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.

 

Comments

[ElGreco]

Both the backer and Posner posts deal primarily with compensation whether direct or indirect. However compensation is only one part of the economic efficiency equation. The other part is productivity, or value added to the economy. Because government work is not a free market, it is very difficult to judge what the real productivity of government workers is and their overall value added to the economy compared to cost. However as anyone who has dealt with public workers can probably attest, overall productivity of typically complacent, job secure, public workers is fairly low. In some cases this productivity is even negative as the net effect of work performed by not few public employees is to essentially hamper business activity in the private sector. This is often the case when regulatory public sector positions are created by politicians to purposely increase the number of voters more directly dependent on their decisions. If you are a new employee at a regulatory agency that was just created by politician X, you will probably vote for X, or politicians with similar agendas.

But America may be reaching the tipping point. Once unionized public sector workers become a significant enough proportion of the population to able to form majorities, they become able to command the political system. Then, the attractiveness of becoming a public employee causes private sector workers to abandon the increasingly squeezed private sector, leading to an unstoppable vicious cycle. If you want some real life insight to the end stages of this cycle look at Greece where the public unions have become an impossible to unseat majority keeping the entire country trapped into low production – a vicious cycle that keeps deepening with every new election.

America already faces formidable international challenges, mainly from Asia, in its probably futile attempt to remain the most prosperous country in the world. Public sector unionization is not the only factor holding America back in its competition with the now many vibrant emerging world economies, but it is a significant one. Any concessions to sub-par productivity (i.e. unions) will only seal America’s fate of decline. Personally, I think, that America has gone past the tipping point. Having grown up in Europe, I have seen this movie many times before. The fact that Americans, in response to loss of competitiveness, swapped the mostly reversible mistakes of the Bush administration for the structural, permanent, and irreversible mistakes of the Obama administration is to me the greatest demonstration of the beginning of an ever deepening self-inflicted vicious cycle of decline.

I think, finally, Americans are going down. The current American drive to create a European-style more complacent welfare supported population, is starting a vicious cycle that will seal America’s fate of decline.

[Jack]

"Then, the attractiveness of becoming a public employee causes private sector workers to abandon the increasingly squeezed private sector, leading to an unstoppable vicious cycle."

........... Hmmmm, amidst the teabagger vs labor fray are we experiencing a shortage of labor? and the attendant wage inflation?

[Jack]

Prof Becker: "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."

......... It seem the nature of many private sector jobs to have high turnover as various economic waves turn many out of jobs or tech displaces the job entirely. Such economic booms and busts aren't likely to reduce or rapidly increase the number of teachers, fire, police, and other public employees required.

[Pepe Fenjul Jr.]

Once unionized public sector workers become a significant enough proportion of the population to able to form majorities, they become able to command the political system. Then, the attractiveness of becoming a public employee causes private sector workers to abandon the increasingly squeezed private sector, leading to an unstoppable vicious cycle.

[Jack]

Pepe: Great! IF public sector employees are able to claw back some of the income lost to the top 1% over the last 40 years, and the private sector (of stagnant and declining wages) does have to compete, that's surely preferable to the agenda of the wage race to the bottom and ALL including the trillion per decade, unaffordable tax breaks irrationally implemented as the Bush Admin took over a nation with a balanced budget.

BTW.... have you noted any bidding wars resulting in an upward tick in the long stagnant wages of the "squeezed private sector?"

[NEH]

And so... "The Right of Free Association and the Right to organize to petition the Government or whomever for redress of grievances", is to be eliminated in the interest "Economic Efficiency"? Ok?!

Does this also apply to Corporate Associations and the forming of Interest and Pressure Groups; aka "K" Street?

There is a lot more to this than just locking Unions out of the Public Service Sector and Government or even Economic Efficiency and budgetary control...

[Jack]

Is not the proof of the pudding that of working folks wages stagnating and in decline while the income and wealth of the "owner" class soars beyond imagination? And is further enhanced by having purchased (with political power) unaffordable, debt amassing tax benefits?

[health care]

The attractiveness of becoming a public employee causes private sector workers to abandon the increasingly squeezed private sector, leading to an unstoppable vicious cycle.

[Mark Donohue]

Amazing, but no longer surprising, the dishonesty endemic to Prof. Becker's posts. Yes, unionization declined because of all the factors he enumerates (decline of manufacturing, competition from imports), but a leading factor, entirely unmentioned by Becker, was a transformation in the political environment. Unionization depends on favorable labor laws, and on enforcement of those laws. The decline of unionization among the private workforce was connected to the capture of government by corporate interests, which led to the weakening of labor law and the abandonment of enforcement of existing law (look up the history of the NLRB in the Reagan presidency). One may, as Becker does, applaud the takeover of government by anti-worker interests, or one may deplore it, but it's simply dishonest to pretend that transformations in the relation between labor and government were not part of the story of the decline of organized labor.

