- 1. Introduction
- 2. Building trust and labor market centralization
- 3. Sweden
- 3.1 The Rehn–Meidner model of wages solidarity
- 3.2 The politics of Rehn–Meidner's implementation
- 4. Kerala
- 4.1 Unions in Kerala
- 4.2 Minimum wage policy in Kerala
- 4.3 The 'minimum wage crisis' of the 1990s
- 5. Puerto Rico
- 5.1 Unions in Puerto Rico
- 5.2 Wage policy in Puerto Rico: The Minimum Wage Board
- 5.3 The IGLWU
- 6. Conclusion
Wage moderation, or wage restraint, has
been almost universally accepted in academic circles to be important for
economic development. It helps curb consumption and accumulate capital, central
elements of economic development. Today, this policy guideline permeates
academic scholarship and policy circles. John Pencavel, for example, maintains
that mandating higher wages is not necessarily a desirable objective for unions
in developing economies. Rather, unions should seek to help management maintain
high levels of productivity, which are important for capital accumulation.
Increasing productivity may require wage restraint.
However, critics of wage restraint point out that poor countries remain mired
in underdevelopment while their workers continue to sacrifice. They see wage
moderation as symptomatic of economic backwardness, rather than as a cure.
Therefore, even though wage moderation has had intellectual support, skeptics’
claims remain reasonable. How can workers know that a policy of wage moderation
is required and is in their interests? As Clyde Summers stated, ‘Wage restraint
is, by definition, accepting less than may appear to be immediately available.’
Workers and unions best exercise wage restraint when they ‘recognize that
immediate gains will be eaten up by inflation, lost by unemployment, or be at
the cost of later gains from economic growth.’
A question then surfaces: Given that wage moderation policies may be needed,
under what conditions can unions and workers trust that their immediate gains
will not hinder future ones?
2. Building trust and labor market centralization
Unions seldom exercise wage moderation even
when it may be rational to do so.
Medium-term gains in wages for workers can be much higher than short-term
losses in wages if capitalists reinvest profits in productive activities.
However, unions tend to oppose any immediate sacrifices because they do not
trust capitalists to reinvest their profits in productive activities that will
benefit workers. Capitalists equally believe that workers may engage in wage
militancy shortly after agreeing to exercise wage restraint when they perceive
profits to be growing, thereby failing to keep their end of the bargain. We
arrive at the proverbial prisoner’s dilemma situation. Due to mistrust of what
capitalists will do with the profits, unions prefer to exercise wage militancy
over exercising restraint, even though militancy may be socially inefficient
and detrimental in the medium and long run.
has been argued that the prisoner’s dilemma situation can be solved by
third-party mediation in labor relations; most of the time, the third party
will be the state.
The state can enact policies and incentives for capital to be reinvested in
productive ways, such as through fiscal policies and wage earner funds where
investment can be guaranteed to go towards growth-generating activities. State
intervention of this type may help unions trust that their immediate sacrifices
will lead to future benefits.
In essence, the union must have assurances from the state that it will do its
part so that capitalists play theirs. Trust matters in this triangular
way in which the state can facilitate trust in labor relations is through
centralized labor relations, or labor market centralization as I will call it
here. Labor market centralization is when the state, national employers’ and
employees’ organizations negotiate at the industrial or national level.
Labor market centralization helps create trust because it puts unions,
employers, and the state in a position where they can agree on national
strategies. They can establish consensus on the data to be used to design,
analyze, and enforce labor market policies. As we will see in this paper, most
of the time, such data is either produced by technicians employed by the state
or by one of the parties, when the other parties agree on its reliability. By
agreeing on the information to be used to design, analyze, and enforce national
labor market policies, the parties may then find a common space to agree and
classic example in the literature of labor relations and economic development
has been the Swedish experience with ‘wages solidarity.’ Wages solidarity was a
rather complex program instituted by the Swedish government around the 1950s.
It concentrated on curbing wage levels in the export industries of the country,
while providing some wage increase to those workers in other areas of the economy.
The policy was aimed at mainly two things. The first was that, by exercising
wage restraint in the export industries, those industries became more
competitive. As a result, Sweden’s export-led economic program could flourish.
These workers were also the best paid workers in the country. Their restraint
helped other employers pay higher wages to their low-wage workers, decreasing
wage disparities in the country. Economic growth was, as such, equitable under
the wages solidarity program.
less documented, but equally - if not more interesting - example of how labor
market centralization has helped exercise wage restraint to promote economic
development has been the experience in the Indian State of
Kerala with India’s tripartite minimum wage committees. These committees helped
capital and labor establish minimum wages and enforce them, catering to the
needs of both capital and labor.
this paper, I will detail these two examples found in the literature and
compare them to a third case that I find useful, viz. that of Puerto Rico during its
experience with the export-led economic program, Operation Bootstrap. It shows
that Puerto Rico’s tripartite, industrial minimum wage committees helped to design
an equitable wage policy where capital’s profitability concerns, and labor’s
wage concerns could be addressed. Even though there are wide and deep
differences between Puerto Rico, Kerala, and Sweden as
regards their economic, social, cultural, and political structures, they are
similar in their labor legal and policy contours and centralized industrial
relations, which helped the unions trust to accept wage restraint policies,
both for their members and for their national economies.
Sweden has been noted for having the most organized working class in the
world, with more than 80% of its work force being a member of a labor union in
the post-War period.
The high density of union representation has made the Swedish labor movement
unique. Unions in Sweden are considered voluntary associations; they do not require official
state recognition to be legally accepted by employers. Union elections
administered by a state agency, such as the United States’ National Labor Relations Board elections, are not required. Some
common law general principles cover unions, ‘but apart from that, unions enjoy
far reaching freedom of self governance.’
main labor federations represent workers in Sweden.
The largest is the Landsorganisationen i
Sverige (LO - Swedish Federation of Trade Unions), which traditionally represented
blue-collar employees and now more than half of the working population of Sweden.
The other labor federations are the Tjänstemännens
Centralorganisation (TCO - Federation of White-Collar Workers) and Sveriges Akademikers Centralorganisation
Swedish Federation of Professional Associations). The LO is officially
associated with Socialdemokraterna
(SAP), the main political party of Sweden.
The TCO is not officially affiliated to a political party, but tends to lean
towards the SAP. The SACO is strictly neutral.
are also nationally structured in an organization called the Svenska Arbetsgivareföreningen (SAF -
Swedish Employers Association). The SAF and the LO signed the crucial 1906 and
1938 compromises, which 13 July 2005 provided the groundwork that gave labor
relations in Sweden their unique characteristics: high unionization rates,
collective bargaining at the national level, mutual acceptance of labor and
capital, including labor’s acceptance of managerial prerogatives to run the
company and management’s non-resistance to labor unions in the workplace.
It also led to low levels of strike activity, maintaining labor peace in the
bargaining in Sweden has been multi-tiered, occurring at the national, industrial, and
Nationally, bargaining has taken place between the SAF and the employees’
federations, the LO, the TCO, and the SACO.
In the post-War period, national bargaining took a prominent role after the
Korean War. The Korean War led to inflation. Employers wanted to curb inflation
by limiting wage increases through a comprehensive plan for wage restraint.
They wanted to achieve it through national collective bargaining negotiations.
The unions accepted to join national bargaining negotiations as long as the SAF
agreed to follow the guidelines of the Rehn–Meidner model of wages solidarity,
where full employment policies could be materialized while keeping caps on the
wages of the better paid workers. Centralized, national bargaining officially ceased
in 1992 when the SAF dismantled its negotiating organization.
the time that national bargaining was the norm, Sweden
was able to formulate a comprehensive wages policy that influenced industry and
local level labor accords. Industrial organizations of capital and labor used
the national collective bargaining agreement to draft industry-wide agreements,
giving national coherence to industrial relations and collective bargaining.
Local bargaining has also been a central piece of the industrial relations
system, but it has had to comply with the general national and industry-wide
All of these agreements, at all levels, have been legally binding in Sweden.
3.1 The Rehn–Meidner model of wages solidarity
There is no statutory norm for wages in Sweden.
There are no minimum wages or a maximum amount of working hours laid down in
statute, for example.
However, from 1957 until about 1969 the Rehn–Meidner model was instituted as
policy by national labor and employers’ organizations, affording pay increases
to the lowest paid workers while keeping caps on the pay of the better paid.
The policy placed inflation controls to maintain a full employment economy, a
goal of the LO. Wage inequality was also curtailed by the policy.
Rehn–Meidner model attempted to create conditions for full employment in two
ways. First, the model facilitated capital accumulation in the better-paid,
capital-intensive, large, and export-oriented employers that dominated the SAF
and the Swedish economy.
Capital was then reinvested in productive activities that increased employment
levels. Second, the Rehn–Meidner model included an ‘active labor market’
component to retrain and match displaced workers with new jobs. The idea was
that the lowest paid workers, as their pay increased through collective
bargaining negotiations, would force the lowest paying employers to either find
ways of keeping themselves competitive, or exit the economy. Displaced workers
would be retrained and given new jobs. Inflation would be curtailed by
maintaining effective demand low through wage moderation at the top.
earner funds were also developed in the 1970s to provide union participation in
the investment of employers’ profits. The reasons behind the funds were that
workers could only gain from wage restraint if profits were invested in
productive activities that led to the creation of jobs. The funds would place
profits in the control of unions, guaranteeing that investment would benefit
3.2 The politics of Rehn–Meidner’s implementation
It took a number of conditions for Sweden
to implement the Rehn–Meidner model, including building political capacities to
actually effectuate secondary policies needed for the model to work, such as
active labor market policies and labor market centralization, which was
required to coordinate the activities of capital and labor nationally.
Summers commented: ‘It is significant that in Sweden
the collective bargaining system evolved and functioned while the Social
Democrats were in power . . .’
Without the SAP in power, the likelihood that the policy would have been put
into practice effectively would have been slim. In fact, students of Sweden’s
welfare state have noted that the government was not able to enact, at first,
active labor market policies due to opposition from the SAP’s coalition
partner, the Agrarian Party.
However, in 1960 the SAP obtained a full majority of the votes and was able to
run a non-coalition government. Then it was able to implement active labor
market policies. In addition to active labor market policies, the state also
created ‘wage earner funds’ when the SAP gained even more political power.
These were directed at guaranteeing profit investment in productive,
Swedish welfare state also smoothened bargaining by providing public goods such
as universal health care and education. It also helped approach full employment
by employing a significant part of the Swedish workforce, approximately
one-third of the total working population, in public sector jobs.
the argument can be made that the unions exercised wage moderation in Sweden
because they trusted the policy as being their
national economic development policy. It is important to note that, in Sweden,
no formal ‘social contract’ or tripartite corporatist system has been
However, an institutional regime for wage policy coherence was developed
through the complex interrelatedness of the state and the unions. In many
functions, unions and government have been the same when the SAP was in power.
As commentators of the LO–SAP relationship stated:
LO and the Social Democratic
Party are two huge, complex, partly overlapping bureaucracies, in effect
engaged in a never-ending conversation and at times arguments as to what it
means to be a Social Democrat . . . They are in fact social bureaucracies
penetrating into the life of communities in a way that is difficult for a
foreigner to understand. Perhaps the closest analogy is to think of the labor
movement as a church with denominations in some disagreement with one another.
The government’s policy was LO’s policy and
vice versa. How could unions not trust government, then?
it is important to underline the importance of labor market centralization.
Even though centralized collective bargaining was ceased in Sweden
after World War I, it was re-established when the SAF wanted unions to return
to national bargaining to create a comprehensive wage moderation practice and
counteract wage inflation. The unions accepted to rejoin centralized
negotiations on the condition that employers accepted the Rehn–Meidner model,
which would help the unions pursue a policy of full employment. Thus, the
unions would exercise wage moderation in exchange for full employment.
The employers accepted, and centralization was established as the norm.
Rehn–Meidner model was put into practice when the unions were persuaded that a
policy of wage moderation was required. The unions’ persuasion that wage
moderation was desirable was facilitated by the fact that the wage restraint
policy was linked to full employment strategies the unions desired. The active
participation of LO and SAP policy-makers in designing the Rehn–Meidner model
also helped labor to acquire trust in politics. It was the LO’s policy, after
all. Once the unions were convinced of the need for wage restraint, the policy
came to further fruition when the SAF pressured for centralized labor
relations. The SAF wanted labor market centralization to enforce national wage
moderation policies. The LO accepted on the condition that the employers
accepted the methods of the Rehn–Meidner policy, which would help guarantee
full employment. Finally, the 1960 SAP majority victory helped the government
enact the required state policies to make the Rehn–Meidner policy actually
work. As such, the unions’ trust in the government, centralized collective
bargaining, and SAP control of the government were the central pillars of an
effective wage moderation policy in Sweden.
The Indian State of
Kerala provides an example of a Third-World location where state-brokered trust
helped labor unions to exercise wage moderation to aid development policies.
Kerala is an Indian State whose per capita wealth is less than the national average of India; in
fact, its per capita income compares to that of very poor nations such as Chad or Burundi.
However, its social indicators surpass those of the average Indian State and
compares with those of developed nations. For example, the adult literacy rate
in the 1990s in Kerala was estimated at 94% whereas it was 65% in the rest of India,
and 96% in the United
The infant mortality rate in recent years has been 13 per 1,000 births in
Kerala, 65 per 1,000 births in the rest of India,
and 7 per 1,000 births in the United States. Given these positive indicators, development scholars have stated
that Kerala could be a model for social development for Third-World regions.
Patrick Heller has argued that Kerala’s success has been based on the way in
which the state restructured state–society relations from client ties based on
caste to more rationalistic political relations based on social class. Kerala
was able to perform such a reconfiguration of social relations through a
two-step process. The first phase was based on class militancy organized by the
Communist Party of India (CPI) in Kerala and its breakaway organization, the
Communist Party of India - Marxist (CPIM), and their labor and mass
organizations. The second phase included class compromises to attract
investments. In the period of class compromise, the unions backed civil
servants rather than politicians to play leading roles in the State’s
wage-setting policies, as mandated by Indian minimum wage law, which is seldom
enforced in most of India. These activities contributed not only to effective law
enforcement, but also to labor peace and wage moderation, when necessary,
helping economic development in the State, as we will see below.
4.1 Unions in Kerala
Unions first appeared in Kerala in the
1920s. They were concentrated in the mat industries, cashew industry, and
cotton mills, among others.
The first trade union was the Travancore Labour Association, organized in 1922.
The first issues that these unions organized for were not industrial issues per
se, such as wages and working hours. Rather, the unions reacted against
despotic labor relations based on caste and traditionalistic norms. As Patrick
Heller notes, workers ‘. . . were active in movements for prohibition,
eradication of untouchability and temple entry. It was such movements and not
struggles against employers in the factories that agitated the workers.’
The struggle against caste relations thus put the labor movement in a position
that directly hit the center of Indian social structure, the caste system,
rejecting it and providing the basis for the development of socio-political
relations based on a modern, alternative social class.
the CPI was active in the 1940s and created the All Travancore Trade Union
Congress (ATTUC), a class-based social movement crystallized. The ATTUC led
large demonstrations and strikes throughout the 1940s, including a general
strike in 1946. Communists quickly took the leading role in Kerala’s labor
union scene and transformed labor relations in the State. Congress party unions
and caste networks did not monopolize labor affairs.
unions grew in Kerala during the 1950s, increasing the level of
class-consciousness in the State.
Since then, the State has been known for having one of the most organized
working classes in India. The unions were also known for their militancy.
Militancy, however, eventually was blamed for the capital flight from the
State, compelling union leaders, State administrators, and political party
leaders to develop industrial relations that were more cooperative.
