Federal law caps the wages of over 8 million middle class
workers. Union contracts set both a wage floor and a wage
ceiling--unionized employers may not give productive workers pay
raises outside the collectively bargained contract. Unions usually
insist on seniority-based pay and rarely allow employers to reward
hard-working individuals. No matter how hard most union members
work, they cannot earn higher wages than specified by their
The RAISE (Rewarding Achievement and Incentivizing
Successful Employees) Act, introduced by Senator David Vitter
(R-LA) and Representative Tom McClintock (R-CA), would lift the
"seniority ceiling" on workers' wages by allowing employers to pay
individual workers more--but not less--than the union contract
specifies. By offering workers the opportunity to earn higher
wages, the RAISE Act provides an incentive for increased
productivity. Should Congress pass the RAISE Act, the typical union
member could earn between $2,600 and $4,300 more a year. RAISE
restores union members' freedom to earn individual raises through
their own efforts--a freedom that federal labor law currently
denies. With many American families struggling to get ahead
financially in the recession, Congress should lift the seniority
ceiling on workers' wages.
Unions Impose Pay Caps
In December 2007, the economy slid into a deep recession and,
consequently, many American workers are having difficulty getting
ahead. Concerns that government-imposed pay caps on executives
at firms receiving TARP financing would harm the economy created
controversy, but these pay caps affected at most a few thousand
employees. Far more destructive is the legislative pay cap on
the earnings of over 8 million middle class workers.
Most Americans know that unions set a floor on workers' wages:
An employer may not pay individual union members less than the
amount bargained for by the union. Few Americans know that unions
also set a ceiling on workers' wages: Businesses effectively may
not pay individual workers more than the amount bargained for by
Unions are exclusive bargaining representatives. They represent
all the employees in a bargaining unit as a group and they
negotiate a collective contract that applies to all workers.
Employers may not pay hard-working individuals more than the
contract allows without first negotiating such an increase with the
Individual Work Unrewarded
As a practical matter, union officials cannot assess the
productivity of hundreds of workers at a company and negotiate
appropriate individual merit raises. Unions also want their members
to view the union--not their own hard work--as the source of any
wage gains. Therefore, individual performance reviews are the
exception in collective bargaining agreements (CBA). Most union
contracts base pay on seniority systems and job classifications
that apply to all workers.
As a result the individual efforts of union members go
unrewarded: The diligent union member putting in an honest
eight-hour day and the slacker putting in half that both receive
the same seniority-based raise. No matter how productive an
individual union member is or how hard he works he cannot earn more
than the amount specified by the CBA. Unions do not only raise
wages--they also impose a "seniority ceiling" on productive
Paying Higher Wages Legally Barred
It is against the law for employers to pay productive
individual workers more than provided for in the union contract
without bargaining over it with the union. The National Labor
Relations Board (NLRB) and the courts have repeatedly struck down
attempts to raise wages above union levels. A merit raise or a
bonus not negotiated with the union constitutes "direct
dealing." That violates sections 8(a)(1) and 8(a)(5) of the
National Labor Relations Act which requires employers to
collectively bargain with the union--not individual employees.
Thus the National Labor Relations Board upheld the decision of an
administrative law judge in James Heavy Equipment
Specialiststhat struck down bonuses paid to individual
[The owner] told the employees that he was instituting a bonus
plan but did not give details of how the plan would be applied.
Subsequently certain employees were paid bonuses. I find that the
Respondent's announcement of the bonus program was direct
dealing with the employees in violation of Section 8(a)(1) and
(5) of the Act.
In another case the NLRB struck down a $10,000 bonus paid to a
pair of workers who completed an urgent task on their own
time. Many other NLRB decisions have similarly
rejected individual pay increases.
Implementing at Impasse
The NLRA requires an employer to bargain with the relevant union
with respect to "wages, hours, and other terms and conditions of
employment"-- a requirement that covers situations
where an employer wants to provide diligent, deserving employees
with a merit-based raise.
Failure to negotiate with the union before unilaterally
changing the system of compensation specified by the
collective bargaining agreement is a clear, well-established
violation of the NLRA. During such negotiations, unions will
usually propose seniority systems that prohibit merit raises and
impose pay caps on hard workers.
Yet, because this duty to bargain does not "compel either
party to agree to a proposal or require the making of a
concession," such negotiations can reach an impasse.
Once bargaining reaches an impasse an employer may--with some
exceptions--unilaterally implement its final offer, thereby
changing the current conditions of employment.
The necessity to bargain to impasse before giving any individual
raises effectively prevents most employers from awarding
merit-based wage increases. Bargaining to impasse and imposing a
merit pay system is expensive and time consuming. Therefore, most
employers do not insist on implementing a merit pay system
during negotiations, particularly when such a proposal meets strong
Yet, even if an employer is determined to raise hard-working
employees' wages by implementing its last offer upon reaching
impasse, such employers must still contend with applicable
As the D.C. Circuit Court of Appeals ruled in McClatchy
Newspapers, Inc., an employer cannot "unilaterally
implement a final offer...if the implemented provision gives the
employer unlimited discretion, thereby affecting wages and
hours...." When implementing a merit-based wage
increase at impasse, employers must present a system with clear,
nondiscretionary standards for giving these raises.
In some industries this requirement presents no difficulties
because employers can easily observe workers' productivity and
provide the union with a detailed scale for merit-based wage
increases. However, many industries have necessarily
subjective measures of productivity. In hospitals, for example,
supervisors would have difficulty setting a standard means of
measuring how well individual nurses perceive patients' needs.
