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Affluent Christian Investor | September 22, 2017

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Rubio And Rokita’s RAISE Act Restores A Little Bit Of Freedom In Labor Relations Law

Senator Marco Rubio. (Photo by Andrew Burton/Getty Images)

Senator Marco Rubio.
(Photo by Andrew Burton/Getty Images)

Should workers have the freedom to make their own contracts?

Long ago, they did. Back in 1905, the Supreme Court held in Lochner v. New York (which I discussed recently on Forbes) that the state could not dictate to bakery employees how many hours they were allowed to work in a week.

Unfortunately, freedom of contract is one of those rights that “progressives” and collectivists regard as unimportant – one that legislators and bureaucrats can whittle away as long as they claim that doing so somehow advances “the public good.” One of the many federal statutes that interfere with freedom of contract is the National Labor Relations Act.

Under that law, once the government has certified a union because it seems to have majority support, it becomes the exclusive representative of all the employees in the “bargaining unit.” No one is permitted to contract with a different union; nor are workers allowed to negotiate on their own if they think they can do better than the union’s collective agreement. While the language of the statute does not specifically prohibit individual agreements, in a 1944 case, J. I. Case Co. v. NLRB, the Supreme Court held that the NLRB had correctly ruled an employer in violation of the law by dealing individually with some workers and granting them pay increases.

By 1944, the Supreme Court was composed entirely of justices favorable to the New Deal’s socialistic philosophy and the resulting decision (written by Justice Jackson) made it plain that individual rights could be extinguished if politicians thought that doing so advanced the collective good. Justice Jackson wrote that even if deserved, increased individual compensation “is often earned at the cost of breaking down some other standard thought to be for the welfare of the group, and always creates suspicion of being paid at the long range expense of the group as a whole.”

Thus, it is the law that if a unionized employer wants to offer some workers a raise, it cannot do so unless the union agrees. Often, the union will not agree. When some workers get a raise while others don’t, that undermines “solidarity” and could cause support for the union to deteriorate. From the standpoint of union leadership, it’s better to stick with contracts that base raises on seniority rather than on individual achievement.

Laws usually have unforeseen consequences and this is no exception. The inability of unionized firms to properly compensate their most productive workers tends to cause them to leave for non-union firms that aren’t shackled by collective bargaining agreements. Economics professor Brigham Frandsen’s recent paper The Surprising Impacts of Unionization: Evidence from Matched Employer-Employee Data finds evidence for that common-sense conclusion.

After comparing firms where a union narrowly won certification with firms where it was rejected, he found that average wages in the unionized companies declined by two to four percent compared with those that remained non-union. His explanation for that result is that after unionization, some of the most productive employees leave for greener pastures. Because their replacements are less productive, average wages decline.

Whether and to what extent it may be true that unionization gets in the way of companies retaining their best workers, the law should be changed in any event. Individual workers and their employers should be free to come to their own compensation terms, no matter what impact it might have on union solidarity and the welfare of “the group as a whole.” It’s time for us to get rid of the barnacles of 1930s collectivism.

The ultimate solution is to repeal the National Labor Relations Act. As I have argued here before, the NLRA is a horrible piece of special interest legislation that tramples all over the rights of workers and employers in order to help unions organize and extract money. There’s no baby in this bath water to worry about.

Sadly, there is no immediate prospect of repealing the NLRA, but Senator Marco Rubio (R-FL) and Representative Todd Rokita (R-IN) have introduced a bill they call the Rewarding Achievement and Incentivizing Successful Employees Act – the RAISE Act. The bill amends the NLRA to allow employers to give individual workers pay increases without first pleading for union approval.

Regarding the bill, James Sherk and Mitchell Tu of the Heritage Foundation comment, “Economists have found that workers’ pay rises by an average of 6-10 percent after companies introduce performance-based pay. Employees work harder and earn more, and the company has higher profits.”

It would be fascinating to see what would happen if Congress were to pass the bill, forcing President Obama to decide whether to sign it and actually help stimulate the economy, or veto it to stay on the good side of Big Labor that puts so much money and manpower behind the Democratic Party.


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