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Labor Law-California Law Review-Article Analysis  Page 1

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California Law Review

VOL. 85 JULY 1997  No. 4

Copyright © 1997 by California Law Review, Inc.  

The National Labor Relations Act,
Non-Paralleled Competition, and
Market Power   
Copyright © 1997 California Law Review, Inc.
Member of the New York and California Bars. B.A. 1991, 
Harvard College; J.D. 1995, Georgetown University Law Center. 

Daniel J. Chepaitist

The National Labor Relations Act protects and, to a degree, encourages employee concerted action, such as collective bargaining and collective work stoppages. The Act has been criticized as an unwarranted intervention in a competitive, efficient market. This Article applies fundamental concepts of antitrust law and economics to assess the claims that labor markets in the United States are competitive, that the market adequately protects individual employees, and that governmental intervention is therefore unwarranted. The Article concludes that employing firms likely exercise a degree of market power‑the power to set terms unconstrained by competition‑that would be unacceptable if exercised by producers in consumer markets. The author argues that the National Labor Relations Act provides employees with a means to counteract the market power exercised by employing firms, but at the same time attempts to preserve residual competition that the employing firm has not eliminated from the open market.

I think it has been recognized that, due to our industrial growth, it is simply absured [sic] to say that an individual, one of 10,000 workers, is on an equality with his employer in bargaining for his wages .... When 10,000 come together and collectively

bargain with the employer, then there is equality of bargaining power.' [W]hat we are doing here is implementing the exact idea of the original Wagner Act, which was to say that the employees in dealing with the employers shall not be at the disadvantage of being a thousand men on their side, dealing with one man on the other side. Instead of that, the act intended that one man repre­senting the union should deal with one man representing the employer.'

INTRODUCTION

The National Labor Relations Act ("NLRA"),' enacted in 1935, provides that "[e]mployees shall have the right to self‑organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection . . . ." Pursuant to the central provisions of the NLRA, an employing firm runs afoul of the law if it attempts to undermine or by­pass its employees' attempts to associate and bargain collectively.' To many legislators, industry representatives, and academics, however, this amounts to state encouragement of unions, presumptively distorts the efficient functioning of the market, and appears rationally indefensible.'

1. To Create a National Labor Board: Hearings on S. 2926 Before the Senate Comm. on Education and Labor, 73d Cong. 9 (1934) [hereinafter Labor Bd. Hearings] (statement of Sen. Wagner), reprinted in I NLRB, LEGISLATIVE HISTORY OF THE NATIONAL LABOR RELATIONS ACT OF 1935, at 47 (1985).

2. 93 CONG. REC. 4573 (1947) (statement of Sen. Taft) (referring to proposed reforms to the NLRA subsequently enacted in the Taft‑Hartley Act of 1947), reprinted in LEGISLATIVE HISTORY OF THE LABOR MANAGEMENT RELATIONS ACT OF 1947, at 1225‑26 (1974).

3. 29 U.S.C. § 157 (1935).

4. An employing firm can be enjoined from and sanctioned for various "unfair labor practices." 29 U.S.C. § 158(a). These include, inter alia, interfering with, restraining, or coercing employees in the exercise of the right to self‑organization; dominating or interfering with labor organizations; discriminating against pro‑union employees or potential employees with regard to hiring, tenure, or the terms and conditions of employment; and failing to bargain with employees' collective bargaining representative. See 29 U.S.C. § 158(a)(1)‑(3),(5).

5. See, e.g., SENATE COMM. ON LABOR AND HUMAN RESOURCES, WORKPLACE FAIRNESS ACT, S. REP. No. 103‑110, at 36 (1993) [hereinafter SENATE COMM.] (arguing that encouragement of unionization dislodges wages from market forces of supply and demand); RICHARD A. POSNER, OVERCOMING LAW 456 (1995) (referring to labor unions as "industrial dinosaurs" and stating that their passing would be a positive development); RICHARD A. POSNER, ECONOMIC ANALYSIS OF LAW 325 (1992) [hereinafter POSNER, ECONOMIC ANALYSIS OF LAW] ("The NLRA is . . . designed to encourage cartelization of labor markets, whereas the Sherman Act (and the other antitrust laws) are designed to discourage cartelization of product markets .... [T]he economic logic of the law is not always a logic of efficiency."); Richard A. Epstein, A Common Law for Labor Relations: A Critique of the New Deal Labor Legislation, 92 YALE L.J. 1357 (1983) [hereinafter Epstein, Common Law for Labor Relations] (asserting that the law's special treatment of labor issues is inappropriate); see also RICHARD A. EPSTEIN, FORBIDDEN GROUNDS: THE CASE AGAINST EMPLOYMENT DISCRIMINATION

19971 NON‑PARALLELED COMPETITION  'r7l

The amendments to the NLRA enacted in the Taft‑Hartley Act of 1947 established significant limitations on the union activity protected by the NLRA 6 These limitations on employee association, in particular the prohibition on secondary boycotts,' have bFen widely criticized by sup­porters of unionization.' By what principle can contending and incon­sistent positions on the proper scope of government‑protected and government‑permitted unionization be mediated?

