Public Employee Union and Public Labour - Essay Example

? PUBLIC EMPLOYEE UNION AND PUBLIC LABOUR Public Employee Union and Public Labour Introduction A public employee union is defined as an “organization which works for the benefits of employees that negotiate with the employers to protect the rights of workers (Huffmann, 2011).On the one hand, the public employee unions are supposed to benefit the workers. However, there are many debates regarding the benefits of the public employee unions based on their bargaining power, peculiarities of the public sector compared to the private sector, etc. Based on these arguments, the public employee unions will be beneficial only if the bargaining power of the union is strong. However, there are arguments favouring and opposing the need to preserve the public employee union strength. The debate remains unsettled. The problem needs to be treated based on the peculiarities of the public sector and the implications of preserving the bargaining power of the union in an organization. In this essay, the debate in this regard is discussed based on the existing Wisconsin debate. This essay is organized as follows. In section 2 the history of public employee union is discussed. In section 3,the ongoing debate in Wisconsin is discussed based on the debate between the Unions and the state, parties, media, President of USA etc. Section 4 concludes the essay. 2. History of Public Employee Unions The first public sector collective bargaining started in the years between 1955 and 1965 along with the civil rights movement. Both of these were based on the principle of the need for granting the rights and freedom of all citizens equally. There were many acts granting the rights of private sector workers like Wagner Act 1935 and Social Security Act while the public sector workers were not covered by these acts. This unequal treatment between both workers became more intense with the private sector workers achieving lifestyle of the middle class (Mc Cartin, 2011). This was intensely criticized by many including the special committee of the American Bar Association. The legislation for the public sector bargaining rights was first started in Wisconsin in 1959.Starting from this, many laws were passed here like the one in 1962, 1968 Meyers-Milias Brown Act in California, the one passed by Richard Nixon in 1969 etc. Consequently, there had been significant rise in the membership of public sector employee unions. However from 1970 onwards the public sector employee unions were seen to influence the political system of nations which resulted in the antiunion voices to a great extent like in Madison. According to the antiunion arguments by the Public Service Research Council in the 1970, the public sector employee unions will result in strikes that stop the works of many government institutions. Other argument includes possibility of unions controlling government. In spite of these arguments, practical experience showed no strikes that paralyzed government institutions and no control of the unions over the government. There are many arguments for and against preserving the bargaining power of workers. These include union strength as very important in protecting the rights of individual workers. The estimates show greater percentage of workers in public sector as unionized compared to the workers in private sector. Thus weakening of the union strength means weakening of union strength in the public sector. Weakening of the union strength results in weaker protection of non unionized workers for getting their rights (Halliday, 2011). The arguments against preserving the public sector bargaining rights include the huge disparity in the wages and compensation benefits of public and private sector workers. However, the recent estimates show the disparity only at the national level while at the state and local level the disparity is not very much significant(Freeman,1988).Moreover arguments also are based on the adverse effects on the finances of government. The estimates by the Centre for Budget and Policy Priorities, shows no significant difference between budget deficits in states which agree collective bargaining power and those which do not (Mc Cartin, 2011).Thus this shows the huge budget deficits as the result of varying effects of the economic crisis on different nations and the fiscal policy integrity. The other arguments are based on the constitutional freedom which prevents the forced membership in unions. The arguments blame the unions as mere instruments of political parties. Moreover, since the pension benefits of taxpayers are lesser than those of the public sector workers, the burden of funding them is again a problem. In addition to these, there are many legislative differences between the public and private sector works as well as differences in the incentives to work. The legislative differences include the complexity of legislations in the public sector compared to the private sector. For example, the private sector bargaining rights are governed by the 1935 National Labour Relations Act. At the same time in the case of public sector, no single standards are there which define union strength, bargaining power etc. Moreover different rules exist for different public sector union legislations in different states. For example some states allow strikes awhile others do not in this case. Moreover, in many states