McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved.

11

Efficiency, Equity, and Voice

1-2

Foundations

• Labor relations is more than negotiating employment contracts– The labor relationship– Key models of the employment relationship– Determinants of labor relations outcomes

1-3

Foundations

• Topics by Chapter1. Contemporary Labor Relations Objectives,

Practices, and Challenges

2. Labor Unions: Good or Bad?

3. Labor Relations Outcomes: Individuals and the Environment

1-4

Learning Objectives

• By the end of this chapter…– Understand why studying labor relations is

important, and how it can be fascinating– Define the objectives of the employment

relationship (efficiency, equity, and voice) and of labor relations (striking a balance)

– Describe the basic features of the contemporary U.S. labor relations system exclusive representation, collective bargaining, detailed contracts, and private sector union density decline

1-5

Learning Objectives

– Discuss the current pressures on the U.S. labor relations system• On the corporate side, workplace flexibility

and employment involvement • On the labor side, low union density, a

representation gap, and difficulties organizing new workers

– Determine that there are many different options for structuring labor relations systems, as illustrated by examples from around the world

1-6

Objectives of Employment Relationships

• What do you want to get out of working?– Money?– Health insurance?– A feeling of accomplishment?– A sense of self-worth?– Something else?

1-7

Objectives of Employment Relationships

• How do you want to be treated?– Like a machine, or fairly and with respect?– Do you want to be told what to do?– Would you rather have input into the job?

• What do employers want?– High-quality work– Productivity– Team players

1-8

Objectives of Employment Relationships

• Efficiency– Productive use of scarce resources for economic

prosperity

• Equity– The provision of fair labor standards for both

material outcomes and personal treatment

• Voice– The ability of employees to have meaningful

input into workplace decisions

1-9

Objectives of Employment Relationships

• Efficiency, equity, and voice often clash– Equitable treatment might reduce flexibility

and efficiency– Employee voice might make decision making

more cumbersome and therefore less efficient– Unions centralize power to better achieve equity,

but become less responsive to individuals

• Labor relations must strike a balance between these conflicting goals

1-10

Regulation of Employment Relationships

• The U.S. not only tolerates collective bargaining, but encourages it– Everyone has the right to form and join trade

unions for the protection of his/her interests

• Bargaining Objectives– Negotiate the terms and conditions of employment– Mutual aid– Protection

1-11

The Role of Labor Unions

• Although stereotyped with inflated wages and restrictive work rules, unions typically– Secure better wages to provide decent living

standards for their members– Negotiate extensive work rules to protect

members against unfair treatment by management– Provide voice and representation to individual

workers

1-12

Plan of the Book

• Part 1– Presents the major themes of labor relations

• Part 2– Focuses on New Deal industrial relations system– History of the system and labor law– Strategies, structures, and conflicting rights– How unions are formed– How contracts are negotiated– Resolution of bargaining disputes– How grievances are solved

1-13

Plan of the Book

• Part 3– Focuses on issues straining the New Deal

industrial relations system in the 21st century• Employee involvement• Workplace flexibility• Globalization

• Part 4– The current state of employment affairs and

future options for reform

1-14

Major Components of the Book

1-15

Efficiency

• Efficiency is important to the employment relationship because of its effect on– Competitiveness– Economic development– Economic prosperity

• Efficiency equals Pareto optimality– No one can be made better off without making

someone else worse off

1-16

Efficiency

• The efficiency of self-interested individuals exchanging in free markets is fostered by – Well-defined property-rights– The freedom to enter into contracts– Protections against property damage

• These economic and legal theories are mutually reinforcing

1-17

Market Failure

• An inefficient outcome is a market failure– Trying to correct this failure through government

regulation or subsidies can make things worse

• Labor market “perfect competition”– Employers and employees are economic

and legal equals– Real-world market imperfections can favor

the employer

1-18

Labor Market Failure

• The realities of labor markets– Employees have incomplete information about

dismissal policies, accident risks, or pensions– Individuals without financial resources aren’t

the legal equal of corporations

• Employees are made less mobile by – Labor markets– Unvested pension benefits– Health insurance– Lack of savings or other resources

1-19

Labor Market Failure

• Superior employer bargaining power can produce – Low wages and long hours– Dangerous conditions– Arbitrary or abusive supervisory practices

• These conditions undermine– Trust – Cooperation– Motivation

1-20

Labor Market Failure

• Industrial Parasitism– A company profits from paying low wages

with no health insurance– Society pays for food and medical care for

the workers’ families

1-21

Efficiency in Employment Relationships

1-22

Equity Standards

• The push for equitable employment focuses largely on minimum standards– Minimum wages– Maximum hours– Minimum safety standards– Protections against arbitrary discharge

and favoritism– Restrictions on child labor

1-23

Equity

• Equity theory defines fairness in terms of inputs and outputs or effort and reward– A fair day’s pay for a fair day’s work– Distributive justice

• Other equity factors– Political equality– Social stability– Workplace fairness

1-24

Equity Factors

• Workplace equity can also be based on– Political theories of liberty and democracy– Moral views of human dignity– Humanistic psychology theories of human nature– Religious beliefs about the sanctity of human life

1-25

Sources of Support for Equity

• Democratic Ideals– Discriminatory treatment and a lack of minimum

standards is counter to the ideals of democracy– Citizens should be free and equal– Citizens must have a basic level of material

well-bring to function as political equals– Equal protection– Due process

1-26

Sources of Support for Equity

• Principles of Human Dignity– Paying unfair wages violates Kant’s philosophy

that actions must treat humanity as an end, not as a means

– According to Maslow, the workplace should provide the basics needed for self-development and actualization

1-27

Sources of Support for Equity

• Many religions emphasize sanctity of human life and respect for human dignity– Standards for wages and hours of work– Sick and disability pay– Justice, fairness, and equitable

distribution of wealth– Lack of discrimination or favoritism– Restrictions on child labor

1-28

Voice

• Having meaningful input into decisions– Workers should be able to express unpopular

views without fear of arbitrary treatment– Disagreements should be resolved through fair

dispute resolution procedures– Workers should be able to participate in decision

making, either directly or through representatives

1-29

Voice

• Key Distinctions– Management establishes/controls the collective

voice mechanism for nonunion employees– Unions that represent individual employees

are largely free of managerial authority

• Employee voice is an important part of – Improving competitiveness and quality via

employee involvement programs– Creating high-performance work systems

1-30

Voice

• Benefits of Employee Voice– Formal mechanism for employees to contribute to

productivity-improving ideas– Fulfills need for personal growth and development– Enhances performance through increased job

satisfaction and motivation– Improves two-way communication between

employees and management– Increases cooperation and reduces turnover by

facilitating trust and sense of fairness

1-31

Voice

• Industrial Democracy– Premised on belief that workers are entitled

to democratic participation in the workplace

• Theory versus Reality– The workplace as a school or training ground

for democracy– Work is often undemocratic

1-32

Voice

• Stakeholder Theory– All stakeholders, not just shareholders or owners,

deserve the right to participate in decision making– Not arguing in favor of labor unions

• Voice Perspectives– Moral– Religious– Psychological– Political– Economic

1-33

Isn’t Efficiency Enough?

• Efficiency, measured by profits, is often the only consideration– Mainstream media has elevated the rights of

consumers over the rights of workers– General belief is “what’s good for a company

is good for the world”– Businesses are not designed to be democratic

training grounds– A company has no obligation to provide

personal and moral development

1-34

Social and Human Boundaries

• Equity and voice are social boundaries on efficiency– Often quite weak, as with employment-at-will– Lack of just cause discharge protections

• In agrarian and crafts-based societies, quality of life is linked to property– Modern workers are dependant on jobs, not

property

1-35

Social and Human Boundaries

• Jobs and the Workplace– The most important site of cooperative

interactivity and sociability with adults, outside of the family

– Economic inequality exacerbates social inequalities in • Schooling• Health• Housing• Political participation

1-36

Social and Human Boundaries

• Most workers want more influence over decisions that affect their job or work life– They would enjoy their jobs more– Their businesses would be more competitive

• Managers like to deal with workers 1-on-1– Half of workers prefer dealing with management

as a group

• The Internet and email help workers exercise their voice

1-37

Unions and Voice

• Unions underscore voice in union literature and campaigns– Unions overseas also emphasize voice

• Social commentators, labor leaders, and workers want– Fairly distributed outcomes (equity)– Participation in decision making (voice)– Profitable and effective production of goods and

services (efficiency)

