior and general pro-union attitudes. The image of PAT is one of “moderation,” almost of reluctant unionism, and members’ relatively high job satisfaction and organizational and professional commitment are consistent with this. It is notable that PAT members expressed higher levels of commitment to the teaching profession, consistent with PAT’s claim to be both an independent union and a professional association. Furthermore, PAT respondents commented that they joined for insurance reasons rather than to get effective representation. In contrast, the NUT is the more unionate and “militant” organization. Again, the attitudes of members reflect this, with more strongly pro-union attitudes and a higher propensity to participate actively in the union. NUT respondents’ open-ended comments focused on issues of collective representation.

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LERA REF FEREED PAP PERS I FIGURE F 1 An ntecedents of Union U Commiitment and Cittizenship Behaavior: With Orrganizational C Commitment

Note: PA AT, n = 1,086; NUT, N n = 386. Unstandardized U coefficients. Cooefficients on thhe left/right are for the PAT/N NUT sample. Pairs of coefficients in i bold italic scrript are significan antly different frrom each other ((p < .05). * p < .05; *** p < .01; *** p < .001.

FIGURE F 2 Antecedents A off Union Comm mitment and Citizenship C Behhavior: With Prrofessional Co ommitment

Note: PAT, n = 1,086; NU UT, n = 386. Unstandardized U coefficients. Cooefficients on tthe left/right arre for the PAT T/NUT s are significcantly different from each otheer (p < .05). sample. Pairrs of coefficientts in bold italic script * p < .05; *** p < .01; *** p < .001.


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Bamberger, Kluger, and Suchard (1999) suggested that member characteristics may influence the antecedents of union commitment and participation. We evaluated this by replicating their model for the two groups of members. Our findings suggest that for PAT and NUT members, job satisfaction positively predicted organizational commitment, but neither were significantly associated with union commitment. Again for both samples, union instrumentality positively predicted both union commitment and pro-union attitudes, and the latter also had a positive effect on union commitment. As expected, union commitment positively predicted UCB. When professional commitment was substituted for organizational commitment, the findings were essentially unchanged, except that professional commitment predicted union commitment for the PAT sample only. In spite of the basic similarities in these findings, there were differences in the magnitude of effects across the two samples. In the NUT sample, pro-union beliefs had a significantly stronger effect on union commitment, and union commitment had a stronger impact on UCB. These findings suggest that pro-union beliefs were more salient among NUT members in motivating union commitment and that union commitment was more likely to translate into active participation among NUT members than among members of PAT. This is consistent with the view of the NUT as the more “militant” and unionate organization. Overall, these findings are consistent with the suggestion of Bamberger, Kluger, and Suchard (1999) that the nature of the membership is likely to moderate the relationships in the model, and especially the relative importance of pro-union attitudes. There are also implications for debates on union strategy. Discussions of “moderation” and “militancy” have focused on their relative merits as union strategies (e.g., Kelly 1996). However, our findings demonstrate that, at least in teaching, both may be viable, in that they may address members and potential members with different preferences, on the one hand for a union emphasizing “professionalism” and eschewing strike action under any circumstances and on the other for an effective defender of teachers’ rights, willing to give strong voice to members’ concerns on educational policy and terms and conditions. Whether this also holds true in other sectors is a moot point, but similar competitive multi-unionism exists in other parts of the public sector and in the private sector as well (Cully, Woodland, O’Reilly, and Dix 1999).

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Craft, J.A., and S. Abboushi. 1983. “The Union Image: Concept, Programs, and Analysis.” Journal of Labor Research, Vol. 4, No. 4, pp. 299–314. Cully, M., S. Woodland, A. O’Reilly, and G. Dix. 1999. Britain at Work. As Depicted by the 1998 Workplace Employee Relations Survey. London: Routledge. Fox, William S., and Michael H. Wince. 1976. “The Structure and Determinants of Occupational Militancy Among Public School Teachers.” Industrial and Labor Relations Review, Vol. 30, No. 1, pp. 47–58. Fullagar, C., and J. Barling. 1989. “A Longitudinal Test of a Model of the Antecedents and Consequences of Union Loyalty.” Journal of Applied Psychology, Vol. 74, No. 2, pp. 213–27. Fullagar, Clive J.A., Judi Reason for Joining, or Not, a Teachers Organization. London: Labour Research McLean Parks, Paul F. Clark, and Daniel G. Gallagher. 1995. “Organizational Citizenship and Union Participation: Measuring Discretionary Membership Behaviors.” In Lois E. Tetrick and Julian Barling, eds., Changing Employment Relations: Behavioral and Social Perspectives. Washington: Amer. Psych. Assoc., pp. 311–31. Fuller, J.B., and K. Hester. 1998. “The Effect of Labor Relations Climate on the Union Participation Process.” Journal of Labor Research, Vol. 19, No. 1, pp. 173–87. Jessup, Dorothy K. 1978. “Teacher Unionization: A Reassessment of Rank and File Motivations.” Sociology of Education, Vol. 51, No. 1, pp. 44–55. Kadyschuk, Ronald. 1997. Teacher Commitment: A Study of the Organizational Commitment, Professional Commitment, and Union Commitment of Teachers in Public Schools in Saskatchewan. Unpublished thesis, University of Saskatchewan. Kelly, John. 1996. “Union Militancy and Social Partnership.” In Peter Ackers, Chris Smith, and Paul Smith, eds., The New Workplace and Trade Unionism: Critical Perspectives on Work and Organization. London: Routledge, pp. 77–109. Kessler, I., and P. Heron. 2001. “Steward Organization in a Professional Union: The Case of the Royal College of Nursing.” British Journal of Industrial Relations, Vol. 39, No. 3, pp. 367–91. Kuruvilla, S., and Fiorito, J.T. 1994. “Who Will Help? Willingness to Work for the Union.” Relations Industrielles/Industrial Relations, Vol. 49, No. 3, pp. 548–75. Labour Research Department. 2005. NQTs: Their Department. Machin, S., M. Stewart, and J. Van Reenan. 1993. “The Economic Effects of Multiple Unionism: Evidence from the 1984 Workplace Industrial Relations Survey.” Scandinavian Journal of Economics, Vol. 95, No. 3, pp. 279–96. McShane, S.L. 1986. “General Union Attitude: A Construct Validation.” Journal of Labor Research, Vol. 7, No. 4, pp. 403–117. Meyer, John P., Natalie J. Allen, and Catherine A. Smith. 1993. “Commitment to Organizations and Occupations: Extension and Test of a Three-Component Conceptualization.” Journal of Applied Psychology, Vol. 78, No. 4, pp. 538–51. National Union of Teachers. 1999. Ten Good Reasons to Join the NUT. London: National Union of Teachers. Prandy, K., A. Stewart, and R.M. Blackburn. 1983. White-Collar Unionism. London: Macmillan. Riley, N.M. 1996. Trade Union Membership of Newly Qualified Teachers in England. Unpublished Ph.D. thesis, University of Cambridge. Seifert, R. 1984. “Some Aspects of Factional Opposition: Rank and File and the NUT, 1967–82.” British Journal of Industrial Relations, Vol. 22, No. 3, pp. 372–90. Seifert. R. 1987. Teacher Militancy: A History of Teacher Strikes, 1896–1987. Oxford: Oxford University Press. Shedd, J., and S. Bacharach. 1991. Tangled Hierarchies: Teachers as Professionals and the Management of Schools. San Francisco: Jossey-Bass. Skarlicki, Daniel P., and Gary P. Latham. 1996. “Increasing Citizenship Behavior Within a Labor Union: A Test of Organizational Justice Theory.” Journal of Applied Psychology, Vol. 81, No. 2, pp. 161–9. Spector, Paul E. 1997. Job Satisfaction: Application, Assessment, Causes and Consequences. Thousand Oaks, CA: Sage. Sverke, Magnus, and Sarosh Kuruvilla. 1995. “A New Conceptualization of Union Commitment: Development and Test of an Integrated Theory.” Journal of Org. Behavior, Vol. 16, No. 6, pp. 519–33. Tan, Hwee Hoon, and Samuel Aryee. 2002. “Antecedents and Outcomes of Union Loyalty: A Constructive Replication and an Extension.” Journal of Applied Psychology, Vol. 87, No. 4, pp. 715–22.

U.S. Multinational Companies and Unionization Determinants in Ireland: The Influence of Home-Country Behaviors JONATHAN LAVELLE PATRICK GUNNIGLE J. RYAN LAMARE University of Limerick3 ANTHONY MCDONNELL University of Newcastle

Abstract This paper uses empirical techniques to measure the determinants of unionization among multinational companies (MNCs) operating in Ireland. The literature suggests that MNCs from economically dominant countries may be more easily able to implement their home-country managerial practices within host countries. Whether this notion is manifested in MNCs’ industrial relations behaviors, particularly in terms of unionization levels, has been debated by those studying the subject. U.S. firms operating facilities in Ireland garner particular interest, given their substantial influence on Irish industrial relations (IR) policy and business practices. Employing the first representative survey of MNCs operating in Ireland, we use empirical methods to ascertain the determinants of both overall unionization levels and also rates of “double-breasting,” where firms simultaneously operate union and nonunion sites. The results indicate a strong country-of-origin effect, with U.S. companies far less likely to be unionized and more likely to engage in double-breasting. The findings suggest that U.S. MNCs carry their own IR cultures and attitudes into Irish sites, rather than complying with host-country traditions, thus generally supporting the literature on economic dominance.

Introduction This paper seeks to explain the determinants of unionization among multinational companies (MNCs) in Ireland. Far from being an isolated entity, Ireland can be viewed as something of a microcosm for the global entrenchment of MNCs into small, late-developing economies. For instance, the level of foreign direct investment (FDI) in Ireland, relative to the size of the economy, remains one of the highest in the world. The broad literature on MNCs suggests that firms from economically successful countries are often able to transfer their management practices to the host country with relative ease. In Ireland, researchers maintain that the influence of economically dominant countries, particularly the United States, is especially pronounced. When one looks specifically at industrial relations (IR) behaviors within these MNCs operating in Ireland, the literature is divided. Some argue that MNCs conform to the prevailing IR trends of the host country, mirroring indigenous firms. Others maintain that MNCs operating in Ireland carry their own cultures and IR attitudes developed from their home countries. However, the Irish IR literature has been unable to Author’s address: Kemmy School of Business, 13 Drumconlon Close, Moneen, Limerick, Ireland

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empirically test these assertions with representative and robust data. This paper incorporates data that allow for the quantitative analysis of these competing ideas. Throughout the paper, attention is given to the role of the United States when considering MNCs operating in Ireland. Given these contextual and theoretical considerations, this paper looks to measure the factors that influence a firm’s unionization status, particularly the impact of country of origin. Within this framework, the paper also analyzes the determinants of “double-breasting,” where firms simultaneously operate union and nonunion plants. Much of the literature, particularly from the United States, views double-breasting as an important means of union avoidance. However, the definitional meanings of the term may very depending on context. Prior to our empirical analysis of the determinants of unionization and double-breasting, it is necessary to discuss the international literature on MNCs and unionization, the Irish context, the concept of double-breasting, and our methodology.

Literature on Economic Dominance Effects within MNCs The international literature highlights the importance of economic dominance effects in facilitating the transfer of management practices from the home to the host country within multinationals (Smith and Meiskins 1995). The concept of economic dominance is based on the premise that organizations emanating from economically successful nations can most easily and credibly transfer and implement specific business policies and practices in their foreign subsidiaries (Edwards and Ferner 2002, Smith and Meiskins 1995). This occurs because such “dominant or hegemonic states are able to exert organizational, political and technological influences that invite dissemination and adoption around the global capitalist system” (Almond et al. 2005:280). In essence, economic success in the home country and internationally gives that country’s management practices a strong level of global legitimacy that in turn provides its foreign subsidiaries with extensive capacity to implement home country practices abroad. Such capacity is clearly enhanced in smaller, late-industrializing economies. Ireland provides a pertinent example. It has been categorized as one of the world’s most globalized and FDI-dependent economies (Kearney 2002). This is the product of a consistent public policy strategy, dating from the late 1950s, of seeking to attract MNCs into Ireland through a package of preferential incentives, especially low corporation taxes (Gunnigle, Collings, and Morley 2006). U.S. MNCs have been the predominant target and beneficiaries of this policy. The United States is by far Ireland’s largest source of FDI. U.S. FDI in Ireland increased by a factor of five during the period 1990 to 1998, while The Economist (1997) found that FDI stock from U.S. firms amounted to $3,000 per head in Ireland, compared to $2,000 in Britain, $500 in Germany, and $200 in Spain. The scale of U.S. FDI in Ireland can be captured in the remarkable statistic that the stock of U.S. corporate investment in Ireland is larger than its combined investment in Brazil, Russia, India, and China (Hamilton and Quinlan 2008). It is hardly surprising, therefore, that Ireland’s economic development is inextricably linked with U.S. FDI and with the fortunes of the U.S. economy. Equally, American management approaches and practices have left an indelible footprint on Ireland’s business system, particularly in terms of industrial relations (Collings, Gunnigle, and Morley 2008; Gunnigle, Collings, and Morley 2005). In the European Union (EU), the concept of economic dominance stimulated considerable debate during the 1990s, for two main reasons. First, the surge in U.S. FDI into the EU led to increased reflection on the potential impact of transferring U.S. business and management practices to the EU (Sparrow and Hiltrop 1994, Cooke and Noble 1998). Second, the apparent success of the U.S. economy during the 1990s, particularly in terms of job creation, and the comparatively poor performance of many EU countries in this sphere, engendered considerable deliberation on the respective merits of differing systems of economic governance. In particular, the EU’s espoused “social market” approach, characterized by comparatively high levels of labor regulation, welfare provision, and reliance on pluralist employment relations traditions, seemed to suffer in contemporary comparison with the U.S. “free market” approach. The latter approach, underpinned by the principle of “employment at will” and characterized by lower levels of labor and labor market regulation, was argued to provide a greater spur for job creation (Grubb and Wells 1993; Sadowski, Backes-Gellener, and Frick 1995). U.S. MNCs have been at the forefront in promoting free market/low labor regulation approaches (Dunning 1993). Indeed, Crouch and Streeck (1997) point to the success of U.S.

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MNCs in achieving extraordinarily high levels of autarky from their socio-political environment, which enables them to traverse national boundaries with considerable and increasing ease. They further argue that the globalization of markets and overdependence on MNCs as providers of employment and engines of economic growth has led to a diminution in the governing capacity of the nation-state and government capitulance to the influence of MNCs. Again, this is more likely to occur in smaller, late-developing economies, such as Ireland, where dominant MNC coalitions are able to exert proportionately greater economic and political influence.

The Irish Industrial Relations Context The Irish industrial relations system has its roots in the British voluntarist system, which is unsurprising given that Ireland achieved independence from Britain in 1922 and only became a republic in 1949. The fledgling Irish state thus inherited the British legislative framework and voluntarist IR traditions. Although the vestiges of British influence held sway for considerable time, these have now been substantially shed, as the Irish IR system has established a quite separate identity. However, this identity is relatively complex. First, it does not fit any of the prevailing European IR typologies, such as Nordic corporatism, classic European social partnership, or Anglo-Saxon pluralism. Second, there is considerable variation within the Irish IR system itself. At the macro level, the IR landscape has been dominated by a series of national-level accords (“partnership agreements”) negotiated by the central trade union confederation, the Irish Congress of Trade Unions (ICTU), the main employer’s confederation, the Irish Business Employers Confederation (IBEC), and the Irish government. These accords afford organized labor considerable influence over economic and social policy, as they address both pay and broader economic and social policy considerations (e.g., taxation, social welfare). Unlike some of its European counterparts, though, Ireland has no legislatively underpinned system of employee involvement at the workplace level, meaning that initiatives in this domain tend to be voluntary in nature (i.e., left to employers, workers, and trade unions). The recent transposition of the European Directive on Information and Consultation into Irish law could partially redress this situation, though its impact may well be limited given that the transposition was minimalist in nature, and there is no evidence yet of any substantial impact on IR practice at workplace level (Dundon, Curran, Ryan, and Maloney 2006). While some work suggests that the directive may have positively influenced voice structures at MNCs operating in Ireland, it has been documented that attempts to diffuse partnership arrangements to workplace level have largely faltered (Dobbins and Gunnigle 2009, Gunnigle 1998, O’Dowd and Roche 2009). Turning specifically to the role of trade unions, we find that union density has declined significantly over the past three decades. Having reached a high of 62 percent in 1980, density has progressively fallen since then and now stands at 33 percent (Roche 2008). While the reasons are varied, one particular source of decline pertinent to this paper is changing employer relationships with trade unions. Though certainly not confined to FDI sector, there is extensive evidence that lower unionization levels are prevalent among MNCs, particularly those that have established operations since the early 1980s (Geary and Roche 2001, Gunnigle 1995, Roche 2001). Furthermore, Ireland’s extensive reliance on FDI has meant that the MNC sector exerts considerable influence on public policy, including labor policy. A case in point is the shift in the stance of Ireland industrial development agencies from pro-union to union-neutral in the early 1980s. This reflected a concern that if Ireland wanted to attract new high-tech FDI from the United States (particularly) and elsewhere, it would be important to demonstrate that these MNCs could establish on a nonunion basis. More recently, decisions to transpose European directives on labor matters in a minimalist fashion also indicate the extensive influence of the FDI sector, particularly from U.S. MNCs, whose interests are normally articulated via the American Chamber of Commerce (Gunnigle, Collings, and Morley 2005, 2006). One also finds evidence of a clear MNC footprint on the process through which trade unions can secure recognition from employers, which we discuss below. Ireland has no mandatory legal process through which trade unions can secure recognition from employers. This is partially traced to provisions in the Irish Constitution but also both reflects a public policy stance that seeks to avoid mandatory union recognition provision because of its perceived negative impact on the attraction of FDI and epitomizes a general characteristic of any voluntarist system. The Irish constitution

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(1937) guarantees the “right of citizens to form associations or unions.”1 Case law has interpreted this article to mean that workers are free to join or not join a trade union as they see fit. More significantly though, it has been interpreted to mean that employers are also free to prohibit legislation that might compel employers to recognize trade unions. This interpretation was reiterated recently in the Supreme Court decision in Ryanair v. Labour Court, where J. Geoghegan, in his judgment, stated that “it is not in dispute that, as a matter of law, Ryanair is perfectly entitled not to deal with trade unions, nor can a law be passed compelling it to do so.”2 Consequently, union recognition remains something to be worked out voluntarily between employers and trade unions and ultimately depends on whether employers agree to recognize and bargain with a trade union representing all or a proportion of its workforce. Traditionally, the absence of statutory provision with regard to union recognition was not a major concern, as most medium and large employers recognized and concluded collective agreements with trade unions (Roche and Larragy 1989). However, declining union density from the turn of the 1980s and greater employer opposition to union recognition (particularly among inward-investing MNCs), among other reasons, led to an upsurge in union pressure for legislative provision (cf. Gunnigle, O’Sullivan, and Kinsella 2002). The union movement effectively concluded that industrial action was no longer a viable method of gaining recognition in the face of hardened employer postures. The situation came to a head in a series of high-profile union recognition disputes, most notably between Ryanair and largest Irish trade union, SIPTU (Services Industrial, Professional and Technical Union) in 1998, when Ryanair’s refusal to concede to recognition was ultimately successful (O’Sullivan and Gunnigle 2009). However, persistent union pressure to obtain legislation to address union recognition via the social partnership process led to the creation of a “high-level” group comprising representative government departments, ICTU, IBEC, and Ireland’s main body for promoting inward FDI, IDA Ireland. This work culminated in the passing of so-called “right to bargain” legislation in the early 21st century. This legislation does not provide for mandatory union recognition, but rather it allows unions to pursue cases against companies where no collective bargaining exists. Initially, this involves voluntarist methods. However, should the dispute remain unresolved, a statutory mechanism is provided whereby the Irish Labour Court may issue a binding determination. Critically, this determination may address only terms and conditions of employment or dispute resolution and disciplinary procedures, but not trade union recognition. The reasons this “right to bargain” legislation does not provide for an “end game” (i.e., mandatory union recognition) can be traced in a large measure to the influence of MNCs. The expert group that advised on the legislation included representatives of IDA Ireland and IBEC. These employer-driven organizations highlighted the potentially negative consequences of mandatory union recognition for Ireland’s prospects in both attracting new and retaining existing FDI. Consequently, the pragmatic union view was that legislation providing for mandatory union recognition was probably a step too far in the Irish context.

Literature on Unionization Influences Turning to the influences on industrial relations, the general literature has often argued that the country from which the MNC originates exerts a distinctive effect on the way labor is managed, implicitly supporting the broader theory of MNCs’ economic dominance (Ferner 1997). Girgin (2005) specifically notes that the national business system from which MNCs emanate plays a key role in determining its approach to industrial relations. Among a number of other factors known to influence IR approaches, many of which are related to the “varieties of capitalism” literature, research suggests that the existing national models of employee representation that prevail in the firm’s country of origin are substantially influential. U.S. MNCs, for example, have displayed a particular and pronounced tendency to develop nonunion enterprises (De Vos 1981; Kochan, Katz, and McKersie 1986; Gunnigle, Collings, and Morley 2005; Lavelle 2008; Geary and Roche 2001). Early Irish literature on MNCs argued that the IR practices of foreign-owned MNCs operating in Ireland conformed to the prevailing traditions of larger indigenous firms, notably in conceding trade union recognition and in relying on adversarial collective bargaining as the primary means of handling IR matters. For instance, Kelly and Brannick (1985:109) found that “in general, MNCs are regarded as no different than Irish firms and the trend seems to be one of conformity with the host country’s institutions, values and

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practices.” Enderwick (1986) identified a number of theoretical propositions as to why foreign-owned MNC subsidiaries might utilize different IR practices to those prevailing in indigenous organizations, but found no supporting evidence for divergence from host country attitudes (Roche and Geary 1996). Consequently, this early body of research pointed toward a notion that firms conform to the prevailing behaviors of indigenous country institutions, suggesting that country of origin was irrelevant to IR approaches in Ireland. However, a countervailing perspective argues that a “new orthodoxy” now characterizes Irish IR. This posits that foreign-owned MNCs no longer conform to prevailing local IR practices, pointing toward a country-of-origin effect (Roche and Geary 1996; Turner, D’Art, and Gunnigle 1997a, 1997b). Evidence of this notion is most pronounced in the IR strategies of U.S. MNCs in Ireland, particularly those that have established operations since the 1980s. Indeed, as postulated in the more general IR literature, U.S. companies operating in Ireland appear much more likely to adopt different IR practices to indigenous companies (Collings, Gunnigle, and Morley 2008; Geary and Roche 2001; Gunnigle 1995; Gunnigle et al. 1997). Both Gunnigle (1995) and Gunnigle et al. (1997) point toward a significant decrease in unionization levels among U.S.-owned firms establishing at greenfield sites. Geary and Roche (2001) similarly find a dramatic rise in nonunion workplaces among U.S. employers entering Ireland since the mid-1980s, a trend corroborated and developed in later case evidence (Gunnigle, Collings, and Morley 2005). Collings, Gunnigle, and Morley (2008) point toward important changes in the broader IR system in Ireland, which they trace indirectly to the influence of FDI in Ireland, particularly U.S. FDI. Beyond country-of-origin influences, other factors have been shown to possibly impact a firm’s IR approach, especially in terms of its unionization rates. For instance, the role of sector is heavily cited in the literature as contributory toward differences in IR practices of MNCs. In fact, some maintain that sector is more critical in understanding the variation in MNCs’ IR practices than country of origin (Marginson and Sisson 1994). Manufacturing is generally seen as the sector in which unions are most entrenched (Roche 1997, Wallace 2003). Firm size also may play a role, with the extant literature suggesting that larger firms are more likely to be unionized (Blanden, Machin, and Van Reenen 2006; Turner, Morley, and Gunnigle 1994; Roche 2001). There have also been suggestions that changes in employment levels may influence union status, with those firms increasing in employment numbers less likely to be unionized (Beaumont and Harris 1992). Double-Breasting at Multisite Unionized Firms In addition to our broader study of unionization levels among MNCs in Ireland, we look at one specific facet of the IR structure, known as double-breasting. The term originated in the construction industry in the United States. Early references are found in Lipsky and Farber’s (1976) analysis of strike activity in the construction industry, where the authors used the term to describe construction firms operating “in both unionized and nonunionized segments of the industry” (p. 401). This early use of the term has continued in the literature throughout the years (De Bernardo 1989, Doherty 1989, Finkel 1997, and Ruben 1985, among others). The term was largely used in an attempt to capture the notion that unionized construction firms, in order to reduce wages and other labor costs and to gain greater flexibility, would engage in a strategic choice to open and operate a nonunion plant while concurrently maintaining their unionized operations. The practice spread, both beyond the construction industry (Edwards and Swaim 1986) and into neighboring countries, such as Canada (Rose 1986). Authors generally assumed an association between double-breasting and cost-cutting managerial strategies, conforming to a shift in IR systems first identified in the mid-1980s (Kochan, Katz, and McKersie 1986). As a result of these assumptions, the North American literature has implicitly argued that double-breasting is a form of strategic choice by employers, contending that the practice has developed through what one might call “deliberate sequentiality.” This refers to the idea that the unionized company was established first and that cost and control interests led to the opening of secondary nonunion sites (often in areas with less stringent employment regulation). However, researchers from Europe’s Anglophone countries consider that double-breasting may not follow this pattern of “deliberate sequentiality” (Beaumont 1985, 1987; Beaumont and Harris 1992; Beaumont and Townley 1985). Beaumont and Harris (1992) view double-breasting as occurring where “a multi-establishment organization may simultaneously operate establishments on both a union and a nonunion basis” (p. 268). Key in this definition is the concept of simultaneity, rather than sequentiality. The Beaumont and Harris definition lacks a normative element; that is, the authors make no prescriptive

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judgment regarding the logic behind companies’ engaging in double-breasting. Under this broader definition, double-breasting might occur as part of a firm’s strategic choice to directly compete with the established unionized plant (mirroring the U.S. definition) or, crucially, for a number of other reasons unrelated to strategic choice. For instance, double-breasting may occur in certain instances due to distinctions in the type of work undertaken in different plants/locations. This distinction in connotations of the term becomes all the more relevant when one considers the role of national context. In particular, the IR system in an individual country may crucially impact the extent to which a company is likely to engage in deliberately sequential or simultaneous double-breasting. In a highly legalistic IR system like the United States, wherein union structures and representative jurisdiction are rooted in law and precedent, companies that engage in double-breasting can be viewed as exploiting openings in the law to undercut worker rights. Conversely, in less legalistic and more voluntarist IR systems, such as that in Ireland, the recognition of trade unions relies substantially on the voluntary commitment of employers to engage with trade unions. Companies engaging in double-breasting in these contexts might be seen as moving away from the traditions and standards of the IR system, rather than using labor law to circumvent the expansion of unions. Previous Irish studies on the subject (Gunnigle, Collings, and Morley 2005; Lavelle 2008) chose to define double-breasting in terms of sequentiality. This paper differs, in that it defines doublebreasting using the Beaumont and Harris (1992) concept of simultaneity.

Concerns with Previous Studies It is within this general industrial relations context, quite strongly influenced by MNCs (and particularly U.S. MNCs), that we look to study the determinants of unionization as a whole and the subcategory of double-breasting. Having discussed the literature on MNCs at length, it is important to note the inadequacies involving much of the previous research on MNCs, both from Irish studies and international pieces. Two key issues emerge regarding the extant literature on MNCs, particularly that which studies the Irish context. First, much of this research relies on small sample numbers and fails to focus specifically on MNCs. Second, the empirical research has generally excluded two key categories of MNCs, namely foreign-owned MNCs that are not assisted or aided by the main industrial promotions agencies and indigenous-owned MNCs. These omissions are likely to bias findings on key aspects of practice and behaviors of MNCs. The failure to sufficiently identify the MNC population is characteristic of not only Irish research but also the wider international literature, where scholars have noted the inadequacies of the sampling lists from which several MNC studies have been drawn (Alfaro and Charlton 2006, Edwards et al. 2008). The result of this is that much of the extant MNC literature tends to focus on a small number of predominantly large, well-known, U.S.-owned manufacturing companies (Collinson and Rugman 2005). Our methodology rectifies the inadequacies of previous data sources and provides the first representative picture of MNCs in Ireland.

Methodology Given the methodological issues with previous studies on the subject, our aim was to carry out the first representative survey of MNCs operating in Ireland.3 A critical first step was to distinguish between foreign-owned and domestic-owned MNCs and establish a size threshold, as follows: 

Foreign-owned MNCs: All wholly or majority foreign-owned organizations operating in the host country, with 500 or more employees worldwide and 100 or more employed in their host county operations.



Domestic-owned MNCs: All wholly or majority home country–owned organizations with 500 or more employees worldwide and at least 100 employed abroad.

The next step involved the compiling an accurate and comprehensive list of the MNC population in Ireland. This proved to be a particularly painstaking task involving a detailed review of various lists of MNCs provided by national agencies (e.g., government sources and development agencies) and organizations

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specializing in company databases. A number of recurring themes arose when examining the various databases, including their lack of comprehensiveness, duplication of companies, and the inaccuracy of company details (numbers employed, etc.). It became clear that, taken in isolation, none of the sources could be relied on to provide a comprehensive and accurate list of MNCs. It was therefore necessary to use all available avenues and to collate a full list from a number of different sources.4 The second phase of the research consisted of structured interviews at an organizational level of MNCs operating in Ireland, unlike much of the previous work, which focused at the enterprise level. As a result, where an MNC had a number of sites, an effort was made to speak with the most senior person responsible for HR/IR, who could answer for all of their Irish operations. In cases where this was not possible, respondents were asked to answer for the largest site/division in Ireland.5 However, the questions specific to this paper were generic enough that all respondents could answer for all of their Irish operations. The Economic and Social Research Institute (ESRI) was contracted to assist with the fieldwork. University of Limerick researchers along with the contracted ESRI team conducted the fieldwork, which began in June 2006 and finished in February 2007. Respondents were asked to report on various aspects of organizational structure and also on four aspects of HR/IR: pay and performance management, employee representation and consultation, employee involvement and communication, and training and development. A total of 260 interviews were carried out, giving a response rate of 63 percent. The survey responses are broadly representative of the total population and for the purposes of this paper have not been reweighted.

Models and Variables Given the literature and our aims for this paper, we have chosen two models to study. The first incorporates the larger notion of unionization within a particular context (Ireland) and group of respondents (multinational companies). The second model lies within this same topic but focuses on a specific approach to IR (double-breasting). The dependent variables are whether a surveyed firm is unionized and whether unionized firms with multiple sites are operating union-only facilities or a mixture of union and nonunion plants. We maintain that the determinants for unionization (and also double-breasting) should include the firm’s country of origin, sector, size, change in employment numbers, ownership status, and date of establishment. Country of origin. Previous studies have clearly noted the importance of a firm’s country of origin, as discussed earlier. We use four categories for country of origin—the United States, the United Kingdom, Ireland, and all other countries.6 Given the literature, we would expect U.S.-based companies to be less likely to be unionized relative to their counterparts and more likely to engage in double-breasting. Sector. Also as discussed previously, sector has been argued as significant when looking at unionization. We consider the manufacturing and service sectors in our analysis. We would expect MNCs operating in manufacturing to be more likely to have a union presence; yet we would also expect manufacturing firms to more readily engage in double-breasting, given the already high union presence in the industry. Employment size. The aforementioned literature has noted that firm size appears to influence union status. In our case, size refers to the number of workers in the MNC’s home-country operations alone, rather than the worldwide operations.7 We distinguish between firms with 100 to 499 employees, firms with 500 to 999 employees, and companies with over 1,000 workers. In addition to having a higher union presence, we would expect that larger firms would be more likely to engage in double-breasting for two reasons: one, that there may be greater incentive for a company to open a nonunion site given the already high unionization levels; and two, that larger firms are more likely to operate multiple plants, thus increasing the chances that we would find instances of double-breasting. Change in employment size. This variable is somewhat related to the preceding discussion of employment size in general. We argue that firms that are growing are more likely to engage in double-breasting and are less likely to be unionized. There may be a sectoral association, given that unionized manufacturing firms have been generally decreasing in size recently. In terms of double-breasting, as firms grow, they are likely to open new sites to accommodate this growth, and it is plausible to expect that some of these sites will be nonunion where previous or simultaneous plants are unionized (Beaumont and Harris 1992). We divide this variable

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into two categories: those firms with no change in employment size or a decrease in recent years, and those firms that have enjoyed recent employment gains. Publicly vs. privately traded companies. Though the literature has not discussed this notion in any great depth, we might expect that publicly listed companies are less likely to be unionized than privately held firms and are more likely to engage in double-breasting. The pressure on publicly listed companies to maximize shareholder value has led to extensive scrutiny of their ability to take costs out of the business. In turn, this might translate into greater pressure toward nonunion status than in privately owned companies.8 Date of establishment. The literature would suggest that more recently established companies are much less likely to be unionized than older, established companies (Blanchflower and Freeman 1992; Cully, Woodland, O’Reilly, and Dix 1999; Kochan, Katz, and McKersie 1986; Machin 2003; Turner, D’Art, and Gunnigle 2002). Though the date of establishment of a MNC has been used in the literature as an explanatory factor for management practice, its application in measuring an effect on unionization is more complex. This complexity specifically refers to the choice of the date of establishment for MNCs that establish on a merger or acquisition basis. For the purposes of this paper, we adopt the following approach to date of establishment: where a MNC has established on a greenfield basis, we use the date the MNC entered Ireland. Where the MNC entered on a merger or acquisition basis, we use the date that the merged or acquired operations originally established in Ireland. We identify three date-of-establishment categories: pre-1960, 1961 to 1980, and 1981 to 2007. Methodological Suitability of the Variables It is important to establish that each of the variables included in the models is independent of all the other included variables. For instance, it is critical to know whether any associations between sector and employment size change would lead to clouding of the included data. To test the methodological suitability of our variables, we used a number of techniques, including condition indexes, tolerance/VIF tests, and a standard correlation matrix. None of the variables violated any collinearity diagnostics; therefore, all have been included in our analysis.9

Results Descriptive Analysis Table 1 provides frequency information for the dependent and independent variables in each model. The first model, addressing unionization, incorporates all 260 survey responses. Of all those surveyed (N = 158), 60.7 percent were found to recognize unions. Of the U.S. firms surveyed, 41.6 percent recognized unions. Of UK and Irish firms, 80.0 and 80.9 percent, respectively, were unionized, as were 64.9 percent of firms from other countries. Manufacturing firms were far more likely to have unions, at 73.8 percent vs. 44.4 percent for service companies. Larger sites (75.3 percent) were unionized more often than either medium or small plants. Companies experiencing size decreases were more often unionized than those enjoying employment increases, while private companies had unions more often than public firms. Finally, older firms were unionized in larger percentages than the newer companies, with the most recently established firms engaging with unions in only one-third of the cases. The results for double-breasting incorporate only those firms operating multiple sites (N = 118). Of these multisite firms, just over half engaged in double-breasting. U.S. firms often used this technique, with 78.6 percent of multisite U.S. companies operating both union and nonunion plants. UK and Irish firms had the lowest rates of double-breasting. The results were split evenly for sector, with just under half the firms in each category engaging in double-breasting. Larger firms, which were more often unionized, were also the most often found to operate union and nonunion sites. Firms experiencing growth often engaged in doublebreasting. About half the multisite public firms engaged in the practice, compared with 40.5 percent of private firms. Finally, both the oldest and the newest companies engaged in double-breasting at a rate lower than those established between 1961 and 1980. Although the frequency results are interesting, it is not clear whether any of these factors independently influences a firm’s unionization and double-breasting rates. To answer this, we turn to an empirical analysis using logistic regressions.

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TABLE 1 Frequency and Coding Information for All Variables Percent unionization

Percent doublebreasting

39.30 60.70

— —

— —

46.60 53.40

1 = U.S. country of origin 2 = U.K. country of origin 3 = Irish country of origin 4 = Other country of origin

41.60 80.00 80.90 64.90

78.60 25.00 38.90 43.30

Sector

1 = Services 2 = Manufacturing

44.40 73.80

45.30 46.30

Company size

1 = 100–499 2 = 500–999 3 = 1000+

54.60 54.80 75.30

39.50 40.00 54.50

Change in employment

1 = No change or decrease 2 = Increase

73.70 52.80

30.60 58.80

Ownership status

1 = Private 2 = Public

69.40 57.80

40.50 49.40

Date of establishment

1 = Pre-1960 2 = 1961–1980 3 = 1981–2007

90.00 71.30 34.00

31.30 61.40 47.60

Variable Dependent variables

Coding scheme 1 = Company does not recognize unions 2 = Company recognizes unions

Double-breasting

Independent variables Country of origin

1 = Company doesn’t engage in double-breasting 2 = Company engages in double-breasting

Quantitative Analysis Given that the dependent variable in each model is dichotomous, we have chosen logistic regressions as the appropriate empirical technique to assess the determinants of unionization and double-breasting in MNCs operating in Ireland. For categorical variables, the omitted reference points were U.S. country of origin, small (100–499) company size, and pre-1960 date of establishment.

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Unionization Our model for unionization specified that a firm’s being unionized depended on country of origin, sector, size, change in employment levels, ownership status, and date of establishment. Table 2 provides the results for these regressions. The overall model fit quite well, with a Nagelkerke R2 of .495 (a Hosmer and Lemeshow test also revealed good model fit). We found a strong country-of-origin effect, with firms from the United Kingdom, Ireland, and foreign countries all far more likely to have unions than the U.S. reference point (p < .01 for all). Within the three included options, U.K. firms were the most likely to engage with unions, followed by Ireland, and lastly other countries. TABLE 2 Logistic Regressions for Unionization and Double-Breasting Models Double-breasting model Unionization model (n = 99, R2 = .417) (n = 233, R2 = .495) Unstd B SE Odds Unstd B SE Odds

Variable Country of origin United States (ref.) United Kingdom Ireland Other Sector Services (ref.) Manufacturing Company size 100–499 (ref.) 50–999 1,000+ Change in employment No change/decrease (ref.) Increase Ownership status Private (ref.) Public Date of establishment Pre-1960 (ref.) 1961–1980 1981–2007 Constant

2.879*** 1.966*** 1.321***

0.67 0.612 0.428

17.797 7.139 3.748

-3.742*** -2.746*** -1.916**

0.967 0.795 0.755

0.024 0.064 0.147

2.141***

0.407

8.512

-1.117*

0.661

0.327

0.203 .797*

0.473 0.431

1.225 2.219

-0.123 0.511

0.824 0.601

0.884 1.667

-.781**

0.392

0.458

1.275**

0.567

3.577

0.007

0.404

1.008

0.493

0.6

1.637

-1.137** -2.290*** -2.140**

0.577 0.574 0.935

0.321 0.101 0.118

0.728 0.279 1.761

0.584 0.727 1.471

2.072 1.321 5.818

We also found a strong sectoral influence, with manufacturing firms more likely (p < .01) than service companies to recognize unions. Size was slightly influential, with the largest firms more likely to have unions (p < .10) than the smallest. Change in employment proved meaningful to unionization; those with employment increases were less likely (p < .05) to be unionized than those experiencing job losses or no employment increases. Ownership status did not appear to affectunionization status in Ireland; however, date of establishment was influential. Firms established between 1961 and 1980 were less likely (p < .05) to be unionized than pre-1960 firms. The same outcome was found when looking at the most recently established (post-1980) firms (p < .01).

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Double-Breasting The model for determinants of double-breasting also fit well overall, with a Nagelkerke R2 of .417 and a successful Hosmer and Lemeshow test. The results from the regression indicate that country of origin dominates the model heavily. U.K., Irish, and other countries of origin were all found to be significant and negative in their likelihoods of double-breasting when compared to the U.S. base (p < .01 for U.K. and Ireland; p < .05 for other countries). Sector was slightly significant (p < .10), with manufacturing firms less likely to engage in double-breasting than service firms. Change in employment also proved meaningful, with companies recently decreasing employment (or having no increase) less likely to engage in double-breasting (p < .05) than those with employment increases. Company size, ownership status, and date of establishment all appeared insignificant in their influences on our measurement of double-breasting.

Discussion and Implications The results from the logistic regressions provide interesting implications in terms of both unionization and double-breasting among MNCs operating in Ireland. The most obvious implication of the regressions is the dominance of country of origin across both models. The strong effects within two wellfitting models, and the especially meaningful results in the double-breasting regression, indicate that a firm’s country of origin clearly influences its decision to accept and support a union presence. This first finding provides substantial support to the notion that home-country attitudes, rather than host-country contexts, thoroughly define the way in which the MNC operates in Ireland. In many ways, Ireland might be deemed the “51st state” given the sheer presence of U.S. multinationals in the country. We have attempted to measure this “51st state” notion by empirically testing the role that country of origin (and particularly U.S. country of origin) plays in a firm’s acceptance of unions and decision to operate nonunion sites through the use of representative survey data. We find substantial support in both our models for the argument that U.S. firms carry their relatively low levels of union acceptance abroad. The regressions demonstrate that all the other countries of origin had both a far higher union presence and a far lower likelihood of double-breasting than those firms based in the United States. The dominance of country of origin independent of other known and theoretical influences on employment relations behaviors is particularly striking. The results imply that, if a multinational company is based in the United States, it is far more likely to either be nonunion or at least at incorporate a nonunion facility abroad, regardless of sector, size, ownership status, or the newness of the company. Beyond country of origin and U.S.-specific implications, there are other results worth consideration. In terms of unionization as a whole, many of the outcomes confirmed our hypotheses. For instance, manufacturing firms were more heavily unionized, as were older and larger companies. Firms without employment gains or with recent job losses were also shown to have a higher union presence. These findings may prove particularly troublesome for unions, as they suggest that strong levels of unionization may be largely associated with declining firms and industries rather than with high-growth firms; recent studies have suggested that this notion is quite disconcerting to the Irish labor movement (Gunnigle, Collings, and Morley 2005). We did not find support for the notion that public firms were under more pressure to cut costs and therefore would be less likely to have a union presence. Considering double-breasting, the lack of significance across many of the variables is somewhat surprising. This suggests that there is not a purely inverted relationship between some of the factors influencing union recognition and those affecting multisite doublebreasting. For instance, where date of establishment might play a meaningful role in determining union status overall, there is no evidence that newer firms operating multiple sites are behaving any differently from older companies in terms of their tolerance of a union presence at these additional sites. However, one outcome of note concerns the change in employment levels. The results for this variable appear to confirm our theory that firmsexperiencing employment increases are more likely to engage in double-breasting if they operate multiple sites. This finding may be explained by the consideration that unionized firms may have an incentive to operate nonunion sites if they are seeking to move up the corporation’s global value chain (Gunnigle, Collings, and Morley 2005). The results also carry substantial meaning beyond the Irish context. If one considers that Ireland is more of a microcosm for global entrenchment of MNCs into smaller, late-industrializing economies rather

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than simply an isolated case, the outcomes prove quite significant beyond the country-specific context. This particular notion, best understood through a discussion of economic dominance effects, suggests that home country practices are most easily implemented into foreign operations by organizations from economically successful countries. Our results provide some support for this argument, particularly given that U.S. companies appear to have met with great success in their efforts to maintain largely nonunion work environments within an industrial relations climate that has historically been almost entirely distinct from their home country’s circumstances. We would expect similar results to manifest themselves in any other small, late-industrializing countries so long as their policies of economic openness and concession to U.S.oriented business practices match those found in Ireland. If this is the case, the determinants of union status and double-breasting can be carried far beyond the local Irish setting and may find general uniformity within similar contextual settings.

Notes 1 Article

40.6.1.iii, Constitution of Ireland (Bunreacht na hÉireann) . 2 [2007] 18 ELR 57. 3 This research is part of a large-scale international study of employment practices in MNCs undertaken in 10 countries (Argentina, Australia, Canada, Denmark, Ireland, Mexico, Norway, Spain, Singapore, and the United Kingdom). A summary of the findings of the Irish study can be found in Lavelle et al. (2009).4 Details on the precise steps taken in each country to compile their respective MNC databases is available as follows: Canada (Bélanger et al. 2006); Ireland (McDonnell, Lavelle, Collings, and Gunnigle 2007); United Kingdom (Edwards et al. 2007). 5 Twelve percent of respondents could only answer for the largest site or division in Ireland. 6 We are unable to divide country of origin into additional categories due to sample size considerations when addressing double-breasting. However, given the United States–centric nature of our study, we are most interested in comparing U.S. firms against all other types; our categorizations allow for such a comparison. 7 Given the localized nature of our study, it is more accurate to include this national-level figure rather than transnational numbers. 8 Against this, the recent rise to prominence of private equity funds as one form of private ownership has aroused particular union antagonism precisely because private equity owners are even less constrained to accommodate other stakeholder interests than are publicly listed companies. The data do not, however, allow private-equity ownership to be distinguished from other forms of private ownership (such as family). 9 A series of tables detailing each of the methodological suitability tests is available on request.

