Tag Archives: unions

The Times They Are A Changin’

In which national newspaper did the following appear (not on the opinion pages):

But public workers have a unique relationship with elected officials, because government employees are effectively negotiating with bosses whom they can campaign to vote out of office if they don’t get what they want. Private unions, in contrast, don’t usually have the power to fire their members’ employers.

The answer is here.

In her review of the literature on public sector unions, Eileen reaches much the same conclusion. She writes:

In addition, however, public sector unions are also able to increase demand for their labor through the political, legislative, or regulatory process, thus increasing wages further than private sector unions are able to.


Collective bargaining and health care benefits in New Jersey

Is collective bargaining for public employees an “historic right”? That is the position of Bob Master, political director of  the Communication Workers of America (CWA), one of New Jersey’s public sector unions. He objects to a plan put forward by Governor Christie and Senate President Stephen Sweeney that would allow the legislature to set health care benefits, removing the item from the negotiating table. As for the historic nature of collective bargaining. Such powers arrived relatively recently in the public sector. With most states extending these provisions in the 1960s and 1970s, and up through the late 1980s. For a review, see my recent paper. (Economist Leo Troy, and political scientist Joseph Slater each provide a history of public sector unionism and reach the opposite conclusion on the implications of collective bargaining in the public sector.)

In New Jersey pension policy has always been a matter for legislation, a fact that Mr. Master does not challenge. Even if health benefits are removed from the table this does not eliminate the political leverage  public unions have over influencing legislators and thus legislation. Nor will it fix the core problem. Health benefits in New Jersey are completely unfunded and face a $66.7 billion liability.

Part of the reason that the bill has suddenly materialized is that until 2007 governments were not required to recognize the cost of Other Post Employment Benefits (OPEB) on their books. A bomb was dropped when this rule went into effect revealing $1.5 trillion in hidden liabilities in U.S. state and local governments.

Unlike pensions health benefits don’t come with the same guarantees. Of far greater relevance for public sector workers is how are state and local governments going to provide health benefits in the face of  such daunting costs? The Christie-Sweeney proposal asks workers to contribute on a sliding scale from 3 percent to 35 percent of their health insurance premiums depending on their salary.

Assembly Leader Sheila Oliver backs the unions’ position and proposes that health benefits remain off the table for three years. In 2014, collective bargaining for health benefits would be re-established and unions could seek lower contribution rates during the negotiation process. It would also make collective bargaining a gubernatorial campaign issue. It is a strategy that points to the uniquely political nature of public sector unionism. And it underscores the institutional incentives for politicians to promise short-term benefit enhancements at the expense of long-term solvency.


A rush to retire in the public sector in New Jersey

Today’s Star Ledger reports that New Jersey public workers are retiring in record numbers, “rather than risk having their benefits cut by legislators.” Approximately 15,000 workers are estimated to have taken retirement between January and June. Couple this with last year’s record retirement of 20,000 and the state can expect to have to pay out more money from its underfunded pension system.

Unions blame Governor Christie’s public remarks. But the truth is the state’s pension system is in serious shape due to decades of bad decisions: careless benefit enhancements, erroneous accounting practices and skipped contributions. Health benefits are entirely unfunded as they are in most states. Denial of these structural flaws won’t improve the outcome for workers. Further, it points to how poorly funded states have created inter-generational inequity among public workers. Younger workers have fewer options. They can quit now, receive very little in benefits, and enter into a weak job market. Older workers can head for the exit with their full benefits locked into place and retirement assured. Another problem to consider is will the crisis in pension plans prompt an out-of-state exit and tax base erosion? While only an anecdote, one New Jersey worker says she will wait out the next 18 months until she reaches 25 years of retirement service to see what policy changes are implemented thus delaying her plans to retire in Virginia.




New Jersey gets closer to a deal on health care with unions

I have a new post at Public Sector Inc on the negotiations underway between the Governor, the legislature and the Communications Workers of America over how health care benefits should be structured. But there’s another level to this conversation: where should this policy be decided? In collective bargaining negotiations with the union and two branches of the New Jersey government? Or should this be in the realm of state legislation, as is pensions policy?


Austerity measures lead to unrest in Greece

In anticipation of €26 billion ($37.4 billion) in spending cuts and tax increases to reduce Greece’s deficit over the next five years, unions called for strikes. Affected services included public transportation, schools, hospitals, and media. In addition student demonstrations in Athens turned violent as protesters hurled bottles and firecrackers at police.

The austerity measures are in return for last year’s €110 billion EU/IMF debt bailout. A good portion of the proposed cuts will be to public sector salaries, defense and health care spending.

Was the bailout enough to keep Greece afloat? According to the Wall Street Journal’s scorecard they could have used about €151 billion, which means they should borrow about €40 billion more to plug last year’s hole. The tab has grown in the interim and markets are demanding 15 percent to lend to Greece. S&P rates Greek bonds “in deep junk territory.”

Charles Forelle at Brussels Blog offers four possible solutions: 1) Modify the current measures by extending the time horizon to pay back the bailout, “plow ahead with privatization”, and restructure the terms of the bailout loans 2) Give Greece more bailout money, 3) Delay paying creditors in exchange for new bonds that are paid off later, and 4) Tell lenders to take a “haircut” today.

