Labor relations and collective bargaining

Daniel opens the tenth session with a calendar. Northfield's collective bargaining agreement with the union local representing its 260 hourly employees expires on 31 March. Bargaining starts in January. The last round, three years ago, ended with a two-week strike that cost the plant two automotive programs and left relationships on the floor that are only now recovering. The union's priorities this time are wages that keep up with the inflation of the past few years, limits on mandatory overtime and protection against the outsourcing of maintenance work. The company's are flexibility in scheduling, a new job classification for the robotic welding cells and moving new hires to a 401(k) plan instead of the defined benefit pension. Dr. Rahimi, who sat across the table from unions at the airline for more than a decade, says that the outcome will depend less on the opening positions than on what each side does in the next three months.

Why unions exist and what they do

A union is an organization of employees that bargains collectively with an employer over wages, hours and other terms of employment. Its power comes from collective action: an individual employee has little bargaining power, but a group that can withdraw its labor together has a great deal. Unions also give employees a voice, in the phrase of Richard Freeman and James Medoff, whose 1984 book What Do Unions Do? argued that unions have two faces. The monopoly face raises wages above market levels and can reduce flexibility and profits. The voice face gives employees a channel to raise problems without quitting, which lowers turnover, encourages training and can raise productivity. Which face dominates depends heavily on the relationship between management and the union.

Unionized workplaces differ in predictable ways. Pay is set by the collective agreement, usually with fixed rates or steps for each classification rather than individual merit. Seniority plays a large role in layoffs, recalls, shift choice and sometimes promotion. Discipline must meet a standard of just cause and can be challenged through a grievance procedure ending in arbitration. Changes to working conditions must be bargained. For managers used to non-union workplaces, the main adjustment is that many decisions they once made alone must be made within the agreement or negotiated.

The legal framework

Labor relations in the private sector are governed by the National Labor Relations Act of 1935, often called the Wagner Act, as amended by the Taft-Hartley Act of 1947, and administered by the National Labor Relations Board. Railways and airlines fall under the separate Railway Labor Act, and public-sector employees under state laws. Employees have the right to organize and bargain collectively, and the union that wins majority support in an appropriate bargaining unit becomes the exclusive representative, usually after a secret-ballot election run by the NLRB, although employers may voluntarily recognize a union. Unfair labor practices by employers, such as threatening or firing employees for union activity, or by unions, can be remedied by the Board. The Taft-Hartley Act allows states to pass right-to-work laws that prohibit agreements requiring employees to pay union dues or fees as a condition of employment; more than half of the states, though not Illinois, have done so.

The NLRB's direction has changed with each administration, because its members are appointed by the president. The Board lost its quorum in January 2025, when the president removed one member before her term ended, and it could not decide cases for almost a year until two new members were sworn in on 7 January 2026. In June 2026 the Supreme Court held in Trump v. Slaughter that Congress generally cannot protect the leaders of executive agencies from removal by the president, a ruling widely read as making Board members removable at will. Decisions of the previous Board, such as its 2023 Cemex decision making it easier for unions to obtain bargaining orders without an election, may be revisited. Unlike Canadian law, the NLRA allows employers to hire permanent replacements for workers on an economic strike, although they cannot fire strikers, a rule that dates to the Supreme Court's 1938 Mackay Radio decision.

Union density

Union membership in the United States has declined for decades. The Bureau of Labor Statistics reported that 10.0 percent of wage and salary workers were union members in 2025, unchanged from 2024, with 5.9 percent in the private sector and 32.9 percent in the public sector. Public approval of unions in polls has been high in recent years, and organizing campaigns at large retailers, warehouses and coffee chains have drawn attention, but new organizing has not been large enough to raise overall density. In Canada, by comparison, about 30 percent of employees are covered by collective agreements, a gap researchers attribute partly to differences in law, such as card-check certification and limits on employer campaigns in several provinces.

Why do employees unionize? Research points to dissatisfaction with pay, security and treatment, combined with the belief that a union can improve them. Arbitrary discipline, unequal treatment in scheduling, unresponsive management and a sense that complaints go nowhere are common triggers. Dr. Rahimi tells the cohort that the most effective way to avoid unionization is to make it unnecessary, by giving employees fair treatment and a real voice. Once an organizing campaign begins, managers must know the rules: they may share facts and opinions, but they may not threaten, interrogate, promise benefits to discourage support or spy on employees, and missteps can lead to legal remedies and a union victory anyway.

Collective bargaining

Richard Walton and Robert McKersie's 1965 A Behavioral Theory of Labor Negotiations distinguished four processes that go on simultaneously. Distributive bargaining divides a fixed pie, such as the wage increase. Integrative bargaining looks for solutions that create value for both sides, such as a scheduling system that gives employees predictability and the company flexibility. Attitudinal structuring shapes the relationship between the parties. Intra-organizational bargaining is the negotiation within each side: the union's bargaining committee must sell the deal to its members, and the company's negotiators must sell it to senior management and the board. Many agreements fail not at the table but in ratification, when members or executives reject a deal their representatives accepted.

