David B. Lipsky.

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WORKING PAPER
ALFRED P. SLOAN SCHOOL OF MANAGEMENT



THE IMPACT OF FINAL OFFER ARBITRATION
IN MASSACHUSETTS: AN ANALYSIS OF POLICE
AND FIREFIGHTER COLLECTIVE BARGAINING

David B. Lipsky Thomas A. Barocci W, William Suojanen



WP 941-77



May 1977



MASSACHUSETTS

INSTITUTE OF TECHNOLOGY

50 MEMORIAL DRIVE

CAMBRIDGE, MASSACHUSETTS 02139



THE IMPACT OF FINAL OFFER ARBITRATION
IN MASSACHUSETTS: AN ANALYSIS OF POLICE
AND FIREFIGHTER COLLECTIVE BARGAINING

David B. Lipsky Thomas A. Barocci W, William Suojanen
WP 941-77 May 1977



I



TABLE OF CONTENTS

Page
Preface and Acknowledgements ill

I. Summary of the Study 1

II . Introduction 5

Appendix to Section II. Summary of the

Massachusetts Final-Offer Arbitration Law

for Police and Firefighters 14

III. Impasse Experience in Massachusetts, 1972-1977 18

IV. Salary Levels and Changes for Massachusetts'

Police and Firefighters , 1973-77 28

V. Multivariate Analysis of the Determinants of
the Change in the Salary Levels of Police and
Firefighters 41

VI. Interpretations and Conclusions 57

Appendix 2. Summary of Data Sources Used in the
Analysis 61



ii



n 3-i ^2^3.



Preface and Acknowledgements

Over the last five months the authors have been carrying on research re-
lating to the process and impact of the Massachusetts statutes regulating the
collective negotiations of police and firefighter bargaining units within the
state. Although we have not yet completed our full analysis, the im mediacy
of the situation mandated that we assemble this abbreviated report. We have
made an attempt to include in this report the findings of our study most
closely related to the issues currently under debate in the state legislature.

The report is divided into six sections. Section I is a summary of the
major findings and conclusions. Section II offers an introduction to the
problem and a brief review of the legislative history of this issue in
Massachusetts. In Section III the impasse experience of police, fire and
teacher collective bargaining units is examined, while Section IV reviews
salary levels and changes over the study period. Section V presents a dis-
cussion of a multivariate analysis on the determinants of salary change for
each safety employee group and the final section offers interpretations and
conclusions of the study. The one appendix offers a brief overview of the
data sources and collection procedures.

Funds for this study were provided by the Sloan School of Management,
Massachusetts Institute of Technology. We would particularly like to thank
Associate Dean Abraham J. Siegel for his support, advice, and encouragement.
We would also like to thank Helaine Knickerbocker, Chairman of the Massachusetts
Board of Conciliation and Arbitration, and the staff of the Board for their
cooperation. In addition, various employee and employer representatives in
Massachusetts were helpful. In particular we would like to thank T. Dustin

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Aylward of the Professional Firefighter Association of Massachusetts, Mr.
Richard Sullivan, International Brotherhood of Police Officers, Mr. Paul
Somers, Massachusetts League of Cities and Towns, Mr. James Cooper, Massachu-
setts Labor Relations Commission, Mr. Alexander MacMillan, former director
of the Massachusetts Labor Relations Commission, Mr. Lawrence Holden, former
director of the Board of Conciliation and Arbitration, Mr. Michael Oilman,
Holtz and Drachman, Mr. George Sacco, Attorney for the Massachusetts Police
Association, Mr. Nick Russos, Commissioner of Labor and Industries and the
staff at the Massachusetts Taxpayers Foundation. Finally, we would like to
thank Ethan Jacks, Peggy Taylor, Richard Fletcher, Bonnie Burate, and Ed
Gonzales for their research assistance. Paul Comoyer provided us with ex-
cellent computer assistance. We wish to emphasize, however, that findings,
analysis, and conclusions are solely the responsibility of the authors and
do not necessarily represent the views or opinions of individuals or organi-
zations that lent their cooperation to the study.