One judge and scholar has stated that the labor laws are "a fasci­nating counterpoint to the antitrust laws . . . . [A] kind of reverse Sherman Act."' In this Article, I apply principles of antitrust econom­ics and policy to argue the contrary point; the legal regime presently governing labor relations in the United States is firmly rooted in theo­retical precepts that are considered uncontroversial in antitrust regula­tion of product markets. This is true both insofar as the current law encourages unions and insofar as it places limits on unionization. I will argue that lack of competition in, or centralization of control over, the supply of jobs is the primary concern of our labor laws. Critics of the NLRA ignore, and supporters of unions fail to explore, basic analogies between this concern for lack of competition in the job market and the parallel concern for lack of competition in product markets.

In Part I, I propose and defend a comprehensive theory of American labor law: the "countervailing market power" ("CMP") model of labor relations."" The CMP model posits that labor laws are

LAWS (1992) [hereinafter EPSTEIN, FORBIDDEN GROUNDS] (extending his critique of intervention in labor markets to anti‑discrimination laws).

6. The Taft‑Hartley Act guaranteed employees the right to refrain from participation in a union, except where an employing firm had entered into a union security clause. See 29 U.S.C. § 157. It also prohibited several unfair labor practices by labor organizations. See 29 U.S.C. § 158(b)(1)‑(7).

7. The definition of a secondary boycott is complex. See infra Part II.B. In brief, a secondary boycott is one form of appeal outside the immediate workplace for help in shutting down an employing firm by cutting off supplies. See 29 U.S.C. § l58(b)(4). In this Article, I focus on appeals to other workers.

8. See, e.g., SENATE Comm., supra note 5, at 14‑15 (criticizing "law's gradual sapping of union strength," most notably the 1947 Taft‑Hartley Act's limitations on secondary boycotts); PAUL C. WEILER, GOVERNING THE WORKPLACE: THE FUTURE OF LABOR AND EMPLOYMENT LAW 269­73 (1990) [hereinafter WEILER, GOVERNING THE WORKPLACE] (arguing that the prohibition on secondary boycotts gives employers a "special legal advantage"); Paul Weiler, Striking a New Balance: Freedom of Contract and the Prospects for Union Representation, 98 HARV. L. REV. 351, 415 (1984) [hereinafter Weiler, Striking a New Balance] (stating that the current secondary boycott doctrine "fits very uncomfortably with a regime of free collective bargaining").

9. POSNER, ECONOMIC ANALYSIS OF LAW, supra note 5, at 325. From the context, it seems clear that Judge Posner does not intend "fascinating" as high praise, and that it is likely intended to be interpreted to mean "indefensible."

10. Economist John Kenneth Galbraith coined the concept of countervailing power. See JOHN KENNETH GALBRAITH, AMERICAN CAPITALISM: THE CONCEPT OF COUNTERVAILING POWER 108‑34 (1980) (first published 1952). Until the last few decades, it was widely acknowledged that the NLRA and other New Deal legislative programs were intended to encourage the growth of non‑business

772 CALIFORNIA LAW REVIEW  [Vol. 85:769

primarily structured to counteract a specific form of power in private relations‑market power created by the growth of large firms or, economically speaking, by the integration and concentration of productive resources. In plain language and in short, "market power" exists because workers are presented with too few and inadequate substitutes for the employing firms with whom they get stuck to enjoy the liberties that a competitive market presumes.

Contemporary analyses of our labor laws ignore the need for countervailing market power because they ignore three essential propo­sitions. First, an employing firm is a form of collective ownership and control of productive resources by investors and is therefore a restraint on trade in the supply of jobs. Second, as a result, competition is se­verely curtailed in labor markets. Contemporary labor law scholars as­sume that, for the typical employee, a broad spectrum of jobs provides adequate substitute opportunities. From this they conclude that unrea­sonable demands by one employing firm will result in a painless sub­stitution of jobs by the employee. However, the relevant labor market for most potential employees is far narrower than labor law scholars posit. Consequently, employer restraints on trade circumscribe compe­tition on the job‑supply side of the labor market far more than com­monly acknowledged. Third, the market cannot be relied upon to "restore" competitive conditions in labor markets. Potential employers will not rush to pay competitive wages in markets where existing em­ployers exercise market power, because employers, in order to survive in highly competitive product and stock markets, are forced to exercise market power in labor markets. The competitive price in these other markets presumes a noncompetitive price in labor markets.

These three propositions establish an analytic framework that has, as of yet, not been fully developed." In Part I, I discuss each of the above propositions in detail. By analyzing the deficiencies in the neo­classical analysis, I illustrate how these three propositions compel a fun­damentally different conclusion about the social value of unions and the

groups that could counteract the market power of businesses with their own market power. See id. at 136; ELLIS W. HAWLEY, THE NEW DEAL AND THE PROBLEM OF MONOPOLY 7 (1966) (stating that some New Dealers, "wary of governmental intervention, hoped that business could reform itself or that non‑business groups could develop their own market power").

11. My starting point is the proposition that an employing firm is a restraint on trade. In this respect, I am simply repeating the received wisdom of the past. However, my analysis differs from that of earlier scholarship, and from Galbraith's in particular, in asserting that market power is likely more prevalent in labor markets than in product markets and that the competitive nature of product and investment markets may exacerbate the exercise of market power by employing firms in labor markets. In AMERICAN CAPITALISM, Galbraith conducted no serious analysis of the differences between competitive potential in product and labor markets. Instead, he seems to have summarily concluded that almost all product and labor markets are not competitive. See generally GALBRAITH, supra note 10.

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