It Takes Three to Tango: Court, Unions and the Politics of Labor Law Strategic Allies? Court, Unions and the Politics of Labor Law Constitutional Interpretation
Extremely Preliminary
Version 1.1
October 27, 2001
STRATEGIC ALLIESIT TAKES THREE TO TANGO?:
COURTS, UNIONS AND THE POLITICS OF LABOR LAW CONSTITUTIONAL INTERPRETATION
ARGENTINA 1935-1998
by
Matias Iaryczower, Pablo T. Spiller and Mariano Tommasi[*]
1
It Takes Three to Tango: Court, Unions and the Politics of Labor Law Strategic Allies? Court, Unions and the Politics of Labor Law Constitutional Interpretation
1. Introduction
Strikes and public demonstrations are visible instruments unions use in improving their bargaining position vis-à-vis employers. But the use of these instruments is not limited to the industrial relations area. Unions can, and in most countries do, use them to influence political decision making. The direct influence of unions' actions on government decisions seems obvious.[1] What is not so obvious is the influence union action may have on the interplay between the Court and the polity. In this paper we explore such influence. We present a model of interaction among the polity, unions and the Courts, which provide conditions for union strength actions to increase the independence of the Court from the executive. In particular, when Courts oppose President’s anti-labor policies, union actions provide a leverage the court may use in voting against the President's desired policy. Our model shows that to understand the behavior of unions, the Courts and the President, we must take into account the optimal strategies of all the players.
when Courts oppose President’s anti-labor policies, union strength provides a leverage the court may use in voting against the President's desire policy. On the other hand, when Courts oppose the President’s pro-labor policies, union strength does not affect judicial decisions making. Our model is related to the literature on the influence of public opinion on judicial behavior,[2] with one major difference. While public opinion was seen in that literature as essentially passive, here unions behave strategically vis-à-vis the Court and the President. Their fights against the President take into account the potential behavior of the Court, and the Court learns from that behavior.
We test our model analyzing, for the period 1935-1998, the joint determination of Argentina's Supreme Court constitutional decisions on labor issues,[3] the President's tendency to legislate on labor issues, and the unions' tendency to strike. Our results provide support to the strategic model of labor law constitutional interpretation. Our empirical results show that, ceteris paribus, the introduction of new labor laws is lower the higher the probability of a pro-constitutional judicial interpretation, and the higher the probability of union strikes. At the same time, the higher the probability of a pro-constitutional judicial interpretation, the lower the tendency of unions to strike. Finally, the probability of a pro-constitutional judicial interpretation falls with the strength of the unions. Thus, we find that in this triangular relationship, Presidents use sympathetic Courts in their fights against the unions; unions use sympathetic Courts in their fights against the President, and the Court relies on union strength to increase its independence from the President.
Our model explores the interrelations among the three players in an environment of imperfect information, where the Court is uninformed about the strengths of the President and the unions. We study three basic cases: Street Conflict (SC) in which the Court and the President both have an anti-labor stance; Institutional Conflict (IC) in which only the Court has an anti-labor stance;[4] and Total Conflict (TC) in which the President favors an anti-labor policy, while the Supreme Court does not. As in IST(2001), the Court’s vote against the President decreases with the President's political support in Congress. Nevertheless, there are environments in which an otherwise lenient court stands against the President. Furthermore, there is an “informative” equilibrium, in which unions only fight a relatively weak President, and the Court goes against the President only after observing that the union fights the President.
2. The model
The basic structure of the model is as follows: We assume that the President can costlessly introduce a new piece of legislation.[5] Specifically, her options at this point are: a pro-labor norm (relative to the status quo), the status quo itself, and an anti-labor norm (again, relative to the status quo).[6] The union can react fighting this legislation or acquiescing. If the President wins this challenge, which happens with probability pF, the norm remains alive. It she loses, the outcome is the status quo. Before the fight between the President and the union is resolved, the Court must decide whether it challenges the norm on constitutional grounds or upholds it As in ITS (2001), the President can initiate an impeachment procedure against those Justices who defy her. Would she initiate impeachment proceedings, she will accomplish this with some probability pI. If the impeachment proceedings succeed, the constitutionality of the norm is restored.
