We are now in Lesson 2 and we'll continue to set the stage and talk about collective bargaining fundamentals and significance, and in this lesson we'll talk about the different approaches, the different disciplinary approaches taken to the study of collective bargaining and labor relations. We'll talk about an economic approach, we'll talk about an HR, human resource management approach, we'll talk about an industrial relations approach which is the one taken in this course, and we'll talk very briefly about the kind of a Marxist critical approach. We'll also be talking about the assumptions associated with the study of labor relations. What assumptions do different scholars, different practitioners make in the study of labor relations?
Unions and collective bargaining have been the source of ongoing debate about their costs and benefits. As we'll talk about throughout this lesson, there are proponents who argue for the benefits, both the societal and organizational and individual benefits associated with unions, and opponents who argue about the devastating or the negative effects that unions have for the stakeholder outcomes. So, we'll talk about different perspectives to unions.
And, then what I'd like to do is talk about some of the actual empirical evidence about the costs and benefits associated with unions. And, I'll argue that alongside the ideological debate about the costs and benefits associated with unions, there's also some empirical evidence that tells us a nuance, a complex story about the ways in which unions are beneficial, and the ways in which unions have associated costs. And, we'll talk about the different assumptions that stand at the heart of different perspectives about unions and collective bargaining and their associated costs and benefits.
Let's talk about different perspectives to unions and collective bargaining. And, I'll talk about four dominant, overarching perspectives to unions and collective bargaining.
First, let's talk about the neoclassical economics perspective. Neoclassical economists argue that unions are bad, that they have negative consequences for society and for organizations, and they argue this primarily because unions, they maintain, are monopolies. They artificially raise wages based on their collective power to above market value, forcing organizations and employers to pay wages that they otherwise would not have to pay and, in so doing, interfere with the free market. And, so their argument is unions are bad, and they should not exist. That's one perspective.
The second perspective is the human resource management perspective, which does not view unions positively, but not as negatively as a neoclassical economics perspective. Human resource management, the kind of ideal type human resource management perspective— this does not mean that all human resource managers view unions in this way, but the perspective advanced by the human resource management school is that unions are unnecessary, that in places where there's effective management where management is doing its job well, where management has good practices and policies and arrangements in place, unions are unproductive, and they add unnecessary conflict to the workplace. This approach can be represented by the saying that companies get the unions they deserve. Unions are unnecessary, but in places where management is not effective, where management is not operating to the best of its abilities, unions may, under some conditions, have a role, but where management is doing its job, unions are unnecessary.
The third perspective is the industrial relations perspective, and that's the perspective that our textbook, in some ways, takes, and that's the perspective that I'll advance throughout our course, and the industrial relations perspective argues that unions are important. They're not bad; they're not unnecessary; they're important both for organizations and for employees. The argument at the heart of the industrial relations perspective is that there is a fundamental imbalance of power between companies and employees, and unions serve to balance that gap between companies and employers, providing employees with some collective countervailing power to the employer's power. We'll talk more about the assumptions at the heart of this industrial relations perspective.<br />And, finally, there's the critical industrial relations perspective, the Marxist perspective, that like industrial relations scholars say, unions are important, but unlike industrial relations scholars, argue that they're not adequate, that they're inadequate, that they don't go far enough, that at the heart of the tensions between organizations and employees are systemic imbalances, systemic problems that can't be addressed fully by unions. Unions might get us part of the way, but not the whole way. And, so what's needed is a more general systemic change.
So, if we think about these four perspectives from left to right, in terms of ideological perspectives, a neoclassical economics approach is on the right, is on the far right, unions are bad; moving to the left, human resource management perspective, unions are unnecessary; industrial relations perspective argues that unions are important; and the critical industrial perspective on the far left argues that they're important and inadequate.
I want to be clear about this class. We are all free to view unions and collective bargaining in any way that we'd like, bad, unnecessary, important, important but inadequate. What I want you to get out of this course, and what I want you to get out of this discussion and the discussion we'll have in the live session, is an understanding of these different perspectives and the arguments at the heart of these different perspectives.
Okay, now that we've talked about these four different perspectives to labor relations or to unions and collective bargaining, let's put a little meat on these different perspectives, and let's talk about John Budd's figure, figure 2.5, and let's walk through this figure and how it illustrates the relationship between different perspectives and the policy prescriptions that they offer. So, we're going to talk about two different fundamental assumptions about labor, about employment, and then based on those two assumptions, we'll look at different schools of thought, those different schools of thought that we just outlined in the previous slide.
