Government Unions 101

November 15, 2010

For release noon Nov. 16 and thereafter (691 words)

The impact of labor unions is often seen as uniform over history. But today, labor cartels are less useful, since labor markets are more competitive. And it is increasingly difficult for unions to achieve their goals, since product markets have become far more competitive.

Likewise, unions are often seen as uniform in terms of their membership. The stereotype is a Teamster. But you can find union members in orchestras and throughout Hollywood. Doctors, dentists and lawyers are in union-like arrangements. One can find union members in blue collar private-sector jobs and white collar public-sector jobs.

This last distinction has become increasingly important in recent years. As private-sector unionization has become more difficult, public-sector unionization has grown in prominence. This should not be surprising. Private-sector unions are increasingly constrained by profit-maximizing firms in ever-more competitive markets. But public-sector unions operate within the looser constraints of government, often in entities with significant monopoly power.

The growth of government jobs had been quite impressive in recent decades. But the trend in civilian agency (non-military) jobs accelerated over the last decade — from 1.1 million in 2001 to 1.2 million in 2008 and to 1.4 million in 2010, growing dramatically during the Great Recession.

Related to the growth of government jobs, we’ve seen rapid growth in public-sector union membership. In 2009, for the first time, membership in public-sector unions exceeded that in the private sector. (Because there are still many more private-sector jobs, the public sector’s unionization rate is far higher: 37.4 percent versus. 7.2 percent.)

Current events have pushed the issue of public-sector unionization toward the front burner. In Bell, California (a town of 37,000 people), residents were furious to learn that the city manager had compensation of $1.5 million, while many other municipal employees had outrageous salaries.

But a far larger issue is lucrative pension benefits. This has a tremendous impact on state and local government budgets and is a threat to their solvency. Steven Greenhut, an investigative reporter, has estimated that 20 million government workers and retirees are owed $2.37 trillion.

More broadly, public-sector compensation is much higher than in the private sector. According to the Bureau of Labor Statistics, state and local government workers received compensation that was almost 50 percent more than private-sector workers in 2009. And according to the Bureau of Economic Analysis, the compensation of federal government workers is more than double the private sector.

Such broad comparisons are not ideal, since job types differ. A better comparison is between the same jobs in each sector — where public-sector workers make $7,600 more in salary and $38,500 more in compensation.

Another objective measure is “quit rates” — the rate at which one voluntarily leaves one place of employment for another. Government employees have low quit rates, a sign of above-average compensation, since they find their current arrangements so attractive.

The flip side of quitting is being laid off. In 2009, private-sector union membership dropped precipitously (by 10 percent in one year). Meanwhile, public-sector unions have done fine, the difference being jobs with government providing economic “shock absorbers.”

The perverse irony is that fewer private-sector workers are bearing an increasingly onerous burden — from a growing number of relatively expensive public-sector workers — with higher and higher taxes.

How long can this last?

The field of Public Choice economics predicts that public-sector workers will support politicians who support them — an unfortunate arrangement that comes at the expense of taxpayers and consumers of government services.

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. 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.

But any ignorance or apathy among voters will probably fade as state budgets are increasingly pinched and as the pension issue becomes an even more obvious problem. Likewise, concern about Social Security and Medicare will continue to grow at the federal level.

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.

Eric Schansberg, Ph.D., an adjunct scholar of the Indiana Policy Review Foundation, teaches economics at Indiana University-New Albany.


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