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Friday, October 22, 2010

Taking On Unions

In my last column I noted that unions seem to be losing respect among the public. It now appears that that loss of respect is translating into an increased willingness by voters, and even some politicians, to challenge unions, especially those that represent government employees. Rahm Emanuel famously opined that “You never let a serious crisis go to waste. And what I mean by that is it’s an opportunity to do things you think you could not do before.” Perhaps now we can take on unions as we could not do before. The current Great Recession and ongoing profligacy at all levels of government have created a crisis out of which may emerge a more rational attitude toward labor unions.

Too many Americans have thought unions are necessary to assure that working people get fair compensation and reasonable working conditions on the job. Now more and more people are becoming aware of the harm unions do. For example, Fox News, CNN, and the broadcast networks have widely publicized a significant and growing compensation gap between the government and private sectors. One who enters “public sector pay vs. private” in the Google search box discovers 35,600,000 references. For example, on March 8 USA Today ran a major article titled, “Federal Pay Ahead of Private Industry.” There are similar gaps at the state and local levels.

Government-employee unions (GEUs) are largely responsible for such gaps. While only 7.2 percent of private-sector workers are union members, among state government employees the figure is 32.2 percent, and at the local level it is 43.3 percent. Private-sector unions have to temper their compensation demands because the employers they deal with face vigorous competition from union-free employers. In contrast, GEUs and the employing agencies with which they deal sit on the same side of the bargaining table. They have a common interest: to pick the pockets of taxpayers, and the taxpayers have no alternative suppliers to whom to turn.

In the Winter 2010 issue of the Cato Journal, Chris Edwards showed that in June 2009 total state and local government compensation exceeded private-sector compensation by 45 percent in three broad occupational groups. The gap in wages and salaries was 34 percent, while the gap in benefits, including pensions, was 70 percent. Adding the 50 states together, total state and local compensation in 2008 was $1.1 trillion annually. If that is 45 percent higher than it needs to be, bringing state and local compensation in line with the private sector would save more than $450 billion. By comparison, the sum of all state and local operating deficits in 2010 was $181 billion.

Similarly, a Heritage Foundation study found that for the same jobs the federal versus private compensation gap was 30–40 percent. Reducing federal compensation to comparable private compensation would save $47 billion in 2011.

This problem has long been understood by labor economists. The difference now is that these issues are receiving wide attention from the general public—even in left-leaning constituencies. On March 21 Rasmussen reported that 52 percent of California voters thought that the state’s GEUs “place a significant strain on the state’s struggling budget.” Although GEUs get to “bargain” in private over taxpayer money, the results of that charade are in plain view. In a time when their own budgets are under severe strain, taxpayers are increasingly outraged over government extravagance and the GEUs that cause it. When Jerry Brown was governor of California in the 1970s he signed legislation that gave California GEUs monopoly bargaining privileges. The 52 percent of California voters who think that those unions are straining the California budget will have a chance to vote against Brown in the November gubernatorial race.

Some other politicians who have long been in thrall to GEUs are having second thoughts. Willie Brown, the former speaker of the California Assembly and former mayor of San Francisco, said in an interview with the Wall Street Journal on July 9, “The deal used to be that civil servants were paid less than private sector workers in exchange for an understanding that they had job security for life. But we politicians—pushed by our friends in labor—gradually expanded pay and benefits . . . while keeping the job protections and layering on incredibly generous retirement packages.” He added, “When I was Speaker I was in charge of passing spending. When I became mayor I was in charge of paying for that spending. It was a wake-up call.”

On June 29 the Washington, D.C., city council took on the powerful American Federation of Teachers when it ratified a revolutionary union contract supported by Schools Chancellor Michelle Rhee. The contract includes a voluntary performance-based salary system; weakens tenure rules, thus making it easier to get rid of bad teachers; and specifies that teacher performance will be based on student achievement and evaluations by non-union professionals appointed by Rhee who are permitted to make surprise classroom visits. Such a contract would have been unthinkable anywhere before this year, much less in Washington, hitherto a model of subservience to unions.

Some politicians and voters are also taking on private-sector unions. In early July the Chicago city council unanimously approved the construction of a giant Walmart store in the Pullman Park area of the city. That park is the hallowed union site of the beginning of the famous Pullman strike of 1894. Moreover, the Council authorized the development of 24 new Walmart stores in the near future. Walmart is union-free and has long been the bête noir of the SEIU and the UFCW. Union opposition has excluded and/or restricted Walmart development in many union-friendly jurisdictions such as Chicago. Nevertheless, even Mayor Richard Daley supported the council’s decision against the unions and in favor of the new Walmart jobs and the thousands of shoppers whose access to Walmart will increase.

Meanwhile, back in California, the voters in two San Diego County cities—Chula Vista and Oceanside—banned project labor agreements (PLAs) in any construction project paid for with city money. Moreover, the Coalition for Fair Employment in Construction collected enough signatures to put a PLA ban on the November ballot in the city of San Diego. When a government imposes a PLA every contractor, even those who are union-free, must operate according to union work rules and compensation levels. Employees of union-free firms must pay union dues and pay into union retirement funds for as long as they work on a PLA project. A PLA nullifies any competitive advantage that a union-free contractor may have over a union-impaired counterpart. PLAs increase the cost of government projects on which they are imposed by an average of 12–18 percent. In times of government budget crises they are an obeisance to unions that voters cannot afford and against which they are increasingly willing to vote.

These and other examples of taking on unions, such as Blanche Lincoln’s June primary victory over union-supported Bill Halter in Arkansas, give me hope that unions, as we know them in America, will become increasingly irrelevant.

  • Charles Baird is a professor of economics emeritus at California State University at East Bay.

    He specializes in the law and economics of labor relations, a subject on which he has published several articles in refereed journals and numerous shorter pieces with FEE.