the bargaining power is influenced by the vested interests of the politicians (Walter, 2011). Management of an organization expects particular contributions from its employees for the successful performance of a company including high productivity, high performance and maintaining core values (Tsui et al, 1997). Hence to ensure high performance from the employees, performance based reward system has been regarded as a motivating factor in different organizations. Though this has worked well in the private sector, its appropriateness in public sector is debatable. On the one hand, it is argued that performance based reward system is a motivating factor for the public sector employees to work harder and they are expected to perform their best due to this motivating factor (Maguire and Wood, 1992; Donell, 1998 etc).On the other hand it is argued that though the performance related pay system may work well in the private sector, this may not be appropriate for public sector. This is because there are lot of differences between the public and private services. The complexity of the public services make it difficult to measure performance and many differences exist between the optimal incentives for those in public and private sector according to the second view point(Buchanan,1990;Wright,1995;Burgess and Rato,2003 etc). The debate remains unsettled. Based on the principal agent theory, the reward schemes are linear functions of performance. In the case of a perfectly observable output, the agent’s efforts can be perfectly shown by the value of the output. Hence pareto optimality in the effort level can be ensured by performance based pay in this case (Burgass and Rato, 2003).In the case of an output which is not perfectly observable, the agents’ efforts cannot be measured precisely by the principal. The noisier is the output, the risk aversion of agent increases and so is the marginal cost of effort. Thus based on this, it is argued that the performance measurement is very important in determining the incentive structures. If the performance is measured poorly, then it can lead to low powered incentive structures. In the case of public sector, the main problem is that the reward schemes are vulnerable to the manipulation of agents (Dixit, 2002).Even in the case of perfectly measurable output, the measurement of performance requires sophisticated management systems which is very expensive for a public sector organization(Burgass and Rato,2003). The incentive differences in the public and private sectors to negotiate also are very significant. In the case of private sector, the high demands by the unions can result in employer becoming bankrupt and employees losing the job. This can result in high incentives for both of them to negotiate for benefits (Neul, 2011).In the case of public sector, the unions lack this incentive since employers will not become bankrupt here. Moreover, the unions have a right in the governance process of organization since they are voters here (Neul, 2011). Agents have to perform multiple tasks in reality than doing only one task. In such cases, the optimal design of the incentive scheme is highly affected especially if the tasks are substitutes (Milgrom and Roberts, 1990). In case of substitutable tasks, higher incentives for one task can induce the agents to reduce their efforts on the other tasks which are substitutes. Moreover, if the tasks have multiple outcomes, the measurement of outcomes will be very subject to errors. It is more likely that higher incentive swill be given to more easily measurable outcome, which will be a poor indicator of the agents’ effort in this case (Marx and McDonald, 2001). In the case of most public sector organizations, the employees have to perform multiple tasks and hence are exposed to the problems mentioned above( Dixit,2002).In addition to these, among the higher and lower level public sector employees themselves, significant differences exist in the motivational patterns (Buelens and Van den Boeck, 2007; Festre and Garrouste, 2008). The higher level public sector employees are motivated mainly by higher commitment and higher satisfaction and are more or less similar to the private sector employees while this is not the case with the lower level employees. Hence the optimal design of reward system need not be the same for all levels of public sector employees. Another main measurement problem arises due to the fact that some types of occupations like police officers, tax inspectors, agency managers etc will be uniquely in the public sector .They will be decision makers and the organizations where they are working do not have a clearly defined single goal unlike their private sector counterparts (Prendergast, 2002). This makes the measurement of outcome difficult which affects the optimal design of the incentive scheme. In the case of most public sector employees they will have to work for multiple principals. In this case, the design of incentive structure will be very complex. This is because each principal will provide higher incentive for the dimensions of the output they are interested and lower incentives for those in which they are not interested. This can create negative externality to other principals who face lower efforts in those dimensions. Thus as the number of principals increase, the total marginal incentive coefficient for each outcome decreases (Holmstrom and