an inquiry into the interaction of bargaining powers in the work atmosphere

7/30/2019 An Inquiry into the Interaction of Bargaining Powers in the Work Atmosphere.

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AN INQUIRY INTO THE INTERACTION OF BARGAINING POWERS IN

THE WORK ATMOSPHERE

Project Submitted to

STELLA MARIS COLLEGE (AUTONOMOUS), CHENNAI-600 086

In partial fulfillment of B.A. Degree in Economics

Subject Code: EC/ME/RA64

By

Ms. Tejaswi Subramanian

10/EC/274

Department of Economics

STELLA MARIS COLLEGE (AUTONOMOUS), CHENNAI-600 086

April 2012

Ms. TEJASWI SUBRAMANIAN

Department of EconomicsStella Maris College (Autonomous)Chennai 600 086


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DECLARATION

I, Tejaswi Subramanian, hereby declare that the project in the broad area, AN

INQUIRY INTO THE INTERACTION OF BARGAINING POWERS IN

THE WORK ATMOSPHERE, submitted by me in partial fulfilment of the

Degree of Bachelor of Arts in Economics, is a record of the project work done by

me during the year 20112012 and that this project has not formed the basis for

award of any Degree or Diploma, Associate Fellowship or other Academic

Courses.

(TEJASWI SUBRAMANIAN.)

Place: Chennai

Date: 27th March, 2012

Counter signed

Dr. Ms. CRYSTAL DAVID JOHN Dr. Ms. CRYSTAL DAVID JOHNHead of the Department of Economics SupervisorStella Maris College (Autonomous) Department of EconomicsChennai 600 086 Stella Maris College (Autonomous)

Chennai 600 086


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CERTIFICATE OF THE SUPERVISORS

This is to certify that the project, AN INQUIRY INTO THE INTERACTION

OF BARGAINING POWERS IN THE WORK ATMOSPHERE is a record

of the project work done by Ms. Tejaswi Subramanian. a full time B.A. student,

in the Department of Economics, Stella Maris College (Autonomous), during the

academic year 2011 2012. The subject on which the project has been prepared

is her original work and it has not formed the basis of the award to any Degree,

Diploma, Academic Fellowship or other Academic similarities

This project represents an entirely independent work on the part of the candidate

but for the guidance given by us.

Place: Chennai

Date:

Dr. Ms. CRYSTAL DAVID JOHNSupervisorStella Maris College (Autonomous)Chennai 600 086


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ACKNOWLEDGEMENT

I would like to acknowledge the staff of the Department of Economics; Stella

Maris College (Autonomous) for giving me the opportunity to chose the

Economic Research and Analysis course as a major elective, thereby providing

me with an insight into the world or research. In addition, I assert my gratitude to

my supervisors, Dr, Ms. Regi Manimegalai and Dr. Ms. Crystal David John for

their constant guidance and support. I owe thanks, for their contributions to and

participation in my survey, to the respondents.

My deepest gratitude and appreciation to my family, and my batchmate,

Ms. Arushi Hegde, for having provided unconditional support throughout the

process of this research project.


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LIST OF TABLES

TABLE 2.1-SUMMARY OF REVIEW OF LITERATURE


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TABLE OF CONTENTS

Title i

Declaration ii

Certificate of the Supervisors iii

Acknowledgement iv

List of Tables v

Table of Contents vi

Chapter I: Introduction 1

II: Review of Literature 4

III: Analysis and Interpretation 14

IV: Inference and Conclusion 28

Appendices A: Questionnaire and Survey Results 40

References 46


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Chapter I: Introduction

Every factor of production comes at a price. For labour, the price tag is the wage.

The point of debate is that, labour is unlike any other factor of production. It is

the source of all factors of production, as Marxians would put it. It is animate

with a mind of its (their) own, more mobile than any other factor, and with a

productivity chart unlike any other. Given these characteristics of labour, the

mainstream opinion tends toward segregating the wage of labour from the price

of other factors of production. This has led to one of the most widespread

legislation in the field of economics- minimum wage legislation. The populists

laud this. The economics of such legislation, however, speaks otherwise.

Objectives-

1. To articulate the efficiency and completeness of a contract negotiated in a free-market by the employer and employee, by charting out a feasible course of

adjudication.

2. To highlight the pure economic rationale behind the possibility of achieving thepoint of Nash equilibrium in a negotiation between employer and employee

without interferences in the process, in the form of wage legislation, labour

relation authorities, etc.

3. To identify logical inconsistencies, if any, in the justification of the choicesbetween the two bargaining methods of collective of individual bargaining, by the

participants of the survey.


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Hypothesis-

A major hypothesis in this study would be the assumption of an entirely free

labour market, wherein market forces will react so as to reach a favourable

situation- possibly one more favourable vis--vis the achievements of the

Minimum Wage Legislation.

Scope-

This study will be especially helpful in countering the claims of the supporters of

labour unions and those of similar thought regarding this subject matter, with

respect to hike or the very importance of minimum wage legislation.

Importance-

The researcher has tried to widen the perspective of the debate regarding

minimum wage legislation, labour union boards, employer-employee

relationships, and such through the use of contract theory, the Nash equilibrium,

and popularly-observed tactics of negotiating of better terms for self, by

individuals in varied settings.

Limitations-

The thesis, in the authors opinion, has been successful on various levels.

However, a major limitation to the thesis is the scale of the project. The surveyed

sample size is a small group of 50 people, who represent various walks of life, are

employed in a variety of economic activities, and reveal wide-ranging political

views. Limitations present themselves in the form of the possibility of the

participants ability, or rather the lack of, in articulation and comprehension of the

ideas and questions presented to them, which could further be exacerbated due to


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the paucity of time, limiting the prospect of conducting a research of much larger

scale, and thoroughness.