Let's take the first assumption, and that's the assumption on the left of the slide if you're looking at the slide, and that is, "Is labor a commodity?" In other words, are employees, is labor similar to any other commodity that you might use in the process of production, like widgets or any other materials. And, if the answer to this question, if you're a paradigmatic perspective, and your answer to this question is that labor is a commodity, that it's bought and sold like any other commodity, then you are likely represented by a, kind of, mainstream economics, neoclassical economics approach. And, the way in which you believe that the workplace should be governed is via competitive markets. Competitive markets, when it comes to the buying and selling of labor, or to the labor relationship, the employment relationship, is through competitive markets. So, that's if the answer to this question about labor as a commodity is yes.
If your answer to this question is no, that labor is not a commodity, then you open the door to the three other perspectives that we talked about on the previous slide, the human resource management perspective, the industrial relations perspective, and the critical industrial relations perspective. So, I'll come back to each one of those. But, let's talk about the second assumption that stands at the heart of how we think about labor relations and how the workplace should be governed, and that's the question, "Are employers and employees equals in this competitive labor market?" Is there an imbalance of power between the parties?
And, if the answer to this question is yes, that you think that they are equal, that you think that labor and management have equal power in this relationship, then it brings us back again to the mainstream economics perspective, to the neoclassical economics perspective. And, again, the way in which one who believes that the parties are equal and that labor is just a commodity like any other commodity, the way in which the workplace is governed given these responses to these assumptions is through competitive markets.
If your answer is no, then it brings us back to these three other perspectives. And, the way in which we distinguish between these three other perspectives, the HR, the industrial relations, and the critical industrial relations perspective is based on the third question, which is "Are there inherent conflicts of interest between employers and employees?" Do they have different interests at the heart of what they're looking to achieve out of the employment relationship? And, if your answer to that is no, if your answer to that question is no, that there aren't inherent conflicts of interest, then you're likely to take a unitarist approach, or a human resource management approach, which believes that management and employees don't have inherent tensions or conflicts of interest between them, and management and labor, and employees, can have a single interest or agenda that they're trying to obtain, hence, the term the unitarist approach.
But, if your answer is yes to this question of whether there's an inherent conflict of interest between employers and employees, then you likely fall under either the industrial relations or the critical industrial relations perspective. The industrial relations perspective is a pluralist perspective mainly that argues that management and employees have different interest that motivate them, that animate them in the workplace, and it's in part because of these different interests that are not completely aligned that unions are necessary. It's the human resource management's perspective stating that there aren't necessary conflicts of interest between the parties that leaves that perspective to believe that unions are unnecessary. And, the critical industrial relations perspective also argues that there is an inherent conflict of interest, or conflicts of interest, between the parties but that these go far deeper than the industrial relations perspective acknowledges. These are their root class differences and therefore need to be addressed through systemic changes.
Now, let's take each of these three perspectives from left to right. The human resource management perspective first, then industrial relations, then critical industrial relations. The human resource management perspective, we can ask one more question. "How important is voice in the employment relationship?" And, if voice is important, then we would likely see an HRM system with employee consultation and participation. We'll talk a little bit more about that through the semester. And, if we don't think voice is very important, then the workplace is governed through HR policies.
The industrial relations perspective, if we believe voice is important, then collective bargaining, which is the focus of our course, becomes crucial. And, if not, then the workplace should be governed through government regulations that try to balance these competing interests, these different interests that management and employees and labor have.
And, finally, on the critical industrial relations front, if voice is important, then this school advocates for worker control, worker ownership. And if not, it advocates for socialism. Now, to be clear, much of our class, much of our course is going to pit the human resource management perspective with the industrial relations perspective. We will be talking less about this critical industrial relations perspective, this Marxist perspective.
Okay, so given that the industrial relations perspective is going to guide us through this course, let's just highlight a couple of, a number of critical assumptions associated with the industrial relations paradigm. And just to be clear, as I said on the previous slide, we are all free to adopt, to accept, to agree with whichever one of the paradigms or none of the paradigms that I've talked about, but much of the way I'm going to talk about unions, collective bargaining, labor relations throughout this course is going to be based on these industrial relations assumptions. First, as noted on the previous slide, the industrial relations paradigm believes that labor is more than a commodity, that the skills, the unique skills that employees have that they bring to their organizations are valuable and cannot easily be replaced in the same way that you might replace a widget or a car or any other commodity, that skills are not easily marketable, and it's not always easy to change jobs in the way in which neoclassical economists might tell us; that's assumption number one that's important to keep in mind. Assumption number two that conflict is inherent in the workplace, that conflict between labor and management, between employees and management is an inherent reality in organizations, but despite the fact that conflict is inherent to the workplace, the relationship between labor and management is mixed motive, and this is an important term, mixed motive, it means that there are areas in which unions and management have divergent interests and yet there are areas around which labor and management have common interests, and the goal in bargaining, this is going to be central as we move towards negotiation and bargaining in this course is to figure out where there are divergent interests and where there are common interests and how could those common interests be enhanced. And finally, collective bargaining, labor relations is about multiple interests of employers, employees, unions, government, even though it's not on the slide, and the public.