References Alfaro, L., and A. Charlton. 2006. International Financial Integration and Entrepreneurship. . [Accessed July 1, 2006]. Almond, P., T. Edwards, T. Colling, A. Ferner, P. Gunnigle, M. Muller-Camen, J. Quintanilla, and H. Waechter. 2005. “Unravelling Home and Host Country Effects, An Investigation of the HR Policies of an American Multinational in Four European Countries.” Industrial Relations, Vol. 44, No. 2, pp. 276–307. Beaumont, P.B. 1985. “New Plant Work Practices.” Personnel Review, Vol. 14, No. 5, pp. 5–19. Beaumont, P.B. 1987. The Decline of Trade Union Organization. London: Croom Helm. Beaumont, P., and R. Harris. 1989. “The North–South Divide in Britain: The Case of Trade Union Recognition.” Oxford Bulletin of Economics and Statistics, Vol. 51, No. 4, pp. 413–28. Beaumont, P., and R. Harris. 1992. “Double-Breasted Recognition Arrangements in Britain.” International Journal of Human Resource Management, Vol. 3, No. 2, pp. 267–83. Beaumont, P.B., and B. Townley. 1985. “Greenfield Sites, New Plants and Work Practices.” In V. Hammond, ed., Current Research in Management, London: Frances Pinter.

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Bélanger, J., P.-A. Harvey, P. Jalette, C. Levesque, and G. Murray. 2006. Employment Practices in Multinational Companies in Canada: Building Organizational Capabilities and Institutions for Innovation. University of Montreal, HEC Montreal, University of Laval, Montreal and Laval: The Inter-University Research Centre on Globalization and Work. Blanchflower, D., and R. Freeman. 1992. “Unionism in the United States and Other Advanced OECD Countries.” Industrial Relations, Vol. 31, No. 1, pp. 56–80. Blanden, J., S. Machin, and J. Van Reenen. 2006. “Have Unions Turned the Corner? New Evidence on Recent Trends in Union Recognition in UK Firms.” British Journal of Industrial Relations, Vol. 44, No. 2, pp. 169–90. Collings, D.G., P. Gunnigle, and M.J. Morley. 2008. “Between Boston and Berlin: American MNCs and the Shifting Contours of Industrial Relations in Ireland.” International Journal of Human Resource Management, Vol. 19, No. 2, pp. 242–63. Collinson, S., and A. Rugman. 2005. Studying the Wrong Firms: Selection Biases in Management Research. Working paper, University of Warwick. Cooke, W., and D. Noble. 1998. “Industrial Relations Systems and US Foreign Direct Investment Abroad.” British Journal of Industrial Relations, Vol. 36, pp. 581–98. Crouch, C., and W. Streeck. 1997. Political Economy of Modern Capitalism. London: Sage. Cully, M., S. Woodland, A. O’Reilly, and G. Dix. 1999. Britain at Work as depicted by the 1998 Workplace Employee Relations Survey. London: Routledge. De Bernardo, M.A. 1989. “Anti-Doublebreasting Tops Labor’s Agenda.” Construction Products, May 1, pp. 75. De Vos, T. 1981. US Multinationals and Worker Participation in Management: The American Experience in the European Community. London: Adwych Press. Dobbins, A., and P. Gunnigle. 2009. “Can Voluntary Workplace Partnership Deliver Sustainable Mutual Gains?” British Journal of Industrial Relations, Vol. 47, No. 3, pp. 546–70. Doherty, R.E. 1989. Industrial and Labor Relations Terms: A Glossary. Ithaca, NY: Cornell University Press. Dundon, T., D. Curran, P. Ryan, and M. Maloney. 2006. “Conceptualising the Dynamics of Employee Information and Consultation: Evidence from the Republic of Ireland.” Industrial Relations Journal Vol. 37, No. 5, pp. 492–512. Dunning, J. 1993. Multinational Enterprises and the Global Economy. New York: Addison-Wesley. Edwards, P., T. Edwards, A. Ferner, P. Marginson, and O. Tregaskis. 2007. Employment Practices of MNCs in Organisational Context: A Large-Scale Survey. Advance feedback report to participating companies, De Montfort, Kings College London and Warwick Business School. Edwards, R., and P. Swaim. 1986. “Union–Nonunion Earnings Differentials and the Decline of PrivateSector Unionism.” American Economic Review, Vol. 76, No. 2, pp. 97–102. Edwards, T., and A. Ferner. 2002. “The Renewed ‘American Challenge’: A Review of Employment Practices in US Multinationals.” Industrial Relations Journal, Vol. 33, pp. 94–111. Edwards, T., O. Tregaskis, P. Edwards, A. Ferner, and P. Marginson. 2008. Charting the Contours of Multinationals in Britain: Methodological Challenges Arising in Survey-Based Research. Published in the Leicester Business School’s Occasional Paper series and Warwick Papers in Industrial Relations. Enderwick, P. 1986. “Multinationals and Labour Relations: The Case of Ireland.” Journal of Irish Business and Administrative Research, Vol. 8, No. 2, pp. 1–11. Ferner, A. 1997. “Country of Origin Effects and HRM in Multinational Companies.” Human Resource Management, Vol. 7, No. 1, pp. 19–37. Finkel, G. 1997. The Economics of the Construction Industry. Armonk, NY: M.E. Sharpe. Geary, J., and W. Roche. 2001. “Multinationals and Human Resource Practices in Ireland: A Rejection of the ‘New Conformance Thesis.’ ” International Journal of Human Resource Management, Vol. 12, No. 1, pp. 109–127. Girgin, Z. 2005. “Human Resource Management in an International Context.” In M. Ozbilgin, ed., International Human Resource Management: Theory and Practice. Basingstoke: Palgrave Macmillan. Grubb, D., and W. Wells. 1993. “Employment Regulation and Patterns of Work in EC Countries.” OECD Economic Studies, Vol. 21, pp. 7–58.

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Gunnigle, P. 1995. “Collectivism and the Management of Industrial Relations in Greenfield Sites.” Human Resource Management Journal, Vol. 5, No. 3, pp. 24–40. Gunnigle, P. 1998. “More Rhetoric Than Reality: Enterprise-Level Industrial Relations Partnerships in Ireland.” Economic and Social Review, Vol. 29, No. 2, pp. 179–200. Gunnigle, P., D.G. Collings, and M.J. Morley. 2005. “Exploring the Dynamics of Industrial Relations in US Multinationals: Evidence from the Republic of Ireland.” Industrial Relations Journal, Vol. 36, No. 3, pp. 241–56. Gunnigle, P., D.G. Collings, and M.J. Morley. 2006. “Accommodating Global Capitalism? State Policy and Industrial Relations in American MNCs in Ireland.” In A. Ferner, J. Quintanilla, and C. SanchezRunde, eds., Multinationals and the Construction of Transnational Practices: Convergence and Diversity in the Global Economy. Basingstoke, Hampshire, and New York: Palgrave Macmillan. Gunnigle, P., M.J. Morley, N. Clifford, T. Turner, N. Heraty, and M. Crowley. 1997. Human Resource Management in Irish Organisations: Practice in Perspective. Dublin: Oak Tree Press. Gunnigle, P., M. O’Sullivan, and M. Kinsella. 2002. “Organised Labour in the New Economy: Trade Unions and Public Policy in the Republic of Ireland.” In D. D’Art and T. Turner, eds., Irish Employment Relations in the New Economy. Dublin: Blackhall Press. Hamilton, D.S., and J.P. Quinlan. 2008. Globalization and Europe: Prospering in the New Whirled Order. Washington, DC: Brookings Institution Press. Kearney, A.T. 2002. “Globalization’s Last Hurrah?” Foreign Policy, No. 128 (January/February), pp. 38–51. Kelly, A., and Brannick, T. 1985. “Industrial Relations Practices in Multinational Companies in Ireland.” Journal of Irish Business and Administrative Research, Vol. 7, pp. 98–111. Kochan, T.A., H.C. Katz, and S.B. McKersie. 1986. The Transformation of American Industrial Relations. New York, NY: Basic Books. Lavelle, J. 2008. “Charting the Contours of Union Recognition in Foreign-Owned MNCs: Survey Evidence from the Republic of Ireland.” Irish Journal of Management, Vol. 29, No. 1, pp. 45–64. Lipsky, D., and H.S. Farber. 1976. “The Composition of Strike Activity in the Construction Industry.” Industrial and Labor Relations Review, Vol. 9, No. 3, pp. 388–404. Machin, S. 2003. “Trade Union Decline, New Workplaces and New Workers.” In H. Gospel and S. Wood, eds., Representing Workers: Trade Union Recognition and Membership in Britain. London: Routledge. Marginson, P., and K. Sisson. 1994. “The Structure of Transnational Capital in Europe: The Emerging EuroCompany and Its Implications for Industrial Relations.” In R. Hyman and A. Ferner, eds., New Frontiers in European Industrial Relations. Oxford: Blackwell. McDonnell, A., J. Lavelle, D.G. Collings, and P. Gunnigle. 2007. “Management Research on Multinational Corporations: A Methodological Critique.” Economic and Social Review, Vol. 38, No. 2, pp. 235–58. O’Dowd, J., and W.K. Roche. 2009. “Partnership Structures and Agendas, and Managers’ Assessments of Stakeholder Outcomes.” Industrial Relations Journal, Vol. 40, No. 1, pp. 17–39. O’Sullivan, M., and P. Gunnigle. 2009. “Bearing All the Hallmarks of Oppression: Union Avoidance in Europe’s Largest Low-Cost Airline.” Labor Studies Journal, Vol. 34, No. 2, pp. 252–70. Roche, W.K. 1997. “The Trend of Unionization.” In W.K. Roche and T.V. Murphy, eds., Irish Industrial Relations in Practice. Dublin: Oak Tree Press. Roche, W.K. 2001. “Accounting for the Trend in Trade Union Recognition in Ireland.” Industrial Relations Journal, Vol. 32, No. 1, pp. 37–54. Roche, W.K. 2008. “The Trend of Unionisation in Ireland Since the Mid-1990s.” In T. Hastings, ed., The State of the Unions: Challenges Facing Organised Labour in Ireland. Dublin: Liffey Press. Roche, W., and J. Geary. 1996. “Multinational Companies in Ireland: Adapting to or Diverging from National Industrial Relations Practices and Traditions.” Irish Business and Administrative Review, Vol. 17, No. 1, pp. 14–31. Roche, W.K., and J. Larragy. 1989. “The Trend of Unionisation in the Irish Republic.” In Industrial Relations in Ireland: Contemporary Issues and Developments. Dublin: Department of Industrial Relations, University College Dublin. Rose, J.B. 1986. “Legislative Support for Multi-Employer Bargaining: The Canadian Experience.” Industrial and Labor Relations Review, Vol. 40, No. 1, pp. 3–18.

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Ruben, G. 1985. “Union Moves to Stop ‘Double Breasting.’ ” Monthly Labor Review, July. Sadowski, D., U. Backes-Gellener, and B. Frick. 1995. “Works Councils: Barriers or Boosts for the Competitiveness of German Firms.” British Journal of Industrial Relations, Vol. 33, No. 3, pp. 493–513. Smith, C., and P. Meiskins. 1995. “System, Society and Dominance Effects in Cross National Organisational Analysis.” Work, Employment and Society, Vol. 9, No. 2, pp. 241–67. Sparrow, P.R., and J.-M. Hiltrop. 1994. European Human Resource Management in Transition. London: Prentice Hall. Turner, T., M.J. Morley, and P. Gunnigle. 1994. “Developments in Industrial Relations and HRM in the Republic of Ireland.” Irish Business and Administrative Research, Vol. 15, No. 1, pp. 76–92. Turner, T., D. D’Art, and P. Gunnigle. 1997a. “Pluralism in Retreat: A Comparison of Irish and Multinational Manufacturing Companies.” International Journal of Human Resource Management, Vol. 8, No. 6, pp. 825– 840. Turner, T., D. D’Art, and P. Gunnigle. 1997b. “US Multinationals: Changing the Framework of Irish Industrial Relations?” Industrial Relations Journal, Vol. 28, No. 2, pp. 92–102. Turner, T., D. D’Art, and P. Gunnigle. 2002. “Multi-National Corporations: A Challenge to European Trade Unions?” Irish Journal of Management, Vol. 23, No. 1, pp. 125–41. Wallace, J. 2003 Unions in the 21st Century Ireland: Entering the Ice Age? Paper presented at the Industrial Relations News Conference, University College Dublin, February 27.

XIV. Learning from the New Deal

The Relevance of the Wagner Act for Resolving Today’s Job-Security Crisis ANNE MARIE LOFASO West Virginia University1

Abstract In this paper I start with the simple observation that workers are more vulnerable in times of economic contraction than in times of economic growth. The purpose of my paper is two-fold. First is to unpack the underlying reasons for that phenomenon. Second is to propose a solution that makes workers less vulnerable during recession, and which employers can buy into. My solution—to compel bargaining over mass layoffs and plant closings regardless of whether the workers are unionized—is both economically efficient and values the autonomy and dignity of the worker.

Introduction The world is currently in the midst of an economic contraction (Shin 2009, Homan 2009), which some have dubbed the Great Recession (Samuelson 2010). This recession has greatly impacted job security, as evidenced in part by the increasing unemployment rates. As of January 2010, the U.S. unemployment rate was at 9.7 percent, down only slightly from a high of 10.1 percent in October 2009 (U.S. Bureau of Labor Statistics 2010). The 2009 unemployment rates are also significantly higher than the post–World War II historic rates. During this time period, the annual labor force unemployment rate had never hit 10 percent, although it came close in 1982 (9.7 percent) and 1983 (9.6 percent; U.S. Bureau of Labor Statistics 2008). FIGURE 1 Percent of Labor Force Unemployed 12 10 8 6 4 2 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

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Author’s address: West Virginia College of Law, P.O. Box 6130, Morgantown, WV 26506

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During such times, it is natural for labor law and labor relations scholars to think deeply about the impact the economy has had and continues to have on job security. This reflection reveals that, although no one doubts the enormous impact of the economy on job security, the story is much more complicated than the hackneyed maxim—bad times mean job insecurity, and good times mean job security. This paper does not attempt fully to describe the relationship between economic contraction and job security. Nor do I directly compare the Great Recession with the Great Depression. Insufficient time has passed to fully appreciate the similarities and differences between those two economic phenomena. Rather, I provide two pieces in the job-security puzzle that will ultimately describe the behavior of firms and workers during times of economic contraction and economic expansion. Those puzzle pieces come in part as lessons learned from our experience with the New Deal’s labor legislation, the National Labor Relations Act (NLRA), or the Wagner Act, as it was popularly called. To accomplish my limited goals, I start with the deceptively simple observation that workers are more vulnerable in times of economic recession than in times of economic growth. Given that observation, my twofold goals here are not merely limited but also preliminary. First, I wish to unpack the complex underlying reasons for that seemingly simple observation about worker vulnerability. Second, I describe my proposed solution—one that makes workers less vulnerable during economic recession, and that employers can buy into. My solution—to compel bargaining over mass layoffs and plant closings regardless of whether the workers are unionized—has been developed in another paper (Lofaso 2010) but is introduced here with greater attention paid to bargaining in the context of economic contraction. This article is intended to open a dialogue about the extent to which solutions along the line of collective bargaining value the autonomy and dignity of workers while remaining economically efficient. The work introduced here is ultimately much more ambitious than the confines of this paper—to describe fully the relationship between firms and workers during time of both positive and negative economic growth. But that ambitious goal will await further work.

Observation: Workers and Firms Are Vulnerable When the Economy Contracts Unpacking the Observation Workers are more vulnerable in times of economic recession. There are many reasons for this phenomenon. First, even though firms are always under pressure to cut costs so that marginal revenue equates to marginal cost, during economic contraction, firms will be under more intense pressure to cut costs (Hovenkamp 2009). When faced with this intense pressure in the short run, it is easier to cut labor costs, which are not fixed, than to cut other costs. Firms prefer to decrease labor costs because labor can be easily replaced when economic conditions improve. The more a firm relies on firm-specific capital (e.g., specialized machines to manufacture Toyota parts only for Toyota cars), the harder it is for the firm to buy that capital (because it has to be specially manufactured) and to sell it (because no one else wants it), and therefore the harder it is for the firm to change its productive capacity by changing its stock of the firm-specific capital. Of course, in the long run, most costs are variable, and firms can thus cut other costs by contracting both labor and capital—by closing plants, for example. But even long-run decisions to sell capital, such as the decision to close plants, often entail cuts in labor costs as well. After all, smaller firms need fewer workers to sustain themselves. In the short run, though, firms are likely to cut labor costs directly because the gains can be more quickly realized and the cuts more easily reversed. Firms face two main options about how to proceed. First, firms could lay off workers. Second, firms could reduce wages, including benefits. Imagine you are the manager of a firm facing this decision. Your human resources director tells you that layoffs will negatively affect the morale of those workers who remain—because the remaining workers will fear that their jobs are next. But she also tells you that wage cuts also reduce morale because you will have continue to interact with those workers whose wages you just cut. Given the choice of having to lay off workers or cut wages, managers tend to lay off workers. As one manager recently told me, “It is often easier to lay off the worker, even if you replace that worker with another one at a lower wage, than to deal with the fall-out from the worker whose wage you just reduced.” Given the choice between terminating a worker (and possibly replacing that worker with another worker who

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is willing to work at a reduced rate) and reducing the wage of the original worker, managers will often terminate (and replace). Truman F. Bewley studied this very same question, asking it this way: Why have money wages and salaries seldom declined during post–World War II recessions in the United States and abroad, despite high unemployment and intense competition for jobs? Instead, market pay rates continue to rise during downturns, albeit at a slower rate than during economic booms. Why don’t labor markets behave like competitive commodity markets, where prices fall or even plunge when supply exceeds demand? Why do few firms avoid layoffs by cutting pay and lowering product prices so as to increase sales? How can the frequency of layoffs be reconciled with the movement within the business community to treat workers humanely? (Bewley 1999:1; emphasis added). Economists call the “failure of pay rates to fall” wage stickiness, or downward wage rigidity (Bewley 1999:1). Again, the picture is not so simple as to say that wages are sticky downwards. Trying to describe why is difficult precisely because we are dealing not with commodities but with people, who will have different reactions to managerial attempts to reduce the price of their labor. Recognizing this, consciously or subconsciously, managers faced with economic pressure to cut costs are very likely to initiate a wage cut in more invisible ways. They may, for example, initially refuse to grant the annual pay raise, decrease benefits packages (so as to contain costs), or increase employee contributions to their own benefits. While these strategies may work in the extreme short run (especially if the economic downturn is temporary), they may not work where the economic pressure is more intense, as in the case of a prolonged recession. Thus, managers faced with prolonged pressure to cut payroll will have to make some even more difficult choices. Significance of Examining the Question of Job Security Many observations can be made about the similarities and differences between the world we live in today and past worlds. I focus on one similarity and one difference. In the post–World War II period, there have been cyclical fluctuations in unemployment rates. Accordingly, our high unemployment rate may not be as unprecedented as some sources wish to project1; in any event, fluctuations in the unemployment rate are not unprecedented. But what may be unprecedented since World War II is the context in which the current unemployment rate comes: a world of ever-increasing technological change, globalization, and interdependence (Stone 2004). Skills required for workers are changing so rapidly that we would expect higher job displacement rates, as workers move away from manual labor by investing in developing skills needed in today’s more technologically advanced market. Some of those workers will be unemployed for a short period until they find another unskilled job; others will voluntarily leave the labor market to pursue educational opportunities, eventually returning to the labor market to find a skilled job; still others will never be able to make the transition from unskilled to skilled worker and will perhaps become part of the structurally unemployed. In the midst of this change, presumably for humanity’s betterment, unemployment rates continue to fluctuate. And so, it is important for us to remember, even when the unemployment rates subside to below 6 percent, as they probably will, that the question of job security remains important. Job security is important even if the most enlightened promises of technological advancement and globalization—a better world with a higher living standard for all—come true. This is so because with change will come displacement— displacement of workers whose skills are no longer needed in a more technologically advanced economy; displacement of workers because the freer movement of goods, services, capital, and labor that results in greater trade benefits for all also guarantees labor market mismatch; and displacement of workers as firms transform the real workplace into a virtual one, resulting in reconceived job duties and descriptions. With these observations, I explore the following question: What is and should be the law’s role in shaping job-security policies?

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The Role of the Law The default job-security rule in the United States is employment at will. That means that employers in most U.S. states may lawfully discharge employees for any reason, good or bad, or for no reason at all (Summers 2000, Roseman 2008, Lofaso 2010). Under this default rule, employers do not act unlawfully even when they act arbitrarily in firing a worker, so long as the employer does not violate some other law, such as federal or state antidiscrimination laws, by discharging the worker. There are some limitations to the employment at-will doctrine. For example, contractual obligations may make it more expensive to discharge employees who may not be terminated except for cause as contractually defined. But most employees have no such contract, so that exception normally does not apply. Courts have sometimes limited the arbitrariness of the at-will rule by enforcing oral and written promises of job security, notwithstanding the fact that the parties failed to reduce those promises to a formal contract. And sometimes courts have limited the at-will doctrine simply by concluding that its application in a particular instance violates public policy, such as when employers discharge workers for filing workers’ compensation claims or for missing work to serve as jurors (Summers 2000, Roseman 2008, Lofaso 2010). But pertinent to the issue of job security, the law generally privileges management decisions that turn on reasonable business judgments in response to economic circumstances, viewing such decisions not only as good reasons to terminate or lay off workers but also as decisions that should be made unencumbered by others, such as union representatives. Along these lines, the law may be even more lenient when it comes to managerial decisions to close plants during times of economic distress. For example, the Worker Adjustment Retraining Notification Act (the WARN Act, 29 U.S.C. §§ 2101-2109), the federal law requiring covered employers to give workers 60 days’ advance notice of a mass layoff or plant closing, makes exception for, among other things, unforeseeable business circumstances. And the National Labor Relations Act (NLRA, 29 U.S.C. §§ 151-169), the federal law that regulates private-sector labor relations by promoting “the practice and procedure of collective bargaining” (29 U.S.C. § 151), permits employers to close plants for any reason—even to avoid unionization and bargaining obligations. In Textile Workers Union v. Darlington Manufacturing Company (380 U.S. 263, 269 [1965]), the U.S. Supreme Court recognized this doctrine, explaining that “an employer has the right to terminate [its entire] business whatever the impact of such action on concerted activities” protected under NLRA Section 7 (29 U.S.C. § 157). In that context, the court recognized (id. at 273-75) a limitation on this otherwise unencumbered managerial right to close shop; an employer may not discriminatorily close down part of its business merely to circumvent its bargaining or other obligations under the NLRA. To understand why the law privileges managerial decisions to cut labor costs, it is instructive to imagine the vulnerable firm during a recession. In recession the profits of many firms are down, and managers of struggling firms may feel compelled to cut labor costs just to survive. The manager may not want to cut any part of the workforce but is under orders from upper management to reduce payroll expenses. It is this picture of the struggling firm that policy makers in industrialized countries, such as the United States, seem to have in mind when making public policy decisions about workforce reductions. And so, at least in the United States, there is a powerful story favoring the struggling firm that pushes policy makers toward making it as easy as possible for managers to cut labor costs for economic reasons. There are, however, both theoretical and real limitations on the manager’s privilege to cut labor costs through layoff, reduced work hours, and plant closures. As a theoretical matter, the law did not have to develop in the way it did. There are several options open to policy makers other than at-will employment. These options range along the following scale of employer obligations: No obligation  Notification  Information  Consultation  Negotiation  Codetermination. From the employee’s point of view, the options range along a scale of rights: No protection  Notification  Information  Consultation  Negotiation  Codetermination (Lofaso 2010). I examine each of these categories in turn. For each category, where applicable I describe how the option has been translated into federal law.


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No Employer Obligation/No Worker Protection This is the basic at-will doctrine that permits employers to terminate workers for any reason, good or bad, or for no reason at all (Bastress 1988, Hirsch 2008, Lofaso 2010). In other words, under this doctrine, employers have no obligation to workers, even good, loyal, and productive workers, to keep them working. As I have discussed, the law could be, and has been, harsh in its application. For example, in Payne v. Western & Atlantic Railroad Company, (81 Tenn. 507, 1884 WL 469, *6 [1884]), the case credited as the first to articulate the at-will doctrine, a Tennessee state court went so far as to conclude that employers can discharge their employees “even for cause morally wrong, without being thereby guilty of legal wrong.” This harsh application took root through the states over the next 75 years into the middle of the 20th century. And although judges and law makers have cut back on the harshness of this rule during the latter half of the 20th century (Bastress 1988, Summers 2000, Muhl 2001, Dana 2004, Hirsch 2008, Roseman 2008, Lofaso 2010), there has been little give on the idea that managers should be free to cut labor costs by termination because of economic reasons. From the employer’s vantage point, this policy can be viewed as valuing the firm’s autonomy to make firing decisions or engage in business judgments about labor costs (Hayek 1960, Epstein 1984). And this theory would make sense if, under an at-will employment system, neither side actually had any expectation that the other would remain in the employment relationship. But in general, both parties usually expect the other to stay—so long as things are going well—and both want to limit the other’s right to unilaterally terminate the relationship. But whether such a policy actually values the autonomy of the firm, its owners, its managers, any or all, is the subject of another paper. My point here is that, even if there is some important social, economic, or liberty value embodied in the at-will doctrine, that doctrine inflicts at least some harm on workers, and probably on employers as well—neither of whose expectations is well met in the at-will system (Lofaso 2007). In valuing employer autonomy to engage in unencumbered decision making, the law devalues the autonomy of workers to become part-authors in decisions affecting their own working lives and de-dignifies those workers by privileging the decision-making power of employers over worker input (Lofaso 2010). Notification The law could compel firms to give workers advance notice of mass layoffs and plant closures. United States Department of Labor regulations (29 C.F.R. § 639.1[a]) reveal the purpose of notification as giving “workers and their families . . . transition time to adjust to the prospective loss of employment, to seek and obtain alternative jobs and, if necessary, to enter skill training or retraining that will allow these workers to successfully compete in the job market.” Since 1988, federal law under the WARN Act has required managers, in some cases, to give advance notice to workers or their representatives and to state dislocated worker units (Lofaso 2010). The WARN Act covers employees, regardless of whether they are represented by unions. But employer obligations to notify workers under the WARN Act are greatly limited by the size of the employer, the number of employees terminated or laid off, the length of the layoff, and even the reasons for the layoff. As a threshold matter, the WARN Act covers only those businesses that employ 100 or more full-time workers that effectuate a plant closing resulting in the layoff of at least 50 full-time workers; and businesses that employ 100 or more workers that effectuate a reduction in force of at least one-third of the workforce (for businesses laying off fewer than 500 workers) or for a total of 500 workers (U.S. General Accounting Office 20032). The number of terminations is significant. To illustrate, in Oil, Chemical and Atomic Workers Int’l Union, Local 7-629 v. RMI Titanium Co. (199 F.3d 881, 886 [6th Cir. 2000]), the appellate court found no WARN Act liability where the employer laid off two workers shy of the “number necessary to make this action a mass layoff.” Moreover, the employee right to advance notice under the WARN Act (29 U.S.C. § 2101[a][6]); 20 C.F.R. § 639.3[f]) is limited to layoffs exceeding six months, and reduction in work hours “of more than 50 percent during each month of any 6-month period.” And employees who retire or employees who refuse transfers are entitled to no advance notice under the act (20 C.F.R. § 639.3[f][3][i]). The WARN Act also allows for several exceptions, most notably the unforeseeable business circumstances exception (29 U.S.C. § 2102[b][2][A]) and the faltering company exception (29 U.S.C. § 2102[b][1]). Both exceptions, which permit employers to shorten the 60-day advance notification period,

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show the extent to which this federal law privileges the employer’s vantage point or vulnerability over the worker’s vulnerability in similar circumstances. For example, employers “may order a plant closing or mass layoff before the conclusion of the 60-day period if the closing or mass layoff is caused by business circumstances that were not reasonably foreseeable as of the time that notice would have been required.” Accordingly, federal law (20 C.F.R. § 639.9[b]) does not make employers liable for “sudden, dramatic, and unexpected . . . condition[s] outside the employer’s control” or even require employers “to accurately predict general economic conditions that also may affect demand for its product or services.” The faltering company exception, which applies only to plant closings, provides an even clearer example of the employer’s legally privileged vantage point. As the court in Childress v. Darby Lumber, Inc. (357 F.3d 1000, 1009 [9th Cir. 2004]) explained, the employer may order the plant closing without giving full notice where “(1) the employer was actively seeking capital at the time that sixty-day notice would have been required; (2) there was a realistic opportunity to obtain the financing sought; (3) the financing would have been sufficient, if obtained, to enable the employer to keep the facility open for a reasonable period of time; and . . . (4) ‘the employer reasonably and in good faith . . . believed that giving the required notice would have precluded the employer from obtaining the needed capital or business.’” In sum, the tangible effects of the unforeseeable business circumstance and the company’s faltering financial condition are borne not by the employer, who arguably is in a better position to bear those burdens, but by the workers (Lofaso 2010). Information Federal labor law does not obligate employers to provide information, financial or otherwise, to a firm’s nonunionized workers regardless of economic circumstances. But there is a well-established duty on employers to provide information to a union relevant to performing its bargaining and other obligations. The Supreme Court, in NLRB v. Truitt Mfg. Co., 351 U.S. 149, 152 (1956), explained that this legal duty requires an employer to furnish unions with information to substantiate, for example, an economic inability to pay wages. The employer’s legal duty to furnish relevant information grew out of the theory that access to information is vital to a robust, well-functioning, industrial democracy that features collective bargaining as its corner stone. This theory has made its way firmly into labor jurisprudence. In Proctor & Gamble Co. v. NLRB, 603 F.2d 1310, 1315 (8th Cir. 1979), for example, the appellate court compared an employer’s refusal to furnish relevant information upon request as “conflict[ing] with the statutory policy to facilitate effective collective bargaining.” Another court of appeals, in Detroit Newspaper Printing & Graphic Communications Union v. NLRB, 598 F.2d 267, 271 (D.C. Cir. 1979), explained that “[a] broad disclosure rule is crucial to full development of the role of collective bargaining under the [NLRA]” because “[u]nless each side has access to information enabling it to discuss intelligently and deal meaningfully with bargainable issues, effective negotiations cannot occur.” Consultation United States federal labor law does not require employers to consult with workers either before or after deciding to lay off workers or close a plant. The idea that managers would be legally compelled to consult with workers’ representatives prior to make those core entrepreneurial decisions would be viewed by many Americans, at first blush, as antithetical to the basic values underlying the American economic system. Accordingly, I look to the European Union for guidance on this issue. The European Union Collective Redundancies Directive (Collective Redundancies Directive, 98/59/EC) requires employers who are “contemplating collective redundancies (mass economic dismissals) . . . [to] begin consultations with the workers’ representatives in good time with a view to reaching an agreement.” Significantly, according to the European Court of Justice in Keskusliitto AEK ry v. Fujitsu Siemens Computers Oy, Case C-44-08, 2009 ECJ 747, ¶ 38 (Sep. 10, 2009), this duty is “imposed on the employer . . . prior to the employer’s decision to terminate employment contracts.” The plain language of the directive points out that the purpose of imposing this consultation obligation on employers is to compel discussion about the “ways and means of avoiding collective redundancies or reducing the number of workers affected, and of mitigating the consequences by recourse to accompanying social measures aimed, inter alia, at aid for redeploying or retraining workers made redundant.”


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Negotiation The National Labor Relations Act is perhaps the world’s greatest legislative embodiment of labor’s fundamental right to ban together for mutual aid or protection and to bargain collectively over matters of significant interest to workers. As a threshold matter, NLRA Section 7 grants “employees . . . the right to selforganization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection” (29 U.S.C. § 157). To ensure that those fundamental rights are protected, Congress placed five correlative duties on employers, among which is the affirmative duty to bargain collectively with its employees’ representatives (29 U.S.C. § 158[5], now codified as 29 U.S.C. § 8[a][5]). By 1947 legislative amendment, Congress further refined the duty to bargain by expressly defining the employer’s obligation as “the performance of the mutual obligation of the employer and the representative of the employees to meet at reasonable times and confer in good faith with respect to wages, hours, and other terms and conditions or employment, or the negotiation of an agreement, or any question arising thereunder, and the execution of a written contract incorporating any agreement reached if requested by either party” (29 U.S.C. § 158[d]). In line with the NLRA’s uniquely American brand of collective bargaining as liberating the labor market, Congress explained that the duty to bargain does “not compel either party to agree to a proposal or require the making of a concession” (29 U.S.C. § 158[d]). The Supreme Court has repeatedly highlighted this aspect of the duty to bargaining originally by clarifying, in NLRB v. American National Insurance Company (343 U.S. 395, 404 [1952]), that “the Board may not, either directly or indirectly, compel concessions or otherwise sit in judgment upon the substantive terms of collective bargaining agreements.” The court later explained, in H. K. Porter Co. v. NLRB (397 U.S. 99, 102 [1970]), that the National Labor Relations Board (NLRB), the government agency charged by Congress with the authority to administer and interpret the NLRA, “is without power to compel a company or a union to agree to any substantive contractual provision of a collective bargaining agreement.” Section 8(d) (29 U.S.C. § 158[d]) also defines the contours of the statutory duty to bargain, by limiting mandatory bargaining “to wages, hours, and other terms and conditions or employment.” The Supreme Court in Ford Motor Co. v. NLRB (441 U.S. 488, 498 [1979]) and other cases since clarified that these mandatory subjects of bargaining include only matters that are “plainly germane to the ‘working environment’ ” and “not among those ‘managerial decisions, which lie at the core of entrepreneurial control.’ ” The bifurcation of bargaining subjects into mandatory and nonmandatory has great implications for job-security issues (Lofaso 2010). In particular, courts have construed the NLRA as not requiring bargaining over the actual business decision to close a plant. In Textile Workers v. Darlington Manufacturing Co. (380 U.S. 263, 268 [1965]), for example, the Supreme Court explained that “an employer has an absolute right to terminate his entire business for any reason he pleases.” Then, in First National Maintenance Corp. v. NLRB (452 U.S. 666 [1981]), the court clarified that the management decision to shut part of its company’s business for purely economic reasons was not, under the facts of that case, a mandatory subject of bargaining. Significantly, the court recognized the union’s legitimate “interest in participating in the decision to close a particular facility or part of an employer’s operations [as rooted in] its legitimate concern over job security” (id. at 681). But it nonetheless held that “an employer’s need to operate freely in deciding whether to shut down part of its business purely for economic reasons outweighs the incremental benefit that might be gained through the union’s participation in making the decision” (id. at 686). The court in First National Maintenance Corp. (452 U.S. at 677 n.15) noted an important corollary to the doctrine that an employer is not obligated to bargain with a majority union over the decision to shut down its plant. In particular, employers remain obligated to bargain over the effects of that decision. The NLRB has further elaborated on the employer duty to engage in meaningful effects bargaining. In Willamette Tug & Barge Co., 300 NLRB 282, 283 (1990), the Board explained that unions are entitled to “as much notice of [a] closing and termination of employees as [is] needed for meaningful [effects] bargaining at a meaningful time.”

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Codetermination The law could go farther than compelling negotiation between the parties over the effects of mass layoffs or plant closings. The law could bestow co-decision-making authority on firm and worker representatives over these subjects. A good example of such a system would be one that placed workers’ representatives on corporate boards of directors or went so far as to allow labor to determine the scope of layoffs. Codetermination would dignify workers and allow them to have meaningful decision-making authority over their own working lives (Lofaso 2007). But that solution is unlikely to be acceptable to firms in the short run and is certainly much less likely than my proposed solution to be acceptable to firms. Accordingly, discussion of codetermination awaits another paper.

Expanding the Law’s Role Wagner Act Lesson: Using Collective Bargaining To Restore the Free Flow of Commerce Historical analysis reveals the importance of collective bargaining in dealing with difficult economic issues affecting workers’ wages, hours, and other terms and conditions of employment (Befort and Budd 2009). One question presented during the early stages of industrialization was how to get from the observation that employers generally have much more bargaining power than workers to the argument that inequality of bargaining power obstructs the free flow of commerce. Making that connection was important in ensuring the constitutionality of the NLRA, or the Wagner Act as it was popularly called. In other words, the NLRB had to show that inequality in bargaining power eventually leads to greater inequality in the distribution of firm profits (to those with the greater bargaining power), which leads to industrial strife in the form of strikes, which in turn obstructs the free flow of commerce. In NLRB v. Jones & Laughlin Steel Corporation (301 U.S. 1, 30-32 [1937]), the Supreme Court ultimately agreed with a variation on that argument and declared the NLRA constitutional. Although Congress, the NLRB, and the courts have accepted this picture as true, the problem with this picture for free market skeptics is that it ignores the potential obstructions caused by collective bargaining. The economic literature contains studies that showcase these potential obstructions. The challenge for proponents of collective bargaining then is not only to demonstrate its utility in promoting human rights values such as dignity and autonomy, but to show that the labor market is fraught with market failure and that the obstructions created by individual bargaining are thus worse than those created by collective bargaining. In this short paper, I cannot fully develop the proposition that collective bargaining is socially optimal in all contexts. Instead, I focus on one market failure—the collective action problem—in the context of economic contraction and then show how individual preferences are better implemented through collective bargaining prior to layoffs than through individual bargaining. Solution: Collective Bargaining To Circumvent the Collective Action Problem In the context of economic contraction, potential plant closings, or mass economic dismissals, an employer of a nonunionized workforce could not possibly negotiate with every individual about his or her preferences affected by the impending layoff. Many individuals might prefer a pay cut to the layoff. And we have already established that an across-the-board wage cut is often preferable to the firm. And even if the firm were to negotiate with each individual about a pay cut, those individuals cannot bind their coworkers to a wage reduction. Accordingly, firms often make the socially suboptimal decision—to effectuate a mass lay off or plant closing—rather than to reduce wages. Mandatory collective bargaining or at least consultation prior to making the labor-cost-reduction decision and with full information disclosure circumvents this problem, resulting in the allocatively efficient solution (Coase 1960). Requiring employers and workers representatives, regardless of union status (Bellace 2002), to discuss the firm’s financial problem allows the employer to gather information relevant to the decision to lay off or to reduce labor costs in some other way. For example, workers representatives, armed with the firm’s financial information, can persuade employers that workers would in fact prefer a wage cut to a layoff or plant closure. Firms would not have to worry that the decision to cut wages would lead to a


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backlash because they would have worker buy-in through formal participation in the decision-making process (Michelman 1977). Nor would firms have to lose valuable, experienced workers either by exit (because they fear the axe coming) or by layoff (because the firm had no choice but to cut to make such deep cuts in labor costs that it had to cut some of its most productive workers; Hirschman 1970, Freeman and Medoff 1984). To implement this solution effectively, the scope of discussion should include most of the subjects required by the European collective redundancies directive (98/59/EC, article 2): “ways and means of avoiding [mass economic dismissals or plant closure] or reducing the number of workers affected, and of mitigating the consequences by recourse to accompanying social measures aimed, inter alia, at aid for redeploying or retraining workers made redundant.” To paraphrase the directive (98/59/EC, article 3[b]), discussion should also include information from the employer to the workers’ representative regarding the reasons for the projected dismissals, the number of categories of workers to be laid off, the number of categories of workers normally employed, the period over which the projected layoffs are to be effected, the criteria proposed for the selection of the workers to be laid off, and the method for calculating any severance payments or other pay incentives used to encourage workers to leave their jobs voluntarily. One practical problem with implementing this solution concerns the method for designating the workers’ representatives. Naturally, in the case of a unionized workforce, the union would be the designated representative. In other cases, workers’ representatives would have to be designated or elected for this purpose. Other countries, such as the United Kingdom, faced the same problem when the European Court of Justice ruled that national laws had to be harmonized to comport with the collective redundancies directive (Lofaso 2010).

Conclusion Requiring meaningful and timely discussions over these issues ultimately promotes allocatively efficient solutions to problems faced by a financially strapped firm. Firms might gain valuable cost-saving information from workers who are much more familiar with the details of shop work than are managers. Firms might also gain valuable insight into what is important to their workers—reduced hours, reduced pay, or leisure. This solution gives workers a chance to make their case, thereby simultaneously dignifying workers, by treating them as an equal worthy of input into these important decisions, and also liberating workers by allowing them to become part-authors of their own working lives. This allocatively efficient solution is thus also compatible with promoting an advanced capitalist society that takes seriously the values of worker autonomy and dignity and keeps the autonomous dignified worker at work (Lofaso 2007).

Acknowledgments I wish to acknowledge the research assistance of Matthew T. Yanni as well as the valuable comments of Professor Michael Risch, Jim Heiko, and those who attended the presentation of this paper at the LERA annual meeting on January 4, 2010, in Atlanta, Georgia.

Notes Even using the official unemployment statistics reported by the U.S. Bureau of Labor Statistics, at least two difficulties remain in accurately comparing unemployment data. First, the government has occasionally revised the definition of unemployment. For example, in 1994, the government substantially redesigned its Current Population Survey, a monthly survey designed to measure the extent of unemployment (U.S. Bureau of Labor Statistics 2010b, 2010c). Second and related to the definition of unemployment, the statistics do not include the long-term unemployed—among other, those who have felt compelled to leave the work force for educational opportunities because they could not find a job. The first problem relates to comparing data from different time periods when different definitions have been used. The second relates to accurately measuring the amount of cyclical, structural, and other types of unemployment in our economy at any given time. 1

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In particular, employers who employ 100 or more full-time workers (29 U.S.C. § 2101[a][1]; 20 C.F.R. § 639.3[a]) are obligated to provide 60 days’ notice of employment loss in two circumstances: a plant closing and a mass layoff. These two events are themselves statutorily limited by definition. The WARN Act (29 U.S.C. § 2101[a][2]; 20 C.F.R. § 639.3[b]) defines a plant closing as “the permanent or temporary shutdown of a single site of employment, or one or more facilities or operating units within a single site of employment, if the shutdown results in an employment loss at the single site of employment during any 30day period for 50 or more employees, excluding part-time employees.” The act (29 U.S.C. § 2101[a][3]; 20 C.F.R. § 639.3[c]) also defines a mass layoff as “a reduction in force which . . . is not the result of a plant closing; and results in an employment loss at the single site of employment during any 30-day period for . . . at least 33 percent of the employees (excluding any part-time employees); and . . . at least 50 employees (excluding any part-time employees); or . . . at least 500 employees (excluding any part-time employees).” 2

References Bastress, Robert M. 1988. “A Synthesis and a Proposal from Reform of the Employment At-Will Doctrine.” West Virginia Law Review, Vol. 90, No. 2 (Winter), pp. 219–351. Befort, Stephen F., and John W. Budd. 2009. Invisible Hands, Invisible Objectives: Bringing Workplace Law and Public Policy into Focus. Stanford, CA: Stanford University Press. Bellace, Janice R. 2002. “The Future of Employee Representation in America: Enabling Freedom of Association in the Workplace in Changing Times Through Statutory Reform.” University of Pennsylvania Journal of Labor and Employment Law, Vol. 5, pp. 1–32. Bewley, Truman F. 1999. Why Wages Don’t Fall During a Recession. Cambridge, MA: Harvard University Press. Coase, R. H., 1960. “The Problem of Social Cost.” Journal of Law and Economics, Vol. 3, no. 1, pp. 1–44. Dana, Susan. 2004. “The Covenant of Good Faith and Fair Dealing: A Concentrated Effort To Clarify the Imprecision of Its Applicability in Employment Law.” Transactions: The Tennessee Journal of Business Law, Vol. 5, No. 2 (Spring), pp. 291–310. Epstein, Richard A. 1984. “In Defense of the Contract at Will.” University of Chicago Law Review, Vol. 51, No. 4 (Fall), pp.947–82. Freeman, Richard B., and James L. Medoff. 1984. What Do Unions Do? New York: Basic Books. Hayek, Friedrich A. 1960. The Constitution of Liberty. Chicago: University of Chicago Press. Hirsch, Jeffrey M. 2008. “The Law of Termination: Doing More With Less.” Maryland Law Review, Vol. 68, No. 1, pp. 89–159. Hirschman, Albert O. 1970. Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States. Cambridge, MA: Harvard University Press. Homan, Timothy R. 2009. “World Bank Says Global Economic Recession To Deepen.” Bloomberg.com, June 22. . Hovenkamp, Herbert. 2009. “United States Competition Policy in Crisis: 1890–1955.” Minnesota Law Review Vol. 94, pp. 311–67. Lofaso, Anne Marie. 2007. “Toward a Foundational Theory of Workers’ Rights: The Autonomous Dignified Worker.” University of Missouri Kansas City Law Review, Vol. 76, No. 1, pp. 1–65. Lofaso, Anne Marie. 2010. “Talking Is Worthwhile: The Role of Employee Voice in Protecting, Enhancing, and Encouraging Individual Rights to Job Security in a Collective System.” Employee Rights and Employment Policy Journal, Vol. 14, No. 1, pp. 55–92. Michelman, Frank I. 1977. “Formal and Associational Aims in Procedural Due Process.” In J. Roland Pennock and John W. Chapman (eds.), Due Process, Vol. XVIII Nomos. New York: New York University Press. Muhl, Charles J. 2001. “The Employment At-Will Doctrine: Three Major Exceptions.” Monthly Labor Review, January, pp. 3–11. . Roseman, Barry D. 2008. “Just Cause in Montana: Did the Big Sky Fall?” American Constitution Society for Law and Policy, September. . [February 12, 2010].