David B. Lip sky

Associate Professor

Cornell University, on leave to M.I.T.



Thomas A. Barocci

Assistant Professor

Sloan School of Management, M.I.T.

with William Suojanen

Assistant Professor
Northeastern University and
Ph.D. candidate, M.I.T.



iv



I. Summary of the Study

In 1973 Massachusetts passed a statute providing for final-offer
arbitration as the last step in the impasse procedure in disputes involving
police officers and firefighters (Section 4 of Chapter 1078 of the Acts of
1973). The law took effect on July 1, 1974 and is due to expire on
June 30, 1977.

The principal purpose of this study was to assess the economic
impact of the final-offer statute.- Specifically, we sought to determine
whether the statute has had a discernible impact on the salaries of patrol-
men, police sergeants, firefighters, and fire lieutenants. A secondary
objective of the study was to determine what, if any, effect the statute
has had on the collective bargaining process involving public safety
employees and their municipal employers in the Commonwealth.

Data were collected on all impasses occurring in police and
fire disputes over the period 1972-77. In addition, an effort was made
to survey as many police and fire contracts in force over the period
1973-77 in order to determine the level of salaries paid to the four employee
groups under study. Finally, data were also collected on other economic
and environmental factors that are generally thought to have an influence
on the level and movement of public safety salaries.

Analysis of the data allows us to answer the following questions
concerning the impact of the final-offer statute. First, did the final-offer
statute affect the incidence of police and fire bargaining impasses in the
state and the stage of settlement (no impasse, mediation, fact-finding.



arbitration) in such disputes? Second, is there a significant difference
in police and salary settlements by stage of settlement for the period
under study? Third, did police and fire employees win salary increases
that were significantly different from the increases gained by police and
fire employees in other states of the Northeast region of the United
States? Fourth, did final-offer awards result in higher police and fire
salary settlements than one would have expected in the absence of the
statute? Fifth, were there other observable economic and environmental
factors that had a significant influence on the movement of police and fire
salaries in Massachusetts?

Our findings can be briefly summarized:

1. The number of police and fire impasses increased significantly
after the passage of the final-offer statute. In the three-year period pre-
ceding passage of the law, there were 168 police and fire impasses; in the
first two and one -half years following the law's passage there were 355
police and fire impasses. In addition, the effectiveness of mediation in
achieving settlements in public safety Impasses seemed to decline after
the law was passed. To what extent these changes in the process can be
attributed to a "chilling effect" created, by the law itself, to the parties'
desire to experiment with a new technique of dispute settlement , or to

the tougher economic climate that prevailed after 1974 is problematical.

2. In general we find no significant relationship between the
stage of settlement in police and fire bargaining (either before or after the
passage of the final-offer statute) and the rate of change of police and fire



salaries. Salary changes resulting from arbitration awards were not
significantly different from salary changes achieved without impasse,
in mediation, or in fact-finding. Furthermore, we argue that it is un-
likely that arbitrated salary awards set a pattern that influenced the level
of salary settlements in non -arbitrated cases .

3 . Examination of police and fire salary data for cities with
over 100,000 population in the Northeast region of the United States,
compiled by the U.S. Department of Labor, reveals that Massachusetts
public safety employees were able to gain larger salary increases than
comparable employees elsewhere in the region in 1975, but had gained
smaller increases in 1974. On net, the salaries of police and fire em-
ployees in the Commonwealth have increased at about the same rate as
the salaries of comparable groups elsewhere in the Northeast.

4. Statistical analysis of the relation between police and fire
salary movements and stage of settlement , controlling for other factors
that might influence salary changes, demonstrates that the salaries of
police and firefighters are not significantly different from what one would
have expected in the absence of the final-offer statute. The one exception
to this finding involves fire lieutenants' salary settlements in 1975-75;
arbitration is associated with salary changes for this group that are
significantly higher than one would otherwise have expected. Fire
lieutenants and police sergeants also appear to achieve higher settlements
in mediation under the final-offer statute than one would otherwise have
expected .



