Collective Bargaining

A Brief Definition

Through collective bargaining, employers and employees negotiate the conditions of employment.

Learning Objectives

Define the monopoly union model, the right-to-manage model, and the efficient bargaining model as theories of collective bargaining

Key Takeaways

Key Points

  • The ability to form trade unions is recognized through international human rights conventions as an essential right of workers.
  • Trade union representatives usually represent the employees during the collective bargaining process. The union representatives negotiate with a single employer or a group of businesses. Negotiations with a group of businesses results in an industry-wide agreement.
  • There are various economic theories which attempt to explain the various aspects of collective bargaining.
  • The agreement reached as a result of the collective bargaining process functions as a contract between the parties.

Key Terms

  • monopoly union model: This model states that the monopoly union has the power to maximize the wage rate; the firm then chooses the level of employment.
  • collective bargaining agreement: A collective agreement or collective bargaining agreement (CBA) is an agreement between employers and employees which regulates the terms and conditions of employees in their workplace, their duties, and the duties of the employer. It is usually the result of a process of collective bargaining between an employer (or a number of employers) and a trade union representing workers.
  • efficient bargaining model: The efficient bargaining model sees the union and the firm bargaining over both wages and employment (or, more realistically, hours of work).

Collective Bargaining Defined

Collective bargaining is a process of negotiation between employers and a group of employees aimed at reaching an agreement that regulates working conditions.

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Collective Bargaining: Map of proposed collective bargaining legislation

The right to collectively bargain is recognized through international human rights conventions. Article 23 of the Universal Declaration of Human Rights identifies the ability to organize trade unions as a fundamental human right. Item 2(a) of the International Labour Organization’s Declaration on Fundamental Principles and Rights at Work defines the “freedom of association and the effective recognition of the right to collective bargaining” as an essential right of workers.

The Participants

The interests of the employees are commonly presented by representatives of a trade union to which the employees belong. The union may negotiate with a single employer (who is typically representing a company’s shareholders) or may negotiate with a group of businesses, depending on the country, to reach an industry-wide agreement.

The Result

The parties often refer to the result of the negotiation as a collective bargaining agreement (CBA) or as a collective employment agreement (CEA). A collective agreement functions as a labor contract between an employer and one or more unions.

The collective agreements reached by these negotiations usually set out wage scales, working hours, training, health and safety, overtime, grievance mechanisms, and rights to participate in workplace or company affairs.

Collective Bargaining Models

Different economic theories provide a number of models intended to explain some aspects of collective bargaining:

  • The so-called monopoly union model (Dunlop, 1944) states that the monopoly union has the power to maximize the wage rate; the firm then chooses the level of employment.
  • The right-to-manage model, developed by the British school during the 1980s (Nickell), views the labor union and the firm bargaining over the wage rate according to a typical Nash Bargaining Maximin.
  • The efficient bargaining model (McDonald and Solow, 1981) sees the union and the firm bargaining over both wages and employment (or, more realistically, hours of work).

Resolving Disagreements

Labor arbitration has been used as an alternative to strikes to resolve labor disputes for more than a century.

Learning Objectives

Distinguish between interest arbitration and grievance arbitration

Key Takeaways

Key Points

  • There are two types of labor arbitration: interest arbitration and grievance arbitration.
  • Governments, in addition to labor organizations, rely on arbitration to resolve particularly large labor disputes.
  • Unions and employers have used arbitration to resolve employee and union grievances arising under a collective bargaining agreement.
  • The Supreme Court has held that grievance arbitration is a preferred dispute resolution technique and that courts cannot overturn arbitrators’ awards, unless the award does not draw its essence from the collective bargaining agreement.

Key Terms

  • arbitration: In general, a form of justice where both parties designate a person whose ruling they will accept formally. More specifically in Market Anarchist (market anarchy) theory, arbitration designates the process by which two agencies pre-negotiate a set of common rules in anticipation of cases where a customer from each agency is involved in a dispute.
  • grievance arbitration: Provides a method for resolving disputes over the interpretation and application of a collective bargaining agreement.
  • interest arbitration: Provides a method for resolving disputes about the terms to be included in a new contract when the parties are unable to agree.

Labor Arbitration

Arbitration has been used as a means of resolving labor disputes for more than a century. Labor organizations in the United States, such as the National Labor Union, called for arbitration as early as 1866 as an alternative to strikes to resolve disputes over the wages, benefits and other rights that workers enjoy. Governments have also relied on arbitration to resolve particularly large labor disputes, such as the Coal Strike of 1902.

Types of Labor Arbitration

Labor arbitration comes in two varieties: interest arbitration, which provides a method for resolving disputes about the terms to be included in a new contract when the parties are unable to agree, and grievance arbitration, which provides a method for resolving disputes over the interpretation and application of a collective bargaining agreement.

Interest Arbitration

This type of arbitration, wherein a neutral arbitrator decides the terms of the collective bargaining agreement, is commonly known as interest arbitration. The United Steelworkers of America adopted an elaborate form of interest arbitration, known as the Experimental Negotiating Agreement, in the 1970s as a means of avoiding the long and costly strikes that had made the industry vulnerable to foreign competition.

Major League Baseball uses a variant of interest arbitration, in which an arbitrator chooses between the two sides’ final offers, to set the terms for contracts for players who are not eligible for free agency. Interest arbitration is now most frequently used by public employees who have no right to strike (for example, law enforcement and firefighters).

Grievance Arbitration

Unions and employers have also employed arbitration to resolve employee and union grievances arising under a collective bargaining agreement. The Amalgamated Clothing Workers of America made arbitration a central element of the Protocol of Peace it negotiated with garment manufacturers in the second decade of the twentieth century. Grievance arbitration became even more popular during World War II, when most unions had adopted a no-strike pledge.

Arbitration in the Eyes of the Law

The Supreme Court subsequently made labor arbitration a key aspect of federal labor policy in three cases which came to be known as the Steelworkers’ Trilogy. The Court held that grievance arbitration was a preferred dispute resolution technique and that courts could not overturn arbitrators’ awards unless the award does not draw its essence from the collective bargaining agreement.

These protections for arbitrator awards are premised on the union-management system, which provides both parties with due process. Due process in this context means that both parties have experienced representation throughout the process, and that the arbitrators practice only as neutrals.

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Political Cartoon about the Anthracite Coal Strike: The two sides were supposed to listen to expert testimony and come to a friendly agreement; cartoon from the Cleveland Dealer