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Samuelson, Robert J. 2010. “The Great Recession’s Aftermath.” Newsweek, January 4 . [February 12, 2010]. Shin, Annys. 2009. “World Bank Predicts Deeper Economic Contraction.” Washington Post, June 12. [February 12, 2010]. Stone, Katherine V.W. 2004. From Widgets to Digits: Employment Regulation for the Changing Workplace. Cambridge: Cambridge University Press. Summers, Clyde W. 1995. “Worker Dislocation: Who Bears the Burden? A Comparative Study.” Notre Dame Law Review, Vol. 70, No. 5, pp. 1033–78. Summers, Clyde W. 2000. “Employment at Will in the United States: The Divine Right of Employers.” University of Pennsylvania Journal of Labor and Employment Law, Vol. 3, No. 1 (Fall), pp. 65–86. U.S. Bureau of Labor Statistics. 2008. Annual Average Data: Employment Status of the Civilian Noninstitutional Population, 1940s to Date. . [February 10, 2010]. U.S. Bureau of Labor Statistics. 2010a. Monthly Data: Employment Status of the Civilian Noninstitutional Population 16 years and Over, Prior Years to Date. . [February 10, 2010]. U.S. Bureau of Labor Statistics. 2010b. Labor Force Statistics from the Current Population Survey: How the Government Measures Unemployment. . [February 12, 2010]. U.S. Bureau of Labor Statistics. 2010c. “Labor Force Data Derived from the Current Population Survey.” In BLS Handbook of Methods, Chapter 1. . [February 12, 2010]. U.S. General Accounting Office. 2003. Report to Congressional Requesters—The Worker Adjustment and Retraining Notification Act: Revising the Act and Educational Materials Could Clarify Employer Responsibilities and Employee Rights: United States Summary Report. GAO-03-1003. Washington, DC: Government Printing Office. .

Homeland Security: Theme of the New Deal DANIEL J.B. MITCHELL University of California–Los Angeles2

Abstract The New Deal had a central theme: economic security. But it lacked an economic model for achieving it. Although New Deal remedies are sometimes described as Keynesian, they were not based on Keynes and his macroeconomic model. Rather, there was a hodge-podge of theories and approaches, shifts in direction, and contradictions and a lack of timely empirical data on which to base policy. In contrast, the Obama administration, facing the Great Recession, has a (new) Keynesian model, but no central theme. The current agenda is diffuse, perhaps a reflection of a broader range of economic problems and social issues.

Introduction Over the years, many have puzzled over the Great Depression and the New Deal it spawned. Since the Great Depression represented a massive economic failure, far greater in depth than the current “Great Recession,” this fascination with calamity is understandable. The Depression/New Deal story is continually rewritten, with commentators across the political spectrum trying to prove points about current policies, either pro or con. One is reminded of the old joke in communist countries: The future is fixed; it is the past that keeps changing. The fragility and volatility of the economic and political situation in the period immediately before the New Deal is worth noting. Hoover called in the military to disperse the Bonus March of veterans in Washington, thus cementing his loss to FDR. A lunatic assassin tried to shoot president-elect Roosevelt prior to the inauguration. The shot went wild and hit the mayor of Chicago, who later died from the wound. If the assassin had been a better shot, would John Nance Garner, the vice president–elect, have brought about the New Deal? It seems unlikely. (Indeed, is it clear that the vice president–elect becomes president if the president-elect dies between the electoral college vote and the inauguration?)

Economic Perspectives I, too, have been repeatedly drawn to the Great Depression and the policy reaction. In this essay, I call on nine past items I have written or co-authored over the years (listed in the references) that touch on that period as well as some pre-career recollections. As a graduate student at MIT in the mid-1960s, I was assigned to read Keynes in the original. The General Theory was something of a Bible, and the urtext needed to be studied (Keynes 1936). There was great confidence in Keynesian remedies and senior faculty in the MIT economics department were regularly being called to Washington by the Kennedy/Johnson team for consultation. Basically, the economic remedies were depicted at the time as readily available, albeit sometimes stymied by political barriers and excessive worrying about deficits, debt ceilings, and the balance of payments. The main economic problem was seen as reconciling full employment and inflation. A proliferation of Phillips curve-variants were being estimated, thanks to the new computer technology that permitted regressions to be run without spending vast amounts of time on a mechanical desk calculator. It was hoped Author’s address: UCLA Anderson School of Management, Los Angeles, CA 90095-1481

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that the voluntary wage–price guideposts or some variation thereof would do the trick of providing the needed reconciliation. The fact that Keynes had not devoted much attention to this emerging problem was seen at MIT as understandable. After all, the overwhelming problem when he wrote the General Theory was mass unemployment. Indeed, those who were worried about inflation in the 1930s and resisted expansionary policy as a result were seen as misguided. Why worry about inflation when the economy had collapsed? If anything, the pull on prices and wages was downward—or should have been—given surplus labor and surplus capacity. From the macro-economists’ perspective, the New Deal was all about groping—not always successfully—toward Keynesian remedies. It was understood that most New Dealers were not Keynesians. After all, Keynes’ General Theory was not published until 1936, by which time Roosevelt was already running for his second term. So the Roosevelt administration fretted excessively about budget deficits and, in fact, tried to raise taxes to pay for expenditures and job creation. The imposition of Social Security payroll taxes was viewed in hindsight as contributing to the recession within the Depression of 1937. The taxes went into the new trust fund immediately, but no benefits were scheduled to be paid until the early 1940s. Nonetheless, the lessons learned were to guide post–World War II policy and ultimately provide the basis of Kennedy–Johnson activism. True, what was supposed to be the Full Employment Act right after the war was watered down to just the Employment Act. But even so, the new law created the Council of Economic Advisors (CEA), a seeming acknowledgment of presidential need for informed academic guidance of federal policy.

Industrial Relations Perspectives While the macro-economists at MIT looked back at the Great Depression for insights, the institutional labor economists there had a different emphasis. Unions had been in retreat in the 1920s, and the slide into the Depression accelerated their seeming impending demise. Then—suddenly—the union movement took off and with great drama. There were major strikes, colorful personalities, dramatic internal political battles (AFL vs. CIO, communists vs. business-unionists), sit-ins, and—as both cause and effect— new legislation. From this perspective, the New Deal was all about labor relations and the regulation thereof, with maybe some reference to Social Security thrown in for flavor. There was some tension between these alternative views of the Depression and its legacy. The activist Keynesians were out of office during the Eisenhower years, although the Eisenhower CEA members were by that time semi-Keynesian in their outlook. When the true Keynesian activists took over the CEA under Kennedy, they had to swallow the Democrats’ ties to organized labor. But various versions of wagepush inflation and wage–price spirals depicted had unions as potential thwarters of the attainment of full employment (Mitchell and Erickson 2008). (The minimum wage was also seen as a political price to be paid, but one that potentially created structural unemployment.) This perspective was not shared by institutional labor economists, who saw the pursuit of industrial democracy through collective bargaining as a social good. Folks who focused on labor relations were not so keen about the wage–price guideposts and the federal interventions in bargaining settlements that resulted. The interventions were viewed as potentially harmful to labor–management harmony, or at least to private dispute settlement.

Missing Elements from Keynes’ Two Perspectives The Keynesian model, put forward in the General Theory, was contrasted by Keynes in his book with the “classical” approach, basically the kind of economics associated with Alfred Marshall and others from Marshall’s era. Classical economists, in this view, were guilty of a fallacy of composition. They basically relied on Adam Smith’s microeconomic analysis—but in a new, then-sophisticated version in which graphical supply and demand curves illustrated how price adjustments would clear the market. Therefore, if there was an excess supply of labor (mass unemployment), it could be cured by lowering wages. If workers were stubborn and resisted wage cuts, the unemployment would persist until the recalcitrant

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workers relented. If there was excess capacity in the product market, again, lowering the price could resolve the problem. And if businesses were stubborn about price cuts, the solution was to wait them out. The problem was that such remedies would work only if the problem was confined to a single micro market. Adding up the micro market reaction to particular surpluses did not give you the macro reaction to a generalized surplus. When the problem was macro, the equilibrating price and wage mechanisms would fail. In a single market, say the market for apples, when there is a glut, cutting the price of apples induces customers in the short term to buy more. In the intermediate term, should the problem persist, farmers would be induced to produce fewer apples (and more of something else). Much of what the price mechanism is doing in this example is inducing a substitution effect, as apples become cheap relative to consumption alternatives (and cheap relative to wages, also inducing more apple consumption). On the supply side, apple farming becomes less profitable relative to other crops. But in a recession or depression, everything is in excess supply, including labor. There is a glut of everything—not just apples—and you can’t lower the price of everything relative to the price of everything to relieve the glut. Keynesian analysis really consisted in demonstrating that the seeming equilibrators at the micro level (wage cuts, price cuts, interest rate declines) would not operate at the macro level. But that point was not obvious to economists in the 1930s.

Labor as a Side Issue The New Deal, particularly in its initial phases, was aimed at doing something about the Great Depression, a glut of everything. But it might be best to note what it was not primarily about. Union-centric stories found in labor relations textbooks focus on Section 7A of the National Industrial Recovery Act (NIRA, NRA)—which seemed to promote labor organizations—and focus on the elaboration later of 7A into the more detailed Wagner Act. But that tale tends to obscure the economic centrality of the incoming New Deal administration (Mitchell 2006). Section 7A was just part of a much grander edifice. Labor unrest and the expansion of unions were unforeseen consequences of the Depression. The New Deal was not primarily about industrial democracy or collective bargaining; instead it reacted to demands by unions and workers for bargaining rights when labor unrest became a problem that could not be ignored. It is true that after the Supreme Court invalidated NIRA and other early New Deal legislation (and since Roosevelt’s court-packing efforts did not obtain congressional support), the Wagner Act became the legal vehicle for a major high court shift (5 to 4). Although the New Deal was not union-centric, the court’s decision upholding the Wagner Act allowed a constitutional expansion of federal economic regulatory power more generally. But this consequence is an illustration of historical accident and path dependence. Moreover, the Wagner Act itself was much more the product of congress and Senator Wagner than of Roosevelt.

The New Deal Theme: Combating Insecurity If unions and bargaining were not the theme of the New Deal, what was? There was a general thrust to the New Deal, and it was that insecurity and uncertainty were bad for the economy. Reducing insecurity was thus the key to economic revival. Bank Security Certainly, there was insecurity in having widespread failures of banks. Individuals could not be expected to put their money in banks that might disappear, and banks were needed to finance investment. Propping up banks through a combination of deposit protection and regulatory limits on speculative behavior was the solution to financial insecurity. In retrospect, stabilizing the banking system after a brief “bank holiday” was the most important component of the early New Deal. It did not cure the Depression, but it did halt the decline inherited by Roosevelt in 1933. Business Security


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Security was also needed for business. Businesses would be more confident if they were not subject to cutthroat competition. The solution under NIRA was to cartelize industry and engage in economic planning—an idea in vogue across segments of the political spectrum. In the 1930s, both communists and fascists worldwide could agree on the virtues of planning. But there were also key businessmen in the United States who had that view. Big firms did internal planning and allocating, so why not extend business insights to the overall economy? If businesses could be assured of market shares and pricing, they would be inclined to invest and hire, so the reasoning went. And with market shares and reasonable profit margins assured, employers could treat their workers well—something along the lines of the welfare capitalism touted in the 1920s. With wages high and assured, workers-as-consumers would buy. Thus, the industry codes under NIRA included minimum wages—and Section 7A (Mitchell 1986a). Income Security From a longer-term perspective, however, worker-consumers needed assurance of continued income. They might become unemployed, even in a relatively stable economy. When he signed the Social Security Act, Roosevelt noted that no law could completely end all the vicissitudes of life. Breadwinners might die young, leaving widows without income to raise their children. And workers might become too old to work and, absent a pension, would have no means of support other than meager grants from charities and poorhouses. The Social Security Act, with its old-age pensions, federal–state unemployment insurance, and “welfare” as we (used to) know it, would address such insecurities. Security Through Reflation There was also official concern about prices, which had fallen substantially during the slide into Depression. Price declines tended to favor lenders over debtors, leading to foreclosures of houses and farms. Irving Fisher–style debt-deflation stories were part of the diagnosis (Fisher 1933). The farm sector in the 1930s was a larger share of the economy than it is today, and farmers were debtors. Indeed, rural unrest was probably more on the mind of President Roosevelt than labor unrest when he took office. Yo-yo prices and wages were destabilizing and a source of insecurity. Prices and wages should go back up to where they were in 1929 to end the windfall transfer from debtors to creditors the deflation of the Depression had created. But even in the prosperous 1920s, there was a fair amount of wage cutting; that practice should be halted (Mitchell 1986c). Farm prices and other prices should be stabilized. Bringing up wages and prices would put debt and foreclosure risk back to reasonable levels. However, there was not much differentiation by New Dealers between the kinds of mechanisms that would cause prices and wages to go up. Agricultural price supports, unions, minimum wages in the NIRA codes (and later by law), cartel-type price raising, and fiddling with the price of gold were all possible mechanisms that would pull up or push up the price level, an effort at what was called “reflation.” All were seen as valid approaches. Or at least all should be tried. Trade: Planning Goes International International trade wars also contributed to instability. Democrats tended to be the party of free trade until the 1970s. This stance was a legacy of being the party of the South, a region that going back to the antebellum period had been a commodity exporter and an importer of manufactures. Republicans were the party of (northern) protection. Today, Senator Reed Smoot and Representative Willis Hawley and their tariff hike, made as the United States slid into the Depression, are vilified by globalists as the very cause of the slump. Of course, the Smoot-Hawley Tariff of 1930 was much more an effect than a cause. Nonetheless, Roosevelt wanted to undo the competitive protection that had wound down global trade during the Depression. Countries should mutually reduce tariffs through the reciprocal treaties and most-favored nation clauses that were part of the New Deal program. In a way, this approach was worldwide cooperative economic planning and more stability and security. Confidence

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By orchestrating all these variegated policies, New Dealers hoped to end the Depression. But what was also needed from their perspective was a psychological lift. That uplift was personified by a forceful but cheerful president, featured in newsreels and in fireside chats on the new exciting medium, radio. (Radio broadcasting was the one sector that showed substantial employment growth during the slide into the Depression.) The result, apart from direct popular communication from the president, was a campaign of boosterism: widely displayed NRA Blue Eagles and parades. Roosevelt’s famous quote from the first inaugural—“the only thing we have to fear is fear itself”—was in fact part of macroeconomic policy, not just catchy rhetoric.

Contradictions and Knowledge Gaps Prevailing economic views were much murkier than suggested by the Keynes-vs.-the-classicals story found in General Theory. Economists were certainly aware of the existence of the business cycle. But the very word “cycle”—still in use today—to describe the ups and downs of the economy conveyed a natural order of things. Cycle suggested phenomena such as the phases of the moon, the turning of the seasons, the advance and retreat of the tides, and the rising and setting of the Sun. There were learned articles in that period claiming that sunspots caused business cycles. Thus, the cycle, in a widespread view of that time, was a natural characteristic of the modern economy, which additionally had the benefit of cleaning out speculative excesses. Wait, and just as the Sun eventually would rise again and relieve the darkness, so too would prosperity return, and with a cleaned-up economy as an added benefit. The New Deal was a revolt against that conventional wisdom. More than waiting was needed. Waiting during 1929 to 1932 hadn’t worked. Active policies that would restore confidence and provide security were needed. If one policy didn’t do the trick, another should be tried. Textbook Fog The economic textbooks in use in the 1930s gave the student little insight into the cause of the economic crisis found just outside the classroom. The student would learn about corporations vs. partnerships and (if the book was really sophisticated) some graphical Marshallian analysis. The notion of a classical alternative to Keynes suggests to modern readers that there were just two competing models back then. But as I noted at the end of a review of such Depression-era textbooks, the truth is that there were not really two competing models; for the most part there were no models at all. Instead, there were suggestions, anecdotes, observations, dicta, and folk wisdom—a jumble of ideas. I concluded that “Keynes replaced a muddle with a model” (Mitchell 1986b:208). Even those who today still foam at the mouth at Keynesian notions must at least concede that he did have a model. Real vs. Nominal In the 1930s, distinctions such as nominal vs. real were not clearly apparent, although, of course, the two concepts were known. Wages should go up for consumption stimulation, some thought. Prices should go up for reflation. But if both went up, might not the real wage go down? If prices went up because of some kind of wage push, might that not squeeze profit margins, thus discouraging investment? Did it matter whether there was reflation because of codes and cartels as opposed to demand stimulation? You need a general model to begin to discuss such issues. But the tendency in the 1930s was to look at bits and pieces and hunches. Lack of Data Part of the problem was a lack of data. To have an economic model that might be useful, it helps to have some empirical facts; otherwise, there are no constraints, and anything goes. Of course, there were time series around with which to chart business cycles. You could find all kinds of indexes, such as freight car loadings, in the 1930s. But the key information that is in use today was either unavailable or was not available on any kind of timely basis. In his second inaugural address, Roosevelt famously spoke of “one third of a nation” facing various forms of poverty. But there was no routine collection of data on poverty lines at the time. It seems unkind to ask, but exactly what was that one third?


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Today, you can go on the Internet and pull up official data series on unemployment rates in the Great Depression. But in fact the Current Population Survey (the source of much modern labor market data, including unemployment) did not begin until 1940—that is, after the Depression was almost over. The pre1940 numbers are guess-timates based on limited payroll employment information. Unemployment was the number one problem of the Great Depression. But despite occasional stabs at measurement, such as the postcard survey of 1937, no one really knew (or knows today) what the unemployment rate was. Some price information was gathered, such as a forerunner of the modern Consumer Price Index. But unlike today, when monthly releases appear on a timely basis, such information did not appear promptly once collected. The national income accounts were under development in the 1920s at the private National Bureau of Economic Research (NBER). Only later were the accounts transferred to the U.S. Department of Commerce. But the figures produced appeared with a lag of years, and the product side (and therefore the real side) remained undeveloped. Most of the nice times series of income and product that now go back to 1929 did not exist at the time or appeared long after they might have been useful. Part of the explanation for the lack of key empirical information is technology; there were no computers to process data quickly. But another part is that since the federal government did not see its role as stabilizing the economy until the New Deal came along, it was not obvious why it should produce timely and detailed statistical information. What would you do with it? The federal government, it is important to recall, was quite small relative to the overall economy going into the Great Depression. No one was waiting anxiously for weekly data on new claims of unemployment insurance; before the New Deal, unemployment insurance did not exist. So it is not surprising that economic data tended to come from private sources such as NBER and the National Industrial Conference Board. The Golden Ear of the King Since there was no convincing model around, there was always the issue of who would get the ear of the king. The gold story is an illustration (Mitchell 2000a). Today, the gold standard is largely seen as a form of fixed exchange rates; if all currencies are fixed to gold, then they are inherently fixed to each other. However, the gold standard at the time was seen as the heart of Sound Money. President Hoover refused to go off gold, or even to raise the U.S. dollar price of gold, as other major countries, notably Britain, dropped off the gold standard early in the slide into Depression. Thanks to the Populist free silver movement of the late 19th-century and its capture—in the person of William Jennings Bryan—of the Democrats in the 1896 election, there was a paradox in American politics. Republicans were the party of Sound Money (gold); they were thus internationalists on money but isolationists on trade (protection). Democrats, in contrast, became the party of easy money in 1896; they were internationalists on trade but isolationists on money. Fast forward now to 1933, when President Roosevelt is captivated by two Cornell agricultural economists, George Warren and Frank Pearson, and their theories of gold and prices (Warren and Pearson 1935). In essence, Warren and Pearson viewed money as a veil for gold. You could therefore raise nominal dollar prices by simply changing the dollar value of gold. Want reflation? All you need to do is raise the official price of gold! Such a gold price rise was in essence merely a change in the measurement unit of value, according to Warren and Pearson. Just as you could raise recorded numerical room temperature by switching from Celsius to Fahrenheit, so too could you raise prices and wages by raising the official gold price. There was reason to go off gold or to raise its price, but not the Warren and Pearson reason. Hoover’s refusal to do so created international speculation that the United States eventually would follow Britain off gold. The result was a gold outflow from the United States. Under a gold standard, gold losses are supposed to trigger a contractionary monetary policy, exactly the opposite of what was needed. There is some historical debate over the degree to which the Federal Reserve was obligated to follow gold standard rules. But apparently it felt a constraint, legally or otherwise. In addition, with other major currencies off gold, or back on gold at higher official prices than before the Depression began, the dollar tended to become overvalued. Roosevelt eventually raised the gold price to $35 an ounce in 1934, after playing with it during 1933. Under the Warren and Pearson “theory,” all prices from haircuts to wheat and all wages should have gone up proportionately since money—the dollar—was just a veil for gold. The dollar was just a measurement unit,

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no more real than an “inch” by itself is real. Gold was real. The dollar was just a handy way to describe a certain quantity of gold. In fact, what happened when the dollar price of gold was raised was a typical devaluation effect on prices; the prices of tradables tended to rise relative to nontradables. Indeed, the reason that devaluations “work” in the real world is precisely because money isn’t merely a veil and prices and wages are sticky in their home currencies. It turns out that in the modern economy, the dollar is real, whether officially hooked to a commodity or not (Mitchell 1993). Roosevelt, having unknowingly performed an interesting social science experiment demonstrating that point, went on to other things, and no one today talks about Warren and Pearson. Gold was largely forgotten until the Bretton Woods currency agreement toward the end of World War II.

The Upshot Conservatives like to point to the fact that despite New Deal efforts, the Depression lasted until the eve of World War II, when military spending stimulated the economy and eventually brought unemployment down to near zero. But Keynesians actually agree and note that, indeed, it was government spending that did the trick. The New Dealers just did not do enough of it until the war came along and did it for them. At the peak of World War II, the military alone was buying over 40 percent of the GDP. With that much government involvement (including detailed wage and price controls, rationing, and allocation of production and resources), the need for economic data was apparent. The United States emerged from the war with a much more elaborate federal statistical program and much more experience with federal intervention in the economy. Today, there is no doubt that presidential administrations and the party in power are held accountable by the public for economic performance. The Democrats need to worry, therefore, about the 2010 congressional elections and even 2012, unless there is notable economic improvement. Another legacy of the New Deal is the anti–New Deal it engendered. Republicans in the 1930s largely opposed the expansion of government authority, regulation, and social insurance. That approach failed to capture the public mood and led to a Roosevelt reelection victory in 1936. As a result, a more accommodating wing of the GOP took over during the Wilkie-Dewey-Eisenhower years. The anti–New Dealers made a brief comeback in the 1964 Goldwater campaign. But like Alf Landon in 1936, Goldwater was trounced. Nixon, the Republican victor in 1968 and 1972, it might be recalled, proposed employer-mandated health care and imposed wage–price controls. His labor secretary, George Shultz, hobnobbed with AFL-CIO president George Meany and was the father of affirmative action in the workplace (the Philadelphia plan in construction). And if Nixon hadn’t gone to Red (!) China, perhaps the Chinese would not be financing Obama’s deficit today. Under Reagan, the anti–New Dealers made a comeback. However, Reagan—a child of the Depression and a former Democrat and union president—had a warm spot for Social Security. His Greenspan Commission (1981–1983) adjusted Social Security finance and took the issue largely off the table for two decades. But after Reagan and George G.W. Bush, the counterrevolution in the GOP was completed The most visible consequence of the triumph of the anti–New Deal was the failed attempt under George W. Bush to privatize Social Security. It may be odd for a major political party to have its economic platform focused on undoing events of seven decades ago. But that seems to be the basis of recent tea-party rhetoric about Obama bringing socialism and fascism.

The Present and the Past As noted, the New Deal had a theme—alleviating insecurity—but no model. It could lurch from remedy to remedy and from idea to idea. Under the NIRA, the antitrust laws were suspended. But in the late 1930s, under assistant attorney general Thurman Arnold, antitrust enforcement was pursued enthusiastically. Gold was a big deal until 1934. Then it was forgotten for a decade. Spending was good for “priming the pump.” But taxes should be raised to pay for it. Roosevelt did not fix the Great Depression, as conservatives


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like to note. He did save the country, however, by convincing voters he was doing all he could and was on their side in the struggle. He was thus rewarded with reelection in 1936 and with an unprecedented third term in 1940. In contrast to the New Dealers, the Obama administration has a model—(new) Keynesianism—but not a theme. The lessons it draws from the 1930s are more in the area of avoiding the mistakes from that era. The Federal Reserve should be aggressive in saving major financial institutions and should push against legal constraints if necessary to do so. Public spending should be hiked—but not taxes. If the Obama people are following any New Deal example, it is Roosevelt’s attempt not to appear “radical” and to maintain a contrast between the president and others who offered alternative solutions that disturb the mainstream. In the 1930s, there were all kinds of stray social movements—some right, some left, and some hard to define. There were pension-seeking Townsendites, followers of Huey Long’s Share-theWealth, and listeners to Father Coughlin’s inflammatory political sermons on the radio (Mitchell 2001, 2000b). All these groups denounced Roosevelt and ran a third-party candidate against him in 1936. Yet the same groups caricatured aspects of New Deal policy in their demands, such as redistribution and fiddling with the monetary system. Such movements, by their very shrillness, made New Deal policies such as Social Security seem more centrist. It is perhaps not accidental that just as Social Security was modeled on the few corporate pension plans that welfare capitalism had produced (trust funds, defined benefits, shared employer and employee contributions), Obama’s health plan is built on the existing system of private and largely employer-provided health insurance. When Obama goals other than bailouts, stimulus spending, and tax cuts are examined, however, their relation to the immediate macroeconomic problem is unclear. Health insurance does not closely relate to the current economic challenge. It is more about trying to alleviate budget problems that will occur when baby boomers retire. Global warming policy speaks to yet another future issue. Alternative energy encouragement has something to do with global warming and something to do with national defense. Obviously, in an interdependent world and economy, every policy is somehow linked to every other policy. But at least at this writing, the Obama agenda is diffuse. “Hope,” after all, is not a theme. It may well be that this presidential diffusion is the inherent result of the contemporary array of diverse challenges. While economic recovery is a key goal, President Obama also inherited two wars, the terrorist threat, and a hodgepodge of social issues, including abortion, stem cells, gay marriage, and illegal immigration. The major social issue facing the incoming Roosevelt administration was Prohibition. Dialogues about race were not concerns of the median voter in that era of segregation and lynching. Abortion and homosexuality were always and everywhere illegal; they weren’t issues. No one had heard of stem cells. Terrorism came from the Ku Klux Klan, a group protected by southern politicians, not from international jihadists. One of Roosevelt’s Supreme Court appointees (Hugo Black) admitted to having been a Klan member early in his career. Perhaps we should be glad to live in more complicated times.

Note The author is professor emeritus at UCLA Anderson School of Management and UCLA School of Public Affairs. He can be reached c/o Anderson School of Management, Los Angeles, CA 90095-1481 USA; phone 310-825-1504; fax 310-829-1042; [email protected].

References Fisher, Irving. 1933. “The Debt-Deflation Theory of Great Depressions.” Econometrica, Vol. 1, No. 4 (October), pp. 337–57. Keynes, John M. 1936. The General Theory of Employment, Interest, and Money. New York: Harcourt, Brace & World. Mitchell, Daniel J.B. 2000a. “Dismantling the Cross of Gold: Economic Crises and U.S. Monetary Policy.” North American Journal of Economics and Finance, Vol. 11, No. 1 (August), pp. 77–104.

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Mitchell, Daniel J.B. 1986a. “Inflation, Unemployment, and the Wagner Act: A Critical Reappraisal.” Stanford Law Review, Vol. 38, No. 4 (April), pp. 1065–95. Mitchell, Daniel J.B. 1993. “Keynesian, Old Keynesian, and New Keynesian Wage Nominalism.” Industrial Relations, Vol. 32, No. 1 (Winter), pp. 1–29. Mitchell, Daniel J.B. 2006. “The National Labor Relations Act After Seventy Years: An Assessment. Discussion.” Proceedings of the 58th Annual Meeting, Boston, January 6–8. Urbana: IL, Labor and Employment Relations Association, pp. 160–3. Mitchell, Daniel J.B. 2000b. Pensions, Politics, and the Elderly: Historic Social Movements and Their Lessons for Our Aging Society. Armonk, NY: M.E. Sharpe. Mitchell, Daniel J.B. 2001. “Townsend and Roosevelt: Lessons from the Struggle for Elderly Income Support.” Labor History, Vol. 42, No. 3, pp. 255–76. Mitchell, Daniel J.B. 1986b. “Wages and Keynes: Lessons from the Past.” Eastern Economic Journal, Vol. 12, No. 3 (July–September), pp. 199–208. Mitchell, Daniel J.B. 1986c. “Explanations of Wage Inflexibility: Institutions and Incentives.” In Wilfred Beckerman (ed.), Wage Rigidity and Unemployment. London: Duckworth, pp. 43–76. Mitchell, Daniel J.B., and Christopher L. Erickson. 2008. “The Concept of Wage-Push Inflation: Development and Policy.” Labor History, Vol. 49, No. 4 (November), pp. 417–38. Warren, George F., and Frank A. Pearson. 1935. Gold and Prices. New York: John Wiley.

XV. LERA Poster Sessions I and II

Mergers and Acquisitions: Industrial Relations Issues and Outcomes SEAN ROGERS Rutgers University1 Although mergers and acquisitions have been strategically used as business tools for corporate growth, development, and even survival in the United States since the late 19th century, the impact of these organizational changes on industrial relations issues and outcomes is not well understood. While a range of academic literatures provides empirical evidence on the impact of mergers and acquisitions activity on financial, economic, and human resources–related outcomes and employee reactions, theoretical development and empirical exploration concerning the impact these business activities have on two important industrial relations constructs, internal labor markets and employee voice, prove far less voluminous. This proposal reviews the theoretical and empirical literature on the impact of mergers and acquisitions on internal labor markets and employee voice, proffers several propositions, and outlines a program of research designed to explore, enhance, and test these theoretical propositions. The results of this examination will help deepen our understanding of how mergers and acquisitions affect industrial relations outcomes. Such enhanced knowledge can have important and beneficial implications for both the planners and implementers of mergers and acquisitions and for the employees of integrated companies.

Work Rights and the Millennium Development Goals, Targets, and Indicators GILLIAN MACNAUGHTON University of Oxford2 DIANE F. FREY London School of Economics Elimination of world poverty has been at the top of the global agenda since the turn of the millennium, when leaders from 189 nations committed in the United Nations Millennium Declaration to work in partnership for peace, poverty eradication, and human rights in order to create a better world for all. The Millennium Declaration was later configured into eight Millennium Development Goals (MDGs) with timebound targets and indicators, which provide the global framework for international development and poverty elimination policy, programming, and monitoring. Full employment and decent work for all was not one of the original MDGs or targets. In October 2007, however, the UN General Assembly approved four 1 2

Author’s address: School of Management and Labor Relations, 50 Labor Center Way, New Brunswick, NJ 08901 Author’s address: 45 Street, #121, Montpelier, VT 05602

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new targets to the MDGs, including a target “to achieve full and productive employment and decent work for all.” Comparing the Decent Work Agenda of the International Labour Organization and the definition of the Right to Decent Work in international human rights law, this paper examines the indicators selected to monitor progress toward the new target of full employment and decent work for all.

A Comparison of Card Check Recognition in Illinois and Ohio TIMOTHY D. CHANDLER Louisiana State University1 RAFAEL GELY University of Cincinnati We examine public sector organizing events in Illinois, which in 2003 amended its collective bargaining statute to require employers to recognize unions on the basis of card checks, and Ohio, which allows card-check recognition to occur but has no legislation requiring it. Comparing the two states from 1999 to 2008 reveals that the Illinois card-check legislation altered the organizing landscape for public sector unions and employers. New organizing opportunities for unions led to more organizing events, especially card checks, more newly organized employees, and a shift in the types of employers and employees that participated in organizing campaigns.

Workplace Violence: Employee Perceptions of Acts and Perpetrators JACK L. HOWARD University of Alabama at Birmingham2 Over the past two decades, there has been a significant increase in the attention that workplace violence has received. The present study examines employee perceptions of workplace violence perpetrators and acts. Employees of a large Midwestern public university were surveyed. They will be presented with their organization’s policy on workplace violence. A 3 X 5 experimental design was used where subjects evaluated 15 scenarios where five different types of perpetrators of workplace violence were presented committing three different acts of workplace violence. Subjects indicated their level of agreement regarding how representative the scenario is of workplace violence. The results are presented and discussed.

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Author’s address: William and Catherine M. Rucks Department of Management, E.J. Ourso College of Business, Baton Rouge, LA 70803 2 Author’s address: Department of Management, Information Systems and Quantitative Methods, 319 Business Engineering Complex, 1150 10th Ave. S., Birmingham, AL 35294

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Once More: Why Enter a Female-Dominated Occupation? PETER TOUMANOFF and TIMOTHY KEAVENY Marquette University1 The objective of this project is to provide evidence regarding the proposition that women who enter female-dominated occupations and who display labor force participation patterns consistent with the traditional family role of women are acting in their best interests with regard to long-term earnings. Our analysis is based on subjects who participated in the Wisconsin Longitudinal Study. We estimated separate earnings equations for female-dominated (FD) and non-female-dominated (NFD) occupations. The FD and NFD estimates are used to calculate a predicted salary for every individual for both FD and NFD occupations. The predicted FD salary is subtracted from the predicted NFD salary to create a predicted wage differential that an individual might expect between a NFD and a FD occupation. Although the full sample mean is a negative $166, indicating that the average predicted salary is less in NFD occupations than in FD occupations, the average male expects to make $51 more in a NFD occupation, whereas the average female expects to make $511 less. Our findings suggest that individuals make their occupational choices rationally, given their expected wage differentials and the different ways their characteristics are rewarded in FD and NFD occupations.

An Analysis of Certification Elections in the Hospital Industry EDWIN W. ARNOLD Auburn University at Montgomery2 Unions were very successful in hospital industry certification elections from 2001 to 2008, winning 533 of 799, or 66.7 percent. They won 439 of the victories by landslide, even though only about 25 percent of the cases were in units of less than 25 employees. The 10 unions with the highest hospital certification election participation rates accounted for 89.5 percent of the elections, with the SEIU involved in 42.2 percent of the cases, with a victory rate of 77.2 percent. The percentage increase in hospital industry union membership exceeded employment growth from 2001 to 2008.

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Author’s address: Department of Management, P.O. Box 1881, Milwaukee, WI 53201 Author’s address: School of Business, Department of Management, PO Box 244023, Montgomery, AL 36124

XVI. Infrastructure Investment and High-Road, Green Construction Jobs

A Green Industrial Relations System for Construction: Challenges and Opportunities DAVID WEIL Boston University1

Abstract Forecasts about future employment in “green construction” imply sizeable growth in the next decade. If growth is even half of that forecasted for a sector like home weatherization, companies that provide services will need to operate at a far larger scale and sophistication than is typical today. This article uses data on existing wages and benefits and the costs of typical contractors in the industry and the business demands facing future contractors to speculate on what models of business organization might become dominant. Different models of business, in turn, will affect the employment and workplace conditions that will emerge over time.

Are Green Jobs Good Jobs? I’m calling on Congress to consider a new program to provide incentives for consumers who retrofit their homes to become energy-efficient, which we know creates jobs, saves money for families, and reduces pollution that threatens our environment. And I’m proposing that we expand select Recovery Act initiatives to promote energy efficiency and clean energy jobs, which have been proven to be particularly popular and effective. —President Barack Obama, December 20091 For some time, the expectations for employment arising from green construction have been high. As President Obama’s recent comment indicates, green jobs in construction—and in general—are seen as a remedy for a wide variety of ills. They address the need for consumers of green services, and they offer reduced energy costs at a time when consumers face the specter of rising prices. For business, they offer a new frontier of services—a vast, emerging market for new types of residential, business, and government services. For society, they offer the twin benefits from reducing dependence on carbon-laden energy sources that substantially contribute to global warming through conservation and providing greater energy independence for the U.S. with a variety of positive economic and national security benefits. And in a time of economic crisis, green jobs provide an important source of economic stimulus that works its way through the economy quickly. In this short essay, I take a micro-view of this macro-level set of impacts by focusing on the challenges (or perhaps more aptly questions) that arise as green employment develops in the construction sector. Rather than speaking in generalities about “green employment” or even “green construction employment,” I will paint on a small canvas: thinking about the factors driving employment and workplace Author’s address: School of Management, 595 Commonwealth Avenue, Room 520A, Boston, MA 02215

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conditions in the nascent area of residential weatherization, the subsector of green construction devoted to retrofitting existing residences to improve their energy efficiencies through insulation, changes in heating and cooling systems, improving window and door seals, and the like.2 I sketch out what we know about the labor and product markets that currently make up this sector. I then speculate on how the sector may evolve given the scale of expansion described by the Obama administration and many of those currently discussing improved residential energy efficiency. The business pathway of evolution has profound implications for the industrial relations system that will emerge over time. My hope is that the challenges and opportunities arising in this corner of the green construction universe reveal larger questions that will unfold and need to be answered as green employment expands.

Residential Weatherization Markets The home weatherization market was targeted as an important part of the American Recovery and Reinvestment Act of 2009 (ARRA) stimulus spending. About $4.7 billion has been allocated to it under the 2009 Recovery Act, and by the end of October 2009, a little more than half—about $2.4 billion—had been awarded to states or U.S. territories.3 Presumably, the stimulus spending today represents only the beginning of inflow into the sector—a mere jump-start for weatherization provided by the economic stimulus that will be matched and exceeded over time from investments by the private sector. At the moment, the money for weatherization work is small relative to spending for other categories of residential remodeling (see below). Long-established U.S. Department of Energy programs such as the Weatherization Assistance Program have functioned at a level that is a fraction of what would be required for making major inroads in enhancing residential energy efficiency.4 A study by McKinsey (which should be read with some caution) suggests that to “unlock energy efficiency in the US economy” in terms of retrofitting will require huge growth in the scale of the sector (Granade et al. 2009:38–9). The report notes that currently there are about 200,000 retrofits in the U.S. each year. If one hoped to capture what the McKinsey study deems “full efficiency potential” arising from retrofitting roughly 70 million homes where substantial improvements could be made over a 10-year period, the number of certified providers would need to increase on the order of 30 to 40 times—that is, from a currently estimated 40,000 to 1.5 million by 2020. As EI discuss below, it is hard to imagine change on this kind of scale given the way that such markets are currently organized.

Employment Conditions in Home Weatherization Green employment in residential weatherization is only emerging now, and the characteristics of the labor market are not yet captured in an industry classification. Some studies have begun to look at what workers in green employment actually do, but these studies also seem to be capturing the characteristics of jobs that are evolving (e.g., Green 2009). Because of the requirement under the ARRA that contractors using stimulus funds pay workers according to prevailing wages under the Davis Bacon Act, we do have preliminary estimates of wages and benefits in the industry based on wage surveys conducted by the Department of Labor’s Wage and Hour Division. Table 1 presents the results from a recent (July 2009) area wage surveys regarding weatherizationrelated contractors for California.5 In general, hourly rates for the three categories of weatherization work are well below that of rates for similar crafts in the residential construction sector.6 For several of the largest counties in California— Sacramento, San Francisco, San Diego—the hourly rates for basic weatherization work and replacement installers are over 40% lower than for carpenters working in the residential sector in those counties. Similarly, hourly rates for workers doing HVAC-related retrofitting are significantly below the hourly rate for plumbers in the same region (e.g. 31% lower in Sacramento and 53% lower in San Diego). Hourly rates for weatherization categories are only slightly below comparable residential rates in Los Angeles County, and in several cases in the tables (and small counties not included here) there are even some inversions, where weatherization-related trades actually make more than comparable residential rates. Still, the overall picture seems to be one where hourly wages are significantly below those in residential construction, which in turn

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are well below wage rates in commercial, industrial, and heavy and highway construction.7 Benefit levels— where present—also seem to be below those provided to comparable crafts in residential (which, once again, are usually considerably below those in other crafts).

TABLE 1 California Residential Weatherization Wage Determination (Selected Counties) Weatherization surveya Hourly rate and fringe benefit rate where prevailing

County Alameda Contra Costa Fresno Humboldt Imperial Kern Lake Los Angeles Marin Mariposa Mendocino Mono Monterey Orange Riverside Sacramento San Bernardino San Diego San Francisco Santa Barbara Santa Clara Sierra Ventura

Weatherization worker $15.35 + .50 $17.12 + .68 $17.72 + 1.33 $11.31 + 4.06 $10.00 + 2.77 $27.39 + 1.51 $13.00 + 2.78 $19.00 + 3.96 $15.46 + 1.07 $11.77 + 4.33 $13.00 + 2.78 $11.18 + .69 $15.39 + .50 $21.15 + 4.13 $15.00 $17.04 + 3.55 $23.28 + 3.37 $16.62 + 10.27 $17.08 + .93 $18.52 $17.00 + 5.45 $21.55 + 9.15 $25.00 + 6.44

Doors and windows replacement worker $24.73 + 10.34 $22.77 + 3.65 $17.72 + 1.33 $11.31 + 4.06 $10.00 + 2.77 $27.39 + 1.51 $18.00 + 3.55 $19.17 + 3.90 $18.00 + 3.55 $14.94 + 4.11 $18.00 + 3.55 $11.18 + .69 $12.50 + 2.34 $28.55 + .87 $20.00 $17.53 + 4.94 $23.42 + 3.30 $16.62 + 10.27 $21.90 + 2.60 $15.00 $17.00 + 5.45 $21.55 + 9.15 $25.00 + 6.44

HVAC furnace, heating/cooling repair, installlation replacement worker $20.00 + .38 $27.00 + .52 $16.45 + 1.29 $20.00 $24.00 $26.91 + 5.62 $20.00 $28.00 + .39 $27.00 + .52 $26.91 + 5.62 $20.00 $17.93 + 1.54 $27.00 + .52 $28.00 + 3.99 $24.00 $18.88 + 5.14 $21.28 + 3.30 $17.10 + 1.43 $27.00 + .57 $20.19 $27.00 + .57 $20.00 $20.19

Existing residential wage determinationb Hourly rate and fringe benefit rate where prevailing

Carpenterc $36.50 + 21.40 $36.50 + 21.40 $21.24 + 7.20 $19.08 + 6.915 $21.00 + 10.58 $21.24 + 7.20 $7.76 $21.00 + 10.58 $34.75 + 21.40 $29.27 + 20.96 $7.76 $13.00 $30.62 + 20.96 $21.00 + 10.58 $21.00 + 10.58 $29.77 + 21.40 $21.00 + 10.58 $37.28 + 10.58 $36.50 + 21.40 $21.00 + 10.58 $36.50 + 21.40 $8.50 $21.00 + 10.58

Electriciand $29.87 + 11.95 + 3% $29.87 + 11.95 + 3% $18.00 + 2.00 + 3% $18.80 + 5.53 + 3% $32.45 + 11.08 + 3% $32.15 + 15.09 + 3% $7.47 $20.20 + 7.74 + 3% $34.01 + 11.95 + 3% $22.10 + 9.24 + 3% $7.47 $12.67 $29.87 + 11.94 + 3% $19.00 + 7.26 + 3% $18.00 + 7.45 + 3% $38.43 + 11.40 + 3% $19.00 + 7.26 + 3% $37.35 + 11.08 + 3% $29.87 + 11.95 + 3% $17.50 + 0.50 + 3%* $29.87 + 11.95 + 3% $10.00 $33.55 + 13.25 + 3%

Plumbere $45.96 + 24.90 $33.66 + 14.69 $34.25 + 18.43 $16.47 + 9.45 $29.97 + 12.91 $29.97 + 12.91 $7.47 $29.97 + 12.91 $40.80 + 22.60 $27.35 + 6.85 $7.47 $10.00 + 1.25 $39.00 + 17.93 $29.97 + 12.91 $29.97 + 12.91 $27.35 + 6.85 $29.97 + 12.91 $35.97 + 15.86 $40.80 + 22.60 $29.97 + 12.91 $30.90 + 7.90 $7.25 $29.97 + 12.91

Source: U.S. Wage and Hour Division, California Residential Weatherization Wage Determination, S2009-CA-001, Issued 12/11/2009; Expiration date: 3/6/2010. Available at http://www.dol.gov/whd/recovery/dbsurvey/weatherCA.htm. aFrom the Wage and Hour Division website: “The three classifications listed under the Weatherization Survey Wage Determination column are the classifications and rates determined to be prevailing for weatherization work and are based on wage data submitted in response to the weatherization survey. Weatherization work, as well as the specific duties that may be performed by these three classifications, is defined on this project decision. The wage and benefit rates are based on California WHD survey (S2009-CA-001).” bFrom the Wage and Hour Division website: “The classifications listed under the Existing Residential Wage Determination column are those classifications and rates currently published as prevailing on the residential general wage determinations. These wage determinations may be found at www.wdol.gov. The classifications and rates listed under the Existing Residential Wage Determination column may be used on weatherization projects only in those situations where the work is different than that described for the three classifications listed under the Weatherization Survey Column. For example, when an electrician is needed to perform electrical work not associated with the installation, repair, or overhaul of furnace or cooling equipment, then the existing electrician classification and rate listed under this column may be used for that work.” cExcludes door and window replacement and work listed as performed by weatherization worker. dExcludes electrical work associated with HVAC installation, overhaul, and work listed as performed by weatherization worker. eExcludes work associated with HVAC installation repair or overhaul and work listed as performed by a weatherization worker.