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Chapter II: Review of Literature

The researchers quest into the interaction of bargaining powers in the work

atmosphere began with reading newspaper articles about the disheartenment

expressed by those who fall into the high-income bracket, as ascertained by the

government of USA for taxation purposes, with respect to meeting, not only their

needs, but their wants- which the researcher believes that, they are entitled to, as

free beings. One of these outspoken individuals pointed out that, despite living on

an income of more than quarter a million dollars a year, during the annum of

2011-12, he finds his money just enough to round off his expenses with respect to

insurance, doctors bills, utilities (usually with references to water, electricity,

gas, sewer, and garbage pickup), day care facilities, groceries, gasoline, cell

phone bills, maintenance of assets, and no-frills cable TV, when living in a major

conurbation such as Chicago, and New York City.

Having studied the relative income hypothesis proposed by James Duesenberry,

who concluded that- i) aggregate saving rate is independent of aggregate income,

which is consistent with time series evidence, and ii) the propensity to save of an

individual is an increasing function of his or her percentile position in the income

distribution, which is consistent with the cross-sectional evidence(a), the

(a) (2007). International Encyclopedia of the Social Sciences, 2nd Edition. In W.A. Darity, Jr., (Ed.), Relative Income Hypothesis pp. 153-154 USA:

Macmillan Reference USA.


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researcher has come to recognize that such a bracket is not justified, as the value

of money to different members of different societies is different. Taxation and

other governmental interventions affect them differently. Moreover, given the

permanent income hypothesis, peoples spending patterns also need not

necessarily by equal even if they hail from equal contemporary economic

standing.

Given the governments claim to promoting welfare of all the citizens it presides

over, it introduced several interventions such as minimum wage legislation and

labour unions so as to help the bargaining powers of the lay-workman in the work

atmosphere. He must, the claims go, be protected from exploitation perpetuated

by the employer through these adopted channels, by laws dictating their course.

However, on being introduced to the marvellous paper on The Bureaucracy and

Democracy in Labour Unions by Will Herberg, the researchers doubts on the

methods adopted by the governing authorities so as to rid the employees of the

burden of being exploited, grew further. The paper elaborates on what Mr.

Herberg views as a curious paradox- that of the less freedom experienced by

the ordinary union member in relation to his own union leader than he does in

his relation to his employer. Although not without its shortcomings, the clear

deconstruction and reconstruction of this paradox, and the rationale exercised by

Mr. Herberg in the paper is so balanced and succinct, that the researcher finds it

hard and unjust to summarize the paper any further. However, the researcher

found this paper complete in so many aspects, that the researcher did not chance

upon another paper or analytic work, during the course of this research work,

which presented worthy information that were not covered or coherently argued

against, in this paper.


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Next, the researcher came across papers that argued for and against minimum

wage legislations. The researcher witnessed the assumption of several dimensions

to these arguments, the summary of a few of which, are presented henceforth.

In his publication in the Annals of the American Academy of Political and Social

Science (1913) titled The Minimum Wage as a part of a program for Social

Reform, Dr. Henry R. Seager analyzes wage, as an aspect of social reform, with

respect to the American society of the early 1900s. He does so, from two

perspectives- as a source of sustenance and stability, and as a route to growth

aimed at higher living standards, for the wage-earner. His is an empathetic view

of what he deems to be the substandard living standards of those, who despite

exchanging their labour, ethically, for wages, do not receive living wages. He

also emphasizes on the bias of the labour market, during the times contemporary

to his writings, against women and girls, who, he asserts, neither have the

incentive to learn, nor the opportunity to have learnt special skills which might

equip them to be more competent in their fields of work, which are simply an

interlude-like phase that is followed by marriage and home-care.

The primary importance of this paper is that it outlines the concerns that led to the

very first deed of regulating wages in favour of social reform. However, what

does not appeal to the modern mind is the fact that his methods seem to aim at

reducing the factors that, he believes, leads to the recruitment of the underpaid

and unskilled, i.e., the women and children. In the authors opinion, the methods

prescribed by Seager in his aforementioned paper, which include setting up a

fund so as to provide unemployment and old-age benefits, along with social,

health, and life insurance to the male, earning-member, so as to compliment the

minimum wage legislation itself, will be disincentivising and will cause the


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individuals to shirk their duty and potential of contributing to the society, their

personal skills and labour of whatever value they might be, because of pre-

pegged, communalized values assigned to such contributions. As far as

economics goes, the paper seems to project the creation of a utopian economy

where needs, which otherwise necessitate invention and innovation- technological

or otherwise, will be gotten rid of, by invoking government fiat. The researcher

believes that the long-term economic basis of such prescriptions is highly

unsound.

The third piece of literature reviewed by researcher to further her research

background in the completion of this thesis is sourced from the Harvard Law

Review, dated May 1918, wherein was published an article titled The Legislative

Minimum Wage. The piece attributes the then-newly constituted statutes

prescribing minimum wages in certain states of the United States of America, to

decisions reached upon careful review of scientific recorded experiences. It

argues against the accusation of minimum wage legislation to be in violation of

the Fourteenth Amendment, which guarantees and protects the freedom of

contract, by justifying it to be on par with the enforcement of police power in the

state, and labelling freedom of contract a qualified right. However, with calling

for an evolving (and implicitly growing) political institution in response to

changing social and economic needs, the article makes, what the researcher

perceives to be, the grave mistake of not analyzing the possibility of favourable

outcomes of such social and economic needs, thoroughly enough. The article

imprudently defends minimum wage legislation with a premise that, in the

researchers opinion, confuses ethical idealism for economic analysis, and

laissez-faire system for do-nothing negativism.