Collective bargaining, negotiated settlements, and no-strike clauses became
commonplace, decreasing the incidence of strike activity.
In fact, during the 1969–1979 period, strike activity was reduced to levels
lower than in most of India. Joint consultation and regulation also became major components of
collective bargaining. Tripartite Industrial Relations Committees (IRCs) began
to be used by the parties more aggressively to establish cooperation.
is important to underscore that in India
employers generally have not resisted unions. They invite unions to the
negotiating table. There is also no majority union rule in India.
However, in India, as in many developing nations interested in fast-paced economic
growth, the state officially has to sanction unions. It used official
recognition rules to control them. Coupled with India’s
pluralistic union structure, the result of government involvement in industrial
relations has been that an array of party-union bosses serves as brokers
between the state, management, and the workers rather than as legitimate union
organizers. This system of bargaining has been called ‘involuted pluralism’ by
experts of labor relations.
Kerala, however, things have been different. Given the militancy of the CPI and
CPIM militants and their desire to remain independent from government leaders,
the government has had to rely on the IRCs, which are run by professional civil
servants, not politicians. The reliance on the IRCs has also provided unions in
Kerala with independence from the government, making them more responsive to
their membership than to government leaders. It has also provided a neutral
player to serve as mediator between capital and labor. These neutral mediators
have been the IRCs’ administrators, State labor department professional civil
4.2 Minimum wage policy in Kerala
India’s national minimum wage law, the
Minimum Wages Act of 1948 (the Act), gives authority to State Governments to
convene minimum wage committees and set minimum wages by industry. As such,
minimum wages in India need to be set at the State and industrial levels. The Act also
lets wages differ by occupational type, giving flexibility to employers when a
legal minimum is established.
Recommendations for establishing minimum wages include creating threshold
poverty lines that wages must meet or exceed. State governments must also
consider the prevailing wage rates in particular employments and in different
States, employers’ bottom line, skill levels, and work hazards.
servants of the minimum wage committees consult with capital and labor to set
minimum wages. Their decisions have the power of law and are not subject to
appeal. As such, the civil servants have both legislative and final
adjudicative functions when setting wage levels. Neither government nor
judicial bodies can influence the decisions of the minimum wage committees.
Their professional character in Kerala has made them well trusted. As the IRCs,
minimum wage committees are known in Kerala for being non-partisan and
professional. People in Kerala sharply contrast the differences between minimum
wage committees to public enterprises, which they call ‘political fiefdoms.’
in Kerala have also stressed independence from politicians’ intervention in
labor market policy and preferred the professional civil servants that run the
minimum wage committees. One of India’s
main problems with minimum wage law is enforcement. In India’s
federal system, the State bureaucracy has the responsibility to implement the
minimum wage laws, including conjuring minimum wage committees. Many times,
however, States simply refuse to convene a minimum wage committee. Farmers have
especially pressured State governments not to enforce the law. In addition,
union leaders rarely know the provisions of the law and fail to exercise their
Kerala, the role of independent, militant but professional union leaders has
shaped a different situation than in the rest of India.
Given their genuine representation of working class interests, union leaders in
Kerala have been better able, if not compelled, to mobilize Indian national
minimum wage law. They have used national Indian law as a resource. They have
been able to press the State to convene the minimum wage committees and enforce
Indian minimum wage law.
4.3 The ‘minimum wage crisis’ of the 1990s
A case in point of how the State of Kerala is able to
enforce wage policy effectively is the ‘minimum wage crisis’ of 1991–1992.
There, the CPIM’s Kerala State Karchaka Thozhilai Union (KSKTU) exercised wage
moderation when a coalition government in the State led by the Congress Party
attempted to set minimum wages higher than those set by the tripartite wage
committees. A wage committee determined daily minimum wages in agriculture of
25 Rs. for women and 35 Rs. for men. However, the Congress Party’s coalition
government, in an opportunistic move, tried to increase the minimum wage to 30
Rs. for women and 40 Rs. for men. These wages were higher than those that were
accorded by the wage committees.
It was a ‘cynical attempt’ to raid the voting constituency of the CPIM, which
had accorded in the minimum wage committees a 25/35 rate.
protested, saying that they faced ruin if such wages were promulgated.
Unions, however, were in bind. The Congress party’s higher minimum wage
recommendations put the KSKTU and the CPIM between a wall and a hard place.
They knew that the Congress Party proposal of 30 Rs. for women and 40 Rs. for
men was too high because they had been negotiating with farmers and the
committees’ civil servants to set the wages. They knew the farmers’ bottom
lines and determined that the 25/35 rates were the best compromise. Anything
higher would put farmers in economic arrears. However, if the CPIM mobilized
against the 30/40 Rs. rate of the Congress Party for a lower 25/35 Rs. rate,
its working-class constituency might have not understood the apparent political
backsliding. The CPIM might have lost political support from its base, playing
into the trap placed by the Congress Party to raid the CPIM’s base.
the CPIM and its labor union, the KSKTU never entered a political crisis
because the wage committee civil servants decided not to implement the minimum
wage rates suggested by the Congress Party government. In fact, the bureaucracy
‘endorsed local adjustments’ to wage rates to further aid farmers.