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The survey data in Table 1 provide only a partial and early view of workplace conditions in these emerging job categories; we know little of employment volatility, availability of training, health and safety conditions, compliance with labor standards, and the longevity of employment opportunities and pathways in the industry. Those will emerge over time and will be shaped by the business organization of the sector. So to forecast whether green employment will be good employment in this sector, we need to think about how that sector will organize itself over time.

Current Industry Structure What do we know about the business organization of the emerging green weatherization industry? As with the labor market, the outlines of the industry are unclear, but its basic contours can be best understood by looking at the residential remodeler industry since there is not a distinct NAICS category covering the sector.8 The residential remodeling sector is made up of a large number of very small contractors. Using published and unpublished data from the 2002 Census of Construction, researchers from the Harvard Joint Center for Housing Studies estimate that there were a total of 530,200 businesses in the professional remodeling industry.9 This total was composed of two main groups: 200,100 remodelers with payrolls and 330,100 self-employed contractors (contractors with no employees).10 While remodelers with employees made up less than 40 percent of the total number of establishments in the remodeling industry, they constitute the majority of all remodeling revenues. More than three-quarters of all self-employed contractors reported revenues of less than $100,000. On the other hand, remodeling contractors with payroll are still for the most part very small contractors, with 58 percent reporting revenues below $250,000 annually, and only 0.1% with annual receipts above $5 million (Will and Baker 2007). Most contractors with payroll employ a small number of workers—about 3.9 workers overall and only 2.4 construction workers per establishment.11 Table 2 presents the major elements of remodelers’ income statement, based on preliminary results from the 2007 Economic Census of Construction. As is true in other sectors of construction, the balance sheet is dominated by payroll (12 percent of expenses for construction and 10 percent for nonconstruction), payments to other firms for subcontracted work (29 percent) and materials and supplies (37 percent).12 Although the category “cost of construction work subcontracted to others” (e.g., ventilation work subcontracted out by a general remodeler) includes labor, materials, and overhead costs, if one groups the categories of subcontracted work and payroll, it shows that the majority of remodelers’ expenses are directly related to the costs of labor. TABLE 2 Residential Remodeling Income Statement, 2007 Economic Census Value ($000) % of total Value of construction work on private projects (federal, state, and local) 1,362,392 2.50 Value of construction work on public projects 53,431,523 97.50 Total 54,793,915 100.0 Expenses Payroll, nonconstruction 4,714,465 9.90 Payroll, construction 5,609,127 11.80 Materials, components, and supplies 17,752,882 37.30 Cost of construction work subcontracted to others 13,589,775 28.50 1,102,218 2.30 Fuels and energy Rental (all) 561,460 1.20 9.00 Other expenses 4,306,437 Total 47,636,364 100.0 LaborPayroll, all types 10,323,592 21.70 related Cost of construction work subcontracted to others 13,589,775 28.50 expenses Payroll and sub work 23,913,367 50.20 Source: U.S. Census Department, Preliminary Economic Census of Construction, Residential Remodelers, 2007. For information on confidentiality protection, sampling error, nonsampling error, and definitions, see Survey Methodology. Data in this file represent those available when this file was created; data may not be available for all NAICS industries or geographies. Data in this table may be subject to employment- and/or sales-size minimums that vary by industry. Revenues

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The portrait of an industry composed of small, competitive, and volatile employers—with a large segment of contractors acting as independent contractors with no payroll—fits with the wage survey results in Table 1. Contractors operate in highly competitive markets with low barriers to entry and exit. Although some standard-setting efforts are present (including a system promulgated by the Department of Energy), there are no clear quality guidelines among consumers, and judging the abilities of contractors is difficult since they—like auto mechanics and heart surgeons—provide both the diagnosis and treatment for a problem. Hence, the small contractor trying to win weatherization work in a geographic area competes against a multitude of other small contractors, creating intense pressure to both lower price and shape consumer preferences. Since a remodeler’s income statement is dominated by labor-related costs, pricing pressure quickly translates into pressure to reduce labor costs. This creates a steep product market gradient where contractors set their workplace policies (Weil 2010).

Future Organization of the Sector The end users in construction play a major role in shaping the industrial relations system that forms in the industry over time. For example, the industrial relations system in the major residential sector has been changing in recent years, in part because the sector is driven by large-scale homebuilders who have been increasing their market share in many metropolitan markets (Abernathy, Baker, Coulton, and Weil 2008). Major homebuilders act as construction managers, directly employing few of the basic trades in residential construction while coordinating all phases of development, construction, marketing, and sales. Their strategies of managing risk (arising from holding land, deciding when to move it into development phase, deciding how many homes to build on a speculative versus presold basis) ripple through to the many subcontractors who are responsible for building homes. To forecast what might happen to the industrial relations system for “green contractors” in the weatherization/retrofitting industry requires speculating on what will shape the product market. It seems reasonable that as the industry emerges, its organization will require it to address several major factors: Find a solution to the imbalance in the timing of the costs and benefits of weatherization, in particular the fact that costs are born upfront by the home owner but benefits accrue over time (in the form of energy savings). This requires a financial intermediation demanding a level of risk management capability and access to significant capital. Deal with the complexities of multisector funding. Even after stimulus money is exhausted, it seems probable that financing in the industry will come from a combination of public, nonprofit, and private sources. Currently the industry has very little experience with work from this sector. As Table 2 indicates, a tiny fraction (2.5 percent) of project work completed in 2007 came from the public sector—and the majority of that work (63 percent of the $1.36 billion) was from state and local, not federal, sources. Administering the flows from public and nonprofit sources will require enhanced administrative and managerial capacities. Operate under quality standards and regulations. The potential for fraud is significant in this industry (have you heard the one about the vinyl siding salesman. . . ?). Given the presence of public money, certification and standards will play probably an important role both for the regulation of the industry and for competitive success of players within the system. Serve a large, decentralized customer base with varying needs, variable resources, and homes of highly varied condition. While each of the factors already described would favor larger, more sophisticated players over time, the actual production process—what it takes to weatherize a home—does not lend itself easily to a cookie cutter approach. This makes gaining economies of scale more difficult. Find and deploy a skilled or semiskilled workforce. The workforce required to provide varied services for weatherization (even putting aside the different skill and craft needs for heating and cooling work) requires a trained workforce with diverse skills. If the sector grows at even a quarter of the rate described in the 2009 McKinsey report cited earlier, it is hard to imagine doing so given its current informal organizational structure in light of the competitive and production demands I have described. One can imagine several different industry/business models emerging over time:


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Renovation redux. Like the homebuilding sector, the remodeling sector experienced a boom in the first part of the 2000s, tracking the rise of big box retailers Home Depot and Lowes. Over that time, larger remodeling contractors emerged in local markets, but the industry remained remarkably unconcentrated and is still dominated by small local players. This pathway seems most likely if the forecasts for exponential growth prove wrong and industry remains on its present, or a slightly higher, growth path. Emergence of regional “all-in-one” players. The factors shaping the industry push for greater sophistication by providers. One model would be for specialized contractors to gain traction and scale in the market and the emergence of larger, regional players capable of playing an “all-in-one” role in the industry. Alternatively, financial intermediaries—who may take the form of public, nonprofit, or private capital—or energy companies are already playing an important role in moving weatherization efforts forward. These players could assume the role of providers, or perhaps as major investors behind regional players. If they are able to structure deals and undertake renovations more efficiently than the installed base of competitors, major regional players could emerge who directly employ the labor force. Weatherization construction managers (Home building redux). An alternative would be the residential construction model, where major players emerge who organize the market but still subcontract work. On one hand, the employment statistics for this industry look similar to those in the renovation sector: the average number of workers per establishment in residential home building is 4.7.13 However, this ratio masks the emergence of large-scale homebuilders during the housing boom. A wave of consolidation began in the early 1990s that continued throughout the boom (and continues even during the present slump). Over this time, the share of new homes sold by the top ten builders in the country grew from under 10 percent in 1991 to almost 30 percent by 2006 (Apgar and Baker 2006). This figure understates the extent of consolidation given that a great deal of competition in the industry occurs in large metropolitan markets. By 2006, the top five builders accounted for more than 35 percent of new homes built in metro areas like Denver (48 percent), Austin (46 percent), Sacramento (39 percent), and Las Vegas (38 percent).14 As a result, the top ten builders at the height of the housing boom (e.g., companies like Beazer and Pulte Homes) built more than 45,000 new homes a year. However, these builders acted almost entirely as construction managers, directly employing very few workers. While a typical division15 of one of the major homebuilders built about 6,900 new homes and employed about 50 construction managers/supervisors to oversee construction, it directly employed only an average of 12 carpenters, 3 plumbers, and 3 electricians on direct payroll (Abernathy, Baker, Coulton, and Weil 2008). Instead, it draws on a large number of contractors and subcontractors to undertake the work on building sites. McWeatherize: A franchise model. A different way to think about the future path for the sector is to take a “business opportunity” perspective: How could a player make major inroads into this market with its complexities and need for quality assurances and capture to the extent possible scale and scope economies— while not having to deal directly with employment? Franchising could provide an answer: Establishing a recognizable “brand” built around reputation and/or association with a particular certification procedure could both surmount problems on the consumer-demand side and make buying franchises attractive to prospective contractors. The franchised company could establish standards of performance and provide a funnel for making deals with third-party finance and quality standards and the government while avoiding the need to directly employ the labor force (which would become the task of franchisees).

Green Employment: Future Choices Like other segments of construction, it would be reasonable to assume that one of the industry pathways will coevolve with the development of contractors and their associations and with how the workforce is organized to undertake weatherization work on the ground. This means that the different players that will emerge under one of the scenarios sketched above will set policies regarding who funds and provides training, how career paths are handled, and the organization of work itself, including the provision of health and safety practices. The involvement of the Building and Construction Trades Council nationally and regionally and of many of the leading building trades unions in early experiments reflects awareness of the potential for affecting this coevolution of business models and industrial relations system practices. But labor unions, community groups, and the public sector are not alone in that awareness.

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Over the past few decades, the nonunion sector in many parts of construction has evolved its own forms of training, advancement, and practices. Increasingly, nonunion industrial relations systems have taken their own distinctive form and characteristics, particularly where there has been little history of a union sector (Iskander, Hagen, and Lowe 2009; Iskander, Lowe, and Riordan 2009). It would be analytically naïve to assume that the kind of sophistication demanded by an emergent green sector of construction employment along the lines described above would give an inherent advantage to the established unionized industrial relations system. The industrial relations systems in private markets for construction will be shaped by the new networks that will form between end users, project managers, and subcontractors along lines that no longer include significant players of the traditional system. Gaining a clear understanding of the nature of those emerging networks is essential to understanding who will be bidding, winning, and setting conditions of work on construction sites. One dominant trend from other sectors of construction—and trends in the workplace in many other sectors—is that employers will seek to “fissure” the employment relationship, separating the creation of profit margins from the actual undertaking of work at the construction sites. From fast food to hotels to logistics to construction, employment relations have been fissured in this way between players at the top of value chains who in turn contract to a complex network of smaller employers (Weil 2010). These lower-level employers typically operate in more competitive markets and therefore operate on steeper gradients. Hence, the small contractor trying to win weatherization work in a small geographic area competes against a multitude of other small contractors, creating intense pressure to lower costs, particularly the cost that most dominates its income statement and is the most controllable: labor. On the other hand, the parties that set many of the conditions of competition—for example, home builders or major fast food franchisors—operate in an environment that afford more options with which to pursue profitability. If this plays out in green construction, workplace conditions may have many of the problems associated with employment in the residential construction sector, including high levels of safety and health problems, violation of labor standards, and misclassification of workers (Bernhardt et al. 2009). On the other hand, if key parties understand the forces that will shape the sector upfront and consciously try to shape the industrial relations system as it coevolves with emerging business models, the future of green employment could take a very different pathway and provide some of the “win-win” gains touted by advocates not only for business, consumers, and the public but also for the people who undertake the work.

Author’s Note This is a preliminary draft of this paper, revised January 30, 2010; comments, suggestions, and murmurings welcome.

Notes 1 Speech

at the Brookings Institution, Washington, DC, December 8, 2009. I will paint on an even smaller canvas than that, focusing on single-family residential weatherization. Multiunit residences (in particular apartments, condominiums, and other high-rise residences) tend to have characteristics more closely associated with commercial rather than residential construction, including the type of construction methods and the types of construction contractors who undertake the work. The U.S. Department of Labor, Wage and Hour Division has recognized this distinction in making wage determinations as required by the Davis-Bacon Act (prevailing wage legislation for public construction). Accordingly, residential structures that are five stories or more are subject to “building construction” rates rather than the newly established residential weatherization wage rates. 3 U.S. Department of Energy, Weatherization Assistance Program: Recovery Act Funding to the States. . [December 15, 2009]. 4 The Weatherization Assistance Program (WAP) was created in 1976 to assist low-income families who lacked resources to invest in energy efficiency. It has funded weatherization efforts in all 50 states and 2 And


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assisted a reported 6.2 million homes since 1976. In 2008 (prior to the stimulus effort), an estimated 100,000 homes will have been weatherized with DOE funds. See http://www.waptac.org/sp.asp?mc=what. 5 Wage and benefit survey estimates for weatherization work were released by the Wage and Hour Division in mid-December 2009 and are available at http://www.dol.gov/whd/recovery/dbsurvey. 6 The definition of “weatherization” craft is also in a state of flux and varies across the states surveyed. 7 A review of wage rates in Massachusetts and New York show similar trends. It is not possible to estimate an average comparison for the state as a whole from this data because of the absence of employment estimates for these sectors. 8 Residential remodelers represent a unique industry group in the 2007 NAICS industry codes (236118). This industry comprises establishments primarily responsible for the remodeling construction (including additions, alterations, reconstruction, maintenance, and repair work) of houses and other residential buildings, single-family and multifamily. Included in this industry are remodeling general contractors, operative remodelers, remodeling design-build firms, and remodeling project construction management firms. There are other industries that serve as subcontractors to this sector—such as weather strippng installation (NAICS 238390), but they also do not completely align with this emerging sector. 9 The study defines professional remodelers as general and special trade construction businesses earning more than 50 percent of receipts that year from remodeling activities (including maintenance and repair). See Will and Baker 2007. 10 Remodeling contractors with payroll were made up of 82,900 general remodeling contractors and 117,200 specialty trade contractors (contractors providing specific types of construction services in the remodeling business, such as plumbing, electrical work, heating and ventilation, painting, finish carpentry, and roofing). Self-employed contractors were made up of 127,200 general remodelers and 202,900 self-employed special trade contractors (Will and Baker 2007). 11 Calculated from figures in Construction: Industry Series—Preliminary Detailed Statistics for Establishments: 2007 (EC0723I1: NAICS 236118). 12 The census figures pertain only to businesses with payroll and not to the large number where contractors are self-employed. 13 This estimate is based on 2002 Census of Construction figures for new single-family housing construction (NAICS 236115). This U.S. industry comprises general contractor establishments primarily responsible for the entire construction of new single-family housing, such as single-family detached houses and townhouses or row houses. 14 Estimates from Hanley Wood Market Intelligence 2008. 15 Most national homebuilders are organized around geographic divisions. A division is typically restricted to a single metropolitan region. Homebuilders’ divisions are responsible for all the steps of home building, beginning with obtaining permits from the local government to building specific homes on given plots of land.

References Abernathy, Frederick, Kermit Baker, Kent Coulton, and David Weil. 2008. Bigger Is Not Necessarily Better: Industry Restructuring and the Performance of the Residential Homebuilding Sector. Working draft. Cambridge, MA: Joint Center for Housing Studies/Harvard University Center for Textile and Apparel Research. Apgar, William C., and Kermit Baker. 2006. The Evolving Homebuilding Industry and Implications for Consumers. Cambridge, MA: Joint Center for Housing Studies, Harvard University. Bernhardt, Annette, Ruth Milkman, Nik Theodore, Douglas Heckathorn, Mirabei Auer, James DeFillipis, Ana Luz Gonzalez, Victor Narro, Jason Perelshteyn, Diana Polson, and Michael Spiller. 2009. Broken Laws, Unprotected Workers: Violations of Employment in Labor Laws in America’s Cities. \AU: Pls provide a city of publication for this paper\Center for Urban Economic Development, University of Illinois at Chicago/National Employment Law Project/UCLA Institute for Research on Labor and Employment.

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Granade, Hannah Choi, Jon Creyts, Anton Derkach, Philp Farese, Scott Nyquist, and Ken Ostrowski. 2009. Unlocking Energy Efficiency in the U.S. Economy. McKinsey and Company, Global Energy and Materials Group, October. Iskander, Natasha, Jacqueline Hagen, and Nicola Lowe. 2009. “Revealing Talent: Informal Skills Intermediation as an Emergent Pathway to Immigrant Labor Market Incorporation.” Environment and Planning A (Forthcoming). Iskander, Natasha, Nicola Lowe, and Christine Riordan. 2009. The Rise and Fall of a Micro Learning Region: Mexican Immigrants and Construction in Center-South Philadelphia, 2000–2009. Working paper. New York: New York University. Weil, David. 2010. Mending Fissured Employment: A New Approach to Reestablishing Fair Workplace Governance. Manuscript. Will, Abbe, and Kermit Baker. 2007. The Performance of Remodeling Contractors in an Era of Industry Growth and Specialization. Working paper W07-8. Cambridge, MA: Harvard University Joint Center for Housing Studies.

XVII. LERA Refereed Papers II

Revisiting Debt and Labor — Bailouts for Homeowners: Can the U.S. Compel Public Service in Exchange for Debt Relief? MICHAEL H. LEROY University of Illinois at Urbana-Champaign1

The Historical Connection between Debt and Labor I explore the legality of requiring people to perform public service in exchange for federal aid that reduces their debt. As the U.S. government has bailed out banks, insurance companies, and the auto industry, it has imposed tough terms on companies. Executive pay has been capped, CEOs have been fired, and the government has ordered massive reorganizations. To avoid onerous terms, some banks have repaid their bailout. The United States has also bailed out homeowners by providing low-interest-rate loans while paying off the borrower’s costlier debt (U.S. Department of the Treasury 2009b). A second program modifies mortgages up to $729,750 (U.S. Department of the Treasury 2009a) by writing off debt. The programs aim to help 7 to 9 million Americans. This study focuses on these individuals. They must meet qualification standards—but are not obligated to repay the large personal savings that these programs generate. While there are compelling reasons to relieve home borrower debt, this government aid raises questions. By benefiting property owners, it favors the more affluent. In contrast, people who receive unemployment checks must seek and accept work. They are not entitled to collect an income subsidy without expending effort. Similarly, welfare programs are now recast as workfare. Aid recipients must work or perform public service to receive benefits. With this in mind, I ask whether the United States can require home borrowers to provide public service in exchange for debt relief. My inquiry draws loosely from Depression-era programs such as the Civilian Conservation Corps (Salmond 1965) and Works Project Administration (Darby 1976), when the United States engaged destitute citizens in public service projects. But my inquiry relates to a deeper historical relationship between debt relief and labor. Jewish law mandated unconditional debt forgiveness every sabbatical year (Kennedy and Clift 2000). At the other end, Rome ordered the death and carving up of a debtor’s body for pro-rata distribution to creditors (Countryman 1983). Henry VIII steered England on a middle path by imprisoning debtors and refusing to forgive their debts (Landry and Mardis 2006). The criminalization of debt delinquency influenced master and servant law in the American colonies. Here, the English practice of imprisonment for debt evolved to allow debt bondage, known as indentured servitude. Masters recruited impoverished Europeans and Englishmen to bind themselves for five years of labor in exchange for passage money and subsistence (Countryman 1983). An involuntary system also arose by which English convicts were shipped to America under indenture. Broadly speaking, debts to society were repaid by forced labor. In time, American idealism tempered these coercive practices. The Ordinance of 1787, which created the Northwest Territory, prohibited “involuntary servitude” (Phoebe 1828). Influenced by this noble charter, an antebellum court allowed a woman to nullify her contract of servitude to a white man (The Case of Mary Author’s address: School of Labor and Employment Relations, 504 E. Armory Avenue, Champaign, IL 61820

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Clarke 1812). President Lincoln’s Emancipation Proclamation drew directly from the language of the Northwest Ordinance, as did the Thirteenth Amendment. This history bears upon the five groups of individuals in my study who have been subject to compulsory public service. The first group performed road duty, a practice that I trace to the early 1800s. Able-bodied men were required by state and county governments to work several days each year building roads and bridges, without pay, or face fines and imprisonment. In another practice from the 1800s, lawyers were ordered to represent indigent defendants without pay. Beginning in the 1940s, draft laws were changed to allow conscientious objectors to avoid military service. These men were required, however, to accept fulltime employment for two years in charitable organizations. They worked for less pay than their civilian jobs. The 1970s brought two new forms of public service. Some welfare programs required recipients to accept assignment in community projects if they could not find employment. Separately, the United States sought to improve health care in underserved areas by sponsoring a scholarship program to train doctors. However, as a condition for receiving tuition, these physicians were required to accept a job assigned by a federal agency. In all five work scenarios, federal and state government used coercive sanctions to force individuals to perform a public service. Most cases carried imprisonment and fines. In the case of noncomplying doctors, the United States trebled their debt and added a steep interest rate. Public aid recipients were threatened with termination of benefits or contempt of court for failing to perform community service. As I explore the legality of requiring public service to write off personal debt, I consider two potential obstacles. Federal law prohibits peonage, a form of involuntary servitude in which a person is coerced to work off a debt (18 U.S.C. § 1581). Also, the Thirteenth Amendment prohibits involuntary servitude, except as a punishment for crime. My study reviews these and other legal grounds for resisting compulsory work. Based on this extensive case law, I conclude that the federal government could require individual borrowers to perform public service in exchange for debt forgiveness.

Road Duty Road duty originated under a Roman law doctrine called trinoda necessitas. All free men were required to participate in any “expedition against the enemy, the construction of arsenals, and the repairing of bridges” (Harper 1922:731). As early as 1809 in American law, trinoda necessitas meant road duty—the conscription of able-bodied male adults each year to build and maintain local roads (Overseers 1810). Many states required this service, including Kansas (in re Dassler 1886), North Carolina (State 1906), Illinois (Sawyer 1841), Georgia (Johnston 1879), Louisiana (Barrow 1892), Vermont (Town of Starksborough 1841), New York (Walker 1847), Alabama (Whitt 1909), New Hampshire (Pickering 1841), Texas (Ex Parte Roberts 1889), Nebraska (Burlington M.R.R.Co. 1876), Pennsylvania (Miller 1861), Arkansas (Lowery 1889), and Wisconsin (Biss 1877). Though not a tax, this requirement was similar to jury or military service that the state could order without pay (Probst 1921). Courts rejected arguments that road duty was a form of involuntary servitude (Dennis 1894). When individuals failed to comply, they were fined (Bouton 1808) or jailed (State 1884). The duty was controversial because it was imposed unequally. Town dwellers were exempt from work outside city limits (DeTavernier 1871), but rural residents had countywide duties (State 1906). The latter were required to furnish wagons and teams, plus feed. This disparity was lawful (Galoway 1918). The law tolerated other inequalities. Slaves could substitute for their owners (Woolard 1841). Road duty laws exempted men who performed public functions, such as serving on fire-fighting companies (Leedy 1895). In the early 1900s, states responded to growing criticism by phasing in road taxes (State 1905). Road duty was not discontinued before the Supreme Court affirmed the practice in a far-reaching decision. Butler (1916) upheld a Florida law that required men to work without pay for six days every year on roads and bridges. J.W. Butler was jailed for 30 days after he ignored this duty and failed to make an alternate arrangement. Upholding the conviction, Butler traced the duty to Roman law, which decreed that “with respect to the construction and repairing of ways and bridges no class of men of whatever rank or dignity should be exempted” from conscription. Butler also concluded that when Congress enacted the Thirteenth Amendment it did not intend to extinguish public duty.

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Butler remains a vital and relevant precedent, even though road duty was abolished long ago. For example, courts rely heavily on this precedent to uphold community service mandates that are graduation requirements for high school students (Herndon 1996, Immediato 1995, Steirer 1993).

Lawyers and Pro Bono Publico Centuries ago, English courts ordered lawyers to represent indigent criminal defendants without compensation (Holdsworth 1964). Many early American colonial courts adopted the practice (Carpenter 1859, Webb 1854, Whicher 1848), though a few courts ruled that unpaid appointments were unlawful (Blythe 1853). Typical of these early courts, the Illinois Supreme Court declared: “The law confers on licensed attorneys rights and privileges, and with them imposes duties and obligations, which must be reciprocally enjoyed and performed” (Vise 1857). Similarly, the Supreme Court of California acknowledged that lawyers “are not considered at liberty to reject, under circumstances of this character, the cause of the defenseless” (Rowe 1860). Nabb (1864) extended appointment of unpaid counsel to a Kickapoo Indian who was charged with manslaughter. Passage of the Thirteenth Amendment did not affect the unpaid nature of this duty (Arkansas County 1876, Elam 1873, House 1875, Johnson 1884, Johnston 1874, Lamont 1874, People 1920, Posey & Tompkins 1873, Presby 1892, Ruckenbrod 1943, Washoe Co. 1879, Wayne County 1879). Against this clear trend, a handful of early American courts presaged a more contemporary approach of requiring some payment to appointed counsel. The Indiana Supreme Court said that lawyers should be treated like any other occupation: “The idea of one calling enjoying peculiar privileges, and therefore being more honorable than any other, is not congenial to our institutions. And that any class should be paid for their particular services in empty honors is an obsolete idea belonging to another age and to a state of society hostile to liberty and equal rights” (Webb 1854). Similarly, the Iowa Supreme Court reasoned: “It is not presumable that this humane provision of the law for the protection of the accused, but innocent, poor citizen, was intended by the legislature to be at the expense and in violation of the right of the citizen, whose profession is that of an attorney” (Hall 1850). Nonetheless, pro bon publico remained a vital doctrine in the 20th century. Judge Cardozo’s scholarly decision set the tone for expanding the duty during the New Deal and the civil rights movement: “Membership in the bar is a privilege burdened with conditions. The appellant was received into that ancient fellowship for something more than private gain” (People 1928). As the current era unfolded, most courts upheld the public service tradition. The New Jersey Supreme Court reaffirmed the duty, saying: “A lawyer needs no motivation beyond his sense of duty and his pride” (State 1966). Utah’s highest court echoed this noble view: “The assignment has been assumed by the lawyer out of respect for the court in which he serves and out of a sense of responsibility which lawyers feel towards humanity in general” (Bedford 1968). While pro bono publico remains a vital duty, a Supreme Court ruling (Gideon 1963) that required states to provide counsel to indigents loosened the doctrine’s grip. In response to the growing number of compulsory appointments, Congress enacted the Criminal Justice Act of 1964 to provide limited pay. As more attorneys represented indigent clients, they raised constitutional objections (Contempt of Spann 1982). But courts dismissed Thirteenth Amendment challenges to compulsory appointments (People 1972, Roberts 1995). Williamson (1982) said that the “Thirteenth Amendment has never been applied to forbid compulsion of traditional modes of public service even when only a limited segment of the population is so compelled.” Courts also ruled that compulsory appointments do not deprive lawyers of their property (Jackson 1966, Tyler 1973, Young 1971) or deny equal protection (Sparks 1979). Currently, the most remarkable aspect of pro bon publico is its extension to so many civil actions, including involuntary transfer of elderly patients from a hospital to a nursing home (Application of St. Luke’sRoosevelt Hosp. Center 1993), marital dissolution (Smiley 1974), termination of parental rights (In re Ella B. 1972), adoption (In re Adoption of R.I. 1973), paternity disputes (Salas 1979), contested deeds (In re Goreson (1983), civil contempt (Otton 1974), evictions (Hotel Martha Washington Mgmt. Co. 1971), and prisoner charges of cruel punishment (Lofton 2001).

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Compulsory Work of “National Interest” for Conscientious Objectors The Constitution provides Congress far-reaching authority to call up a militia. President Lincoln implemented the first draft, calling up every male citizen between the ages of 20 and 45. During World War I, Congress authorized another draft. All men between the ages of 21 and 30 were required to register and present themselves for service. Sustaining congressional power to enact this legislation, Arver v. U.S. (1918) rejected a Thirteenth Amendment challenge to a wartime draft. More recently, Congress created an exempt classification for conscientious objectors (COs) in the Universal Military Training and Service Act. COs were required to perform civilian work that contributed to national health, safety, or interest. The duty lasted 24 months and was structured like a full-time job (U.S. v. Crouch 1971). COs worked harder and for less pay compared with their civilian jobs (Frank v. U.S. 1951). During World War II, they labored in rural camps (Kramer 1945), sometimes six days a week (U.S. v. Emery 1948). Hard physical work changed after World War II to urban assignments with social service agencies (U.S. v. Sutter 1954). Often, COs were assigned to hospitals or charitable organizations (Klubnikin 1956, Badger 1963). Courts did not view civilian work ordered in lieu of military deployment as involuntary servitude (Davis 1968, U.S. v. Burns 1971, U.S. v. Phillips 1970) or a taking of property for public use without just compensation (U.S. v. Hobbs 1971). A military emergency was not necessary to justify the government’s requirement for duty (O’Connor 1969). While many COs held recognized religious titles, they did not qualify for a full ministerial exemption from mandatory civilian work (Atherton 1949, U.S. v. Hoepker 1955, U.S. v. Huisinga 1969, U.S. v. Niles 1954, U.S. v. Smith 1954, U.S. v. Thorn 1970, U.S. v. Von Nieda 1955). Typifying courts in the view of COs, Hopper v. U.S. (1943) said, “Surely it is not expecting too much to require of them that they do civilian work of national importance at a time when their brothers, under the same compulsion, are giving their lives for them and for the Nation.” Judges were also unmoved when COs claimed that their work conditions were harsh. U.S. v. Emery (1948) concluded that “the system of selective service, with its requirements of forced military service for selectees in general and of the substituted work of national importance for conscientious objectors, would not be operable if claimed harshnesses in detail could be contested by refusing any obedience to the system.” Nor did courts equate forced civilian duty with convict labor (Brooks 1945). What constituted work that suited the national interest? The CO in U.S. v. Copeland (1954) failed to convince a judge that assignment to Goodwill Industries did not fulfill a public purpose. On rare occasion, however, COs were able to avoid civilian duty and escape criminal sanctions. U.S. v. Casias (1969) overturned a conviction because the government failed to provide this CO his Miranda rights when it sought incriminating information from him. The Seventh Circuit overturned a five-year sentence in Huisinga (1970) after the trial judge and draft board failed to account for information showing that the CO had qualified for a full ministerial exemption from any duty. But court reversals of draft board decisions were rare. The Supreme Court, in Cox v. U.S. (1947), explained that Congress denied judges “the customary scope of judicial review which obtains under other statutes. It means that the courts are not to weigh the evidence to determine whether the classification made by the local boards was justified.” The practical result was that failure to complete a civilian work assignment resulted in imprisonment up to five years (U.S. v. Chaudron 1970). This sanction underscored the coercive nature of the CO’s civilian duty.

Public Assistance and Workfare In the 1820s, indigents could be declared by law as paupers and required to work for the public as a condition for support (Commonwealth 1838). A pauper’s work in a poorhouse paid his debt for support (City of Taunton 1904). Similarly, during the Depression a relief worker’s unpaid civic service could payoff his debt to a city (City of Marlborough 1937). In the same period, public service employees were unable to block a work relief program that created labor market competition (Social Investigator Eligibles Ass’n 1935). “Workfare” came back into vogue in the 1970s, when some states enacted laws that required aid recipients to perform public services (Ballentine 1973). Thus, a state may withhold welfare benefits unless an


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individual registers with the job services office (New York Dep’t of State Social Services 1973). The requirement to register for work in order to receive public aid does not constitute involuntary servitude or peonage in violation of the Thirteenth Amendment (Brogan 1990). A recipient’s failure to report to work may result in aid termination (Delgado 1985). Recipients are not entitled to the same pay as civil service employees or the minimum wage rate (Johns 1995). A federal law, the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, allows states to require aid recipients to work in order to qualify for benefits. As a condition for providing aid to a needy family, a state may order a neglectful father to perform community service (Commonwealth 1935). A trial court may constitutionally impose a contempt sanction on a parent who refuses to seek employment in order to pay child support (Moss 1998). In Moss, the California Supreme Court explained: “It has never held that employment undertaken to comply with a judicially imposed requirement that a party seek and accept employment when necessary to meet a parent’s fundamental obligation to support a child is involuntary servitude.” Individuals have failed to persuade courts that workfare requirements are a form of peonage. This is because an individual “is under no compulsion to participate in [a state’s] general relief program. Moreover, because there is no threat of penal sanction for failure to abide by the work relief rules, the program does not constitute peonage” (Delgado 1985). Similarly, Ballentine (1973) reasoned: “However difficult the loss of home relief is, a person is not held in a state of peonage when the only sanction for his refusing to work is that he will not receive payments currently. That may be a form of mankind’s immemorial bondage of bread; but it is not peonage.” In short, the current trend is to require employment or community service as a condition for public aid. Recipients who do not comply with these work requirements face termination of benefits. For some individuals, this amounts to coerced choice to work or perform public service.

Mandatory Work for Scholarship Recipients: National Health Service Corps The federal government sponsors a scholarship program for medical students. The National Health Service Corps (NHSC) requires scholarship recipients to work in areas that are medically underserved. This service program was established by the Emergency Health Personnel Act of 1970. Scholarship recipients must work one year in an assignment for each year of tuition support. From a medical student’s perspective, the program provides needed financial aid. But some recipients do not fulfill assignments that they consider to be undesirable (U.S. v. Hatcher 1991, U.S. v. Kokayi 1997, U.S. v. Ledwith 1992). The program does not force doctors to work against their will. However, when recipients renege on their service commitment, the U.S. government sues to recover three times the outstanding amount on the loan. In U.S. v. Bloom (1997), the government sued to recover $152,579, plus interest of $345,410. The physician argued unsuccessfully for a waiver of the service requirement because it created family hardships. In U.S. v. Maldonado (1994), the United States sued for $412,051 after the recipient accepted $46,878 in scholarship funds but failed to commence his three-year service obligation. Some physicians argue that the treble damages amount to involuntary servitude. U.S. v. Redovan (1986) rejected this reasoning, noting that the doctor who sought to avoid service and the damages provision differed in his circumstances compared to poor illiterates who were victims of peonage. The court explained: “All of the cases cited by the defendant involved unfortunate individuals, some of whom were illiterate and even unable to communicate in English, who were ill equipped to understand the scope of the obligation they entered into until the die was cast. Redovan can hardly claim to be in a similar position. He understood the nature of the obligation before he entered into it as an educated professional.” Courts have consistently upheld the treble-damages provision of the law (U.S. v. Armstrong 1991, U.S. v. Haithco 1986, U.S. v. Hayes 1986, U.S. v. Turner 1987). They reason that the value of lost services “is difficult if not impossible to determine” (U.S. v. Turner 1987). An additional provision, allowing the government to collect compensatory damages, magnifies damages. U.S. v. Vanhorn (1994), for example, awarded the NHSC program damages in the amount of $183,953 based on scholarship monies that totaled $26,582. Ruling that this disparity was not unconscionable, the court emphasized that the doctor was repeatedly told to comply with her service commitment each time before the program escalated the damages. In U.S. v. Hugelmeyer

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(1991), the disparity between scholarships valued at $50,448 and damages of $307,917 did not violate the doctor’s due process rights. Chapter 7 bankruptcy litigation highlights the hard choice that physicians face between accepting an assignment and paying dearly for the freedom to practice medicine elsewhere. In Mathews (1994), an internist preferred to work in Pennsylvania but was assigned to a job in South Dakota. She made no effort to accept the assignment and took her preferred job. The NHSC program sued to recover damages under its scholarship program and won a court repayment order of about $400,000. After Dr. Mathews filed for Chapter 7, a bankruptcy court discharged part of her scholarship debt. But this ruling was reversed by the Third Circuit Court of Appeals. Applying the unconscionability provision in the NHSC regulations, the court concluded that that Dr. Mathews failed to prove that her assignment to South Dakota was shockingly unfair, harsh, or unjust. The fact that she would need to uproot her family from Pennsylvania was unpersuasive. Like Mathews, most courts strictly construe the unconscionability provision in the National Health Service Corps’ scholarship program (in re Dillingham 1989, U.S. v. Kephart 1994, U.S. v. Quinn 1989). Only a handful of cases deviate from this trend. One physician had his debt discharged because of physical inability to work in his specialty (In re Ascue 2002). A loan recipient who failed to complete her medical degree had 85% of tuition debt cancelled (In re Owens 1988). In sum, courts view the NHSC scholarship program as voluntary. Medical students are not forced to apply for tuition help. But physicians are often provided assignments that are so distant or disruptive to their personal lives that, in their view, the work assignment is involuntary. They have argued that working off debt by performing involuntary labor is unlawful. Courts have uniformly rejected this reasoning.

Conclusions: Debt Relief for Homeowners and Public Service My study examines five groups of individuals who have been subject to compulsory public service. Their obligations were justified by strong public interests. Road duty was essential to building the nation’s transportation infrastructure; lawyers were needed to serve without pay to further the interests of justice; conscientious objectors worked in civilian jobs to further a national interest in maintaining an egalitarian draft; public aid recipients were required to work on moral grounds that they should contribute to their own welfare; and doctors whose medical education was paid by taxpayers were expected to render services to poor and underserved communities. My research shows, however, that these compulsory work assignments were challenged on numerous legal grounds and almost always failed. Courts rejected the suggestion that these compulsions violated the Thirteenth Amendment. Attempts to use the Peonage Act to undercut mandatory service also failed. This outcome is explained by the narrow interpretation given to involuntary servitude. On one hand, the Thirteenth Amendment, and its enforcement counterpart in 18 U.S.C. § 1584, have been broadened beyond African slave-holding. These laws apply, for example, to victims of sex trafficking and to illegal immigrants who are held against their will in highly confining work settings. But the Supreme Court has not broadened the definition of servitude beyond congressionally specified examples. In U.S. v. Kozminski (1988), a couple housed and employed two mentally disabled men as farmhands and scared them into thinking that they could not leave the premises. The couple was convicted under the involuntary servitude law, but the Supreme Court overturned the verdict. Rejecting a standard of psychological coercion, Kozminski defined involuntary servitude as forcing a person to work by physical or legal coercion. Kozminski built on Butler, a major precedent from 1916 that coincided with the draft in World War I. The significance of Butler cannot be dismissed even though road duty has been abolished for nearly a century. The court embraced the Roman law doctrine of trinoda necessitas. This law meant that all free men were required to participate in an expedition against an enemy. It is easy to see how this rationale applies to conscientious objectors— free men whose conscience does not permit combat but whose nation demands an equivalent form of civilian work during war. Current courts have expansively interpreted Butler and its motivating doctrine. They uphold community service mandates for high school graduation (Herndon 1996, Immediato 1995, Steirer 1993). The current view of trinoda necessitas is that community service can be compelled if the obligation is reasonably


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limited and for a valid purpose. This canon applies to high school students who serve their communities— and by similar reasoning, to lawyers who serve courts and the interests of justice. I conclude by returning to my research question: What is the legality of requiring distressed home borrowers to perform community service as a condition for government assistance in writing off their debt? My research suggests there is no major legal impediment for imposing such a requirement. Compulsory public service has been ordered in the United States since the early 1800s. It has been required of paupers and public aid recipients—people who experienced dire financial circumstances akin to current debtors. And the requirement has been imposed in times of national emergency, similar to economic conditions that have caused the United States to create this new form of private assistance. A service requirement has also been imposed on people who receive direct government assistance in the form of subsidies for their professional education. My research is motivated by the inequality of sacrifice that surrounds the mortgage relief program. As the United States has funded bailout programs for once-rich corporations, and aid for the poor or unemployed, it has required reciprocation in the form of sacrifice and additional effort by recipients. The powerful and the poor have been required to make sacrifices as a condition to receive a government bailout. But a transfer of $50 billion to “middle class homeowners” (U.S. Department of Treasury 2009b) requires nothing more than filling out forms and meeting eligibility requirements. My research provides context for this government largess. The housing subsidy is most akin to the Jewish concept of unconditional debt forgiveness every sabbatical year. This munificent precept assumes that the debtor cannot meet his obligation, and further assumes that a fresh start for the debtor is good for society. Obviously, the historical models from Rome and England are far too extreme to consider—but why is no thought given to a limited form of paying back part of the debt-aid by requiring community service? My research shows that others have paid a literal or metaphorical debt to society by performing mandatory public service. As debtor relief programs continue to evolve, a public service requirement is a viable legal option that policymakers should consider.

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Evidence Regarding the Persistence in Gender Unemployment Gaps Across Countries HERVÉ QUENEAU Brooklyn College of the City University of New York and University of Paris I Panthéon–Sorbonne/CNRS (Laboratoire Georges Friedmann) AMIT SEN Xavier University2

Abstract We provide empirical evidence regarding the persistence in the gender unemployment gap in a group of 23 OECD countries. The gender unemployment gap, measured as the ratio of the female unemployment rate to the male unemployment rate, is stationary for fourteen out of the 23 countries in our sample. Further, the extent of persistence in the gender unemployment gap is relatively low as reflected by the corresponding half-life measures across all countries in our sample.

Introduction In a recent paper, Queneau and Sen (2009) present empirical evidence regarding the persistence in the gender unemployment gap. A gap between the female unemployment rate (uF) and the male unemployment rate (uM) reveals possible differences in the economic status of women relative to men. To this end, Queneau and Sen (2007) propose using the ratio of the female unemployment rate to the male unemployment rate as a measure for the gender unemployment gap, denoted by uR (= uF/uM). Any significant and sustained gender unemployment gap will reflect underlying inequalities in the labor market that would be of substantial interest to policymakers. Further, the extent of persistence in the gender unemployment gap determines the impact of shocks on the gender unemployment gap. Therefore, from a policy perspective, a relatively low level of persistence in the unemployment gap series indicates that labor market institutions help dissipate such shocks relatively quickly. We present an empirical analysis regarding the persistence in the gender unemployment gap across 23 OECD countries. Our results complement the findings of Queneau and Sen (2009), wherein the same group of 23 countries were examined using the unit root test proposed by Perron (1997). However, we use the minimum LM statistic of Lee and Strazicich (2004) to test for the presence of a unit root in the gender unemployment gap series. The advantage of using the minimum LM unit root test is that it allows for a break under the unit root null hypothesis, and it is therefore able to guard against spurious rejection of the null hypothesis in the presence of a break. Our results, in addition to those presented by Queneau and Sen (2009), provide valuable empirical evidence and insight for policymakers to help them understand underlying structural issues that may contribute to the extent of persistence in the gender unemployment gap.