The preferences of the President, the unions and the Court are represented by:
VP(;P)=UP(N();P) – KI () - KF(),
VU() = UU(N()) – KU(), and
VJ(;J) = UJ(N();J) – KJ(),
where is the strategy profile, N {NPL, SQ, NAL} is the norm that prevails at the end of the game, Ki() represent the fixed costs of particular strategies (KI (), KF() are the President's fixed costs of attempting to impeach a Justice and of fighting the union, KU() is the union's fixed cost of fighting the President, and KJ() represents the court's disutility of being effectively impeached by the President). The President's pro- or anti-labor stance is represented by P {PL,AL}. Obviously U=PL, while J {PL,AL} represents the Court's pro- or anti-labor stance.
As a matter of convention, we will refer to three basic cases depending on the players' preferences:
J = PU as Street Conflict (SC);
JP = U as Institutional Conflict (IC), and
PJ = U as Total Conflict (TC).
Our interest lies on how unions affect the Court's ability to make decisions free of the threat of presidential retaliation. Thus, the most relevant case is TC. Nevertheless, we solve SC and IC as benchmarks.[7]
We specify now the game's information structure. Information is assumed to come from two independent sources. A publicly observed signal, M, represents the nominal majority of the President in Congress. The probability of impeachment, pI(M), is non decreasing in M. pI(M) is realized at the beginning of the game, and is hence common knowledge.
The probability that the President can successfully resist a challenge by the unions, pF, is unobserved by the Court. We assume pF depends on the realization of a random variable {L, H}, which is observed by both the President and the unions, but is unobservable to the Courts.[8] The values that takes represents whether the president is "tough" or "weak," thus, pFH= pF (H) > pFL= pF (L).[9]
The extensive form of the game with this informational structure is represented in Figure 1 below. The game begins with Nature choosing M and . The President, whether Tough ( = H) or Weak ( = L), then chooses to introduce or not the norm. If she does not, the game ends, and the Status Quo prevail. If she does, the unions (for each value of ), must decide whether to fight or not.[10] The Court’s strategy must then specify whether to challenge the norm or not in both the event that the unions fight or do not. While the Court does not observe , it has prior beliefs 0. Following the Court’s decision, the President has to decide whether to attempt to impeach the Justices or not. Outcomes follow. Note that since we are assuming that a defeat of the President whether by the Courts or by the streets can reverse her decision, in the event that the union fights there are four possible events, only one of which – successful impeachment and successful fight - will see the President triumphant.
Figure 1
Formally, let “I” denote a successful impeachment attempt, “~I” an unsuccessful impeachment attempt, “F” a "street" victory for the President against the unions, and “~F” a defeat of the President at the hands of the unions. Then the set of possible states of nature for the informed players (President and unions) is Inf = {(I,F), (I, ~F),( ~I, F),( ~I, ~F)}, and that of the uninformed player (the Court) is Uninf = {(I,F, H), (I, ~F, H),( ~I, F, H), ( ~I, ~F, H), (I,F, L), (I, ~F, L),( ~I, F, L), (~I, ~F, L)}. The Court has a probability distribution over Inf, p(;M) = p(/;M).q(). We will denote the Court’s prior over as 0 = q(H) and (1-0)= q(L). After observing the play, but not yet the outcome, by the union and the President, the Court will update its prior. We solve for the sequential equilibria of the game. In a sequential equilibrium the following conditions hold:
(a)behavioral strategies satisfy sequential rationality,
(b)Bayes’ rules is used when possible to update beliefs – in information sets reached with positive probability in equilibrium -, and
(c)for information sets that are not reached with positive probability in equilibrium, beliefs are the limit of the beliefs – computed using Bayes’ rule – in a sequence of assessments [t,t] of totally mixed strategies converging to the equilibrium.
Using Bayes’ rule, q(/)=Pr(/).q() / Pr(/).q(). Since we are not allowing correlated strategies, we have that 1 = q(H/Fight by the unions is observed) and 2 = q(H/Fight by the unions is NOT observed) satisfy
1 = 0.DPH.FUH. [0.DPH.FUH+(1-0).DPL.FUL]-1
and
2 = 0.DPH.(1-FUH). [0.DPH.(1-FUH)+(1-0). DPL.(1-FUL)]-1 .