It met with labor leaders and the farmers to seek support for regional
adjustments to satisfy the profit needs of farmers and did not even attempt to
raise the rates. As such, the issue was settled without the CPIM losing any
Labor relations’ independence from politicians paid off in Kerala.
unions trusted the wage policy in Kerala, even when wage restraint was
required, because professional career servants, not traditional politicians,
handled it. The rates could be properly enforced because, thanks to
working-class mobilization in Kerala, the State was forced to make parties comply
with the law. Legal compliance also facilitated labor market centralization
when the wage committees were convened. Law enforcement not only helped
maintain acceptable wage rates for unions, but also for employers, especially
during the minimum wage crisis, which could have put farmers in arrears if the
law was not properly enforced.
5. Puerto Rico
Puerto Rico was a Spanish colony that passed to American hands in 1898 after
the Spanish-American War. Since then, Puerto
Rico has been held as an American colony.
Colonialism notwithstanding, the labor movement had become the leading popular
political movement by the 1910s, a result of massive proletarianization,
legalization of trade unionism, and arduous organization of workers by the
newly formed Federación Libre de
Trabajadores (FLT - Free Federation of Workers), with some material help
from Samuel Gompers’ American Federation of Labor (AFL).
Yet, the Puerto Rican economy was mired in poverty throughout the first 40 to
50 years of American administration of the island. By the 1940s, liberal policy
makers in the United
States and reformers
of the Partido Popular Democrático (PPD - Popular Democratic Party) of Puerto Rico devised an
export-based economic development program to deal with the island’s poverty and
underdevelopment. The policy for development was called ‘Operation Bootstrap.’
The program required maintaining lower wages
in Puerto Rico and tax incentives to attract American manufacturing companies. As
such, Puerto Rican union militancy was actively restrained by the Puerto Rican
unions, the so-called ‘Internationals,’ seeing the jobs of their members moving
to Puerto Rico in the 1940s and 1950s, began to send organizers to Puerto Rico to organize workers
and increase wages. They also began to press the Federal government to fully
extend Federal minimum wage laws to Puerto
Rico, which until then had provided many
loopholes to the island.
International unions reasoned that they could have an influential role over Puerto Rico’s development
project. They had influence in Washington D.C., and Puerto Rico depended on Federal tax breaks and labor law exemptions for its
development policy. They also befriended the Governor of Puerto Rico, Luis
Muñoz Marín, and backed his policy of wage moderation in return for some space
to organize workers.
Below, I will explain how one of the most important of these unions, the ILGWU,
backed and exercised the policy of wage moderation in Puerto Rico to its benefit and
that of its Puerto Rican members.
5.1 Unions in Puerto Rico
Unions in Puerto Rico first appeared in
the second half of the 19th Century. They developed from the
brotherhoods and social clubs of artisans that were being proletarianized,
mostly in the tobacco industry. Before the US took
control of Puerto Rico in 1898 after its victory in the Spanish-American War, Spanish
authorities repressed trade-union activity. Strike activity was illegal.
The US, in an attempt to win the hearts and minds of the mass of its new
colonial subjects, legalized union activity and secured the civil rights of
many Puerto Ricans. Soon thereafter, the FLT began to organize sugarcane
workers in the fast-growing sugarcane fields of Puerto Rico with material help
from the AFL. The Socialist Party was also funded in 1915 as the political arm
of the FLT.
decades of being unable to win an electoral majority, in the 1932 elections the
Socialist Party allied itself with the pro-capitalist Republican Party. Even
though the Republicans represented the sugar trusts’ interests in Puerto Rico, the Socialists
united with them to win the elections. Socialists also wanted to obtain the
first industry-wide collective bargaining contract in the sugar industry of Puerto Rico through their
alliance with the Republicans. Both parties, moreover, supported statehood for Puerto Rico - that is, that Puerto Rico would become a U.S.
federated state - creating further grounds for the coalition.
Republican–Socialist alliance achieved an electoral triumph in 1932. The
Socialists also obtained their long-awaited industry-wide contract for sugar
workers. However, the terms of the contract were not accepted by the union
membership. Workers rebelled in a general strike against the government and
their union leaders. The workers called Pedro Albizu Campos, a lawyer and
Nationalist Party leader who favored Puerto Rican independence from the United States, to lead the workers in their rebellion. He was able to negotiate a
more acceptable contract for the workers. The Nationalist leader, however, did
not continue to lead the workers’ movement after the agreement was signed. He
sent the workers back to the FLT, claiming that he was ‘no labor leader.’
the monopolization of the Puerto Rican economy by sugar trusts and due to the
Great Depression, the 1930s and 1940s were years of deep-seated poverty on the
island. As a result, New Dealers in the US and
their supporters in Puerto Rico, organized under the newly formed PPD, began to develop a new
program for economic development called ‘Operation Bootstrap.’ In the same
period, the American-based Congress of Industrial Organizations’ (CIO) local in
Puerto Rico, the Central General de
Trabajadores (CGT - General Central of Workers), an FLT challenger, began
to organize industrial unions and urban workers in a way similar to that of its
parent in the United States. Seeing the possible surge in militancy that the
CGT represented for Puerto Rico, which could have jeopardized the investment climate, the PPD
leaders called on the CGT leadership to join the party in its new program for
the modernization of Puerto Rico. To join the PPD, the CGT was required to become less militant and
use bureaucratic mechanisms to solve labor disputes. The CGT was split on the
issue. One side of the CGT favored the PPD whereas the other side did not. The
side that remained independent of the PPD was ultimately repressed.
the 1950s, when the AFL and the CIO united to form the AFL–CIO, Puerto Rico became a target of
the newly united labor movement. Operation Bootstrap was attracting industries
from the United States. Many factories were closing shop in the mainland to open in Puerto Rico and benefit from
the island’s lower wages and tax incentives. As such, the AFL-CIO declared Puerto Rico a ‘haven for
runaway industry.’ It began to send organizers to the island. In this process,
the PPD was compelled to find a way to deal with the new, invigorated, labor
actors from the North.
