Indiana is becoming a right to work state, which means unions will no longer be able to force workers who don’t want their representation to pay dues. Labor unions argue that this violates their right to free speech. Labor Policy Counsel Vinnie Vernuccio argues that taking away the power to collect mandatory dues is actually good for workers and unions alike. Workers will no longer be forced to pay for representation they don’t want, or political agendas they don’t support. Unions will also have to pay more attention to representing their members’ interests so workers will want to pay dues.
Labor
Recent events have exposed unions’ troglodytic views on race relations. Basically, unions seek to preserve the current racial makeup of their workforce, regardless of changes to the area their workforce is drawn from.
Consider the example of the International Longshoremen’s Association (ILA) in New York and New Jersey:
Last year, the Port Authority, in accordance with state regulations, asked the ILA for a list of candidates to fill 60 baggage-handler and driver positions. The union’s list turned out to have just one non-white on it.
That prompted the Waterfront Commission, which is mandated to ensure fair-hiring practices, to ask the ILA to certify that it doesn’t discriminate against minorities.
The ILA’s answer came last month: It refused to acknowledge the commission’s authority to enforce federal employment law.
Notice that the union didn’t bother denying that its hiring practices were discriminatory — after all, the New York City area is one of the most diverse in the country. Instead, they intransigently refused to acknowledge the problem, retrenching to defend its “jurisdiction,” in the words of ILA President Harold Daggett.
The establishment left’s weeklong protest training, deemed the 99% Spring or Shareholder Spring, is an effort to train 100,000 activists in civil disobedience to achieve “social and economic justice” from the 1%. The goal of these left-wing activists is to attain their idea of justice through destruction of America’s social fabric by perpetuating social and economic class warfare.
The protesters’ target will be “the shareholder meetings of over forty corporations, including but not limited to Bank of America, Wells Fargo, Exxon Mobil, and Chevron.” In order to destroy America’s “unjust” economy, they seek to tarnish the reputations of the very corporations that create jobs Americans need and desperately want.
According to the 99% Spring website, its mission is to stop “the deliberate manipulation of our democracy and our economy by a tiny minority in the 1%, by those who amass ever more wealth and power at our expense.” This is an ironic stated aim; Big Labor sponsors of the 99% Spring such as the United Auto Workers (UAW), AFL-CIO, and Service Employee International Union are creating the very same problems they claim to be solving.
Secretary of Defense Leon Panetta has admitted to racking up over $800,000 in government travel costs for weekend trips back to his home in California. The Washington Times reports that, “Before accepting the job as defense secretary, Mr. Panetta negotiated his right to commute home to California nearly every weekend using a military equivalent of a Gulfstream jet, as his job as Pentagon chief requires him to do.”
As the Cato Institute’s David Boaz notes, “‘Negotiated’ with whom? Not the taxpayers. Maybe this is actually a good deal, all things considered, to get the right Secretary of Defense. But we do know that the people who negotiated weren’t spending their own money.”
Indeed, this is reminiscent of the ongoing cozy arrangement between public sector unions and the politicians they help elect. By devoting so many resources to electoral politics, government employee unions create an incentive for elected officials to advance the unions’ agenda. Thus, in states that allow public sector collective bargaining, union interests are represented on both sides of the table.
For union-friendly elected officials, the benefits from concentrated union support far outweigh any downside from unorganized taxpayer discontent — until their jurisdictions go broke. That is now finally happening. Across the nation, state and local governments have seen their finances go south since the onset of financial crisis in 2008, forcing many of them to address unfunded liabilities they face as a result of generous union contracts that go back years.
Now if there were some way to scale back federal officials’ lavish perks.
The “tragedy of the commons,” as described by the late ecologist Garrett Hardin, generally refers to the depletion of a finite resource caused by individuals rushing to take as much of it as possible before others do the same. In the case of multiemployer pension plans, it aptly describes the perverse incentive for individual companies to contribute less than needed to keep plans fully funded.
While corporate pensions have recovered somewhat since the onset of the financial crisis, multiemployer plans remain dangerously underfunded. “According to BNY Mellon Asset Management the funded status of the typical U.S. corporate pension plan stood at 76.2 percent at the end of February,” reports Institutional Investor. “The story is totally different, however, for multicompany plans. A new report issued by Credit Suisse Securities found the funding levels for these plans currently stands at a disturbing 52 percent.”
One reason pension underfunding has become a major issue is a change in accounting rules by the Financial Accounting Standards Board (FASB), which now requires firms to disclose multiemployer plan liabilities. For an individual company, those liabilities can be much greater than what it owes its own employees, due to the “last man standing” rule, under which multiemployer plans operate. Under this rule, every company in the pension plan is responsible for all pension liabilities of every other firm in the plan. Thus, firms that go out of business leave their liabilities behind for those still left in the plan.
The moral hazard in this arrangement is obvious. Lawmakers and agency officials who want to pursue real pension reform should look for ways to disincentivize firms joining multiemployer plans. That is bound to run into opposition from labor unions, for which the promise of a secure retirement provides a good way to attract new members. The problem is that multiemployer plans, as currently construed, are not sustainable, so the prospect of a secure retirement based on them is a mirage.