In addition to the assumptions we just mentioned on the previous slide, some additional assumptions that stand at the heart of the study of collective bargaining, first is a conflict is inherent between labor and management; we talked about that on the previous slide, but it's not pathological, that it can be contained, it can be managed, it can be addressed, and that's going to be a big focus in this course when we talk about collective bargaining, the process by which management and labor come together to try and overcome their differences or the inherent conflict between them. The second point on this slide which connects the things I just said on the previous slide is that conflict comes from differing interests, economic and social between labor and management. This isn't a kind of personal conflict, this isn't conflict that's necessarily ideological, but it's based on differences in economic and social interests, and given that those interests are likely to persist, so will the conflict between labor and management, and this is something we can talk about in our live session. Finally, for this slide, industrial relation scholars and practitioners believe that society, the broader society, the broader public has a legitimate interest in labor management conflict in the workplace, that there's an interest in regulating or governing the way in which those disputes get settled; hence, our labor laws, our national labor laws, our state level labor laws for the public sector and hence the interest that society at large has in how conflict gets managed within the labor management relationship.
Okay, but what about some of the alternative perspectives to labor relations, collective bargaining and the unions? What about some of their assumptions? So let's start with the human resource management perspective. In contrast to the industrial relations perspective that I just noted, the human resource management perspective states that conflict results from poor human resource management policies, not from an inherent conflict between the parties, not from an inherent conflict that stems from economic and social factors, and is not a permanent feature of the employment relationship, right? These are assumptions that differ from the industrial relations perspective and we can talk about these during the live sessions, we can have a debate about these during the live session. In terms of the critical industrial relations perspective, this perspective, which as you'll recall from previous slides, is to the left politically from the industrial relations perspective, states that inherent conflict over monetary issues between labor and management and that the conflict is over unequal power relations broadly defined, not just unequal power relations between labor and management, but unequal power from a broader societal class perspective.
Back to the industrial relations paradigm, and back to this notion of common and conflicting interests between labor and management, or this mixed motive nature of the relationship between labor and management. There are issues where management and labor have a common goal; for example, both management and labor can benefit from increasing productivity. Higher productivity is better for management, of course, better, higher profits and can lead to a bigger total pie, which we'll talk about later, which means higher wages, but, and this is essential and this is where this paradigm departs from a human resource management paradigm, the unitarist paradigm, no single collective bargaining objective satisfies all parties. The parties have an inherent difference or divergence in the interests that they have, and successful bargaining is bargaining that occurs when the parties are trying to enhance their mutual gains, their ability to enhance common ground while also addressing areas where there are diverging interests, but not letting those areas dominate bargaining.
Given that labor and management, and I'm going to talk about government on this slide as well, all have different interests or some different interests, it's important to note what each party is interested in or what's the focus of each side as part of this relationship. So labor, relatively simple, labor is interested in higher wages or better wages, benefits, they're interested in safety conditions, which is something that they'll have in common with management, they're interested in both wage and employment security, in quality of work life, and in enhanced job satisfaction. Management, for their part, is interested in lowering labor costs or containing labor costs, which is why there's a divergence of interest with labor. They're interested in higher profits, of course, productivity, product quality where's there's an area of some common ground with labor, interested in reducing employee turnover for the most part, there's another area in which there's common ground with labor or employee interest, employee motivation also some common ground, employee performance, predictability and stability of labor relations, meaning industrial peace, and managerial flexibility, which often causes tension with labor. Government, the representative of the public, in terms of their interests are interested in industrial peace, union democracy, effect on broader, macroeconomic issues like inflation, employment and they are interested in working condition as an issue that is of importance to society at larger to government more broadly.
Finally, the last piece of this lesson that I want to talk about is what do unions actually do? Not what do different scholars and practitioners think about union, not what is the ideological position the different sides take to whether unions are good or bad, but what do we know from existing empirical evidence about the outcomes associated with unions and we know a lot about unions actually do. One of the reasons we know a lot is a book that came in 1994 by Freeman and Medoff, Richard Freeman and James Medoff, two economists from Harvard who did an exhaustive study, an extensive study about the outcomes, both for employers and for employees associated with unions and that book again came out in 1984 and set the stage for a long array or broad array of studies that followed looking at the effects that unions had on outcome and as I noted on one of the early slides in this lesson, this empirical evidence suggests that the effects that unions have on outcomes is mixed, is nuanced, is complex and is not as simple as we might otherwise think. For example, unions effects on job satisfaction is actually negative, meaning unionized employees compared to their nonunion counterparts in similar jobs, similar industries, tend to be less satisfied than their nonunion counterparts. That's interesting. It's kind of surprising and we can maybe speculate about that during the live session if you would like. Okay, so that's one interesting empirical piece of evidence that's held over many, many years and lots of studies looking into this paradox. It's a paradox because on the one hand, unionized employees make more money as I'm going to talk to you in a moment, have higher wages and better working conditions and yet are less satisfied and this is something you might want to think about and again, we can reflect on during the live session.
