Labor Relations

The employer-employee relationship has without a doubt been the most troublesome business relationship for both business owners and employees since the beginning of the industrial revolution. Over the years, labor relations has been the cause of everything from demonstrations, to riots, to revolutions. Labor unions have risen to give employees the opportunity to promote their cause collectively. But the unions themselves often exploit the employees. Or they can cause businesses to go bankrupt by enforcing unreasonable demands.

As Lord Acton proclaimed in the 19th Century, “Power tends to corrupt, and absolute power corrupts absolutely.” This principle applies to both sides of labor relations.

In the 1979 movie “Norma Rae,” a textile mill had too much power over their employees. It was the only major employer in town. Management took advantage of the situation and exploited the workers to the point where they were compelled to form a union.

On the other side of the fence, Jimmy Hoffa has become a household name. His ties to organized crime helped propel him to the presidency of the “International Brotherhood of Teamsters,” the largest labor union in the country. The money that supported him came from union dues paid by workers.

Even without an obvious criminal influence, labor unions with too much power not only burden businesses but the general public, as well. In the construction business in New York City, labor unions were able to exclude non-union shops from doing business there. The result was the cost of construction going through the roof.

Why does it have to be like this? Competition amongst employers for qualified employees should inspire them to offer a fair compensation. And once an employer has gone to the expense of hiring and training an employee, he should want to keep him happy (as long as the employee is doing his job as expected). If he excels at his job, the employer should be inspired to promote him.

At the same time, competition among candidates for employment should inspire them to accept a fair compensation package. Once a candidate has acquired a job, he should strive to make himself worthy of his compensation in order to keep his job. If he’s looking to improve his situation, he should strive for excellence.

However, a lot more than logic is present in this relationship. Let’s look at a very small business where the employee reports directly to the owner, without any layers of management involved.

In this situation, the relationship is personal. It starts with an arrangement that’s informal, often without a written agreement. Details about some benefits may not even be discussed. As time goes on, issues will come up. If the employee feels that he’s doing well, he will feel entitled to better compensation. It’s going to cost the employer more money. But it’s not about just money.

I’ve spent a substantial portion of my career on both sides of this relationship. As a result, I can empathize with the needs and desires of both. From the employer’s point of view, labor costs may be his biggest expense. This is certainly true in the custom woodworking business. He needs to keep these costs in check to be competitive and to make a profit. After all, he has invested money, effort, and risk into his business and should be able to make a profit. He feels that the business is an extension of himself and therefore his position is a personal one as well as a business one.

The employee also has a lot at stake. It’s his livelihood, and he depends on the income to live. It’s personal to him, too. He feels that his compensation is a reflection of his worth not only to the company but to his position in society as a whole. It really comes down to him feeling satisfied with his achievements in life.

The conflict will never be resolved in a manner that will make both parties completely happy. It can’t, since the interests of one will always infringe on the interests of the other. The best that can be done is for each person to stop and try to understand the point of view of the other. It’s not in our nature to do this. Our natural instinct is to fight for what’s best for us. We become obsessed with convincing our opponent to see our point of view. Sometimes, what’s best for us is to listen.

Running a small business is often a frenzied battle of fighting for the interests of the business in order to make it survive and thrive. We want to extinguish all obstacles in our path as quickly as possible. Stopping to listen and empathize with an employee’s concerns runs counter-intuitive to our objective. Rest assured; it will be time well spent.

We know we can’t give employees everything they want. If we let them know that we are willing to listen to them and understand their concerns, they will be more likely to accept limitations to what we can offer.

While the personal aspect may be more obvious in a very small company, the principles apply to a business of any size. It’s just more complex. A middle manager, for example, is often torn between serving both management and employee. He is a boss to some and a subordinate to others. His own potential advancement may make him act more in the interest of the management, but he’s still an employee and has his own interests in mind. These interests can conflict with his role as manager.

Poor handling of the employer-employee relationship eventually forces intervention. It may be in the form of a labor union, or it may be government regulation. This intervention will alleviate conflicts in the short term, but it will become a permanent burden on the business.

So, how can we improve this relationship? As with all relationships, we need to develop the ability to empathize with the other party. Yes, interests conflict with one another, but if both sides have a willingness to compromise, the amount of effort and expense necessary to resolve these conflicts can be minimized.