4

5. In most cases, the other economic and environmental factors

that we expected to be related to police and fire salary changes had no
influence or a weak influence at best. Such factors as state aid, the
full value of assessments per capita , and the community's unemployment
rate had a negligible influence on salary changes. There is, on the other
hand, some evidence that a "catch-up" effect was operative in police and
fire settlements for the years under study. It appears that in some cases
larger salary gains were won by public safety employees who were relatively
low paid compared to public safety employees in other towns and cities.
Although this effect may be associated with the use of collective bargaining,
it is not associated with the use of impasse procedures, including arbitra-
tion, in police and fire units.

In sum, our study does not lend support to the notion that the
addition of final-offer arbitration to the array of impasse procedures avail-
able to Massachusetts' police officers and firefighters had a significantly
positive effect on the salary levels they were able to achieve in negotiations ,



II. Introduction

Collective bargaining in the public sector experienced a phenomenal period
of growth over the past 15 years. It is estimated that currently better than
30 percent of the 12.3 million workers employed by state and local governments
are members of labor unions or professional and civil service associations.
About one million employees of state and local governments are police officers
and firefighters. Rates of unionization among police and fire employees are
high, compared to other public sector employee groups. The firefighters are
the most heavily organized nationwide: it is estimated that about 77 percent
are covered by union contract. About 56 percent of the nation's police officers
are covered by a collective bargaining agreement. In Massachusetts, almost all
police officers and firefighters are reorganized.

In the 1960 's policy issues centered on whether public sector employees
had the right to organize and to bargain over the terms and conditions of their
employment. By 1976, 42 states had passed laws dealing with the organizational
and bargaining rights of firefighters; 34 states had statutes covering police
officers. Not all of these statutes actually provide bargaining rights for
public safety employees. The sole purpose of some of them is to ban strikes
by police officers and firefighters. Other states have granted public safety
employees the right to "meet and confer" with their public employers, but not
the right to bargain. In states without statutes, labor relations for police
and fire employees are governed by Executive Orders issued by the governor,
decisions handed down by courts and agencies, municipal ordinances, or opinions
issued by the state's Attorney General.



I



In all but two states (Hawaii and Montana) there is an absolute ban on
the right of police and firefighters to strike. As a substitute for the right
to strike, most state statutes have established impasse proceedures to assert
in the resolution of disputes over salaries and working conditions. In
several jurisdictions, binding arbitration has been adopted as the method of
resolving bargaining impasses. The list of states using arbitration includes
New York (statute passed in 1974), Michigan (1969), Pennsylvania (1970), Min-
nesota (1971), Wisconsin (1971), Nevada (1969), Connecticut (197 ), and Iowa
(1974). In most of these states, arbitration is restricted to police and
fire disputes, while the last impasse step for other employee groups is
usually fact-finding. Selected public employee groups are granted a limited
■right to strike in nine jurisdictions.

In addition to Massachusetts, Connecticut, Iowa, Michigan and Wisconsin
now use some form of final-offer arbitration to resolve police and fire dis-
putes. Massachusetts and Wisconsin practice a "pure" form of final-offer
arbitration whereby each party must submit one final package incorporating
all outstanding issues and the arbitrator selects what he considers to be
the more suitable package. Connecticut, Iowa, and Michigan adopted a variant
of the concept allowing arbitrators to consider each outstanding issue
Separately and select from one or the other side's final positions on an issue-
by- issue basis. Michigan further limits final-offer arbitration to economic
issues only.

In Massachusetts, there are now essentially three stages in the impasse
procedure for police and fire employees — mediation, fact-finding, and arbi-
tration. It will be useful to set out a concise definition and description of



these stages:

Mediation ; If the parties in collective bargaining are unable to agree
on a new contract through negotiations, either side has the right to assert
an impasse and ask the Massachusetts Board of Conciliation and Arbitration to
assign a mediator to the case. A mediator assists the parties in reaching
settlement, but has no authority to impose contract terms on them. A mediator
can offer suggestions and advice and make recommendations. He can solicit
confidential information from each side concerning concessions that might be
made to achieve a settlement. On the basis of such information, a mediator
may then be able to discern the shape of an eventual agreement and tactfully
persuade the parties to work toward that end. A mediator's "authority" is
ultimately based on his expertise in labor relations and his ability to work
harmoniously with the members of the bargaining teams. In Massachusetts, the
mediation of all public safety impasses is handled by an experienced, permanent
staff of professionals employed by the Board of Conciliation and Arbitration.