Turnover. What about turnover? Turnover of unionized employees is on average lower than turnover for nonunion employees in similar jobs, similar industries and so forth, about 15% lower. Even though employers often bemoan having to contend with unions, there's a clear benefit, substantiated by lots and lots of empirical evidence that unions are beneficial to this one outcome, namely turnover. They reduce turnover by about 15%.
What about productivity? Core important outcome for employers and for employees as we've talked about in one of the previous slides. The evidence on productivity despite what some might think that the effect on productivity would be negative, the actual effect is mixed. There is substantial evidence to suggest that unionized workplaces can be or are more productive than their nonunion counterparts. There are a number of studies in the healthcare domain that point to better outcomes in terms of quality and performance for unionized hospitals as compared to nonunion hospitals and there is evidence from a host of other industries that supports that effect as well. This, too, is something we might to expand on or talk about in the live session.
Finally, on this slide, profits. Unions raise wages, which I'll talk about on the next slide and so almost by definition, they eat into managerial or employer profits. They reduce profits.
Okay, let's continue with what unions do, and as I mentioned earlier on the previous slide a lot of the evidence we have, or some of the early evidence we have here is from the book that Richard Freeman and James Medoff wrote in 1984 called, "What do Unions do?" I don't think I mentioned the title of the book on the previous slide. And so what about wage levels? What do unions do for wage levels? Well, unions raise wages, that's one of the core functions of a union is to advocate on behalf of individual employees for higher wages, to use their power, their leverage to increase wages through the bargaining process, and wages tend to be 15 percent higher on average compared to nonunion wages, and we can talk more about that. What about wage distribution? How broad or narrow the wage distribution is, how equal or unequal the wage distribution is. Unions tend to compress, to decrease unequal wage distribution across the firm. Unions increase the likelihood of benefits being offered and the generosity, or how generous the levels of those benefits are. Unions increase the likelihood that disciplinary action will be taken for something that's called just cause, something we'll talk about in this class. It's nearly universal in all union contracts and almost nonexistent in all nonunion work places, and by just cause for discipline and discharge I mean that management cannot act without having a good reason or a supported reason when they engage in disciplinary action or even discharge. And finally, unions have been shown to assist employees in exercising the rights that they have, not just the collective bargaining rights, but statutory rights that they have, and unions increase the importance that's placed on seniority in the workplace, something that is in some ways controversial. There are advantages and disadvantages associated with seniority as a factor or a criteria for employment managerial decisions and we can expand upon that as well.
Two final features of what unions do or dominant features of what unions do in the collective bargaining relationship and the labor management relationship, unions ensure almost by definition that they'll be collective negotiations. As I will say a future presentation, one of the hallmarks of a collective bargaining relationship and what makes it different from the nonunion managerial relationship with employees is that management is required, is bound to bargain over certain terms and conditions in the workplace and so as will be noted on a future slide, the relationship in the nonunion setting is unilateral, management can do whatever it wants as long as it is within the boundaries of the law and that unilateral power or authority that management has is exchanged or is replaced with a bilateral process by which terms and working conditions like wages, benefits and such are decided in the workplace. This is fundamental difference. There is a really important difference between the union setting, which is the focus of this class and the nonunion setting and finally, something that also goes to the heart of the labor management relationship or to the union setting and contracts to the nonunion setting is the existence of grievance procedures by which employees and the union can grieve over activities that management has engaged in often are mostly disciplinary related matters. It is important to note two things. First, management can also use the grievance process if they believe that the union is in violation of the collective bargaining agreement and second, that it has become increasingly common for nonunion employment settings, for nonunion organizations to also have grievance procedures or conflict management procedures, although as noted on the second bullet for this feature, for this factor, few nonunion employment settings, few nonunion organizations have the same level of due process protection and representation that unionized grievance procedures have and so this is another important feature associated with the union system, is an internal institution mechanism by which employees and their unions get to adjudicate, get to deliberate around decisions made by management that are said to be, that are claimed to be in violation of the collective bargaining agreement.