Here DPH denotes the probability that the equilibrium strategy of the “Tough” President assigns to “innovate”, DPL denotes the probability that the equilibrium strategy of the “Weak” President assigns to “innovate”, FUH denotes the probability that the equilibrium strategy of the union that observes a “Tough” President assigns to “fight”, and FUL denotes the probability that the equilibrium strategy of the union that observes a “Weak” President assigns to “fight”. We will also let CJF and CJF denote the probabilities that the strategy of the SC attach to voting Constitutional after observing Fight and Not Fight by the unions.
At the expense of tiring the reader with notation,[11] we introduce some, we think, useful definitions. Define the union’s “relative” cost of fighting the President as
HU KU.[UU(SQ)- UU(NAL)]-1;
the ratio of the fixed cost KU and the difference in payoffs of keeping the Status Quo and having the anti-labor norm NAL. Similarly, the President’s “relative” cost of fighting the union is defined as
F KF.[UP(NAL)- UP(SQ)]-1.
The President's "relative" cost of attempting to impeach the Court when she favors an anti-labor policy but the Court favors a pro-labor policy is
I KI.[UP(NAL)- UP(SQ)]-1
while her "relative cost" of impeachment when she favors a pro-labor policy but the Court favors an anti-labor policy is given by
I‘ KI.[UP(NPL)- UP(SQ)]-1
Finally, denote SC’s relative cost of being impeached when the President favors an anti-labor policy but the Court favors a pro-labor policy as
HJ KJ.[UJ(SQ)- UJ(NAL)]-1,
and
HJ‘ KJ.[UJ(SQ)- UJ(NPL)]-1
will denote SC’s relative cost of being impeached when the President favors a pro-labor policy but the Court favors an anti-labor policy.
We now start solving the benchmark cases. The No Conflict case is straightforward, and its results are given in the next proposition.[12]
Proposition 1. In the No Conflict case, the President enacts a pro-labor legislation, which is not challenged by the Court, or fought by the unions; there is no impeachment.
The following proposition completely characterizes the set of equilibriaums in the Street Conflict (SC) case:
Proposition 2. In the Street Conflict case,[13] the Supreme Court does not challenge the President, who never impeaches. Fight by the unions is “non-increasing” in HU, and innovationsg by the President is are non-increasing in F. Specifically,
(a)if HU < 1 - pFH,[14] the union fights both a weak and a tough President. In this case, for F < pFL, the President innovates independently of ; only the tough President innovates if pFLF < pFH, and the President does not attempt to legislate independently of her type if pFHF;
(b)if 1 - pFH < HU < 1 - pFL,[15] the union only fights a weak President. Here a tough President always innovates, and a weak President only does so if F < pFL. Finally,
(c)if 1 - pFL < HU, the union never fights. In this case, the President legislates independently of the realization of .
Corollary: The equilibrium is completely independent of the President’s majority in Congress M.
We now introduce more definitions:
Definition 1: We say that there is a Unified Government (UG) whenever I < pI. Hence, given a majority level M, we say that there is a UG if MM*, where M* satisfies I = pI (M*). A government that is not Unified is Divided.
The next proposition completely characterizes the set of equilibriaums in the Institutional Conflict (IC) case.
Proposition 3. In the Institutional Conflict (IC) case,
(a)A constitutional determination by the Supreme Court, CJ, is, on the equilibrium path, non-decreasing in M.
(b)Unless there is a Unified Government, the President never impeaches. Hence, SC always challenges an eventual (pro-labor) norm, which is in fact never enacted (indifferent).
(c)Under a Unified Government, the SC only acquiesces if pI.(1+HJ’) >1. The President always innovates in this latter case, and impeaches when SC challenges only if HJ‘< pI.
Corollary: The equilibrium play is independent from HU, F and pF.
