Thursday, March 5, 2015

Walton & McKersie Help an Economist Mature into an Industrial Relations Scholar

I cannot attend today's 50th Anniversary Celebration of  Richard Walton and Robert McKersie’s seminal 1965 book, A Behavioral Theory of Labor Negotiations. But a conversation last week with Joel Cutcher-Gershenfeld prompted me to start thinking about its impact on me. In my final year as an economics Ph.D. student at Princeton in the early 1990s, I was lucky that Craig Olson—then a Professor of Industrial Relations at the University of Wisconsin, now at the University of Illinois—spent a year there as a visiting professor. I had little knowledge of the then-mysterious field of industrial relations, but as a leading scholar in that field, Craig kindly introduced me to the key works in the field. I can’t remember everything he recommended, but I certainly remember that A Behavioral Theory of Labor Negotiations was high on the list.

This soon made an impact on my thinking. On a specific level, Walton and McKersie’s insights on intraorganizational bargaining—developed not only in A Behavioral Theory of Labor Negotiations, but also elsewhere—were important for my dissertation. I was analyzing UAW pattern bargaining. The standard economic explanations for pattern bargaining are, unsurprisingly, market-based: wage patterns as 1) taking wages out of competition, or 2) as “rough-and-ready guides whereby the working of supply and demand is anticipated,” as John R. Hicks put it in his 1932 A Theory of Wages (p. 80). But even as a budding economist, no pun intended, I was skeptical about these economic-based explanations. Indeed, archival evidence of union memos and records pointed, in my mind, to internal union political considerations, not market forces. I was familiar with Ashenfelter and Johnson’s model of strikes that was rooted in internal union dynamics (of course, since we would routinely have lunch meetings in Ashenfelter’s large Princeton office, in the shadow of a large portrait of another Hicks: Clarence J. of Standard Oil fame). And I was familiar with the famous Ross-Dunlop debate in which Arthur Ross championed the political side of union wage determination. But Walton and McKersie’s framework provided a much stronger foundation for understanding the role of internal union political dynamics in the context of the entire negotiations process.

On a deeper level, A Behavioral Theory of Labor Negotiations made a more lasting impact on my thinking in at least two ways. One, though economists at Princeton and a few other places study labor unions with some eye toward institutional realities, the general approach in economics is not to give a lot of attention to how things really work within and across organizations. A Behavioral Theory of Labor Negotiations opened up this space to me through its classic development of the four subprocesses of negotiations. Through these subprocesses, I could now start to understand how labor and management negotiators actually interacted, and how decisions were made. This helped me recognize the importance of real-world institutions in understanding the employment relationship. And the need to do so in a rich, multidisciplinary way. These are, of course, two hallmarks of industrial relations scholarship.

Two, A Behavioral Theory of Labor Negotiations introduced me to mixed motive conflict; and as such, to another fundamental principle of industrial relations scholarship—that the employment relationship is best characterized as a mixed-motive bargaining relationship, something I would end up writing about multiple times (eventually). In these ways, then, A Behavioral Theory of Labor Negotiations helped me grow from a young economist into an industrial relations scholar with a deeper, multidisciplinary understanding of institutions and the employment relationship.

Like too many others to count, A Behavioral Theory of Labor Negotiations has also shaped my teaching. And hopefully in some modest way I am helping to continue its influence on future generations. In particular, Walton and McKersie’s four subprocesses form the core of the negotiations material in the bargaining chapter of my textbook, Labor Relations: Striking a Balance (McGraw-Hill). Call me old-fashioned, but I’ve even retained their original terms and have explicit subsections devoted to each one. Nowhere else in my textbook does one piece of work receive such extended discussion. And other key insights on labor negotiations and labor-management relationships are a byproduct of their seminal work, especially Walton and McKersie’s book with Joel Cutcher-Gershenfeld, Strategic Negotiations: A Theory of Change in Labor-Management Relations (Harvard Business School Press), and Raymond Friedman’s Front Stage, Backstage: The Dramatic Structure of Labor Negotiations (MIT Press).