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A fourth paper reviewed by the researcher was The Minimum Wage: Does it

Really help workers? by Paul McCormick, and Walter Block. The paper heavily

relied on the views of economists like Henry Hazlitt, and conveyed the

researchers views that raising the minimum wage level eventually leads to

reduced purchasing power of the salaries of the people, therefore cancelling out

any prospective positive effects of such a raise, making it nothing more than a

political faade that reflects indulgence in vote-bank politics.

The paper also sources on empirical evidence that focuses on teenagers, who

form the bulk of the minimum wage workers in the American society. Minimum

wage legislation will eventually drive more teenagers into unemployment as the

new level of wages prescribed by the legislation cannot be afforded to employ

people of lesser skill levels, despite such people willing to work for lesser wages.

George Stiglers The Economics of Minimum Wage Legislation is a neatly

structured paper that begins by posing two of the most important questions with

respect to minimum wage legislation. These questions are prefixed by declaring

the stated goal of such legislation- to eliminate poverty. However, does such

legislation actually reduce poverty? Are better, more viable alternatives

available? To answer these questions, he classifies the analytic route under 4

heads-

a) The consequence of such legislation on resource allocation- Stiglers analysis

lays emphasis on both sides of the economic relationship. Whether the wage is

competitively-determined or employer-determined (the latters effectiveness,

which minimum wage legislation seeks to reduce), the employees and employers

duly react so as to effect allocation of resources, which he concludes after


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inquiry, with the interference of minimum wage legislation, would result in lower

aggregate output, leading to further reduction in the income levels of already low-

paid employees, thereby, not achieving its stated goal.

b) The effect on aggregate employment- The higher the minimum wage, the

higher the number of workers discharged, as a result. If the government seeks

greater good, then minimum wage legislation affects such aims adversely.

c) Effect on family income- Those lesser-skilled workers who are discharged by

employers, for want of meeting minimum wage payment requirements, will be

reduced to jobs in the unorganized sector. Their family income will be affected

for the worse with the onset of the minimum wage legislation. Additionally,

prescribing minimum wage legislation on an hourly, daily, weekly, or monthly

wages is based on the hazardous assumption that all workers are employed all

year round. Such minimum wages, even if effective in all other arenas, can only

be prescribed for when consistency of employment can be guaranteed. However,

in certain sectors of the economy, need for employment is concentrated only

during certain times of the year. If minimum wage laws were to be executed for

such workers as well, then the impact on their family income will be

devastatingly negative.

Thirdly, governments ought to prescribe minimum wages, taking into

consideration the family that an earner must support. These members of the

family may not be direct contributors to the economy, but the services of the

housewife are important, and the children, when well-nourished and

intellectually-capable, will one day form the pillars upon which the economy of

the future will rest upon. Given this, how is one to judge the number of members


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that the earner must support? If the assumption tends to the more generous side,

then earners who do not have skills to be fairly paid the minimum wage to

support such large families will inevitably be displaced, and if the assumption

tends to be judicious, then those with larger families will be immiserized. Last,

but not the least, the recommendation of minimum wages is based upon the guess

that all families income come from such a source. However, this may not be the

case. Certain families may have investments from which they may earn income

(whether large or small), while others may not.

d) Suggested alternatives to combat poverty- Stigler admits his inexperience in

the field of policy, but recommends that impairing incentives is not the way

forward in the process of accomplishing the removal of poverty. He urges the

government to explore other ways of determining that people experiencing equal

shortages of resources to be helped equally, and that the tax base be widened to

more economic classes, with the imposition of negative taxes on the lower rungs.

The researcher is however, questions these suggested alternative. The researcher

sees light in the fact that the non-impairment of incentivising productivity can

only occur in a market left free without such distortions and interferences as the

researcher has explained in pages that are to follow.

Given the time constraints, the researcher could not delved entirely into the vast

literature discussing the economics of minimum wage legislation. However, a

glance through several research papers and other publication regarding this topic

shows that this is a much-disputed area of study, with several speaking in support

of minimum wage legislation, while the economics, in the researchers humbly

informed opinion, speaks otherwise.


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TABLE 2.1: SUMMARY OF REVIEW OF LITERATURE

Author

(Date)

Data Source Estimate

Method

Key Results

Will

Herberg

- EmpiricalAnalysis

Aims at aiding the reader

to recognize the

recognition of the

paradoxical values and

practices of labour unions.

Dr. Henry

Rogers

Seager

Bureau of Labor

Statistics, United

States

Department of

Labor; UK

National

Statistics;

Statistisches

Bundesamt,

Germany;

Time

series

analysis,

Variation

Analysis.

Minimum Wage

Legislation needs to be

complimented by a

number of welfare

measures such as

unemployment benefits

and insurance policies so

as to reduce the number of

lesser-skiller labourers

who cannot be afforded to

be paid minimum wages.

- Bureau of LaborStatistics, United

States

Department of

Labor

Legal

Analysis,

Variation

Analysis

Justifies governmental

interference in employer-

employee contracts, by

classifying property rights

as qualified rights. Calls


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for minimum wage

legislation, and deems it to

be a solution to changing

economic and social

needs.

Paul

McCormick,

Walter

Block.

Secondary Data Empirical

Analysis

Minimum Wage

Legislation invokes

governmental fiat causing

fall in real value of

currency, thereby causing

more harm, than good.

George J.

Stigler

Family Income

of Chicago,

1935-36;

Minnesota

Incomes, 1938-

39; Census of

Manufactures,

1939;

Empirical

Analysi

Alternatives to minimum

wage legislations must be

explored, given the pitfalls

with relation to it.


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Chapter III: Analysis and Interpretation

How do you know when you have arrived at a Nash equilibrium? In a two-person

game, such as the employer-employee relationship, it is when neither individual

has an incentive to change his behaviour. To further discuss this relationship in

the light of that statement, it is imperative to describe the premise of this

association.