Data and Methodology Queneau and Sen (2007) have argued that uR is a normalized measure of the gender unemployment gap and should be used to evaluate the gender unemployment gap over time. Therefore, we assess the ratio of the female-to-male unemployment rate (uR) series for the following group of 23 OECD countries: Austria, Author’s address: Department of Economics, 2900 Bedford Avenue, Brooklyn, NY 11210

247

248


Australia, Canada, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, South Korea, Luxembourg, The Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom, and United States. Table 1 summarizes the time periods over which the gender unemployment rates are analyzed for each country in our sample, and Figures 1 to 23 show the plot of the uR series for all countries in our sample. Data on the unemployment rates were obtained from the OECD.Stat Extracts database (http://stats.oecd.org/WBOS). The numeric value of uR provides insight regarding the relationship between uF and uM. Queneau and Sen (2009) categorize countries into four distinct groups depending on the value and trend in the gender unemployment gap. The first group consists of seven countries (Denmark, Greece, Italy, The Netherlands, Portugal, Spain, and Switzerland) for which the female unemployment rate is greater than the male unemployment rate (uR > 1) for most of the sample period. The second group consists of three countries (Finland, Korea, and the United Kingdom) for which the female unemployment rate remains below the male unemployment rate (uR < 1) for the majority of the sample period. The third group consists of four countries (Canada, Germany, Ireland, and Japan) for which the ratio of the female-to-male unemployment rates fluctuates around 1, though there are periods when the female unemployment rate could be larger or smaller compared to the male unemployment rate. The fourth and final group consists of the remaining nine countries (Australia, Austria, Belgium, France, Luxembourg, New Zealand, Norway, Sweden, and the United States), in which the gender unemployment gap is high toward the beginning of the sample, but subsequently falls toward the latter part of the sample. The only exceptions are Belgium and Norway, for which the gender unemployment gap is less than 1 at the very beginning of the sample, then rises fairly quickly around 1970, and subsequently falls off for the remainder of the sample. We thus can see that there are substantial differences in the underlying trends and patterns of the ratio of female-to-male unemployment rates across the countries. In order to assess the level of persistence in the gender unemployment gap, we use different versions of unit root tests to determine the appropriate characterization of gender unemployment gap dynamics. While rejection of the unit root null hypothesis indicates that the gender unemployment gap exhibits relatively low persistence (that is, shocks have a transitory effect and dissipate quickly), failure to reject the unit root hypothesis implies that the impact of shocks to the gender unemployment gap are persistent and have a significant effect over time. To help assess the degree of persistence in the gender unemployment gaps, we use the half-life measure of a unit shock (denoted by HLα) to the series. The half-life, calculated as |log(1/2)/log(α)|, measures the time required for a shock to decay to half its initial value; see Andrews (1993) for a discussion of the half-lives measure for persistence. We first calculate the Augmented Dickey-Fuller (ADF) unit root tests based on the following regressions: k*

yt  μˆ  αˆ yt 1   cˆ j Δyt  j  eˆt

(1)

j 1

k*

yt  μˆ  βˆ t  αˆ yt 1   cˆ j Δyt  j  eˆt

(2)

j 1

The ADF test from regression (1) without a time trend is denoted by t, and the ADF test from regression (2) with a time trend is denoted by t. Although the results for all series are summarized in Queneau and Sen (2009), we have provided this information in the present paper for convenience (see Table 2). The main results can be summarized as follows. First, the gender unemployment gaps for Japan and Switzerland fluctuate around a constant mean, and the gender unemployment gaps for Austria, Denmark, Finland, Luxembourg, and Portugal fluctuate around a trend. Second, the trend in the gender unemployment gap is falling in Austria, Finland, Luxembourg, and Portugal but is increasing marginally in Denmark. Finally, the extent of persistence in the gender unemployment gap, as measured by the half-life (HL), is relatively low, ranging from 0.59 years for Luxembourg to 1.92 years for Portugal.


249

In the eventuality that the unit root null hypothesis is not rejected by the ADF tests (t and t), we use the minimum LM unit root test proposed by Lee and Strazicich (2004), which allows for a one-time break in the trend function at an unknown break-date.1 Lee and Strazicich (2004) specify the underlying data generating process as ′

,

1

(3)

3(3) where Zt = [1 , t , Dt , DTt] and Dt and DTt are indicator functions defined as Dt = 1(t ≥ Tb + 1) and DTt = (t – Tb) 1(t ≥ Tb + 1), respectively. For a given break-date Tb = [λT] for any λ in [λ0, 1–λ0], we calculate the tstatistic for H0:  = 0, denoted by ~ , from on the following regression based on the LM (score) principle: *

k ~ ~  yt    Z t   St 1   c j  St  j  ut

(4)

j 1

~

~

~

where St  yt ~x   Z t ,  are the coefficients in the regression of  y t on  Z t , and ~x is the restricted

~

~

*

MLE of  x (   X 0 ) , which is given by y1   Z1 . The extra “k*” regressors { St  j }kj1 are included in the regression to account for additional correlation in the time series {Δyt}. In practice, the value of the lagtruncation parameter (k*) is unknown, and so we use Perron and Voglesang’s (1992) k(t-sig) method for selecting the lag-truncation parameter k*.2 We calculate Lee and Strazicich’s (2004) statistic for all uR series for which the ADF tests did not reject the unit root null hypothesis. The results for the uR series are presented in Table 3. For each series, we report the Lee and Strazicich (2004) statistic, the estimated break-date, the estimated break-fraction, the

estimate of  implied by ˆ of regression (4), and the estimated standard error of regression (4). The minimum LM unit root statistic is significant for the uR series in seven countries: France, Greece, Italy, Korea, New Zealand, Spain, and Sweden. In these cases, the gender unemployment gap is stationary around a broken trend, and so shocks to the gender unemployment gap are not persistent. This is confirmed by the corresponding half-lives that range between 0.15 years for Greece and 0.72 years for Sweden. In addition, the estimated coefficients corresponding to the trend and the trend-dummy show that the gender unemployment gap has a negative trend after 1977 in France, after 1988 in Greece, after 1975 in Italy, and after 1984 in The Netherlands. However, the gender unemployment gap has a positive trend after 1988 in Korea, after 1985 in Spain, and after 1990 in Sweden. These trends indicate that the gender unemployment gap diminishes in France, Italy, Korea, The Netherlands, and Sweden but remains fairly large in favour of men in Greece and Spain. The unit root null hypothesis cannot be rejected using either version of the ADF statistic or the minimum LM test of Lee and Strazicich (2004) in nine countries: Australia, Belgium, Canada, Germany, Ireland, The Netherlands, Norway, the United Kingdom, and the United States. Therefore, we cannot reject the null hypothesis that the gender unemployment gaps in these countries are relatively persistent. The halflives corresponding to these countries range between 0.74 years for The Netherlands and 2.33 years for the United Kingdom, which suggests that the extent of persistence is relatively low across all countries in our sample.

Conclusion We examine the extent of persistence in the gender unemployment gap across a group of 23 OECD countries. Following Queneau and Sen (2007), we use the ratio of the female unemployment rate to the male unemployment rate to measure the gender unemployment gap. We used the minimum LM unit root test of Lee and Strazicich (2004) to assess the extent of persistence in the gender unemployment gap. While the

250


empirical results show that the unit root null hypothesis cannot be rejected for nine of the 23 countries in our sample, the extent of persistence in gender unemployment gap is relatively low in all countries.

Acknowledgments We thank Professor Junsoo Lee for making available on his website the Gauss program used for calculating the minimum LM unit root test. Hervé Queneau acknowledges support from the PSC-CUNY Grant Program, 2008–2009. Amit Sen acknowledges support of the O’Conor Professorship at Xavier University.

Notes 1 Our data spans, at best, the period 1955 to 2007, and for most countries, data is available for an even shorter time period. In addition, the Lee and Strazicich (2003, 2004) testing procedure requires specification of the trimming parameter λ0 (= 0.1) that reduces further the sample over which we search for a break in the trend function. Given that we view structural breaks as fundamental shifts in the economy, we decided to use the one-break unit root tests of Lee and Strazicich (2004) rather than the two-break unit root tests of Lee and Strazicich (2003). 2 First, we specify an upper bound “kmax” for the lag-truncation parameter. The chosen value of the lag-truncation parameter (k*) is determined according to the following “general-to-specific” procedure: the last lag in an autoregression of order k* is significant, but the last lag in an autoregression of order greater than k* is insignificant. The significance of the coefficient is assessed using the 10% critical values based on a standard normal distribution.

References Andrews, D.W.K. 1993. “Exactly Median-Unbiased Estimation of First Order Autoregressive/Unit Root Models.” Econometrica, Vol. 61, pp. 139–65. Lee, J., and M.C. Strazicich. 2003. “Minimum LM Unit Root Test with Two Structural Breaks.” Review of Economics and Statistics, Vol. 85, pp. 1082–9. Lee, J., and M.C. Strazicich. 2004. “Minimum LM Unit Root Test with One Structural Break.” Unpublished manuscript, Department of Economics, Boone, NC: Appalachian State University. Perron, P. 1997. “Further Evidence on Breaking Trend Functions in Macroeconomic Variables.” Journal of Econometrics, Vol. 80, pp. 355–85. Perron, P., and T.J. Vogelsang. 1992. “Nonsationarity and Level Shifts With an Application to Purchasing Power Parity.” Journal of Business and Economic Statistics, Vol. 10, pp. 301–20. Queneau, H., and A. Sen. 2007. “Evidence Regarding Persistence in the Gender Unemployment Gap Based on the Ratio of Female to Male Unemployment Rate.” Economics Bulletin, Vol. 5, pp. 1–10. Queneau, H., and A. Sen. 2009. “Empirical Evidence Regarding Gender Unemployment Gap Persistence Across Countries.” Empirical Economics Letters, Vol. 8, No. 12.


251

TABLE 1

Countries and the Corresponding Time Periods Country Australia Austria Belgium Canada Denmark Finland France Germany Greece Ireland Italy Japan South Korea Luxembourg Netherlands New Zealand Norway Portugal Spain Sweden Switzerland United Kingdom United States

Country code AUS AUT BEL CAN DEN FIN FRA DEU GRC IRL ITA JPN KOR LUX NLD NZL NOR PRT ESP SWE CHE GBR USA

Period 1964–2007 1968–2007 1956–2007 1956–2007 1969–2007 1959–2007 1963–2007 1956–2007 1977–2007 1961–2007 1958–2007 1955–2007 1963–2007 1975–2007 1975–2007 1975–2007 1956–2007 1974–2007 1970–2007 1963–2007 1975–2007 1956–2007 1956–2007

Sample size (T) 44 40 52 52 39 49 45 52 31 47 50 53 45 33 33 41 52 34 38 45 33 52 52

252

Series uR (AUS)


Without trend k*

TABLE 2 ADF Tests for the uR Series of OECD Countries With trend ˆ tμ HLα k* tτ ˆ ˆ

ˆ

ˆ

HLα

4

-4.21a

0.82

0.157

3.49

7*

-0.56

0.958

-0.341

0.0137

—

uR (AUT)

0

-3.26b

0.669

0.449

1.73

0

-3.93b

0.438

1.097

-0.0152

0.84

uR (BEL)

0

-1.27

0.943

0.094

—

0

-0.93

0.957

0.109

-0.0013

—

uR (CAN)

0

-1.84

0.916

0.086

—

0

-1.38

0.932

0.09

-0.0007

—

uR (DEN)

0

-3.97a

0.395

0.751

0.75

0

-4.02b

0.363

0.734

0.0028

0.68

uR (FIN)

4

-1.33

0.88

0.118

—

1

-4.32a

0.468

0.233

0.0079

0.91

uR (FRA)

3

-0.94

0.951

0.06

—

3

-2.95

0.605

0.92

-0.0126

—

uR (DEU)

1

-2.33

0.872

0.146

—

1

-2.36

0.862

0.142

0.0006

—

uR (GRC)

0

-1.97

0.748

0.593

—

0

-2.44

0.654

0.717

0.0061

—

uR (IRL)

0

-2.17

0.806

0.164

—

0

-2.62

0.729

0.182

0.002

—

uR (ITA)

0

-1.45

0.94

0.132

—

0

-2.18

0.915

0.27

-0.0035

—

uR (JPN)

0

-3.03c

0.697

0.299

1.92

0

-3.14

0.681

0.331

-0.0007

—

uR (KOR)

1

-1.52

0.85

0.096

—

1

-2.02

0.78

0.102

0.0017

—

uR (LUX)

0

-3.27c

0.491

0.74

0.98

0

-4.47a

0.312

1.223

-0.0135

0.59

uR (NLD)

0

-2.24

0.792

0.3

—

0

-1.91

0.813

0.305

-0.0021

—

uR (NZL)

0

-2.1

0.754

0.287

—

0

-2.38

0.653

0.525

-0.0071

—

uR (NOR)

2

-1.74

0.872

0.143

—

2

-1.54

0.882

0.167

-0.0013

—

uR (PRT)

4

-1.2

0.893

0.16

—

3

-5.03a

0.306

1.737

-0.0314

0.59

uR (ESP)

4

-1.67

0.298

-1.668

—

1

-1.64

0.797

0.25

0.0045

—

uR (SWE)

3

-1.82

0.85

0.151

—

1

-2.86

0.522

0.667

-0.0069

—

uR (CHE)

0

-3.86a

0.494

0.711

0.98

0

-3.69c

0.499

0.717

-0.0007

1

uR (GBR)

1

-1.77

0.907

0.061

—

1

-2.45

0.866

0.047

0.0016

—

uR(USA)

0

-1.52

0.906

0.101

—

1

-2.77

0.782

0.306

-0.0024

—

Note: The superscripts a, b, c, and d denote significance at the 1%, 2.5%, 5% and 10% levels, respectively. The superscript * denotes near-significance at the 10% level. The finite sample critical values corresponding to T = 25 and T = 50 were taken from Table 4.2 in Banerjee, Dolado, Galbraith, and Hendry (1993:103). The critical values for the ADF unit-root tests (tμ) without trend: for T = 25, -2.63 at the 10% level, -3.00 at the 5% level, -3.33 at the 2.5% level, -3.75 at the 1% level; for T = 50, -2.60 at the 10% level, -2.93 at the 5% level, -3.22 at the 2.5% level, -3.58 at the 1% level. The critical values for the ADF unit-root tests with trend (tτ): for T = 25, -3.24 at the 10% level, -3.60 at the 5% level, -3.95 at the 2.5% level, -4.38 at the 1% level; for T = 50, -3.18 at the 10% level, -3.50 at the 5% level, -3.80 at the 2.5% level, 4.15 at the 1% level. We extrapolated the critical values for the given sample sizes based on these critical values.


253

TABLE 3 Minimum LM Unit-Root Test for the uR Series of OECD Countries

Tˆb

ˆ

k*

uR (AUS)

1982

0.38

3

uR (BEL)

1973

0.35

uR (CAN)

1972

uR (FRA) uR (DEU)

Series

ˆ

Test statistic

ˆ 2

HLα

0.4423

–3.1537

0.1435

0.81

3

0.5567

–3.264

0.1712

1.18

0.33

3

0.5288

–3.2718

0.0725

1.09

1977

0.33

4

0.0145

–5.3640a

0.1054

0.16

1972

0.33

1

0.6623

–3.9908

0.0988

1.68

0.1518

0.15

uR (GRC)

1988

0.39

2

0.0102

–4.6312b

uR (IRL)

1985

0.53

0

0.5739

–3.372

0.1015

1.25

uR (ITA)

1975

0.36

0

0.4141

–4.3180c

0.0877

0.79

0.0796

0.53

uR (KOR)

1988

0.58

0

0.2704

–4.7930b

uR (NLD)

1986

0.36

1

0.3905

–3.9936

0.1011

0.74

uR (NZL)

1984

0.39

1

0.2423

–7.1768a

0.1169

0.49

uR (NOR)

1978

0.44

4

0.4704

–3.6475

0.2185

0.92

uR (ESP)

1985

0.42

3

0.2215

–4.7966b

0.1001

0.46

uR (SWE)

1990

0.62

0

0.3799

–4.2399c

0.1732

0.72

uR (GBR)

1981

0.5

4

0.7431

–2.7674

0.0737

2.33

uR (USA)

1979

0.48

4

0.586

–3.4649

0.0716

1.3

Notes: ˆ is estimated as ˆ  1 based on regression (4). The test statistic is the minimum LM unit root test devised by Lee and Strazicich (2004). We used kmax = 4 for all series except uR (NLD) for which we used kmax = 3. The superscripts a, b, and c denote significance at the 1%, 5%, and 10% levels, respectively. We extrapolated the critical values for the minimum LM unit root statistics based on Table 1 of Lee and Strazicich (2004) based on the estimated break-fraction.

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LERA REF FEREED PAP PERS II

255

256



257

258



259

Firm Size and Employer-Sponsored Training in Australia C. JEFFREY WADDOUPS Griffith University3

Abstract This study examines the relationship between employer size and job training. Data from the 2001 wave of the Australian Bureau of Statistics’ Survey of Education and Training were used to estimate the probability that workers would receive employer-sponsored inhouse, external, and/or on-the-job training. The results show an increasing probability of inhouse training as employer size increases, while workers employed in the smallest firms are more likely to receive external rather than in-house training. Findings also show that workers—especially unionized workers—in larger firms are substantially more likely to receive on-the-job training than workers in smaller firms.

Introduction Rapidly evolving technological change and increased competition have stimulated discussion about how firms address skill formation among their workers. Even though it is clear that employer-sponsored training plays a significant role in the larger effort to invest in an economy’s human capital formation, research on the incidence and determinants of training remains deficient, often because of the lack of appropriate and consistent data. Fortunately, the Australian Bureau of Statistics (ABS) provides a rich and consistent source of information on job training with its Survey of Education and Training (SET), a quadrennial survey of a large random sample of working-aged Australians. The present study focuses on the relationship between firm size and employer-financed training, which consists of in-house training, external training courses paid for by the employer, and on-the-job training. Although a substantial literature exists assessing the differences in the incidence of training based on gender, educational attainment, and union status, fewer studies have focused on size-training effects. The results reported here indicate that the difference in the incidence and intensity of training between small and large firms significantly outstrips differences based on gender, educational attainment, or union status.

Previous Research Research has clearly shown that an employer’s size affects labor market outcomes such as wages, fringe benefits, and turnover (Brown and Medoff 1989, Oi and Idson 1999, Troske 1999). Studies from the United Kingdom and United States have also documented the relationship between firm size and training, although the findings are often in the context of assessing other determinants of training such as gender, educational attainment, or union status. For example, using individual level data from the British Social Attitudes Survey of 1987, Booth (1991) finds that female workers in Britain employed in larger firms were more likely to train. Although the size effect was positive for male workers, it was not statistically significant. Green, Machin and Wilkinson (1999) reported similar results from their analysis of firm-level data in Employers’ Manpower and Skills Practices Survey, finding a statistically significant higher probability of training in firms with over 25 employees. Author’s address: Department of Management, Las Vegas, NV 89154

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Lynch and Black (1998) conducted research on the incidence of training based on U.S. establishment-level data from 1991. They found that even after controlling for an extensive array of workerand firm-level characteristics, large firms were more likely to provide formal training programs than small firms. Their results also indicate that firms that adopt high-performance work practices, that are capitalintensive, and that hire more educated work forces are more likely to train, regardless of size. Similarly, using a combined individual- and establishment-level dataset on the United States from 1995, Frazis, Gittleman, and Joyce (2000) also report a positive size-training effect. Their findings show that 70 percent of firms of 50 or more employees offered their workers some kind of formal training. They also found a positive correlation between size and incidence of training among employees when the question was whether workers had ever received training from the firm. When the time frame for receiving training was confined to the previous 12 months, however, the size effect did not reach statistical significance. Several other studies focused more directly on the size-training effect. For example, Barron, Black and Loewenstein (1987) suggest that larger employers face higher monitoring costs, which makes it difficult to ascertain the productive capability of their workers. Along with higher wages and capital–labor ratios, firms respond to the monitoring problem by devoting more resources to training. Using data gathered from a random sample of employers in the United States, which observed wages, hiring activities, and training activities prior to August 1981, they found that, compared to small firms, large firms were more likely to train newly hired workers by 1) having employees observe co-workers doing the job during the first three months of employment, 2) offering new workers formal training, 3) training workers directly using management and supervisory personnel, 4) training new workers using nonsupervisory co-workers, and 5) providing job orientation. Other explanations are also consistent with a positive correlation between employer size and the incidence training. For example, Oi and Idson (1999) argue that, compared to smaller firms, larger firms adopt technological improvements at a faster rate, set higher effort standards, and have higher rates of labor productivity. They also argue that such firms are likely to recruit, train, and retain more highly skilled workers than their smaller counterparts. In a similar vein, Troske (1999) finds evidence supporting the capital-skilled worker complementarity hypothesis to explain why larger firms pay workers higher wages than smaller firms. This hypothesis holds that capital and skill are complements in production, and thus that larger, capitalintensive firms are more likely to employ more highly skilled workers. Troske conjectures that firm-sponsored training likely produces some of the higher skill levels observed among workers in larger firms. Such an expectation, however, was not tested because of the lack of appropriate data. Holtmann and Idson (1991) also found that larger firms are more likely to train than smaller firms, but they argue that a more tolerant attitude toward risk on the part of larger firms may underlie the higher incidence of training. They present empirical evidence based on data from the United States that larger firms are more likely to train workers who may be seen as more risky, such as female workers and those with less formal education. Female workers, for example, could be considered more risky because of higher turnover rates, and less educated workers more risky because of a higher probability that training will fail to impart the intended skills. In another interesting theoretical treatment relevant to the size-training question, Booth, Francesconi, and Zoega (2002) suggest that unions in oligopsonistic firms increase the incidence of training in firms. The increased training occurs either through negotiating for higher levels of general training or by raising relative wages. A reduced turnover rate lowers the risk of firms’ losing investment in general training and provides them with more incentive to train. To the extent that it is reasonable to expect more oligopsony power in larger firms, one may expect a positive relationship between firm size, unionism, and training.1 Several papers have examined the determinants of training using data from the SET; however, to my knowledge, only Baker and Wooden (1992), Miller (1994), Wooden (1996), and Wooden and VandenHuevel (1997) address size-training effects.2 Baker and Wooden (1992) and Miller (1994) used the 1989 SET to assess training differentials between males and females, and, using firm size as a control variable, found that larger firms were significantly more likely to offer structured training than their smaller counterparts. Similarly, Wooden (1996), using the 1993 SET, found that larger firms were substantially more likely to provide structured in-house training than smaller firms. He also found that the relationship between size and

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employer-sponsored in-house training was substantially weaker, with medium-sized firms being more likely to train. Besides providing updated estimates of the size-training effect, the present study provides two additional contributions to the literature. First, the SET data from 2001 differ from the previous releases based on the specificity of the employer size variable. The 1989, 1993, and 1997 releases defined the largest employer size category as “100 or more” employees, which significantly blurs important differences among smaller “large” employers (those with closer to 100 workers) and larger “large” employers (those with more than 1,000 workers). The more recent data from 2001 add three additional size categories (100–499, 500–999, and 1000 or more employees). Thus an updated estimate of the size-training effect with newer data allows for a more nuanced analysis of the size-training effect. Second, unlike previous research, this study addresses interactions between size-training effects and other characteristics such as gender, low educational attainment, and unionism according to the analyses in Holtmann and Idson (1991) and Booth, Francesconi, and Zoega (2002).

Discussion of the Data The data originate from the 2001 wave of the ABS’s SET. The SET is composed of observations from a random sample of Australian households, which were asked questions relating to their training on the job, other human capital investments, the size of employers, and other variables generally controlled for in labor market analyses. The sampling frames consist of individuals of working age, defined as ages 15 to 64. Sample sizes of male and female workers are 7,902 and 7,807, respectively. The final samples are further limited to respondents who were working for their main period employer, who had been with that employer for at least a year, who were not self-employed or working for a self-owned business, who were between the ages of 15 and 64, and who were not full-time students.3 In addition, because the training questions ask about training during the previous year, only respondents who reported employment with their firm for one year or more were included in the final sample. This exclusion increases the likelihood that workers report training only for the firm in which they are currently employed. After the exclusions, the final samples contain 4,896 males and 4,448 females. Proportions of workers engaging in three types of training are located in Table 1. The variable “inhouse training” observes whether the respondent reports at least one in-house training course during the last 12 months. Such training consists of formal training courses conducted by either the employer or a consultant hired by the employer. The results in Table 1 show a clear positive correlation between size of the firm and the incidence of internal training courses. These results from 2001 are similar to Wooden’s (1996) findings using SET data from 1993 for the smaller firms. The larger firms in Wooden’s study trained 42.8 percent of workers. The 2001 data in Table 1 exhibit a clearly higher rate of training in the larger size categories, reaching approximately 62 percent for males and females among firms employing 1,000 workers or more.4 Summary statistics of all variables are found in Appendix Table 1. Another training variable, “external training,” measures the proportion of workers who completed at least one employer-financed external training course in the previous 12 months. Table 1 reveals that the rate of external training is similar across size categories. The results on external training exhibit a remarkably consistent proportion of workers who trained across firm size categories, which suggests that there is not necessarily a pattern of workers in smaller firms specializing in external training and workers in larger firms specializing in in-house training. The figures in Table 1 also demonstrate that workers are most likely to receive on-the-job training rather than external or in-house training. This is especially true for those with higher levels of education. Less-educated workers—those with less than year 12 completed—are less likely to have received on-the-job training. The types of in-house and external training courses are also of interest. The figures in Table 2 refer to the proportion of instances where workers reported a specific type of training during the previous 12 months. For example, 16.7 percent of the 4,140 reported instances of training were in “computing.” An individual may report more than one type of training, so “number” in the table refers to the number of training spells, not the number of respondents. The results indicate that training courses in management, professional, technical, and paraprofessional represent more than half of in-house and external training


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courses offered. Training in computing and health and safety are also quite common subjects for both inhouse and external courses. TABLE 1 Proportion of Workers Reporting Employer-Sponsored Training During Past 12 Months by Employer Size, Training Type, and Gender

1,000 employees

In-house training1 Male Female 0.070 0.107 0.161 0.238 0.286 0.335 0.441 0.472 0.511 0.531 0.615 0.627

External training2 Male Female 0.138 0.158 0.161 0.194 0.177 0.186 0.202 0.218 0.200 0.159 0.144 0.126

On-the-job training3 Male Female 0.676 0.670 0.708 0.734 0.731 0.780 0.772 0.765 0.807 0.796 0.809 0.832

1,000 employees

Union 0.118 0.341 0.442 0.499 0.558 0.631

Nonunion 0.084 0.178 0.270 0.432 0.501 0.612

Union 0.169 0.147 0.224 0.201 0.186 0.114

Nonunion 0.145 0.182 0.169 0.212 0.180 0.154

Union 0.560 0.730 0.753 0.724 0.755 0.796

Nonunion 0.682 0.720 0.755 0.791 0.824 0.841

1,000 employees

Higher education4 0.100 0.236 0.327 0.489 0.548 0.655

Lower education 0.066 0.132 0.273 0.367 0.441 0.527

Higher education 0.167 0.201 0.206 0.244 0.206 0.156

Lower education 0.116 0.132 0.129 0.123 0.115 0.079

Higher education 0.752 0.776 0.824 0.818 0.828 0.874

Lower education 0.552 0.616 0.609 0.648 0.728 0.671

Source: The data used to generate the estimates were obtained from the Survey of Education and Training, Australian Bureau of Statistics, 2001. Excluded are respondents with no earnings, the self-employed, those who did not know their employer size, students, and those who have been with their employers for less than one year. The sample consists of 4,896 males and 4,498 females. 1 Consists of formal training courses conducted by the employer or a consultant. 2 Consists of formal training courses supported financially by the employer that are conducted by training or educational establishments. 3 Consists of less-structured training activities that occur on the job, such as watching others work, asking questions of co-workers, and learning by doing. 4 “Higher education” refers to workers with year 12 or more.

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Empirical Model and Estimation Results By estimating a model of the determinants of training while controlling other variables besides employer size, it is possible to get a more complete view of the decision to train. The empirical strategy is to TABLE 2 Distribution of Training Spells by Category of Training Clerical Computing English, literacy, numeracy Health and safety Induction Labouring Management professional Music Sales, personal service Supervision Trade and craft Technical, paraprofessional Transport, machinery operation Number

In-house 0.060 0.167 0.023 0.284 0.045 0.020 0.349 0.005 0.119 0.048 0.076 0.164 0.049

External 0.048 0.167 0.014 0.153 0.018 0.004 0.415 0.003 0.056 0.029 0.084 0.160 0.036

4,140

1,563

Source: Survey of Education and Training, 2001, Australian Bureau of Statistics. Excluded are respondents with no earnings, the self-employed, students, and those who have been with their employers for less than one year.

estimate the probability of training (P) using a maximum likelihood probit procedure according to the following: P = α + β (Employer Size) + δX + ε, where P represents the probability of training in the previous 12 months, “employer size” represents a vector of size dummy variables that control for employer size, X is a vector of other variables that may affect the probability of training, β and δ are vectors of parameters to be estimated, and ε is a random error term. The first probit model estimates the probability that a worker will engage in at least one in-house training course during the previous 12 months, specifically controlling for employer size using a firm-size measure that defines size as the number of employees across all the establishments located in Australia. The equations were estimated separately for males and females. The second and third models estimate the probability of external and on-the-job training, again separately for male and female workers. The parameter estimates in Table 3 are presented as marginal effects with “fewer than 10 workers” being the omitted firmsize category.5 The results in Table 3 reinforce the summary statistics in Table 1, exhibiting a clearly increasing probability of internal training as the size of the firm increases, even after controlling for other factors that may have affected the incidence of training. As marginal effects, the estimate on “1000 + Empl” has the following definition: everything else equal, a male worker in a firm with more than 1,000 employees is 52.9 percent more likely to have had a training course sponsored by the firm in the last 12 months than a worker in a firm with fewer than ten workers. The biggest jump (17.1 percentage points) occurs for males when moving from very small firms (fewer than ten workers) to small firms (10 to 19 workers). The results also indicate that females are slightly less likely than males to receive on-the-job training in larger firms.


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Compared to the results on in-house training, the results on external and on-the-job training exhibit much less variation by firm size. Notably male workers in the largest firms and female workers in firms with 100 workers or more are somewhat less likely to obtain external training than workers in the smallest firms. Larger firms no doubt experience economies of scale in conducting their own in-house training compared to TABLE 3 The Impact of Firm Size on the Probability of Training in the Last 12 Months (Marginal Effects; Absolute Value of Asymptotic z Statistic in Parentheses) In-house training1 Male Female

Employees Coeff z stat 10–192,3 0.171 (4.02) 20–99 0.309 (9.55) 100–499 0.426 (14.89) 500–999 0.452 (15.72) >1,000 0.529 (20.67)

Coeff 0.159 0.269 0.361 0.392 0.458

z stat (4.15) (8.46) (12.22) (12.79) (17.34)

External training Male Female

Coef f 0.006 0.002 0.013 0.002 0.051

z stat (0.26) (0.10) (0.63) (0.10) (2.86)

Coeff -0.002 -0.025 -0.037 -0.079 -0.118

z stat (0.09) (1.45) (2.21) (5.34) (7.07)

On-the-job training Male Female

Coeff 0.016 0.019 0.055 0.065 0.063

z stat (0.66) (0.97) (2.87) (2.88) (3.26)

Coeff 0.025 0.051 0.006 0.039 0.063

z stat (1.17) (2.85) (0.28) (1.52) (3.32)

Source: The data used to generate the estimates were obtained from the Survey of Education and Training, 2001 gathered by the Australian Bureau of Statistics. Excluded are respondents with no earnings, the self employed, those who did not know their employer size, students, and those who have been with their employers for less than one year. 1 Independent variables are defined as the probability that a worker reported at least one internal training course, external training course, or engaged in on-the-job training in the last 12 months. 2 The control for employer size is the number of employees in all the employers’ establishments throughout Australia. 3 The probit equation controls for age, tenure with employer, and tenure in occupation and their squares. It also controls for education, casual employment, public sector employment, marital status, part-time, English speaking ability, region of residence, occupation, and industry of employment.

smaller firms. The results also suggest a slightly higher propensity of larger firms to train workers on the job compared to smaller firms. Overall, the clear advantage in in-house training coupled with the slight disadvantage of external and small advantage in on-the-job training suggests that workers in larger firms are more likely to train compared to workers in smaller firms. I next turn to a test of whether larger employers are more likely to offer training to workers that may, because of turnover propensities, be more or less risky. As indicated above, Holtmann and Idson (1991) suggest that female workers and those with low education may be more likely to train in larger firms because of their relative lack of risk aversion. Also, as discussed earlier, Booth, Francesconi, and Zoega (2002) suggest that unions may increase the incidence of training, especially in larger, more oligopsonistic firms. To test such hypotheses, I pool data on male and female workers then uses a female dummy along with a vector of female*firm size interactions to control for differences in training propensities of female workers along the size spectrum. A similar procedure is used to determine whether low levels of education (less than year 12) and union membership exert different degrees of influence on training across the size spectrum. Thus the following model is estimated: P = α + β1 (Employer Size) + β2 (Female)+ β3 (Female*Employer Size) + β4 (Union) + β5 (Union*Employer Size) + β6 (Low Education) + β7 (Low Education*Employer Size) + δX + ε The results in Table 4 show that very small firms may be slightly more likely to provide in-house and external training to female workers. There is no difference by sex in on-the-job training. Generally speaking, the female advantage in external training disappears in larger firms. Indeed, in the largest two size categories females are between 5 and 6 percent less likely to train than males. These results differ from Holtmann and Idson (1991) who use U.S. data from 1972–73 to find that larger establishments appear to be more likely to train female workers.

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Turning to results on firm size and low education, one finds that very small firms are substantially less likely to offer in-house training to less-educated workers, but once firm size increases to more than 10 employees, the difference in training propensity by education level is negligible. There appears to be no statistically significant relationship between firm size, low educational attainment, and the incidence of external training. The results also show that moderately large firms (from 100 to 999 employees) are more likely to offer on-the-job training to less educated workers than firms in other size categories. TABLE 4 The Impact of Firm Size on the Probability of Internal Training in the Last 12 Months, Including Interactions (Marginal Effects) In-house training1 Coefficient z statistic3 10–19 employees2 20–99 employees 100–499 employees 500–999 employees >1,000 employees

External training Coeffiz cient statistic

On-the-job training Coefficient z statistic

0.151 0.265 0.409 0.423 0.536

(3.18) (7.18) (13.06) (12.88) (19.52)

-0.002 -0.019 0.004 -0.004 -0.058

(0.09) (0.95) (0.19) (0.15) (3.11)

-0.016 -0.004 0.028 0.035 0.045

(0.55) (0.16) (1.21) (1.17) (2.17)

Female = 1 Female* (10–19 employees) Female* (20–99 employees) Female* (100–499 employees) Female* (500–999 employees) Female* (>1,000 employees)

0.070 0.007 -0.028 -0.039 -0.022 -0.062

(1.76) (0.12) (0.59) (0.83) (0.39) (1.52)

0.046 0.002 -0.015 -0.031 -0.066 -0.050

(2.16) (0.07) (0.61) (1.31) (2.93) (2.51)

-0.019 0.021 0.049 -0.043 -0.023 0.015

(0.84) (0.67) (2.02) (1.23) (0.53) (0.61)

Union member = 1 Union member* (10–19 employees) Union member* (20–99 employees) Union member* (100–499 employees) Union member* (500–999 employees) Union member* (>1,000 employees)

0.055 0.155 0.097 0.034 0.026 -0.031

(0.79) (1.73) (1.26) (0.45) (0.31) (0.44)

-0.016 -0.001 0.047 0.004 0.002 -0.003

(0.43) (0.01) (0.92) (0.10) (0.05) (0.08)

-0.109 0.101 0.085 0.062 0.061 0.092

(2.51) (3.19) (2.80) (1.77) (1.55) (2.90)

Less than year 12 (low education) = 1 Low education* (10–19 employees) Low education* (20–99 employees) Low education* (100–499 employees) Low education* (500–999 employees) Low education* (>1,000 employees)

-0.147 -0.045 0.046 -0.023 0.005 -0.021

(2.03) (0.74) (0.91) (0.46) (0.08) (0.50)

-0.004 0.008 0.016 -0.013 -0.028 0.000

(0.08) (0.24) (0.52) (0.47) (0.78) (0.01)

-0.041 0.026 0.010 0.052 0.071 -0.007

(0.89) (0.82) (0.36) (2.05) (2.40) (0.27)

Source: The data used to generate the estimates were obtained from the Survey of Education and Training, 2001, gathered by the Australian Bureau of Statistics. Excluded are respondents with no earnings, the self-employed, those who did not know their employer size, students, and those who have been with their employers for less than one year. 1 Independent variables are defined as the probability that a worker reported at least one internal training course, one external training course, or on-the-job training in the last 12 months. 2 The control for employer size is the number of employees in all the employers’ establishments throughout Australia. 3 Absolute value of asymptotic z statistics are in parentheses.


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The results on training propensity of union members by firm size show that there is no statistically distinguishable relationship between union membership, size, and either in-house or external training. The action is all located in on-the job training. Very small firms are significantly less likely to train union members compared to all the other size categories, the estimates on which are all positive and either statistically significant or nearly so.

Intensity of Training One problem with a probit model in this context is that it just measures the incidence of training without measuring differences in intensity. For example, it may be that while male and female workers receive training at similar rates, male workers receive more intense, or substantially more hours of training. Fortunately, the SET asks trainees to report how many hours during the previous year they engaged in inhouse or external training. Table 5 contains descriptive statistics of training hours for in-house and external training variables. For those receiving training (2,092 male and 2,048 female respondents), the average amount was 36.8 hours and 24.2 hours for males and females respectively. The intensity of training grows as firm size increases, and males in the largest firms have significantly higher rates of training than females. TABLE 5 Descriptive Statistics of Hours of In-House and External Training Male In-house 1,000 employees Total

Mean1 17.0 17.0 20.0 26.0 30.3 45.1 36.8

Standard deviation (23.5) (16.3) (26.4) (32.7) (34.9) (91.7)

Female Number 57 61 216 326 171 1,261 2,092

Mean 14.7 16.6 18.5 20.1 24.0 27.8 24.4

Male External 1,000 employees Total

Mean1 36.7 34.0 28.9 31.0 32.6 33.2 32.5



Number 74 92 262 266 142 1,212 2,048

Female Number 103 59 136 158 70 299 825

Mean 21.5 21.7 22.5 29.9 21.7 28.1 25.4


Number 103 77 146 123 40 249 738

Source: The data used to generate the estimates were obtained from the Survey of Education and Training, Australian Bureau of Statistics, 2001. Excluded are respondents with no earnings, the self-employed, those who did not know their employer size, students, and those who have been with their employers for less than one year. The sample consists of 4,896 males and 4,498 females. 1Mean hours of training for those reporting training.

The following is estimated once for in-house and once for external training as a maximum likelihood tobit model:

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Hours of Training = α + β1 (Employer Size) + β2 (Female)+ β3 (Female*Employer Size) + β4 (Union) + β5 (Union*Employer Size) + β6 (Low Education) + β7 (Low Education*Employer Size) + δX + ε The findings located in Table 6 suggest that females in very small firms have an advantage over males in terms of hours of in-house training. However, hours of in-house and external training are significantly lower among females in the largest firms (and the second-to-largest firms for external training). The tobit results thus are similar to the probit results for external training. The findings on union members and the less educated are also similar to the probit results (with the exception of in-house training among union members in very small firms). That is, there is no statistically significant difference in training hours of union members and nonmembers or less-educated and more educated workers across the firm-size spectrum. TABLE 6 The Impact of Firm Size on the Hours of Training in the Last 12 Months: Tobit Model External training In-house training1 Coefficient z statistic3 Coefficient z statistic 10–19 employees2 20–99 employees 100–499 employees 500–999 employees >1,000 employees

27.101 44.965 72.584 75.290 104.432

(3.34) (6.74) (10.82) (10.12) (16.86)

2.041 –5.974 0.431 –0.493 –14.226

(0.22) (0.81) (0.06) (0.06) (2.03)

Female = 1 Female* (10–19 employees) Female* (20–99 employees) Female* (100–499 employees) Female* (500–999 employees) Female* (over 1,000 employees)

15.329 –1.095 –5.519 –12.914 –8.558 –24.026

(2.24) (0.12) (0.69) (1.67) (0.99) (3.37)

10.080 –2.698 –3.995 –6.576 –23.303 –14.566

(1.64) (0.27) (0.50) (0.82) (2.29) (2.10)

Union member = 1 Union member* (10 to 19 employees) Union member* (20 to 99 employees) Union member* (100–499 employees) Union member* (500–999 employees) Union member* (over 1,000 employees)

7.768 18.627 10.626 –5.634 –6.136 –14.311

(0.68) (1.33) (0.87) (0.46) (0.48) (1.22)

–8.042 4.289 14.359 2.578 2.856 1.625

(0.77) (0.28) (1.22) (0.22) (0.21) (0.15)

Less than year 12 (low education) = 1 Low education* (10–19 employees) Low education* (20–99 employees) Low education* (100–499 employees) Low education* (500–999 employees) Low education* (>1,000 employees)

–17.572 –6.460 7.897 –0.822 1.965 –1.392

(1.53) (0.63) (0.95) (0.10) (0.21) (0.19)

1.767 –0.224 2.521 –2.080 –10.088 –4.828

(0.12) (0.02) (0.30) (0.23) (0.84) (0.64)

Source: The data used to generate the estimates were obtained from the Survey of Education and Training, 2001, gathered by the Australian Bureau of Statistics. Excluded are respondents with no earnings, the self-employed, those who did not know their employer size, students, and those who have been with their employers for less than one year. 1 Independent variables are defined as the hours of internal or external training in the last 12 months. 2 The control for employer size is the number of employees in all the employers’ establishments throughout Australia. 3 Absolute value of asymptotic z statistics are in the parentheses.


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Conclusion The purpose of this study is to further examine the relationship between firm size and training. Using data from a random sample of Australian workers, a clear size–training link is established for in-house training programs. The size–training link for external training and on-the-job training, however, is much smaller and more tenuous. The results also point to a slight advantage in both in-house and external training among females in the smallest firms, which becomes a disadvantage in larger firms among those receiving external training. The most glaring difference in training propensities between males and females occurs in external training among the largest two employment size categories. The results also show that union members have a substantial edge in on-the-job training compared to their nonunion counterparts and that this advantage persists along most of the firm-size spectrum. Low education is mostly unrelated to training across the size spectrum, but less-educated workers do appear to get less in-house training in small firms and more on-the-job training in moderately large firms (those with 100 to 999 workers). Although much of the research has focused on differences in training by gender or union membership, the results of this study show clearly that firm size is the most important indicator of the incidence and intensity of training. Thus, general policies meant to enhance employer-sponsored job training opportunities in Australia would do well to focus on getting smaller firms to train as often and intensely as larger ones.

Notes 1 Interestingly,

a large majority of workers who received employer-sponsored training (approximately 94 percent) reported that the skills acquired would be useful in other firms. 2 Miller (1994) used the 1989 SET to assess training differentials between males and females. Although the regression equations contained controls for firm size, that was not explicitly addressed in the analysis. 3 See Australian Bureau of Statistics (2003) for a detailed description of the SET data. 4 Wooden (1996) used different exclusion criteria in his study. In particular, he did not exclude workers with less than a year of tenure with the main period employer. 5 Complete estimation results are available upon request.

References Australian Bureau of Statistics. 2003. Education and Training Experience, Australia Explanatory Notes, Catalogue 6278.0. Canberra. Baker, Merideth, and Mark Wooden. 1992. “Training in the Australian Labour Market: Evidence from the How Workers Got Their Training Survey.” Australian Bulletin of Labour, Vol. 18, No. 4, pp. 25–45. Barron, John M., Dan A. Black, Mark A. Loewenstein. 1987. “Employer Size: The Implications for Search, Training, Capital Investment, Starting Wages, and Wage Growth.” Journal of Labor Economics, Vol. 5, No. 1, pp. 76–89. Booth, Allison. 1991. “Job-Related Formal Training: Who Receives It and What Is It Worth?” Oxford Bulletin of Economics and Statistics, Vol. 53, No. 3, pp. 281–94. Booth, Allison L., Marco Francesconi, and Gylfi Zoega. 2002. “Oligopsony, Institutions and the Efficiency of General Training.” Institute for the Study of Labor (IZA), Discussion Paper 618. Brown, Charles and James Medoff. 1989. “The Employer Size-Wage Effect.” Journal of Political Economy, Vol. 97, No. 5, pp. 1027–59. Frazis, Harley, Maury Gittlemman, and Mary Joyce. 2000. “Correlates of Training: An Analysis Using Both Employer and Employee Characteristics.” Industrial and Labor Relations Review, Vol. 53, No. 3, pp. 443–62. Green, Francis, Steven Machin, and David Wilkinson. 1999. “Trade Unions and Training Practices in British Workplaces.” Industrial and Labor Relations Review, Vol. 52, No. 2, pp. 179–95.

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Holtmann, Alphonse G., and Todd L. Idson. 1991. “Employer Size and On-the-Job Training Decisions.” Southern Economic Journal, Vol. 58, No. 2, pp. 339–55. Lynch, Lisa M., and Sandra E. Black. 1998. “Beyond the Incidence of Employer-Provided Training.” Industrial and Labor Relations Review, Vol. 52, No. 1, pp. 64–81. Miller, Paul W. 1994. “Gender Discrimination in Training: An Australian Perspective.” British Journal of Industrial Relations, Vol. 32, No. 4, pp. 539–64. Oi, Walter Y., and Todd L. Idson. 1999. “Firm Size and Wages.” In Orley Ashenfelter and David Card, eds., Handbook of Labor Economics, Volume 5. New York: Elsevier Science, North Holland, pp. 2165–214. Troske, Kenneth R. 1991. “Evidence on the Employer Size-Wage Premium.” Review of Economics and Statistics, Vol. 81, No. 1, pp. 15–26. Wooden, Mark. 1996. “Firm Size and the Provision of Employee Training: An Analysis of the 1993 Survey of Training and Education.” Australian and New Zealand Journal of Vocational Education Research, Vol. 4, No. 2, pp. 89–120. Wooden, Mark, and Audrey VandenHeuvel. 1997. “Gender Discrimination in Training: A Note.” British Journal of Industrial Relations, Vol. 32, No. 4, pp. 539–64.