For me personally, then, Walton and McKersie’s work has been influential in significant ways that might not be readily apparent beyond my textbook. But more broadly speaking, the true testament to the enduring importance of A Behavioral Theory of Labor Negotiations is that its insights and the follow-up work it has spawned are still so useful 50 years later, not only for academics seeking to understand labor relations (or negotiations more generally), but also for practitioners who negotiate and manage relationships in diverse organizations.

Sunday, February 8, 2015

Say What? Employee Empowerment Zones?

Illinois’ new Republican governor, Bruce Rauner, gave his first State of the State address this week, which included the following:

We must also empower voters to decide for themselves whether they want their communities to become employee empowerment zones. These zones will give employees the freedom to choose whether or not they want to join a union. Local communities – local voters – deserve this option so that they can compete with other states and other nations for new businesses and new investment. Employee empowerment zones will increase jobs for residents, increase economic activity for local businesses and generate more tax dollars for local governments.

Say what? Employee Empowerment Zones? For starters, call these what they are: local right-to-work zones. "Right-to-work" is a dubious term in its own right, but it's been widely-used for decades. Right-to-work is the belief that individuals should be able to work without having to join a labor union or pay union dues. The issue of right-to-work is an intense point of conflict between supporters and opponents of labor unions and collective bargaining. U.S. labor law allows private sector unions to negotiate contracts which contain union shop or agency shop clauses requiring all employees to pay union dues as a condition of continued employment. Right-to-work advocates label this compulsory unionism and argue that it violates individual freedoms by depriving workers of their right-to-work, that is, the right to freely choose whether or not to become a union member and pay union dues.

Unions argue that right-to-work is a misleading term used to weaken unions. Since labor law requires unions to represent all employees – members and nonmembers alike, unions argue that it is unfair to allow free-riders to benefit from union representation without sharing the costs by paying dues. Majority rule is also a basic feature of democratic institutions and any dues paying requirements are subject to majority approval.

While federal labor law does not forbid union shop and agency shop clauses, it allows individual states to pass laws prohibiting these clauses (section 14(b) of the Taft-Hartley Act). Such laws are called right-to-work laws and a state that has passed such a law is called a right-to-work state. Almost half of the states are now right-to-work states, primarily in the southern, Great Plains, and Rocky Mountains states (Michigan being a curious exception).

Also, while federal law does not prohibit union shop clauses, the U.S. Supreme Court has determined that paying dues is sufficient – no one can be forced to become a union member even in states without right-to-work laws. The Supreme Court has further ruled that nonmembers can choose to only pay agency fees: money that funds collective bargaining and other representational activities like processing grievances. Nonmembers have the right to object to being charged for activities such as lobbying or helping political candidates. Under federal law, unions have a legal “duty of fair representation” so they cannot discriminate against nonmembers when negotiating contracts and processing grievances, but nonmembers can be excluded from internal union matters such as contract ratification votes and union officer elections.

Right-to-work states often have lower wage levels, on average, than non-right-to-work states. Depending on the time period used as the comparison, they also have higher employment growth rates, or not. Whether these differences are caused by the right-to-work laws or instead reflect other factors such as negative attitudes towards unions is a controversial question with no well-accepted answer. So to claim definitively that right-to-work zones "will increase jobs for residents, increase economic activity for local businesses and generate more tax dollars for local governments" is a stretch.

And even if this claim is correct, what kind of jobs will be created? Stagnant middle class incomes, rising inequality, unpredictable work schedules, lack of basic benefits, and the like have been well-documented. How does further weakening labor market institutions that champion workers empower employees? Finally, it should be pointed out that union shop and agency shop clauses are not imposed by some centralized government or union authority. Rather, they are negotiated into collective bargaining agreements by those "on the ground" doing the bargaining. So wherever they exist, the employer and a majority of the employees agree to their inclusion in some earlier bargaining round. That's empowerment. And if  the current employees want to remove the clause from their contract, they can vote on it via a majority-wins NLRB withdrawal of union shop authority election. That's empowerment.

