The Economist On Public Sector Unions

See (Government) workers of the world unite! Public-sector unions have had a good few decades. Has their luck run out? Excerpts:

"This private-public shift has transformed the trade union movement. In the 1950s unions were solidly working class, dominated by men who had left school at 16 and leant left on economics but right on social issues. Today they are much more middle-class: more than a quarter of American unionists have college degrees, and even more have liberal views on social and environmental issues.

The shift has also created tension between the public and private sectors. The private sector is dominated by competition and turbulence. Performance-related pay is the norm, and redundancy commonplace. The public sector, by contrast, is a haven of security and stability. Many people have jobs for life and performance measures are rare. The result is a paradox: the typical public worker is better off than the people he is supposed to serve, and the gap has widened significantly over the past decade. In America, pay and benefits have grown twice as fast in the public sector as they have in the private sector."

"Public-sector unions are some of the world’s most powerful interest groups. Many of them have large memberships and comparably large wallets: the American National Education Association, the main teachers’ union, has 3.2m members, an annual budget of over $300m and a vibrant tradition of political activism. But their influence goes much deeper. In many countries unions prop up the left. In Britain Ed Miliband, the leader of the Labour Party, owes his job to trade-union votes. In America Andy Stern, the head of the Service Employees International Union, was the most frequent guest at the White House in the first six months of Barack Obama’s presidency.

Public-sector unions enjoy advantages that their private-sector rivals only dream of. As providers of vital monopoly services, they can close down entire cities. And as powerful political machines, they can help to pick the people who sit on the other side of the bargaining table. Daniel DiSalvo, the author of an excellent essay on America’s public-sector unions in National Affairs, points out that the American Federation of State, County and Municipal Employees was the biggest contributor to political campaigns in 1989-2004. He also notes that such influence is more decisive in local campaigns, where turnout is low, than in national ones.

Even if they fail to elect “their” candidates, public-sector unions have a relatively easy time negotiating with politicians. Private-sector bosses are accustomed to playing hardball with unions because they know they can go bankrupt if they don’t. Politicians have no such discipline: they can always raise taxes or borrow from future generations. Those who have challenged the unions have often regretted it. California’s former governor, Arnold Schwarzenegger, tried to fight the unions in the court of public opinion, only to be outgunned. Others have attempted a more stopgap approach, only to get the blame when services are disrupted.

Economists still debate exactly what impact public-sector unions have on pay. Evidence from the American Bureau of Labour Statistics support the conservative argument that they have used their power to extract a wage premium: public-sector workers earn, on average, a third more than their private-sector counterparts. Left-leaning economists reply that public-sector workers are, on average, better educated. Whatever the merits of this argument, three things seem clear. Unions have suppressed wage differentials in the public sector. They have extracted excellent benefits for their members. And they have protected underperforming workers from being sacked."

"The unions’ influence extends to the size and nature of the public sector. Private-sector unions have learned to exercise self-restraint when it comes to pushing for more manpower: they realise that more workers may reduce the wages of their members and that a higher wage bill may drive their employers out of business. But public-sector unions are relentless in demanding more resources and more personnel, which conveniently translate into more members and more dues.

Their most dramatic success has been in Britain. When Britain’s union-backed New Labour government came to power in 1997, public spending accounted for almost 40% of GDP. When it left power in 2010 public spending was nearly 50% of GDP (partly, to be fair, as a result of recession), and 1m workers had been added to the public-sector payrolls."

"Buffalo, in New York state, has as many public workers in 2006 as it did in 1950, despite the fact that the city has lost half its population."

"It is impossible to calculate the cost of the unions’ inflexibility. But several recent studies provide some indications. Policy Exchange, a conservative think-tank, calculates that people in the British private sector work 23% more hours than their public-sector counterparts over their lifetimes, thanks to public-sector strikes, sick days and early retirement. Barry Bluestone, a left-wing economist, calculates that the price of America’s public services increased by 41% in 2000-08, while that of private services rose by 27%. Eric Hanushek, an economist at Stanford University, argues that replacing the bottom 5-8% of American teachers with merely average performers could move the United States from near the bottom to near the top of the international maths and science rankings."

"Even people on the left are beginning to echo these complaints. Andrew Cuomo, the incoming Democratic governor of New York, is rattling his sabre against public-sector unions despite the fact that they make up an important part of his base. Davis Guggenheim, an impeccably liberal film director whose credits include Al Gore’s “An Inconvenient Truth”, subjected the teachers’ unions to a merciless critique in “Waiting for Superman”, flagellating them for perpetuating a broken system and presenting Randi Weingarten, the head of the American Federation of Teachers, as “something of a foaming satanic beast”, as the Variety reviewer put it."

"Joshua Rauh, of the Kellogg School of Management at Northwestern University, reckons that seven American states will have exhausted their pension assets by 2020."