Fact-Finding ; If the parties are unable to achieve a settlement of their
dispute in mediation, they have the right to request a fact-finder. The fact-
finder assigned to a case may hold a hearing at which both parties have the
opportunity to present the "facts" of a dispute, offer testimony and evidence,
and make arguments. The fact-finder then can write a report in which he
makes his recommendations to settle the impasse. The fact-finding report is
usually made public but the parties are never bound to accept its recommendatio'
Either side to a dispute has the right to reject the recommendations in whole
or in part. Often fact-finfers will attempt to mediate a dispute, either befor



8



or after a hearing is held. No reports need be issued in cases where the fact-
finder has successfully mediated the dispute or where the parties have, by other
means, resolved their impasse during the fact-finding stage. In Massachusetts,
fact-f inat^rc are usually appointed by the Board of Conciliation and Arbitration
on an ad hoc basis from a panel of experienced neutrals. The parties do have
the right, however, to select their fact-finder by alternative means.

Arbitration ; If either party to an impasse rejects the fact-finder's
report, and if the parties are unable to reach agreement by other means, a
petition to initiate final-offer arbitration may be filed by a certified
employee organization with the Board of Conciliation and Arbitration . Such
a petition can be filed if the parties remain at impasse over any terms of a
collective bargaining agreement for more than 30 days after a fact-finder's
report has been published. Before the parties can proceed to arbitration
the Board must determine that (1) the sections of the law pertaining to fact-
finding have been complied with in good faith by the employee organization;

(2) 30 days have elapsed since the publication of the fact-finder's report,

(3) "the proceedings for the prevention of any prohibited practices have been
exhausted, provided that any such complaints have been filed with the [Massachu-
setts Labor Relations Commission] prior to the date of the fact-finder's re-
port," and (4) an impasse exists. If these conditions are met, the Board
notifies the parties, who then have 14 days to select a three-member arbitration
panel and notify the Board of their selections. The panel consists of one
representative designated by the employer and one designated by the employee
organization. These two members then select a third, impartial member who
serves as chairman of the panel. The arbitration panel schedules a hearing.



at which the parties have full and equal opportunity to present records, evidene
and arguments bearing on the impasse. They may call witnesses and they are
often, but not always,' represented by counsel. At the conclusion of the hear- ■
ing, "each party shall promptly and simultaneously submit to the arbitration
panel. . . and to each other a written statement of its last best offer on each
issue in dispute." Following the submission of final offers, each party has
the right to make an oral argument or file a brief ' with the panel. The panel
is instructed to conclude its hearings within 40 days of their commencement.
Within 10 days of the conclusion of the hearing, a majority of the panel must
choose either the employer's or the union's last offer. The selection of one
offer is final and binding upon the parties and "upon the appropriate legis-
lative body." The panel may issue a written opinion in support of its select-
ion on one of the final offers, and the panel's award and opinions are then
made available to the public. The parties share equally the fees and expenses
of the panel chairman. It should be added that the Chairman of the arbitration
panel, prior to the issue of an award, can, at his own discretion, remand a
dispute to the parties for further bargaining. If remanded, the chairman may
serve as a mediator to assist the parties in achieving settlement. In practice
even if a dispute is not formally remanded, the chairman has in several cases
been able to affect a settlement by informal means. There have also been cases
where the parties have been able to achieve settlement on their own during
the arbitration phase. (The incidence of mediated or negotiated settlements
achieved either in fact-finding as in arbitration is presented below. )

Final-offer arbitration as practiced in Massachusetts can be distinguished
from conventional arbitration. Under conventional arbitration the arbitrator
fashions his award from the various issues submitted to him for resolution.



