Transcript A Case for Public Sector Labor Reform DANIEL DISALVO ASSISTANT PROFESSOR OF POLITICAL SCIENCE THE CITY COLLEGE OF NEW YORK-CUNY MANHATTAN INSTITUTE SENIOR FELLOW.

A Case for Public Sector Labor
Reform
DANIEL DISALVO
ASSISTANT PROFESSOR OF POLITICAL SCIENCE
THE CITY COLLEGE OF NEW YORK-CUNY
MANHATTAN INSTITUTE SENIOR FELLOW
First Things First
 To avoid confusion, let’s take a few specious claims
off the table:



Claim #1: There is a correlation between public employee
union strength and greater state budget deficits during the
Great Recession.
Claim #2: Collective bargaining in government is the only
cause of state and local pension problems.
Claim #3: Collective bargaining is unresponsive to budgetary
problems.
 All of these claims are false.
The Public Sector Difference
 Public and private sector workers share the union
label. They are thus of the same genus.
 However, unions representing government
workers are really a different species than those
found in the private economy.
 The two species of unions have different histories
and the political and economic case for each is
quite distinct.
The Public Sector Difference
 Market forces provide a natural check or limit on
the demands of private sector unions.
 In contrast, because government is the monopoly
provider of many services, such as education and
security, such market counter-pressure is limited
or non-existent.
 Theoretically, then, we should expect public sector
union demands to be less attuned to cost,
productivity, and efficiency.
The Public Sector Difference
 Both private and public sector unions engage in
collective bargaining.
 However, using the political process, they can exert
far greater influence over their members’
employers — that is, government — than privatesector unions can.
 They get two bites at the apple, so to speak.
The Public Sector Difference

Unlike private sector unions, those in the public
sector have two goals:
1.
2.

Greater salaries, benefits, and protections for their
existing members.
To hire more workers and increase their membership
ranks.
As economist Richard Freeman (1986) has written,
“public sector unions can be viewed as using their
political power to raise demand for public services,
as well as using their bargaining power to fight for
higher wages.”
The Public Sector Difference
 The goal of increasing pay can be in tension with
the incentive to expand public employment.
 For example, teacher pay has not increased that
dramatically over the last few decades because the
number of teachers being hired has increased and
the student-teacher ratio has fallen.
 If fewer teachers had been hired, salaries could be
greater.
Political Activity and Collective Bargaining
 The economic and policy literature shows that
public sector unions influence public policy and
government spending.
 Political activity may be even more effective than
collective bargaining in securing increased wages,
benefits, and higher levels of employment and
spending.
The Political Advantages of Public Sector Unions
 Four key advantages public sector unions enjoy
over private sector unions and other interest
groups:
1.
2.
3.
4.
Public sector unions have automatic access to politicians through the
collective-bargaining process, while other interest groups must fight
for such entree.
Government unions can more easily mobilize their members for
electoral participation than other interest groups can.
Government solves the collective action problem for the unions with
agency chop provisions, which inflate and stabilize their
membership.
Most interest groups must devote a great deal of time and effort to
fundraising. Public-sector unions, on the other hand, enjoy a steady,
reliable revenue stream, as union dues are deducted directly from
members’ paychecks.
Fiscal Burden of Government Unions
 States with strong public employee unions tend to
have greater debt, higher interest rates on their
bonds, and spend more.
 Freeman (2011) finds that public sector unions are
associated with greater public debt/GDP and lower
bond ratings.

