May/June 2011 The Fallacy of Union Busting

Taking power away from labor won't rescue states from their fiscal woes--but giving power to voters might.

By Sylvester Schieber and Phillip Longman

Photo: Getty Images

If you are an informed, fair-minded person, chances are you feel at least conflicted about all the hard-knuckle attacks on public employee unions in Madison, Wisconsin, and other state capitols. While Governor Scott Walker’s agenda was clearly much larger than balancing his current budget, there is no denying the magnitude of the pension crisis. Long predicted, it’s finally here, and it’s constricting the art of the possible in almost every state.

California finds itself paying more for benefits to public workers’ pensions than it does to fund higher education. And because public employees now on the job keep accruing new, underfunded retirement benefits, the pension debt keeps growing. Despite having some of the most underfunded public pensions in the country, Illinois will reduce its pension trust holdings this year to meet its pension payroll. One study suggests it will exhaust its assets by 2018 and finds that New Jersey is close behind. In places like Indiana and Louisiana, where policymakers have been making added pension contributions to cover past underfunding, they are still losing ground. Perhaps needless to say, any money that state and local governments use to bail out their pension plans can’t be used for any other purpose. Not only is that money needed to replace the teachers and police officers now retiring in their fifties; it could also be spent on exploding costs for health care and other pressing social needs.

Yet many Americans are uncomfortable with the solution being pursued by Governor Walker and some of his Republican counterparts, which boils down to busting public employee unions. Whatever the faults and excesses of some unions, polls confirm that most of us support a basic right to collective bargaining, even in the public sector. It’s one thing to, say, criticize the opposition of some teacher’s unions to merit pay or demand that firemen contribute more to the cost of their own pensions and not game the system, and quite another to assert that teachers and firemen have no right to organize and communicate their grievances collectively to their employers. Article 23 of the Universal Declaration of Human Rights identifies trade union organizing as a fundamental human right.

There are also political considerations that factor into the discussion. Many people are concerned about the ramifications of the Supreme Court’s Citizens United decision, which struck down any restraint on political spending by corporations and wealthy individuals to influence elections. Not only partisan liberals fear that, without a counterbalance, there will be no effective check on the power of well-heeled corporations in either party. Public-sector unions can serve as an important element of this counterbalance. At the same time, however, nothing could be more toxic for the Democrats than insisting that ordinary taxpayers fund pensions that are far more generous than what most can ever expect to receive themselves.

The problem doesn’t just involve the egregious cases that grab headlines, such as the small-town California fire chief described by the Wall Street Journal who was able to retire at age fifty with a pension of $241,000 a year—and who was then hired back as a consultant at $176,400 to help find his replacement. Even the pensions received by ordinary government employees are practically unheard of in the private sector these days, particularly among younger Americans.

Outside of government, only about 15 percent of private workers are covered by a defined-benefit pension, and even those are not as generous as those enjoyed by public workers, which promise to replace a substantial portion of their final salary for life regardless of market conditions and are often adjusted for inflation as well. It would be great if someone had a credible plan for offering every American that kind of retirement security, but no one does.

Public employees sometimes complain that they receive lower salaries than their counterparts in the private sector. That’s often true, but when the value of their pensions and other benefits are factored in, their total compensation, especially for blue-collar jobs, is frequently at least competitive, if not superior. Proof of this is how few public employees quit. It’s telling that workers in the private sector, according to the Bureau of Labor Statistics, are more than three times more likely to quit their jobs than state and local workers, whose monthly turnover is just .5 percent.

But the preferred solution by some policymakers— bust the unions—isn’t the appropriate response. That’s because it doesn’t address the core problem, which predates collective bargaining in the public sector and is found even where unions don’t exist. Instead, the real problem is something no one wants to talk about precisely because it’s so bipartisan: both political parties, for different reasons, have incentives to use pensions as ways to borrow from the future. The way to fix, or at least alleviate, this problem is not to take rights away from unions. It is to give more power to voters.

There’s plenty of blame for the pension crisis to go around, but no particularly good reason to blame only the unions. Military retirees, after all, don’t have a union, and yet the cost of the pensions promised to them by Congress over the years now comes to $1.3 trillion, or $10,700 for every U.S. household. Similarly, long before most federal workers earned any formal right to collective bargaining under the Civil Service Reform Act of 1978, the Civil Service Retirement System, created in 1920, was amassing huge unfunded liabilities for which we are still paying now. Today, the handful of states that don’t allow collective bargaining among their public employees generally have benefit plans that are just as generous as states that do allow it. One of those nonunion states, Virginia, faces $17.6 billion in unfunded pension liabilities.

Consider as well that by the late 1920s—a time when unions still had almost no toehold in government employment and were often violently repressed—all major cities in the United States had pension plans for either policemen or firemen or both, and twenty-one states had formal pension plans for their teachers. These plans were far more generous than what was typically found in the private sector, where most workers got no pensions whatsoever. And without the meddling of union bosses, public-sector plans were almost universally mismanaged and underfunded, if they were funded at all. In Massachusetts, pension assets simply consisted of “such amounts as shall be appropriated by the general assembly from time to time.” As economic historian Lee Craig has documented, other states and municipalities pretended to fund the pension plans simply by having them purchase their own bonds, meaning that the pension fund’s so-called assets were in fact being used to meet the other costs of government, such as paying off favored contractors. Already actuarially unsound, and with their so-called assets already spent, most failed or had to be bailed out in the 1930s.

Sylvester Schieber and Phillip Longman collaborated on this article. Schieber is an independent consultant who has written several books on aging, demographics, and pensions issues. Longman is a Schwartz senior fellow at the Washington Monthly and the senior research fellow at the New America Foundation.