Three years ago I concluded a blog post by saying that "The bottom line is that debates over the cleverly-named "right-to-work" issue simply serve to further divide us in these already divisive times....Our energy and our resources would be better spent directly tackling the serious issues that we face as a society." Making up silly new names, like "employee empowerment zones," is not the progress that I had hoped to see.

Wednesday, January 14, 2015

What Theory Can and Cannot Do in (HR) Practice

the·o·ry \ˈthir-ē\ : an idea or set of ideas that is intended to explain facts or events (Merriam-Webster)

I’m gearing up to again teach my course on Personnel Economics to graduate and advanced undergraduate students interested in human resources (HR). Each time I teach this course, I’m struck by the difficulty that students have in understanding the role of theory in HR practice. I’m not talking about understanding the actual theories—that’s a story for another day; rather, I’m talking about what theory can and cannot do.

For starters, theory doesn’t  make something true. Standard theory in personnel economics assumes that work is lousy (but endured to earn income), workers are self-interested and rational, and money is an important motivator. I then cringe when someone says that personnel economics teaches us that work IS lousy, workers ARE self-interested and rational, and money IS an important motivator. It doesn’t. Someone who uses or favors a particular theoretical paradigm certainly hopes that the underlying assumptions are realistic to a certain degree, but assuming something doesn't make it true.

Similarly, it’s important not to confuse theoretical assumptions with what someone thinks should be the correct behavior (“normative prescriptions” in academic jargon). To assume that organizations are focused on profit maximization, as is common in economic theorizing, does not mean that organizations should be focused on profit maximization. To assume that workers are motivated by money does not mean that workers should be motivated by money. Unfortunately, it’s easy for a bedrock assumption to become so ingrained that people start to think of it as the desired behavior. Maybe it should be, or maybe not, but simply because it’s a theoretical assumption or a theoretical emphasis doesn’t automatically make it a desirable normative prescription.

Moreover, theory doesn’t cause things to happen in practice. The standard assumptions in personnel economics yield a number of theoretical predictions. For example, standard economic theorizing rooted in these assumptions predicts that a worker who is paid a fixed salary will shirk (that is, will exert the least amount of effort required to keep their job). Workers in teams are predicted to free ride. Workers in tournaments or contests are predicted to do things that increase their chance of winning but that don’t create value for their employer. I then cringe when someone says that personnel economics causes workers to shirk or that tournament theory caused someone to undermine a co-worker. Theory doesn’t make anyone do anything. A certain behavior might be consistent with a theory, but the theory didn't create this behavior.

So what can theory in HR do? Theory should help us think about, and therefore understand, behavior in the workplace. Personnel economics theorizing says that IF work is lousy, IF workers are self-interested and rational, and IF money is an important motivator, then workers are predicted to do certain things depending on the context (for example, shirk if the context is a fixed wage compensation system). So to the extent that these assumptions accurately capture a segment of an organization’s workforce, this theorizing can help predict behavior and therefore inform the design of HR policies (for example, using pay-for-performance instead of a fixed wage). But maybe these assumptions do not accurately characterize some workers. Then a different set of assumptions and a different theory is needed for understanding behavior and designing policies.

For this reason, it’s important to be very clear about the underlying assumptions in all of the different theoretical paradigms that are used to guide HR practice, whether rooted in economics, psychology, sociology, or other disciplines. Jobs are diverse and people are complicated. No one theory accurately captures all workers or all jobs. And theorizing something does not make it true. But thinking carefully about assumptions and theoretical predictions can provide deep insights, help make sense of observed behavior and patterns in data sets (big or otherwise; see my earlier posting "Moving Past the "Gut Feeling" Rhetoric in HR Analytics"), and when used appropriately, foster the creation of better HR policies and the construction of desirable normative prescriptions. So theory can be powerful, when used correctly.

As one of my former students said, "Personnel economics is not a rule book, it is a tool kit." The same is true for all theoretical frameworks in HR. HR professionals should understand what theory can, and cannot, do.