While a supervisor might recognize that a nurse deserves a raise,
providing a standard detailed enough to satisfy the
McClatchy doctrine may prove difficult in practice.
Even in instances where the employer is able to meet the
McClatchy standard, strong barriers to implementing a
merit-based wage increase at impasse persist: The cost of
litigation usually far exceeds any productivity gains. It is far
less expensive for an employer to forgo giving $4,000 annual
raises to motivate productive employees than to spend tens of
thousands of dollars on legal fees defending its merit system in
court. As a result, the law effectively prevents most unionized
employers from rewarding individual employees' hard work.
RAISE Act Lifts Wage Cap
Legislation before Congress eliminates this wage ceiling. The
RAISE Act amends the National Labor Relations Act so that employers
may pay individual workers more than specified by their respective
CBA. The act changes the law so that a union's status as the
workers' sole representative and the terms of a CBA do not prevent
employers from paying individual workers higher wages.
Union contracts would still set the minimum that workers would
earn, but workers could earn more through their own hard work.
Employers could not selectively give raises to anti-union workers
to undermine the union, however. Under the RAISE Act it would
remain illegal to discriminate against workers on the basis of
their union membership.
Workers Earn Raises Through
Many employers would pay higher wages to productive
individual employees if the law permitted it. Workers respond to
incentives: Unsurprisingly, employees who cannot earn more when
they work harder put in less effort than those who are rewarded for
high productivity. If employers were allowed to pay wages in excess
of the seniority ceiling, enterprising employees would take
the opportunity to get ahead and become more productive.
Productivity, profits, and pay would rise.
Lifting the seniority ceiling will help both workers and
the economy. Economic research shows that the average worker's
earnings rise by 6 to 10 percent when the pay is
performance-based. This is an average figure -- industrious
and enterprising workers earn larger raises while lazy
employees earn less. The average worker, however, takes advantage
of the opportunities presented by performance pay and works harder
Improving the Economy
Economic research also shows that union members work just as
hard to earn raises as nonunion workers when unions permit
performance-based pay. Some 8.6 million workers are covered
by collective bargaining agreements regulated by the National
Labor Relations Act. If Congress passed the RAISE Act to amend
the NLRA, many unionized employers would offer performance pay to
inspire hard work. The workers at these companies would earn
between $2,600 and $4,300 per year more than if Congress left the
union wage ceiling in place.
These higher earnings would provide the right type of stimulus
to get the economy moving. Workers would earn more money by
creating wealth through their own hard work, adding tens of
billions of dollars to the economy. Their greater
productivity would also improve business earnings. Instead of
fighting over how to redistribute wealth, the RAISE Act encourages
employers and employees to work together to create more wealth
and spark economic renewal.
This is the type of policy that President Obama called for when
criticizing the executive bonuses paid by AIG: "We believe in the
free market, we believe in capitalism, we believe in people getting
rich, but we believe in people getting rich based on performance
and what they add in terms of value and the products and services
that they create." The RAISE Act enables enterprising
workers to be rewarded for their own hard work.
Restoring the Freedom to Earn a
The RAISE Act would restore workers' right to contract for
higher wages. Labor law unilaterally cedes workers'
individual contractual bargaining rights to the
collective entity of the labor union. What is good for all
is presumed to be good for each individual. Congress intended this
provision to enable unions to collectively negotiate for higher
wages. However this presumption in the law trumps the individual
worker's unique qualities -- qualities that may make him more
valuable, and therefore more worthy of enhanced remuneration, than
others in the union collective.
The RAISE Act redresses this governmentally-sanctioned intrusion
into the individual worker's right to contract freely for the
highest possible compensation package that the market will
bear. The law should not hold hard-working employees back to the
same raise that slacking employees get. The American Dream means
working hard to get ahead, but federal labor forbids union members
from doing this. Congress should not prevent workers and employers
from contracting for higher wages.
Current law places a ceiling on the wages of over 8 million
middle class workers. Union contracts dictate not only the minimum,
but the maximum, that employers may pay their workers. The RAISE
Act lifts this seniority ceiling, thereby allowing employers to
encourage productivity and give workers the opportunity to prosper
through their own efforts. Many unionized companies would offer
merit pay raises if the RAISE Act passed. The earnings of the
typical union member at these companies would rise between
$2,600 and $4,300 per year. This restores workers' freedom to
contract for higher wages and these higher earnings would
create wealth and help get the economy moving again. Congress
should lift the pay cap on union members.
James Sherk is Bradley Fellow in Labor Policy
in the Center for Data Analysis and Ryan O'Donnell, a former
private-sector labor attorney, is a Web Editor at The Heritage
David Metcalf, Kirstine Hansen, and Andy
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American Standard Companies, Inc., 352
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SPE Utility Contractors, LLC., 352 NLRB
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KSM Indus., Inc., 336 N.L.R.B. 133, 135 (2001);
Anderson Enters., 329 N.L.R.B. 760 (1999); and
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NLRB v. Katz, 369 U.S. 736, 745
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Heritage Foundation calculations based on
data from Barry T. Hirsch and David A. Macpherson, "Union
Membership and Coverage Database from the Current Population
Survey," Unionstats.com, at http://www.unionstats.com (May 4, 2009).
The NLRA covers private sector employers outside the agricultural,
railroad, and airline industries. This figure includes both union
members and nonmembers covered by collective bargaining
Heritage Foundation calculations based on
data from the Department of Labor's Bureau of Labor Statistics on
the median earnings of private-sector workers covered by collective
bargaining agreements in 2008 and assuming a 6 to 10 percent rise
in median annual earnings due to merit raises.