Will Labor Fare Better Under State Labor Relations Law?

Richard B. Freeman

LERA Meetings

January 2006

Acknowledgements: I benefitted from discussions with Joel Rogers and on joint work that will appear as R. Freeman and J. Rogers, “The Promise of Progressive Federalism,”in Making the Politics of Poverty and Inequality, ed. Jacob Hacker, Suzanne Mettler, and Joseph Soss (New York, NY: Russell Sage Foundation, forthcoming)

This paper gives an affirmative answer to the title question. I argue that labor would fare better if the US reduced federal preemption of private sector labor relations law and devolved the legal regulation and enforcement of the right of association and collective bargaining to the states.

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The claim that labor would do better under state law than federal law runs counter to the standard story in US labor history and the traditional views of pro-labor scholars. US history warns against trusting states to protect labor rights. The southern states made slavery legal until the Civil War and used state laws to suppress blacks for over a century after the 14th Amendment. Given the chance to enact legislation harmful to unions by the Taft-Hartley Act, 21 states decided in favor of right to work legislation that forbids firms and unions from including union security clauses in their contracts. The archetypical villain in union organizing is a racist Southern sheriff who abuses his legal powers to put down the Norma Raes of the world. By contrast, labor histories often credit the National Labor Relations Act for the growth of unionism in the US in the late 1930s through the 1950s.[1] Congress’s enactment of Title IV of the Civil Rights Act of 1964 dealt a major blow to discrimination against blacks, particularly in southern states that would never have passed anti-discriminatory legislation on their own. From the 1960s through 2000, Congress enacted a host of other labor bills -- protecting different groups against discrimination, regulating occupational health and safety, insuring employment retirement plans, etc, so that as of 2005, the Department of Labor administered and enforced more than 180 federal laws covering 125 million workers.[2]

In the area of labor relations law, on which this paper focuses, courts have held that the federal legislation preempts state activity. States are free to legislate wages above the federal minimum and enact and enforce employment law, which covers individuals rather than groups, but are precluded from taking independent action on private sector labor relations issues. Much of the impetus for federal preemption came from liberal Supreme Court justices, influenced by pro-labor legal scholars such as Archibald Cox, who argued for federal preemption although there is no explicit Congressional statement in this regard.[3] Indeed, since the Supreme Court decision in Garmon (1959) courts have held that the NLRB has exclusive jurisdiction over conduct regulated by the LRMA. More recent legal decisions have extended the preemption doctrine to efforts by states to limit the anti-union activity of their contractors. At the same time, the Supreme Court has interpreted state sovereign immunity to bar suits for damages by state employees for violations of federal employment rights.[4]

In recent years, however, labor has fared poorly under national regulations. From the 1960s through the 2000s, unions gained miniscule numbers of members through the NLRA election process. The Pension Benefit and Guaranty Corporation which insures private defined benefit pensions has run large deficits as the private system lurches from crisis to crisis. Relative to average hourly earnings, the federal minimum wage has fallen to its lowest level in decades. It is barely half the minimum wages in the UK and in Ireland, despite the US having 40 percent higher GDP per capita than those countries.

My case that labor would do better under state law begins with the standard federalism arguments for devolving authority: that it allows experimentation in policies and creates space for divergent policies to match citizen preferences. I show that state law has produced wider cross-state variation in the unionism of public sector workers than federal law has produced in unionism of private sector workers. Associated with this is a higher level of unionisation in the public sector than in the private sector. I use evidence on the variation in state policies toward labor broadly to suggest that if states had the right to enact or enforce labor relations, some states would enact policies more favorable to collective bargaining than the Congress, while others would enact less favorable policies. Because private sector collective bargaining and unionisation is exceptionally low in the states likely to introduce legislation unfavorable to collective bargaining, such legislation cannot have much effect on union density or coverage. By contrast, a more friendly legal environment in the states that look favorably on collective bargaining has the potential for giving workers in those states the representation and participation at the workplace that they say they want. Finally, I argue that state legal enactment offer the best opportunity for the country to experiment with new forms of worker organizations, including variants of the company sponsored workplace organizations that the LMRA outlaws, to open the market for representation and participation to meet the desire of workers who want and cannot get unions under natiional law and of workers some nonunion organization short of unions to represent them to employers.[5]

If my analysis is correct, the union movement would do better to spend its resources to press the Congress and courts to reduce or eliminate federal preemption of private sector labor law and to improve labor regulation and enforcement at the state and local level than to push for “labor law reform” at the national level.

1. The Logic for Devolving Labor Relations Law to states

“ It is one of the happy incidents of the federal system that a single courageous state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country”. Justice Brandeis[6]

The classic argument for federalism has three parts.

The first, as given by Brandeis above, is that federalism allows for experimentation so that the country can better assess the impact of different policies and then choose the one that works best in accomplishing the public purpose. States are well-suited to serve as laboratories of experiment because they are numerous, have boundaries that cover populations with similar attributes and views, and have the large scale necessary for assessing major policy initiatives. As a practical matter, policy changes are easier to achieve in a state than across the whole country, and reduce the risks inherent in any new initiative turning sour from the country to the state. The natural experiment where state A chooses policy I and neighboring state B chooses policy II can provide information on the aggregate effect of the policies which elude smaller random assignment studies.

