January 22, 2013

Unions vs. Our Kids

In New York City, bus drivers go on strike at the expense of children with disabilities.

People who spend any time in New York City are quick to inure themselves to the vicissitudes of everyday life. But even the hard-of-heart have found it difficult to ignore the personal accounts of the thousands of families that have been dislocated by the decision of Local 1181 of the Amalgamated Transit Union to initiate a school bus strike this past Wednesday. Some 8,800 drivers and matrons, whose incomes average about $35,000 per year, went on strike, shutting down about 70 percent of the City’s 7,700 school bus routes.

The dispute centers on New York Mayor Michael Bloomberg’s effort to introduce a system of competitive bids that would allow the City to find some lower-price providers. As the AP reports, there is a lot of running room for financial improvement because of the grim statistics of the schools’ position. New York City has 1.1 million public schoolchildren—which means that a citywide operation is likely to suffer from major diseconomies of scale. Of these students, some 152,000 ride yellow school buses.

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  Illustration by Barbara Kelley

In their ranks are 54,000 children who suffer from a variety of disabilities. Many of them are in wheelchairs. Others suffer from disabilities like severe autism that make it impossible for them to travel to school alone in safety. Their attendance at school was down sharply in the wake of the strike. These individual stories are well set out in the New York Times.

The underlying dispute was over the familiar issues of jobs and wages. On this score, the bad news is that the cost of the school bus operation has gone from $100 million in 1979 to $1.1 billion today, an eleven-fold increase that far outpaces the rate of inflation. On a per-passenger basis, that works out in today’s dollars to $7,000 per bus passenger in New York City compared to $3,200 in Chicago and $5,000 in Miami, neither of which counts as a free market mecca in the provision of public services. Surely, there is room for improvement.

Subject to one caveat, the union is quite comfortable with the idea of competitive bids: just make sure that the new bidders are required to offer the same level of job protection to union members that they receive under their current contracts. Under general principles of labor law, they have a point. American labor law is rich with protections, such as the successorship doctrine, against employers seeking to either reorganize or transfer their businesses in a way to avoid their union obligations, which is what the Mayor is trying to do here. Public unions are often subject to additional obligations that may displace the labor law as it applies to private businesses. But any legal dispute can be solved only long after the current impasse has ended.

In the short-term, the strike has resulted in massive dislocations in the lives of thousands of New Yorkers, many of whom in the best of times have to juggle caring for severely disabled children with the mundane task of holding a job. It is not possible to leave many of these children unattended, so the parents are faced with the tragic choice of staying home from work, finding untested temporary care, or using awkward public transportation or expensive private services to get their children to school.

The Problem With Strikes

In dealing with this issue, the common response is to treat the system of collective bargaining as a social given and then to make anguished pleas for the parties to come back to the bargaining table on this, as on so many other issues. But a more sober look at the overall consequences of this strike indicates that a much more radical cure is needed to deal with the situation.

The institution of collective bargaining has much more traction in the industrial sector, where strikes were intended to shut down mines and factories. In these settings, both parties can take steps to minimize the effects of long lay-offs. Thus, in the run-up to the strikes, plants can run at full bore, allowing the firm to store inventory, while workers fatten their wallets to prepare for the lean days ahead.

It would be absurd to say that any system that requires such wasteful behaviors can result in any social gains, or even gains for either party. But the situation is far worse in the transportation industry, where it is quite simply impossible to stockpile goods or services in anticipation of any strike. Going back and forth to school ten times a day before a strike does not get you to school thereafter. It was for just this reason that even in the formative days of labor relations, it became clear that strikes could not be tolerated in the transportation industries without disastrous consequences.

Thus, the 1926 Railway Labor Act provided that workers were not allowed to strike, for going on strike would bring the transportation system screeching to a halt. The RLA gave the union members a huge quid pro quo—that the railroad could not unilaterally alter the terms and conditions of employment. The upshot was that any change in obsolete work rules necessarily required the consent of the union, which could not be obtained without a price.

Put otherwise, once the workers are given a statutory right to perpetual employment, they become part owners of the railroad whose interests can only be bought out. The resulting inefficiencies were legendary—most notably the featherbedding practice of requiring that the fireman, who stoked the old coal run engines, be retained even after trains had been converted to diesel fuel. The numbers involved in this case were not trivial. One academic account noted that in 1963, featherbedding on the railroads cost around $592 million in a year when industry profits were $681 million.

Absurd practices, backed by law, can prove quite durable. The only way in which to stop both the disruption of strikes and featherbedding is to return to market principles that allow an employer to refuse to bargain with unions and to hire individual workers on whatever terms are mutually agreeable.

