In Preparation for the Next Strike

A formula borrowed from game theory spurs sides in a dispute to start from the bottom line.

As expected, the teachers strike left a sour taste: a few of the teachers think it achieved its objectives, many of them are disappointed, and Ran Erez finds himself having to protect his standing. On the other side, the finance minister explains that the signed agreement does not cite the amounts and numbers the teachers' representatives presented as their big success in the struggle. The head of the Histadrut labor federation, Ofer Eini, only contributes to the murky atmosphere by announcing that no reform will be implemented in the school system, including in elementary schools.

In view of the bad taste left by the strike, it is worth recalling a lecture delivered last year at the Hebrew University by Nobel laureate Prof. Robert (Yisrael) Aumann, in which he presented an innovative recipe for resolving labor disputes.

The formula, borrowed from game theory, is as follows: When there is a dispute over wages and the sides fail to resolve it, the conflict is to be referred to an arbitrator acceptable to both parties. The arbitrator would be authorized to accept the demands of one of the two sides, but not to mediate a compromise. In other words, he would not be permitted to offer a solution of his own, but rather to expose the sides to a situation of total victory or total defeat. Under these terms, both sides can be expected to reduce the gaps between them in advance. Instead of starting the bargaining from radically opposite positions - the usual practice in labor disputes, based on the knowledge that a compromise will ultimately be reached - the game theory recipe gives an incentive to shrink the monetary dispute to a minimum at the start of the arbitration. Moreover, this method increases the chance that employers and employees will not need an arbitrator altogether, but will resolve their dispute on their own, avoiding an escalation into a public conflict and strike, which make it harder to reach a compromise.

This formula is known as Final Offer Arbitration, and Aumann calls its initiator "a genius." It spurs the sides to begin from their dispute's end and ensure its total transparency. Instead of concealing the bottom line of their positions - their real red line - as is customary now in labor disputes, the cards are to be placed on the table as soon as the arbitrator enters the fray. Instead of misleading the public (and not infrequently also the workers and managements on whose behalf their representatives are acting) by making excessive demands, this arbitration method forces both sides to tell the truth. When the interested parties - and the public following the dispute - know from the start what it is really about, they are capable of judging its result at face value.

With the rules of the game currently governing labor relations in Israel, the recipe outlined by Aumann is obviously utopian. The arbitration institution is not a binding instrument in resolving disputes and is employed in the civil service only in special circumstances (bills promoting compulsory arbitration have failed time and again in the Knesset). Nonetheless, disputes between employers and employees wind up in labor court after the sides have exhausted attempts at direct talks. One can only fantasize about what labor disputes in Israel would be like if the employers and employees knew that the court would rule in favor of one of the two versions presented and not strive to mediate a compromise. It is safe to surmise that the parties to a dispute would conduct themselves in an utterly different manner from what is customary and would spare themselves and the public suffering, anguish and money.

Aumann observed in his lecture that Final Offer Arbitration is still not implemented on a wide scale, but he has predicted a rosy future for it. In one area it has already proved itself: American baseball. In recent years, this method has been used successfully to resolve disputes over players' salaries. While Israel is no baseball field and labor disputes revolve around more existential matters than Johan Santana's salary (a player with the Minnesota Twins whom other teams are vying to acquire), the principle on which the formula is based is still worthy of consideration.