Note: higher debt may be positive if it reflects good public
investments but lower bond ratings are not good by any
standard.
Fiscal Burden of Government Unions
 Most economists agree that government unions
increase the cost of government.
 Between 2000 and 2008, Bluestone (2010) found
that the price of state and local public services has
increased by 41% nationally, compared with 27% for
private services.
 O’Neil and McMahon (2007) found that New York’s
state and local government payrolls have grown by
53 percent, adding 472,000 jobs since the enactment
of the Taylor law in 1967, The private sector added
1.3 million jobs, a growth rate of only 23 percent.
Fiscal Burden of Government Unions
 Hoxby (1996) shows that collective bargaining in
school districts leads to increases in total spending,
teacher salaries, and the total number of teachers.
 In sum, the unions use their power to extract more
money and jobs at higher cost to school districts and
states.
Fiscal Burdens of Government Unions
 Most of the economic literature finds that unions
in government increase their members wages
compared to non-union workers.

Note: this wage effect has been found to be slightly smaller than
union in the private sector.
 States with strong unions also tend to have larger
pension and health commitments to their
employees.
Fiscal Burden of Government Unions
 Where an agency shop is permitted or compulsory,
Farber (2005) finds that government union
workers’ earnings are 10 percent higher.
 Zax and Ichniowski (1988) find that cities with
bargaining units representing police, fire, sanitation,
and street workers spend more on these activities
than do cities that do not bargain with unions.
 Valletta (1989) finds that the presence of collective
bargaining agreements increase municipal
employment by 20 percent.
Democracy and Unionism in the Public Sector
 The oldest critique of public sector unionism is
that it compromises the sovereignty of democratic
government and distorts the democratic process.
 Unionized government is a questionable
constitutional delegation of power to unelected
union officials insofar as they share with the
elected representatives of the people the power to
determine the day-to-day activities and
compensation levels of public servants.
The Redirection of Policy Priorities
 Unions demand for expansion of public sector
labor may not lead to increases in total public
employment but may inflate unionized sectors,
while shrinking those without unions.
 In such cases, government priorities are redirected
in ways that the public or even elected officials may
not approve.
The Redirection of Policy Priorities
 Freeman and Valletta (1988) find that collective bargaining
laws produce higher wages for covered and non-covered
workers, but they are also associated with lower employment
in departments that lack collective bargaining contracts.
 Zax and Ichniowski (1989) also find that unions are able to
raise the wages of employees in other departments but this
comes at the expense of decreased employment outside of
their own bargaining units.
 O’Brien (1994) finds that unions increase department
spending through political activity and not through the
collective bargaining process. The increases department
spending come through higher employment, not higher
compensation.
Two Worlds of Work
 The private sector is dominated by competition and
turbulence. Performance-related pay is the norm,
and redundancy commonplace.
 The public sector, by contrast, is an island of security
and stability. Many people have jobs for life and
performance measures are rare.