5.2 Wage policy in Puerto Rico: The Minimum Wage Board
The PPD’s plan for economic development was
based on attracting American firms to Puerto
Rico through exemptions from Federal
income tax laws and by keeping lower wages than on the US
mainland. As such, wage moderation became the leading labor policy in Puerto Rico. Wage restraint compelled
the government to subdue union claims for wage increases, or repress unions
altogether. The Minimum Wage Board (the Board) administered the wage policy. In
the Board, labor, capital, and the government set wages and work standards on
an industry-by-industry basis.
Board was composed of nine members: four represented management, four
represented labor and one represented the public interest. Furthermore, it
hired specialists, such as economists, accountants, lawyers, among others, to
study wages, working hours, and labor conditions in Puerto Rico, and make
investigations regarding health and safety. It also had the power to subpoena
individuals to administer oaths and testimony. It could investigate work sites
and compel employers to open their books and records. For purposes of summons
and subpoena, it could also compel the collaboration of law enforcement
officials, district attorneys, and courts in its investigations. Individuals
that failed to provide information could be charged with a criminal
Board did not make the initial assessment of industrial wages. The Board had to
name a minimum wage committee to review wages and working conditions in a
particular industry, business, or work location. The committees were composed
of five members, two representing employers, two representing labor, and one
representing the government.
Board career civil servants had to produce reliable data to assess the economic
situation of firms and industries.
a committee handed a report to the Board, the Board had to call for public
hearings to discuss the report. After the hearings, the Board issued a
‘mandatory decree’ establishing the minimum wages in that industry. The decree
could also establish maximum working hours and health and safety standards. If
an employer failed to abide by the decree, it could be charged with a
misdemeanor and indicted with monetary fines or imprisonment.
The law also gave district attorneys the duty to prosecute any employer
suspected of violating the Act.
minimum wage committees established the profit margins of firms by studying
their books and those of their competitors. Looking at statistical evidence and
establishing profit margins, they could assess how much to increase wages in
the industry. The Supreme Court of Puerto Rico had the authority to review a
mandatory decree through certiorari.
In reviewing a mandatory decree, the Court was deferential to the data
presented by the wage committees during their evaluation of wage levels.
Fraudulent data or irrational conclusions based on the data would prompt courts
to overturn a mandatory decree.
example, in a case decided by the Supreme Court of Puerto Rico, Sierra v. Puerto Rico Cereal Extracts,
the Court held that the a mandatory decree was proper, largely in part due to
the statistical evidence provided by the committee detailing production costs
and competition considerations of the industry. Below, we will see how courts
relied on Board data when it commented on the ability of the beer industry to
pay wage increases to its workers:
During the year 1952, the
four enterprises under study had revenues of $17,055,577, the total sum of
sales being $11,311,962. The gross benefit was $5,743,615. Of such gross
benefit, there was a deduction of general costs of sale and administration that
totaled $3,052,522, leaving a remainder benefit for operations of $2,691,093.
This benefit of operation equaled 15.8 per cent of the sales and 37.8 per cent
over capital and accumulated remainder ...
After summarizing the
extensive statistical study in its Determination of Facts, the Board concluded
that, ‘Due to the previous considerations we believe that the economic
situation of the beer industry in Puerto Rico contains a wide enough margin to
increase the salaries that it pays to its employees.’ ... The Board in every
moment considered and had in mind the four companies that produced alcoholic
beer and non-alcoholic beer, generally considered as malt. Such four
enterprises constituted the beer industry in Puerto Rico. The conclusions
of fact reached by the Board, acting on its powers, are conclusive in absence
The Court was deferential to the rational
methods employed by the Board.
5.3 The ILGWU
The Board was conservative in raising
wages. Government representatives in the committees would see to it that wages
would not hurt the competitive edge of Puerto Rican wages. As a result,
International unions first tried to get the U.S. Congress to extend the Fair
Labor Standards Act (FLSA) to Puerto Rico. The FLSA gave many exemptions to Puerto Rico, providing
authority to the Puerto Rican government to set minimum wages through the
industry-specific wage committees described above. The international unions
were not able to persuade Congress to extend the FLSA, however.
Nevertheless, to curb criticism of its wage policy, the Puerto Rican government
changed the language of the Commonwealth’s minimum wage law by passing Law 96
of June 26, 1956 (the Second Act), which called for eventual wage equalization
with the US and established a desire for collective bargaining.
