Saturday, June 9, 2012

Whither Public Unions?

Wisconsin Governor Scott Walker's victory in his recall fight has renewed interest in public sector unions.  Rasmussen suggests that Walker's win will spur other states to cut back on benefits to state-level unions.  Nevertheless, Rasmussen finds that 49% of Americans favor public unions while 46% oppose them.  However, Rasmussen's numbers don't disaggregate respondents who belong to unions and so have a financial incentive opposed to other taxpayers'.

Some of the support for public sector unions comes from the 11.8% of Americans who belong to unions.  This includes both public and private sector unions. (According to the OECD, 11.4% were unionized as of 2010.  Whether you go with 11.4% or 11.8%, the numbers are lower than all of the other countries' union densities listed on the linked OECD chart, with the exceptions of Estonia and Turkey. Germany's union density is 18.6% and Japan's is 18.4%.) The Bureau of Labor Statistics  finds that while 11.8%  of US workers are unionized (14.8 million workers), 37.0%  of public sector workers (7.6 million workers) are unionized.  Public sector workers constitute a bit more than 51% of all unionized workers.  Without public sector union members, the labor movement would be more sickly than it is. Unionized workers likely know this and so tend to support public sector unions.

If the employed US labor force, including farm workers not counted in the BLS's official union density numbers, is about 139.8 million, as of  May the density (percentage) of union workers, including farm workers, is about 10.5% (assuming farm workers don't belong to unions).  Note that 139.8 million is only about 44% of the total US population of 320 million.  About a quarter of the population is under 18 and about 12.5% is over age 65 and receives Social Security.  Unionized government employees are about 5.4% of the employed labor force and about 4.9% of the total labor force.  I don't believe that this number includes union retirees.

Comparing the 11.4% (which excludes farm workers) to the 1920s, which was before the National Labor Relations Act, 9.9% of non-farm workers were union members in 1928 and 13.2% of private sector workers were in unions in 1925.  In other words, the current private sector unionization density of 6.9% is a little over half of the private sector density (13.2%) in 1925.  The labor movement is now largely a public sector movement.  Private sector union workers have an incentive to support public sector unionism because without it union institutions like the AFL-CIO might not exist, or at least would be diminished.

If one excludes union members from the Rasmussen poll, the three percent balance in favor of unions (49% to 46%) will shift to a significant opposition to public sector unions.  Let's say 80% of union members favor public sector unionism. Let's also say that of the 243 million Americans over 18, 11.8% either belong to  a union or have a spouse or parent who does. If so, the 49% is reduced to about 40% and the 46% is reduced to 44%.  Public opinion among non-union Americans would then be 47.6 % for public unions and 52.4% against. 

The statistics for taxpayers not in unions are likely even more opposed.  Taxpayers are a subset of the total population. They must subsidize union members' pay.  If unions boost pay, then taxpayers likely have a conflict of interest with the unions unless the government manages to efficiently enhance productivity in step with wage increases.  Since governments and their unions do not implement incentive pay and are famous for bureaucracy, it is difficult to imagine how that would be accomplished. Government employment levels in highly unionized states are no lower per capita than employment levels in states with right-to-work laws or without bargaining laws.

Prior to the adoption of bargaining laws for public sector workers, Wellington and Winter argued that public sector unions would have excessive bargaining power because services like police and sanitation are monopolies with price-inelastic demand.  In other words, governments tend to monopolize services that are price inelastic.  As is well known to labor scholars, industries with price-inelastic demand tend to have high wages.  Wellington and Winter could not have foreseen that unions would not only increase wages but lobby to increase demand for their wage bill--the employment level multiplied by the wage.

Mancur Olson and George Stigler wrote articles and books in the 1970s and 1980s that showed that special interests can extract rents from the public through lobbying.  Public sector unions are well-placed to extract rents because they are easily organized and can develop close relationships with elected officials.  New York, where I live, has seen a high public sector union density and a high number of taxpayers leaving the state.  I am a public sector union member.  Unless one is in an ultra-high-wage profession such as investment banking, law, advertising, or other financial services, or is otherwise subsidized by the state as a public sector employee or health-care worker, it is very difficult to flourish economically in New York State.  New York's population has hardly grown since 1960, when public sector unionization became prevalent. 

As the burden of increasing costs has become difficult for taxpayers to bear, there is increasing resistance to unions.  People who do not pay taxes and beneficiaries of public sector spending constitute a large percentage of those who oppose cutbacks.  Tax systems are typically set up so that those who are the wealthiest have the most loopholes.  Those who work hard and generate the wealth necessary for public sector services are burdened with high taxes.  Generally, public sector services range from mediocre (police, roads) to non-existent to destructive, as is the case with drug enforcement, New York's Department of Environment Conservation and Department of Environmental Protection, its bogus building code, its dismal school system, and its destructive welfare system.

Come to think of it, life would be much better if we cut public sector employment by 80%.


Anonymous said...

You too work in the public sector. And are insured by the NY taxpayer and will receive a generous pension from the public coffers.

Mitchell Langbert said...

Yup. Since I live in a socialist state, I have little choice about where to work. The enrollment of the State University of New York in 2009 was 464,981. At the City University of New York, my employer, the enrollment is 226,213. The sum is 691,194. Given that number, how many private sector academic jobs do you think are left in New York?

One of the tactics of the Soviet socialists, who had monopolized employment, was to freeze dissidents out of state-owned industry, which was more or less the entire economy. Similarly, socialists in CUNY argue that those who oppose their mission should not be permitted to teach at CUNY. Might there be a parallel there? First, government takes over higher education. Second, the argument is put forward that only those who agree with government-controlled education should be allowed to teach in the government-controlled schools. Are you making that argument?

As far as my pension, the sorry truth is that when I left industry for Columbia's doctoral program in 1986 I was making $45,000 as a benefits manager for City Federal Savings and Loan (they offered me the director of employee benefits job at that salary when I left them). Today, I make about $93,000. In inflation-adjusted terms I haven't gotten a raise in 26 years.

As far as the pension, at City Federal we had a defined benefit plan which was contributing about 6-10% toward my benefit and a defined contribution plan that was contributing about 3%. At CUNY I have a defined contribution plan, TIAA-CREF, for which I get 11%. The difference is between two percent more and two percent less than I was receiving in the private sector. I sense that you feel it amazing that after my Ph.D. from Columbia Business School, my MBA from UCLA, and ten years of Fortune-500 experience that I am entitled to a retirement benefit. As an aside, the pension will be paid from my TIAA-CREF account, not public coffers.

An additional point is that public support for higher education is not so large. Public money contributes about one third toward operating expenses, with about two thirds coming from students' tuition. The tuition has been increasing. Capital costs, the cost of the campus, is borne by the taxpayers.

I would favor privatization of CUNY. If the state sells the campus at historical cost, which would be low, and the tuition increases by one third, a relatively modest tuition increase of 40% (given CUNY's low tuition) would cover the operating costs. CUNY could probably trim about 40% from its operating budget, so the cost increases could be quite modest.