Arbitration's Intolerable Bind

If there were a hall of fame for ideas that sound great in theory but are disastrous in real life, “binding arbitration” for government labor contracts would be a major exhibit.

When contract talks between a union representing public employees and the state or local government they work for are deadlocked, many states require that the disagreement be referred to an outside arbitrator for a binding decision. Since strikes by public employees are intolerable – no one wants firefighters, teachers, or trash collectors walking off the job – letting a neutral third party hear both sides out and settle the issue can sound like a fair and practical way to resolve thorny issues.

In fact, it’s anything but. Mandatory arbitration has turned out to be a rigged game – rigged in favor of government employees, and against the taxpayers who supply their wages and benefits.

To public-sector unions and the politicians who do their bidding, binding arbitration is sacrosanct. But when Ohio’s newly-elected governor, John Kasich, called last month for an overhaul of collective bargaining, he didn’t pull any punches.

“You think these local governments want to be stuck with binding arbitration?” Kasich asked. “I don’t know if you all know what binding arbitration is. When there’s a labor dispute, they bring somebody in from Kokomo, Indiana. He comes into Ohio. He imposes a settlement on our cities. He goes back to Kokomo – and we pay the bill.”

With municipal budgets strained to the breaking point, said Kasich, the last thing local cities need is higher costs imposed on them by outsiders. “If you talk to the mayors of cities, Republicans and Democrats alike – Democrats will tell you off the record – [they] can’t stand binding arbitration … Binding arbitration is not acceptable. You are forcing increased taxes on taxpayers with them having no say, by people who come from a far-away place and have no accountability to the taxpayers.”

Arbitration can be an excellent means of settling quarrels that arise under existing contracts, and it is frequently used in the private sector as a means of resolving disputes without going to court. But arbitration makes little sense as a mechanism for drawing up binding contracts in the first place.

As state and local governments have learned to their chagrin, once binding arbitration becomes part of the collective-bargaining process, it doesn’t facilitate compromise – it undermines it. Unions quickly figure out that they risk nothing by making extreme salary or benefit demands, rejecting reasonable counteroffers, and then waiting for the ensuing impasse to go to an arbitrator. How can they lose? They know that the arbitrator will almost never award public employees less than the government’s final offer.

Instead of speeding up public-employee contract negotiations, mandatory arbitration delays the process. In Michigan, notes the Mackinac Center for Public Policy, a respected think tank, “the average arbitration process takes 15 months to reach a decision.” When those decisions are reached, the price tag is generally high. A task force appointed by former Michigan Governor Jennifer Granholm surveyed the economic literature and reported in 2006 that the overall impact of binding arbitration in states that require it “is to raise municipal expenditures … by 3-to-5 percent relative to other states. While small in percentage terms, this impact is large in dollar terms.”

Perhaps the worst effect of binding arbitration, however, is the way it erodes self-government. It takes away from citizens and their elected officials the power to shape local budgets, and to establish wages and working conditions for public employees. Those essential civic decisions are made instead by an outside arbitrator who likely has no ties to the community, and who will not have to live with the consequences – or be taxed to pay the costs – of the settlement he imposes. In Governor Kasich’s words, “He goes back to Kokomo – and we pay the bill.”

But as taxpayers find it harder to pay the bill for public employees, more are coming to see why collective bargaining and government service are a bad mix. In the public sector, mandatory arbitration is not a reasonable trade-off for the right to strike. In either case, after all, it is the public at large that pays the price.

The Patriot Post® · Arbitration's Intolerable Bind