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University of Chicago Press
Emerging Labor Market Institutions for the Twenty-First Century

Emerging Labor Market Institutions for the Twenty-First Century


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Emerging Labor Market Institutions for the Twenty-First Century provides the first in-depth assessment of how effectively labor market institutions are responding to the decline of private sector unions.

This important volume provides case studies of new labor market institutions and new directions for existing institutions. While non-union institutions are unlikely to fill the gap left by the decline of unions, the findings suggest that emerging groups and unions might together improve some dimensions of worker well-being. Emerging Labor Market Institutions is the story of workers and institutions in flux, searching for ways to represent labor in the new century.

Product Details

ISBN-13: 9780226261584
Publisher: University of Chicago Press
Publication date: 09/01/2007
Series: National Bureau of Economic Research Conference Report Series
Edition description: New Edition
Pages: 296
Product dimensions: 6.00(w) x 9.00(h) x 0.90(d)

About the Author

Richard B. Freeman is the Herbert Ascherman Professor of Economics at Harvard University, program director of labor studies at NBER, and senior research fellow at the Centre for Economic Performance of the London School of Economics. Joni Hersch is professor of law and economics at Vanderbilt University. Lawrence Mishel is president of the Economic Policy Institute. He is the coauthor of The State of Working America.

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Emerging Labor Market Institutions for the Twenty-First Century

The University of Chicago Press
Copyright © 2005 National Bureau of Economic Research
All right reserved.

ISBN: 978-0-226-26158-4

Chapter One
Individual Rights and Collective Agents

The Role of Old and New Workplace Institutions in the Regulation of Labor Markets

David Weil

1.1 Labor Market Institutions and the Regulation of Labor Markets

The Committee recognizes that accomplishment of the purposes of this bill cannot be totally achieved without the fullest cooperation of affected employees. -Senate Report no. 91-1292, 91st Cong., 2d sess. (October 6, 1970), 10

So concluded members of the Senate in drafting the Occupational Safety and Health Act of 1970. Despite the fact that the new act created an extensive government enforcement system charged with improving workplace safety and health, the architects of the act recognized the centrality of workers to its implementation. The same might be said for a gamut of federal and state labor market regulation from the Fair Labor Standards Act of 1938 to the Family Medical Leave Act of 1993 to state workers compensation and unemployment benefit systems.

As representatives of individual employees, labor market institutions can affect the process of workplace regulation in two very different ways. First, they can affect the political process in passing legislation and, through executive agencies, in promulgating regulations-that is, the enactment of labor policies. Second, they can affect the way that those laws and regulations are enforced or administered-that is, the implementation of laws.

There is a significant literature on the role of interest groups in political processes that can inform the specific question of what alternative institutions might play the role of "employee lobbies" in the enactment of workplace policies. Although the specific constellation of factors that underlie political coalitions around employment issues differ from those underlying other public policy issues, the theoretical notions bounding the creation of such coalitions have parallels with those surrounding other areas of policy concern. I, therefore, do not focus on the role for new labor market intermediaries in the realm of policy enactment here.

Implementation of workplace regulations arises either from the enforcement of standards created by that legislation or through the administration of programs created by legislation. For example, the federal Davis-Bacon Act that establishes floors for wages in the construction industry is implemented by enforcement actions that either directly or, through deterrence effects, indirectly raise the wages paid by construction companies to the "prevailing wage" set for that craft in a geographic market. Workers compensation legislation is implemented via administrative activities in two ways: through the incentive effect provided by experience rating of employers covered by the system on safety policies and by the filing of claims by workers injured on the job.

Implementation-whether through enforcement or administration- raises the question of the interaction between institutions created by labor policies to carry out laws and the activities of workplace based institutions that directly (e.g., unions) or indirectly (e.g., insurance companies) represent the interests of workers. To examine the need for alternative workplace institutions in this area of labor market activity requires one to establish what role institutions-regardless of form-play in the first place. It then requires one to examine the relative abilities of different types of institutions to play these roles.

This paper argues that there are two distinctive roles required for agents in the implementation of workplace policies. First, the agent must somehow help solve the public goods problem inherent in workplace regulation. Second, the agent must be able to reduce the marginal cost of exercising rights conferred to workers that are an important feature of most regulatory programs. One of the major costs in this regard is that of employer discrimination arising from exercise of those rights. Although a variety of institutions may be capable of stepping into the fray and serving as agents in the enactment of legislation, the roles required for implementation are more difficult to embody in a labor market agent. Laying out the theoretical requirements for such agents focuses attention on the features of "emerging labor market institutions" most important to the implementation of workplace policies.

This chapter begins with a discussion of federal labor regulations in the United States and the roles they establish for workers through the provision of individually based worker rights. It then presents a model concerning the decision by workers to exercise those rights. Based on insights from the model, it analyzes the requirements of workplace institutions in fulfilling those roles. The third section evaluates a variety of labor market institutions-beginning with labor unions as a benchmark-that potentially serve the role as agents. Based on this evaluation, the paper concludes with a discussion of how policies might be adapted to foster agents better able to serve the two central roles of labor market intermediaries in implementing labor regulations.