[Pepe Fanjul]

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.

[Jack]

Structural unemployment? Are the economists and pundits finally "getting it?"

Today's news and a good article:

http://www.mcclatchydc.com/2011/03/27/111113/strong-corporate-profits-amid.html#storylink=misearch

[Pepe Fenjul Jr.]

This is often the case when regulatory public sector positions are created by politicians to purposely increase the number of voters more directly dependent on their decisions.

[ElGreco]

The number of public employees in the United Sates has increased from around 9 million in 1960 to over 20 million today. Count those amongst the voters who will overwhelmingly vote for more government, and by consequence, more taxes, more regulatory agencies, more innovation stifling central planning, more incentive muting redistribution, thus bringing the United States ever closer to the tipping point where a declining economy causes ever more people to seek government jobs, vote accordingly for their creation, and thus set a once prosperous country in an economic tailspin of decline. Military decline will follow, since America’s military might is a result of its economic might, might acquired at a time when the correlation between ingenuity, productivity and reward in this country was the strongest in the world.

But the rest of the world has woken up now, ironically, partially awakened by America, pulled back from collectivism, mandatory redistribution and central planning, and is now growing gangbusters while, in an comical turn of events Americans seem to be adopting these very same policies of collectivism, mandatory redistribution, and central planning, that have kept so many countries with smart populations well behind “dumb” Americans for most of recent history.

The US private sector, the sector that produces the wealth that the public sector uses, faces formidable challenges from emerging economies. These economies represent three plus billion people who, having recently being granted economic liberties (which though still sub-par by western standards, are many-fold what they were confined to just a couple of decades ago by their collectivist societies) are now springing towards their new / equilibrium ratio at alarming growth rates. The burden that unions, especially the monopolistic public unions, put on American competitiveness, will doom American prosperity already facing formidable competition from the emerging world and will doom the electorate into a suicidal political tailspin.

Watch how Europe, already ahead of the US on the road to economic decline, has started crumbling at the margin. Greece, Ireland and Portugal are now directly weighing down on the already heavily burdened productivity incentives of the Northern Europeans. At the margin, more and more Northern Europeans, already heavily burdened by taxation and a low correlation between ingenuity, competence, productivity and reward are choosing mediocrity in increasing numbers, deepening the systemic decline of the Old Continent. The real European crisis will come when Germans and other Northern Europeans at the margin start saying “enough is enough, I’m withdrawing to the comforts of mediocrity” deepening the already well under way European economic marginalization. The fact that the superbly educated average Northern European barely manages to keep up with the productivity of the dumb average American, is a shame for the old continent. The fundamental reason: Lack of incentives and the relative, albeit suicidal in the end, comfort of mediocrity and low aspirations in the European welfare state environment. If Americans, poorly educated as they are, had the same incentives to produce as Europeans, they would be at prosperity levels similar to Greece, not Germany.

But Americans have, more or less voted to follow Europe on its way to Western decline. After a deep recession, the US economy should be rebounding at accelerated growth rates. Yet, the recovery is anemic by historical standards - because it is happening against a backdrop of a weaker correlation between ingenuity, competence, productivity and reward. Being on the receiving side of various government subsidies, which doom overall competitiveness, seems to be an increasingly important endeavor for an ever increasing number of Americans. The vicious cycle has started.

Americans think that their economy is now recovering but, alas, they have already set the foundations for their painful steady decline. In an ironic twist of events, the rest of the world copied America while at the same time Americans are adopting the failed policies of the rest of the world. Unless Americans pull the regulatory, redistributionist and central planning stops they have already signed up to, and already take for granted, and as a consequence, resume growing at a rate comparable to the world average (4-5%), their unique prosperity as they know it is doomed. In the mid-long term (5-10-20 year timeframe) it’s just as simple as that. Do I think enough Americans will it wake up to this fact? No. That is why civilizations decline. By the time enough of their people realize what was their competitive advantage compared to the rest of the world, they only do too little too late. The sirens of prosperity through lower incentives to produce and homogenized uniform central planning are too strong for the average voter to let go. So down the road to decline the American voter will go holding aspirations of the welfare state in his hands.