Following our inability to simplify matters, we now introduce even more terminology:
Definition 2. We say that there is a Combative Unified Government (CUG) whenever (I+F)/pF< pI . Hence, given a majority level M, we say that there is a CUG if MM*, where M* satisfies (I +F)/ pF = pI (M*).
We now start analyzing the Total Conflict case. We first look at the simplest case in which there is no asymmetric information. The following proposition describes the most salient facts about the equilibrium in this case.
Proposition 4. Equilibrium behavior in the Total Conflict with sSymmetric iInformation (TCSI) casedisplays the following properties:
(a)The President only innovates in CUGs.
(b)All else equal, Supreme Court's constitutional challenges are non-increasing M and the unions' fighting the President is non-increasing in HU.
(c)Free Riding by Courts. Let M* denote the value M such that MM*CJF = 1, and M** denote the value M such that MM**CJNF =1. Then M*<M**.
(d)Free Riding by unions. Let HU* denote the value of HU such that HU < HU*,CJF = CJNF =0 FU =1, and HU** denote the value of HU such that HU < HU**,CJF = CJNF =1 FU =1. Then HU* < HU**. When CJF = 0 and CJNF =1, FUH =FUL =0.
Point (c) indicates that in TC with symmetric information, the smallest President’s majority in Congress required to get the Court to acquiesce is actually higher when the union doesn’t fight that when it does. In this range the Court is leaving the burden of the fight to the union, avoiding any risks. Similarly, point (d) indicates that in the TC with symmetric information, the highest relative cost of fighting for the union that gets the union to fight is actually lower when the union anticipates that the Court will challenge the President independently of its action, than when it anticipates that it will acquiesce independently of its action. In this range, the union is the one avoiding taking any risks, leaving the burden of the fight to the Court. Moreover, by (c) there is an interval [M*,M**] of the President’s party majority in Congress in whichthe Court would not challenge if the union strikes but challenges if the union does not fight. The union’s response in this interval is to avoid fighting, leaving the risks to the Court.
Now we are prepared to tackle the Total Conflict with aAsymmetric iInformation (TCAI) case.Our first proposition for this case states that a Unified Governmentis not a sufficient condition for the President to go against the unions.
Proposition 5. In the Total Conflict with Asymmetric Information, iIf the Government is not a CUG, then the President does not innovate.
Given the extent of free riding in TCSI, the next proposition explores free riding in TCAI.
Proposition 6. In the Total Conflict with Asymmetric Information
(a)If pI < pF or pI.(1+HJ’)>1 there is no equilibrium in which CJF =1 and CJNF =0 .
(a)(b)When neither of these conditions hold, for an equilibrium with CJF =1 and CJNF =0 to exist it is necessary that HU be sufficiently small, and that at least the Tough’s President Government is Combative Unified.
This proposition shows the power of informational asymmetries. While under symmetric information both the union and the court could free ride on each other (the court upholds the President when there is a high probability of the union winning the street fight, and the union not fighting when there is a high probability of the Court going against the President), such results do not hold under informational asymmetries.
Indeed, Proposition 6 says that under reasonable conditions, there are no equilibria in which the Court decides to uphold the President if unions fight, while it decides to go against the President if unions do not fight. Since pF refers to the probability that a President can maintain a given piece of legislation against a fight by the union, while pI refers to the probability that she can successfully impeach a Supreme Court Justice, the requirement that pI < pF does not seem too stringent. We will henceforth maintain this as an assumption. Nevertheless, it should be noted that if this condition does not hold, we might have an equilibrium in which Court free rides on the union when at least the Tough President’s Government is Combative Unified. In this case, opposing the Government is too risky for Justices, and the opportunity cost of not doing so is reduced by the relatively high expectation that unions could win their fight against the President “in the Streets”. The relatively small HU is needed to assure that unions will go against the President even if they know they will be fighting alone.
The next result Proposition shows that – as in the previous cases - Courts independence is reduced when they face a more unified Government if they care enough about being impeached, and this is sufficiently “cheap” – or the issue considered sufficiently important – for the President. Furthermore, if even the weak President’s Government is Combative Unified, we find that then Court’s behavior is independent of union’s behavior. Before presenting these results we need