The fiscal and debt crisis facing many of the 50 states and the bankruptcy of General Motors have highlighted the critical role public and private-sector unions have in our ability to compete globally and in the functioning and long term solvency of our state and federal governments. The demonstrations in Wisconsin and similar events in Indiana, Rhode Island, New Jersey, and Ohio, not to mention the budget crisis in New York and California, are emphasizing the magnitude of the controversy and crisis facing our governments over well-intended but overly generous and unsupportable public-sector union benefit packages. Unlike the private sector, public-sector workers are paid by taxpayers, currently receive benefits and wages that are above the average paid for similar work in the private sector, and have greater job security. Without significant change and fiscal sanity restored, many states will ultimately face one or a combination of undesirable choices: raising taxes on business and/or the general population, cutting services, reducing salaries and benefits of public-sector workers, or declaring bankruptcy and starting over.
Originating in Europe, unions transferred to the USA in the 19th and especially the 20th century. They began in the private sector with legitimate goals of fair pay, better & safer working conditions, and fair bargaining for labor contracts. In the private sector unions work because in a competitive free-market there is an objective economic outcome, which, when successful, maintains profit for the owners and appropriate wages and working conditions for the employees. If owners are too greedy, good employees will leave and the firm will fail. If employees are too greedy, costs will be uncompetitive and the firm will fail. Under either situation both owners and employees will lose, so both parties have incentive to balance their demands so that the firm succeeds. It was the excessive bargaining power of the unions combined with increasing competition that led to many private U.S. firms’ bankruptcies (think General Motors and the Airlines) and that ultimately led to a decline in private-sector unions. Private-sector union membership peaked in 1953 at 25.5% of the labor force and has declined steadily afterwards. I support private-sector unions in a competitive, free-market economy as long as they are “open shop”, represent “right to work” conditions, have “secret balloting” for elections, and are not biased by legislation.
Public-sector unions did not exist until the late 1950s, when, Robert Wagner, Mayor of New York City, in an appeal for votes (an omen of things to come), signed an executive order authorizing the city workers to unionize. Other Democrat-led local and state governments followed his lead and President Kennedy, also by executive order, authorized federal workers to form unions in 1962. Prior to this, public-sector workers were expected to earn less than private-sector workers in return for job security and service to the public. Even union leaders recognized at that time that collective bargaining by government workers was biased in favor of workers, unfair, and inappropriate.
Public-sector unions do not represent the conditions necessary for fair and balanced negotiations with elected government representatives. Government jobs do not have a competitive market (governments and essential services don’t compete), don’t have an objective economic outcome that forces compromise (governments don’t go bankrupt, yet), and the taxpayer owners are represented by temporary agents who negotiate for wages and benefits with workers who vote them into office. The contracts from these negotiations endure permanently into the future long after the elected politicians negotiating for the taxpayers have departed. There is clear bias when short-term reelection partially depends on the votes of these employees. This process is further biased where public-sector unions are large and have full “Collective Bargaining” rights, as is currently the case in 26 states.
Because wages and benefits to public-sector workers come from taxpayers, ALL taxpayers in total are funding these contracts AND union dues. A portion of these union dues is recycled into the election and lobbying process as political support for union favored candidates and laws (like the current “Employee Free Choice Act”, which is union biased and should be killed). In 2007-08 unions spent $165 million on elections and proposed legislation. Andy Stern of the SEIU bragged that the union spent $60 million to get Obama elected. Not surprisingly, the majority of these recycled union funds go to support the Democratic Party and no wonder that Democratic Senators in Wisconsin and Indiana have fled their states and elected responsibilities in support of union protests against proposed limits on union power and benefits.
Do the public-sector unions really have a legitimate complaint? Are they underpaid? Are their benefits unfair? Is their job security worse than the private sector? The obvious answer to all these questions is, “Hell No!” The US Bureau of Labor Statistics for 2009 indicates that unionized public-sector workers have a 31% advantage in wages and a 68% advantage in benefits over nonunionized workers (with a much larger advantage in defined-benefit pensions and health insurance) and their job security is almost assured, especially in education. Public-sector union members generally contribute little or nothing for their healthcare and pensions and in many cases can retire at a significantly earlier age than private sector workers. And remember, taxpayers are the source of their wages and benefits. I ask the questions, “Does the service and value provided by public-sector workers justify their higher-level of pay and benefits over the private sector?” If not, why are we, the taxpayers, paying it?
The chart above represents the trend in public vs. private-sector union workers since 1973. It illustrates that union membership in the private sector has declined by over 50% from approximately 15 million to 7.1 million to approximately 8% of the workforce. During this period public-sector membership has increased by over 150% from approximately 3 million to 7.6 million and represents more union members than the competitive private sector for the first time in history. This growth in government workers and spending must stop and proper priorities set on what we can fiscally afford as a nation. Our government cannot do every “desirable” project. Endless growth in State and Federal Governments promoted by unions is increasing regulations, increasing the size and cost of government, stifling economic growth and innovation, and restricting private sector job expansion. We, the people not the government, must accept primary responsibility for our families, our neighborhoods, our country, and ourselves.
So what should we do? First and most important, where it still exists, collective bargaining for the public sector, which should have never been permitted, should be ended, the proper balance between taxpayers and government workers restored, and its undemocratic and prejudiced influence in the electoral and negotiating process halted. Second, effective immediately, all new hires into public-sector employment should have a new retirement age consistent with those in the private sector, revised pension and healthcare contracts in which they must contribute appropriately to their health and pension plans, pension plans that are based on defined-contribution not defined-benefit, wages based on performance not longevity, and where it exists, “tenure” should be abolished. Third, existing retirement contracts for long-term government employees approaching retirement age (to be determined but within approximately 10 years of retirement) should be honored, but they should be required to begin contributing to their healthcare and pension plans as above. Fourth, employees with longer than approximately 10 years to retirement age should also begin contributing and have their retirement phased-in as appropriate to match the new retirement age.
These major recommendations are admittedly oversimplified for brevity and will differ by State and between State and Federal workers depending on existing contracts. However, they will significantly reduce the current and long-term fiscal crises facing our state and federal governments. Other non-union related issues and recommendations will be the subjects of a future post.
The near-monopoly stranglehold public-sector unions have over large portions of our state and federal governments must be broken or the unsustainable budget and debt problems will continue to erode and potentially destroy our democratic institutions of government. Public-sector workers must be compensated like private sector workers based on value-added.
It’s time to curb public-sector unions, return power to the taxpayers, and restore fiscal sanity to our government.
The Old Guy PhD