APPENDIX TABLE 1 Summary Statistics of Variables Used in the Analysis Variables In-house training External training On-the-job training Age Duration with employer Duration in occupation Education: postgraduate Education: graduate diploma Education: bachelor’s degree Education: advanced diploma Education: certificate III or IV Education: certificate I or II Education: other certificate Education: year 12 Education: year 11 Education: year 10 Education: year 9 Education: year 8 or less Firm size: 1,000 Casual employment

0.414 0.117

— —

0.431 0.223

— —

Union member Public sector employment Part-time employment Married Disabled Born in an English-speaking country Born in a non-English-speaking country Region: New South Wales Region: Victoria Region: Queensland Region: South Australia Region: Western Australia Region: other Occupation: manager Occupation: professional Occupation: prod./transportation Occupation: elem. clerical Occupation: labourer Industry: agriculture Industry: mining Industry: manufacturing Industry: utilities Industry: construction Industry: accommodation Industry: wholesale trade Industry: retail trade Industry: transportation Industry: communication Industry: finance Occupation: paraprofessional Occupation: trade Occupation: adv. clerical Occupation: inter. clerical Occupation: prod./transp. Occupation: elem. clerical Occupation: labourer Industry: agriculture Industry: mining Industry: manufacturing Industry: utilities Industry: construction

0.331 0.218 0.097 0.665 0.219 0.115 0.138 0.337 0.252 0.179 0.078 0.101 0.054 0.090 0.187 0.138 0.060 0.079 0.025 0.019 0.200 0.014 0.076 0.036 0.060 0.109 0.067 0.031 0.040 0.141 0.201 0.011 0.095 0.138 0.060 0.079 0.025 0.019 0.200 0.014 0.076

— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —

0.296 0.289 0.426 0.653 0.194 0.099 0.126 0.335 0.258 0.179 0.074 0.102 0.053 0.030 0.261 0.026 0.133 0.065 0.007 0.004 0.070 0.002 0.010 0.054 0.030 0.157 0.027 0.015 0.058 0.099 0.026 0.071 0.288 0.026 0.133 0.065 0.007 0.004 0.070 0.002 0.010

— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —

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Industry: accommodation Industry: wholesale trade Industry: retail trade Industry: transportation Industry: communication Industry: finance Industry: property Industry: government Industry: education Industry: health Industry: culture Industry: personal services

0.036 0.060 0.109 0.067 0.031 0.040 0.092 0.072 0.059 0.038 0.022 0.040

Number of observations

4,896

— — — — — — — — — — — —

0.054 0.030 0.157 0.027 0.015 0.058 0.099 0.058 0.152 0.194 0.023 0.039

— — — — — — — — — — — —

4,448

Source: Survey of Education and Training, 2001, Australian Bureau of Statistics. Excluded are respondents with no earnings, the self-employed, those who did not know their employer size, students, and those who have been with their employers for less than one year.

XVIII. 21st-Century Chinese Employment Relations: Changes in the New Institutional Environment

The Heart of the Problem: Trucking in China’s Logistics Sector XIONG JUN Renmin University DAVID BENSMAN Rutgers University1

Introduction While China has many large, modern and efficient ports—led by those of Shanghai and Shenzen, the third and fourth largest ports in the world—its logistics system as a whole ranks only 27th, according to the most recent World Bank analysis. China spends twice as large a share of its gross domestic product on logistics than does the United States, which is 14th in the World Bank index. In February 2009, China’s State Council executive meeting acknowledged the problem when it identified the construction of logistics infrastructure and the merger and reorganization of logistics enterprises as key development priorities. China’s chaotic trucking industry is at the heart of the problem.

The Common Trucking Sector When China opened its economy to global trade after 1978, it disbanded the state-owned trucking companies. Former employees were laid off, many with inadequate retirement pensions. Millions of farmers entered the freight transport industry, hoping to make enough money to buy a home in the countryside. They bought used trucks and entered the newly deregulated industry as owner operators, without protection from labor or employment law. By 2000, there were 4.4 million small-sized and midsized trucks, accounting for 98 percent of the cargo vehicles in China. More than two-thirds of these trucks are rated to carry 4- to 8-ton loads, but overloading is common. Most of them (85 percent) run on petroleum. Furthermore, in 2001, there were nearly four million transport tractors, which are very small trucks, involved in road transport (He 2001, Huang 2002). Observers characterize this industry as “small, scattered, chaotic and poor” (He 2001, Wang and Chen 2006, Zhang 2007, “China’s Logistics Twice as High as in the United States” 2009). Overloading is a serious issue. Most drivers of common trucks are farmers who can purchase only simple, small trucks. Every morning they appear at regional trucking centers, where they walk past brokers who write contract proposals on blackboards. When they find an offer that appears favorable, they sign with the broker, then bring their truck in to load. They drive from city to city, often going months at a time before visiting their family in their home village. While they are transporting a load, they bear the costs of fuel, truck maintenance, highway tolls, traffic fines, food, lodging, and so on. In order to avoid having to return from a delivery with an empty truck, drivers will often drop their rates so low that no one can make a profit from a trip unless they stay on the

Author’s address: 1218 Raritan Avenue, Apartment 11A, Highland Park, NJ 08904

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road nearly dawn to dawn. Many drivers can’t afford to maintain their vehicles properly. Information systems and management skills in this sector are like “castles in the air.” Many studies of the living conditions of common truck drivers document severe problems, including illness and disease, unsafe conditions, poor quality of life, and lack of health insurance. Many of the problems are related to bad working conditions. “Sometimes we were blocked in the road hungry for more than a dozen hours. Even an iron man can’t bear it,” one driver complained (Liu 2007). When congestion on the road is particularly bad, drivers may have to stay in their trucks for days at a time. They will sleep curled up in their truck seat, and eat instant noodles and pocket-starch chicken sausages. They may not even have warm water in cold winter (Liu 2007). When traffic is moving, they drive for long hours every day in order to reach their destination on time. One large survey found that more than 40 percent of the drivers regularly drive 9 to 12 hours at a stretch (The Blue Book of China Truck Driver Living Status 2007). Drivers working in two-man teams typically spend 20 hours a day on the road. Sometimes they don’t even don’t have enough time to go to the restroom because they don’t want to “waste time.” This can lead to prostatitis and urinary calculi (Liu 2007). One large survey found that 39.1 percent of drivers reported at least one occupational disease. In addition, two-thirds reported suffering from stomach illnesses, and more than a third from cervical spondylosis (The Blue Book of China Truck Driver Living Status 2007). In recent years, robbery and truck hijacking have been commonplace. Some criminals rob drivers when they are sleeping on the side of the road—almost half of the drivers sleep in their trucks (The Blue Book of China Truck Driver Living Status 2007). When drivers are injured during robberies, they bear the consequences by themselves, because they don’t have medical insurance or accident insurance, (The Blue Book of China Truck Driver Living Status 2007, Liu 2007). This huge group, numbering 13 million drivers, is not respected or understood by company managers or the driving public. Predatory policemen, criminals posing as policemen, and government officials impose heavy fines for minor or imagined misdeeds. More than a third report that their sleep quality is poor. Seventy percent smoke, and 50 percent drink heavily. Furthermore, the drivers’ family life suffers; 80 percent of truckers in three provinces reported being away from home 80 percent of the time. Divorce is common (The Blue Book of China Truck Driver Living Status 2007). Finally, drivers suffer high rates of sexually transmitted diseases, including syphilis, and HIV/AIDS (Wang et al. 2002, Zhang and Yushan 2005, He et al. 2006, Lu et al. 2006, Feng 2008).

The Road Container Trucking Sector Common trucking’s hypercompetitive marketplace forces truckers to keep rates so low that common trucks are able to compete with container trucking companies for deliveries from factory or warehouse to port. This competitive pressure from small, old, inefficient common trucks has prevented the development of a modern, technologically advanced container trucking industry. The trading companies that handle the shippers’ compliance with government regulation of customs, quarantine and inspection, foreign exchange management, and inland revenue also arrange for goods to be delivered to the ports. They contract with tens of thousands of freight forwarding agencies, which do the actual bargaining and scheduling with the truckers. These freight forwarders don’t own container trucks. They have three to five employees who work out of one small, poor room with several business phones. Their principals run around the market all day long seeking orders. When they get an order, they sell it to the container transport company who bids the lowest price. This kind of business is called “sell orders” or “transfer orders.” Basically, these small and flexible freight forwarding agencies have control of the container market, dictating terms to trucking companies large and small. Even the big state-owned container transportation companies or joint-venture companies have a hard time competing with the small and flexible freight forwarding agencies for orders. They usually only get orders to transport heavy, dangerous and low-profit containers. Competition in the container freight transport industry is so intense that the companies frequently make lowball bids. The only way to make profits on these orders is to overload trucks, use fake licenses, or lease vehicles owned by truck drivers working as independent contractors.

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The number of container trucks with fake licenses is nearly a third that of legal container trucks. People register their container trucks in cities where registration fees and management fees are low, then run their business outside the region. This is illegal, but it is a common way to reduce operating costs. Some drivers use fake license or double sets of license to avoid registration and management fees. These illegal methods can markedly reduce costs, which makes it possible to keep bids low. Companies also lease trucks owned by independent contractors because in this way they needn’t pay for the trucks’ purchase price and maintenance fees. They also needn’t pay the drivers when there is no business. This intense, destructive competition has limited container truckers’ share of the entire road freight transport market. In 2005, there were 3,472 road container transport enterprises, accounting for 0.1 percent of the total number of national freight companies. There were only 58,700 container trucks, accounting for 0.97 percent of the nation’s total trucking fleet. Container trucks are mainly concentrated in the coastal provinces and cities, with the average transport distance only 63 kilometers (39.1 miles) and the average driving speed only 60 kilometers (37.5 miles) an hour (Chen 2007). Most of the container trucks are not owned by the container companies; they are owned by owner operators who are “linked” to container companies. For example, in Ningbo, there are 50 companies whose registry includes more than 80 container trucks in Ningbo city, but most of these container trucks are owned by independent contractors. There are only 20 companies in Ningbo that own more than 20 container trucks of their own (Dai and He 2008). Container trucks owned by independent contractors account for about 80 percent of the total in Ningbo city (Zheng 2005). Container transport faces not only vicious competition from illegal vehicles, but also high operating costs for insurance, terminal gate fees, road and bridge tolls, fines, and fuel. Highway and bridge tolls are important revenue sources for local governments. Road tolls alone accounted for more than half the operating costs of the operating division of Cosco, China’s largest logistics company. Obtaining fuel in the face of chronic shortages is an additional problem (Gen 2008). In the face of vicious competition and high operating costs, many companies routinely accept orders for containers that weigh more than their trucks are supposed to handle. One study showed that more than 10 percent of containers hauled by truck exceed the legal weight limit. Shippers overload the containers as a way of reducing their freight costs. Trucking companies accept the overloaded containers because they need the revenue (Wang 2008). Most container truck drivers are provisionally employed farmer drivers or the linked independent drivers of the state-owned or collective transport companies. They transport a container for a one-time fee, and often return from the port to their container company with an empty container and then wait for the next order. Traffic jams, often caused by road accidents involving old, overloaded, and unsafe trucks, reduce drivers’ earnings, as does competition from “black” drivers who operate outside the law altogether. Just a few independent drivers who have private relations with shippers become wealthy. Most of the farmer drivers’ dreams of “driving to make a fortune” will not be realized. Container movement at the port is affected by the market conditions of the common and road container industries. Chinese ports are large-scale business conglomerates specialized in the operation of ports and related business. They are descended from state-owned enterprises that carried out almost all inport logistics functions, including ship loading, on-dock warehousing, local drayage, pilotage, and so on. They were incorporated at the beginning of the 21st century. Soon most were turned into shareholding limited companies whose shares trade on the Shanghai, Shenzhen, or Hong Kong stock exchange, with the Chinese local municipal government being the largest shareholder. With strong supports from local government, little competition, and a rapidly growing margin, they have been able to generate profits and attract investment from foreign ocean lines and shippers. The port management companies are integrated operations, far more so than competing ports around the world. They not only operate terminals, they provide piloting services, warehousing, business information, and so on. Since they internalize profits from a variety of operations, rather than contract with countless partners, their profitability depends primarily on how fast they can move freight through the port. Once an empty ocean carrier enters a berth, the goal is to load the ocean carriers as quickly as possible. The ports rely on computer software to plan the distribution of freight in the hold, the operation of the cranes,

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and the scheduling of container delivery from their near-port warehouses and container yards to the ships. Old, overloaded trucks would clog their lean logistics system. Container trucks operating within these modern ports are owned by the ports themselves. The trucks are uniform and new; each has an onboard computer linked to the near-port warehouses, ships, and cranes’ computers, providing instructions as to where precisely to deliver the container for loading by the giant gantry cranes into the designated slot in the waiting ships’ holds. The truck drivers at the port are migrants recruited from the countryside by the labor agencies to work as contract employees. They live in agency dormitories and travel to and from the docks in agency vans. A study At the Ningbo 2nd Container Division in 2005, before the new contract law went into effect, revealed that 252 truck drivers were among the 1,100 “diversified employment workers.” While their pay is very low—$250 per month at Port Ningbo—compared to people operating the same equipment in the United States and Europe, it is well above the income of Chinese farmers and higher than the average wage of factory operatives in China’s export factory zones. According to a report of the Ningbo port authority, the reason that port companies use these temporary labor contract workers is that there are a large number of dirty, tiring, dangerous jobs at the port, creating a need for a huge pool of workers with strong physiques who are willing to bear hardships (Gu 2006). The second is that these temporary labor contract workers cost 19,000 RMB per capita per year to employ, which is only 27 percent of the cost of hiring formal fixed workers (Liu 2006). The temporary labor contract workers come from labor service agencies, which sign labor service project contracts with the port operating companies and take responsibility for labor recruitment, administration, and training as well as housing and the purchase of health coverage. There are 17 labor service agencies providing labor services at Ningbo port. When they sign contracts with the port, they have to show a corporate code certificate. Few agencies have their own legal qualifications or possess sufficient registered capital. Most of them are individual contracting companies with only a little registered capital. In some cases, the registered capital of the labor agencies is just 100,000 RMB (almost $14,000). The management systems of the labor agencies are not standardized. For example, the legal representative and all management in one company is performed by one part-time person. The agencies lack management regulations or financial controls. Since they are undercapitalized and have underdeveloped management systems, it is difficult for the labor agencies to guarantee that they can perform in accordance with the provisions of labor law to purchase adequate insurance coverage for the drivers. If an accident happens, the small labor agencies cannot provide enough money for the injured workers, and the health insurance department also will not provide them enough money. The consequence will be that the workers will have to carry the burden themselves (Liu 2006). Although the port truckers play an important role in port operations, they are socially marginal. Public activities such as trade union and company group activities never take temporary labor contract workers into consideration. Some of the ports’ formal employees discriminate against them and treat them as second-class citizens. Managers in both ports and labor agencies also ignore their temporary workers’ family responsibilities (Gu 2006). As a result of the discrimination they suffer, and the fact that they have to do the same job with different pay, the container truck drivers frequently shift from agency to agency.

Analysis China’s trucking industry has three different sectors, each with its own structure and labor market. Inside the ports, the new businesses have created highly integrated enterprises, which combine private, public, domestic, and foreign capital with information-intensive technology and flexible labor practices. This is the China that intersects directly with the global economy. Outside the ports, common trucking is a different world. Logistics is fragmented into tens of thousands of companies, each representing the entrepreneurial dreams of a few individuals. Almost all lack capital, technology, experienced managers, and trained workers. Millions of truck drivers buy their own vehicles and compete for orders from small companies that themselves lack capital, management expertise, and bargaining power. While these diverse actors strive to generate profits, they have to deal with countless layers of authority striving to finance activities by levying fees and tolls on the freight transport industry.


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Theft, falsification of records, bribery, overloading of trucks, unsafe vehicles, dangerous driving behavior, and excessive pollution detract from China’s prosperity. The chaotic competition of the common trucking sector as well as the capricious regulatory system holds back the development of container trucking, which in most of the world is an important component of modern logistics. Since road container transport has to compete with the low rates of the common trucks, much of China’s freight is only packed in containers when it reaches the ports. The road container companies lose millions of tons of freight orders to common trucks, which use more fuel, generate more emissions, and create more congestion. The fact that government agencies impose higher fees on the container trucks than they do on the common trucks, which routinely overload, reinforces the sector’s backwardness. In each of the three industry segments we have investigated, truck drivers experience difficult working lives. Container truck drivers working for labor agencies inside the ports are looked down as secondclass citizens by the ports’ formal employees and by local authorities. Container truck drivers outside the ports are squeezed by heated, often illegal, competition. Some of them buy container trucks and pay maintenance fees, management fees, fuel prices, and highway tolls all by themselves, but they have to link themselves to a container company to get the license they need. Some of them are hired temporarily without health insurance or pension. A third of container drivers choose to drive fake license, or “black,” container trucks to reduce their operating costs so that they can bid low and take orders away from larger container truck companies. Road freight transport is conducted by 13 million drivers of common trucks. They come from rural regions with the hope of earning money to build a house in the countryside. They gather in transportation markets and drive two to a truck, 20 hours a day, from one city to another. Their health suffers from the poor working conditions.

Recent Changes in Chinese Trucking In 2008, the surge in global energy prices pushed the Chinese government to raise diesel prices from levels that were already high as a result of fuel taxes. This move provoked protest—throughout China, truck drivers have been imitating taxi drivers in refusing to work. Sitting and drinking tea together has been the preferred mode of protest; to date, it has provoked sympathetic statements but no policy change from public authorities. Since the drivers are labor service contractor or independent contractors, they have not seen any union support for their work actions. Truck drivers would like to have an organization similar to a union to represent them vis à vis freight transport firms as well as government agencies. Given their dispersion, mobility, and low human rights and risk awareness, however, a viable association of independent contractors may not emerge for years (Liu 2007). The passage of the labor contract law in 2008 is another potentially significant change in the trucking labor market. How the law is administered and enforced could play an important role in shaping the future of China’s economy.

Conclusion The undercapitalized, highly competitive trucking industry and its contingent system of employment provides cheap freight rates but imposes heavy economic and social costs. The drivers damage their own health; their old, dirty and inefficient trucks pollute freight routes, contributing to the asthma-, lung cancer–, and heart disease–causing smog that infests China’s industrial regions. Cargo theft is impossible to control; shippers figure on lost pallets and even lost containers. Perhaps most important is the detrimental impact this employment system has on the nation’s supply chain: while the ports possess superior information-processing technology to link factories, terminals, ships, and customers, the millions of old trucks cannot participate in a just-in-time system. They show up when they show up, they get loaded when the warehouse is ready, they wait in traffic, and they break down and wait by the side of the road as their drivers fix them. Furthermore, as labor cost pressures push manufacturers to move factories further inland, making them even more dependent on truck drivers to reach export markets, the hypercompetitive, undercapitalized industry with its contingent labor market will present an even more important barrier to future growth and development.

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Logistics accounted for 18.4 percent of China’s gross domestic product in 2007, about twice the proportion in the United States. The World Bank ranked China’s logistics performance 27th worldwide in 2010. This relative inefficiency means that China’s businesses face logistics costs that are 40 to 50 percent higher than their counterparts in the United States. This is a significant concern of the Chinese government, which would like to relocate factories inland where labor is abundant. At the moment, the inefficiencies of China’s inland logistics system pose real challenges to these plans. At the same time that the Chinese government invests heavily in improving infrastructure to facilitate freight transport, it should reregulate its trucking industry to induce transportation companies to invest capital in modern truck fleets. It should also improve the employment status of the truck drivers. Without adequate regulation, trucking will stay on the low road, a path filled with pollution, poor health, accidents, congestion, theft, delays, and inefficiencies.

References The Blue Book of China Truck Driver Living Status. 2007. China’s Shanxi Heavy Truck Co. Ltd. and Xinhua International Information Consulting Co. Chen, Liyou. 2007. “The Development of Road Container Transportation Industry Is Not Optimistic.” Transport Business China, Vol. 8, pp. 56–7. “China’s Logistics Twice as High as in the United States; Small and Medium Enterprises to Close Down.” 2009. China Economic Weekly, March. Dai, Dongsheng, and Guojun He. 2008. “The Status Quo and Countermeasure of Ningbo Highway Container Transportation.” Transportation Construction and Management. Vol. 7, pp. 73–5. Feng, LingHui. 2008. “The Analysis of HIV Monitoring Results of Long-Distance Truck Drivers.” Qinghai Medical Journal, Vol. 38, No. 2, p. 27. Gen, Bo. 2008. “The Management Suggestions about Shenzhen Road Container Transport.” Containerization, Vol. 6, pp. 18–20. Gu, Jinbo. 2006. The Diversified Employment Issues of Beilun Second Container Co., Ltd. Master’s thesis, Shanghai Maritime University. He, Hua. 2001. “Problems and Solutions of Road Transport Market in China.” Beijing Jiaotong University Administrators, Vol. 11, pp. 19–22. He, Bo, Liping Nong, Chaorong Lu, Xiangxin He, Jianming Zhang, and Weilun Li. 2006. “Long Distance Truck Drivers’ AIDS, Syphilis Prevalence and Its Related Knowledge Survey.” Applied Preventive Medicine, Vol. 12, No. 4, pp. 228–9. Huang, Jinglan, 2002. “Current Status Analysis and Adjustment of Highway Transportation Structure.” Journal of Highway and Transport Research Development, Vol. 19, No. 5, pp. 156–9. Liu, Hongxia. 2007. “Anguish on Transport Line: The Living Status of Large Truck Drivers in Our City Need to Concerns.” Datong Daily, November 9, section 010. Liu, Zhudong. 2006. The Research of Constructing a Diversified Employment System in Ningbo Port Group. Master’s thesis, Shanghai Maritime University. Lu, Yichun, Jia Guo, Lukun Sun, JinHua Xie, Yong Wen, and Ling Feng. 2006. “The Survey of AIDS Knowledge and Behavior of Part of Long-Distance Truck Drivers in Kunming.” Soft Science of Health, Vol. 20, No. 3, pp. 325–8. Wang, Yahui. 2008. “The ‘Control Overloading’ Panorama of National Domestic Container Transport.” Transportation Construction and Management, Vol. 10, pp. 28–31. Wang, Wuxin, Zonggan Liu, Zefang Ren, Qun He, Guodong Chen, and Jingli Gu. 2002. “STD/AIDS Health Education Intervention Evaluation of Long-Distance Truck Drivers in Shenzhen City.” China Public Health, Vol. 18, No. 3, pp. 338–40. Wang, Xiaoyu, and Jun Chen. 2006. “The Integration of Spontaneity and Planning of Logistics Park—A Case Study of Northwest Logistics Park.” Modern Logistics, Vol. 29, pp. 23–5. Zhang, Jing. 2007. COSCO Logistics Research on Competitive Strategy. Master’s thesis, Dalian University of Technology.


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Zhang, Cuilan, and Yushan Jia. 2005. “AIDS Knowledge, Attitude and Behavior Survey of 1,000 Cases of Long-Distance Truck Drivers in Datong City.” China’s Health Education, Vol. 21, No. 6, pp. 454–5. Zheng, Wei. 2005. “The Countermeasures of Ningbo Port to Manage Overloading and Oversize of Container Transport.” Water Management, Vol. 7, pp. 22–5.

XIX. Empirical Studies of Retirement Plans: Implications for Workers, Firms and Public Policy

Peer Effects and the Timing of Retirement: Evidence from Los Angeles School Teachers KRISTINE M. BROWN RON A. LASCHEVER University of Illinois at Urbana-Champaign1

Abstract We examine the effect of peers on an individual’s likelihood of retirement using data from the Los Angeles Unified School District. Using an administrative dataset of the full population of district teachers ages 55 and over, for the years 1997 to 2001 (n =31,931), we construct school-level peer groups. We instrument for others’ retirement using two large pension reforms that differentially impacted the financial incentives for retirement within and across schools. Controlling for individual and school characteristics, and including individual fixed effects, our instrumental-variable estimates of the effect of colleagues’ retirement on a teacher’s own likelihood of retirement are sizable and statistically significant.

Introduction Choosing when to retire is one of the most important labor-market decisions an individual must make, and mistakes can be costly. The importance of the decision and the public policy relevance of retirement timing have generated a large literature examining the retirement decision. The bulk of this research finds that financial incentives, as well as personal and family characteristics, are important considerations for the timing of retirement, but that these factors do not fully explain observed retirement behavior.1 Motivated by this finding and a growing body of evidence on the importance of peers for other labor market decisions and economic outcomes,2 we examine the effect of colleagues’ retirement behavior on one’s own likelihood of retirement and consider possible mechanisms through which the social effect may operate. In the face of both recent and proposed pension and Social Security reforms, it is important to understand the role peers play in individuals’ retirement decisions. Peer effects may lead to a social multiplier in retirement. That is, directly changing the retirement incentives of one individual may have a spillover effect on the retirement behavior of others, even those not influenced directly by an intended program. As a result, peer effects may alter the intended impacts of these reforms and could have potentially large effects on the financial well-being of the elderly and the derived costs of social insurance and safety nets. While there is some evidence that peers are important for retirement-related decisions, there is little work examining the effect of peer behavior on retirement timing. Duflo and Saez (2002, 2003) find that enrollment in retirement plans is affected by the choices of colleagues, and Hastings and Tejeda-Ashton (2008) find that peers and family members play a role in providing information for the choice of pension plans in Mexico. These studies do not address the decision of when to retire, but they lend support to the importance of Authors’ address: Department of Economics and School of Labor and Employment Relations, 504 E. Armory Ave., Champaign, IL 61820; [email protected], [email protected]

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EMPIRICAL STUDIES OF RETIREMENT PLANS

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co-workers and friends in retirement planning. Our paper builds on this literature by examining the direct effect of peers on the retirement decision. Our findings provide some of the first evidence that peers may not only affect retirement decisions indirectly by influencing retirement savings, but also that they have a direct impact on whether or not an individual retires in a given year. Concurrent with our work, Chalmers, Johnson, and Reuter (2008) also examine the effect of co-workers on retirement outcomes. They too find that peers play an important role in individuals’ retirement, though the results are not directly comparable with ours. Given their data and setting, they define peer groups at the employer level and use a different identification strategy. The detailed location information at our disposal allows us to focus on a more refined set of reference groups: all coworkers at the same physical location. Our identification strategy also varies in important ways, as we rely on an exogenous, yet salient, pension reform that permanently changed benefit levels and also shifted key retirement ages. This reform shares some key features with current and proposed changes to Social Security and private pensions, and thus is likely to be more informative about the role that peers may play in affecting the outcomes of these policy initiatives. In this paper, we examine the relationship between peer retirement choices and an individual’s retirement decisions among Los Angeles public school teachers. Incorporating peer effects into any economic decision, including the retirement decision, introduces several challenges to identification and estimation. Importantly, there are potentially many factors, unrelated to peer effects that could be mistakenly attributed to peer effects. For example, one might observe a correlation in the retirement of those who work together because of correlated tastes for leisure among colleagues or as a response to a demanding supervisor. Using a rich panel dataset derived from administrative records consisting of all Los Angeles school district teachers in the years 1997 to 2001, coupled with an unexpected pension reform, we are able to address the main challenges to peer effects estimation. For this study, a crucial feature of the pension reform is that the change in the financial incentive to retire varies across the teaching population. The differential impact of the reform is essential for our identification strategy for two reasons. The first is that by affecting individuals differently, it creates variation in the effect of the reform on each peer group due to differences in the composition of teacher characteristics. The second, perhaps more subtle, reason is that the unanticipated pension changes must affect teachers within a school in a differential manner. If all group members are affected in the same manner, even if the shock is completely exogenous, one cannot identify the effect of peers separately from the direct effect of the shock on an individual. In addition to the differential impact of the reform on pension financial incentives across the teaching population, which is necessary for identification, there are several advantages to addressing the question of how colleagues affect one’s own retirement decision with this particular data set. First, workplace colleagues might be a natural source of information about a work-related pension plan. Given the school assignment information in the data, we are able to fully determine and observe each teacher’s set of colleagues. We define each teacher’s relevant reference group as the set of retirement-eligible teachers within the same school. We also use additional school-level controls for the entire teacher population. Using the school assignment information, we are able to match teachers to school characteristics that may be correlated with the work environment, such as student test scores. Also, California teachers are not covered by Social Security, and thus their employer-sponsored pension and reforms of this pension are likely to have a significant effect on teachers’ employment-related retirement income. Finally, we are able to accurately identify the financial incentives that may influence individual retirement decisions, as the administrative data includes salary and other variables that are sufficient to calculate retirement benefits. We use an instrumental variables framework to estimate the effect of peers on retirement behavior. We show that a differential instrumental variable coupled with an individual-level-fixed-effects specification can be used to identify the effect of others’ retirement behavior on someone’s likelihood of retirement. The exogenous, unexpected shock to the pension financial incentives of others is used as an instrument for the number of colleagues that retired in the previous year. We find that, all else equal, an additional peer retirement in the previous year increases one’s likelihood of retirement by 1.8 percentage points. A host of robustness checks and two types of falsification tests provide further evidence that our findings are not an artifact of spurious correlation.

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Finally, we further investigate two types of mechanisms through which the social effect may operate. We find no support for the hypothesis that school-specific retirement-age norms play an important role. We find evidence that the extent to which others do not wait to retire in order to maximize their pension benefits affects the degree to which an individual does not delay retirement in order to fully maximize the financial benefits of his or her own pension plan. Our results highlight the importance of others’ behavior in the retirement decision and are consistent with a social multiplier in retirement. For example, the rise in the Social Security normal retirement age could cause those who are not covered by Social Security to also delay retirement. Our results not only document and estimate the existence of peer effects, but also provide a direct dollar amount estimate of the spillover effect that providing one person with a financial incentive would have on his or her peers. For example, we find that an additional $100,000 of pension wealth given to all others in a school (in total, not to each teacher), self excluded, would increase one’s own likelihood of retirement by 0.18 to 0.27 percentage points. While much of the recent literature on peer estimation seeks to exploit exogenous or random assignment to groups, we are able to examine the effect of a reform on preexisting groups. In the context of reforms of retirement financial incentives or any similar reform, a change in regulation for preexisting peer groups is more likely to occur than legislation seeking to rearrange the peer assignment of those about to retire.

Retirement Program for Los Angeles Teachers The Los Angeles Unified School District (LAUSD) is the second largest school district in the United States, with over 820 schools and nearly 700,000 students. All full-time teachers in LAUSD are covered by a statewide defined benefit retirement plan that is administered through the California State Teachers’ Retirement System (CalSTRS). The characteristics of the California teachers’ defined benefit program closely resemble those of most employer-sponsored defined benefit retirement programs. Participation in the contributory program is mandatory for teachers employed full-time in California public schools, and upon retirement each CalSTRS member receives a lifetime annuity with an annual value based on, and increasing in, years of service, age, and past salary.3 The CalSTRS pension is relatively generous, and California teachers are not covered by Social Security, so for career teachers the pension is likely an important consideration for their retirement decisions. During the period under study there were two large, unexpected reforms of CalSTRS retirement benefits, both of which increased the generosity of the program but did so unevenly across the population. The effect of the reform on individual financial incentives is a function of the individual’s age and service at the time of the reform. This differential impact of the reforms is the foundation of our identification and estimation strategies. In August of 1998, the California state legislature increased the generosity of the pension for California teachers retiring on or after January 1, 1999, with the passage of two bills, AB 1102 and AB 1150. The reforms increased the annual benefits for retirements at age 60 or older and/or at 30 years of service or more, but benefit levels for retirements at earlier ages or service levels were not affected. Current pension wealth, the present value of pension income for immediate retirement, increased by 20 percent for 63-yearolds and by at least 10 percent for those with 30 years of service. On the other hand, the financial return to working increased for those younger than age 63 and for those with less than 30 years of service. For example, the return to working an additional year doubled for 60-year-olds. A second reform, AB 1933, was passed by the state legislature on August 31, 2000, and went into effect for retirements on or after January 1, 2001. This reform provided a lump sum longevity bonus to teachers at three target service levels. For the average teacher who was eligible for the bonus at the time of the reform, pension wealth increased unexpectedly by 6 to 13 percent. For teachers who had not reached all service targets, the financial return to work increased.


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Retirement Decision Retirement Decision Without Peer Effects In order to focus on the identification and estimation of the effect of peers, we estimate a parsimonious reduced-form model of retirement, as it allows us to leverage the pension reform described in the previous section. Below we present a very simple framework for thinking about how financial factors, especially the pension, will affect the individual retirement decision absent peer effects. We incorporate peer effects in the next section. A convenient way to think about the individual’s retirement decision is to treat it as a utility maximization problem over two goods—lifetime consumption and years in retirement subject to the budget constraint he or she faces. The pension features enter the lifetime budget constraint in two ways. The pension contributes to the level of lifetime earnings and also affects the return to working an additional year. Informally, an increase in the generosity of pension benefits at any age will create an income effect, providing an incentive for individuals to consume more leisure and thus to be more likely to retire, all else equal. On the other hand, an increase in the level of benefits for retirement at a future age will, by increasing the return to continued work, create a substitution effect, and thus an individual will be less likely to retire at the current age, all else equal. We capture these essential features of the pension with two simple measures. First, current pension wealth, the present value of the stream of retirement income for retirement today, captures the level of benefits. For an individual who is age t in the current period, pension wealth is defined in our empirical model 1 a t B(t ) , where B(t) is the annual retirement benefit the person would receive based as PWt  100 a t  a|t ( 1 r ) on current age, service, and salary and  a|t is the probability of living until age a given survival until age t. Second, we use the peak value measure (Coile and Gruber 2007), the maximum potential increase in pension wealth that can be achieved with continued work. It captures the financial return to continued work and is defined as the difference between pension wealth for retirement at the current age and the pension wealth for retirement at the future age that maximizes pension wealth.4 We use peak value rather than the one-year accrual of pension wealth as a measure of the financial return to working because it enables us to capture discontinuous jumps in pension wealth at age or service cutoffs. The econometric specification of the retirement decision yi , s , t of individual i at time t can be written as follows5:

Pr ( y i , s , t  1 | i, s, t )  Pr (U i, s , t  ci )  f (  0  1 PK i , s , t   2 PWi , s , t   3 wi , s , t  xi, s , t  4  t  ci )  where U i , s , t is the latent utility of individual i, in school s for retirement in year t, PKi , s , t captures the

option value of work due to the pension program, PWi , s , t is individual pension wealth at time t, and wi , s , t is the annual salary of individual. The vector xi , s , t contains personal characteristics that might affect retirement, such as age and length of service, and  t captures any common period-specific effect, such as a macroeconomic shock. The unobservable shocks to the individual,  i , s , t , capture changes such as health shocks. In the case of the linear probability model (f(k)=k), we will allow the threshold c to vary across individuals, by using individual fixed effects. Retirement Decision Incorporating Peer Effects We consider three possible types of group-level effects and denote each individual’s school by s=1..S.6 The first type of measure is the behavior or outcomes of all others, Y-i,s , where the notation –i

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denotes that one’s own behavior is excluded. The second type of measure is the observable group characteristics summarized by the vector Zs, such as school quality or the age composition of other teachers in the school. The third type of measure is the unobserved school-level effect, which is denoted by  s . For each type of school-level measure, there are several possible channels through which that measure might influence an individual’s latent utility from retirement. Both the observed and unobserved school characteristics Zs and  s are likely to influence individuals’ utility from work. For example, it may be more enjoyable to teach high ability students, and this ability may be captured by high school test scores (observed). A friendly school principal or coworkers (unobserved) may also make work more pleasant, reducing the utility gain from retirement. One reason individuals may be affected by others’ retirement, is that they derive utility from acting in accordance with others (social norms). In the case of retirement, that would be equivalent to retiring because everyone else around you is retiring. Alternatively, increased retirement behavior among others may increase an individual’s likelihood of retirement for other reasons. Deciding when to retire is complex, and thus individuals may mimic the behavior of others in order to reduce the computational burden of the decision. We include the three types of social effects in the aforementioned latent-utility framework:

yi , s , t   0  xi, s , t   Z s , t   Yi , s , t 1   s  t   i , s , t The retirement decision y  {0,1} is also a function of the individual covariates xi and an error term  i , s , t , a scalar capturing the individual’s unobservable taste for retirement. We focus on the linear specification. However, our estimates for the reduced-form specification using logit are qualitatively the same, and the marginal effects are similar. The detailed panel data at our disposal allows us to examine how lagged (and therefore observable to teachers) retirements of others affect individuals. For institutional reasons, though our data contain the actual calendar date of every teacher’s retirement, we group retirements by academic year.7 We focus our investigation on lag-outcomes specifications. In addition to being more consistent with the institutional detail and typical academic year cycles, it no longer requires us to make the assumption that teachers (correctly) anticipate the retirement of others, and it reduces the simultaneity problem of the group decision.8 However, though the use of lag outcomes can aid in separately identifying the endogenous and contextual effects, one still requires the identification strategies discussed below. For example, if there is an important observable or unobservable group-level variable that determines retirement, it is likely to affect previous-year retirements of others just as strongly as it affects (planned) current-year retirements of others. We make use of the reform via an instrumental variables (IV) strategy to estimate the effect of others’ behavior. However, as noted, for instance, by Brock and Durlauf (2001), in the case of peer effects, a valid instrument—one that is correlated with the endogenous group outcomes and uncorrelated with own unobservables—is not sufficient. It is also necessary that the reform affected individuals within the group differently. In Brown and Laschever (2009), we show that a reform that affects individuals both within and across schools differently allows us to separately identify the endogenous and contextual effects. The differential IV would address concerns regarding the endogeneity of the group-retirement outcomes, but it would not suffice if there is an important individual-level unobserved preference for retirement. The panel data structure allows us to address the concern regarding an unobservable individuallevel (and school-level) fixed effect. The intuition behind our identification strategy is that the time dimension is used to difference out the individual (and school-level) fixed effect, and the differential reform addresses the social effect.9

Data In this study we used individual-level administrative data from the Los Angeles Unified School District (LAUSD)10 that has been matched to school-academic-year-level characteristics available in the public CBEDS data from the California Department of Education.11 The data includes an annual census of active


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teachers ages 45 and older for each of the academic years 1997 to 2003 and all retirement episodes during this time period. We focus on retirement-eligible teachers, those ages 55 or older, in academic years 1997 to 2001. Each person-year observation (n = 31,931) includes age, years of service, salary, gender, retirement date (if applicable) and school assignment (606 unique schools are observed). School assignment is the key variable with which we are able to identify each teacher’s colleagues—all teachers age 55 or older working in the same school in the same academic year. A teacher-specific identifier also allows us to follow teachers over time. Table 1 shows the summary statistics of the data at the individual-level in panel A and at the schoollevel in panel B, where the school-level variables are the within-school-averages of individual level variables. The retirement-eligible LAUSD teachers are on average almost 60 years old and have 20 years of service within LAUSD. Over 70% are women, and the annual retirement rate for this group is 9 percent. As a group they have an average pension wealth of almost $500,000, with a peak value of over $90,000.12 This implies that on average, these teachers could increase their pension wealth by up to 20 percent with continued work. For those individuals that had an unexpected gain in their pension wealth due to the reforms in academic years 1998 and 2000, the average gain in pension wealth was $80,000. Key variables for our estimation are the retirement rate of peers and the unexpected change in pension wealth of peers, our instrument for peer retirements. The standard deviations in Panel B illustrate that there is substantial variation in these and other peer characteristics across schools. The average retirement rate across school-by-year observations is 8.8 percent, and the standard deviation is 11.3 percent. The mean total unanticipated change in peers’ pension wealth for those whose pension wealth was affected by the reform is $350,000, with a standard deviation of $350,000.

Results Baseline Estimates It is of use to first consider a baseline case assuming there are no peer effects. We estimate a linear probability model.13 Column 1 of Table 2 presents the results of our preferred baseline specification for retirement-eligible teachers in academic years 1999 and 2001 (the years that correspond to our IV estimation). It includes own pension financial measures, integer age dummies with age 55 as the excluded group, years of service, salary, gender, year fixed effects, and controls for school characteristics and characteristics of the teaching population in the school. The main variables of interest are pension wealth and peak value, as they are intended to capture the pension financial incentives, and it is the unanticipated change in these incentives that is central to our estimation of peer effects in the following section. The coefficient estimates of both pension wealth and peak value are statistically significant at the 1 percent level and are of the predicted sign. A $100,000 increase in pension wealth is associated with a 6.5 percentage point increase in the probability of retirement. A $10,000 increase in peak value is associated with a 0.40 percentage point decrease in the likelihood of retirement. The coefficient estimates on peak value and pension wealth are stable across alternative specifications, including one with school fixed effects. For the school-fixed-effects specification, an F-test of the joint significance of the school fixed effects rejects the null at the 5 percent level of significance. While this is not evidence of peer effects, since school fixed effects would encompass any constant feature of the school, if the school component did not play an important part in explaining retirement this would suggest a smaller likelihood of being able to estimate peer effects. The main variables of interest are pension wealth and peak value, as they are intended to capture the pension financial incentives, and it is the unanticipated change in these incentives that is central to our estimation of peer effects in the following section. The coefficient estimates of both pension wealth and peak value are statistically significant at the 1 percent level and are of the predicted sign. A $100,000 increase in pension wealth is associated with a 6.5 percentage point increase in the probability of retirement. A $10,000 increase in peak value is associated with a 0.40 percentage point decrease in the likelihood of retirement.

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LERA 62ND ANNUAL PROCEEDINGS TABLE 1 Summary Statistics for Academic Years 1997–2001; All LAUSD Teachers, Ages 55–75 Panel A: Teacher-level characteristics (Teacher x year); N = 31,931

Panel B: School-level characteristics (School x year); N = 2,847 Reports school’s mean, standard deviation, and median

Variable Retired during this academic year Pension wealth ($100K) Peak value ($10K) Unexpected change in pension wealth ($100K) conditional on being affected by a reforma Unexpected change in peak value ($10K) conditional on being affected by a reformb Salary ($10K) Age Service Female Average peers’ pension wealth ($100K) Average peers’ peak value ($10K) Total of peers’ unexpected change in pension wealth conditional on reform year ($100K)c Average of peers’ unexpected change in pension wealth conditional on reform year ($100K)c Total of peers’ unexpected change in peak value conditional on reform year ($10K)c

Mean

Std dev

Median

School’s mean– mean

School’s std dev– mean

School’s median– mean

0.089 4.920 9.400

0.285 3.196 8.302

4.426 9.302

0.088 4.963 2.410

0.113 1.456 2.741

0.059 4.880 2.678

0.803

0.349

0.839

0.822

0.201

0.835

3.231 5.770 59.850 20.720 0.722 4.916 9.348

3.815 0.798 3.906 11.314 0.448 1.274 3.305

3.022 6.015 58.950 20.077 4.867 9.301

2.410 5.761 59.815 20.769 0.803 4.956 9.461

2.678 0.371 1.620 5.017 0.203 1.452 3.763

2.741 5.788 59.698 20.965 0.857 4.874 9.421

5.825

4.861

4.382

3.506

3.500

2.536

0.342

0.188

0.318

0.356

0.215

0.335

36.782

52.922

13.765

22.546

35.424

7.964

Average of peers’ unexpected change in peak 2.197 2.397 1.021 2.295 2.502 1.490 value conditional on reform year ($10K)c Number of teachers age 55+ at school 17.726 12.911 14.000 10.265 9.159 7.000 Pupil-to-teacher ratio 21.972 3.381 21.649 20.554 3.364 19.889 Math test ranking at school level 5.544 2.612 5.500 5.498 2.657 5.333 Fraction of all teachers with at least an MA at school 0.290 0.091 0.291 0.271 0.101 0.259 Elementary school 0.507 0.500 0.721 0.449 Middle school 0.191 0.393 0.124 0.330 High school 0.252 0.434 0.086 0.280 Notes: a Observations are included conditional on a having non-zero value of the unexpected change in pension wealth at the individual level (5,464 individual-year observations). b Observations are included conditional on having a non-zero value of the unexpected change in peak value at the individual level (8,792 individual-year observations). c These include only observations in the years 1998 and 2000 (12,855 individual-year observations).