The employer-employee relationship is one of principal and agent. In this context,

the principal, i.e., the employer desires to remunerate the agent, i.e., the

employee, such that he/she is motivated to act towards the fulfilment of the

principals intent. In return, the employee complies with the employers

stipulations, and is compensated as seen acceptable by both parties. This contract

will be comprehensive as long as there has been a free flow of all related

information, as allocation of resources among asymmetrically informed parties

[1] is unsound.

Such information gaps lead to the imbalance of fulfilment of the interests of the

two parties. A disadvantageous situation for the employer will be when the rate of

compensation of the factor of production involved is higher than the subsistence

level. This will increase the cost of production of the end-product, and will reduce

the amount available for payment of the other factors involved. This is an upshot

of the moral hazard professed in the demands of the employees. The moral hazard

here is the fact that despite the persisting subsistence wage level of the

[1](2008). The New Palgrave Dictionary of Economics, 2nd Edition. In S. Durlauf,

Blume L. (Ed.), Contract Theory


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employees, they do not seem to have entered the contract of employment in good

faith. As a result of the increase in wages paid in the organisation, eventually,

there may be three outcomes-

a) Decrease in the wage rate. This can be done by offering incentives born out ofmethods of profit-sharing, if necessary.

b) Fall in the dividend payout to investors leading to a fall in investor interest in thefirm.

c) On a macroeconomic level, increase in the price of goods and services in theeconomy, which will reduce the hike in the wage rate to a nominal increase,

thereby cancelling out any real value of the raise. Therefore, the increase in the

consumption basket of the wage-recipients is rendered an illusion in the long-run,

as price levels increase too.

A situation arises- d) The lose-lose result of such a state of affairs would be when,

the employer, given the steep increase in the cost of factors of production, cannot

optimally, efficiently employ them in the production process, and in turn, is

forced to lay-off some of his/her employees.

In the case of unrelenting carry-over of this practice, this could become a vicious

circle involving steps (b), (c), and (d), which could only be fixed by taking

measures to enforce step (a).

On the other hand, a result of adverse selection on the part of employers who

misestimate the level of wage rate required to keep employees motivated, based

on their access to incomplete information regarding the sufficiency of the income

of the employees, will consequently lead to-


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a) Increase the wage rate, so as to stimulate the production process optimally.b) Decrease in the profits and quality of the output, as a result of the lack of impetus

to produce. This will again lead to disinterest in investing in the firm.

c) On a macroeconomic level, there will be a glut due to mismatched price levelsand purchasing power. Besides, those who can afford the product at the existing

high price level will prefer not to purchase it because of the poor quality of the

good/service.

Here again, it is foreseen that the situation is as follows- d) Due to low motivation

levels of the employees, they will be forced to seemingly commit an act of moral

hazard, wherein they will not try to work hard enough to further the employers

intent. Seemingly because, the employee defects only because the employer

fails to fulfil his end of the contract, i.e., remunerate the employee in such a way,

so as to motivate him to perform the employers stipulations. At this stage again,

the factors of production will not be put to efficient use, causing a vicious circle

involving (b) and (c), which could only be ideally rectified by enforcing (a).

Reaching a Nash equilibrium to chart the arbitrative process between the

employer and the employee, will help us project the possibility and the reality of

a win-win situation wherein the employers management of investment in the

production of the output is seen as successful, and the employee is duly

compensated for his/her competence in deliverance. Each party will aim at

adopting a strategy which helps them achieve what is best in their own self-

interest. The employer will aim at keeping the wage level as low as possible,

while the employee will negotiate for a higher wage level. Striking a deal means

finding common ground.


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Consider the following payoff table, given informational symmetry. The first

coordinate in each case is the response of the employer, while the second is that

of the employee -

Employee

Pay Hike Lower Pay

Employer Pay hike (1,2) (0,0)

Lower pay (0,0) (2,1)

The best responses are as follows-

- Response of employer:1. Given the response of Pay Hike by employee Pay Hike.2. Given the response of Lower Pay by employee Lower Pay.- Response of employee:1. Given the response of Pay Hike by employer Pay Hike.2. Given the response of Lower Pay by employee Lower Pay.

Naively speaking, there seem to be two Nash equilibria. Realistically, neither of

them will be the outcome. Which strategy must the employer employ? Is Pay

Hike really necessary to keep his employees motivated? Does the employee

think that Pay Hike is a sustainable strategy? While the employer might have

more money to allocate to other factors of production if the wages are lowered, is

it a good long-term approach for the firms long-term sustenance? Similarly, does

the employee think a lower pay will not leave him relatively worse-off in the

long-run, given how it will mean his retention of the job, without necessarily

making him compromise on his major household expenses?


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Let us assume the obvious- the employers pure strategy is that of Lower Pay

2/3rd of the time and Pay Hike 1/3rd of the time. To present a contrasting

outcome, let us also assume that the employees pure strategy is that of Pay hike

2/3rd of the time, and Lower Pay 1/3 rd of the time. Now, to study the two

outcomes in terms of probability-

Employee Employees

corresponding

payoff to

Employers

pure strategy

Pay hike Lower Pay

Emp

l-

oyer

Pay Hike 2/9 1/9 1/3

Lower

Pay

4/9 2/9 2/3

Employers

corresponding

payoff to

Employees pure

strategy

2/3 1/3

There is still no scope of striking a deal as a result of such a negotiation. When

one player uses pure strategy against the mixed strategy of the other, the

intercessional process seems to result in an infinite loop of mimetic responses.

Therefore, both the employer and employee, as corresponding to their pursuance


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of their own self-interests, play mixed strategies. The employer negotiates for a

lower pay, while the employee negotiates for a pay hike.