The new FASB reporting rules are a good first step. By making pension liabilities visible to investors, it gives companies good reason to address them.
Yet the dangerous nature of multiemployer plans should be reason enough not to join them. Credit Suisse warns, “Keep in mind that larger companies could end up taking on more of the multiemployer burden as the ‘last man standing’ in the plans, if smaller companies were to fail.”
Finding out who that “last man” would be is a game no one should have to play. The “last man standing” rule needs to go.
For more on pensions, see here.
Typically, after the economy suffers an unusually severe recession, it bounces back in an unusually rapid recovery — what some economists and others refer to as the “rubber-band effect.” But not now. Despite the huge worldwide recession in 2008-09, the economy has experienced only a weak recovery, with fewer people employed in America today than when President Obama took office. “At this point in the typical post-World War II recovery, the economy was growing at an average pace of nearly 5 percent. The Obama recovery has managed just over 2 percent.” As James Pethokoukis notes in the New York Post,
A Federal Reserve study from late last year looked at the behavior of recoveries from recessions across 59 advanced and emerging market economies during the last 40 years. The Fed found, to no great surprise, that recoveries “tend to be faster” after severe recessions, such as the one we just had. . .The deeper the downturn, the more robust the rebound — unless government messes things up.
For example, during the 1981-82 recession, output fell by 2.7 percent and then rose by 15.9 percent over the next 10 quarters (at an average pace of 6.0 percent). During the Great Recession, output fell even more, by 5.1 percent. But during the 10 quarters since, total economic output is up only a paltry 6.2 percent. Score one for Reaganomics.
But what about the depressing effect of Wall Street’s near-death experience back in 2008 and 2009? Well, that same Fed study found that bank or other financial crises “do not affect the strength” of subsequent recoveries. . .[What] might explain half of the Obama recovery’s underperformance versus the Reagan recovery. . .? Maybe we can attribute that to policy differences.
While one president cut long-term marginal tax rates, the other tried a massive burst of federal spending. One empowered private enterprise; the other empowered government.
Last week, the Metropolitan Washington Airports Authority and the Fairfax Board of Supervisors granted the Loudoun County Board of Supervisors a 30-day extension to review the final cost estimates of Phase II of the Dulles Metrorail project. Unless MWAA agrees to drop a provision giving preference to bids that include a Project Labor Agreement (PLA) by then, Loudoun County’s Board of Supervisors will likely opt out of participating.
And, since the Fairfax County Board of Supervisors has admitted that Phase II would be built to Route 28 with or without Loudoun County’s help, why wouldn’t they?
It would be politically suicidal for a board of first-term republicans to sign off on a scheme that gives a 10-percent scoring bonus to firms who use union labor, effectively shutting non-union contractors in Virginia (a right-to-work state) out of the contest.
The Virginia legislature passed a new law banning discrimination against bidders for refusing use PLAs this year, and Virginia Secretary of Transportation Sean Connaughton has pledged that he will use the law to withhold all Virginia funds (no matter how much the Senate appropriates) unless MWAA drops the provision.
It’s possible that the unelected and opaque MWAA might drop the provision, since losing Loudoun County and the State of Virginia would mean losing hundreds of millions of dollars in new funding.
Across the nation, large and growing budget deficits have forced politicians from across the political spectrum, including some Democrats, to seek to bring public employee compensation under control. This has required them to take on government employee unions, which has created considerable friction between the unions and their traditional Democratic allies (a point I’ve noted elsewhere).
Many Democratic lawmakers’ reform proposals have not been as far-ranging as those put forth by their Republican counterparts, but deep-blue Rhode Island is a notable exception. In fact, the Ocean State’s pension reforms are the boldest in the nation to date.
This weekend’s Wall Street Journal features an interview with Rhode Island State Treasurer Gina Raimondo, who designed the state’s pension overhaul. It is well worth reading. Rhode Island’s pension reforms confirms the characterization of pension reform by Utah State Senator Dan Liljenquist, who led his state’s successful pension reform effort: ”This is not a conservative-versus-liberal issue, this is a reality issue.”
Indeed. Liljenquist is a Republican, and therefore unlikely to get union support. Raimondo is a Democrat, but her state’s pensions faced a financial situation so dire that tackling the problem became a priority, even if it risked a union backlash. As the Journal‘s Allysia Finley notes:
The new law shifts all workers from defined-benefit pensions into hybrid plans, which include a modest annuity and a defined-contribution component. It also increases the retirement age to 67 from 62 for all workers and suspends cost-of-living adjustments for retirees until the pension system, which is only about 50% funded, reaches a more healthy state.
Several states have increased the retirement age or created a new tier of benefits for future workers, but reforms that only affect not-yet-hired employees don’t save much money. A lot of “people say we’ve done pension reform when all they’ve done is tweaked something,” Ms. Raimondo points out. “This problem will not go away, and I don’t know what people are thinking. By the nature of the problem, it gets bigger and harder the longer you wait.”
[ ... ]
In April, she convinced the state pension board to cut the discount rate by which the state calculates its pension liability to 7.5% from 8.25%. She claimed that 7.5% was a more honest number since the actual investment return rate over the last decade was 2.28%.