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TABLE 2 OLS and Two-Stage-Least-Squares Estimates All LAUSD teachers ages 55–75; 2SLS; dependent variable: retirement; academic years 1999 and 2001 1 Number of retirees among those 55+ in previous year (self excluded) Lag total unanticipated change in pension wealth of peers, self excluded ($100K) Peak value ($10K) Pension wealth ($100K)

3 0.0063*** (0.0019)

4 0.0185** (0.0075)

5 0.0183** (0.0086)

6 0.0436*** (0.0133)

0.0027*** (0.0010) -0.0040*** (0.0007)

-0.0061*** (0.0008)

-0.0043*** (0.0007)

-0.0043*** (0.0007)

-0.0061*** (0.0008)

0.0022 (0.0019)

0.0655*** (0.0056)

0.0709*** (0.0057)

0.0628*** (0.0058)

0.0628*** (0.0058)

0.0708*** (0.0056)

0.0842*** (0.0107)

Unexpected change in own pension wealth ($100K) last year Salary ($10K)

2

-0.1169*** (0.0140)

-0.1160*** (0.0139)

0.0645*** (0.0056)

0.0745*** (0.0062)

0.0724*** (0.0063)

0.0725*** (0.0063)

0.0739*** (0.0062)

Years of service in LAUSD

-0.0189*** (0.0013)

-0.0238*** (0.0015)

-0.0188*** (0.0014)

-0.0189*** (0.0014)

-0.0237*** (0.0015)

Years of service in LAUSD squared

0.0001* (0.0000)

0.0002*** (0.0000)

0.0001** (0.0000)

0.0001** (0.0000)

0.0002*** (0.0000)

-0.0240*** (0.0067)

-0.0169** (0.0069)

-0.0218*** (0.0069)

-0.0214*** (0.0069)

-0.0161** (0.0070)

Number of full-time equivalent teachers at school

-0.0002 (0.0002)

-0.0003** (0.0001)

-0.0002** (0.0001)

-0.0004** (0.0001)

-0.0004** (0.0002)

-0.0019*** (0.0007)

Average age of teachers 55+ (self excluded)

-0.0021 (0.0017)

-0.0028 (0.0018)

-0.0022 (0.0017)

-0.0023 (0.0018)

-0.0023 (0.0018)

0.0099** (0.0039)

Average service of teachers 55+(self excluded) Individual fixed-effects Lagged years of service categories of other teachers and others average salary Constant R-squared of second stage

-0.0004 (0.0006)

-0.0013** (0.0006)

-0.0006 (0.0006)

-0.0005 (0.0006)

0.0008 (0.0014)

0.0007 (0.0012) Yes

Female

Sample size

0.5394*** (0.0269)

0.0011*** (0.0002)

Yes 0.0007 0.157

0.0411 0.165

-0.0483 0.159

-0.0305 0.156

0.0706 0.164

0.276

13,555

12,602

12,602

12,602

12,602

22,381

Panel B: First stage of the above specifications (the variable instrumented above is in bold) Instrument [t-stat in square-brackets] Lag total unanticipated change in pension wealth of peers, self excluded ($100k) F-statistic for excluded instrument P-value for the above test R-squared of first stage

0.1408*** (0.0055) [25.43]

0.1280*** (0.0057) [22.27]

0.0402*** (0.0041) [9.74]

18.81 0.0000 0.43

14.57 0.0001 0.46

94.82 0.0000 0.08

Notes: *, significant at 10%; **, significant at 5%; ***, significant at 1%. Standard errors, in parentheses, are clustered at the school level, allowing any correlation across individuals and years within school. All specifications include controls for age dummies, year fixed effects, pupil to teacher ratio, school grade level categories, fraction of teachers with a master’s degree or higher, fraction of teachers that are female, and average rank on students’ standardized math test scores. Sample for columns 1–5 is academic years 1999 and 2001 (with the lagged variables computed using academic years 1998 and 2000). Sample for Column 6 is academic years 1998-2001 for those who did not move between schools.

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The coefficient estimates on peak value and pension wealth are stable across alternative specifications, including one with school fixed effects. For the school-fixed-effects specification, an F-test of the joint significance of the school fixed effects rejects the null at the 5 percent level of significance. While this is not evidence of peer effects, since school fixed effects would encompass any constant feature of the school, if the school component did not play an important part in explaining retirement this would suggest a smaller likelihood of being able to estimate peer effects. The Effect of Peers on Retirement Using the Unexpected Change in Financial Incentives In this section, we examine the effect of others’ retirement behavior on an individual’s likelihood of retirement. We use the unexpected pension reform to overcome some of the aforementioned identification issues via an IV strategy. We use the two reforms (academic years 1998 and 2000) to construct measures of the unanticipated change in pension financial incentives faced by one’s peers, which we use to instrument for the retirement of others. Crucial for identification, the reforms had a differential effect on teachers. In addition, the large variation across schools allows us to estimate the effect. Before turning to our IV estimates, we begin by directly using the unanticipated change in pension financial incentives as a predictor of change in retirement behavior. For each individual i, for both the first and second reforms, we define the unanticipated change in individual i’s pension wealth as PWi , t  Pension

wealth (individual i, year = t, postreform formula) – Pension wealth (individual i, year = t, prereform formula). We define the unanticipated change in the pension financial incentives of one’s peers as the (lagged) sum of the unexpected change in pension wealth of all other 55+-year-olds in one’s school, self excluded. The results of our preferred reduced-form specification, in which we control for an individual’s own pension wealth and peak value and own unexpected change in pension wealth, are presented in column 2 of Table 2. The lagged total unanticipated change in pension wealth of all other 55+-year-olds in one’s school, self excluded, has a positive and statistically significant effect on one’s likelihood of retirement, with a point estimate of 0.27 percentage points. Using the effect of one’s own pension wealth for calibration, the point estimate suggests that other colleagues (self excluded) receiving an extra $100,000 in pension wealth (in total, not each) have the same effect on one’s own retirement as receiving $4,300 to one’s own pension wealth. Though the estimates obtained from column 2 of Table 2 are useful in understanding the spillover effect of a change in others’ financial incentives, it is likely that others’ finances do not directly affect one’s own retirement, but rather people may be affected by others’ behavior. The remaining columns of Table 2 investigate the effect of others’ retirement behavior on one’s own retirement using the unanticipated change in financial incentives of others as an IV. The specification we estimate is

y i , s , t   0   1 PK i , s , t   2 PWi , s , t   3 wi , s , t  xi, s , t  4  Z s   Yi , t 1, s   t   i   i , s , t (t  1999, 2001) The variable of interest is Yi , t 1, s , the lagged retirement of others. In Table 2, we use the number of retirements in the previous year. We obtain similar results when we examine the lagged average retirement of others in the same school, self excluded. The third column of Table 2 includes the “naive” OLS estimate. The number of retirements of others is found to have a positive and statistically significant effect on the likelihood of own retirement. Using the point estimate of column 3, one additional retirement of a colleague would increase one’s own likelihood of retirement by 0.63 percentage points. Since peer retirement measures are lagged one year and include a host of individual, year, and school level controls we view these results as meaningful. However, to address any lingering concern regarding these group measures, we turn to the IV estimates in columns 4 through 6. The performance of the instrument used is reported in Panel B of Table 2. Column 4 is the same as column 3, but now the peer-retirement measure is instrumented by the unanticipated change in pension wealth of others. The results for the peer measure are statistically significant at the 5 percent level. As might be expected, the standard errors are larger. Using the point estimate of column 4, each retirement of colleagues increases the likelihood of one’s own retirement by an additional 1.85


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percentage points. Column 5 includes as an additional control the lag unanticipated change in one’s pension wealth and additional measures of the service and salary of other teachers in one’s school. The results remain very similar. The most crucial question in any IV setting is whether the instrument is uncorrelated with the unobservable component. We argue that in this case two features make this more likely to hold. First, the reform was unanticipated. Second, we are able to observe all the factors that affect our IV. In particular, the IV is solely a function of the age, service, and salary composition of teachers in a given school, all of which are measures we fully observe and control for in all specifications. In all specifications, we control for the average age, size, and years of service of those eligible to retire (age 55+).14 Column 5 includes additional school-level service composition measures (15–19, 20–24, 25–29, and 30+ years) as well as average salary of others. The IV estimates address potential concerns regarding the peer-retirement measure, but the results may still be biased if the individual unobservable component is important in determining retirement. For example, those with a strong preference for work would have more years of service or perhaps higher salaries. Similarly, there may be an underlying unobservable component that is correlated with some of the school controls we have used. The rich data set at our disposal allows us to link teachers over time and thus purge any individual fixed effect. The last column of Table 2 includes an individual-level fixed effect. Note that in the case of conditioning on those who haven’t moved between schools, the individual fixed effect would also control for any fixed school unobservable.15 This specification only includes those variables that change over time (both for self and at the school level). The effect of others’ previous year retirement remains positive and statistically significant at the 1 percent level. The point estimate is now more than double, but still of reasonable magnitude. The larger standard error could be due to the inclusion of two nonreform years. In Brown and Laschever (2009), we examine alternative group specifications and perform a host of robustness checks, and two types of falsification tests provide further evidence that our findings are not an artifact of spurious correlation.

Mechanisms The results presented in the previous section suggest that peers have an effect on retirement decisions. In this section we further examine some possible mechanisms through which this effect may operate. We examine two possible types of mechanisms, the retirement age of others and the extent to which others maximize the financial value of their pension benefits. We find that individuals are not affected by the retirement age of others. That is, proximity to the modal retirement age in one’s school does not affect own probability of retirement.16 We find evidence that the financial utilization of the retirement plan by others does have an impact on one’s financial utilization. We maintain the assumption that people act optimally and maximize their utility. However, since the financial aspect of a retirement plan is not the only factor in an individual’s decision, it is possible to retire before the optimal pension plan retirement date and thus leave money on the table. Our finding is that while a potential large gain from waiting reduces the likelihood of retirement (as expected), being surrounded by others who retired before fully maximizing the financial value of their plan, mitigates and largely reduces the effect of own potential gain from waiting. In other words, teachers who are surrounded by others who leave money on the table when retiring, all else equal, are more likely to do the same when considering their own retirement. We compute two measures of pension financial underutilization. The first is the peak value, which measures how much money (in pension wealth) an individual would forgo if she retired today versus the date in the future that maximizes pension wealth. The second is the pension wealth accrual for waiting one additional year to retire. These measures capture the extent to which an individual could have further increased his or her pension wealth by delaying retirement. We define high financial underutilization as retirement with peak value over $50,000 or one-year pension wealth accrual in the top quartile (over $32,400). Using these measures of financial underutilization, we can examine whether a higher rate of underutilization among past retirees within a school moderates the importance an individual places on fully maximizing personal pension wealth.

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The results are presented in Table 3. The key variables of interest here are the measures of the extent to which one’s peers who retired in the previous year maximized their pension wealth interacted with whether an individual is still far from fully maximizing the plan’s potential financial benefits. Because the measure of others’ pension maximization is a function of others’ retirement, we instrument this measure using the same IV strategy discussed in the previous section. TABLE 3 The Effects of Others’ Pension Maximization All LAUSD teachers ages 55–75 in academic years 1999 and 2001; 2SLS; dependent variable: retirement 1 2 3 4 Number of retirees last year with peak value 0.0777* 0.0842* over $50K X own peak value over $50K (0.0463) (0.0500) Number of retirees last year with 1-year accrual in 0.1919* 0.2067* top quartile X own accrual in top quartile (0.0998) (0.1091) Own peak value over $50K -0.0621** (0.0292) Own 1-year accrual in top quartile -0.1015** (0.0451) -0.0049*** -0.0087*** -0.0034*** Peak value ($10K) (0.0009) (0.0026) (0.0010) 0.0650*** 0.0722*** 0.0515*** 0.0649*** Pension wealth ($100K) (0.0059) (0.0053) (0.0086) (0.0062) Years of service in LAUSD Years of service in LAUSD squared Salary ($10K) Female Additional individual, year, and school controls Constant R-squared of second stage Sample size

-0.0185*** (0.0014)

-0.0209*** (0.0013)

-0.0195*** (0.0015)

-0.0186*** (0.0014)

0.0001 (0.0000)

0.0001** (0.0000)

0.0001*** (0.0000)

0.0001* (0.0000)

0.0720*** (0.0063)

0.0610*** (0.0056)

0.0810*** (0.0083)

0.0718*** (0.0068)

-0.0253*** (0.0071)

-0.0394*** (0.0063)

-0.0266*** (0.0073)

-0.0259*** (0.0072)

Yes -0.1543 0.135 12,602

Yes -0.13 0.13 12,602

Yes -0.0199 0.102 12,602

Yes -0.0664 0.102 12,602

Panel B: First stage of the above specifications (instrumented variable in bold) Instrument [t-stat in square-brackets] Lag total unanticipated change in pension wealth of peers, self excluded ($100k) R-squared of first stage

0.0365*** (0.0034) [10.58] 0.21

0.0353*** (0.0033) [10.41] 0.24

0.0148*** (0.0020) [7.40] 0.16

0.0139*** (0.0018) [7.46] 0.24

Notes: *, significant at 10%; **, significant at 5%; ***, significant at 1%. Standard errors, in parentheses, are clustered at the school level, allowing any correlation across individuals and years within school. All specifications include controls for age dummies, year fixed effects, average years of service among other teachers, average age of other teachers, number of full time equivalent teachers, pupil to teacher ratio, school grade level categories, fraction of teachers with a masters degree or higher, fraction of teachers that are female, and average rank on students’ standardized math test scores. Sample for columns 1–4 is academic years 1999 and 2001 (with the lagged variables computed using academic years 1998 and 2000).

Columns 1 and 2 use the peak value measure of financial underutilization. In both columns, the results are quite similar, of the expected sign, and statistically significant at the 10 percent level or better, both


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for the effect of own peak value being over $50,000 and the effect of others’ large peak value at retirement interacted with own measure. For example, in column 2, having a peak value of over $50,000 reduces the likelihood of retirement by 6.2 percentage points. However, the number of peer retirees who had retired when their peak value was over $50,000 interacted with whether own peak value is over $50,000 increases the likelihood of retirement by 8.4 percentage points. Columns 3 and 4 use one-year accrual in pension wealth as an alternative measure of the gains to postponing retirement. The results are qualitatively the same and statistically significant at the 10 percent level. There are two types of possible explanation, not necessarily mutually exclusive, consistent with our findings. The first is that a failure to fully maximize pension benefits is a proxy for financial sophistication regarding the program. Hence, less savvy peers might lead an individual to retire at a date that does not fully maximize his or her own benefits. The second is that the preferences of others, in this case preferences that downweight the importance of (pension) financial gain versus leisure, might cause an individual to be less apprehensive about forgoing some financial benefit.

Conclusion A unique data set and features of reforms allowed us to identify and estimate the effect of one’s peers on one’s own retirement decision. We found a statistically and economically significant peer effect. Our results suggest that for each additional peer retirement that is observed, a teacher’s own likelihood of retirement increases by an additional 1.6 to 2.0 percentage points. The reforms, which consisted solely of a change in pension financial incentives, allow us to directly calculate, in economic terms, the effect of unexpectedly changing others’ pension wealth on one’s own likelihood of retirement. Our identification strategy could be used in other settings where a program has a differential effect on group members. Our strategy highlights the importance of having differential treatment effects within a group if one wishes to study the role of social effects. Further, in contrast to many studies that exploit exogenous assignment to groups, we are able to examine the impact of an unanticipated reform on existing networks of peers. In turn, such a setting may be more relevant for cases in which changing the nature of networks and associations among peers may be harder to accomplish. Peer effects will play a role in shaping how individuals understand both recent and future Social Security reforms and changes to other retirement savings programs, such as 401(k)’s, and the speed and composition of the behavioral response. It is important to take into account the peer effect component of the retirement decision, which generates a spillover effect—the behavior of one individual affects the behavior of his or her peer, and so on. Change in benefits or program rules will have both a direct effect on those targeted by the reform and an indirect effect on those affected by the retirement decisions of others. To properly predict the effect of a reform, one must accurately estimate both the direct effect and the spillover effect. However, various types of social effects mechanisms imply very different policy and behavioral responses to change in policy. If the retirement of individuals is a response to the retirement of others, and people are influenced by or mimic others’ retirement behavior, then any change to a specific segment of potential retirees will have far-reaching effects even on those not initially targeted by the policy. If the retirement of individuals depends in part on being surrounded by better-informed peers, or the dissemination of information is highly dependent on peers, then the effectiveness of any public information initiative is likely being underestimated. We examined some possible mechanisms through which the peer effects we found may operate. Given the importance of identifying the mechanism for public policy design, in future research we hope to further examine the mechanisms underlying the social effect at work in the retirement decision.

Acknowledgments We thank Rich Akresh, Isabelle Bajeux-Besnainou, Jane Leber Herr, Salar Jahedi, Darren Lubotsky, Deborah Rupp, and seminar participants at the 2008 Southern Economic Association meetings, the 2010 LERA meetings, the University of Arkansas, the University of Illinois at Chicago, and the University of

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Illinois at Urbana-Champaign for discussions and comments. Joon Yeol Lew provided excellent research assistance. This research was supported by the U.S. Social Security Administration (SSA) through grant #10M-98363-1-01 to the National Bureau of Economic Research (NBER) as part of the SSA Retirement Research Consortium. The findings and conclusions expressed are solely those of the authors and do not represent the views of SSA, any agency of the federal government, or the NBER. All errors are our own.

Notes 1 For example, Krueger and Pischke (1992) and Burtless (1986), both looking at the labor supply response to Social Security benefit changes, find that Social Security can explain only a small part of the labor force participation trends of older individuals. 2 Researchers have examined peer effects in such settings as welfare take-up (Bertrand, Luttmer, and Mullainathan 2000), drug use among college students (Duncan et al. 2003), social norms and unemployment duration (Stutzer and Lalive 2004), recidivism (Bayer, Hjalmarsson, and Pozen 2009), and so on. 3 The annual benefit is calculated by multiplying years of service, final compensation, and a benefit factor that ranges from 1.4 percent to 2.4 percent, and is increasing in retirement age and years of service. 4 PK  PW  PWt , where PWt is the pension wealth for retirement at the current age and t R max

PWR Max is the present-value of pension wealth for retirement at the later age, R max  [t + 1, 100], that maximizes the present value of pension wealth. 5 In order to derive an econometric specification, we incorporate the pension wealth and peak value into a utility-based choice framework (McFadden 1974). 6 The interested reader is referred to Brock and Durlauf (2001) and Moffitt (2001) for a more thorough discussion of some of the issues surrounding the identification of peer effects. 7 The majority of teacher retirements occur in the summer months, when school is not in session. Teachers are also required to formally announce their retirement at least 30 days in advance (and perhaps earlier due to the school-year planning cycle). This makes the window in which teachers are able to immediately respond to others’ observed retirements in the same year very small. 8 See Angrist and Pischke (2008:194–8) for a concise treatment of the drawbacks to using sameperiod outcomes of others. 9 We formally show that identification is possible even if there is a suitable IV in only one of the two periods and incorporating individual fixed effects in Brown and Laschever (2009). 10 Data was compiled with the assistance of the Office of Personnel Research and Assessment in LAUSD. 11 http://www.cde.ca.gov/ds. 12 All financial variables are in year 2000 dollars, and we assume a real annual interest rate of 3 percent and that salary grows at 2 percent annually. 13 We examined a logit specification and found similar results. 14 Our results are robust to using the average service and age of those over 45 and the average service of those in the entire school, as well as a host of school size measures, such as number of full-time-equivalent teachers and the number of those over 45. All of these measures were used both lagged and contemporaneously. The results are available upon request from the authors. 15 The results are the same whether or not we exclude teachers who moved between schools, as only a small proportion of teachers move between schools this late in their career. 16 The norm retirement age results can be found in Brown and Laschever (2009).

References Angrist, Joshua, and Jorn-Steffen Pischke. 2008. Mostly Harmless Econometrics: An Empiricist’s Companion. Princeton, NJ: Princeton University Press. Bayer, Patrick, Randi Hjalmarsson, and David E. Pozen. 2009. “Building Criminal Capital Behind Bars: Peer Effects in Juvenile Corrections.” Quarterly Journal of Economics, Vol. 124, pp. 105–47.


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Bertrand, M., E. Luttmer, and S. Mullainathan. 2000. “Network Effects and Welfare Cultures.” Quarterly Journal of Economics, Vol. 115, No. 3, pp. 1019–55. Brock, William A., and Steven N. Durlauf. 2001. “Interactions-Based Models.” In James Heckman and Edward Leamer (eds.), Handbook of Econometrics. Elsevier Science, pp. 3298–3380. Brown, Kristine M., and Ron A. Laschever. 2009. When They’re Sixty-Four: Peer Effects and the Timing of Retirement. Unpublished paper. University of Illinois at Urbana-Champaign. . Burtless, Gary. 1986. “Social Security, Unanticipated Benefit Increases, and the Timing of Retirement.” Review of Economic Studies, Vol. 53, No. 5, pp. 781–805. Chalmers, John M.R., Woodrow T. Johnson, and Jonathan Reuter. 2008. “Who Determines When You Retire? Peer Effects and Retirement.” NBER Papers on Retirement Research Center Projects, No. NB08-13. Coile, Courtney, and Jonathan Gruber. 2007. “Future Social Security Entitlements and the Retirement Decision.” Review of Economics and Statistics, Vol. 89, No. 2, pp. 234–46. Duflo, Esther, and Emmanuel Saez. 2002. “Participation and Investment Decisions in a Retirement Plan: The Influence of Colleagues’ Choices.” Journal of Public Economics, Vol. 85, No. 1, pp. 121–48. Duflo, Esther, and Emmanuel Saez. 2003. “The Role of Information and Social Interactions in Retirement Plan Decisions: Evidence from a Randomized Experiment.” Quarterly Journal of Economics, Vol. 118, No. 3, pp. 815–42. Duncan, Greg J., Johanne Boisjoly, Michael Kremer, Dan M. Levy, and Jacque Eccles. 2005. “Peer Effects in Drug Use and Sex Among College Students.” Journal of Abnormal Child Psychology, Vol. 33, No. 3, pp. 375–85. Hastings, Justine S., and Lydia Tejeda-Ashton. 2008. “Financial Literacy, Information, and Demand Elasticity: Survey and Experimental Evidence from Mexico.” NBER Working Paper, No. 14538. Krueger, Alan B., and Jorn-Steffen Pischke. 1992. “The Effect of Social Security on Labor Supply: A Cohort Analysis of the Notch Generation.” Journal of Labor Economics, Vol. 10, No. 4, pp. 412–37. McFadden, Daniel. 1974. “Conditional Logit Analysis of Qualitative Choice Behavior.” In P. Zarembka (ed.), Frontiers in Econometrics. New York: Academic Press, pp. 105–42. Moffitt, R.A. 2001. “Policy Interventions, Low-Level Equilibria, and Social Interactions.” In S. Durlauf and H.P. Young (eds.), Social Dynamics. Washington, DC: Brookings Institution Press, pp. 45–82. Stutzer, Alois, and Rafael Lalive. 2004. “The Role of Social Work Norms in Job Searching and Subjective Well-Being.” Journal of the European Economic Association, Vol. 2, pp. 696–719.

XX. 2009 Thomas A. Kochan and Stephen R. Sleigh LERA Best Dissertation Award

Constructing Institutions — Collective Bargaining in Multinational Companies in the U.S., Germany and Spain Marco Hauptmeier Cardiff University 1

This dissertation examines collective negotiations in multinational auto companies in the United States, Germany, and Spain. The empirical chapters trace the changes of collective negotiations and employment relations over time. The case studies give a rich empirical account of how management and labour adapted employment relations to a changing world, which included the expansion and liberalization of markets, increasing overcapacities, the internationalization of production, and the rise of new competitors. The historical and comparative perspective of the dissertation allows a number of intriguing questions to be addressed. Is convergence of employment relations taking place across countries? Do national employment institutions continue to shape employment relations decisively? Are labour unions a victim of globalization and simply overwhelmed by footloose multinational companies? The dissertation examines not only collective bargaining over wages, working time, work organization, and other elements of the employment relationship, but also collective negotiations over the spatial distribution of production and restructuring, issues that have become intertwined with collective bargaining in a more narrow sense. The dissertation traces within-country changes as well as the spread of similar employment relations practices across countries and reports that a common set of changes were found across all three countries: two-tier wage systems, working flexibility measures, global manufacturing systems, whipsawing practices by management, the introduction of night shifts, and the outsourcing of employment. Going beyond a short-term perspective, the dissertation identifies the importance of changing collective beliefs (in the following called simply “ideas”) and ideologies as a driver for changing employment relations. National employment relations institutions continue to matter, but management and labour have much leeway to develop cooperative, contentious, or market-oriented employment relations and to change specific employment relations practices. The dissertation argues that ideas and ideologies underpin the functioning of institutions; changing ideas and ideologies lead to a renegotiation of institutions. Put differently, actors with changing ideas and ideologies enact institutions differently on the company level. Institutions are what actors make of them. This key insight of the dissertation is synthesized into an analytical perspective called constructivist institutionalism by building on previous literature in political science that focuses on the relationship between ideas and institutions (Blyth 2002, Hay 2006, Schmidt 2008). This constructivist institutionalism contributes to the literature on institutional theory in employment relations and political science. The empirical base of the dissertation is a unique dataset. I examined collective bargaining in the multinational auto companies General Motors, Ford, and Volkswagen in Germany, Spain, and the United States between the 1980s and 2007. As Volkswagen has no production facilities in the United States, I Author’s address: Aberconway Building S 34, Colum Drive, Cardiff, UK CF10 3EU

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examined eight company cases. I conducted interviews with current and retired managers, unionists, and industry experts. In addition, company unions granted me access to their archives, and I examined collective bargaining agreements, leaflets, and company documentation. This rich data allowed me to trace the changes of employment relations within and across the three countries over time. In addition, I have examined the impact of the economic crisis on employment relations at the three companies between 2008 and 2010.

Themes and Conclusions Previous institutional literature in employment relations and political science, such as the Varieties of Capitalism literature, links national employment relations institutions to national patterns of employment relations. This literature builds on the assumptions of historical institutionalism and is often not very attentive to changes of employment relations and institutional change. A key problem of the literature is that it tends to emphasize institutional stability by focusing on path-dependency and increasing returns, while institutional change takes place at historical junctures through external shocks (Thelen 1999). However, the absence of external shocks makes it difficult to grasp the change of institutions and employment relations over time. Recent work has provided important correctives to this view by identifying mechanisms for gradual change of institutions (Streeck and Thelen 2005), by emphasizing the role of changing coalitions in renegotiating institutions (Thelen 2004), and by analyzing the role of institutional entrepreneurs (Crouch 2005). The proposed constructivist institutionalism contributes to the recent literature on institutional change. The promise of constructivist institutionalism is that it is more attentive to institutional change. The cornerstone of this type of institutional analysis is that it regards the actors’ ideas and institutions as interrelated or mutually constitutive. Institutions constitute in fundamental fashion “who” the actors are and how they see the world. Institutions state the rights and resources of actors, define the actors’ role in employment relations, and constrain and provide opportunities. However, how institutions shape the actors’ behaviour and ideas is socially constructed. As the actors adapt to a changing socioeconomic context, they develop new ideas and ideologies, which tend to lead to a different enactment of institutions and changing employment relations practices. For example, in the Spanish case, previous literature suggested that the representative or fragmented employment relations institutions would cause adversarial and conflict-prone employment relations. Developments in the 1980s confirmed this perspective. Management and labour regularly clashed in collective bargaining. Managers had a paternalistic and authoritarian attitude, and unions were used to fighting for social improvements following their experiences during the Franco dictatorship. However, the actors’ ideas and ideologies changed over time, managers took on new Human Resource Management ideas from colleagues within multinational companies and unionists with more cooperative ideologies came into power. During the 2000s, management and labour at Ford and SEAT developed cooperative, market-oriented employment relations within the very same Spanish employment relations institutions. Considering the mutual relationship between ideas and institutions allows analyzing endogenous institutional change and understanding how the functioning and meaning of institutions changes over time. A distinctive characteristic of constructivist institutionalism is that actor behaviour is not purely rational and based on ideational factors such as collective beliefs and ideologies. This stands in contrast to the rational choice institutionalism and much of the historical institutionalism that assumes rational actors with stable preferences and interests in a given material context. However, in a dynamically changing economic context, in situations of economic uncertainty, the actors are simply not capable of calculating the best course of action. Management and unions act to some degree rationally and based on their interests, but rationality and interests are socially constructed and based on the actors’ ideas and ideologies. Managers can have very different ideas on how to organize employment relations productively. Some managers believe they can reach this goal best by pushing unions hard, while others believe that it is rational to develop cooperative employment relations. Unions have also very different ideas. Some unions believe it is in their best interest to resist changes and fight multinational companies, while others believe they have a responsibility in running a company productively. The actors’ ideas and ideologies underpin the functioning of employment relations institutions.

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This dissertation contributes to the emerging constructivist institutionalism. Colin Hay (2006) first coined this term. The approach builds on a literature in political science that analyzes ideas and institutions (Blyth 2002, Schmidt 2008). I address a question that has remained underspecified in this body of literature and explore how ideas change. Previous literature suggested that ideas are based on past experiences and current contingencies (Bendix 1956). This study identifies five mechanisms for ideational change: generational change, identity work by the leadership, the “manufacturing of consent” through collective bargaining, leadership change, and mimicking and learning. The case studies show how these mechanisms changed the collective actors’ ideas and ideologies and resulted in institutional change. Collective Negotiations at Multinational Companies in the United States In the context of the New Deal employment relations institutions and their post-war revisions, adversarial low-trust employment relations developed at General Motors and Ford. Management believed that it had the right to govern at the workplace. As the union was aware that it existed at the workplace against the will of management, a cornerstone of the union ideology was a narrow focus on defending the norms of the collective bargaining agreement, a labour orientation, which has been described as job control unionism (Katz 1985). In the 1980s, lean production ideas seemed to have the potential to transform the adversarial employment relations between General Motors and Ford. However, the implementation and development of cooperative lean production employment relations largely hinged on local management and union ideologies. I discuss two contrasting cases. At Saturn, cooperative employment relations developed, and unionists became co-managers in the production process; however, at the General Motors plants in Flint, employment relations continued to be contentious and culminated in a fierce labour conflict in 1998. Leadership changes on the management and union side contributed to more cooperative employment relations in the 2000s. The UAW slowly steered away from its ideological focus on job-control unionism and took on a greater responsibility for the productivity of Ford and General Motors in a dramatically deteriorating economic context. Collective Negotiations at Multinational Companies in Germany The case studies show how the function and meaning of institutions is linked to the ideas and ideologies of the actors. The Volkswagen case is important, because it has been one of the primary examples of the German model. However, employment relations at Volkswagen changed significantly in the 1990s. Management paid illegal benefits to the works councils and sought to influence the orientation of labour. In addition, management whipsawed its German plants in the 2000s, which significantly changed the functioning of the German employment relations institutions. Management at General Motors already aggressively whipsawed its European plants in the 1990s. Labour realized that strategies based on national institutions lost their punch and explored transnational ideas in the European Works Council. The transnational ideas turned into transnational practices in the 2000s when the European Works Council organized Europe-wide works stoppages and negotiated transnational collective agreements. In contrast, Ford is a case of institutional stability. A strong labour leadership contributed to ideological continuity between the 1980s and 2000s. Management did not challenge labour to the extreme because it believed in the value of stable and predictable labour relations. The functioning of the German institutions changed the least at Ford. Collective Negotiations at Multinational Companies in Spain This introduction provides an overview of the Spanish employment relations institutions, which state, union, and employer associations negotiated during the transition from dictatorship and to democracy in the second half of the 1970s. Three case studies on Ford, General Motors, and SEAT (Volkswagen) trace the evolution of collective bargaining and employment relations between the 1980s and 2007. The conclusion summarizes the change of employment relations and takes issue with the argument that Spanish employment relations are contentious and strike-prone because of a pluralistic or fragmented union representation structure. In contrast, the case studies show that the use of the institutions is crucially underpinned by the actors’ ideas and ideology, which change over time and led to the construction of very different employment relations practices.

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The unions’ fight against the Franco dictatorship and for democracy shaped radical trade union ideologies, and for the unions it seemed to be natural to fight for social improvements contentiously in the context of the new employment relations institutions. Managers continued to have a paternalistic and authoritarian ideology, as many managers had not had to deal with democratic unions during the Franco dictatorship, and they remained ideologically distant to cooperative lean production ideologies that emerged in the United States and Germany. Contentious, conflict-prone employment relations developed in the 1980s at all three companies. However, as the actors adapted to a changing socio-context, employment relations gradually changed and looked very different two decades later. At SEAT, identity work by management and a leadership change on the union side contributed to the emergence of cooperative employment relations in the 2000s. At Ford, a generational change of the workforce and identity work by management led to a focus on productivityoriented employment relations, which focused on securing production assignments from Ford’s world headquarters. At General Motors, management whipsawed its European plants and extracted concessions, which the Spanish unions countered together with the European Works Council with transnational union strategies. Employment relations had a crucial transnational dimension at General Motors Spain.

References Bendix, R. 1956. Work and Authority in Industry: Ideologies of Management in the Course of Industrialization. New York: Wiley. Blyth, M. 2002. Great Transformations: Economic Ideas and Institutional Change in the Twentieth Century. Cambridge: Cambridge University Press. Crouch, C. 2005. Capitalist Diversity and Change: Recombinant Governance and Institutional Entrepreneurs. Oxford: Oxford University Press. Hay, C. 2006. “Constructivist Institutionalism.” In R.A.W. Rhodes, S.A. Binder, and B.A. Rockman (eds.), Oxford Handbook of Political Institutions. Oxford: Oxford University Press, pp. 56–74. Katz, H.C. 1985. Shifting Gears: Changing Labor Relations in the U.S. Automobile Industry. Cambridge, MA: MIT Press. Schmidt, V.A. 2008. “Discursive Institutionalism: The Explanatory Power of Ideas and Discourse.” Annual Review of Political Science, Vol. 11, pp. 303–26. Streeck, W., and Thelen, K.A. 2005. Beyond Continuity: Institutional Change in Advanced Political Economies. Oxford: Oxford University Press. Thelen, K.A. 1999. “Historical Institutionalism in Comparative Politics.” Annual Review of Political Science, Vol. 2, pp. 369–404. Thelen, K.A. 2004. How Institutions Evolve: The Political Economy of Skills in Germany, Britain, the United States, and Japan. Cambridge: Cambridge University Press.

XXI. LERA Annual Reports

Executive Board Meeting June 10, 2009 Cafritz Conference Center, Washington, DC Call to order—The meeting was called to order at 3:00 p.m. by President Joel Cutcher-Gershenfeld and he welcomed everyone to the meeting. Present at the meeting were officers and board members: Joel Cutcher-Gershenfeld, (President); Eileen Appelbaum (President Elect); Anthony Oliver, Jr. (Past President); Peter Feuille (Secretary-Treasurer); and Adrienne Eaton (Editor in Chief). Other Board Members present were Rose Batt, Robert Chiaravalli, Ralph Craviso, Ellen Dannin, Iain Gold, Julie Martinez Ortega Bonnie Summers, Christian Weller, and Charles Whalen. Board members unable to attend included Beth Almeida, Jacqueline Drucker, Richard Fincher, and John Godard and NCAC Chair William Canak. Invited guests and committee chairs present were: John Burton (Development) and Marlene Heyser (Grants) and David Lipsky and Robert McKersie. LERA staff present included Paula Wells and Emily Smith. Approval of Minutes of January 2009 Board Meeting—Joel Cutcher-Gershenfeld requested the Board consider approval of the minutes of the last meeting on January 2, 2009. Bob Chiaravalli made a motion to approve the minutes, it was seconded by Christian Weller, and unanimously approved. Committee and Officer Reports Finance and Membership Report—Secretary-Treasurer Peter Feuille relayed the revised membership and financial reports to the board. He noted that in January the Board had approved an increase in member dues for the next year by $20 to $185 for regular individual membership; this rate is effective October 1, 2009. He reported the membership decline was lower than last year’s even though the dues increased. He further noted that while membership attrition is slowing down, the organization continues to shrink and suggested we cannot continue to increase membership dues. The Board was presented and examined the fiscal Year 2008 annual audit by independent auditor Stan P. Feller. After discussion, Paula Wells suggested the Board rescind the increased library subscription price of $250 for libraries requesting an electronic subscription only. Those who request the new electronic subscription only will pay $200 through 2010 and 2011. The increased rate for libraries who want print and electronic subscription copies will remain at $250. Joel Cutcher-Gershenfeld motioned, it was seconded by Eileen Appelbaum, and unanimously approved by the board. Development and Contributions Committee Report—John Burton presented the development report. He explained how the two committees (Development and Contributions Committee and the Grants and Sponsorship Committee) are coordinating their responsibilities. Development will be responsible for organizational fundraising, chapter, and individual fundraising. He presented a Development Committees Comparison Report showing contributions received from 2000-2009 in each of the Committees’ different areas. Of special note was the Grants Committee’s work to raise sponsorship monies of $35,000 already this year; this includes a $25,000 sponsorship from BNA and $10,000 already received from Blue Cross and BlueShield Assn for a sustaining sponsorship. Bonnie Summers of BlueCross BlueShield Association was graciously thanked. The Development and Contributions Committee reported it is defining an approach to chapter fundraising by creating a letter to send with a goal of getting to 100% chapter participation, starting with 10% a year.

298

ANNUAL REPORTS

299

John Burton also mentioned the committee continues to make progress on exploring the establishment of a quasi-endowment fund as a development effort for the association. The committee believes that individuals may contribute more to the Association if they feel like the contribution will live in perpetuity, and the committee is exploring moving forward with the University of Illinois Foundation option. Burton said he hoped to have a proposal by January 2010 to present to the board for a vote. He further reported that Tom Kochan recently drafted a letter for a possible fundraising effort for LERA on behalf of John Dunlop. A fund in his name might be created to support the National Policy Forum or possibly Perspectives on Work. Burton reported that Tom Kochan was contemplating taking the lead to help line up former Secretaries of Labor and LERA Presidents to serve as honorary co-chairs (Shultz, Marshall.) Also from the Development Committee, Ralph Craviso reported on the ongoing board member development effort. To date, ten board members have made a personal financial contribution to the LERA, with 4 of them giving the target amount of a $500 gift. We were aiming for $10,000 from this effort, and so far we have reached $4,000. He suggested the Board discuss whether this an appropriate request to make? While the current Statement of Board Responsibilities does indicate an expectation of service, to grow and sustain the organization, Craviso asked if requiring further financial gifts were still appropriate for the culture and character of this association. Joel Cutcher-Gershenfeld suggested that he believes there is a willingness to help, but that maybe we need to further specify what those expectations are in those board orientation materials. After discussion, Ralph Craviso suggested that is read: “LERA board members are expected to 1) participate in LERA efforts, as requested, in its efforts to broaden membership and increase individual and organizational financial support, 2) identify new sources of financial support to the LERA administrative staff and support the staff as requested, 3) make personal contributions according to individual means.” Ralph Craviso made a motion to amend the Statement of Board Responsibilities, Christian Weller seconded the motion, and it passed unanimously. This motion is to replace the previous motion made in January about board contributions. This goal of raising $10,000 from the Board should continue to be tracked and reported on at the next meeting. Strengthening Organizational Memberships General discussion took place about organizational membership. Ellen Dannin mentioned that she has solicited about 20 different organizations to become organizational members, but that her prospecting, as well as other’s, would benefit by having a brochure resource and some sample letters, perhaps with different appeals for different groups. It was noted that if we need more members we should build more relationships with other not-for-profit associations. Once we identify another group we want to connect with, we must identify a champion from our own membership who will initiate and mentor the relationship. Organization we might consider alliances with include: ACR, Labor Law Section of the Bar, Dispute Resolution Section of the Bar, American Sociological Association, NOVA, Natl. Acad. of Arbitrators, FMCS, AAA, Industry Studies Association, SHRM, Afr. Amer. HR Profs., Labor Historians, Upjohn Inst., EBRI, World at Work, Nat’l Academy. of Social Insurance, Natl. Acad. of HR, Sociologists, Dispute Resolution Section of the ADA. These organizations should contribute to a master list of candidates and we should identify champions to contact them, with one person to coordinate the entire effort. It will require us to structure a value proposition relevant to the mission of each target audience (organizational memberships). Other Business Annual Meeting 2010—Joel Cutcher-Gershenfeld reported on special sessions planned for the 2010 Annual Meeting in Atlanta, GA, to include “Internal Change Agents Panel”, “Green Jobs Panel”, “Labor Relations in a Rock Band (Aerosmith) Panel”, and “'The Second Industrial Divide' and 'The Transformation of American Industrial Relations': Looking Back and Looking Forward a Quarter Century Later”.

300


National Skills Certification Program—President Cutcher-Gershenfeld presented a new draft document for the skills certification initiative and provided an overview of the program to the board. This will be a substantial strategic initiative to be undertaken by the LERA. The overarching goal will be to increase labormanagement skills in the field utilizing a provider distribution system that will encompass LERA meetings, local chapter meetings, existing IR/HR programs at universities, government agencies and NGO’s, and other practitioners delivering various component and materials for the certification training. He explained that individuals will then sign up for LERA membership and enrol in the certification program, take their training courses from various providers, take exams administered by the LERA, and work towards their professional certification. Providers will become organizational members of the LERA and submit their training materials and curriculum for approval. Ralph Craviso pointed out that the value of what LERA brings to a certification program of this magnitude is that LERA is a composite of various stakeholders in the employment relationship and that this combination of talent is unique and the product that we can deliver can only be delivered by the LERA. There is no other single entity that can deliver this certification to individuals. He further suggested that we should make sure the initiative would embellish the LERA, not only as a source of new revenue, but it will also make membership in the association more visible and attractive. There were some questions about how this might impact some of the current university programs that would be counted on to deliver some of the content. Joel explained this program is to be designed to be inclusive, and bring together all the components of LERA membership, and to benefit all parties. LERA organizational members who wouldn’t have the resources to build a pipeline they way they might wish will have the access they need, and a growing pool of the professionals with the appropriate training to take the place of those retiring. LERA chapters will be able to take part in the delivery of curriculum, thereby boosting their revenue and membership. Existing educational programs and universities can use this certification to augment their own curriculums and offer a better product to their consumers. The model would include 1) a panel of blue-ribbon experts who identify the curriculum and certification standards, 2) providers (various) who obtain authorization from us to provide training to individuals either in person, or via web/video, etc., 3) a series of certification exams for the individuals to take after obtaining the proper training from the providers. Cutcher-Gershenfeld reported that currently, we do not have funding for the initiative, but there is some dialog with the MacArthur Foundation for a sizeable grant that would allow us to increase staff and go forward with the program. Alternatively, if EFCA passes, government grant funds may become available. Joel also cautioned that until we obtain initial funding, we can only move forward at a slow though deliberate pace. There appeared to be interest and enthusiasm by the board for the idea, but also concerns about how it will work for the individual parties involved. He suggested we continue to put together the committees and begin discussions to further develop the ideas, pursuing an initial source of funding and the support of a full time staff person to help us jump-start the initiative as we can. Electronic Publications—Paula Wells of the LERA office reported we are making progress towards converting some of our publications to electronic format, and the newsletter will be the first to be converted. The Annual Proceedings will also move to electronic format this year. Meeting Adjournment—President Joel Cutcher-Gershenfeld adjourned meeting at 5:58 p.m.

ANNUAL REPORTS

301

Executive Board Meeting December 9, 2009—2:30 p.m. EST Via Conference Call Call to order—the meeting was called to order at 2:30 p.m. ET by Joel Cutcher-Gershenfeld, president. Present at the meeting were officers Past President Tony Oliver, and President-Elect Eileen Appelbaum. Also attending were Gordon Pavy, 2010 president elect. Members present included: Beth Almeida, Rose Batt, Ellen Dannin, Richard Fincher, John Godard, Julie Martinez Ortega and Charles Whalen. Board members not able to attend were Robert Chiaravalli, Ralph Craviso, Jacqueline Drucker, Adrienne Eaton, Jack Fiorito, Iain Gold, Lisa Lynch, Bonnie Summers, and Christian Weller. Committee Chairs in attendance were John F. Burton, Jr, Development and Contributions Committee chair; David Lewin, Finance and Membership Committee chair; and Hoyt Wheeler, Nominating Committee chair. LERA office staff in attendance were Paula Wells and Emily Smith. Approval of the Minutes—a motion from Tony Oliver was heard to approve the minutes of the board meeting held in Washington, DC in June 2009. The motion was seconded by Rose Batt and passed unanimously. Committee and Officer Reports Nominating Committee Report—Hoyt Wheeler reported that David Lewin was nominated by the LERA Nominating Committee to be the President-Elect. The Executive Board reviewed the list of candidate nominees and alternates that had been determined by committee consensus and indicated concern for the “representativeness’ of the slate. More specifically, the issues of gender and domestic/international components of the slate were discussed. David Lewin’s nomination was approved as the next president elect, but the Board requested the committee rework the candidate slate to represent a demographic more representative of the organization and to be considered for approval at the next Board meeting. Finance and Membership Report—David Lewin advised the board not to raise dues again in the coming year in light of the recent series of dues increases and suggested we need to be looking at other sources of increasing revenue. The operating loss for 2009 looks relatively modest, but the projected deficit in 2010 looks larger, and we need to look for ways to close the gap. Membership has declined by half in the last 10 years, and with this year’s membership dues increased to $185 Lewin expected that number to decrease again. Various members of the board suggested ideas to increase revenues including: increasing the usage of the Listserv to more favorably expose the association, highlighting a member benefit each month; increasing the free and engaging resources (content) we host online, with an opt-in function to capture demographic information; getting the new certification program funded and off the ground; and, since most non-profit associations depend upon revenue from their conferences as their main source of revenue, to look at the architecture of our meetings. Ideas of meeting architecture included:  re-design the National Policy Forum as an annual event, and possibly re-aligning it as our primary meeting  pulling out of the ASSA shared revenue arrangement and holding our own annual meeting (where we could keep the registration fees, sell booth space, have more control and choices about when and where to hold the meetings, etc.,  linking with several other associations to hold a joint meeting A discussion about a complete strategic overhaul of our meetings was suggested for the next Board meeting in January. Paula Wells will prepare a brief about historical meeting revenue/loss. Perspectives on Work Report—Paula Wells reported that we will be publishing only one issue of POW in 2010 because Editor Susan Cass can only commit to one issue, and we need to keep expense under control.

