The Coming Union Crisis

December 27, 2010

For release noon Dec. 27 and thereafter (701 words)

Some years ago a Republican state senator phoned The Indiana Policy Review to ask why the journal was so critical of government unions. “Somebody’s got to represent those workers,” he argued.

Well, no they don’t. Compulsory collective bargaining for government workers is relatively new, dating only from the 1970s. The resulting decline in both Indiana finances and our democratic processes keeps the more thoughtful lawmakers awake at night.

Those are the ones who know that the local teachers union or police union or firefighters union shares few characteristics with those romanticized organizations that inspired the Wagner Act — the railroaders, the miners, the steelworkers, the automakers.

By comparison, the public-sector union plays with a stacked deck:

• When lobbying by public-sector unions leads to higher costs for the employer (the government), the burden is borne by someone else entirely (the taxpayer).

• Because bureaucracies tend to be static so do public-sector unions; once workers have been organized they tend to stay organized regardless of overall economic conditions.

• Education and public safety, to pick the most significant examples, are legal monopolies. Consumers generally don’t have the option of abandoning them if they become inefficient.

• Finally, public-sector unions are private entities, “secret” in the sense that you will not be invited to their next executive session.

Indeed, “unions” should be in quotes to draw the above distinction. The teachers “union,” for example, is more accurately understood as a political machine, one that installs its own bosses and sets its own salaries within a tightly regulated government monopoly.

That GOP senator’s phone call was on my mind as I opened a letter from a friend, Dr. Eric Schansberg, an economists with Indiana University at New Albany. The letter held a clue as to why Republicans might be as indifferent as Democrats to the cost of government unions.

“Private sector unions are famously adversarial — as they work to extract gains from firms (and consumers) and promote legislation that restricts their product and labor market competition,” he wrote. “In contrast, public sector unions are collusive — as they work with politicians to benefit themselves at the expense of taxpayers with deep pockets because they pay little attention to politics.”

Schansberg sees some disturbing trends:

• State and local government workers received compensation in 2009 that was almost 50 percent more than private sector workers. And the compensation of federal government workers is more than double the private sector.

• Civilian agency (non-military) jobs increased from 1.1 million in 2001 to 1.2 million in 2008 and to 1.4 million in 2010, growing most dramatically during the current recession.

 • In 2009, for the first time, membership in public sector unions exceeded that in the private sector.

• It is estimated that 20 million government workers and retirees are owed $2.37 /trillion/ in pension benefits.

• Public-sector workers make $7,600 more in annual salary and $38,500 more in compensation than those in the private sector.

All of which represents the elephant in the room as a newly Republican Legislature tries to find a strategy that both keeps us solvent and improves Indiana’s competitive position. That will not be achieved until there is wider understanding of the consequences of compulsory public-sector collective bargaining.

For instance, few doubt that political deference to Indiana’s public-sector unions had something to do with a gross underestimation of Indiana’s “official” pension liabilities. Dr. Maryann O. Keating, a South Bend economists and author, tells me that independent experts put our actual liability at three times annual tax revenue.

Referring to this and other dire predictions, Dr. Schansberg concludes: “In a season of economic and political worries, it’s sobering to note that some of our biggest public policy problems are just starting to register on the radar.”

Indeed, even assuming a city or state hasn’t overvalued the actual investments backing up its fund, the Wall Street Journal reported recently that it is not unusual to find a pension fund 35 percent short of what actuaries recommend.

Oh yes, one more bit of news: The Bureau of Labor Statistics notes that during both good times and bad, layoffs and discharges in the public sector occur at just one-third the rate of the private sector.

Our ruin, then, absent heroic stances at the Statehouse and the governor’s office, is not only politically likely but mathematically certain.

Craig Ladwig is editor of the quarterly Indiana Policy Review. A version of this article first appeared in the Indianapolis Business Journal. Contact the author at cladwig@inpolicy.org.



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