If the U.S. is going to make a big dent in income inequality and raise living standards for the middle class, it’s going to need a multipronged approach. Higher taxes and more spending on health care will help. Minimum-wage laws can raise pay for workers at the bottom without reducing employment much, but they only benefit a relatively small slice of the workforce. Something else is needed.
One big idea is to bring back unions and collective bargaining. Several teams of economists have examined the historical record and concluded that unions were important in reducing inequality. But although unions are still important in the public sector, in the private sector they’ve been almost wiped out.
Martin Manley, an entrepreneur who previously served as assistant secretary of the Labor Department under President Bill Clinton, thinks he has a solution to the decline. In a new book titled “A Better Bargain: Organizing Employers and Workers to Grow America’s Middle Class,” Manley says the U.S. union system was doomed from the start.
Before 1935, Manley notes, there were several types of collective bargaining in the U.S. But the one that ended up being enshrined in law was called enterprise bargaining. Under that law, workers at each workplace have to vote to unionize.
This system has a huge downside: competition. Suppose the workers at a McDonald’s want to form a union. The managers know that if the workers unionize, wages will go up and prices for hamburgers at that McDonald’s will rise. That will put the restaurant at a competitive disadvantage versus the non-unionized Burger King down the street.
In the private sector, [unions have] been almost wiped out.
If both the McDonald’s and the Burger King could coordinate and unionize together, competition would be no problem; wages would rise and the profits of the two giant corporations might fall while consumers paid higher prices. But because U.S. labor law forces each workplace to act independently on unionization, they can’t effectively coordinate.
Manley has a two-pronged solution. Both pieces would require a major rewrite of U.S. labor law. And both would involve a shift from enterprise-level bargaining to sectoral bargaining, with negotiations taking place in an entire industry.
The first piece is industry associations – groups of companies in the same industry and region that bargain collectively with their workers all at once. Though that might seem counterintuitive, it would remove the competitive threat that unions represent. Manley suggests that industry associations could also collaborate to create more efficient and flexible labor markets by providing worker training and sharing knowledge about workers across company lines.
Second, Manley would make unions nonexclusive. Under his preferred system, an industry association would bargain simultaneously with all the organizations that workers in that industry belonged to. The various worker groups would be awarded representation at the negotiating table proportional to their membership. Manley envisions various worker groups competing with each other for members by offering services other than wage bargaining.
These are good ideas. To really be effective, they’ll require one crucial element: that workers who don’t belong to any organization are all covered by the contracts that result from sector-level labor negotiations.
If combined with Manley’s idea for competing labor organizations and proportional representation in negotiations, sectoral bargaining would undo the decadeslong decline in private-sector collective bargaining almost overnight. It wouldn’t require unions to rebuild their membership; all it would need is a few worker organizations to pop up and start bargaining on behalf of everyone. At first, these early movers would get almost all the seats at the negotiating table, which would induce other workers to form other organizations to get a piece of the action.
Ultimately, a more cooperative relationship between workers and management would result in a more sustainable system for supporting the middle class.
Noah Smith is a Bloomberg Opinion columnist.