The economic framework for collective bargaining

The model of collective bargaining that has dominated American industrial relations since the 1930s relies on the relative economic power of employers and unions to establish wages, hours, and other terms and conditions of employment for workers covered by specific collective bargaining agreements. While bargaining structures and processes are regulated by public policy through the National Labor Relations Act, as amended, the content of the employment contract beyond legislative minimums is determined by market factors and relative economic power. While the density of union labor in the United States has been declining in recent years, collective bargaining remains the primary method for determining working conditions for millions of American workers.

The feast and famine cycles of prosperity and shortages, most often linked to surpluses and scarcity of workers within demand skills, has contributed significantly over the years workers ability to barter over their labors. This makes the actual impact of collective bargaining on wages and benefits is difficult to predict for a variety of reasons. However, most estimates suggest that wages in the union-represented sector are between 10 and 30 percent higher than they would be in the absence of unions. The fluctuation of the gap over time is attributable to various economic factors that tend to effect short and long-term bargaining power.

In the American Industrial Relations System, union bargaining power tends to be greatest when two factors are present. One is the ability of the employer to meet the wage and benefit demands of the union. The second factor is the ability of the union to make the employer pay, to direct its economic resources toward higher wages and better benefits rather than for other purposes. If either of these factors is not present, union bargaining strategy is unlikely to produce substantial benefits. The critical abilities of the employer to pay and the union to make the employer pay will be influenced by a number of issues. Let’s look at some of them: