The rise of unionism among public sector employees in the 1960s led to the passage of state-level legislation regulating collective bargaining between state and local governments and their employees. In the vast majority of states that passed such legislation, public sector employees were denied the right to strike, and legislators established impasse procedures as a substitute for the right to strike as a means of resolving public sector disputes. For police officers and firefighters, in approximately 30 states the law requires that if the parties fail to reach agreement on a new contract through negotiation (and in most of these states mediation) then they must submit their dispute to arbitration. (1) The collective bargaining relationship between the PBA and New York City helps illustrate the contrast between the judicial approach and the negotiation approach to interest arbitration. (2)
Research on the Effect of Interest Arbitration on the Bargaining Process and Outcomes
After the rise of public sector bargaining in the 1960s, researchers made a considerable effort to use empirical data and rigorous statistical methods to determine whether and to what extent interest arbitration affects salaries, compensation, and other bargaining outcomes. Research in the 1960s and 1970s explored whether arbitrated outcomes were significantly different from negotiated outcomes, or whether outcomes arrived at through conventional arbitration differed significantly from outcomes arrived at through final offer arbitration. Missing from this body of research, however, was any effort to include in a statistical model a variable that denotes a critical dimension of arbitration--namely, the distinction between the judicial approach and the negotiation approach. Accounting for this dimension is essential in understanding the arbitration process and its effects on outcomes. Practitioners and researchers need to recognize that understanding the nature and effects of interest arbitration requires looking into the "black box" of the arbitration process.
There is a surprising lack of recent research on the use of interest arbitration to resolve police and fire disputes. In 1996 a report by a taskforce appointed by the U.S. secretary of labor noted "a surge of scholarly interest in public sector labor relations" in the 1960s and 1970s. The taskforce pointed out that as public sector bargaining laws matured, "conflict declined and the challenges in the field diminished or held less interest for academics," with the consequence that in recent years there has been "an almost total lack of academic research--despite the fact that demands and pressures on the public workplace have been increasing." (3)
During the period when scholars did focus their energies on interest arbitration in the public sector, they concentrated principally on two important topics: (1) the effect of the availability and use of interest arbitration on bargaining outcomes, particularly salaries, (4) and (2) the effect of interest arbitration on the parties' incentives to negotiate and settle contracts on their own. (5) With respect to the former effect, many researchers and practitioners suspected that interest arbitration would significantly increase police and fire salaries. Implicitly, if not explicitly, researchers seemed to believe that the effect of interest arbitration on salaries would be analogous to the effect of collective bargaining itself, and in particular that it would constitute an intrusion on management's unilateral authority to set salaries and result in salaries that would be higher than would otherwise be dictated by market factors. Whether arbitrated salaries would be significantly different from salaries negotiated by the parties through collective bargaining was a different matter, however, and some researchers attempted to estimate the effect of arbitration independent of the effect of collective bargaining.
With respect to the latter effect, many experts believed that the use of conventional interest arbitration--the form of arbitration that gives the arbitrator broad authority to fashion an award--would decrease the parties' incentives to negotiate their own agreement (the so-called "chilling effect") and eventually result in the parties' dependence on outside parties to settle their disputes (the so-called "narcotic effect"). …