labor economics ii: unions, bargaining, and strikes
TRANSCRIPT
Labor Economics II:
Unions, Bargaining, and Strikes
Strikes: A ParadoxStrikes are irrational
Impose costs on both partiesLike war
Why not skip right to treaty?
Economics presumes rational behaviorHow to reconcile strikes & economics?
Awaiting NHL’s ritual suicide
Key to Strikes:Uncertainty or Mistrust
Again, like warWhat was true in 1861 & 1914?
Everyone thought war would end soon
Both sides expected quick victoryFew want conflict
But fear conceding too much
Conflict a mistake
Illustrating Conflict
Firm willing to accept
Union willing to accept
Contract Zone
Both Union and Firm willing to settle within Contract Zone
Illustrating Conflict
Firm willing to accept
Union willing to accept
Union’s Perceived Contract Zone
If union underestimates firm – may refuse offers in true zone Possible application to NHL?
Serfs vs MagnatesPlayers had little power early on
Recall Reserve ClauseIn NHL: Bobby Hull on “negotiation list”
“Property” of Chicago Blackhawks WHEN HE WAS 11!
Players often hostile to unionsBaseball’s origins linked to gentlemen’s clubs
Player’s League (1890) used non-union labor
That’s why they’re called “players associations”
Union Not Always Dominant
Early unions always failedLed by zealots who worked part-time on union
MLBPA formed in 1954Sole objective: secure pension
Carried to extreme in 1970s & 80s in NHLPALarry Eagleson head of NHLPA
Also agent for specific players Contracted with owners on Canada CupServed time for mail fraud
Sense of betrayal has made players mistrustful
Marvin Miller: The Man Who Changed
SportsWas economist for United Steelworkers
Lost position in mid 1960s cuz “too conciliatory” MLBPA’s first full-time director
Unlike previous union leadersNot lawyer who wanted revolutionWanted “more” & knew how to get it
Made MLBPA the most powerful union in sports
Miller Engineers a CoupCame with 2nd CBA
1st CBA of little note except for existenceRaised minimum salary from $6,000 to $10,000
Miller outmaneuvers Commissioner Bowie KuhnKuhn saw self as guardian of game’s integrity
Unique among major sportsMiller saw as owners’ lapdog
Had been lawyer for NL before becoming commissioner
Miller sees opening
A New Arbitration ProcessKuhn had been sole judge of grievancesMiller: Kuhn’s old job suggest possible bias
Asks for panel to judge “trivial” financial mattersKuhn retains authority for “big” decisions
Now have 3-member panel1 chosen by players 1 by owners1 by mutual consent
Consequences of Panel:The Case of the Catfish
Oakland A’s renege on “Catfish” Hunter’s contract
Star pitcher for championship teamIn 1974 signed one of few 2-year contracts
A’s supposed to create annuity in 1st yearOwner Charlie Finley fails to do so –violates contract!
Hunter claims contract invalidated“Financial matter” goes to 3-member panel
2 votes predictable Arbitrator only vote that matters
Peter Seitz declares Hunter free agent
The End of the Reserve Clause
Seitz’s ruling applied only to HunterBut players like what they see
$100,000 contract => $3 million contract
1975: A frontal assault on reserve clauseAndy Messersmith refuses to sign contract
Dodgers allow him to play
Recall reserve clause applies for 1 year
At end of season panel repeats performance
Reserve clause formally struck down
Results of Free AgencyMonopsony power broken
Competitive market for players
Winners curseOwners overbid for players
Multi-year contracts become the normAverage salary rose > 700%
Goes from < NFL to 2X NFL average
Why Did Football Fall Behind?
Outside events say should do betterNFL not exempt from anti-trust lawsBecame more popular than baseball
Profits higher
2 rival leagues to drive up pay
Union unable to exploitOften seemed to be part of the problem
Failed to break Rozelle rule
Challenges to Rozelle RuleJoe Kapp sues NFL
Ex-QB for Vikings (1969 MVP of NFL)Signs with Patriots after playing out option
Wants no Rozelle Rule in new contract1971: NFL insists Kapp reinsertKapp refuses
Never plays again Sues NFL
Result of Kapp’s SuitJudge calls Rozelle Rule
“patently unreasonable and illegal”
Jury Kapp had legal contractNFL wrongly disallowedRefuses to award damages!?!
