Gary Becker On Public Unions

See Government Sector Unions-Becker. Excerpts:

"Whatever the source of their power, unions have managed to obtain better compensation than is available to comparable workers in the private sector. The best evidence supporting this is the much lower turnover of most public employees compared to that of private sector employees. For example, in January 2011, turnover rates among private sector workers were about 2 1/2 times those among government workers. Clearly, workers in any sector are less likely to quit if they are doing better than what they expect to get in alternative jobs. Also reducing turnover is that public employees cannot be laid off easily because they usually receive tenure after only one or two years of employment.

The higher compensation of public employees is heavily weighted toward deferred benefits in the form of favorable medical plans, and especially early retirement ages with generous retirement incomes. Retirement income is usually calculated not as a function of lifetime earnings, but of earnings during the last few years before retirement. Employees can artificially raise these earning by concentrating most of their overtime hours during the pre retirement years. Early retirement ages and generous benefits when retired are found not only at various governmental levels in the United States, but also among public employees in Europe and many other countries as well.

Presumably, in setting this form of compensation, politicians all over the world have responded to their (apparently correct) belief that voters and the media pay greater attention to earnings of government employees than to their deferred benefits. There is so much public attention to earnings that it is difficult to pay high-level government employees anything close to what they might earn in the private sector. This explains why turnover is much greater among top government employees than among the average government worker. Deferred compensation has sometimes been excessive in the private sector as well- demonstrated by General Motors’ financial difficulties- but for the most part the private sector has avoided very early retirements and other extremes of deferred compensation received by public employees.

Unfunded retirement liabilities of many state and local governments are so large that it is highly unlikely that they will ever be paid. For example, according to Joshua Rauh’s calculations in the Milken Institute Review, First Quarter, 2011, unfunded retirement liabilities of the state of Illinois are more than 5 times the state’s annual tax revenue, while the unfunded liabilities of Chicago are more than 7 times that city’s own annual revenue. This explains the recent efforts by governors and mayors of many states and cities to confront government unions and force a change in the system of retirement for state and local workers. The city of Los Angeles recently reached an agreement with its unions to increase significantly the contributions of union members to their retirement benefits. I anticipate that other cities and states will force similar, and sometimes more drastic, changes in their retirement systems."