The public sector labor market lacks attributes on the
demand side (profit-motivated aversion to excess costs,
full discretion in hiring, firing, and wage setting, etc.) that
would generate adequate compensation levels.
Comparable Worth: A Tortured Subject
 There is an extensive debate over whether government
workers are better compensated than their private sector
counterparts.
 Even after one controls for the unique characteristics of the
government labor force (age, education, experience, region,
etc.), some analysts find a public sector premium but others
don’t.
 This debate is largely over how to value job security and
benefits (pensions and healthcare) in the econometric
models.
 All told, the weight of the scholarly evidence tilts in the
direction of a wage premium in the public sector.
Wage Compression in the Public Sector
 Unions help suppress wage differentials in the public
sector, which bring the high and low end of the wage
scale closer together.
 Wage compression means those at the top end of the
labor market (accountants, economists, lawyers)
make less compared to their private sector
counterparts, while those at the low end (secretaries,
janitors, bus drivers) make more.
Warping the Government Workforce
 With poor prospects in the ultra-competitive private sector,
government work is increasingly desirable for those with
limited skills.
 At the opposite end of the spectrum, the wage compression
imposed by unions and civil-service rules makes
government employment less attractive to those whose
abilities are in high demand.
 According to Donahue (2008) and Borjas (2003), there is a
“brain drain” at the top end of the government work force,
as many of the country's most talented people opt for jobs
in the private sector where they can be richly rewarded for
their skills.
Unions and Government Productivity
 Union negotiated work rules render government less
efficient and less innovative than it otherwise might be.
 Management in many jurisdictions has been, effectively,
emasculated.
 The unions have protected underperforming workers from
being disciplined, reassigned, or dismissed.
 Over the long term, work rules negotiated in collective
bargaining can drive public policy in directions that neither
elected officials nor voters desire.
Unions and Productivity
 Moe (2009) found that the more restrictive (rule
bound), a teachers’ contract, the lower the gains in
student achievement.
 Hoxby (1996) has shown that teacher unionization
explains why schools can have greater inputs but
worse student performance.
 Hanushek (2010) argues that replacing the bottom
5-8% of American teachers with merely average
instructors would catapult the United States to the
top of the international educational rankings.
Politics of Blocking
 As is often the case in American politics, public
sector unions’ political power rarely leads them to
get everything they want.
 Rather, their power is more likely to show up in
blocking efforts to innovate in the way government
delivers services that might weaken job protections
for some workers.
 For instance, public employee unions are often the
biggest obstacles to performance pay and efforts to
reform unsustainable pension and healthcare plans
in government.
Political Alliances
 The close alliance between public sector unions
and the Democratic Party invites attacks from
Republicans.
 It also makes the Democratic Party more
“conservative” insofar as its alliance with the
unions often leads them to defend the status quo of
government operations.
 Hence there has been much recent conflict between
Democratic governors and mayors and public
employee unions.
Political Alliances
 According to the Center for Responsive Politics, six of the
top fifteen biggest donors to federal political campaigns
from 1989 to 2012 were government workers unions or
unions with large number of public employees.

Note: most public sector unions represent state and local workers
and most policies affecting them are made by state and local
government, not Congress.
 The twelve largest unions (public and private) have spent
$384 million on federal political campaigns over the last
20 years.
 While only 3% of that money has gone to Republicans,
40% of union members vote for the GOP.
Political Alliances
Top 15 Political Donors, 1989-2012
Rank
Organization
Amount
%Dem
%Rep
$55,745,059.00
99
0
2 AT&T
$47,571,779
44
55
3 AFSCME
$46,167,658
94
1
4 National Association of Realtors
$40,718,176
47
49
5 SEIU
$37,634,367
75
2
6 NEA
$37,051,378
82
5
7 Goldman Sachs
$35,790,579
60
39
8 American Association for Justice
$34,715,804
89
8
9 International Brotherhood of Electrical Workers
$34,292,471
97
2
10 Laborer's Union
$31,876,950
89
7
11 AFT
$31,681,366
91
0
12 Carpenters & Jointers Union
$30,769,258
86
9
13 Communications Workers of America
$30,192,447
94
0
14 CitiGroup
$28,842,146
49
49
15 American medical Association
$27,880,935
49
49
1 ActBlue
* Public employee unions or unions with substantial numbers of public employees in their ranks are in bold.
Source: Center for Responsive Politics
Political Alliances
 The partisanship of union contributions helps
explain Democrats big advantage over Republicans
in contributions from the biggest donors to federal
elections: $1.3 billion to $844 million over the last
20 years.
Political Alliances
State and Local Powerhouses
 The political influence of public-sector unions is
probably greatest in low-turnout elections to school
boards and state and local offices, and in votes to
decide ballot initiatives and referenda.
 Their influence is greatest in these situations because
of informational and mobilizational asymmetries
(i.e. the unions care intensely about some things,
while voters knowledge and interests are more
diffuse).
 They consistently support positions that would lead
to higher taxation and greater government spending.
Conclusion
 Civil service laws and collective bargaining were
implement to depoliticize public employees.
 However, consequent unionization has had to
effect of re-politicizing public workers.
Conclusion
 Public-sector unions distort the labor market,
weaken public finances, and diminish the
responsiveness of government and the quality of
public services.
 Many of the concerns that initially led policymakers
to oppose unionization of the government workforce
have, over the years, been vindicated.