public sector union

Unions Bucking the Will of the People

by Vincent Vernuccio on February 18, 2011 · 4 comments

in Labor

If there was ever an “I told you so” moment on government unions becoming too powerful, this is it.

The Wisconsin State Capitol is under siege by unions. Thousands turned out to protest Gov. Scott Walker’s emergency budget bill. According to anecdotal reports, police advised workers in the Capitol to “lock [their] doors” after protesters marched through the halls of the building yelling and banging drums. A teacher “sick out” strike closed schools, and Gov. Walter put the National Guard on alert in case the public safety unions went on strike. Finally, all 13 Democrat senators fled the state to stop a vote on the bill.

Despite the last election where the voters of Wisconsin ousted the big spending Democrats — the state is expecting a $3.6 billion deficit over the next two years — unions want to overturn the democratic process. Gov. Walker and Republican candidates campaigned heavily on lower taxes, less spending, and curbing the power of government unions. Wisconsinites approved of these ideas and responded in kind when they elected Walker to the governorship and Republican majorities in both the Wisconsin Assembly and Senate. Gov. Walker told the Associated Press the actions are “not a shock … The shock would be if we didn’t go forward with this.”

The government union message from Wisconsin is loud and clear: Democracy be damned and the voters’ will does not matter if it takes away our benefits or power.

The proposed budget will require government employees to pick up 12.6 percent of their health care costs and contribute 5.8 percent of their pay to their pensions. They currently pay nothing. The amounts are roughly half of what workers in the private sector pay.

The contributions are not the real reason why the unions are upset. It is money and power. Before getting into what the bill will do, there are several things it does not do. It does not take away the right of workers to join a union. It does not take away their right to collectively bargain — although it does limit it to wages. It does not force Gov. Walker to lay off 6,000 state employees – the amount needed to fix the budget hole. It does not take away other civil service protections afforded to government workers.

The bill does give workers the right to say no to a union if they do not want to join. Currently, workers are forced to pay union dues simply to keep their jobs. It also takes away the union privilege of automatically deducting money from workers’ paychecks. Unions are truly incensed because now workers will have a choice and will have to affirmatively pay for union representation. If the unions do not perform, they will see their dues and their power decrease.

Image credit: Madison Guy’s flickr photostream.

The Stealthy Public Pension Time Bomb

by Ivan Osorio on October 29, 2010

in Bailout Watch, Economy, Employment, Labor, Regulation

As state and local government budgets have come under increasing stress, greater public attention has come to focus on government employees’ compensation. This greater scrutiny has led to public anger over public employees’ generous compensation (along with their iron-clad job security). Naturally, this has put public employee unions and their allies on the defensive. Some have responded with publications that essentially retort, “It ain’t so!” In The American, Andrew Biggs of the American Enterprise Institute, responds to that defense. As he notes, a significant such study, by the Center on Wage and Employment Dynamics (CWED) at the University of California-Berkeley, makes an important miscalculation:

The basic problem with CWED’s treatment of benefits is that it assumes data showing what employers currently pay toward benefits is equal to what employees will actually receive. In the short-term, this assumption is fine, since many employee benefits are consumed today. But in the public sector, a large share of compensation is deferred to retirement in the form of pension benefits and retiree health benefits. The CWED study significantly underestimates the value of deferred benefits.

As many people are aware, public sector defined-benefit pension plans are significantly underfunded. Using private sector accounting standards, which is necessary to make apples-to-apples comparisons, the typical public pension is less than 50 percent funded. When pensions are underfunded, compensation from pensions is underestimated.

Thus, although the CWED study argues that California’s public sector employees receive pension benefits equal to 8.2 percent of their total compensation, that’s not exactly true. Their data actually shows that California public employers are paying 8.2 percent of employee compensation toward pensions, but that is only around half what employers should be paying. And since public pension benefits are guaranteed, that extra amount will be paid sooner or later. A good guess of true public pension compensation is to divide the reported pension contribution of 8.2 percent by the 50 percent funding level of California pensions, producing a value for promised pension benefits of 16 percent of compensation. This increases the 2 percent pay advantage that the CWED study already acknowledges to a public sector pay premium of around 10 percent.

So, in addition to threatening state and local government finances — and thus by extension taxpayers — public employee pension underfunding also partly obscures the real cost of public employee compensation. For government employee unions and the elected officials they support, this politically convenient, since they simply pass on the cost to future taxpayers, while mitigating current taxpayers’ wrath. For some insight into how they do this, it’s worth reading the study by Biggs and Eileen Norcross of the Mercatus Center (who’s also a former CEI Warren Brookes Journalism Fellow), on the public pension underfunding crisis, published by Mercatus. In a word, public pension managers have been overestimating investment returns for years. They focus on New Jersey as a case study.

The state reports that its pension systems are underfunded by $44.7 billion, when liabilities are discounted at the 8.25 percent annual return that New Jersey predicts it can achieve on funds’ investment portfolios.

However, when plan liabilities are calculated in a manner consistent with private sector accounting requirements, methods that economists almost universally agree are more appropriate, New Jersey’s unfunded benefit obligation rises to $173.9 billion. This amount is equivalent to 44 percent of the state’s current GDP and 328 percent of its current explicit government debt.

