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Industrial Relations Theory: Lessons from a Private Sector Model for Public Sector Transformation

Lindy Burt, May 1998

According to some experts, private sector industrial relations theory can provide useful information to local officials in their efforts to better understand and restructure the public sector labor-management relationship. Editors of a recent (1996) publication of the Industrial Relations Research Association claim that "Changing constraints on the public sector have created pressure to emulate the changing workplace practices experienced earlier by the private sector...While the public sector used to be a model for the introduction of progressive employment practices into the private sector, the pressure is now in the opposite direction."

The public sector is under pressure to adopt the same types of "production" goals undertaken by the private sector long ago-improved productivity and efficiency at lower cost. Components of contemporary industrial relations theory can be applied to the public sector to provide greater insight into the three levels of the labor management relationship, the influence that environment and choice have on this relationship, and the implications of both for local government restructuring.

The Nature of the Management-Labor Relationship

Private Sector Model: Management as the Initiator of Change in the Workplace

In contrast to earlier models of industrial relations which did not go much beyond the importance of external factors and management's reaction to them (see Dunlop's footnote), in the 1990s a new model was devised which places management in the role of the initiator of workplace innovation. Developed by Thomas Kochan, Harry Katz, and Robert McKersie, this model also recognizes that there is often a lack of consensus between management and labor, and that both parties are greatly impacted by the instability prevalent in the economic, technological, political and social environments.

Also different from traditional industrial relations theory, the newer model acknowledges that management does not genuinely accept collective bargaining as a legitimate and permanent element of the labor-management relationship, but is simply making a practical, pragmatic decision in agreeing to participate in collective bargaining.

The Importance of Environment and Choice in Management and Labor Decision Making

Private Sector: Environmental Influences and the Importance of Awareness of Choice

Management is heavily influenced by environmental factors, which include: its values, beliefs and philosophies; the outcomes of previous organizational decisions; the current distribution of power within the organization, and between itself and other organizations; and the values and strategies that influence the behavior and policies of unions and government agencies. Choice and discretion on the part of management, labor, and the government affect the course and structure of the industrial relations system. An understanding of the choices parties make in any period must be informed by an analysis of the structures and history that constrain these choices.

Public Sector: The Influence of Politics and Power Distribution, and Choices about Collective Bargaining

Public sector officials and management are very much influenced by the political process in their decisions. The position of public sector elected officials demands that their actions and decisions be in the interest of the public good, yet they are also potentially compelled to make decisions which will help them to retain their position in office. Management also takes into consideration the political implications of their decisions and actions, as they are often appointed by elected officials and can be impacted by changes resulting from a turnover of administrations.

The distribution of power within the public sector, although structured differently from that of the private sector and subject to different forces, also impacts the behavior and thoughts of management. Public sector power is actually more diffuse than that of the private sector, and can make certain elements of the employment relationship more complicated.

Relating the notion of choice to the public sector, public sector officials and management have choices to make about the legislative environment for collective bargaining and about defining their role as legislator vs. employer. Unions, on the other hand, have a choice over whether to follow a mutual gains bargaining approach, or an adversarial, distributive bargaining approach.

The Three Levels of Decision Making in the Labor-Management Relationship

There are essentially three layers of decision making in the labor-management relationship which capture the interrelationships among activities at different levels of the institutional structure; explain the origins of any prevailing contradictions or inconsistencies among the practices and strategies of the three levels; consider the effects of strategic decisions; and analyze the effects of increased participation by individuals and work groups on the industrial relations system.

  • Level 1: Strategic Decision Making
    It is at this level that major strategies are considered which exert long-run influences on collective bargaining. Examples of such issues are: what businesses to invest in, where to locate work sites, and whether to buy or make various components. The public sector engages in strategic decision-making of the first level in deciding what services and goods it is responsible for providing to the public, and deciding whether to provide goods and services itself or privatize/contract out (i.e. "make or buy").
  • Level 2: Collective Bargaining
    The second layer describes the process and outcomes of contract negotiation, and encompasses such issues as collective bargaining, personnel policy formulation, and development and administration of key public policies governing labor management relations
  • Level 3: Day to Day Workplace Issues
    The third layer describes the process through which policies are played out which effect individual workers, supervisors, and union representatives on a day to day basis. Job and work organization and design, work rules, worker-supervisor relations, and public policy governing individual rights at the workplace are played out at this level.

Constraints of Public Sector Industrial Relations and Their Implications for Restructuring

The environment and contemporary choices available to management and labor in the public sector are having an impact on all three levels of the employment relationship. In the face of increased public resentment toward the public sector (unwillingness to pay higher or more taxes, and perceived inefficiency of services, for example), and decreasing government revenues, public sector management and labor must attempt a restructuring of old goals and methods of operation. Characteristics of the employment relationship, management and labor do have implications for public sector efforts at restructuring.

