Sectoral bargaining is bad for workers and the American economy

Heard about the labor law “reform” so harmful that both the U.S. Chamber of Commerce and the AFL-CIO are skeptical? It’s called “sectoral bargaining.” Last month, the nation’s largest labor federation stopped a bill that would have implemented this scheme for gig workers in Connecticut, and the Chamber released a report harshly critical of the concept. 

Sectoral bargaining is a new and largely undefined concept in the United States, but it is familiar to European employers. In Germany, for example, sectoral agreements between unions and employer associations set industry-wide terms for wages and working conditions. In a twist that would leave American unions unhappy, most German employers have the freedom to opt out of these agreements — which they are doing in droves, according to a 2017 report from the Institute for the Study of Labor.

Determined to ignore lessons from Europe, the Service Employees International Union (SEIU) is leading the charge to import sectoral bargaining. (The SEIU is not a member of the AFL-CIO.) President Biden endorsed a commission to explore the idea, and a report issued by the Democratic-controlled House Education and Labor Committee urged sectoral bargaining on a national level as a way to expand unionization, particularly in the gig economy. 

A careful read of domestic supporters’ sectoral bargaining plans shows they prefer a system that gives in to union demands and makes unionization easier, rather than responds to what workers want.

New York’s system of wage boards is often cited as a model by proponents of sectoral bargaining. These committees empower the governor to set wage standards for entire industries through a board that he appoints. According to Vox, wage boards typically “have the authority to mandate pay scales and benefits for whole industries, after consultation with businesses and unions.” In New York, the labor commissioner imposes a final determination based on the state board’s recommendations.

The extent of the “consultation” in New York is left to the discretion of the governor. In 2015 Gov. Andrew Cuomo announced he would use the wage board to raise the minimum wage of fast-food workers to $15 an hour. As expected, the governor’s appointed wage board recommended an increase to $15 per hour — the exact amount the SEIU’s “Fight for $15” campaign was demanding. 

The Connecticut bill, meanwhile, followed another path toward one-size-fits-all bargaining for entire industries. It would have allowed unions to represent independent gig workers with several companies by creating entities known as “industry councils.” The bill was endorsed by the Connecticut AFL-CIO, but according to Bloomberg’s coverage of the bill, the national AFL-CIO “raised concerns about how [this] legislation could impact its efforts to protect workers across the county.” 

One of its top lawyers explained: The Connecticut bill would “de facto be creating a third category of worker” — neither an employee nor an independent contractor. The labor federation prefers a national version of California’s AB5 law, which makes it difficult for independent workers to work for themselves. (Many independent workers have noted that the law has hurt them.)

Bill Samuel, the AFL-CIO’s top lobbyist, previously raised concerns that sectoral bargaining also could undermine pay and benefits negotiated through current union contracts. While some union officials think that a one-size-fits-all approach would harm their sales pitch to current and prospective members, advocates of sectoral bargaining have a different focus. The House Democrats’ report from the labor committee recommended it as a way of “eliminating the perceived competitive disadvantage from unionization.” 

Lost in this conversation are the preferences of workers. Polling data repeatedly have shown that gig workers prefer to be their own boss. And under sectoral bargaining, employees in unionized industries would have a harder time getting raises by switching jobs, since all employers would pay the same.

Sectoral bargaining would take flexibility and competition out of large parts of the American economy. The likely results: wage stagnation for employees, fewer options for job creators and independent workers, and higher prices for everyone.

F. Vincent Vernuccio is a senior fellow at the Mackinac Center for Public Policy in Midland, Mich., and president of the Institute for the American Worker. He is the author of a report, “Sectoral Bargaining: One-Size-Fits-All Collective Bargaining for Entire Industries.”