March 27, 2011
Government Sector Unions
Government Sector Unions-Becker
The main story of unions during the past half-century in the United States is the sharp decline in union membership to only 7% of private sector workers, and the equally sharp growth of union membership to 36% of all government employees. Nor are these trends unique to America; for example, union members declined to about 15% of all British private sector workers, and unions are much more important among public-sector workers.
Unions declined over time in the private sector in most developed countries partly because of the shift from manufacturing with large plants, where unions have been strong, to the service sector with small establishments, where unions have been weak. Other factors reducing unionization include the growth of competition from imports, and the sharp expansion over time of the welfare state. The latter has meant that governments are providing medical benefits and other services that had been provided by unions. As Posner indicates, an important reason for the growth of unions among government employees has been the expansion of government. This expansion increased the number of government employees, and gave them a more powerful voice as voters, and as contributors to political campaigns.
Employees in companies should be able to bargain collectively with employers if they so wish. However, employees should not have the right to monopoly power when they bargain, no more than employers should have this right. Yet while employers are subject to anti-trust laws that forbid collusions and other monopolistic practices, unions were exempt from the anti-trust laws by the Clayton Anti-Trust Act of 1914, reinforced by the National Labor Relations Act of 1935. This exemption meant that unions had the legal right to organize workers in whole industries or occupations, which would give unions some monopoly control over hiring, and the supply of workers to industries and occupations. Unions exercise this power by threatening to strike and to withhold the labor of their members.
The right to bargain collectively should also be available to government workers. Yet since these workers face only limited competition from the private sector and from other governments, they should not have the monopoly power that comes with the right to strike. Regrettably, many government unions do have this option. Strikes give government unions significant monopoly power over the public purse because they can use a strike to shut down transportation services, garbage collection, and other vital public services.
Even without the strike threat- indeed, possibly even without unions- public employees can often extract considerable benefits from local, state, and the federal government in the form of higher earnings and generous pensions and health benefits. Public employees form a sizable voting bloc with formidable resources of money and the time of members to spend on supporting political candidates who they expect will be generous when it comes time to bargain over compensation.
Whatever the source of their power, unions have managed to obtain better compensation than is available to comparable workers in the private sector. The best evidence supporting this is the much lower turnover of most public employees compared to that of private sector employees. For example, in January 2011, turnover rates among private sector workers were about 2 1/2 times those among government workers. Clearly, workers in any sector are less likely to quit if they are doing better than what they expect to get in alternative jobs. Also reducing turnover is that public employees cannot be laid off easily because they usually receive tenure after only one or two years of employment.
The higher compensation of public employees is heavily weighted toward deferred benefits in the form of favorable medical plans, and especially early retirement ages with generous retirement incomes. Retirement income is usually calculated not as a function of lifetime earnings, but of earnings during the last few years before retirement. Employees can artificially raise these earning by concentrating most of their overtime hours during the pre retirement years. Early retirement ages and generous benefits when retired are found not only at various governmental levels in the United States, but also among public employees in Europe and many other countries as well.
Presumably, in setting this form of compensation, politicians all over the world have responded to their (apparently correct) belief that voters and the media pay greater attention to earnings of government employees than to their deferred benefits. There is so much public attention to earnings that it is difficult to pay high-level government employees anything close to what they might earn in the private sector. This explains why turnover is much greater among top government employees than among the average government worker. Deferred compensation has sometimes been excessive in the private sector as well- demonstrated by General Motors' financial difficulties- but for the most part the private sector has avoided very early retirements and other extremes of deferred compensation received by public employees.
Unfunded retirement liabilities of many state and local governments are so large that it is highly unlikely that they will ever be paid. For example, according to Joshua Rauh's calculations in the Milken Institute Review, First Quarter, 2011, unfunded retirement liabilities of the state of Illinois are more than 5 times the state's annual tax revenue, while the unfunded liabilities of Chicago are more than 7 times that city's own annual revenue. This explains the recent efforts by governors and mayors of many states and cities to confront government unions and force a change in the system of retirement for state and local workers. The city of Los Angeles recently reached an agreement with its unions to increase significantly the contributions of union members to their retirement benefits. I anticipate that other cities and states will force similar, and sometimes more drastic, changes in their retirement systems.