Milgrom, 1988; Burgess and Rato, 2003). Moreover, in case of substitutable efforts for the agents for each principal, the agent will be willing to work for principal paying higher incentive which again increase the negative externality and reduce the aggregate marginal incentive (Burgess and Rato, 2003). An opposite situation of multiple principals is the multiple agents case where there will be one principal and many agents. In case of complementarities of production and the output is shared between team members, in this case, there can be problems of free riding. S the uncertainty in the output measurement increases and the size of the team becomes larger, the design of incentive structure becomes extremely difficult which demands the need for monitoring. Monitoring can increase the quantity of effort which becomes difficult in larger teams (Kandel and Lazear, 1992). In the private sector, to get powerful incentives, competition is a main incentive factor for each profit seeking firm. In the case of public sector services most are monopolies and hence there is lack of competition and hence weak incentive structure(Dixit,2002).Even in public sector services which have been privatized, or working under mixed arrangements, the evidence shows mixed results(Dixit,2002).Moreover the multiple principals working in public sector organizations may use political pressure to regulate the firms which in turn may increase costs , reducing competition and resulting in dropping out .Thus the activities which have been privatized look same as public services due to these pressures(Dixit,2002). The above theoretical arguments show that there are some special features that make public service different from the private sector firms .Hence, the performance measurement is difficult and subject to many errors in the public sector. Even among the public sector, there are differences among different levels of employees and different activities. Hence the performance based reward system can have different effects for each type of activities One sector which has been studied a lot regarding the impact of performance related pay in public sector is education. The impact of the performance related pay on the teachers in public sector is a much debatable topic. Ladd (1999) based on panel data examined the impact of performance based team reward system for school teachers in Dallas .The results appeared to be positive while varied significantly among different ethnic groups .Moreover, the positive effect was seen before the introduction of the reward scheme also. Hence the impact of the reward scheme was not clear in this study. Lavy(2002) examined the impact of performance based pay on Israel school teachers observed positive impact of the performance based pay on the performance without any negative spillovers. Beavis (2003) examined the impact of performance based reward system in the public schools in United States in different regions. The study obtained some evidence in favour of team based pay but no evidence in favour of individual pay. Most of the reward schemes were obtained to be implemented without careful design and planning which has affected the performance of the teachers. It is shown in this study that the merit based pay is short lived for the public school teachers without proper planning and design. The main reasons for these were shown as subjectivity in evaluation methods, reduced cooperation between teachers, poor relation between school management and staff and no place for market in education. Burgess and Metcalfe (1999) based on cross section data from private and public manufacturing services in the UK establishments obtained lesser impact of performance based reward system in the public service than in the private services. The study showed the issue of multiple tasks and multiple principles affecting the performance measurement in these sectors. However, in the recent times, the economic crisis made many antiunion voices stronger. Their argument in the present context is that collective bargaining by the public sector unions has resulted in big budget deficits for the state. The estimates by the Centre for Budget and Policy Priorities, shows no significant difference between budget deficits in states which agree collective bargaining power and those which do not (Mc Cartin, 2011).Thus this shows the huge budget deficits as the result of varying effects of the economic crisis on different nations and the fiscal policy integrity. 3. Current Debate In Wisconsin, legislation has been passed recently limiting the public sector workers’ bargaining power. This has created much debate and also political cold war between conservatives and the liberals which are anti union people (McCartin, 2011). This has created a dilemma to the policy makers since they have to find more justifiable options than complete destruction or domination of public sector unions so that the public sector can protect the bargaining power of workers without abusing their duty. The basis for the newly passed legislation is the changing role of the public sector unions funding for political campaigns rather than protecting the rights of workers. In addition, the employee employer relationship is now wrongly seen and hence the demands of unions are reported to be not properly checked. Hence the legislation was passed limiting the public sector workers’ bargaining power. Based