Besides the unprecedented size of last year's bloated and ineffective stimulus bill, 2009 witnessed another desultory landmark for the U.S. economy. For the first time in American history, public sector unions surpassed private sector unions in membership, 7.9 million to 7.4 million respectively. This comes despite the fact that there are five times more workers in the private sector. To put this in perspective, this means that a massive 37.4 percent of the public sector workforce is now unionized, while private sector union membership has fallen to only 7.4 percent. For those concerned with the long-term (or even short-term) fiscal solvency of our state and local governments, this development highlights the special danger that unions can pose in the public sector.
As the nearby graph demonstrates, union membership in the private sector has been falling for years. Our economy's gradual shift towards a service-based model has sapped the traditional monolithic power of unions in sectors like manufacturing and construction. The sharp dip in private sector membership, starting in 2008, reflects layoffs in these same sectors during the ongoing downturn. Note how insulated the public sector has been from these cuts; are unionized government workers so valuable that we actually have to increase their numbers during a recession? Or has union power merely metastasized into the public sector from the private?
Indeed, the rent-seeking behavior economists have attributed to private sector unions for decades has become more and more visible on the public side. Freed from the competitive pressures that face most businesses, state and local governments have made easy targets for aggressive unions determined to secure ever-higher compensation and security for their members. As Adam Summers has noted on this blog, public sector workers on average make 35 percent more in wages and a whopping 69 percent more in benefits than their private sector counterparts. Further, as the Cato Institute's Chris Edwards has shown, public sector emloyees on average work 12 percent less each year.
Union defenders have argued that government employees are in general better educated than private sector workers, which could explain the resulting wage differential. However, as Summers points out, public sector administrators can splurge on highly qualified, expensive candidates "...not because job duties demand more education, but rather simply because they can, as they have access to the public's money." If governments were expected to balance their budgets, like private firms, they might be less likely to shell out top dollar for potentially overqualified individuals.
Regardless of whether public sector employees merit their advantage in pay or not, state and local governments can no longer keep the extravagant promises they have made to their unions. For instance, California has seen its pension costs jump 2,000 percent in the last decade, and more than 15,000 retirees receive pensions over $100,000 per year. Meanwhile, as Reason's Leonard Gilroy noted, it was only last year that the state had to issue IOUs to vendors to avoid running out of cash. That story may repeat itself this fall if Sacramento can't plug a $19 billion budget deficit. Unsurprisingly, 85 percent of the state's 235,000 employees are unionized.
It's clear that public sector unions have become powerful and well-entrenched special interests across the country. The only question is when the gravy train is going to grind to a halt. How long will state and local governments continue to protect union privileges given the astronomical costs? Moreover, can there be any doubt who will be left holding the bag when it all comes crashing down?