The basic wage-setting controls by the Board remained in the new law, however,
including the tripartite wage committees and the Board’s industry-specific,
the PPD also began to collaborate with some of the international unions. It
gave selected international unions a ‘free hand’ to organize in the island as
long as the unions curbed their claims to fully equalize wages with those of
the continental United
Once they curbed their wage claims, the PPD and the international unions formed
close ties. Increased toleration of each other helped international unions
organize Puerto Rican locals in the island.
example of one of the international unions that was able to maneuver around the
Puerto Rican situation to build unions and raise wages, albeit not the level of
the United States, was the ILGWU. At first, the ILGWU, like other international
unions, attempted to get the U.S. Congress to extend the FLSA to Puerto Rico. However, when
Congress failed to do so, the union changed its strategy. It attempted to exert
influence on the wage committees of the Board. To exert influence on the wage
committees, David Dubinsky, head of the ILGWU, created a personal relationship
with Luis Muñoz Marín, the strong man and Governor of Puerto Rico.
In the committees, Dubinsky proposed to set the minima ‘a little below what he
thought the union could achieve by bargaining.’
This created a slight space for the union to obtain ‘minor gains above the
stipulated minima’ through collective bargaining.
In this way, the ILGWU leader increased wages as much as he could through the
Board and collective bargaining. As Dubinsky wrote in his biography:
I remember when I went to Puerto Rico in 1940 as a
member of the first minimum wage board for the island, we found the prevailing
wage to be around 5 cents an hour, and in undergarment shops it was 2 or 2.5
cents. And most shops were owned by New Yorkers. One of the employers testified
that if we raised the rate to a nickel in the brassiere industry, grass would
grow in the streets of San Juan.
When it came to the
recommendation of our panel, I decided we should go for a minimum of 12.5 cents
an hour for home workers and a rate a few cents higher for those working in
factories. Monsignor Francis J. Haas, a public member of the commission, said
to me privately, ‘Dave, will you be able to come back to New York if you vote for
a rate so much lower than the mainland?’ I said, ‘Father, you and I took an
oath. We swore that we would defend the interest of the island as well as the
interest of the mainland. If you make it higher, you’re cutting out the
possibility for the island to earn anything. And if you make it in the way I’m
suggesting, it won’t be what I want but I’ll be able to explain to our members
that we raised the Puerto Rican standard by 300, 400, and even 500 percent. So,
as a starting point, I’m satisfied.’
The Board and the committees’ reliable
information of employer’s financial situation helped the union, as well as the
other parties of the Board, determine the limitations that employers had in
paying higher wages. As such, the unions accepted to comply with wage
Puerto Rico, professional wage-setting instruments helped the unions trust the
government’s policy. Labor market centralization was crucial in making the low
wage policy work in the island by creating a central bargaining body to set
wages. As such, unions were able to obtain some, albeit not all, of the wage gains
that they wanted to see through the centralization of labor markets. The
government was able to maintain its policy of lower than US-mainland wages to
attract industries. Employers participated in the Board because it provided a
space where their profitability concerns were addressed. The centralized body
did not dull the island’s competitive edge. On the contrary, the Board
protected Puerto Rico’s competitive concerns and the general welfare of the island’s
economy while giving space to unions to participate in the development process
of the island.
Although there are many differences between
Sweden, Kerala, and Puerto Rico, we can point to the common threads of trust and labor market
centralization as the key conditions that helped the three cases enforce a
successful policy of wage restraint. In all three cases, trust was generated
when labor unions were treated as legitimate power sharers. In the case of Sweden,
the unions trusted government policy because the unions and the ruling party,
the SAP, were interconnected; they were almost the same entity. Government
policy was union policy, and vice versa. In Kerala, trust was generated through
a process of union participation in professionally run minimum wage committees
that set wages using objective and reliable information about bottom-line
constraints. In Puerto Rico, trust was developed through much similar mechanisms, wage
committees of the Minimum Wage Board, where parties deferred to the data and
recommendations of experts as a baseline for their negotiations. In Sweden,
the political power of labor unions and their participation in state-level,
policy-making institutions helped them trust wage restraint policies. In Puerto Rico and Kerala, experts
played a more prominent role in brokering negotiations between capital and
today’s world, where both unions and states have been debilitated if not
‘busted’ by neoliberalism, recommendations for wage moderation with active
labor union participation may sound dissonant to some. Why even care about
unions? Are not unions ultimately proponents of inefficiency and economic ruin?
Why not let the markets do all the work? The experience of other areas that
developed with export-led strategies, such as Sweden and Kerala, have shown that
state structures and activities matter in the construction of solid and
effective labor markets and economies. In this paper, I hope to have shown that
the case of Puerto Rico adds further evidence to the importance of state brokerage in
development projects, even if these are export-led in scope, casting further
doubt on the fundamentalism of hard-line, free-market advocates. The case of Puerto Rico shows that neither
unions nor states need to be pitted against ‘markets.’ Both unions and states
can help enforce national-level policies for economic development and the
strengthening of markets, with social justice, producing brighter futures for
all parties involved.
Ph.D., Princeton University; J.D. University of Pennsylvania.
John Pencavel, The Legal Framework
for Collective Bargaining in Developing Economies, in Labor Markets in Latin
America: Combining Social Protection with Market Flexibility 27, 57
(Sebastian Edwards & Nora Claudia Lustig eds., 1995); John Pencavel, The Role of Labor Unions in Fostering Economic Development
(World Bank Policy Research Working Paper No. 1469, 1995).
Clyde Summers, Comparison of Collective Bargaining Systems:
The Shaping of Plant Relationships and National Economic Policy, 16 Comp. Lab. L. J. 467, 486 (1995).
Adam Przeworski & Michael Wallerstein, The Structure of Class Conflict, 76 American Political Science Review, 215 (1992).
