Sorry I’m a little late on this one, but last weekend The Wall Street Journal featured an op-ed by Shikha Dalmia’s, which focused on the negative effects of binding arbitration. Dalmia’s research provides compelling arguments against the measure by utilizing examples of how binding arbitration has hurt state economies like Michigan and Massachusetts.
Michigan has suffered from passing a nearly-identical version of binding arbitration, so much that even its original author regretted his decision and role:
In 1969, the Wolverine State embraced a form of compulsory arbitration nearly identical to the one proposed in EFCA to resolve disputes with its police and firefighters. Years later, Detroit mayor Coleman Young — who had authored the original law as state senator — rued what he had done. “We now know that compulsory arbitration has been a failure,” he lamented to the National Journal in 1981. “Slowly, inexorably, compulsory interest arbitration has destroyed sensible fiscal management and has caused more damage to the public service than the strikes it was designed to prevent.”
Dalmia argues that binding arbitration helped push local governments into bankruptcy:
Compulsory arbitration also nudged other Michigan cities, including the working-class towns of Hamtramck and Highland Park, into bankruptcy. In 1999 an arbitration panel awarded Hamtramck police officers $2.1 million in pay raises and back pay, pushing it into state receivership. Under receivership, which is only used in extreme situations, the state government takes over the city’s finances and appoints its own manager to run the city. Hamtramck was ultimately forced to impose a combination of service cuts and tax increases, all of which accelerated the exodus of its residents. Highland Park, wishing to avoid similar arbitration, gave its public safety officers raises it couldn’t really afford and was also forced into receivership.
Research from a 2006 task force backed by MI Gov. Jennifer Granholm showed that binding arbitration also increases the cost of local government:
A 2006 task force convened by Gov. Jennifer Granholm, who supports compulsory arbitration, found that local government costs in arbitration states are 3%-5% higher compared to nonarbitration states. “While small in percentage terms, the impact in dollar terms is huge,” the task force concluded. Given that local governments in Michigan alone spend over $23 billion annually, this works out to over a billion in extra spending for them.
Dalmia raises another interesting historical factoid; former MA Gov. and 1988 Democratic presidential candidate Michael Dukakis oppposed binding arbitration:
Former Massachusetts Gov. Michael Dukakis also tried to limit public-sector compulsory arbitration during his first term. In 1977, Mr. Dukakis argued that compulsory arbitration “has removed legitimate management prerogatives in the area of staff assignments, (and) transfers from the control of municipal officials at a time when they are under severe pressure to improve their management and make savings.” Mr. Dukakis failed to stop compulsory arbitration, but two years later Massachusetts voters approved a ballot initiative that effectively scrapped it.
Dalmia concludes her piece with a succinct case against binding arbitration and EFCA:
In a dynamic economy, a business’s survival depends upon its ability to constantly cut costs and innovate. But a company forced into binding arbitration will be frozen for two years (the duration of the initial contract) from making any changes to any aspect of its business that is covered by the contract. Literally every issue — from its 401(k) contributions to its reliance on outside labor — could potentially become subject to review by a government panel that has neither the company-specific knowledge nor the incentive to turn a profit.
Businesses are not the only losers in compulsory arbitration. Currently, any contract negotiated by union officials has to be ratified through a vote of rank-and-file members. Under compulsory arbitration, workers do not get this vote. In other words, EFCA will take away the right of workers to vote to form a union, and then binding arbitration will take away their right to vote on a contract.
The only clear winners under this law would be the union bosses, who will obtain new powers without any new accountability. If Michigan’s experience suggests anything, it’s that rank-and-file workers, businesses, and the American economy will suffer.