1.2 Individual Rights and the Need for Collective Agents

1.2.1 Federal Regulations and the Importance of Worker Rights

A complex web of laws and executive orders cover employment practices in U.S. workplaces. In most areas of workplace regulation, a division of the U.S. Department of Labor (e.g., the Wage and Hour Division; the Occupational Safety and Health Administration [OSHA]) acts as the enforcement agent for regulatory policies. The U.S. Department of Labor (DOL) exercises its authority either because of a legislative mandate providing it jurisdiction over all private sector workplaces or authority granted it arising from government's role as a major purchaser of services and products. The task of the DOL is to ascertain whether an employer is conducting human resource policies in a manner consistent with regulatory programs and then to change the behavior of those firms that are not. The majority of workplace regulations provide the DOL or other enforcement agents with a variety of civil and, in some cases, criminal sanctions to provide incentives to change behavior.

The behavioral model embodied in most federal labor policies is gaining employer adherence to standards primarily via the threat of inspection, compulsion, and fines. Adherence with regulations is secured either through the direct pressure arising from inspection activities (triggered either by the agency or covered workers) or through deterrence effects and the consequent voluntary decision to comply with labor policies. Thus, firms are assumed to act in accordance with the model of crime initially set out by Becker (1968) where crime (or here regulatory noncompliance) is a decreasing function of the return to crime or the avoidance of costs arising from regulatory compliance. Holding constant compliance costs, employers will choose not to comply with a labor regulation if it is easy to escape detection and/or because assessed penalties in the event of being detected are small.

The objectives of labor legislation and executive orders are therefore translated into practice via enforcement. There are three ways that enforcement can be undertaken under labor regulation: (1) the responsible government agency can initiate enforcement; (2) employees can initiate enforcement (via rights provided them); or (3) a mix of the previously mentioned, where employees trigger enforcement, bring government action, and/or use private rights through the courts. There is considerable divergence between the enforcement implied in statutes to actual enforcement as carried out in practice. For example, OSHA's inspection force has never exceeded 1,500 and currently hovers around 1,100. Resource limitations substantially lower the probability that a workplace will be inspected in a given year by the government. The annual probability of receiving an inspection for one of the 6.5 million establishments covered by OSHA is well below .001. Similarly, penalties under many statutes are relatively low. The ability of government agencies to fulfill their legislative mandates solely through enforcement is therefore limited. For this reason, the role of workers under workplace policies takes on great importance.

Federal workplace regulations provide employees with important roles directly affecting the implementation of those statutes. Much of workplace regulation dating back to the Fair Labor Standards Act (FLSA) of 1938 and going forward to the Family Medical Leave Act (FMLA) passed almost sixty years later provides workers with an opportunity to participate in one or more aspects of the regulatory process. Most important of those rights is that of triggering regulatory activity itself. Although the right to trigger inspections dates back to some of the earliest state-level labor legislation (Common and Andrews 1936), regulations promulgated during the two most recent surges of workplace legislation or executive orders (in 1963-1974 and 1986-1993) have increased the number of regulations providing workers with a right to initiate civil actions under such laws as Title VII of the Civil Rights Act, the Americans with Disabilities Act (ADA), the Employee Polygraph Protection Act (PPA), and the Workers Adjustment and Retraining and Notification Act (WARN). This has resulted in an enormous increase in the number of cases filed under employment law,

Table 1.1 depicts a subset of these roles under federal workplace regulations: the right to initiate an agency action and the right to pursue private action in courts either as the first step in seeking to change employer behavior or after administrative remedies have been exhausted. Most federal legislation also establishes reporting/disclosure requirements that seek to inform employees of their rights, employer duties, or employer performance under the statute (these are depicted in the final two columns of table 1.1). In addition to these rights, many workplace statutes enumerate employee rights regarding participation in various stages of the regulatory process, such as by providing workers (or their designated representatives) with a right to accompany government officials during inspections (Occupational Safety and Health Act [OSHAct], Mine Safety and Health Act [MSHA] and to appeal decisions or participate in hearings arising from inspections (OSHA, MSHA, Contract Work Hours and Safety Standards Act [CWHSSA]).

There is little reason to believe that workers uniformly exercise rights granted them under labor policies. Studies in several different areas indicate that the propensity to exercise rights varies along systematic lines across different groups. A number of empirical studies have shown different propensities for individuals to litigate civil claims (see, for example, Hoyman and Stallworth 1981; Shavell 1987). Other studies have documented factors affecting workers' use of grievance procedures in union and nonunion workplaces (Peterson 1992; Feuille and Delaney 1992; Chachere and Feuille 1993). This literature suggests that factors related to the individual (sex, education, demographic background), the workplace environment (size, degree of conflict, management and union policies), and the specific grievance or civil problem involved affect under what circumstances individuals use their rights. Given limited government resources for enforcement, the conditions under which employees exercise their rights either to initiate suits or agency action fundamentally affect achievement of policy goals in the workplace. In a somewhat different vein, labor market programs, such as workers compensation and unemployment insurance, require that workers initiate the process leading to the issuance of benefits provided by those programs.