In distributive bargaining, each side has a target, the outcome it hopes for, and a resistance point, the worst outcome it will accept before choosing a strike or lockout. If the union's resistance point is below the company's, there is a positive bargaining zone in which a settlement is possible; if not, there is no deal without a change in positions, often forced by the costs of a strike. Each side's walkaway option, its best alternative to a negotiated agreement or BATNA, the term the cohort met in MBA-503, determines its resistance point. The union's alternative depends on members' willingness and ability to strike; the company's depends on its ability to operate during a strike, its inventory and its customers' patience.

Interest-based bargaining, also called mutual gains bargaining, applies the principles of Roger Fisher and William Ury's Getting to Yes to labor negotiations. Instead of exchanging positions, the parties identify their underlying interests, share information, generate options together and evaluate them against agreed criteria. It works best on issues with integrative potential, such as scheduling, training, technology changes and health benefits, and when trust is reasonably high. Many negotiations combine it with traditional bargaining on wages.

Costing a settlement

Before bargaining, management must know what each proposal costs. A wage increase has effects beyond base pay, because many costs are tied to wages: overtime premiums, vacation and holiday pay, shift premiums, payroll taxes and, in some plans, pension contributions. The roll-up factor captures these: if every dollar of base pay brings 25 cents of related cost, a wage increase costs 1.25 times its base amount. Increases compound over the life of the agreement, and the timing matters: an increase in month one of a year costs more than the same increase in month twelve. Lump-sum payments, which do not enter the wage base, cost less over time than equivalent percentage increases.

# Costing Northfield's wage proposals over a three-year agreement
employees, hours, wage = 260, 2_000, 34.00
rollup = 0.24                         # related costs per dollar of base pay

def cost(increases, lump=0.0):
    base0 = employees * hours * wage
    total, w = 0.0, wage
    for inc in increases:
        w *= 1 + inc
        total += employees * hours * (w - wage) * (1 + rollup)
    return total + lump * employees, w

for label, incs, lump in [("company opening", (0.020, 0.020, 0.020), 0),
                          ("union opening", (0.060, 0.050, 0.050), 0),
                          ("possible settlement", (0.035, 0.030, 0.030), 0),
                          ("settlement with lump sum", (0.030, 0.030, 0.030), 1_000)]:
    extra, final_wage = cost(incs, lump)
    print(f"{label:25s} extra cost over 3 years {extra / 1e6:5.2f} million, final wage {final_wage:5.2f}")

# Compare with a strike: lost contribution per week and the risk of losing programs
weekly_contribution = 0.65e6
print(f"two-week strike: lost contribution about {2 * weekly_contribution / 1e6:.1f} million plus customer risk")

company opening           extra cost over 3 years  2.67 million, final wage 36.08
union opening             extra cost over 3 years  7.49 million, final wage 39.73
possible settlement       extra cost over 3 years  4.36 million, final wage 37.33
settlement with lump sum  extra cost over 3 years  4.29 million, final wage 37.15
two-week strike: lost contribution about 1.3 million plus customer risk

The costing shows the stakes. Measured against today's wages, the union's opening proposal would cost Northfield about 7.5 million dollars over three years and the company's about 2.7 million, a gap of almost 5 million. A settlement around 3.5, 3 and 3 percent costs about 1.7 million more than the company's opening. Replacing the first-year half point with a lump sum of 1,000 dollars per employee trims the three-year cost a little, gives employees cash up front and, because the lump sum never enters the wage base, leaves a lower base for the next agreement. Daniel notes that the last strike cost far more than the gap between the two sides' final positions, once the lost programs were counted. Dr. Rahimi adds that the costing is also a negotiating tool: both sides can agree on the arithmetic even when they disagree about the outcome, which narrows arguments.

Strikes, lockouts and government intervention

Strikes and lockouts are legal in the United States after a collective agreement expires, subject to notice requirements, and parties must continue to bargain in good faith. Federal mediators are available through the Federal Mediation and Conciliation Service. Under the Railway Labor Act, rail and airline disputes go through mediation and cooling-off periods, and Congress can impose a settlement, as it did to prevent a national rail strike in December 2022. Under the NLRA, the president can seek an injunction delaying a strike that threatens national health or safety. The 2023 strike by the United Auto Workers against the three Detroit carmakers, in which the union struck selected plants in stages rather than all at once, showed how unions can raise pressure while limiting members' lost income.

Living with the agreement

Most labor relations work happens during the agreement, not at the table. Grievances are complaints that the employer has violated the agreement: a dismissal without just cause, overtime given out of seniority order, a job posted incorrectly. The grievance procedure typically has several steps, from a conversation between the steward and supervisor to meetings with senior managers, and ends in binding arbitration. Arbitrators interpret the agreement and develop principles such as progressive discipline, which requires that discipline escalate from warnings to suspensions before dismissal except for serious misconduct. Supervisors are the front line: most grievances arise from how a supervisor applied the agreement, and most can be resolved early if supervisors understand it and listen.

Union-management relationships range from conflict to cooperation. Labor-management committees on safety, training and productivity, gainsharing plans like Northfield's from lesson 9, and joint job evaluation committees create forums for solving problems outside bargaining. Thomas Kochan and colleagues at MIT documented partnerships, such as the one at Kaiser Permanente, that combined union security with joint work on quality and cost. These partnerships are fragile and depend on trust built over years, but where they work they are among the hardest advantages for rivals to copy.