10



Usually his award is a compromise solution that does not hold entirely with
either the position of the union or the position of the employer. Often an
arbitration in "conventional" cases will "split the difference" between the
final positions of the parties. The parties, knowing that the arbitrator is
likely to fashion a compromise settlement, thus have an incentive to withhold
their true positions in arbitration in the hope that the arbitrator's com-
promise solution will approximate the party's true objectives in bargaining.
Accordingly, the parties subject to conventional arbitration withhold concessions
during negotiations and present extreme positions to the arbitrator. Con-
sequently, it is argued that conventional arbitration has a "chilling effect"
on negotiations and causes the parties to become more intransigent in their
positions then they otherwise would be.

Final-offer arbitration is designed — at least in theory — to overcome
these defects. If the parties know that the arbitrator will be forced to
choose one package or another, so the argument goes, they will no longer have
an incentive to withhold concessions during negotiations. If they do adopt
unyielding positions, they run the risk of losing the arbitration case to their
bargaining opponent. Final-offer arbitration is based on the expectation that
the arbitrator will be able to discern the more "reasonable" of two offers
and will make his selection accordingly and, further, that a party will thus
maneuver to assume a stance that will appear more reasonable than its opponent's
to the arbitrator. If these assumptions about the dynamics of the process
are correct, then final-offer arbitration ought to decrease reliance on
outside neutrals and should lead to more voluntarily negotiated agreements.



11



In theory, then, there should be no "chilling effect" under final-offer
arbitration. Rather, just the opposite should occur — the parties should
have added incentive to compromise, concede, and reach agreement on their I

1

own. The technique has been criticized, however, on several grounds. First,
some negotiators, particularly those that are not especially sophisticated
about the process, may not perceive the risk involved in using final-offer
arbitration. If the risk of losing is not perceived, then the presumed in- ^
centive to concede and compromise will not be present. Second, negotiators
may accurately perceive the risk, but may be so convinced that their position
in bargaining is correct and just that they nevertheless do not concede or
modify their stance. Third, some negotiators may realize that they need some-
how to move to a "reasonable" position, but calculate that the risk of losing
in arbitration will not be substantially affected if one item in their final
offer package is, by some definition, "unreasonable." Thus, arbitrators can
be placed in the position of choosing between two final offers, each of which
contains one or more "outrageous" demands. In sum, final-offer arbitration
does not guarantee that awards made by arbitrators will necessarily meet
tests of fairness and equity.

Final-offer arbitration in Massachusetts has been in effect since July 1,
1974. Since the enactment of the law there has been a continuous debate on its
efficacy and much speculation concerning the influence of the law on the pro-
cess and outcomes of police and fire bargaining. Critics of the law say that
it clearly favors the unions, stifles the bargaining process, and results in
inflationary wage settlements. They point to the fact that unions have won



12



approximately two-thirds of the cases going to arbitration-
Some of the critics are particularly sensitive to the fact that munici-
palities are required to fund an arbitration award whereas the funding of
settlements reached through negotiations, mediation, or fact-finding is put
to a vote. As a result, they argue, cities and towns are forced to pay in-
flated wages. Furthermore, it is believed that the incentive for meaningful
pre- impasse bargaining, which final-offer arbitration is supposed to provide,
is severely undermined because of the fact that arbitrated settlements are
guaranteed funding while negotiated settlements are not.

On the other hand, supporters of final-offer arbitration deny that it
results in inflationary outcomes. They point out that comparable wage in-
creases are met in every sector of the economy and so it is unrealistic to
think that municipal governments would be be immune to such a trend. Those
who advocate final-offer arbitration believe that its effectiveness in pre-
venting strikes and facilitating settlements is evidenced by the fact that

employees
there have been no work stoppages by police or fire in Massachusetts during

what has been a very trying economic period. They also argue that the pro-
portion of union "victories" in arbitration cannot be used to judge the
fairness of the law, since such a "box score" does not take account of the
quality of the offers made by the parties to the arbitrator.


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Online LibraryDavid B. LipskyThe impact of final offer arbitration in Massachusetts : an analysis of police and firefighter collective bargaining → online text (page 1 of 5)