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Comparing Public & Private Sector Bargaining

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  • 0:03 Bargaining
  • 1:29 Similarities
  • 2:27 Differences
  • 5:53 Lesson Summary
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Lesson Transcript
Instructor: Beth Loy

Dr. Loy has a Ph.D. in Resource Economics; master's degrees in economics, human resources, and safety; and has taught masters and doctorate level courses in statistics, research methods, economics, and management.

This lesson explains the similarities and differences between private and public sector bargaining. We'll discuss the reasons why unions in both sectors are formed, and look at differences between budgets, bargaining tactics, and more.

Bargaining

Jackson is the owner of Lieza Space, a company that specializes in space exploration. The company works directly with several public sector entities to test rockets. Jackson has dealt with private unions for years. Public unions, however, are new to him. He receives a summary report of the similarities and differences from his team of analysts. Here is what he learned.

Unionization in both the private and public sectors is not new in the United States. However, private sector bargaining has a more complex history dating back to the 1800s. Public sector unions, which involve federal, state, and local government employees, did not become popular until the 1960s. The U.S. Postal Service did unionize in 1889, but it was unable to collectively bargain until 1970.

Driven by factors such as employment protections, the Democratic Party, and the increase in the number of teachers, unions finally took hold in the public sector. Unlike the private sector, the public sector is driven by politics. After all, striking against the government is very different from striking against a private entity. A strike against a public entity doesn't hinder its profitability like it does a private company, since taxes and fees continue to roll into the government. But it's bad politics, and it often ends up affecting the services provided to taxpayers.

Similarities

Jackson noted two important similarities between private and public sector unions. First, there are the reasons for forming unions. Just as in the private sector, public sector employees became dissatisfied with being overworked and underpaid, so they joined forces.

Second, both private and public sector labor representatives came together to collectively bargain for what they wanted. In both sectors, collective bargaining, the process that labor and management go through to negotiate a contractual agreement, began because of economic concerns. Strikes were too costly to the economy. The government took notice and passed legislation that recognized unions and their ability to collectively bargain with management, but restricted them from striking when it affected the economy.

Jackson could see that public sector bargaining, although in its infancy compared to the private sector, could have an effect on his business. He needs to know and support the collective bargaining agreement that public sector employees use.

Differences

Jackson understood the similarities between private and public sector bargaining, but now he needed to know the differences. Once he reviewed the summary he was given, he noted several points of divergence. Let's look at each.

Private sector employers have a limited budget. If collective bargaining results in more money going to labor, it affects how much money owners and shareholders make. In the public sector, if collective bargaining results in more money going to union members, it decreases services and increases costs to taxpayers.

Public and private sectors have very unique economic systems (i.e, the way products and services are exchanged for money). The market determines what private sector goods are worth, while the public entities set a price that only seeks to recoup its costs, not make a profit. If collective bargaining comes to a halt and a strike ensues, a private company cannot make any money. If the same happens to a public entity, it still receives the tax money owed to it.

Employee rights and obligations are also different. Union members in the public sector are limited in how they may collectively bargain, their right to strike, and how disputes are settled.

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