Such unrealistic investment return expectations lead to further underfunding. One necessary first step to alleviate this situation, Biggs and Norcross note, is honest accounting.

In addition to understating funding requirements, using a high discount rate to value public pension liabilities encourages plan managers to invest in higher risk portfolios in order to target the expected rate of return, producing bad incentives in the management of pension assets. Instead, financial theory suggests pensions should be discounted according to the lower risk (and lower return) Treasury bond rating of 3.5%.

Government employee unions are a formidable political force. However, the public pension underfunding problem is so large now that public support for reforms to get states out of the red finally has a good chance of carrying the day, as it did in Utah. As Utah State Senator Dan Liljenquist, who helped design and enact a major pension reform in his state noted recently at a Mercatus event (where Biggs and Norcross also presented): “This is not a conservative-versus-liberal issue, this is a reality issue.”

For more on public sector unions, see here and here.

For more on pensions, see here.

Get Spit On, Take Three Months Off

by Ryan Young on May 25, 2010 · 2 comments

in Culture, Labor, Zeitgeist

New Yorkers have a reputation for being rude. But they are also a sensitive lot. Especially bus drivers. Last year, angry customers literally spit on bus drivers 51 times. The experience was so harrowing for one unidentified driver that he or she needed 191 days of paid leave to recover. The average driver took 64 days of paid leave after being spat upon.

Seems a bit much. But union leaders think it’s justified.

“Being spat upon — having a passenger spit in your face, spit in your mouth, spit in your eye — is a physically and psychologically traumatic experience,” said John Samuelsen, the union’s president. “If transit workers are assaulted, they are going to take off whatever amount of time they are going to take off to recuperate.”

Getting spit on is not fun. And it can certainly ruin one’s day. But the recovery time for most people is measured in minutes, not months.

Raul Morales, 52, has been driving city buses for five years, but his first encounter with spit came early.

“A guy wanted to get on the bus; I told him the fare; he didn’t want to pay it,” Mr. Morales said. “So, he spat at me.”

The spittle landed on his shirt and glasses. He stopped at a nearby McDonald’s to clean himself off, then finished his shift. “I just kept on going.” (An ice slushie was once thrown at him for the same reason.)

Mr. Morales said it did not occur to him to take an extended absence to recover.

Good to see that common sense isn’t completely dead.

It is sad that so many transit employees have no problem taking months-long vacations at taxpayer expense, using the flimsiest of excuses. That kind of behavior wouldn’t fly in the productive sector.

New York City Transit is running a $400 million deficit this year. Saliva-induced vacations alone account for nearly a million dollars of that, based on average salaries. That money could have gone towards softening looming service cuts. It could have gone to repairing aging infrastructure. It could have gone to employees who actually work.

But when labor rules are as generous as they are for many public-sector union workers, it should come as no surprise that some people will game the system.

Richard Epstein: “Deregulation Now”

by Ivan Osorio on January 6, 2010

in Deregulate to Stimulate, Economy, Labor, Regulation

In his Forbes.com column, University of Chicago law professor Richard Epstein offers a simple proposal for reviving the economy: “Deregulation Now.” His proposals are all sound. I found especially welcome his focus on labor law reform, especially on collective bargaining by government employees — a problem which, as I noted here yesterday, is getting some overdue and needed attention.

On labor, state and local governments have to junk the progressive mindset in both the public and the private sector. State and local governments should never, repeat never, be forced to negotiate with local unions. The huge pensions garnered by prison guards in California or transportation workers in New York present the intolerable spectacle of requiring ordinary citizens to pay huge subsidies to union workers far richer than themselves. On the private side, don’t force developers to hire union workers on construction sites or to block the construction of new facilities that hire nonunion labor. If unions are really efficient–and they aren’t–let them compete like everyone else.

Also, at Reason’s Hit & Run, Nick Gillespie cites the pay gap between private and public sector workers, and Matt Welch cites Epstein.

For more on public sector unions, see here and here. (Thanks to Iain Murray for the Forbes.com link.)

The Economist on Government Employee Unions

by Ivan Osorio on December 15, 2009 · 1 comment

in Economy, Employment, Labor

The current issue of The Economist leads off its United States section with a story on public sector unions that breaks down the issue very well.

For years, public-sector workers have basked in an alternative reality. Nevertheless, as private-sector unions have faded, public-sector ones have thrived. In 2008 37% of government workers were unionised, nearly five times the share in the private sector (see chart), and the same share that was unionised 25 years earlier. Over that period, the share of unionised private-sector jobs collapsed from 17% to 8%. In 2009, for the first time, public workers comprised more than half of America’s union members. Democrats in particular have little incentive to anger workers, who are often their electoral foot-soldiers, and neither party wants to prod them to strike, since they hold monopolies. Those who defy unions do so at their peril. In 2005 Arnold Schwarzenegger, the governor of California, tried to curb the unions’ power. His effort was quickly terminated.

The full article is available here (paid subscription required).

For more on public sector unions, see here.