Employee

Pay Hike Lower Pay Employees

Mix

Employer

Pay Hike (1,2) (0,0) 2/3, 4/3

Lower Pay (0,0) (1,2) 2/3, 1/3

Employers

Mix

1/3, 2/3 4/3, 2/3 2/3, 2/3

With both parties playing their mixed strategies, there is scope for negotiation.

Given how the result cannot be viewed as a zero-sum game, as each party has

something to gain from the inclusion of the other in the distribution of pie, an

integrative negotiation ensues. In such a negotiation, focus will be on creating

value, and developing areas of common ground.

Creating value essentially refers to increasing the size of the pie. Both parties, inthis course, will regurgitate the pros and cons of having and not having their

demands met.

In this process, the employer could propose a hike in employees wage in returnfor a minor increase in working hours per week. The employer could also propose

a hold-up period during which current wage levels will be continued and

employees will undergo training- the expenses of which, will have to be borne by

the employer, so as to enhance their productivity, following which, a hike in wage

rate ensues. The employee could either accept these proposals, or come up with


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proposals of his own wherein, rules regarding leave of absence could be made

stricter, and efficiency wages for the competent employers can lead to the

termination of employment of those who perform lackadaisically. The employee

could also negotiate terms for himself which determine rules for circling on poor-

performers, and warnings to be issued before termination of respective employee

contracts. This is referred to, by negotiation strategists, as claiming value.

A key to this negotiation is, again, a non-adoption of the pure strategy. Each party

will and ought to retain some elements of the distributive bargaining mindset.

They must keep in mind-

1. ZOPA- Zone of Possible Agreement The employee must have a pay-hike bracket, as opposed to a price-mark, in mind,

a number featuring in which he will relent to. If the wage level itself does not

seem justified, then he must also a have a zone of possible agreement with respect

to changes in working hours. The employer must also have such conditions in

mind, which define his zone of possible agreement.

2. Reservation Price- Reservation price is, literally, the product of demand andsupply, and can be defined as the point of negotiation which gives rise to the price

at which the seller will sell, and the buyer will buy.

This can be seen as the product of the negotiation based on the pre-determinedZOPAs of each party. If such a point is not reached, it will result in a deadlock-

the price of which, both parties will pay: The employers by facing a break in the

production process, and the employees by not being remunerated for the

interruption.

3. BATNA- Best Alternative to Negotiated Agreement


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Each party negotiates, keeping in mind the alternate opportunities available tothem. The initiating party of the negotiation, especially, has a sensible, valid

reason on which his bargain is based. If the negotiation completely fails, then he

shall revert to this position. The employee, for example, could relapse into

unmotivated performance, or could seek employment at another firm where his

labour skills could be better appreciated. The employers BATNA could be to

terminate employment of poor-performers, or to attract fresh talent in the

workplace by means of employing those willing to work at offered wage levels.

A survey of 47 employed/ self-employed/ retired individuals was taken by the

researcher to study the behaviour of the participants with respect to their choices

of bargaining methods. This was studied in the context of their location, and

standings on certain issues such as, their political views, previous experience with

individual bargaining, and labour unionism when put forth as slavery. The

youngest respondents were 18, while the oldest was aged 79 years.

Firstly, about 80% of the surveyed were not members of any labour union.

However, the strange occurrence is that while the rest of the participants identify

themselves as union members, not a single one of such respondents volunteered

to name the labour union organisation that they were a part of.

To represent the details of the survey more meaningfully, this study will now be

split into six parts-

a) The people who are not part of the labour union can be further subdivided intoCategory 1.1- Believe labour unions to be effective- 11

Category 1.2- Believe labour unions to be ineffective- 13

Category 1.3- Are unsure about the effectiveness of labour unions.- 14


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b) Those who are members of the labour union can be-Category 2.1- Believers in the effectiveness of labour union- 7

Category 2.2- Do not think of labour unions as effectiveness/ Unsure- 1+1.

Effectiveness, here, can be defined as the successful representation of the

employees views as individuals.

Category 1.1-11

-Out of the 11 people falling into this category, 3 deviated from the status quo and

preferred individual bargaining over collective bargaining.

- 3 people would like no governmental interference in any of the employee-relatedissues.

- 2 chose government regulation in all 3 fields- minimum wage, age-limits forworkers, and labour unionism.

11

1314

7

2

Distribution of the Respondents over

aforementioned 5 categories

Category 1.1

Category 1.2

Category 1.3

Category 2.1

Category 2.2


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- 6 called for government regulation of minimum wage and/or age-limits ofworkers, 1 of whom called for government intervention in ensuring good working

conditions.

- 7 people in this category hail from India. The locations of the other four are USA,and Saudi Arabia.

- 6 people in this category are in the middle management, 2 line management, 2minimum-wage labourers, and 1 self-employed.

- 2 socialist-leaning, 2 liberals, 1 social-liberal, 1 anarchist, 1 right-wing supporter.- 3 chose not to respond to the question pertaining to the political views, while 1

asserted to be affiliated to none.

- Mean age: 36 yearsCategory 1.2- 13

- Although they doubt the effectiveness of labour union, 6 people in this categorycontinue to choose collective bargaining over individual bargaining.

- 4 out of these 6 people believe that there is a need for government regulation infields such as minimum wage and setting of age-limits of workers, and

government involvement in union.

- 2, who prefer individual bargaining, called for government regulation in the fieldsof age and minimum wage.

- 6 people in this category are from India. The rest of the people hail from locationsin the USA, Sri Lanka, Sweden, and Norway.

- Constitutes of 3 senior management employees, 3 middle-management, 2 linemanagement, 4 minimum wage labourers, and 1 self-employed.

- 8 did not respond to the question regarding their political views.


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- 1 is politically apathetic as long as governance is corruption-free.- 1 Libertarian capitalist, 1 Conservative, 1 Utopian Socialist, 1 Liberal.- Only 5 respondents have revealed their age. Given this data, mean age is

estimated at about 32 years of age.