302


Editorial Committee Report—Paula Wells reported that Adrienne Eaton is stepping down as Editor-inChief, due to new commitments at Rutgers University and that she has recommended appointing Françoise Carré and Christian Weller as Co-editors-in-Chief as her replacements. The motion to approve this was seconded and approved unanimously. Education Committee Report—The Education Committee has recommended that they go on a period of hiatus, until a new mission is appointed by the Board. Most committee members have been engaged in the new certification program. The motion to move the Education Committee to inactive status was seconded and approved unanimously. Industry Council Coordinating Committee Report—Joel Cutcher-Gershenfeld brought a motion forward from the Health Care Industry Council to set up 10% discount rate for joint membership to LERA and other organization, provided there is a reciprocal discount offered by the other associations. It was unanimously agreed to allow this on a trial basis (to this limited group) and to monitor the results for potential expansion. It was also discussed that eventually, specific protocol (and programs) would need to be developed to verify other association memberships and their reciprocal arrangements. 63rd Annual Meeting Report—Eileen Appelbaum has announced the program committee composition and program theme for the 63rd Annual Meeting in Denver, CO. Her theme, Employment Relations for Economic Recovery and Sustained Growth and the new 2011 Program Committee appointees were unanimously approved by the Board. Other Business Certification Committee Report— Joel Cutcher-Gershenfeld reported that five sub-committees had been formed and were at work and that he and Eileen Appelbaum and a few others were looking for funding to support 1-2 staff people and possibly a consultant for this project. It was discussed we needed to especially look at what other organizations were doing/had done to learn from their mistakes and successes, that we needed to do some benchmarking and identify the critical success factors. The sub-committee chairs will meet in Atlanta (Saturday from 2:30-4:00 p.m. at the Hyatt) and all Certification Committee members were invited to attend as well. New Business ASSA Meetings Report—Paula Wells reported that the ASSA sent a letter of intent to change the revenue-sharing agreement with LERA and the other 4 organizations in effect since 1964. Essentially, AEA seeks to expand its own meeting revenue by freezing the amount it pays to the other associations while increasing the registration fees over the next few years. They are doing this because they have decided to reduce their own dues structure and need to make up the revenue elsewhere. Paula Wells and Eileen Appelbaum will be meeting with the ASSA and the other organizations in January 2010 to hear more about the new, unilaterally determined arrangement. Adjournment—The conference call meeting was adjourned at 4:00 p.m. by President CutcherGershenfeld.

ANNUAL REPORTS

303

LERA Executive Board Meeting Hyatt Regency Hotel, Atlanta, GA January 2, 2010—6:00 p.m. to 10:00 p.m. Call to order—the meeting was called to order at 7:12 p.m. by Joel Cutcher-Gershenfeld, President. Officers present at the meeting were Past President Tony Oliver, President-Elect Eileen Appelbaum, Secretary-treasurer Peter Feuille, and Editor-in-Chief Adrienne Eaton. Board members present included Beth Almeida, Rose Batt, Robert Chiaravalli, Ralph Craviso, Ellen Dannin, Julie Martinez Ortega, Bonnie Summers, Christian Weller (incoming Co-Editor-in-Chief and member), and Charles Whalen. Incoming board members present were Scot Beckenbaugh, Linda Ewing, Dennis Kuhl, and Jody Hoffer Gittell. Board members not able to attend were Jacquelin Drucker, Richard Fincher, John Godard, and Iain Gold. Committee Chairs in attendance were President’s Committee Member David Lipsky, Nominating Committee Chair Hoyt Wheeler, NCAC Chair William Canak, incoming Co-Editor-in-Chief Françoise Carré, Sponsorship Committee Chair Marlene Heyser, and Finance and Membership Committee Chair David Lewin. LERA office staff in attendance were Paula Wells and Emily Smith. Outgoing board members were presented with a certificate of appreciation for their service on the board to Julie Martinez Ortega, Adrienne Eaton, Ralph Craviso, and Jacquelin Drucker (not in attendance). A plaque was presented to Adrienne Eaton for her years of meritorious service leading us as the Editor and Joel Cutcher-Gershenfeld was presented with a clock as a thank you for his work as President. Approval of the minutes—a motion from Beth Almeida was heard to approve the minutes of the previous board meeting held via conference call on Wednesday, December 9, 2009 at 2:30 p.m. ET. The motion was seconded and passed unanimously without changes. Committee and Officer Reports LERA Nominating Committee report—Hoyt Wheeler summarized the nominating committee report. The slate has been adjusted following comments from the Board during the last board meeting in December 2009. The motion was presented by Julie Martinez Ortega to accept the new slate of nominees, it was seconded, and unanimously approved. Finance and Membership Committee report—Peter Feuille overviewed the budget and membership figures. The income increased this year by about $50,000 and the expenses decreased this year by about $45,000. Our net income has been a loss since 2006, and this isn’t a sustainable position. We have $175,000 in unrestricted cash and funds. If this situation continues unchanged, the future is uncertain. Our primary task going forward it to increase revenue as there are few expenses left that can be cut further. LERA’s Sustaining Sponsors, The Bureau of National Affairs, Inc. and BlueCross BlueShield National Labor Office, may be contributing again next year, but it’s uncertain. It was commented by incoming President Appelbaum that we need to make sure that we are continuing to meet their value proposition. David Lewin put forth a motion from the Committee that the board approve the 2010 LERA budget; it was seconded by Peter Feuille and unanimously approved by the board. In the membership discussion, it was noted that the membership decline has halted as least for 2009–membership numbers remain fairly consistent with the previous year. Lewin also put forth a motion from the Finance and Membership committee that we do not raise dues in 2010 as we have raised them substantially and consistently in the near past. The motion was seconded and unanimously approved. It was pointed out that LERA dues are now higher than most other academic social science organizations.

304


Several Board members suggested that focusing on Chapter members becoming national members should be a priority goal for the organization; there may be around 4,000-5,000 chapter members, and only a few hundred of these are national members as well. NCAC Committee report—Bill Canak reports that the NCAC awarded Alabama, Gateway, Long Island, and NW Seattle, and Washington, DC with various Outstanding Chapter Awards. We have seven or eight chapters who are in arrears in their chapter payments, and we are working on resolving this together. The LERA office is bringing new technical services to the chapters online including web hosting, e-store, the ecalendars, etc. Many of the local chapters still view the national organization as an academic entity. Hopefully, with initiatives currently underway, like certification, that perspective may change going forward. President Joel Cutcher-Gershenfeld visited nine local chapters this year and reported that they are open to building bridges. It was discussed to form an ad hoc committee to further examine Building a membership drive to sign up 1000 new members from chapters. We should solicit their support or send them the message that we all are at risk. A group of people were asked to put a plan together and Ralph Craviso volunteered to put together an action plan. Bonnie Summers, Bill Canak, Ellen Dannin, Gordon Pavy, Marlene Heyser, Julie MartinezOrtega and Eileen Appelbaum have volunteered to be part of the Chapter Membership Drive Committee The committee will push the idea far enough to put it on the agenda of the chapter reps committee. Development and Contributions Committee report—John Burton reported that we have substantially increased contributions each year since 2000. Ralph Craviso reported on the board member contributions drive; fourteen of the seventeen board members have contributed from $20 to $1500, with an average contribution of $345 per board member. However, the chapter appeal for donations only netted two new organizational members which we see as goal for the future. The committee is talking to the University of Illinois about establishing a quasi-endowment fund. This is to become the backdrop to a new marketing effort. Also Tom Kochan will be taking the lead on a John Dunlop contribution promotion to target Dunlop’s ex-students with endowment gifts. Sponsorship and Grants Committee report—Marlene Heyser reported that we netted $25,000 from both of our sustaining sponsors in 2009, The Bureau of National Affairs, Inc. and the BlueCross BlueShield Assn’s National Labor Office and that we are looking at how we can continue to be valuable to these groups. There are also three other organizations on our prospect list, the AFL-CIO, the American Arbitration Association, and the UpJohn Institute. Dick Fincher has a contact with the AAA and David Lipsky may be able to help with this effort as well. Joel Cutcher-Gershenfeld agreed to talk to the Upjohn Institute. Gordon Pavy will work with the AFL-CIO. Certification Committee report—Joel Cutcher-Gershenfeld reported that there are four subcommittees working towards this goal. These groups are each going to be taking a vision statement that we will be drafting tomorrow. We anticipate bi-weekly phone calls throughout 2010 in which a certification model will emerge. We wish to start in a targeted pilot way to make sure we understand the complexities of the task, beginning with health care, public sector, etc. The one thing that is going to be crucial is that the LERA national staff has to be expanded by at least 1 maybe 2 additional staff members–after it’s up and running the hope is that it will be self-sustaining. Building a way that will take existing programs and local chapters as conduits of training. We also see it as something that will help bridge the gap between national and local reinforcing the relationship between both. Once we have the model, then we need to talk to foundations and government agencies to get the funding, because we cannot administer the program on a volunteer basis. Editorial Committee report—The Committee is essentially a year behind in the schedule to put together a Research Volume for 2011. The proposal in hand is called Employee Ownership and Shared Capitalism: New Debates for the 21st Century, ed: Edward Carberry. The motion to approve the topic of the next Research Volume was seconded and unanimously approved by the board. We had some discussion over printing/producing a small booklet by Walter Gershenfeld, and we recommend that LERA produces this booklet and sells it at a discounted price of $15–it is hoped that this will breakeven or potentially be profitable. A motion to enter into an agreement with Walter Gershenfeld and put this project into production at the LERA office and distribute the publication was seconded and unanimously passed.

ANNUAL REPORTS

305

Other Business ASSA/AEA Meetings report—The American Economic Association has done two things – it has frozen meetings registration fees to AEA members at $60, as well as the registration fee for all non-AEA members $75. It has also informed LERA and four other allied (ASSA) agencies who have been profitsharing partners since 1962 that will be freezing the LERA meetings share of profit at $6,000 beginning after the Denver 2011 meeting. This led to an extended conversation about the general structure of our meetings, or meeting architecture. David Lewin was asked to lead a task force to look into options for future LERA annual meeting architecture and present some options at the next Board meeting.. Awards to be given at the General Membership meeting were recapped by Paula Wells. This comprises the largest set of award winners we’ve ever had and is a set of highly accomplished professionals. The 2009 award recipients were: John T. Dunlop Outstanding Scholar Awards—Ian Greer, Leeds University and Jon Guryan, University of Chicago; LERA Fellows—Henry S. Farber, Princeton University; Gladys Gershenfeld, Arbitrator; Sanford M. Jacoby, University of California—Los Angeles; David Lipsky, Cornell University; Anthony T. Oliver, Parker Milliken Clark O'Hara and Samuelian; Nancy Peace, Arbitrator/Mediator; Lifetime Achievement Awards—Bonnie P. Castrey, Arbitrator/Mediator; Russell Lansbury, University of Sydney; Martin Wagner, University of Illinois at Urbana-Champaign Emeritus (posthumously); Outstanding Practitioner Award—Thomas J. Schneider, Restructuring Associates, Inc.; James G. Scoville Best International Paper Award—Lowell Turner, Cornell University; Susan C. Eaton Scholar-Practitioner Grant—Daniel B. Cornfield, Vanderbilt University; Susan C. Eaton Outstanding Scholar-Practitioner Award—Lawrence Katz, Harvard University; Thomas A. Kochan & Stephen R. Sleigh Best Dissertation Award—Co-winners Marco Hauptmeier, Cardiff University and Mingwei Liu, Rutgers University; Honorable Mentions; J. Ryan Lamare, Cornell University and Adam Seth Litwin, John Hopkins University; and LERA Outstanding Chapter Awards— Alabama Chapter; Gateway Chapter; Northwest Seattle Chapter; Washington, DC Chapter. New Business FMCS will not be holding their annual meeting in 2010, so the Board discussed the possibility of a May 8 or early June board meeting date near the O’Hare airport in Chicago to facilitate same day travel. The staff will poll the Board in a few weeks to determine the best date and venue. Adjournment—President Joel Cutcher-Gershenfeld adjourned the meeting at 10:20 p.m.

305

306


LERA General Membership Meeting and Awards Ceremony Hyatt Regency Hotel, Atlanta, GA January 4, 2010—5:45 p.m. to 6:45 p.m. Call to Order. President Joel Cutcher-Gershenfeld called the meeting to order at 5:45 p.m. He announced the nomination of David Lewin as our next President Elect-Elect. Committee and Officer Reports Report from the Finance & Membership Committee. Peter Feuille reported that the finances of the organization is challenging and that several efforts are underway to address the deficits. He reported the Board has decided to keep the dues level the same in 2011 as it is in 2010. Report from the Development Committee. John Burton reports that our membership continues to decline, making it clear that we need to depend on other sources of revenue other than dues. Individual contributions have increased this year, and this is critical to our success. Marlene Heyser, Tony Oliver and Joel CutcherGershenfeld were instrumental in helping us receive sponsorships from both BNA and BlueCross BlueShield, totaling an amount of $50,000. Report from the Editorial Committee. After 7 years of service, Adrienne Eaton has stepped down as Editor-in-Chief, and the Board has appointed two Co-Editors in her place, Françoise Carré and Christian Weller. Form the University of Massachusetts-Boston. Report from the Strategic Planning Committee. The Board has three new strategic initiatives to pursue, one of which is the Certification program. Tony Oliver, Gordon Pavy, and Joel Cutcher-Gershenfeld will be leading the committee with four sub-committees to move this project forward quickly. We will be launching a national initiative to certify professionals in our field, complementing existing training provided by government agencies, local chapters, and university programs. The second initiative is outreach to local chapters has been a perennial issue and Eileen Appelbaum is heading the challenge to bring local chapter members into the national fold. The third initiative concerns meeting architecture. The ASSA has made some unilateral decisions about revenue-sharing related to our annual meetings which has begun the conversation about meeting architecture. David Lewin has agreed to chair a targeted task force to look at various meeting structures to bring to the next board meeting. Instead of depending on membership dues, we are examining new programs, and bringing in new members and strengthening chapter relationships to increase revenue in 2010. LERA Awards Presentations. The 2009 Awards were given out as follows. John T. Dunlop Outstanding Scholar Awards—Ian Greer, Leeds University and Jon Guryan, University of Chicago. LERA Fellows—Henry S. Farber, Princeton University; Gladys Gershenfeld, Arbitrator; Sanford M. Jacoby, University of California—Los Angeles; David Lipsky, Cornell University; Anthony T. Oliver, Parker Milliken Clark O'Hara and Samuelian; Nancy Peace, Arbitrator/Mediator. Lifetime Achievement Awards—Bonnie P. Castrey, Arbitrator/Mediator; Russell Lansbury, University of Sydney; Martin Wagner, University of Illinois at Urbana-Champaign Emeritus (awarded posthumously and accepted by his children Martha Wagner Weinberg and John Wagner). Outstanding Practitioner Award—Thomas J. Schneider, Restructuring Associates, Inc. James G. Scoville Best International Paper Award—Lowell Turner, Cornell University. Susan C. Eaton Scholar-Practitioner Grant—Daniel B. Cornfield, Vanderbilt University. Susan C. Eaton Outstanding Scholar-Practitioner Award— Lawrence Katz, Harvard University. Thomas A. Kochan & Stephen R. Sleigh Best Dissertation Awards Co-winners— Marco Hauptmeier, Cardiff University and Mingwei Liu, Rutgers University. Honorable Mentions—J. Ryan Lamare, Cornell University and Adam Seth Litwin, John Hopkins University. LERA Outstanding Chapter Awards—Alabama Chapter, Gateway Chapter, Northwest Seattle Chapter, Washington, DC Chapter. Meeting Adjournment. President Joel Cutcher-Gershenfeld adjourned the meeting at 6:46 p.m.

ANNUAL REPORTS

307

STAN FELLER, CPA ______________________________________________________________________________________ Accountant - Tax Consultant 806 Parkland Ct., Suite 1 - Champaign, Illinois 61821 (217) 351-3192 (fax 351-4135) ______________________________________________________________________________________

INDEPENDENT AUDITOR’S REPORT Board of Directors Labor and Employment Relations Association 121 ILIR Building, 504 East Armory Avenue Champaign, Illinois 61820 I have audited the accompanying statements of financial position of the Labor and Employment Relations Association (a nonprofit organization), State of Illinois, as of December 31, 2008 and 2007, and the related statements of activities and cash flows for the years then ended. These financial statements are the responsibility of the Organization’s management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Labor and Employment Relations Association as of December 31, 2008 and 2007, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Stan Feller, CPA Champaign, Illinois April 24, 2009

Page 1

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LERA 62ND ANNUAL PROCEEDINGS LABOR AND EMPLOYMENT RELATIONS ASSOCIATION STATEMENT OF FINANCIAL POSITION December 31, 2008 and 2007

ASSETS Current Assets Cash and Certificate of Deposit Accounts Receivable - Net Grants Receivable Prepaid Expenses Inventory Accrued Interest Receivable

2008 $

Total Current Assets Property and Equipment Less: Accumulated Depreciation Net Property and Equipment

TOTAL ASSETS

2007

300,405 76,652 0 26,583 10,488 441

$

309,756 124,976 0 27,315 18,784 455

414,569

481,286

14,868 (11,204) 3,664

13,781 (9,803) 3,978

$

418,233

$

485,264

$

5,139 5,187 15,515 107,741 22,109 31,025 44,525 47,460 7,500

$

3,664 6,145 15,569 108,351 16,358 2,550 46,133 37,973 11,115

LIABILITIES AND NET ASSETS Current Liabilities Accounts Payable Accounts Payable to UCIRHRP Accrued Liabilities Dues Collected in Advance Subscriptions Collected in Advance Deferred Contributions Eaton Memorial Scholarship Receipts Kochan-Sleigh Award Receipts Deferred Grant, Contribution Income Total Current Liabilities

Net Assets Temporarily Restricted Unrestricted Operating Total Net Assets TOTAL LIABILITIES AND NET ASSETS

$

286,201

247,858

0

0

132,032

237,406

132,032

237,406

418,233

The accompanying notes are an integral part of these financial statements Page 2

$

485,264

$

Total

237,406 132,032 $

Net Assets at Beginning of Year Net Assets at End of Year

$

The accompanying notes are an integral part of these financial statements. Page 3

-105,374

33,411 16,299

33,411 16,299

132,032

237,406

-105,374

419,824

3,615 0 0

314,450

0 0 3,615 0

3,615 0 0

0

0 0 3,615 -3,615

167,102 38,124 7,500 23,787 475 3,211 11,715 33,082 7,724 16,920 1,195

230,157 53,886 82,456

Change in Net Assets

$

Unrestricted

$

237,406 $

295,083

-57,677

467,040

30,812 10,431

42,992 0 32,722

206,013 82,724 61,346

409,363

78,095

137,852 29,471 6,425 2,337 1,213 3,175 12,979 99,196 14,975 21,296 2,349

0

0 32,722 45,373 -78,095

$

$

2007 Temporarily Restricted

2008 Temporarily Restricted

230,157 53,886 82,456

314,450

3,615

167,102 38,124 7,500 23,787 475 3,211 11,715 33,082 7,724 16,920 1,195

419,824

$

$

Total Expenses and Losses

Expenses and Losses Program Services General Meetings Publications Grant Expenses Sloan Grant Expense - See Note 5 GE Contributions - See Note 4 FMCS Grant Expense -See Note 6 Supporting Services Management and General Membership Development

Total Revenues, Gains and Other Support

Revenue, Gains and Other Support Membership Dues Subscriptions Chapter Fees Publications Advertising Mailing List Rental Royalties Meeting Income Interest income Member Contributions Administrative Fees Contributions GE Contributions FMCS Grant Sloan Grant Restrictions satisfied

Unrestricted

STATEMENT OF ACTIVITIES Years Ended December 31, 2008 and 2007

LABOR AND EMPLOYMENT RELATIONS ASSOCIATION

237,406

295,083

-57,677

467,040

30,812 10,431

42,992 0 32,722

206,013 82,724 61,346

409,363

0 32,722 45,373 0

137,852 29,471 6,425 2,337 1,213 3,175 12,979 99,196 14,975 21,296 2,349

Total

ANNUAL REPORTS 309

310

LERA 62ND ANNUAL PROCEEDINGS LABOR AND EMPLOYMENT RELATIONS ASSOCIATION STATEMENT OF CASH FLOWS For the Years Ended December 31, 2008 and 2007

CASH FLOWS FROM OPERATING ACTIVITIES Change in Net Assets

2008 $ (105,374)

$

2007 (57,677)

Adjustments to Reconcile Change In Net Assets to Net Cash Cash Flows from Operating Activities (Increase) or Decrease in Operating Assets: Cash Received/Disbursed for general undesignated offerings Cash Received from restricted grant contributions Cash Received/Disbursed for Prepaid Expenses Cash Received/Disbursed for Inventory Cash Received from Interest Income Increase ( Decrease) in Operating Liabilities Cash Received/Disbursed for general undesignated offerings Cash Received/Disbursed from undesignated accrued liabilities Cash Received for general supporting and fundraising expense Cash Disbursed for general supporting and fundraising expense Cash Disbursed for restricted grant contributions

48,324 0 732 8,296 14

(69,561) 15,330 (23,215) (5,737) 3,759

36,871 (54) 5,751 (610) (3,615)

(15,546) 7,299 21,882 (8,498) (45,373)

Net Cash Provided by Operating Activities

(9,665)

(177,337)

Cash Flows from Investing Activities Depreciation Loss on stolen fixed asset Payments for Property and Equipment

1,401 0 (1,087)

1,218 761 (2,382)

Net Cash Provided by Investing Activities

314

Net Increase ( Decrease) in cash and cash equivalents

(403)

(9,351)

(177,740)

Cash and short-term Investments: Beginning of Year End of Year

309,756 $

The accompanying notes are an integral part of these statements. Page 6

300,405

487,496 $

309,756

Winter Bd Meeting

Spring Bd Meeting

17,038 10,396 2,221

23,893 1,108 2,483

40,319

492 409

970 2,024

37,326

9,763

6,848

32,722

339

2,911

21,056

42,992

410

7,016 2,465 11,200 1,000 529 1,350 6,806

3,888

4,042 1,375

Sloan Grant

8,570 2,757

FMCS Grant

4,450

388 928 3,134

Annual Proceedings


1,052

52

173

4,027

1,000

3,854

0

GE Contribution

24,496

15,559 1,781 7,156

Perspectives

16,863

10,638 5,285 940

Research Volume

15,537

7,092 3,155 5,290

Directory & Newsletter

1,285

571 1,855

-6,806 784 3,589 1,685

13,180 1,720 4,855

400

1,218 3,051

Management & General

30,812

0

Nat'l Policy Forum

10,431

626

816

1,543 3,872

3,574

Membership Development

SUPPORTING SERVICES

206,013

Regional Meetings

PUBLICATIONS

3,425

Winter Conference

GRANTS/CONTRIBUTIONS

Compensation 156,734 Payroll taxes & fringes 49,279 Depreciation Insurance Industry Research Bank Charges Promotion Fulfillment Postage and freight Accounting/auditing Printing, production Postage Other public. costs Meals Travel Other meeting expenses Sloan Grant Overhead Education Computer & label supplies Office supplies Student and member awards Fundraising expense Duplicating Expense Telephone and FAX Chapter expenses Dues Other committee expenses Miscellaneous office

General

MEETINGS

STATEMENT OF FUNCTIONAL EXPENSES For the Year Ended December 31, 2007


467,040

784 3,999 1,685 1,543 3,872 571 1,855 816 1,285 626 3,425

169,346 53,411 1,218 3,051 23,967 400 24,073 13,180 1,720 4,855 42,155 16,047 27,720 46,785 12,033 6,618

Totals

ANNUAL REPORTS 311

Spring Bd Meeting

7,458 4,266 200

21,339 1,652 2,605

12,788

234 597

1,582 892

36,408

33

8,338

3,615

150

17

1,000 821

1,000

627

Sloan Grant

12,671

2,911 515 9,245

Annual Proceedings

21,236

16,614 1,318 3,304

Perspectives

17,448

7,529 2,677 7,242

Research Volume


2,565

533

214

2,125

2,032

1,911

0

GE Contribs

17,417

17,417

Cartoon Book

13,684

4,298 3,378 6,008

Directory & Newsletter

1,025 217

1,719

757 1,891 2,682

13,180 2,112 3,615

290

1,401 3,016

Management & General

33,411

Winter Bd Meeting

16,299

619

1,135

1,361 1,363

11,783

38

Membership Development

419,824

172,648 57,509 1,401 3,016 665 290 21,154 13,180 2,112 3,615 50,585 9,377 25,799 0 0 0 33,740 6,739 3,552 757 1,908 2,682 1,361 1,363 1,719 1,285 1,025 217 619 1,506

Totals

SUPPORTING SERVICES

230,157

Nat'l.Policy Forum

PUBLICATIONS

1,506

Winter Conference

GRANTS

Compensation 172,648 Payroll taxes & fringes 57,509 Depreciation Insurance Industry Research Bank Charges Promotion Fulfillment Postage and freight Accounting/auditing Printing, production Postage Other public. costs GE Contribution Expense FMCS Grant Expense Sloan Grant Overhead Meals, Receptions Travel Other meeting expenses Education Computer supplies/svc Office supplies Student and member awards Fundraising expense Telephone. Fax Chapter expenses Dues Duplicating Other committee expenses Miscellaneous office

General

MEETINGS

STATEMENT OF FUNCTIONAL EXPENSES For the Year Ended December 31, 2008


312 LERA 62ND ANNUAL PROCEEDINGS

ANNUAL REPORTS

313

LABOR AND EMPLOYMENT RELATIONS ASSOCIATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 AND 2007 Note 1 – Nature of Activities and Significant Accounting Policies Nature of Activities The Labor and Employment Relations Association (LERA) was founded in 1947 to encourage research in all aspects of the field of labor, employment, and the workplace. It is a non-profit scholarly association of academic, labor, business and neutral communities committed to the full discussion and exchange of ideas between and among its broad constituencies through meetings, publications, and its various electronic listservs and websites. The LERA National Office is located in Champaign, Illinois and serves the association by planning conferences and meetings, and publishing the various research of its members. Basis of Accounting The financial statements of the Association are presented using the accrual basis of accounting. Contributed Services During the years ended December 31, 2008 and 2007, the value of contributed services meeting the requirements for recognition in the financial statements was not material and has not been recorded. Net Assets Net assets are classified into one of three classes based on the existence or absence of donor-imposed restrictions. Unrestricted net assets include all net assets which are neither temporarily nor permanently restricted. Temporarily restricted net assets include contributed net assets for which donor-imposed time and purpose restrictions have not been met and the ultimate purpose of the contribution is not permanently restricted. Permanently restricted net assets include contributed net assets which require, by donor restriction, that the corpus be invested in perpetuity and only the income be made available for program operations in accordance with donor restrictions. Property, Plant and Equipment Property, plant and equipment are carried at cost. Depreciation is provided using the straight-line method over an estimated five to seven year useful life. Beginning in 2005, LERA decided to follow the practice of the University of Illinois to expense any items purchased costing less than $500. 7

314


LABOR AND EMPLOYMENT RELATIONS ASSOCIATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 AND 2007 Financial Statement Presentation The Association has adopted Statement of Financial Accounting Standards (SFAS) No. 117, “Financial Statements of Not-for-Profit Associations.” Under SFAS No. 117 the Association is required to report information regarding its financial position and activities according to two classes of net assets: unrestricted net assets and temporarily restricted net assets. As permitted by the statement, the Association does not use fund accounting. Organization Name Change Effective January 6, 2005, the organization’s constitution and bylaws were changed to denote the name change to Labor and Employment Relations Association. The new name was ratified and approved at the executive board meeting on January 6, 2005, in compliance with a general membership vote by mail in June, 2004. Contributions The Association also adopted SFAS No. 116, “Accounting for Contributions Received and Contributions Made.” Contributions received are recorded as unrestricted or temporarily restricted support depending on the existence or nature of any donor restrictions. Temporarily restricted net assets are reclassified to unrestricted net assets upon satisfaction of the time or purpose restrictions. Income Taxes The Association is a not-for-profit Association that is exempt from income tax under Section 501 (c)(3) of the Internal Revenue Code, and is classified by the Internal Revenue Service as other than a private foundation. Investments The Association does not have any investments in marketable securities.

8

ANNUAL REPORTS

315

LABOR AND EMPLOYMENT RELATIONS ASSOCIATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 AND 2007 Cash and Cash Equivalents For purposes of the statements of cash flows, the Association considers all highly liquid investments available for current use with an initial maturity of twelve months or less to be cash equivalents. None of the Association’s cash investments held at five financial institutions exceeded the new $250,000 FDIC insurance limit at December 31, 2008, but exceeded the 2007 $100,000 FDIC insurance limit by a total of $8,280 at December 31, 2007. Inventory The Association’s inventory of directories, research volumes, proceedings and perspective magazines is carried at the lower of cost or market value. Membership Dues and Advance Subscriptions Collected Beginning in September 2006, membership dues and subscriptions are assessed and recognized into income on a rolling 12-month basis. Dues paid over one year in advance are not recognized into income until the twelve-month period they are due. Prior to September 2006, these dues and subscriptions were assessed on a calendar year basis and recognized on an annual accrual basis. Functional Allocation of Expenses The costs of providing the various programs and other activities have been summarized on a functional basis in the statement of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Note 2 – Arrangements with the University of Illinois The Association moved its offices to the University of Illinois at the end of 1999. Under an arrangement with the University, the employees of the Association are employed by the University. The employees’ pension and benefits are part of the University’s plans. The Association then reimburses the University quarterly for the cost of the employees. Note 3 – UCIRHRP servicing arrangement to administer business On January 3, 2003, the LERA entered into a servicing arrangement to administer the business of the University Council of Industrial Relations and Human Resources Programs (UCIRHRP). These servicing duties include dues notification and collection, annual meeting arrangement and report preparation, 9

316


LABOR AND EMPLOYMENT RELATIONS ASSOCIATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 AND 2007 Note 3 – UCIRHRP servicing arrangement to administer business - continued and maintaining a data base and network communications for this separate organization. A separate financial statement is maintained for this company, but the fund’s cash is maintained in LERA’s general bank account. The amount of cash belonging to UCIRHRP in the general account is shown on LERA’s balance sheet as Due to UCIRHRP. The initial deposit of UCIRHRP funds was wired to LERA on September 22, 2003, at which time the LERA began this servicing arrangement. UCIRHRP’s cash balance in LERA’s custody was $5,187.36 at December 31, 2008, and $6,145 at December 31, 2007. The LERA is allowed to collect 20% of dues collected each year as an administrative fee. Note 4 – General Electric (GE) Contributions On September 2, 2004, the LERA received a $25,000 contribution, with $5,000 allocated to its 2005 National Policy Forum (NPF), $5,000 for the Aerospace Industry Council, and $15,000 for unspecified uses. The LERA has deferred $5,000 of the contribution to 2009 for Aerospace, recognized as income and allocated $5,000 to 2005 NPF expenses, and allocated the unspecified portion to 2004 expenses. On August 27, 2004, the LERA received a $5,000 separate donation from GE to cosponsor the 2004 LERA activities within the National Labor Management Conference and additional support for the Aerospace Industry Council. Aerospace Industry Council funds of $2,500 have been deferred for future use, while NLMC co-sponsorship funds received were recognized in 2004. Note 5 – Alfred P. Sloan Foundation Grant #2003-12-14 On December 13, 2004, the LERA received notification that it was the recipient of a grant for $387,677 to establish a network of industry councils within the LERA. The grant was received in three installments, with $147,400 received in January 2004, $123,900 received in February 2005, and the final payment of $116,377 received in 2006. The 2006 installment was offset with 2007 expenses totaling $45,373, which includes overhead charges allowed at 15% and 2006 expenses totaling $121,612, plus overhead charges of $18,214. The 2005 installment was offset with 2005 expenses totaling $91,872, plus overhead charges of $13,780. The 2004 installment was offset with 2004 expenses totaling $96,890, plus overhead charges of $14,534. The remaining $3,615 of unspent grant funds deferred to 2008 was expended by February 29, 2008 the end of the extended grant period. The grant was closed in 2008. 10

ANNUAL REPORTS

317

LABOR AND EMPLOYMENT RELATIONS ASSOCIATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 and 2007 Note 6 – Federal Mediation and Conciliation Services Grant #03-CA/I-004 On February 17, 2005, the LERA received notice of its $125,000 grant application approval by FMCS and additional $13,889 funds to be provided by MIT and LERA for LERA Airline Industry Council project leadership and management committee meetings. The initial project and budget period of this grant covered October 1, 2003 to September 1, 2006, but was extended in 2006 to cover 2007 expenses through March 31, 2007. $48,000 in project reimbursement was received from FMCS in 2006. Expenses relating to the grant in 2006 totaled $53,047. The last reimbursement of $48,052 for this project was received from FMCS in 2007. Final expenses relating to the grant in 2007 totaled $32,722. A total of $125,000 in reimbursements was received by the LERA from FMCS over the course of the project. The grant was closed as of March 31, 2007. Note 7 – Susan C. Eaton Scholar-Practitioner Memorial Fund The LERA set up a memorial fund in honor of an author of a 1998 “Perspectives on Work” article and active young LERA member, who died on December 30, 2003. Memorial gifts received were $1000 in 2007, $2000 in 2006, $13,629 in 2005, and $36,331 in 2004. At its June 1, 2004 meeting, the LERA approved the establishment of an annual Susan C. Eaton Scholar-Practitioner award and grant, to be paid to one or more scholar researchers in even-numbered years or practitioners in odd-numbered years doing research in the labor and employment relations or related field. At its January 6, 2005 meeting, the Board directed that the LERA collect 10% of any gifts received each year as an administrative fee for managing the Fund and grant. One award totaling $3,000 was paid in January 2008 and one award totaling $3,000 was paid in January 2007. Including interest earned and paid to the account, $44,525 has been deferred to future years for future annual award payments. Note 8 – Kochan-Sleigh Best Dissertation Award Fund On March 27, 2006, the LERA set up a temporarily restricted fund with contributions from a member and matching contributions from General Electric. The fund is restricted for a minimum of fifteen years, when only interest income may be used from the fund to pay for the $1,000 annual best dissertation award. After the fifteen-year period, the principle amount remaining may be released and become available to LERA for unrestricted purposes. The contributor made additional start up contributions of $1,000 each in 2006 and 2007 to cover the award for the first two years before the fund is fully funded. A total of $10,000 of member and matching contributions was received in 2008 and $21,000 of member and matching contributions was received each year ended as of December 31, 2007 and 2006. 11

318


LABOR AND EMPLOYMENT RELATIONS ASSOCIATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 AND 2007 One best dissertation award totaling $1,000 was granted in 2008, and two best dissertation awards totaling $1,000 were granted in 2007. According to the terms of the award document and pursuant to a vote of the Executive Board in 2005, the LERA is to collect 10% of annual contributions as a one-time service fee to help cover the LERA costs to administer this award. Including interest earned and paid to the account as of December 31, 2008, $47,460 has been deferred to future years for future annual awards. Note 9 – Campaign Drive To help ensure the financial stability of the organization, the LERA Board of Directors established a Development Committee on January 1, 2004 to begin its work raising money from the membership and supporting organizations. Beginning in 2006, LERA kicked off its campaign drive, where the executive board agreed to establish its formal campaign goal of $1,500,000 to be raised over a three year period beginning January, 2007, the start of its campaign. The campaign goal is inclusive of all grants pledged and contributions given to the LERA since 2004. Total related expenses in 2008 and 2007 for this effort were $1,363 and $3,872, respectively.

12

319

The LERA gratefully acknowledges the continuing support of its Annual Organizational Members.

ANNUAL MEMBERS 2009-2010 AFL-CIO, Department of Professional Employees AFL-CIO, Working for America Institute American Federation of Teachers American Rights at Work BlueCross BlueShield Association, National Labor Office California Labor Federation City of Baltimore Communication Workers of America Cornell University, Scheinman Institute of Conflict Resolution Cornell University, School of Industrial and Labor Relations Dairyland Power Cooperative Detroit Chapter - LERA Federal Mediation and Conciliation Service Health Alliance Plan of Michigan International Association of Machinists and Aerospace Workers, Strategic Resources International Brotherhood of Boilermakers Indiana University of Pennsylvania, PA Center for the Study of Labor Relations Las Vegas City Employees' Association Las Vegas Metro Police Department Le Moyne College Massachusetts Institute of Technology (MIT), Sloan School of Management Merrimack Films Michelin North America, Inc. Michigan State University, School of Labor and Industrial Relations National Labor College National Public Employer Labor Relations Association New York State Nurses Association, Economic & General Welfare Program Orange County Transportation Authority Paratransit Services Penn State University, Labor Studies and Employment Relations Rollins College, Master of Human Resources Program Rutgers University, School of Management and Labor Relations Saint Joseph's University, Haub School of Business San Diego Municipal Employee Association Seabury Group LLC Society for Human Resource Management (SHRM) Southwest Airlines Pilots' Association United Steelworkers of America United Food and Commercial Workers, Local #1776 University of California at Los Angeles, Institute for Research on Labor and Employment University of California—Berkeley, Institute for Research on Labor and Employment University of Illinois at Urbana-Champaign, School of Labor and Employment Relations University of Minnesota, Carlson Industrial Relations Center University of Toronto, Center for Industrial Relations and Human Resources West Virginia University, Department of Industrial Relations and Management Wilson Center for Public Research

320


Alphabetical List of Authors A Eric Arneson .......................................................... 64 Edwin W. Arnold ................................................ 227 B David Bensman .................................................... 273 Monica Bielski Boris ............................................ 145 Kristine M. Brown ............................................... 280 C Timothy D. Chandler .......................................... 226 Heather Connolly ................................................ 106 Joel Cutcher-Gershenfeld ....................................... 1 E Minawa Ebisui ...................................................... 124 F Chichun Fang ......................................................... 33 Tayo Fashoyin ...................................................... 124 Jack Fiorito ........................................................... 170 Diane F. Frey ........................................................ 225 G Gregor Gall ........................................................... 170 Rafael Gely ............................................................ 226 Mark Glickman ...................................................... 69 Patrick Gunnigle .................................................. 190 H Gary Hattal ........................................................... 167 Marco Hauptmeier .............................................. 294 Jack L. Howard .................................................... 226 J Xiong Jun .............................................................. 273 K Timothy Keaveny ................................................ 227 L J. Ryan Lamare ..................................................... 190 Ron A. Laschever ................................................ 280 Jonathan Lavelle ................................................... 190 Eun Kyung Lee ...................................................... 45 Michael Leroy ....................................................... 237 Ann Marie Lofaso ................................................ 205 Miguel Martinez Lucio ........................................ 106

M Gillian Macnaughton ........................................... 225 Arthur Martinez ................................................... 170 Floyd Mason ............................................................. 9 Andy Mathers ......................................................... 93 Anthony McDonnell ........................................... 190 Daniel J.B. Mitchell ............................................. 216 N Heike Nolte .......................................................... 149 P Bert Painter ........................................................... 163 Michael Perelman ................................................ 117 Kelly I. Pike ............................................................ 21 Pamela A. Posey ................................................... 138 Q Hervé Queneau .................................................... 247 R Tom Redman ........................................................ 180 Sean Rogers .......................................................... 225 S Amit Sen ................................................................ 247 Ed Snape ............................................................... 180 Peter J. Sorenson ................................................. 138 Silvia Spattini .......................................................... 58 T Graham Taylor ....................................................... 91 Michele Tiraboschi ................................................ 58 Robert J. Thornton ................................................ 91 Peter Toumanoff ................................................. 227 U Martin Upchurch ................................................... 91 W Jeffrey Waddoups ................................................ 260 David Weil ............................................................ 228 Charles Whalen .................................................... 165 Y Erik Young ............................................................. 45

You are invited to become a member of THE LABOR AND EMPLOYMENT RELATIONS ASSOCIATION The Labor and Employment Relations Association (LERA) was founded in 1947 by a group who felt that the growing field of industrial relations required an association in which professionally minded people from different organizations could meet. It was intended to enable all who were professionally interested in industrial relations to become better acquainted and to keep up to date with the practices and ideas at work in the field. To our knowledge there is no other organization that affords the multiparty exchange of ideas we have experienced over the years–a unique and valuable forum. After 60 years, both our academic and practitioners agree with the conviction of the founders that the encouragement, reporting, and critical discussion of research are essential if our professional field is to advance. Our membership of 3,000 includes representatives of management, unions, government; practitioners in consulting, arbitration, mediation, and law; and scholars and teachers representing many disciplines in colleges and universities in the United States and Canada, as well as abroad. Libraries and institutions interested in the publications of the Association are also invited to become subscribing members and thereby receive the same member publications. Organizational memberships in the Association are also available. Membership dues cover publications for 12 months and entitle members to the electronic newsletter and proceedings of the annual meeting online, and printed copies of the annual research volume, membership directory, and the magazine, Perspectives on Work (some volumes available online). Additional online resources include Chapter Profiles and an IR/HR Degree Program Listing for the United States, Canada, and Australia. Dues for the 2011 calendar year are listed below. Canadian and foreign memberships require an additional $20.00 per year to cover postage costs. Regular Member ....................................................................................................................................................... $185.00 Contributing Member ............................................................................................................................................. $300.00 Emeritus Member (10 years+ membership and no longer employed) ............................................................. $95.00 Student Member (full-time, limited to 4 consecutive years) ............................................................................... $25.00 Library Subscriber .................................................................................................................................................... $250.00 Tax-deductible financial contributions to the Association to support its educational activities are always welcome. You can make an online contribution at our website, www.LERAweb.org, and choosing “Participate” and then “Contribute”. If you are not already a member, we invite you to join the LERA online at the LERA website, www.LERAweb.org by choosing “Membership”, or request an invoice. Inquiries regarding membership, meetings, and publications should be addressed to the LERA office.

LABOR AND EMPLOYMENT RELATIONS ASSOCIATION University of Illinois at Urbana-Champaign 121 LER Building, 504 E. Armory Avenue Champaign, IL 61820 USA Phone: 217-333-0072 Fax: 217-265-5130 Email: [email protected] Web: www.LERAweb.org

Also in the Labor and Employment Relations Association Series

Transforming the U.S. Workforce Development System: Lessons from Research and Practice

Edited by David Finegold, Mary Gatta, Hal Salzman, and Susan J. Schurman ....................................... $24.95

Human Rights in Labor and Employment Relations: International and Domestic Perspectives

Edited by James A. Gross and Lance Compa ............................................................................................... $24.95

The Gloves-off Economy: Workplace Standards at the Bottom of America’s Labor Market

Edited by Annette Bernhardt, Heather Boushey, Laura Dresser, and Chris Tilly ................................... $29.95

Employee Pensions: Policies, Problems, and Possibilities

Edited by Teresa Ghilarducci and Christian E. Weller ................................................................................ $29.95

Contemporary Issues in Employment Relations

Edited by David Lewin...................................................................................................................................... $29.95

Theoretical Perspectives on Work and the Employment Relationship

Edited by Bruce E. Kaufman ........................................................................................................................... $29.95

Going Public: The Role of Labor-Management Relations in Delivering Quality Government Services

Edited by Jonathan Brock and David B. Lipsky ........................................................................................... $29.95

Collective Bargaining in the Private Sector

Edited by Paul F. Clark, John T. Delaney, and Ann C. Frost ..................................................................... $29.95

The Future of the Safety Net: Social Insurance and Employee Benefits

Edited by Sheldon Friedman and David C. Jacobs ...................................................................................... $29.95

Nonstandard Work: The Nature and Challenges of Changing Employment Arrangements

Edited by Françoise Carré, Marianne A. Ferber, Lonnie Golden, and Stephen A. Herzenberg ..................................................................................................................................... $29.95

Employment Dispute Resolution and Worker Rights in the Changing Workplace

Edited by Adrienne E. Eaton and Jeffery H. Keefe ..................................................................................... $25.95

Book orders and request for prices and order forms for the above LERA publications should be sent to: ILR Press, Cornell Univ., P.O. Box 6525, Ithaca, NY 14851 Phone 607-277-2211, Fax 607-277-6292 Web www.cornellpress.cornell.edu Additional volumes are available through ILR Press. On-demand printing is available at www.proceedings.com/5852.html for the Proceedings of the LERA Annual Meeting. Orders for LERA Membership Directories, and other LERA publications should be sent to the LERA Office: LERA, 121 LER Building, 504 E. Armory Ave., MC-504, Champaign, IL 61820 Phone 217-333-0072, Fax 217-265-5130 Email [email protected], Web www.LERAweb.org ISBN 978-0-913447-00-0

Proceedings of the 62 Annual Meeting

Proceedings of the 62 Annual Meeting

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