Originally posted at the Alliance for Worker Freedom
The issue of collective bargaining as allowed or forbidden to public servants has exploded into the national consciousness over the last few weeks. The Wisconsin state senate, standing on the brink of revoking collective bargaining for public sector workers, last week instructed its Sergeant at Arms to arrest Democrat members who fled the state rather than suffer defeat. The self-exiled senators have been joined in Illinois by their counterparts from Indiana, who employed the same tactic to avoid passage of “Right-to-Work” legislation. The Ohio state senate has passed a bill similar to Wisconsin’s, and other state legislatures plan to broach the issue in the near future.
Leaving aside, for the moment, arguments based on political principle, these recent battles should prompt us to go back for a refresher on how exactly collective bargaining for government employees has been fiscally ruinous. Josh Barro, a Walter B. Wriston fellow at the Manhattan Institute for Policy Research, has just released a comprehensive “Issue Brief,” laying out the numbers and processes which served to push this emergency into the public eye.
The overarching theme to Barro’s analysis is simple: altogether, public sector workers enjoy higher overall compensation—salary plus retirement and health benefits—than their private sector counterparts, which has incurred untenable costs to state and local governments (read: taxpayers).
Regarding government pensions, Barro notes that “some 84 percent of state and local government workers have access to a defined-benefit pension plan (compared with just 20 percent in the private sector), and roughly 90 percent of retirement benefits earned by public workers come in the form of defined-benefit pension accruals.” Defined-benefit plans rely on government handouts based on years of employment with little-to-no employee contributions. (This system also has a side-effect of mechanically rewarding individuals for time-served rather than on a merit basis, often creating an unenergetic or incompetent class of permanent civil servants.) Further, “defined-benefit pensions also have strongly pro-cyclical effects on state budgets and have therefore exacerbated the depth of state budget crises. The typical state pension fund invests a large majority of its assets in equities. When these assets underperform, actuaries direct the participating governments to increase their pension contributions in order to replace the lost value.”
Similarly, government workforces have health benefits that are on average greater than those received by many in the private sector: “The average government worker earns $4.65 per hour in health benefits, compared with $2.10 per hour in the private sector. Part of that difference is attributable to higher coverage rates in the public sector (73 percent of state and local government workers receive health insurance through work, compared with 51 percent of private-sector workers). But part is attributable to the higher value of benefits per employee.”
Added all together, Barro says, 43% of state and local spending goes to 19.4 million employees (as of September 2010), totaling over $1.2 trillion in compensation. Reform and payroll reduction would seem like an easy fix but for groups like the American Federation of State, County, and Municipal Employees and the Service Employees International Union. Public sector unions have ensured deluxe packages for their members regardless of the economic cost: “By influencing the political process, unions are able to sit on both sides of the negotiating table. Some states enact laws that make this situation worse—for example, by allowing binding arbitration that does not properly account for taxpayers’ ability to pay.”
As Mr. Barro correctly concludes, the nationwide fiscal crisis can be ameliorated by reforming binding arbitration, prohibiting public employee strikes, limiting collective bargaining for these workers or banning it altogether. These are the battles that are being fought right now, in Wisconsin, Ohio, and elsewhere. The opposition of labor versus management, long espoused by radical progressives, has been turned on its head: the terms have been replaced by “the government” versus “the people”. If fiscal responsibility and economic freedom finally win out against union intransigence, then the people will have truly won again.