Category 1.3- 14

- While they felt unsure about the effectiveness of labour unions, a majority of thepeople- number up to 7, continued to believe that collective bargaining would be

more effective than individual bargaining.

- 5 supported government regulation in all fields; 4 in none.- 5 called for regulation of minimum wages and/or workers age-limits, while 1

approved for age-limit regulation and government intervention in labour

unionism.

- 9 people hail from India. 4 others are from the USA, 1 from Dubai, UAE.- 4 Middle Management, 3 Line Management, 3 Senior Management, 3 Self-

employed, and 1 minimum wage labourer.

- 8 did not respond to the query about their political views.- 1 Left-libertarian, 1 Libertarian-minarchist, 1 Conservative, 3 politically-apathetic

as long as governance is good.

- Mean age: 33 years.Category 2.1- 7

- In a contradiction of sorts, 1 person who falls into this category among others,preferred individual bargaining over collective bargaining.

- 2 sought government regulation of all fields.


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- 4 sought government regulation of minimum wage and/or age-limits of workers,while 1 called for government regulation of only labour unions.

- All 7 respondents in this category are positioned in India.- 2 Senior Management, 2 Middle Management (1 Retired), 1 Line Management.- 4 chose to not respond to the question regarding to their political views.- 1 Right-wing supporter, 1 Liberal,1 Politically-neutral.- Mean age: 42. 2 years.

Category 2.2- 2

- Both respondents in this category preferred collective bargaining.- The respondent unsure of labour union effectiveness preferred no government

regulation in any of fields related to employees and workers.

- The respondent, who believed that labour unions were ineffective, soughtgovernment regulation of labour unions.

- The location of both respondents is in India.- 1 Senior Management, 1 Middle Management.- The unsure respondent is politically apathetic, while deeming government to be

a necessary evil. The other chose to not respond to the question regarding his/her

political views.

- Unsure Respondent: 54 years. Other respondent: 45 years.


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Chapter IV: Inference and Conclusion

Distortion of this free-market negotiation approach to setting of wage-level can

occur in two ways-

a) Labour Unionism i.e., Collective Bargaining;b) Prescription and enforcement of a minimum wage by governing authority.

Such distortions are usually the result of interventions to correct market failure.

The market failure as seen by those seeking to fix a minimum wage, in the wage-

negotiation process, is that the market-clearing wages are not sufficient.

However, in reality it is not so. If the free-market mechanism is allowed to

operate by itself, very soon the prices will adjust themselves to new levels that

guarantee sufficiency, because the malfunction of not making such an adjustment

will lead to further market failures that will be disadvantageous to people from all

stratus of the economy, involved. It is only distortions such as these, which may

have good intentions, which lead to further inefficiency in the market, leading to

market failures on a larger scale, which will cause market failures larger than the

one they aimed to resolve.

Labour Unionism and Collective Bargaining-

While most supporters of labour unionism laud the idealistic benefit of the

supposed joint problem-solving methods adopted by the management and the

labour unions, due to their enforced equal standing, these claims are nave at their

best.

In reality, labour unionism often creates polarizing tensions between the

management and the labourers, as it antagonizes the abilities and the goals of the


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former. In fact, it dilutes the power of the management and the employer, within

their own business enterprise, by calling for the interference of external entities

such as the Labour Relations Board. Moreover, given the representative form of

the labour union, it awards higher responsibility and power to the few active

employees in the bargaining unit, despite the larger-encompassing faction,

thereby creating even more layers of hierarchical structure, promoting

informational asymmetry.

The practices of labour unionism, which is often characterized by the Labour

Relations Board recognizing and, in the process, authorizing a labour union to be

the representative of all employees and employee designations falling under its

delineation, also often outlaw the non-union minority, while alienating their

voices and possibility of contribution. This is a violation of their rights of

negotiation, and forces them to partake in the activities of an institution whose

claims and/or ideologies they are not partisan to, for whatever reasons it might be

so. This entails compromises on those conflicting beliefs and opinions of the

relative minority, despite commonality in bearing the consequences of the

outcome.

Moreover, the practice of negotiating remuneration for the collective, with the

entire management, will not only be cumbersome and time-consuming, but will

imply that the individual incentive to shirk will increase as the abilities and

competency of the majority will be the modus operandi for the individuals.

Several people falsely continue to believe that labour unions have helped achieve

the Marxist goal of uniting the labourers, and therefore, have helped create a

monopoly of sorts, on the value and contributions of the labour. However, in


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reality, this unity in the value-creating power of labour, is blurring the idea of

retaining the ownership of labour value by the person delivering it, and has

resulted in the labourer being subject to specified influence. In short, the labourer

has been reduced to slavery to the collectively bargained terms of employment of

the labour union. Therefore, the connotation of balancing out the power of the

monopolized pricing of factors in the market by the capitalist, with the power of

setting a monopoly price for labour is based on false assumptions. This is because

monopoly pricing arises out of monopoly over a given good that leads to

manipulating its pricing through its supply to meet an inelastic demand for that

good. However, labours essential quality is the impossibility of its monopoly,

growing from the fundamental theory of every individual being a self-owner [2].

Therefore, the very argument for labour unionism to further the cause of

collective bargaining is a violation of the inherent property right to self-own

labour, and direct its productivity in whatever field and manner he she chooses,

with various levels of application.

In the survey taken by the author, one respondent, 38, from India, who described

himself as a liberal, succinctly described collective -bargaining as cartelisation,

leading to the creation of labour aristocracy, and lesser efficient companies and

fewer jobs.

Minimum Wage Legislation-

The authors main point of contention when pertaining to minimum wage

legislation is that, in the long-term, it is unnecessary and redundant, given how

the wage-markets have the tendency to move toward the subsistence wage-rate.