1.2.2 A Threshold Model of the Exercise of Individual Rights

The degree to which individual employees exercise rights granted them under labor regulations can be expected to depend on the perceived benefits versus the costs of exercising rights from the perspective of an individual worker. The benefits of exercising a right are a function of the impact of labor legislation on the outcome of concern to the worker. For example, initiating an OSHA inspection potentially improves working conditions for the worker by diminishing or removing the risk of an injury or illness. The greater the level of perceived risk faced by the worker, the more likely they are to initiate an inspection or otherwise seek to affect redress of the problem. Similarly, the greater the divergence between the wages paid to workers and the wages that they are entitled to under the law (e.g., because of premium pay required for overtime), the more likely a worker is to exercise rights to initiate actions under the FLSA.

In order to ascertain the magnitude of these benefits, workers must acquire information on the current and legally permissible level of a regulated outcome. The costs of exercising rights are primarily a function of the costs of gathering this information. These are composed of costs associated with (1) obtaining information regarding the existence of basic rights as well as the standards to which employers are held accountable; (2) gathering information on the current state of workplace conditions-a particular problem if the risks are complex as in the case of safety and health (Viscusi 1983; Viscusi and O'Connor 1984); and (3) learning about the specific details of how the law is administered (e.g., the procedures to initiate a complaint inspection). In addition to information-related costs, workers face significant costs arising from potential employer retaliation (the economic losses associated with retaliatory reassignment or, in the extreme, being fired) as well as the potential cost of job loss arising from the chance that compliance will force a firm to reduce employment in the long run.

The decision facing a worker on whether to exercise a right is represented diagrammatically in figure 1.1. The horizontal axis, [X.sub.j] represents the difference between current workplace conditions (e.g., exposure to a health risk; actual wage rate for hours of work) and the regulatory standard for that workplace outcome for workplace j. The value of [X.sub.j] is defined where

[X.sub.j] < 0 if the current workplace provides conditions above permissible levels (i.e., the firm goes beyond compliance required by the standard);

[X.sub.j] = 0 if the current workplace provides conditions equal to the required levels (i.e., the firm is exactly in compliance with the law); and

[X.sub.j] > 0 if the current workplace provides conditions below permissible levels (i.e., the firm is out compliance).

This means that as [X.sub.j] increases, a workplace falls further out of compliance with the regulatory requirement. In the case of health and safety regulations, this means that as [X.sub.j] increases, worker exposure to risk increasingly goes beyond the risk levels if workplaces compiled with standards; for regulations related to compensation like FLSA or Davis-Bacon, this means that actual pay increasingly falls below that required under the statute. For a program like workers compensation, increases in [X.sub.j] imply that the earnings received by the injured worker diverge more and more from those he or she is entitled by the program.

Given this definition of [X.sub.j], the figure presents two marginal-benefit functions. The lower function (MBi) represents the marginal worker i in a workplace j who has the highest individual preference for compliance with the regulatory standard. As such, this function represents the worker who will first exercise his or her statutory right in the workplace. I assume that the marginal benefit of exercising a right that moves the firm into greater compliance with the standard is positive and increasing in [X.sub.j].

Because a violation of a workplace standard typically affects many workers and is often associated with violations of other standards that might not directly affect the worker triggering the inspection, employee exercise of workplace rights displays positive externalities. Because of this, the marginal benefit for the workplace as a whole is always higher than that of the marginal worker for any [X.sub.j]. The upper marginal-benefit function in Figure 1.1 represents workers at the workplace as a whole ([MB.sub.j]) and reflects the vertical aggregation of benefits for all affected workers for any given state [X.sub.j].


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Table of Contents

Richard B. Freeman and Joni Hersch

1. Individual Rights and Collective Agents: The Role of Old and New Workplace Institutions in the Regulation of Labor Markets
David Weil

I. Studies of Nonworker Organizations
2. White Hats or Don Quixotes? Human Rights Vigilantes in the Global Economy
Kimberly Ann Elliott and Richard B. Freeman

3. The Living Wage Movement: What Is It, Why Is It, and What's Known about Its Impact?
Jared Bernstein

4. The Role and Functioning of Public-Interest Legal Organizations in the Enforcement of the Employment Laws
Christine Jolls

II. Studies of Membership-Based Initiatives
5. Unionization of Professional and Technical Workers: The Labor Market and Institutional Transformation
Richard W. Hurd and John Bunge

6. A Workers' Lobby to Provide Portable Benefits
Joni Hersch

III. New Union Opportunities and Initiatives
7. A Submerging Labor Market Institution? Unions and the Nonwage Aspects of Work
Thomas C. Buchmueller, John E. DiNardo and Robert G. Valletta

8. Union Participation in Strategic Decisions of Corporations
Eileen Appelbaum and Larry W. Hunter

9. Development Intermediaries and the Training of Low-Wage Workers
Lisa M. Lynch

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