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Saturday, February 19, 2011

Nollan-Dolan's Lessons for Governor Walker's Anti-Union Proposals

Governor Scott Walker of Wisconsin has raised a major ruckus by proposing draconian limits on the scope of collective bargaining with public employees. As the two or three people who regularly read this blog know, I am no fan of public employee unions. In particular, I believe that, given politicians' short time horizons, some sort of procedural constraints on collective bargaining agreements are needed to control politicians' tendency to give away the store with contractual benefits that do not vest until those politicians are out of office.

This said, Governor Walker's proposals to limit scope of bargaining strike me as pointless. The Nollan-Dolan line of cases in land use regulation tells us why. Nollan-Dolan ostensibly limit the power of government officials to demand conditions for land-use development that bear no "roughly proportional" nexus to the impacts of that development. For instance, under Nollan-Dolan, New York City is not supposed to demand that a developer, say, hire a certain percentage of minority employees as a condition for building an extra-tall tower in Manhattan unless there is some way in which the tower would adversely affect the employment opportunities of minority employees.

Of course, as any serious landuse lawyer knows, this doctrine has imposed no serious constraint on what local governments exact from developers: New York City and every other local government demands such unrelated conditions in return for development rights all the time. Why? Because such limits on the scope of bargaining are senseless impediments to efficient freedom of contract. Developers do not sue to enforce such Nollan-Dolan limits, because they interfere with a deal that the developer wants to close.

Although I'll defer to Joe Slater or other experts in this area, my prediction is that limits on the scope of collective bargaining will be just as pointless, wasteful, and ultimately unenforced as Nollan-Dolan.

Imagine that Governor Walker succeeds in limiting the scope of bargaining to base wages. Now he has to negotiate a deal with, say, the Nurse's Union. Obviously, any wage proposal will be negotiated in the shadow of other compensation that nurses might get: If they get less sick leave and vacation time or fewer health benefits or smaller pensions, then they'll demand higher base pay. The governor might, for genuinely sensible reasons of policy believe that it would be better for the people of Wisconsin to make concessions on these other aspects of compensation than offer higher wages. The nurses might actually agree: they'd actually prefer to have lower pay but more secure pension benefits in, say, a defined benefit plan. If, however, the governor's hands are tied by taking these other issues off the table, then the governor has to offer higher wages. This leaves both parties worse off. It is as if the law required nurses to be paid in bananas rather than cash: The limit on the scope of bargaining would simply impose a dead-weight loss on everyone.

Winks and nudges would follow: Informal commitments on non-wage issues would be made -- because efficient bargaining requires that they be made. Would these be unenforceable? If so, then Wisconsin would have to pay a higher wage premium similar to the default premium that bondholders exact for taking "unenforceable" moral obligation bonds. The losers, in the end, will be the taxpayers of Wisconsin, who end up footing the bill for this ridiculously complex minuet.

Precisely the same minuet is danced every day between developers and local governments under Nollan-Dolan: Governments are officially barred from demanding fire trucks, schools, playgrounds, etc, in exchange for building permits -- but developers offer them all the time, and, lo and behold, they get a permit and give a benefit that bears no "roughly proportional" nexus to any cost that the proposed development imposes.

Rather than engage in this limit-on-scope-of-bargaining farce, why not directly address the problem of future benefits like pensions and health benefits? Allow unions and government to bargain over them, but make sure that the ultimate agreement is ratified in a highly salient, public way -- a referendum, for instance. This procedural solution would reduce the real "agency cost" danger that politicians will give away the store when negotiating future liabilities. But the procedural solution avoids the silliness of taking obviously relevant issues off the table.

In any case, this is why I am inclined to believe that Governor Walker has picked the wrong fight with the unions. But maybe I am missing something special about the collective bargaining context that distinguishes it from landuse regulation? If so, I hope that either public-employee experts like Joe Slater or libertarian-minded bargaining-with-the-state experts like Richard Epstein will set me straight and explain why the limits on bargaining topics proposed by Governor Walker with unions will work better than Nollan-Dolan limits on scope of bargaining have worked with developers.

Posted by Rick Hills on February 19, 2011 at 11:09 AM | Permalink


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For general reference, here are some basic fact sheets about how public pensions work in Wisconsin.