[2]Rothbard, M. N. (1963, May ). Restrictionist Pricing of Labour. The Freeman, 11-16.


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Secondly, the researcher has observed in the surveys that she conducted that,

minimum wage legislation- a mechanism to set the price floor for the employee,

inadvertently leads to the setting of the price ceiling, with little leeway for

bargain, for the employer- the payer of the price to the employee. The question

posed by the employer is that, if the minimum wage is enough for the labourers

sustenance, why must he be paid more?

Several critics of minimum wage legislation have sought its enforcement

separately for adult males, adult women, and those below the age of 18. The

researcher however does not see light in the argument, and feels that it is

especially unhealthy to prescribe a minimum wage for minors because this will

lead to several not receiving employment, which they actively seek. On the other

hand, the researcher finds it more sensible for the minors to be offered payment

on the basis of mutual agreement between the employer and him/herself, based on

his/her skills, competency, and job-requirement.

Inference from the Study conducted-

A common occurrence throughout the study conducted is the overwhelming

support for collective bargaining. When asked for the justification of their beliefs,

several respondents cited that collective bargaining sourced its effectiveness from

the unity of the voices.

The researcher feels that reaching such a conclusion distorts the perception of the

reality of collective bargaining. Collective bargaining is most always in the form

of representation during negotiations, and the embodiment of sheep mentality

during instances of staging protests and strikes. The unity of voices occurs only

in the case of a group of individual beings representing nobodys beliefs, ideas,


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and concerns other than their own. If these individual preferences in turn align

themselves into a shared, collective concern, then we find that the occasion of the

unity of voices manifests itself.

However, such a representation is seemingly far-fetched, as most often, there is

bound to struggle over the position of leadership, power- in terms of having the

final word, and individual differences which may stem out of personal discord,

professional jealousy, political differences, sexual tensions, or simply because of

sentiments of intimidation, disapproval, and other ill-consequences of group

dynamics. This is because, when in a group, individuals must either forge allies

by adopting the cattle mindset, or suffer fallouts because of the absence of the

utopian concept of equality in a collective setting.

Inference #1- Age and Collective Bargaining

36

32 33

42.2

45

0

5

10

15

20

25

30

35

40

45

50

Category 1.1 Category 1.2 Category 1.3 Category 2.1 Category 2.2

Age of respondents per Category

Mean age (in years)


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The Categories 1.2 and 1.3 have the lowest mean ages in contrast to the other

categories. The nature of these categories portrays the individualism of the

respondents, with Category 1.2 showing a higher degree of individualism than

1.3. Individualistic criteria which specifically include accepting responsibility for

ones action, deciding on ones beliefs and values, establishing an equal

relationship with parents, and becoming financially independent[3], are established

to be staple psychological characteristic of younger generations. This could be

viewed as one of the explanations for the younger mean-age of the respondents of

this category.

Secondly, the younger generations are much more likely to be employed in areas

that require working familiarity with technology, especially information

technology. The IT-sector, largely, does not have any sort of representation of

employees in the form of labour unions. This could be yet another reason why,

those falling under this category, were neither represented by labour unions, nor

were particularly for the concept of labour unionism.

[3 ] Arnett, J. J. (2001). Conceptions of the Transition to Adulthood: Perspectives From

Adolescence Through Midlife.Journal of Adult Development.


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Inference #2- Views on governmental interference and collective bargaining

In both the graphs, the representation of Category 1.1, Category 1.3, and

Category 2.1, show a large degree of correlation. Since, Category 2.2 has only 2

respondents, the inference from this category is a not considered. In Category 1.2

however, the difference between the two graphical representations are stark.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Category

1.1

Category

1.2

Category

1.3

Category

2.1

Category

2.2

Participants for any kind of

government regulations

Participants for no

governmental regulations

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Category 1.1 Category 1.2 Category 1.3 Category 2.1 Category 2.2

For collective

bargaining

For individual

bargaining


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While more than 70% of the respondents in Category 1.2 believe that

governmental regulation is required, regardless of extent, only about 40% of them

are for collective bargaining.

Though the researcher realizes that correlation is not causation, this pattern is

more than convincing, as both these graphs represent ideological standpoints. One

of the primary conclusions drawn by the researcher is that the respondents falling

into the category 1.2 have been able to relate to their positions in the workspace,

but have not been able to picture the nature of their participation in the political

setting. Before the researcher draws further conclusions, it is important to look

into the physical background of the respondents of Category 1.2.

0

2

4

6

8

10

12

14

From India

6

4

1

1

1

From Sri Lanka

From Norway

From Sweden

From USA

From India


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The respondents falling under Category 1.2 hail from these following countries,

with the corresponding governance types-

Country of location Government

Setup

India Parliamentary

Democracy

United States of America Liberal

Democracy

Sweden Parliamentary

Democracy

(Constitutional

Monarchy)

Norway Parliamentary

Democracy

(Constitutional

Democracy)

Sri Lanka Parliamentary

Democracy


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The principle of majority rule is central to democracy, whether Liberal or

Parliamentary. In the context of labour unions-

In India, while the Trade Unions Act, 1926, provides for registration of Unions,

the recognition of these unions as sole bargaining representative is legislated by

the states. For example, the State of Maharashtra has the Maharashtra

Recognition of Trade Union and the Prevention of Unfair Labour Practices Act of

1971. Recognition of these unions occurs when the majority of the employees are

part of the Union, therefore deeming the Union as the go-to for negotiations with

the employer. This answers the whom to deal with question of collective

bargaining.