Of course, not all state pension reforms will be as comprehensive as Rhode Island’s, but for many states doing nothing is not an option. Today, a Journal editorial posits that New York Governor Mario Cuomo may have missed an opportunity in reforming his state’s public employee pensions.
The piecemeal reforms are a step in the right direction and would be more encouraging if the Governor hadn’t then declared pensions a closed issue. The legislation offers the relatively few non-unionized employees the option of 401(k)-style pensions, which they can take with them if they leave government service. It also raises the retirement age to 63 from 62 and trims today’s generous annuities—typically about $50,000 to $60,000 a year for career civil servants—by between 4% and 8% for new employees.
The state projects the reforms will save $80 billion over 30 years, which isn’t chump change. Even so, state and local governments will pay about as much on pensions in the next five years alone. Since these reforms apply only to future workers, pension costs will continue to grow, albeit at a slower rate. The savings are also dependent on lawmakers not goosing benefits once the economy recovers and the public isn’t looking. That’s what happened in 1983 after a pension fix seven years earlier.
Mr. Cuomo’s original pension plan was bolder, though still timid compared to the reforms New Jersey and Rhode Island Democrats passed last year that affect current workers and retirees.
Their need for political support from unions could make more Democratic politicians shy away from pursuing an aggressive pension reform agenda. But then they might face the wrath of voters who have to deal with, in Raimondo’s words, “[b]udgets that don’t balance, public programs that aren’t funded, pension funds that are running out of money, schools that aren’t funded …”
For more on public pensions, see here.
Baseball season is coming up. This time of year I’ll usually read a book about baseball to psyche myself up for the season. Some of the best ones I’ve come across in recent years are George Vecsey’s Baseball: A History of America’s Favorite Game and George Will’s Men at Work. This year I chose Ball Four by Jim Bouton.
Bouton was a pitcher who bounced around the league after having early success with the Yankees. Ball Four is a diary of his 1969 season with the expansion Seattle Pilots, who lasted only one year as a franchise; after the season ended they moved to Milwaukee and became the Brewers. Bouton ended the 1969 season with the Houston Astros after a late-season trade. Besides being wickedly funny, the book is something of a tell-all, and is surprisingly cynical for a book about a children’s game. It also made him persona non grata in the league.
What does all that have to do with the title of this post? Ten years after Ball Four came out, Bouton added an epilogue titled “Ball Five” for a new edition. In it he writes about his post-playing career as a sports reporter for New York-area television stations, and he shares a story about friend-of-CEI John Stossel:
I also had a lot of respect for our intrepid consumer reporter John Stossel who exposed rip-offs in the marketplace. I particularly remember one of John’s rip-off stories that never got on the air. John was doing an exposé on the fast food industry and one Sunday he bought a pizza for $400. The reason it cost $400 was not because of restaurant business practices but because of television labor practices. John needed a pizza for a prop but he couldn’t get it himself. A set decorator had to get it. Then a prop man had to hold it. Then a stagehand had to give it to him. By the time they figured out the overtime and holiday pay, it came to something like $400. Of course, if John had tried to expose the cost of the television pizza he might have had to finish his story in a suddenly darkened newsroom.
Bouton doesn’t say what year Stossel’s story didn’t air. So let’s assume it’s 1980, when he wrote the chapter. According to the Minneapolis Fed’s handy inflation calculator, that $400 pizza would cost $1,128.43 today.
Last Wednesday, Office of Information and Regulatory Affairs (OIRA) Administrator Cass Sunstein sent a memo to executive agency heads concerning the cumulative effects of regulation and offered best practices for rulemaking. The memo reveals the prominent federal agency responsible for workers does not meet the Obama administration’s standards. In particular, the Department of Labor’s (DOL) latest regulatory initiative, amending companionship and live-in worker rule, diverges sharply from Sunstein’s best practices.
The memo to agency heads is purported to reinforce President Obama’s Executive Order 13563, “Improving Regulation and Regulatory Review.” The memo and EO on paper request agencies to reach out and alert the potential affected parties (state/local governments, small business, industries, and individuals) of new or existing regulatory changes. In addition, regulators must consult and offer easy ways for the public to participate in calls for comments.
The regulatory guidelines set forth stress the importance of public involvement in understanding the cumulative effects of regulation: How to minimize administration costs, streamline duplicative rules, and harmonize and reduce excessive regulatory burdens. The memo’s objective, “The goals of this effort should be to simplify requirements on the public and private sectors… propose or adopt a regulation only upon a reasoned determination that its benefits justify its costs.”
Unfortunately for workers, Mr. Sunstein’s memos must go directly to DOL Secretary Hilda Solis’s junk-mail folder. Despite OIRA and executive guidelines for rulemaking, DOL is looking to advance their rule to narrow the exemptions to the companionship and live-in worker regulation under the Fair Labor and Standards Act (FLSA). The congressional intent underlying the companionship exemptions is to make quality in-home care affordable and accessible. Not only does DOL’s proposed rule stray from FLSA congressional intent, but it is far outside OIRA’s suggestions for rulemaking.
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