South-Western College Publishing - Economics  
Strikes—Unions Go XTreme
Subject New York transit union threatens a strike.
Topic Labor markets
Key Words

MTA, strike, New York

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Reference ID: A139564765
News Story

The New York Metropolitan Transportation Authority (MTA), which oversees New York City’s subway and bus lines, is going toe to toe with the TWU (Transportation Workers’ Union) Local 100. Neither side is blinking. A strike is set for 20 December if an agreement is not reached.

At issue: a $1 billion surplus held by the MTA. The union wants this surplus to go toward wage increases, and is outraged that almost $500 million of the money was already earmarked for pension plans. However, the “surplus” is a bit of a misnomer; it arises from a temporary increase in taxes, and the extra funds will disappear into operations in about 18 months. By that time, the MTA will see a deficit of about $1 billion.

The MTA is asking for help in paying workers’ health insurance premiums, wants to raise the retirement age from 55 to 62, and will allow for higher wages, as long as the higher wages result in increased productivity (i.e., workers performing multiple tasks instead of just the one for which they were hired).

The union recently rejected a proposal to submit to binding arbitration--a technique in which both sides argue their cases before an arbitrator, and agree to submit to that individual’s ruling. What’s more, strikes by public employees in New York are illegal under the Taylor law, which raises the ante for TWU workers. Under the Taylor Law, municipal authorities respect the right of workers to organize for collective bargaining, but can fine workers an amount equal to twice that worker's daily pay for each day the worker is on strike.

The general public has little sympathy for either side, assuming that both sides are to blame for the current state of the public transit system. The last time the transit workers engaged in a strike was in1980. It lasted 11 days, and cost the city $1.1 billion in lost business transactions. Sales on Fifth Avenue fell by 30%. In case of a strike, the city has a contingency plan in which autos with just a single driver (without passengers) would be prohibited from entering Manhattan, forcing carpooling. The plan would also allow taxi drivers to pick up additional customers.

Questions
1.

Game theory emphasizes the interdependence of economic players, as well as the need for economic players to act in their best interests, based on what they believe the other side will do. Under game theory, does a benefit accrue to either side in “drawing a line in the sand,” during negotiations--as the union seems to have done in this article?

2. As described in the article, what does the Taylor law do to the cost of not accepting the MTA’s contract proposal?
3. Assume that the union wins the dispute, and the MTA does not get any of its cost-saving measures passed. What will happen to the price of a ride on the New York City subway as a result?
Source “Off the tracks.” The Economist. 8 December 2005 http://www.economist.com
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