on the new law, the non union workers are not demanded to pay fees for the union dues. Moreover, the deterioration in the union strength is supposed to affect the contributions to the campaigns of unions. This is reported to have affected positively the Democratic Party people (Mc Cartin, 2011). Many reports show many questions being unanswered by the new legislation. They include the way by which denying bargaining power of some workers improving others’ welfare, denying the rights of some employees creating private sector jobs. Moreover, the question of how to keep manufacturing jobs in USA through the denial of rights to prison guards, the pension reduction of government employees creating retirement security to private sector workers and the way by which the reduction of public sector rights result in middle class weakening etc also remain unanswered according to reports. However, in the recent times, the economic crisis made many antiunion voices stronger. Their argument in the present context is that collective bargaining by the public sector unions has resulted in big budget deficits for the state. The estimates by the Centre for Budget and Policy Priorities, shows no significant difference between budget deficits in states which agree collective bargaining power and those which do not (Mc Cartin, 2011).Thus this shows the huge budget deficits as the result of varying effects of the economic crisis on different nations and the fiscal policy integrity. The incentive differences in the public and private sectors to negotiate also are very significant. In the case of private sector, the high demands by the unions can result in employer becoming bankrupt and employees losing the job. This can result in high incentives for both of them to negotiate for benefits (Neul, 2011).In the case of public sector, the unions lack this incentive since employers will not become bankrupt here. Moreover, the unions have a right in the governance process of organization since they are voters here (Neul, 2011). Newspapers report changes in five common practices for teachers to improve the system(Rotherham,2011).These include the changes in restrictions on valuation, last in first out, forced transfers and bumping, tenure and due process rules, and inflexible salary schedules. In the first case, the restrictions include those on teachers who can evaluate the quantity for evaluation and the prior notice to be given before evaluation to the teacher etc. At present however this practice is reported as both formal and informal .This practice is demanded to be changed as shown by newspaper reports. In many public sector schools, those who are more experienced are given preferences than those who are more effective. Hence seniority is given more preference than the quality of the teachers. This can lead to deterioration in the quality of teaching since in worst situations, new teachers who are more efficient are asked to go out than old teachers who are less efficient. In the case of transfer, seniority is given preference. Hence veterans force the new teachers to be transferred to other schools. This is reported to have many new teachers leaving the teaching job. This practice is also reported to be changed according to many studies. Many low performing teachers who are not present for a long time in their job are reported to have obtained back their jobs by due technical process. Many objections are raised against this in many states since the rules are reported to be out of hand there. The salary schedules for public sector teachers are reported to be non satisfactory since it is based on seniority than on additional degrees or qualifications. This is criticized since this will result in an incentive loss for good teachers. 4. Conclusion In this essay, the arguments for and against the public sector employee union bargaining power are discussed. These include union strength as very important in protecting the rights of individual workers. The estimates show greater percentage of workers in public sector as unionized compared to the workers in private sector. Thus weakening of the union strength means weakening of union strength in the public sector. The legislation for the public sector bargaining rights was first started in Wisconsin in 1959.Starting from this, many laws were passed here like the one in 1962, 1968 Meyers-Milias Brown Act in California, the one passed by Richard Nixon in 1969 etc. Consequently, there had been significant rise in the membership of public sector employee unions. However from 1970 onwards the public sector employee unions were seen to influence the political system of nations which resulted in the antiunion voices to a great extent like in Madison. According to the antiunion arguments by the Public Service Research Council in the 1970, the public sector employee unions will result in strikes that stop the works of many government institutions. Other argument includes possibility of unions controlling government. In spite of these arguments, practical experience showed no strikes that paralyzed government institutions and no control of the unions over the government. The theoretical arguments show the public sector having some special feature s that makes them different from private sector. Hence the performance measurement here will be more difficult than in private sector. Moreover, the performance evaluation is more