CRITICISM AND COMMENT Is Compulsory Arbitration Compatible With Bargaining? EDITOR:

Collective bargaining in public service industries has occasionally imposed considerable inconvenience on the public. The degree of inconvenience may have been modest in the last major airline strike, but it would have been sub- stantial in the recently averted rail strike. Yet with Congress reluctant to impose compulsory arbitration in any general way, the prospects for avoiding public inconvenience remain dim. Recent contributions in INDUSTRIAL RELATIONS, first by Carl M. Stevens1 and then by Bruno Contini? open a very useful discussion by making specific the contrasts between bargaining and compulsory arbitration. Through such discussion, more effective and more acceptable alternatives may be found.

Stevens pointed out that the “one-or-the-other’’ arbitration criterion would elicit genuine negotiation by disputants before arbitration became necessary. Contini showed how, with bargaining in more than one dimension (e.g., hourly wage rate and retirement benefits), a contract zone is likely to remain even if there is no doubt as to terms which the arbitrator would award. The contract zone was shown to differ, in both cases, from one that would exist without com- pulsory arbitration. We wish to suggest an arrangement that provides incentive for reaching agreement and reducing public inconvenience, without resorting entirely to compulsory arbitration.

This proposal is simple; it increases the costs to disputants of strikes. In most public service labor-management disputes, a “reasonable” settlement is prescribed though not enforced. Under provisions of the Railway Labor Act, for example, a presidential emergency board can recommend a basis for settlement before a strike. Suppose the board also set a daily “public inconvenience” cost, to be borne by the bargainers together, for any period of service interruption which results from failure to agree. Suppose, further, that the public inconvenience burden would be shared by labor and management in proportion as their demands de- parted from the impartial recommendation, or reference point. Labor and man- agement disputants together would be required to face the costs of public incon- venience which they would otherwise be able to impose on others. Although economic pressure for acceptance of the recommendation is increased, the accept- ance is not compulsory, and since both parties face other costs, the daily public inconvenience charge need not be their predominant consideration.

tions, V (February, 1966), 38-52.

Industrial Relations, VI (October, 1966), 111-116.

1 Carl M. Stevens, “Is Compulsory Arbitration Compatible with Bargaining?” Industrial Rela-

2 Bruno Contini, “Is Compulsory Arbitration Compatible with Bargaining?” a comment,

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184 / Criticism and Comment

The public inconvenience charge should reflect the difference in value be- tween the service that is denied by a strike and the best alternative means of satisfying demand for the service. This difference would vary from one service to another, but normally would be only some fraction of the service value. Practical considerations, such as how much disputants could pay and still have a bargain- ing opportunity, limit the amount of the charge. Nevertheless, it could correspond, at least in part, to the inconvenience suffered by those who are harmed by strikes, so that labor and management would not achieve a point which is Pareto optimal with respect to them, but harmful to consumers.

The contract zone created would be quite similar to that which would exist without this procedure. The bargaining process, however, would produce Merent effects. First, a strike would impose greater daily costs on the party that made demands beyond the reference point. Second, concessions in the direction of the reference point would reduce daily costs to the party that conceded and would increase costs for the other party, until one of them reached the reference point. These two effects encourage concessions, but still do not force them on the bargainers.

The public inconvenience charge would involve only one dimension of interest to bargainers. Whenever more dimension. were involved, exchange values would be needed among them in order to determine how much each bargainer’s demand differed from the (vector) reference point. This would require that each party’s initial demand be expressed with exactness, in recognized negotiating dimensions, and that concessions then be registered in a systematic way. Full specification of demands is difEcult to achieve in ordinary negotiations, but more explicit presen- tation of positions can be expected here because each party has an incentive to reveal concessions in order to reduce its share in the public inconvenience charge.

Exchange values among bargaining dimensions would also enable the parties to reach an agreement which both would prefer over the reference pointa4 Using the exchange values, however, both parties could make concessions sufficient to reach the reference point yet still not be in agreement, because their vector of demands could still differ. Since in such cases the parties would not be far from agreement, it might be reasonable to invoke genuine compulsory arbitration when- ever demands by each side were equivalent to the reference point, but not identical.

This proposal achieves some of the negotiating incentive of Stevens’ one-or- the-other suggestion, but without increasing the level of uncertainty. It also avoids the undesirable polarization of settlements which could result when only two final demands are considered. But it is less effective in preventing public inconvenience, since it does not forbid strikes altogether; it only confronts bar- gainers with some of the costs of public inconvenience. In not avoiding strikes, it also falls short of proposals such as the “nonstoppage” strike or the “semistrike,” which impose penalties on parties when they fail to agreeq4 But such proposals seriously alter the contract zone and tend to weaken the incentive for agreement.

3 0 n the contract range, CD, illustrated by Contini (op. cit., p. 113), there would be one prominent point determined by the exchange value of the two variables and the reference point. If the reference point falls in the CD range, of course, no jointly preferred alternative agreement will exist.

4 See David B. McCahont, “The Semi-Strike,” Idirstrial and Labor Relations Reuiew, XV (January, 1962), 191-208.

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Our proposal leaves the parties free to strike, but confronts them with more than just their own strike costs, in a way that invites concessions and hastens agree- ment.6

Proceeds from payment of public inconvenience charges might be applied toward the costs of government-provided labor activities, especially for public service industries. In some cases, the charges could actually be transferred directly to the consumers who were inconvenienced by a strike. If only those who pur- chased a service were to be compensated in event of a strike, however, persons might purchase the service just to receive compensation in case of a strike. Such speculative purchase could be avoided by selling the service for an anticipated strike date and after, without a cancelIation right. Such an arrangement would be possible for services that can be contracted for in advance, as in the case of travel tickets.

Although there is room for great variety in particulars, a proposal of this gen- eral form offers the important economic resource allocation virtue of placing on those who take actions the cost consequences of their actions. Since this would increase costs for both labor and management, neither can be expected to embrace the proposal. But anyone who seeks to preserve collective bargaining as an insti- tution should be concerned with means by which bargainers can be made to consider the costs they now impose on others. The burden that falls on consumers is greater in public service industry strikes because the consumers usually do not have convenient alternatives to services that are publicly provided. Thus the inconvenience of consumers might be considered here, but not in the case of a strike involving one firm in a competitive industry.

ROGER SHERMAN Assistant Professor of Economics University of Virginia

6 The basis of sharing penalty charges as demands depart from a reference point could be applied to nonstoppage strikes or semistrikes. The consequent incentive for concessions might be so compelling as to eliminate bar aining, however, even though the need for compulsory arbi- tration is not so great when no s d e occurs.