For now creditors seem convinced that the bonds they sell to government throughout the US will come due before the US reaches the tipping point towards default. However, a very likely scenario is that once the first doubts about the ability of the American people to repay start emerging, the situation will destabilize quickly triggering a crisis that will make 2008 look like a walk in the park. There is no nation in the world that can bail out a US economy in a tailspin, where a desperate electorate in a once most prosperous but now declining country, keeps voting for more and more redistribution and central planning, thus setting off a vicious cycle of self-destruction. Even if the Chinese did the unthinkable and entirely donated to America their much ballyhooed 2-3 trillion reserves accumulated over many years, it would still be pocket change when it comes to bailing out a 15 trillion economy in a tailspin.

[ElGreco]

...sorry,

...[Emerging economies] are now springing towards their new / equilibrium ratio at alarming growth rates.

should read:

...[Emerging economies]are now springing towards their new (economic freedom)/(prosperity) equilibrium ratio at alarming growth rates.

...(Browser mistook brackets for XML..)

[Jack]

ElGreco -- I know how emotionally tied to "America's decline" you've become, but! perhaps a few suggestions and economic corrections to the contrary?

First, if you compare (honest) figures of public employees from 1960 to the present, I think you'll find they've NOT risen on a per capita basis. Considering the complexity of governing and the irrational size of our military holding the line on a per capita basis is doing pretty good. And Ha! Had we One thousand MORE overseeing the corrupt antics of our "private sector" Wall Street thieves we'd have a TREMENDOUS windfall to show for it!

"The US private sector, the sector that produces the wealth that the public sector uses, faces formidable challenges from emerging economies."

......... Indeed they do! Corporate and employee life will not be as easy as it was when the US was about the only industrial/food power left standing after WWII. Yep! NO room for WS scammers to cream off their billions buying, selling, and repackaging stagnant corporations. Surely a time for wise management and INVESTING in productive opportunities and getting a LOT better at selling our products to the 95% of the world's population that do not live in the USA.

You mistakenly dismiss the public sector as burdensome parasites. A huge mistake! Do you see our teachers, about as numerous as Walmart "associates" as .......... dead wood? The police and fire who protect our lives and tremendous assets? both public and private? The military? National Guard? Coast Guard? Border patrol? In short IF you can identify some "do nothing" parasites in your town, or even nationally, I'll surely do my best to help get rid of them.

As for "redistributionist????" that took place over the last 40 years and bodes ILL for working folk.

Here, the top two graphs, will give you a quick view of how much working folk have lost to the topmost 1% who also gained the most over the last 10 years from the unaffordable Bush tax cuts that ADDED over a TRILLION to our D E B T.

http://webcache.googleusercontent.com/search?q=cache:bB64joVfJsYJ:lanekenworthy.net/2008/03/09/the-best-inequality-graph/+best+inequality+graph&cd=1&hl=en&ct=clnk&gl=us&source=www.google.com

Please let us know what you think after considering these facts and graphs.

[Pepe Fenjul Jr.]

The real European crisis will come when Germans and other Northern Europeans at the margin start saying “enough is enough, I’m withdrawing to the comforts of mediocrity” deepening the already well under way European economic marginalization.

[Barack]

A trillion dollars over ten years? I did it in one without breaking a sweat!

[Ken]

"Unfunded retirement liabilities of many state and local governments are so large that it is highly unlikely that they will ever be paid."

The question that I don't see being asked is why state and local governments that are required to have balanced budgets can incur unfunded retirement liabilities year after year.

[Christian Louboutin Platforms]

Finally! the truth and pettiness of the public officials is stated! i am amazed that the city can continue to claim the pension cost as part of the budget to the citizens, it was (before this year) a seperate cost. i wonder if the pension cost for any other department in the city is being included in their budgets? and how much was the % of budget in the 80's? i bet it was similar if not more. and what effect on the numbers did the court order to pay have? i doubt this is sudden nor new, these cost are probably pretty constant short of the 3 years of nonpayment by the city.

[old cell phone donations]

Very Right, Even the attractiveness of becoming a public employee causes private sector workers to abandon the increasingly squeezed private sector, leading to an unstoppable vicious cycle.

[nike free 3.0]

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[Buy Me Private]

The police and fire who protect our lives and tremendous assets? both public and private? The military? National Guard? Coast Guard? Border patrol? In short IF you can identify some "do nothing" parasites in your town, or even nationally, I'll surely do my best to help get rid of them.

[Clocks All Around]

Considering the complexity of governing and the irrational size of our military holding the line on a per capita basis is doing pretty good.

[Condo Target]

Excessive union power in turns results in an unfair redistribution of wealth from the public at large to public sector employees. However, it's a far cry from this to arguing that collective bargaining power is also to be remembered.

[carrie]

just pass here,wow,so many coments,,this must be a good article