1-38

Contemporary U.S. Labor Relations

• Why might society and workers support unionization?– Unions help strike a balance between efficiency,

equity, and voice

• U.S. labor law assumes that corporations have greater power than individual workers– This can result in substandard wages and benefits,

discriminatory treatment, autocratic supervision, long hours, dangerous working conditions

1-39

Contemporary U.S. Labor Relations

• U.S. labor law protects union activity in order to promote– Efficiency: increasing the purchasing power of

workers and reducing disruptive strike activity– Equity: achieving fair standards and protections

against exploitation– Voice: providing democracy in the workplace

1-40

Contemporary U.S. Labor Relations

• If a majority of workers want union representation– The employer must bargain with the union over

wages, hours, other terms/conditions– Workers cannot be fired or discriminated against

for their union support– Employers cannot threaten employees or take

action to prevent unionization

1-41

Collective Bargaining

• Representatives of the employer and employees negotiate employment terms and conditions– Compensation (economic items)– Personnel policies/procedures (language issues)– Employee and employer rights and responsibilities– Union rights and responsibilities– Dispute resolution and ongoing decision making

1-42

Collective Bargaining

• The crucial feature of collective bargaining– Management’s authority to unilaterally establish

the terms and conditions of employment is replaced by bilateral negotiations

– Workers have a collective voice

• The result of bargaining is a contract– One page in 1937– Hundreds of pages and multiple volumes today

1-43

Collective Bargaining

• Pressures for competitiveness and quality add pressure to collective bargaining– The need for flexibility (efficiency) clashes with

lengthy contracts with detailed work rules (equity)– The need for cooperation and employee

involvement clashes with the adversarial bargaining process

– The need for flexibility and involvement is not well served by long-term contracts

1-44

Pressure for Reform

• Management’s Perspective– Adversarial negotiations do not promote trust

and cooperation– Need to supplement high-level, periodic

negotiations with ongoing low-level communication and problem-solving mechanism

– Lengthy, detailed contracts inhibit flexibility and involvement

– Labor laws are outdated

1-45

Pressure for Reform

• Labor’s Perspective– Labor law is weak

• Penalties are minimal• Delays are frequent• Employers can use captive audience speeches

and permanent strike replacements• Secondary boycotts are prohibited

– Private sector union density is less than 10 percent– Workers in the global economy need protection

more than ever

1-46

Declining Union Membership

• Private sector U.S. union density has been declining for at least 50 years– Decline in traditionally unionized industries– Regional and demographic shifts– Increased numbers of women in the workforce– Increased education and skill levels

1-47

Declining Union Membership

1-48

Declining Union Membership

• Demand for union services has declined– Unions not doing a good job of responding

to the needs of a changing workforce– Employers have improved their responsiveness

to employees’ needs– Increased protective legislation has provided a

substitute for unions• Civil Rights Act and Equal Pay Act• Occupational Safety and Health Act• Family Medical Leave Act

1-49

Declining Union Membership

• Employer Resistance or Opposition– American managers are exceptionally hostile

toward unions– Strong tradition of using union avoidance tactics– Failure to invest in unionized plants– Actively fighting organization drives

1-50

Representation Gap

• Employees want more representation in the workplace than they have– One-third of nonunion workers would like

a union in their workplace– Union density is only 10 percent

• Is this related to private section employer opposition to unionization?– Also declining in Great Britain

1-51

Global Snapshot of Labor Relations

1-52

Continued Relevance of Labor Relations

• Labor relations continues to be a relevant and dynamic area of study and practice– All managers should understand labor relations – U.S. labor laws affect both union and non-union

workplaces– Reveals consequences of poorly managed

workforces– Explains historical, social, and political influences

on business– Helps everyone understand and resolve conflict– Reveals how work and business are embedded in

a complex environment

1-53

Continued Relevance of Labor Relations

• Labor relations involves diverse factors– Market forces– Managerial strategies– Forms of work organization– Constitutional and legal issues– History– Questions of human rights– Negotiation and conflict resolution strategies– Debates over globalization– Ethical challenges

1-54

Continued Relevance of Labor Relations

• Underlying labor relations issues– Goals of the employment relationship– How labor markets operate– Major environmental pressures– Union strategies– Public policy