The Economist: Public-Sector Unions “Coddled and Spoiled”

The December 12th-18th edition of The Economist featured a must-read article on public-employee unions and the unsustainability of the status quo in public employment amid widespread, ongoing fiscal crises in state and local government:

For years, public-sector workers have basked in an alternative reality. Nevertheless, as private-sector unions have faded, public-sector ones have thrived. In 2008 37% of government workers were unionised, nearly five times the share in the private sector (see chart), and the same share that was unionised 25 years earlier. Over that period, the share of unionised private-sector jobs collapsed from 17% to 8%. In 2009, for the first time, public workers comprised more than half of America’s union members. Democrats in particular have little incentive to anger workers, who are often their electoral foot-soldiers, and neither party wants to prod them to strike, since they hold monopolies. Those who defy unions do so at their peril. In 2005 Arnold Schwarzenegger, the governor of California, tried to curb the unions’ power. His effort was quickly terminated.

As a result, public-sector workers are spoiled rotten. Government employees earn 21% more than private ones and are 24% more likely to have access to health care. Only 21% of private workers enjoy a defined-benefit (DB) pension, which guarantees retirement income based on years of service and final salary. But 84% of state and local workers still receive DB plans.

All this might be grand if states and cities could afford it, but they cannot; unlike the federal government, they have the pesky obligation to balance their budgets. The recession has already drained pension funds. The National League of Cities (NLC) expects municipal revenue to continue to drop in 2010, 2011 and even beyond. States will have faced $256 billion of budget gaps between fiscal years 2009 and 2011, according to the National Association of State Budget Officers (NASBO). […]

Barry Bluestone, a dean at Northeastern University in Boston, is the son of a former vice-president of the United Auto Workers (UAW). But even he thinks public-sector unions must adapt. “As more and more people are stressed and see themselves losing their own jobs, they’re going to see public unions simply as standing up for their own members,” he says. […]

Northeastern’s Mr Bluestone, a former lineman at Ford, argues that public-sector unions are at a point of decision. They must, he says, “improve productivity, improve the services they offer and find innovative ways to deliver them.” Otherwise, taxpayers will turn elsewhere. Teachers’ unions, for example, can blame only themselves for the rise of charter schools. It took the UAW years to adapt to global realities. Compared with the public-sector unions, it looks nimble.

There’s no magic solution for climbing out of the hole policymakers have dug for taxpayers vis-a-vis union coddling, but two important places to start are: (1) embracing privatization and competitive contracting to reduce the cost and improve the quality of government services, and (2) reforming public pension and OPEB (retiree health care and other post-employment benefits) systems to bring them back to fiscal terra firma.