Each of these comes with its own set of  repercussions: political, economic and fiscal.  The choice will depend on which fallout Greece’s government want to face. Markets have already reacted to yesterday’s strikes in Athens (and S&P’s warning to Portugal’s banks). A round of  euro selling was touched off by investors concerned that Greece is likely to default again.

de Rugy on State Bankruptcy

In many states, bankruptcy will be an option only if powerful unions and other entrenched interest groups see it as a way to force budget problems onto the state’s bondholders rather than public employees. Bankruptcy in these conditions would allow the state to continue budgeting under the same structure as before, basically giving statehouses a clean slate without providing incentives to change the core of their financial problems: overspending in education, excessive public pensions and benefits, and a swollen state work force. You wouldn’t want to pay down your sister’s credit card balance without taking away her ability to pile up new debt.

That’s Veronique de Rugy, writing on state bankruptcy in the latest issue of Reason Magazine. It is an excellent accounting of the arguments, pro and con. Read the whole piece.

Do a majority of Americans prefer tax hikes to state budget cuts?

According to an ABC/Washington Post poll, the real third rail of politics isn’t Social Security it is state budgets. According to the poll results, 55 percent of Americans favor freezing wages for state employees and 51 percent are for reducing pension benefits for new hires.

But when asked more specific questions about cuts, 89 percent oppose laying off firefighters, 86 percent don’t want teachers or police officers laid off. Seventy five percent of people reject cuts to state aid for schools, 76 percent reject cuts to Medicaid, and 76 percent also oppose closing parks. At the same time, significant majorities oppose tax increases (though not as robustly). Sixty-three percent of those polled oppose increases in state income taxes, 61 percent oppose sales tax hikes.

What to make of these results? People don’t like tax hikes, and they really don’t like service reductions. They are also not confronted with the full bill for public services upfront.

State aid, debt, income tax withholding, spending deferrals, intergovernmental transfers contribute to fiscal illusion, by obscuring the full cost of spending and making spending look less expensive than it is.

More direct forms of taxation such as the property tax tend to be less popular for a reason. The property tax is more directly observed – both in paying for it and seeing how it is spent. (though it is also argued that renters experience fiscal illusion since they do not pay property taxes upfront).

New Jersey’s property tax crisis is an example of this. While the state instituted an income tax in 1976 to help defray the cost of public school spending on the local level, property taxes continued to rise over the period – in recent years to crippling levels for many residents. In 2010, when confronted with reductions in state aid and revenues and the request by teachers unions to grant salary hikes, New Jersey voters rejected the majority of school budgets for the first time since 1976.

It is not surprising that people will want to maintain or increase spending as long as the bill remains hidden. More than half of state Medicaid programs are sustained by federal transfers paid for with deficit spending, continuing to participate in this fiscal illusion has serious consequences for our economic future.

Tyler Cowen writes in The New York Times about how this disconnect between spending and revenue (identified by James Buchanan), results in institutionalized fiscal irresponsibility. Ultimately, we don’t recognize what it will take to pay off the debt we have accumulated at the federal level. It will take eroded savings, “…there is a rude awakening coming. One way or another, some of our savings will be taxed away to make good on government commitments, like future Medicare benefits, which we currently are framing as personal free lunches.”


What’s the likely impact of Wisconsin’s change to collective bargaining?

Tom Curry of MSNBC has a piece exploring this question. And it is a good one. The literature shows there are alot of nuances in how public sector unions influence fiscal and budget outcomes.

Collective bargaining laws certainly led to rapid unionization. But, what are the effects of these laws on the governments’ books?

Analysis has shown collective bargaining laws have all kinds of impacts. In some cases, they raise spending on unionized activities, but not on overall spending. Earlier studies showed collective bargaining laws led to an increase in wages and employment for unionized workers. However,  O’Brien (1994) refining these earlier studies included a variable for the political activity of unions. He found, collective bargaining may be a pre-condition for unions’ ability to influence budgets, but it is not effective by itself. He finds it is the political activity of unions that is the significant variable affecting municipal spending in fire and police department budgets and that the effect is to increase overall employment.

A great question to consider is will the change in the legal institution of collective bargaining in Wisconsin result in the outcome imagined by reformers?  Collective baragining laws may have changed, but this doesn’t mean that the political influence of unions on public policy is going to suddenly wane. Public sector unions enjoy a degree of “institutional stability” lacking in the private sector which by contrast is subject to market forces.

Collective Bargaining reform and health care costs in Wisconsin

The Journal Sentinel reports that under a new restrictive collective bargaining law that only allow unions to negotiate over inflation-capped wages, local governments in Wisconsin may seek to replace the current health care benefit. WEA Trust has been in place for 40 years, created by the teachers’ union the plan currently ensures employees in two-thirds of the state’s school districts. The switch in some districts has been made for non-unionized employees. The effect of many districts switching to more cost-effective plans will force WEA Trust to compete with other providers according to one analyst.

WEA Trust claims it is named on one-third of collective bargaining agreements and is listed as the “standard bearer” meaning districts can switch to lower cost, equivalent plans.

Brown Deer school district began using a different carrier in July and has saved the district $170,000 or the equivalent of  “at least two teachers”.