Mackey Suit: 1972John Mackey: star tight-end for Colts
President of NFLPA
Filed class action suit against NFL1976: Ruling invalidates Rozelle Rule
Reason: Not result of collective bargaining
1977: college draft disallowedFound to be in restraint of trade
Stage set for massive free agency
NFLPA GoofsUses free agency as bargaining chip for
Higher payments to pension fundHigher minimum salaryCheck-off system for union dues payments
Result: Rozelle Rule modified – not ended1977-88: 125-150 free agents/yr
Only 3 sign with new team
1981: No one wants Walter Payton!?!Only offer from Bears – his old team
NFLPA’s Worst MistakeRozelle Rule enshrined in CBACourts uphold NFL
One thing to imposeAnother thing to voluntarily have in CBA
Union cannot change mind and sueMust now bargain it away
Football StrikesNFLPA decries revenue sharing
Say teams lack incentive to sign free agents
They’re right – little financial gain from doing so
Want revenue sharing to include players Want 55% of revenues
Management scoffs at ideaIronically NFL now pays ~63%
Strikes in 1982 & 1987 unsuccessful
Why Did NFL Strikes Fail?Relatively short careers in NFLMentality of players
No minor leagueLess individual sport
Unlike MLBPA - leadership split playersEd Garvey:“Union for guards & tackles – the QBs can take care of themselves.”Garvey did not solicit positions – he imposed them
Owners staged replacement games in ’87TV Contract called for games – not playersMade money on strike
Lawyers Get What NFLPA Can’t
NFLPA sues NFL unsuccessfullyCourts laud merits of case against NFLBut cite CBA
1989:Union decertifies selfNo Union => No CBA => Players can sue!
NFLPA Goofs Again NFLPA re-forms
Allows owners to install Salary Cap – Why?
Again a bargaining chipHigher pensionsBetter medical benefitsAssured that teams will collect union dues
Embarrassed when Redskins players refuse to pay dues
Introduction to the Salary Cap
Once a point of harmonyNow a bone of contention
What is a salary cap?See one at http://www.nbpa.com/cba/cba.htmlMore accurately – a band
Sets upper and lower limit to salaryTake “qualifying revenue” of leagueMultiply by players’ shareDivide by # of teamsAdd or subtract fudge factor (~20%)
The NBA and the Salary Cap
Cap credited with saving NBAEarly 1980s bad for basketball
“Bloody” war with ABA just endedLow fan interest
1980 championship not shown live in Philadelphia
Teams unstableWandering Kings: From Cincy to KC to KC/Omaha to SacBuffaloed Braves: From Buffalo to San Diego to LA
Merger with ABA challenged by playersLeague lacks power of MLB to ignoreLacks savvy of NFL to circumvent
The NBA’s Era of Good Feeling
Owners grant free agencyPlayers drop objections to merger
Owners fear bankruptcy will resultPlayers grant salary cap
Assures of % of defined revenueInitially 53% - now 48.04%What is “defined” becomes bone of contention
Credited with saving the NBA
What Saved What?$-amount of cap is endogenous
If league revenues rise – so does cap
In early 1980s league at low ebbGeneration of charismatic stars enters
Larry Bird, Magic Johnson, Michael Jordan
Adroit marketing by new commissionerGreater revenue allows cap to rise
No reason for players to complain
Hard Caps and Soft CapsThe “Bird” Rule
Boston Celtics wanted to re-sign Larry BirdFeared could not do so under cap
League gives Celtics an outRe-signing own player does not count against cap
New kind of agreement arises Sign player to low 1-year contractRe-sign at high price
Sources of TensionCap ineffective
Virtually all teams over cap
Owners sought hardeningMaximum 7-year contractHad to spend 3-years for “Bird” to apply
Players worry about cap growthWhat if revenues slow down?
Politics Takes a HandSummer 1996: Owners lock out players
Clever timing: No harm no foul
Star players object to agreementThreaten to decertify unionStars take over leadership role
Kevin Garnett $126M contract a last strawOwners exercise option to re-open contract
NBPA leadership trapped by radical rhetoric
New AgreementFall 1998: Lockout cancels ½ seasonOwners “win” what most unions crave
Team caps retained – slightly higherIndividual salaries also limited
Salary scale rises with experienceGarnett could not get ½ his old contract today
A Cap ParadoxDesigned to limit salaries BUTGreater financial pressure than everCannot offer higher contract overall
Structure becomes importantHow many ways can you pay $35 million?
The importance of signing bonusesA way to guarantee contractsPuts greater pressure on teams to raise revenue