June 5, 2009

June 5, 2009 | Commentary on Labor

Should Unions Prevent Your Next Raise?

Suggest imposing wage caps on a few hundred highly paid executives, and you get plenty of attention. Highlight the federal law that imposes wage caps on over 8 million mostly middle-class workers, and you'll probably be ignored.

Few Americans know it, but most union contracts dictate the maximum that union members can earn, no matter how hard they work.

Collective bargaining is exactly that -- collective bargaining. One contract covers all workers, and pay is based on union job classifications and seniority.

Unions boast that collective bargaining agreements force employers to raise wages. They never point out that they also cap the wages of workers trying to get ahead. No matter how hard employees work, the National Labor Relations Act prevents from paying individual workers more without negotiating with the union.

If they could, many unionized businesses would give merit raises above the union contract. After all, they want to encourage hard work. But the National Labor Relations Board strikes down as illegal "direct dealing" any individual raises employers attempt to pay. Employers must negotiate everything with the union, and unions don't want workers to earn more than the seniority-based raises they collectively bargain.

Why? Because then workers earning more than union rates would understand that their individual productivity -- not their union -- enabled them to get ahead. This would weaken unions' attraction to their members. Why pay union dues when a worker can, on his initiative, earn more than his union-negotiated rate?

To prevent such awkward questions, unions usually negotiate contracts that ignore workers' individual talents, skills, and productivity. Everyone earns the same group rate. Employers cannot pay more. The "seniority ceiling" holds back workers who want to get ahead.

The irony is that unions, created to protect workers' dignity, sometimes suppress it. Strict seniority pay prevents employers from rewarding individual contributions and initiative. To high-performing employees, union contracts feel like chains holding them back.

They also hold back the economy. Workers -- like everyone else -- respond to incentives. Economists unsurprisingly find that when workers are not rewarded for working harder, they don't. But when companies pay for performance, employees become more productive. Workers at companies that start using performance pay seize the opportunity to get ahead -- they become more productive and their earnings rise between 6 and 10 percent. That creates more wealth for the entire economy.

The National Labor Relations Act made some sense when it was written in the manufacturing economy the 1930s. Individual differences mean relatively little on the assembly line. But that economy no longer exists. Computers have automated most of the repetitive low-skill jobs of the past. The fastest growing jobs in today's economy are in executive, technical, sales, and professional-specialty occupations, where individual skills and abilities are essential.

No negotiator, no matter how skilled, could write one collective contract to fairly represent the unique contributions of all the employees of a modern company such as Google. No wonder only 9 percent of nonunion workers tell pollsters they want to unionize.

Congress should bring U.S. Labor law into the 21st century by allowing unionized companies to pay more to deserving workers. Sen. David Vitter (R., La.) and Rep. Tom McClintock (R., Calif.) have introduced legislation today that does just this. The Rewarding Achievement and Incentivizing Successful Employees (RAISE) Act allows unionized employers to pay individual employees more than a collective bargaining agreement calls for. It also specifies that employers cannot selectively hand out raises to anti-union employees. Workers can only get more for their hard work, not to undermine the union. Under the RAISE Act, union contracts would stop setting a ceiling on workers' wages.

This would transform collective bargaining from a zero-sum into a positive-sum game. Instead of fighting over how to divide the economic pie, employers and union members would have the incentives to work together to bake a larger one. The 6 percent to 10 percent raise workers could earn with performance pay would translate into an extra $2,600 to $4,300 a year for the typical union member. Productivity, profits, and pay would all increase.

That's the right kind of stimulus in this recession. That extra $4,000 a year to save and spend wouldn't come from the government redistributing wealth in the economy, but from workers creating more wealth themselves. Instead of bailing out the undeserving, Congress should stimulate the economy by letting employees advance through honest work.

Conservatives rightly oppose many destructive Labor proposals -- card-check, prevailing wage expansions, and "Buy American." But it isn't enough for conservatives to oppose bad policies. Conservatives must also present a positive vision for improving the lives of American workers. The RAISE Act is the type of common-sense reform that conservatives should champion. The seniority ceiling shouldn't hold anyone back. Every American should be able to earn a raise.

James Sherk is the Bradley Fellow in Labor Policy at The Heritage Foundation.

About the Author

James Sherk Research Fellow, Labor Economics
Center for Data Analysis

Related Issues: Labor

First Appeared on National Review Online