Recently, Gov. Scott Walker of Wisconsin won a historic recall election sought by unionized government workers and their allies who opposed his bargaining reforms. Because Walker’s margin of victory surpassed that of his first election in a state known for supporting progressive policies, leaders in other states saddled with massive amounts of unfunded public pension liabilities may feel emboldened to take on union power as well.
Wisconsin’s reforms permit public-sector unions to bargain over wages only, not other benefits, as they did in the past. Moreover, the reforms changed public-sector unions into open shops so that membership, dues payment, and associated political contributions are voluntary. The changes in Wisconsin are a step in the right direction of restoring fiscal responsibility at the state government level.
Public-sector unions can do much more economic harm than their private sector counterparts. If the unionized employees of a private company, such as Ford, go on strike, consumers can buy cars produced by competing automakers. By contrast, unionized employees of government agencies have monopoly power. Although private alternatives exist for some government services, tax financing gives government agencies a competitive advantage even if their costs are much higher. If public-school teachers go on strike, children may get fewer days of school (unless parents can afford to pay for private schools). For this reason, taxpayers put pressure on politicians to do what it takes to end public-employee strikes, which usually means that politicians cave in to union demands.
Overall, the growing power of public-sector unions has contributed to skyrocketing costs of state and local government services. If public-sector wages rise faster than the economy grows, tax rates or public debt may have to be increased. For politicians, caving in to union demands and raising taxes may make it hard to be reelected, but public-employee strikes are even worse. Many state legislatures have resolved this dilemma by offering moderate wage increases while promising extremely generous pension benefits, deferring the costs to the future, when politicians currently in office have retired.
The future, however, is now, as many states find they have not set aside enough money to pay promised benefits to retiring workers. Thus, in spite of union opposition, politicians and voters in several states have taken steps to reduce the retirement benefits they promise government workers in the future. In San Jose and San Diego, Calif., voters overwhelmingly passed ballot initiatives that reduce pension benefits. The San Diego measure replaces pensions with defined contribution retirement plans for new hires, while the San Jose measure reduces pensions for existing workers.
In Wisconsin, unions not only lost in the recall election, but they have lost favor among many formerly unionized government workers. In the last year, membership in the American Federation of State, County, and Municipal Employees (AFSCME) in Wisconsin fell by more than half. With dues no longer taken out of their pay, workers finally have the freedom to quit their union, which many chose to do.
Unions claim that reductions in their bargaining power go hand in hand with reductions in government services. Controlling wages and benefits, however, enables governments to provide more services now and in the future. In some Wisconsin school districts where contracts have been changed in response to the reforms, substantial savings have been achieved in the cost of educating students. One district has used the money saved to hire more staff and reduce class sizes.
The declining political clout of public-sector unions, as demonstrated by the Wisconsin vote, will make it easier for governors and local officials to control budgets. This will mean fewer contracts that permit government workers to retire after 25 or 30 years of service with full salary and free healthcare paid by taxpayers. It offers hope that state governments will stop making promises that burden taxpayers with unaffordable obligations.
Many states need to follow Wisconsin’s example in reining in public-sector unions so they can gain control of their budgets. According to one estimate, state and local governments have committed to a total of $3 trillion in unfunded promises to their employees. Although union opposition is not the only impediment, it’s becoming increasingly clear to political leaders that public-sector unions are losing strength to block the cuts that will move state budgets toward sustainability.
Dr. Tracy C. Miller is an associate professor of economics at Grove City College and contributing scholar with The Center for Vision & Values. He holds a Ph.D. from University of Chicago.