Posted by: Joseph Slater | Feb 20, 2011 12:22:13 PM


My understanding is that the governor's proposal in Wisconsin would eliminate collective bargaining over EVERY issue EXCEPT base pay. So I don't think the unions are outraged over losing the right to bargain over certain fringe benefits, rather, it would be the loss of rights to bargain over a whole host of workplace matters unions in the public sector rountinely negotiate. Also, while pension benefit amounts are typically not negotiable, some other things under the rubric of "fringe benefits" often are (e.g., employee contributions to health insurance). Not sure what the exact rules on that are in Wisconsin off the top of my head.

Posted by: Joseph Slater | Feb 20, 2011 9:11:06 AM

Joe writes:

In the vast majority of public sector jurisdictions, including Ohio and Wisconsin, unions are not permitted to bargain over most or all pension rules, including benefits. Rather, rules and benefits are set by statute.

Thanks for this, Joe: It is an interesting and important observation, utterly missing from the newspaper accounts of the Wisconsin fracas. But then here is a follow-up question: Why is the exclusion of fringe benefits from the scope of collective bargaining inspiring such union ire, given that the topic has apparently been excluded already by statute? Or is this fight purely about symbolism -- the symbolic effort by a Republican governor to attack unions and the symbolic effort by unions to mobilize their membership to resist the attack?

Posted by: Rick Hills | Feb 19, 2011 5:03:56 PM

Rick, I thought the plan also capped wage increases at CPI absent a referendum. So I'm not seeing how a future government would surreptitiously circumvent the restrictions by paying a wage premium. Perhaps I am missing something since this is not my area.

Posted by: TJ | Feb 19, 2011 3:49:10 PM

This prompts a number of thoughts, but let me lead with the following, because it's crucial to debates over Ohio and Wisconsin laws. In the vast majority of public sector jurisdictions, including Ohio and Wisconsin, unions are not permitted to bargain over most or all pension rules, including benefits. Rather, rules and benefits are set by statute. This is different than the private sector. So in the vast majority of jurisdictions, the problem of negotiating away long-term pension obligations, through a nod-and-a-wink or otherwise, simply can't happen, because it's a matter of state statutory law, not union negotiations.

Beyond that, I confess to knowing literally nothing about the Nollan-Dolan cases or land-use regulation law at all, for that matter. But your point is relevant to labor law. As you probably know, public and private sector labor law have long had rules on "scope of bargaining." There are typically three categories: "mandatory subjects" (what the employer and union must negotiate about, if either side wants to, to agreement or impasse ); "permissive subjects (what the sides are allowed but not required to negotiate about and can negotiate about only if they both want to -- no striking or going to impasse over them); and "illegal subjects" (what the sides are not allowed to bargain/agree about even if they both want to).

This structure has been criticized on the grounds you suggest: won't there be a "nod and a wink" about permissive subjects or even illegal subjects, during negotiations over mandatory subjects? But the structure is deeply imbedded in U.S. labor law. Even though it's not actually in the text of the NLRA, case law has long adopted it, and almost all public sector jurisdictions have adopted it, often in the text of the public sector statutes themselves (New Jersey, oddly, has no "permissive" category). Some public sector statutes specifically list what topics are mandatory and/or what are not (see Iowa and Oregon, e.g.).

The typical approach in the public sector has been to limit -- sometimes greatly -- the scope of bargaining by limiting what topics are mandatory / making more subjects illegal. Much more often than in the private sector, topics of bargaining are illegal in the public sector because they are set by an external statute. Federal sector unions can't even negotiate about compensation and again, the vast majority of jurisdictions don't let public sector unions negotiate about pensions. Pension rules are generally an illegal subject of bargaining, because the rules are set by statute. Other rules are illegal or permissive because of public policy reasons.

The nod-and-wink problem almost certainly exists in some areas regarding some permissive topics, where the rules are not set by statute, but it can't exist where a topic is an illegal subject of bargaining because a statute sets the terms (e.g., for pensions in most places, including Ohio and Wisconsin). No nodding or winking can change what the statute says.

I'm skeptical about a public referenda solution for reasons I think I've given before.

Finally, if you are interested in a good, modern critique of the tripartite scope of bargaining rules in the public sector, you should look at an article by Martin Malin -- a friend, co-author, and a guy who has taught me a lot about public sector labor law: "The Paradox of Public Sector Labor Law, 84 Ind. L. J. 1369 (2009).

Posted by: Joseph Slater | Feb 19, 2011 12:23:02 PM

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