A New Rationale for Collective Employee Representation

This paper contributes to the literature in two key ways.  First, it identifies how the combination of individual employment contracting and the right-to-manage default rule exposes individual employees to potentially negative consequences, caused by heuristic biases, when they establish the terms of their relationship.  Second, it provides a new rationale for collective employee representation institutions, predicated on their capacity to address heuristic biases and other failures of individual cognition, complementary to Freeman and Medoff’s (1979, 1981, and 1984) seminal theoretical justification for unions. 

When Walton and McKersie (1965) published their classic book on negotiation, collective bargaining was in its heyday.   Unions directly affected terms and conditions wherever they had recognition and indirectly in non-union workplaces, where employers matched union terms and conditions to remain union-free, or where the state simply passed on union wages through an official policy of ‘blanket coverage’.   As such, it was appropriate to develop a theory of bargaining that focused on union and employer organizations, rather than individuals, as the principal units of analysis.  

Times have changed, with the decline of unions and collective bargaining.  De-collectivization has meant that employment contracting increasingly occurs between a single employer and a single employee.   Individual bargaining, in such contexts, is typically limited, and individual agreements are correspondingly short and standardized (van Barneveld and Waring, 2002, Waring, 1999, Welch and Leighton, 1996).   As a result, many terms are left to the employer to determine, ex post facto, via its default right-to-manage or managerial prerogative.  This default rule affords employers the right to unilaterally determine all terms and conditions, except those previously stipulated by statute and the employment contract. 

Employment negotiations today are less characterized by sophisticated organizational dynamics, involving unions, employers, and their respective federations, and more by the bounded rationality of individuals, bargaining one-to-one.    Understanding how individuals make decisions, and what impacts these have on behaviour, thus has increasing relevance to establishing the terms of employment.    This paper examines how individual reliance on mental heuristics can negatively influence employee outcomes from individualized bargaining.  Heuristics are rules of thumb used to simplify decisions, but involve biases that potentially generate undesirable outcomes.  This paper focuses on three main heuristics, anchoring, availability, and representativeness, identified by Tversky and Kahneman (1974), as especially relevant to the uncertain conditions in the employment relationship.   

            This paper also argues that the negotiating problems caused by the limits of individual employee cognition are best addressed through collective institutions, in particular unions and works councils.  Unions can rely on the cumulative knowledge and experience of their staff, members, and affiliated labour organizations to construct appropriate demands around what members need and want now and in future.  Works councils can draw on the expertise of both worker and management representatives as well as their constituents.  More and better information from a variety of sources, shared between workers and management, can help reduce the issues created by heuristics, and offer a better foundation for making decisions in complex and uncertain environments.