Success of the National Labor Relations Act

April 10, 2014

One of the National Labor Relations Act's greatest successes is the creation of a vibrant and functional nonunion labor system, says Michael Wachter, co-director of the Institute for Law and Economics at the University of Pennsylvania Law School.

  • Union membership peaked in the 1950s at 35 percent.
  • After that, it began to decline, dropping to less than 10 percent today.
  • Some commentators contend that this is an indication that the National Labor Relations Act (NLRA) -- the law governing collective bargaining and unionization -- failed.
  • Wachter, however, argues the opposite.

The NLRA had two goals, its primary goal being industrial peace.

  • Prior to the NLRA, strife between employees and employers caused strikes and riots, and the police would be called in to restore order. The first goal of the NLRA was to solve these problems and create peace between the two parties.
  • The second goal was aimed at fixing "inequality of bargaining power." This goal is somewhat inconsistent, because not only do higher union wages lower union sector employment, but higher wages create greater management opposition to additional union demands.

The NLRA did bring industrial peace to the union employer-employee relationship. But beyond that, today's private, nonunion employment relationship is also not marked by industrial strife, but by peace, which can be attributed to the role of the NLRA. Indeed:

  • Nonunion workers can always threaten to unionize, providing a deterrent to employer opportunism, because nonunion firms are less profitable (because employers are forced to pay wages and benefits above market rates).
  • Nonunion employers may also be able to offer attractive pay and benefits packages because their costs are lower than unionized firms.
  • And not only do reputational effects deter opportunism, but both employees and employers invest in the employment relationship, and each party loses its investment if the relationship is terminated.

Rather than create a vibrant union employment sector, the NLRA seems to have created a strong nonunion sector instead.

Source: Michael L. Wachter, "The Striking Success of the National Labor Relations Act," Regulation Magazine, Spring 2014.

 

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