In USA, the Principle of majority rule in collective bargaining was extended to

most of the American Industry under the Wagner Act, 1935. [4]

In Sweden, collective bargaining through recognized unions is the sole system of

wage formation, and the collective bargaining density is over 90%, and the trade

union density is a little less than 70%. The terms are dictated by the Saltsjobaden

Agreement between the Swedens Employees Federation and the Norwegian

Confederation of Trade Unions. Similarly, in Norway too, the channel for

consultancies over redundancies and transfers is to go through the Union

Representatives.

[4 ] Weyand, R. (1945). Majority Rule in Collective Bargaining. Columbia Law

Review.


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Sri Lanka is the only exception to this list. The country has a long tradition of

anti-unionism, and while they are required to be registered, no labour union is

recognized as the sole bargaining representative.[5]

Research conducted by the Wason Selection Test, developed by Psychologist

Peter Wason, whose results depict why ordinary, mature, rational adults are prone

to simple logical blunders, says that adults find it relatively easier to relate to

concrete, realistic problems[6](such as majority rule in collective bargaining

through labour unions), than comparatively abstract versions (such as majority

rule in collective bargaining through democratic tools in electing the

government).

The researcher concludes that this is perhaps one reason why the views of

respondents on collective vs. individual bargaining, may not be in alignment with

their corresponding views on government regulations in various fields related to

employees.

[5] Gunatilaka R., ILO, Colombo. (2001, Feb) Freedom of Association and

Collective Bargaining in Sri Lanka: Progress and Prospects.

[6 ]Krauss, S. (2012, Feb ). How to remain productive and healthy into your later

years. Psychology Today.


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Questionnaire and Survey Results-

1. Are you represented by a labour union/guild (or any other association in yourwork environment)? Please disclose the name, if comfortable.

2. Do you feel that your opinions and concerns are appropriately voiced andaddressed through this forum?

3. Are you active on this forum?


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4. How active are you? Tick the following that apply.

5. Do you feel compelled by peer pressure to be a part of this forum? If yes,would you go so far as to call it slavery to collectively bargained terms of

employment, because of this compulsion? Note: Slavery defined here as being

subject to specified influence.

6. Collective bargaining vs. Individual bargaining. Which would you thinkwould be more effective for you to negotiate for a pay hike/bonus/vacation/other


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benefits?

7. Have you ever had an experience with individual bargaining? If yes, pleaserecount experience.

9 respondents, constituting a response percentage of 19.1% responded with

comments, wherein they described their experience in their own words. The

following are their responses with any edits, grammatical or otherwise.

Response No. 1: It can be uncomfortable when you need to sell yourself as part of

negotiating for pay hike.

Response No. 2: I talked to my boss alone, and suggested that according to

national statistics most workers in my field had a higher salary than I did, and

thus I asked for more. He agreed and since I am considered really good at what I

do, he offered me a raise.

Response No. 3: Not very successful.

Response No. 4: Negotiated for raise in salary at the time of a job interview.

What worked for me:- 1. Knowing my bottom-line 2. Knowing what I'm worth,

or rather what my skills are worth to the organisation. 3. Spot-on timing.


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Response No. 5: I always negotiate the terms and compensation rates for each

project with the client / employer. If the price isn't right, I go elsewhere. I adjust

my living expenses to fit my income, with room to spare.

Response No. 6: As an individual, you are free to negotiate a salary, and find

some other job if you don't like what you get.

Response No. 7: I have had both success and failure in individual bargaining

experiences. Most positions I have taken have been individually negotiated before

being employed.

Response No. 8: Negotiated them during the interview/hiring process.

Response No. 9: My High School career I refused to do work and eventually led a

cue against the teachers saying their teaching methods were oppressive and unfair

since the class was based on test scores and not ability. Eventually the cue led to a

peer to peer with one teacher 45 minutes a day study session. My job as a I.T.

pretty much sent me to a server room. I worked in the dark with 2 other

employees who were just wanting to shoot up the office. I eventually went to the

Office Rep of our branch and told him hands down if we don't get individual

offices and benefits as everyone else we would have to quit and take all personal

office files with us. We got our offices and the other two got a Kool-Aid drinking

station to this day I am kind of ashamed of that.

8. Was the outcome, in your view, positive or negative?


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Comment No. 5: Age, wage,and regulation,should not be based of rank but

importance of the job.

10.Where do you fit in your work atmosphere?

Respondents were also asked for their age and political views.


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Macmillan Reference USA.

Angell G.W., Academic Collective Bargaining Information Service,Washington D.C.. (1980, Oct) Some Suggested Advantages and

Disadvantages of Collective Bargaining. ( Special Report No. 1 ed.)

Arnett, J. J. (2001). Conceptions of the Transition to Adulthood: PerspectivesFrom Adolescence Through Midlife.Journal of Adult Development.

Frank, R. (2012, Feb 29 ). Struggling on $350,000 a Year. The Wall StreetJournal.

Stigler, G. J. (1946). The Economics of Minimum Wage Legislation. TheAmerican Economic Review, 36(3), pp. 358-365.

(2003).Harvard Business Essentials: Guide to Negotiation. Harvard BusinessPress Books.

Hazlitt, H. S. (1946). Economics in One Lesson. United States of America:Harper & Brothers.

Herberg, W. (1943). Bureaucracy and Democracy in Labor Unions. TheAntioch Review, 3 (3), pp. 405-417.

Gunatilaka R., ILO, Colombo. (2001, Feb) Freedom of Association andCollective Bargaining in Sri Lanka: Progress and Prospects.


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Krauss, S. (2012, Feb ). How to remain productive and healthy into your lateryears. Psychology Today.

Rothbard, M. N. (1963, May ). Restrictionist Pricing of Labour. The Freeman,11-16.

Weyand, R. (1945). Majority Rule in Collective Bargaining. Columbia LawReview.

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an inquiry into the interaction of bargaining powers in the work atmosphere

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