  • PC in SC on May 11, 2011 3:18 PM:

    good article but --- if you live in "right-to-work" state, as I do:

    "The League of Women Voters would print brochures explaining the pros and cons."

    "Newspapers would weigh in with editorials."
    MY 2 LOCAL PAPERS ARE VERY SLANTED - AND EDITORIALS OF DIFFERING VIEWS ARE DIFFICULT TO GET PUBLISHED (and if they are, some writers are called and verbally attacked)

  • cr0ft on May 11, 2011 4:29 PM:

    A well written article with interesting things to say - if you're interested in ancient history analysis. Unfortunately, once you see the real problem, it becomes about as interesting to read as it would be to read a well thought-out article about the best way to do agriculture using hand-held hoes and shovels or how to make a horse-drawn buggy travel as smoothly as possible to minimize the time to get from the country estate to the city using one.

    It's irrelevant, when what you should be discussing is how to create autonomous farming machinery that does all the farming for you or how to design vactrains to get you around the world in a few hours.

    Discussing the hoes and the shovels or the horse-drawn buggies becomes completely pointless because we long since need to abandon those (and have) , and the same is true of this discussion of unions vs non, pensions and how to fund them etc.

    It's not about how best to try to make our insane money-based system achieve some semblance of fairness and some minor shred of workability, it's about figuring out exactly how to replace it with something that actually works and is inherently fair, equitable and sustainable instead of our current system that doesn't work, is inherently unfair, easily warped by people, is inherently inequitable and is absolutely not sustainable.

  • JohnR22 on May 13, 2011 4:16 PM:

    Oh, that's right. Almost every Blue state has utterly disasterous budget deficits that are required...by law...be be balanced each year. Although this has been caused by a revenue shortfall (caused by the economic downturn and a drop in property tax and income tax revenue), it has cause a spotlight to be shined on exactly what constitutes the shortfall.

    Well, surprise surprise. In every case the key factor is unsustainable public union pensions and medical benefits. And when looked at carefully, we find (shock!) that these benefits are absurdly generous.

    THe first step is to bust the unions and the next step is to bring their pensions and benefits into line with what the private sector gets. And the Left is TERRIFIED because the voters overwhelmingly support these rational steps.

  • FGS on May 16, 2011 1:21 AM:

    If people wanted their own happiness as much as they want the unhappiness of others, there would be paradise within a few years. People jealous of public servants' compensation should organize and fight for better compensation for themselves. It's not teachers' fault that private sector workers allow themselves to be treated so poorly.

  • nancy patterson on May 20, 2011 5:20 PM:

    FGS has the right idea. We shouldn't be trying to take the positive gains away from anyone.
    We should be demanding better quality of life all around. How can we continue to be the"greatest country in the world" if the whole place is falling apart from disrepair and neglect? And at the same time allow big business to pay no taxes and recieve subsidies to boot.
    Those cuts in services and programs are taking the country in the wrong direction. We need to take care of our infrastructure, energy systems, water and waste disposal. All the things that indicate civilization. And allowing our National Treasures, our parks to be locked up and going with out proper maintainance and oversight is the height of ignorance and arrogance.
    If these leaders won't represent us, the voters then the least they could do is to take care of the real estate that is entrusted to their care. Let the place go to hell and then see what it's worth.

  • Leah on May 24, 2011 8:55 AM:

    One error in the article: please point out that teacher turnover is MUCH MUCH higher than office-type government jobs. About half of new teachers leave the profession within the first five years.

  • Kevin on May 24, 2011 6:36 PM:

    One thing public pension bashers always leave out is that unlike the private sector we do NOT get social security. This is all we get. And not every pension system is so generous. I am looking at getting less than half my income when I retire and I can't retire to at least 60. (67 if I want to improve the amount slightly. There are private sector union pension plans that pay out 130 percent and they can retire much earlier.

  • Solomon Kleinsmith on May 25, 2011 2:07 AM:

    I read a LOT of political chatter... have read dozens of posts on labor issues... this is by far the best I can remember reading. Well done.

  • Sally B on June 12, 2011 12:11 PM:

    The ongoing travesty of this country is that too many people are too stupid to vote their own economic interests. What we need is a law to help union organizers encourage people to vote for unions. One good idea would be to give people a union card and ask them to sign it. Anybody who refuses to sign it, we will know immediately is a scab. We can then bring all kinds of encouragement for the scabs to vote for the union, like "gee, it would be a shame if something should fall on your head while you're working". Or we could visit their homes at night and talk to their children about it. Or we could just beat the crap out of them. Whatever. And if any of those filthy Republicans accuse us of intimadation, we can just say "who, us? we would never do that!" This is the kind of stuff our national unions need to favor.

  • mcd on June 27, 2011 7:02 PM:

    This is exactly right. These governors are not economists--they are politicians. And they will likely have moved on when their decisions backfire. And if not they'll explain it away by targeting an unexpected variable.

    The problem isn't collective bargaining or excessive benefits. The problem is with the cost of health care and the mismanagement of govts. Sure u can balance a budget if you throw all the working class under the bus. That's easy.

  • Milton Chapman on June 06, 2012 6:41 PM:

    If its true that Trillions of dollrs are on the "sidelines" in bank accounts of corporations because the time is not right to invest, then why do they need a tax cut? Also, when they do invest they do so with business loans ,not so much with their own mone; Oh I get, it they have to have the trillions In the bank as collateral to obtain the loans, because, no collateral no loans. So that sideline money is just dead money just there for the comfort of the borrowers and lenders.