Multi-Lateral Bargaining: A Diffuse Decisionmaking Structure Makes Bargaining a Complicated Process

Because managerial authority is widely shared in the public sector, collective bargaining is multi-lateral and not bilateral as it is in the private sector. Multi-lateral bargaining is a negotiation process that includes more than two distinct parties. Additionally, "in multi-lateral bargaining, no clear dichotomy exists between union and the management organization (Kochan 1992). It can lead to such bargaining techniques as the union tactic of end running, in which case unions side-step one management party that is part of the bargaining process in order to appeal to another management party. Another possible outcome of multi-lateral bargaining is a case where one decision-making group that is part of the process rejects a negotiated agreement, resulting in a failure of implementation (e.g. City Council fails to ratify a negotiated agreement between the Mayor and employees). Finally, community interest groups can also have a role in, and therefore an impact on the process.

Multi-lateral bargaining complicates the employment relationship. It can undermine the negotiations process and make reaching an agreement on service restructuring a much more challenging endeavor. Any negotiated agreement is subject to reversal, either through rejection of the agreement by a group participating in its negotiation, or because of a change in administration. "The vicissitudes of the political process can be more extreme than the vicissitudes of the market (Belman 1996).

The Decentralized Structure of Public Sector Bargaining

Collective bargaining in the public sector is also highly decentralized; i.e. almost all bargaining is done on a single-employer (particular government or agency) basis, with almost no examples of multi-employer bargaining. Additionally public sector bargaining tends to follow much more occupational lines (e.g. separated amongst police, fire, waste collection, etc.) than in the private sector. Given these traits, collective bargaining can provide a viable arena to negotiate restructuring, or it can hinder it for the following reasons (Belman 1996):

  • Unions taking an adversarial stance
  • Fragmentation of bargaining units inhibiting unions speaking with one voice
  • Unions holding onto narrow job classifications and seniority principles, which may be in conflict with restructuring programs that don't guarantee such provisions, or are trying to eliminate them entirely

Rigidities Imposed upon Public Sector Labor Relations and Restructuring by Unionization

The degree of unionization tends to be higher in the public sector, which has had important effects on the process and substance of employment in the public sector. There has been an increase in the formalization of personnel practices and a decrease in management's ability to decide upon matters of discipline, discharge, promotions, transfers and work assignments (Kochan and Katz 1992).

One expert (Belman) identifies the two main strategies of "new" government (restructured) as:

  1. emphasizing efficiency improvement through innovative practices and a movement away from the bureaucratic civil service model, and
  2. emphasizing cost-cutting

As a response to unionization, the public sector has become more rigid and more bureaucratic in its workplace practices. For labor, conditions of increased bureaucratization and blocked communication channels as a result of the hierarchical structure, de-personalization, and paternalism in public service has alienated employees and led them to perceive the need for intermediary organizations like unions (Kearney 1992). In summary, successful restructuring will require trust, cooperation, flexibility and a willingness to try non-traditional ways of doing things on the part of both sides. "As in the private sector, the effects of public sector unions and collective bargaining on the economic performance of the employer depend on the effectiveness of the relationship between the union and the employer" (Kochan and Katz 1992).

One of the significant theories of industrial labor relations was put forth by John Dunlop in the 1950s. Dunlop's model identifies three key factors to be considered in conducting an analysis of the management-labor relationship:

  1. environmental, or external economic, technological, political, legal and social forces that impact employment relationships
  2. characteristics and interaction of the key actors in the employment relationship: labor, management, and government
  3. rules that are derived from these interactions that govern the employment relationship

The Dunlop model gives great significance to external, or environmental forces, with the key actors being held to respond in a relatively uniform and mechanical manner to a given environmental change. In other words, management, labor, and the government possess a shared ideology, or consensus that defines their roles within the relationship and provides stability to the system.

Dunlop's model worked well to organize the labor-management relationship into a framework in the 1960s and 1970s, but it worked only as long as there existed stability in the environmental forces and a shared consensus of the key actors in the employment.


Belman, Dale, Morley Gunderson, and Douglas Hyatt, eds. Public Sector Employment in a Time of Transition.Madison, WI: Industrial Relations Research Association, University of Wisconsin-Madison, c1996.

Published by the Industrial Relations Research Association, this book presents eight papers by various authors on the transitions taking place in public sector industrial relations. Subjects discussed include law, employee attitudes, dispute resolution, compensation, the merit model, and much more.

Kearney, Richard C. Labor Relations in the Public Sector. NY: marcel Dekker, Inc., 1992.

Kochan, Thomas and Harry Katz. An Introduction to Collective Bargaining and Industrial Relations. New York: McGraw-Hill, 1992.

One of the standard college-level textbooks on Industrial Relations. A basic introduction to labor relations theory.

Kochan, Thomas, Harry C. Katz, and Robert B. McKersie. The Transformation of American Industrial Relations.Ithaca, NY: ILR Press, Cornell University, 1994.

This book is thought by some to be one of the most important books on industrial relations of the past 15 years. Kochan, Katz and McKersie present a framework for contemporary trends in unionization, industrial relations systems at the workplace, negotiations, and strategic choices of both management and workers.