Ashwini Versus the A.F.L.-C.I.O.

A modern variant of David versus Goliath is unfolding in academic economics.

Ashwini Agrawal is David. He is a graduate student getting a Ph.D. at the University of Chicago Graduate School of Business.

The A.F.L.-C.I.O. is Goliath.

Here is the background, as I understand it:

The A.F.L.-C.I.O. manages huge pension funds for its members. These pension funds are invested in publicly traded companies. When it comes time for shareholder votes on issues like who to appoint to the board of directors, the A.F.L.-C.I.O. pension fund managers get to cast votes just like any other shareholder.

The question Ashwini asks is: how do the A.F.L.-C.I.O. pension fund managers vote? To answer that question, Ashwini exploits a neat natural experiment.

In 2005, the A.F.L.-C.I.O. splintered, with a big chunk of the members leaving to form the Change To Win coalition. Ashwini looked at whether the shareholder votes cast by the A.F.L.-C.I.O. pension fund tended to differ when the union workers at the firm were no longer A.F.L.-C.I.O. workers.

In his dissertation, Ashwini found that the behavior of the A.F.L.-C.I.O. pension fund did seem to change. In particular, it looks like the A.F.L.-C.I.O. pension funds were voting in ways that might help workers when they were A.F.L.-C.I.O. union workers, but not after they switched union affiliations.

My own reaction to the findings is that they make sense. Why shouldn’t the A.F.L.-C.I.O. pension fund use its clout to try to make things better off for A.F.L.-C.I.O. workers?

I guess some would argue that the responsibility of the pension fund managers is to maximize the value of the pensions, although I don’t really see why. I would think the goal of the A.F.L.-C.I.O. would be to maximize the welfare of the union members. Sacrificing a little on the portfolio returns to help workers in other ways makes good sense to me.

The A.F.L.-C.I.O. doesn’t seem to share my view.

When Ashwini’s results got discussed not once but twice in the Wall Street Journal and on a Harvard Law School blog, the A.F.L.-C.I.O. had an angry reply.

Ashwini responded, as did his advisor Steve Kaplan.

Which led the A.F.L.-C.I.O. to fire back again.

Now, I have to confess I’m not a completely unbiased party to all of this — to begin with, I like underdogs. Secondly, Ashwini took one of my classes, and I first found out about this when he came to my office terrified that the A.F.L.-C.I.O. was going to sue him and find ways to ruin his career (hopefully not the way the Teamsters ruined Jimmy Hoffa‘s career).

I told him that as long as the university would pay his bills, getting sued by the A.F.L.-C.I.O. would be the best thing that could ever happen to his career.

Having read through this mess, I think the A.F.L.-C.I.O. just isn’t being very smart about this. If you want to show that an academic paper is wrong, saying that a graduate student is lying about contacting your organization — as the A.F.L.-C.I.O. said — is completely the wrong approach.

What the A.F.L.-C.I.O. needs to do is hire an economist to reproduce what Ashwini has done. If he made some mistakes, then the A.F.L.-C.I.O. can make these public and the issue will go away.

If he didn’t make mistakes, then either the A.F.L.-C.I.O. has to admit that they use their formidable power in every way possible to help workers, or they need to institute a different set of rules about how they vote on shareholder issues.

Round one goes to David.

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  1. Andrew says:

    I’m confused. Wouldn’t maximizing the value of the pension plans be the same thing as maximizing the welfare of the workers?

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  2. Gary says:

    To Andrew:

    Not necessarily. The pension plan covers those who are currently employed in union positions, and those who are not. If the pension plan votes in board members who are not union friendly, it could have a negative impact on currently employed union employees. While this could be good for the company (and thus, the share price, and the pension plan), it may not be in the best interest of the current union workers.

    Of course, if the board which is not friendly to unions keeps the company in business where it might have otherwise failed, the employee is still better off.

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  3. Helen says:

    The idea that the AFL-CIO would not be able to compile the data needed to reproduce the analyses presented in Agrawal’s paper is beyond ludicrous. It is THEIR OWN DATA. Every director vote, every bit of information about union representation at the companies included in the AFL-CIO pension portfolio — all this is information that the AFL-CIO should have readily at its disposal. Not necessarily all compiled nicely and ready to work with, but surely not terribly difficult to obtain. All intra-office phone calls/emails.

    Asking the researcher to release his dataset, when they HAVE the data in question is just silly. If he made mistakes and got some numbers wrong (say, when he relied on information about union representation from the Investor Relations dept), they can rebut him on facts. They don’t need his data set to do that.

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  4. Daniel says:

    Helen,
    As I understand it, based on the AFL-CIO responses, they claim to not have the data. If Mr. Agrawal – who, by the way, will greatly benefit from the AFL-CIO’s pouting – used public data, what is the harm in releasing it? Maybe they are completely lying when they say they do not have the data, but that seems to be something Mr. Agrawal circumvents in his responses.

    What exactly does he have to hide? He could easily stipulate, as mentioned in the AFL-CIO’s second response, that the data remain confidential and terminated upon completion of the review. Perhaps Mr. Agrawal didn’t realize the implications of his study and used facts or figures whose reliability and validity are questionable?

    It is not uncommon for students to lose their objectivity in order to achieve a desired outcome in their thesis or dissertation. Until he allows the AFL-CIO to review his methodology, I will be skeptical.

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  5. Ivan says:

    AFL-CIO is acting as expected. Not attacking the actual methods and numbers in A.Agrawal’s work, but instead attacking the credibility of his findings. It has been clearly stated that A. Agrawal acquired his data from publicly available sources so AFL-CIO has no merit about the “non-disclosure” of data.

    Secondly, with lack of peer review, it is true, these findings have not been published yet, but A. Agrawal’s work has been examined by nation’s top economists. This perhaps does not add it the amount of credibility that a publication in a peer review journal would have, however it would be inaccurate to say that this data has not been carefully scrutinized by A. Agrawal’s peers.

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  6. luke says:

    re daniel @ 4:

    the problem with releasing the data, as stated by steve kaplan, is that mr. agrawal put in a lot of work converting the data from a raw public source to a usable format. as a result, he is entitled to profit his work, most likely in the form of getting the paper published in a journal.

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  7. chappy says:

    Steven,
    I think you may have mischaracterized things a bit. I glanced at the study. It appears your colleague only looked at the STAFF pension fund. This is very different than (I’m guessing) the MEMBERS of the AFL-CIO (of course some staff probably are members, and some are not as the paper mentions). Presumably the AFL-CIO has many members that are covered by other pension arrangements.

    Secondly, I wonder how your colleague controlled for the fact that many pensions were likely changing the types of asset classes during this time period (2003 was a pretty bad year for most pensions, though things generally improved over this period)?

    Anyway, an interesting look at proxy voting, but I think your post may have overstated the impact or generalizability of the study.

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  8. Daniel says:

    re: Luke #6

    Fair enough, but it is the way in which one chooses to assemble statistics and produce the appropriate algorithms that discrepancies may arise. If I really wanted to, I could find statistics that show reading the Freakonomics blog makes you more likely to eat spam . Hopefully, someone would question the validity of my methodology.

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