The second part of the argument for federalism is that states will imitate the most successful policy initiatives, so that good practices spread rapidly. The competitive market moves toward the right output in part by the exit and entry of consumers or firms. If, by chance, a given firm produces a product that consumers prefer to others, consumers will switch to it, and other firms imitate the lucky producer or go out of business. This is natural selection at work in the economy. Since states that choose the wrong policies do not go out of business, the market for policies operates somewhat differently. Citizens have the choice of moving to a jurisdiction with more desireable policies, or of taking political action to induce their jurisdiction to select their desired policies.

Whether these forces operate effectively in any reasonable time period is unclear. The long association of states rights with slavery and disenfranchisement of blacks has made many Americans uneasy about trusting state power in the political area. Conservatives often express unease about state fiscal responsibility – will states will run up huge deficits that require a national bailout or possibly default? (Ferejon and Weingast) Liberals worry that the potential mobility of capital will lead states into a race to the bottom, as each state reduces its protections for labor to attract investments. After all, don’t states compete for particular investments through tax holidays and subsidies that benefit the investor more than citizens? (Donahue)

But the politics could go the other way. Citizens in a state with worse labor relations policies might see how well people are doing in a state with better labor regulations, and move to the more desireable state or campaign for their state to copy the preferable legislation. Federalism in welfare services and medical services for the poor has not led to any race to the bottom among the states. Because states deliver services to citizens subject to hard budget constraints, governors and legislators tend to be less ideological and divisive than representatives and senators in Washington. State governments choose policies that make pragmatic sense even when those policies run against the prevailing ideology in their party. In 2004, the Republican legislature in Nebraska, for instance, chose a defined benefit state pension system over a defined contribution system because of evidence that this would save taxpayers money, while the Bush Administration was pushing for private accounts to replace Social Security. Historically, many of the basic social insurance, worker rights, public health, administrative and government reforms adopted by the New Deal were first anticipated and developed in states, such as Wisconsin. These policies spread to other states, and then became national law.

The third part of the argument for federalism is that in a large diverse country, federalism allows each area to find the policies that fit it best. Mississippi gets the policies that it wants. Minnesota gets the policies it wants. California does whatever California wants. New York is New York. And so on. Forcing every state to follow the same rules and regulations necessarily reduces well being. In standard economic models, moreover, high geographic mobility increases the gains from policy diversity, since people with preferences that differ from those in their locale can move to a different locale. This is the Tiebout solution to the optimal determination of state and local expenditures. Citizens opposed to the labor regulations in their state vote with their feet by moving to states whose policies satisfy their preferences. Geographic mobility is the key market force, comparable to consumer choice in a competitive market.

The conceptual case for federalism is a strong one, which has attracted increasing academic support in the past decade.[7] Still, there are potential benefits to national legislation – incorporation of externalities across state borders, maintenance of a single market, economies of scale in setting policy -- that argue in the other direction. In addition, federal law can spread best practice policies to states that might lack the political will or funds to protect or help their own working citizens. Given that there are plausible arguments on both sides of the debate, which may weigh more heavily in some situations than in others, the question of whether labor will do better under state law cannot be answered in the abstract. It requires evidence on how states have actually regulated labor relations when they have authority over labor laws or policies; and of the impact of their actions on the ability of workers to gain the participation and representation at their workplace that they want.

2. Variation in State Labor Relations Law

In one respect, the US labor relations system is well-suited for examining the effect of state as opposed to federal regulation of labor relations. This is because states have authority over labor relations for state and municipal workers. Federal legislation sets and enforces the rules for private sector workers but state legislation sets and enforces the relations laws for public sector workers. This means that every state has private sector workers covered by federal law and public sector workers covered by state law, possibly in the same occupations or activities. Since state law can vary greatly, this provides a “natural experiment” in which we can contrast outcomes for the treatment group, public sector employees covered by that state’s public sector laws, against the control group of a private sector employees in that state covered by the ubiquitous federal law.

To see how states regulate the state and local public sector workers over whom they have jurisdiction, I have examined the Kim Rueben update of the NBER Valletta-Freeman state public sector labor law data set (http://www.nber.org/publaw/). This data set categorizes public sector labor laws from 1955 to 1985 for five groups of workers (state employees, local police, local firefighters, local teachers, other local employees) in tems of their legal treatment of collective bargaining and the right to strike. Rueben has updated the data set through 1996. Valletta and Freeman found huge variation in public sector labor laws among states and smaller variation among groups of workers within states. They showed that the legal environment changed greatly in the 1960s and 1970s when many states shifted from meet and confer laws to laws that either explicitly or implicitly required government employers to bargain with unions.

Table 1 summarizes the legal status of public sector collective bargaining in the 50 states in 1996, the last year of the Rueben update.[8] The table places the laws governing state/ occupation groups into 3 broad categories: having a favorable legal environment for public sector collective bargaining – where laws explicitly require or imply that public sector employers have a duty to bargain with unions; an intermediate environment where the law requires public sector employers to meet and confer with unions but not to bargain with them; and an unfavorable legal environment, where the law either explicitly outlaws bargaining or contains no provision for bargaining. According to the table, sixty-four percent of the state occupation groups have laws favorable to collective bargaining. The bulk of these observations are found in the twenty-seven pro collective bargaining states listed in the table. Fourteen percent of the observations occur in state occupation groups covered by meet and confer laws, largely in the five states listed in the table. Finally, 22% of the observations have laws that are unfavorable to collective bargaining. These are concentrated in 17 states, many in the South. Since 1996 the legal changes governing state employees have been modest, though there are notable developments in particular states.[9]