Peter Lange, Unions, Workers
and Wage Regulation: The Rational Bases of Consent, in Order and Conflict in
Contemporary Capitalism 98, 110-113 (John Goldthorpe ed., 1984).
See Summers, supra note 3, at
See Bruce Western, Between Class
and Market: Postwar Unionization in the Capitalist Democracies 29-31
Reinhold Fahlbeck, Nothing Succeeds
like Success: Trade Unionism in Sweden 10 (1999).
Reinhold Fahlbeck, Sweden, in International Labor and Employment Laws,
Vol. II 10-2, 12 (William L. Keller et al. eds.).
Ibid., at 12-14; 10-35, 10-37, 10-39 (1997).
Assar Lindbeck, The Swedish
Experiment, 35 Journal of Economic
Literature 1273, 1276 (1997).
Fahlbeck, supra note 11, at 10-38; Lindbeck, supra note 14, at 1282.
Fahlbeck, supra note 11, 10-38.
Peter Swenson, Fair Shares: Unions, Pay
and Politics in Sweden and West Germany 132 (1989); Jonas Pontusson,
The Limits of Social Democracy: Investment Politics in Sweden 94-96
Pontusson, supra note 21, at 96.
Rudolf Meidner, Employee Investment Funds:
An Approach to Collective Capital Formation (1978).
Pontusson, supra note 21, at 64-67.
Summers, supra note 3, at
Philip Whyman, Sweden and the ‘Third Way’ 42
Juhana Vartianen, Understanding
Swedish Social Democracy: Victims of Success, 14 Oxford Rev. of Econ. Policy 21-22 (1991).
Axel Adlercreutz, Sweden, in International Encyclopedia for Labour Law and
Industrial Relations, Vol. XIII, 92-95 (R. Blanpain ed., 1998).
Lindbeck, supra note 14,
at 1277 n. 9 (citing Hugh Heclo &
Henrik Madsen, Policy and
Politics in Sweden: Principled Pragmatism (1987).
Vartianen, supra note 27,
at 25 n. 19 (citing H. de Greer, The Rise and Fall of the Swedish Model
Peter Evans, Embedded Autonomy:
States and Industrial Transformation 239 (1995).
Richard W. Franke & Barbara H. Chasin, Is the Kerala Model Sustainable? Lessons from the Past, Prospects for
the Future, in Kerala: The Development Experience 18
(Govindan Parayil ed., 2000).
Govindan Parayil, Introduction:
Is Kerala’s Development Experience a ‘Model’?, in Kerala: The Development
Experience 1-15 (Govindan Parayil ed., 2000).
K.R. Nairn, Trade Unionism in
Kerala, in Kerala’s Economy: Performance, Problems and
Prospects 331, 332 (B.A. Prakash ed., 1994).
Patrick Heller, The Labor of Development:
Workers and the Transformation of Capitalism in Kerala, India 171 (1999).
Ibid., at note 69, 170, citing K.C.
Govindan, Memoirs of an Early
Trade Unionist 14 (1986).
Nairn, supra note 34, at
Ibid., at 342-345; see also Heller, supra note 35.
Nairn, supra note 34, at
Ibid., at 342-343; Heller,
supra note 35, at 220.
Heller, supra note 35, at 215, citing Lloyd I. Rudolph & Susan H. Rudolph,
In Pursuit of Lakshmi: The Political
Economy of the Indian State 270 (1987).
Nairn, supra note 34, at
Ibid., at §§ 313-314.
See Heller, supra note 35, at 94 n. 3.
Johri, supra note 44.
Heller, supra note 35, at 107-108.
Given that Puerto Rico has remained under the Territorial Clause of the U.S. Constitution,
a lot of the academic literature has aggressively criticized the ‘Commonwealth’
as a colonial status. Perhaps the largest blow to the Commonwealth’s legitimacy
came when Puerto Rico’s pre-eminent Supreme Court Judge and prolific legal
scholar, José Trias Monge, a historical supporter of the Commonwealth, declared
that the island was still a colony; José
Trias Monge, Puerto Rico: The
Trials of the Oldest Colony in the World (1997).
Gervasio García & Angel
Quintero Rivera, Desafío
y Solidaridad: Breve Historia del Movimiento Obrero Puertorriqueño
(1986); Miles Galvin, The Organized Labor Movement in Puerto Rico
(1979); Juan Angel Silén, Apuntes para la historia del movimiento obrero
Simon Rottenberg, Labor’s Role
in Industrialization, 285 The Annals
of the Academy of Political Science 85 (1953). See also Galvin, supra note 54, at 146-165.
Galvin, supra note 54; García & Quintero Rivera, supra note 54; Silén,
Galvin, supra note 54, at 157.
García & Quintero Rivera, supra note 54, at 24-25.
Arturo Bird Carmona, A Lima y Machete: La Huelga Cañera de
1915 y la Fundación del Partido Socialista (2002).
Formación Política, ¡Huelga en la Caña! (1982).
García & Quintero Rivera, supra note 54, at
P.R. LAW 8
of 1941, Secs. 2-5.
3 DPR 267, 271 (1961).
See Galvin, supra
note 54, at 157.
P.R. LAW 96 of June
26, 1956, Sec. 1.
See Galvin, supra note 54, at 159.
David Dubinsky & A.H. Raskin, David Dubinsky: A Life With
Labor 202-203 (1977).