subjective and is vulnerable to manipulation. There will be multiple principals for same agents and multiple agents for each principal which make the performance measurement complicated. This can also create negative externalities .The results however vary from sector to sector. Reward schemes for team based rather than individual performance appears to work well in public sector services. However, in this case, free riding may dominate the outcome. This demands the need for monitoring which wo9rks well without any negative externalities as shown by empirical studies. However, for large teams monitoring need not work well. Overall, it can be concluded that the performance based reward system needs to be designed with proper planning, careful design and implementation. The arguments against preserving the public sector bargaining rights include the huge disparity in the wages and compensation benefits of public and private sector workers. However, the recent estimates show the disparity only at the national level while at the state and local level the disparity is not very much significant. The other arguments are based on the constitutional freedom which prevents the forced membership in unions. The arguments blame the unions as mere instruments of political parties. Moreover, since the pension benefits of taxpayers are lesser than those of the public sector workers, the burden of funding them is again a problem. In addition to these, there are many legislative differences between the public and private sector works as well as differences in the incentives to work. The legislative differences include the complexity of legislations in the public sector compared to the private sector. For example, the private sector bargaining rights are governed by the 1935 National Labour Relations Act. At the same time in the case of public sector, no single standards are there which define union strength, bargaining power etc. Moreover different rules exist for different public sector union legislations in different states. For example some states allow strikes awhile others do not in this case. Moreover, in many states the bargaining power is influenced by the vested interests of the politicians. The Wisconsin debate has created a dilemma to the policy makers since they have to find more justifiable options than complete destruction or domination of public sector unions so that the public sector can protect the bargaining power of workers without abusing their duty. References Asch, B(1990). “Do incentives matter? The case of Navy recruiters” Industrial and Labor Relations Review, 43, pp.89-107. Beavis OH(2003): “Performance-Based Rewards for Teachers: A Literature Review “,Paper prepared at the 3rd workshop of Participating Countries on OECD’s Activity Attracting, Developing and Retaining Effective Teachers ,4-5 June 2003, Athens, Greece. Buchanan, J. (1990), ‘Issues paper on the use of Performance-based pay in the Commonwealth public sector’, Job Evaluation & Performance Pay in the Public Sector. Draft Papers from the Seminar held at the University of New South Wales on April 6, 1990. Public Sector Research Centre, University of New South Wales. 57-88. Buelens, M. and Van den Broeck, H. (2007). “An Analysis of Differences in Work Motivation between Public and Private Sector Organizations”, Public Administration Review, 65-74. Burgess, S., Metcalfe, P(1999). “The use of incentive schemes in the Public and Private sectors: Evidence from British Establishments”, CMPO Working Paper 99/015. Burgess,S and M Rato(2003): “The Role of Incentives in the Public Sector: Issues and Evidence”, Working Paper No03/171, CMPO Working Paper Series, Leverhulme Centre for Market and Public Organisation, Bristol: University of Bristol. Dixit, A (2002). “Incentives and organisations in the public sector: an interpretative review” Journal of Human Resources, 37(4), pp.696-727. Donell MO (1998): “Creating a Performance Culture? Performance-based Pay in the Australian Public Service”, Australian Journal of Public Administration, Volume 57, Issue 3, pages 28-40. Encinosa III, W. , Gaynor, M. , Rebitzer, J(1997). “The sociology of groups and the economics of incentives”, NBER Working Paper 5953. Freeman, Richard B. (1988). “Contraction and Expansion: The Divergence of Private Sector and Public Sector Unionism in the United States”. The Journal of Economic Perspectives 2: 63-88. Halliday, Keith( 2011). “Public sector benefits: The new battleground”. Yukon News (Yukon), March 2, 2011, sec INSIGHT; Yukonomist Huffmann A (2011): “The Wisconsin Debate – The Basics and Implications of Public Sector Collective Bargaining Legislation”, http://www.gppreview.org/blog/2011/04/the-wisconsin-debate-the-basics-and-implications-of-public-sector-collective-bargaining-legislation/, Accessed April 18 2011. McCartin JA(2011): “Whats Really Going on in Wisonscin?”, http://www.tnr.com/article/politics/83829/wisconsin-public-employees-walker-negotiate, Accessed April 18 2011. Neul, C. (2011). Why public sector unions are different than private sector unions – part 2. Conservative Insights, March 2, 2011 Rotherham AJ(2011): “Beyond Unions: Five new rules for teachers”, http://www.time.com/time/nation/article/0,8599,2053465,00.html, Accessed April 18 2011. Walter, L. (2011). Expert: Assault on public sector workers’ collective bargaining rights impacts all workers. EHS Today. March 2, 2011. Read More