The Perverse Consequences of Union Power

It is all too clear that this dispute is not governed by the RLA regime because the school bus drivers did not lose the right to strike. But what must be stressed are the two interrelated dimensions of the problem. The first is the set of work rules that are involved with respect to union operations. No one from the outside can guess how these routes are constructed and maintained, but it is a moral certainty that the reason that Local 1181 so fiercely opposes the Mayor’s position is that it fears that consolidation and rationalization of the school bus programs will cost its members jobs even as it saves taxpayers dollars.

From a social point of view, the ability to provide the same or better bus services at lower cost is a good thing. The benefit to the students and their families is palpable. The savings in question can be used to provide different public services that could offer jobs to other workers. Or they could be remitted to taxpayers who could then use the additional funds to purchase other goods and services that will again provide job opportunities. The unions will surely be hurt by the loss of dues and power; their members may be hurt as well. But the social gains, which include the creation of other jobs for other people, dwarf any union losses. It should be apparent already that the crazy-quilt system of entrenched union entitlements should never have been adopted in the first place.

The second point is every bit as vivid. Any analysis of particular contractual relations has to take into account the effect of the rule not only on the firm but also on third parties. In the ordinary business contract, for hire or for sale, those externalities are positive. The increased wealth that any contract gives to its parties increases the transactional opportunities of third parties, so that all third party effects are positive. The faithful enforcement of most voluntary arrangements is therefore vital as a matter of social policy.

The opposite occurs with union contracts. Although some union members may save their jobs, the collective bargaining process adds nothing to the combined welfare of the employer and the union. Even worse, its third parties consequences are horrific, given the disruption of standard public services that are hurting thousands in New York City. The standard attitude among defenders of collective bargaining is that these “incidental” losses should not be taken into account because they would otherwise impede the sacred cause of union power.

Indeed, quietly, union leaders know full well that the massive levels of disruption work in their favor. Frantic parents cannot bludgeon the union to give up its demands. So they flock to City Hall to pressure the Mayor and City Council to give ground on the issue so that their lives can return to normal. After all, what is a few million dollars here or there when families face both emotional turmoil and financial ruin?

But note the following destructive dynamic. The short-term solution calls for capitulation. The long-term consequence is that this surrender then emboldens other unions to make the same kinds of demands. If the outcome of the strike is a victory for the union, then prudent city officials should surrender to the threat of strike from the outset in order to avoid the far worse consequences of the actual strike. Each short-term capitulation thus adds to the long-term fiscal woe of the City and its citizens.

But even this cycle cannot run on indefinitely. In the long-run, it is likely that the union will lose some power as the City will simply not have the resources to expand its services, and taxpayers will either balk or move to other communities. To counteract that threat, unions will often resort to two-tier wage structures whereby they will agree that new members receive a less favorable set of wages and benefits for the same work as incumbents, which introduces yet another inexcusable distributional twist into an already dysfunctional situation.

Why should this intolerable situation be allowed to continue? Return for the moment to the position of unions who are able to shut down transportation services, and ask what would happen if the same threat were made by railroad owners in order to gain increased subsidies from the state, or even to lock out a union demanding monopoly wages. No one would tolerate this position for a second. Railroads, as common carriers, were never free to set their rates as high as they pleased; nor were they free to exclude whatever passengers they chose.

To the extent that they had monopoly power, railroads, as well as other public utilities, have had correlative duties to provide their services on reasonable and nondiscriminatory terms. The first constraint was intended to ensure that they could not extract monopoly profits. The second was intended to ensure that they could not pick on vulnerable groups by requiring them to pay higher fares. Letting a railroad shut itself down and strand thousands of passengers would not be tolerated for a minute. Why then give any union that same chokehold over the lives and fortunes of ordinary people?

In short, the solution to the current problem is not for both sides to return to the bargaining table. Short-term fixes will not undo the long-term structural mistakes. The correct solution is to shut that bargaining table down and give the City the power to negotiate with the unions with the same degree of freedom that private employers have. 


Richard A. Epstein, Peter and Kirsten Bedford Senior Fellow at the Hoover Institution, Laurence A. Tisch Professor of Law at New York University, and senior lecturer at the University of Chicago, researches and writes on a broad range of constitutional, economic, historical, and philosophical subjects. He has taught administrative law, antitrust law, communications law, constitutional law, corporate law, criminal law, employment discrimination law, environmental law, food and drug law, health law, labor law, Roman law, real estate development and finance, and individual and corporate taxation. His publications cover an equally broad range of topics. His most recent book, published in 2013, is The Classical Liberal Constitution: The Uncertain Quest for Limited Government (2013). He is a past editor of the Journal of Legal Studies (1981–91) and the Journal of Law and Economics (1991–2001).


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