Public-Employee Unions—Posner
A union is a workers' cartel. Its goal is, by threatening to shut down the employer's production by the workers' refusing to work, to increase the workers' full income, where "full" signifies that a worker's income in economic terms consists not just of wages and benefits but also of the length of the workday, how dangerous and strenuous the work is, and job security. Unions in the private sector are most effective in industries in which competition is weak and in industries that do not produce a storable commodity. A good example of the latter is the airline industry; an airline cannot continue operating by selling from inventory produced before its workers went on strike. A union can sometimes be of benefit to an employer by providing a check on abuse of power by supervisors, but the net effect of unionization on most employers is negative: unionization raises labor costs both directly and, by reducing the employer's control over working conditions and job tenure, indirectly. Unionization reduces, in short, the efficiency of labor markets, and exists only because of political pressures. Between 1945 and 2009, the rate of unionization in the private sector fell from 45 percent to 7 percent, which is telling evidence of the inefficiency of unionization.
Historically, government employees were not permitted to unionize. No more than any other employer did governments want their employees to be unionized, especially because governments provide mainly services rather than goods and so are highly vulnerable to work stoppages, particularly where essential services such as police protection are concerned. When government was small, its employees were not numerous enough to obtain through the political process the right to unionize, but as the government sector grew, public employees became a more powerful interest group (they are a key constituency of the Democratic Party) and were able to obtain in many states and cities, and in many parts of the federal government, the right to unionize. From very low levels in the 1950s, public-sector unionization grew by 2011 to encompass 36 percent of all public workers in the United States, prominently including teachers, police officers, firefighters, and postal workers.
Some public employees, such as police officers and firefighters, do not have the right to strike, and some states forbid strikes by other public employees as well, such as teachers, although in states that recognize teachers' unions teachers generally do have the right to strike. Even when public employees have no right to strike, the employer is required to bargain over wages and other terms and working conditions with the public employees' union if there is one, and the employer's duty to bargain provides some leverage to the unions in extracting favorable terms.
The net effect of public employee unions is difficult to gauge, however, because most public employees have considerable economic leverage, even without unionization, simply as a result of their status as voters—imagine if the workers in a private company could vote in elections for the board of directors. And, partly to minimize political considerations in government staffing, government workers have long enjoyed a high degree of job security—more than most private-sector unions are able to negotiate for their constituents.
Nevertheless the recent political turmoil in Indiana, Ohio, and Wisconsin concerning the rights of public-employee unions suggests that such unions do make a difference: that they are a factor in the extraordinarily generous health and pension benefits that public employees receive, which are placing an immense debt burden on states and cities. Moreover, the combination of the virtual disppearance of unions in the private sector with their attaining in the private sector a rate of unionization comparable to that of the heyday of unionization during the New Deal and World War II poses a political threat to public-sector unionization: workers in the private sector, who are the vast majority of all workers, ask themselves why their taxes should be supporting unionized public workers in jobs that confer job security, health benefits, and pension benefits unavailable in most private-sector jobs. There is no good answer to that question except the raw political power of public employees magnified by their union rights.
The public-sector unions have overreached in much the same way that the United Auto Workers overreached in its dealings with the Detroit automakers. The UAW concentrated on negotiating for generous health and pension benefits, which the automakers preferred to big wage increases because the benefits were deferred. When the Detroit auto industry got into serious economic trouble because of foreign competition and the economic crisis that began in 2008, its benefits obligations became unsustainable and crushed the industry—and the union, which has become a mere shadow of its former self. History may be repeating itself in the public sector, as taxpayers wake up to the fact that state and local governments are raising taxes and reducing services to pay for union-exacted benefits for public employees.