Public Sector Unions and Lessons from the Elections in Wisconsin, San Diego and San Jose

Voters in Wisconsin decided to retain Scott Walker as their governor.  Last year Walker’s job security was in doubt because he dared to take on public sector unions.  In the end Walker was rehired by voters perhaps because he signed legislation that reduced the size of the state budget deficit and limited the collective bargaining rights of government workers in Wisconsin.  In San Diego voters scrapped the city’s defined benefit pension plan for city workers and replaced it with a defined contribution (similar to a 401k) plan for most new hires.  San Diegans were apparently frustrated by city government officials who repeatedly increased pension benefits for workers without finding a way to pay for higher compensation.  Pension reform also passed by a wide margin in San Jose, California, where the cost of pensions for city workers have also soared.  In San Jose government workers will either have to contribute more for their generous defined benefit pension plan or can opt in to a less generous plan.

Wisconsin, San Diego and San Jose are not generally considered places that are hostile to unions, but the message from voters to politicians seems clear.  Voters are uncomfortable with politicians receiving political and financial support from public sector unions and then negotiating for union contracts with those same unions.  Voters perceive that they are paying too much for the total compensation (including pension and health care benefits) of government workers.  The data indicate that the voters are probably correct.

It is difficult to directly compare the wages and salaries of government and private sector workers.  However, it makes economic (and common) sense that workers are much less likely to quit a job for which they are relatively overpaid.  The following chart compares the quit rates for state and federal government employees to private sector workers in the information, business services, education, health care and financial services sectors.  This comparison is more appropriate than comparing government employees to private sector workers, overall, because government employees are primarily white-collar workers whose next best private sector opportunities would be in these sectors.  The chart clearly shows that quit rates in the public sector are only about one-third the rate of comparable workers in the private sector. 

Government workers don’t quit their jobs because their compensation, including pension and health benefits, is higher than they would receive for comparable work in the private sector.  Protests from public sector unions are to be expected because no workers, even those who are relatively overpaid, want to make concessions to management.  We will have an indication that the pension and collective bargaining reforms have gone too far if quit rates in government jobs increase above those in comparable private sector jobs, and government agencies receive fewer applications per job opening than their counterparts in the private sector.  Until that happens voters can be assured that public sector wages and benefits are high enough to attract and retain workers.

Public sector unions, which were virtually nonexistent 50 years ago, are the last stronghold of the American labor movement.  Private sector unionization rates have dropped well below 10% and members of public sector unions outnumber private sector union members.  The elections yesterday dealt quite a blow to organized labor which was unable to sway public opinion.  Unions desperately wanted to oust the Wisconsin governor and members of the state Senate who neutered their ability to collectively bargain for compensation.  Expect more governors and state legislatures to follow Wisconsin’s lead, and other cities to follow San Diego and San Jose and reduce the compensation and benefits of state and local government employees.

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