2012 was a historic year for labor relations. From the halls of Washington, DC to the Great Lake states’ capitals, Americans watched numerous union dramas unfold for better or worse. Here are three lessons we can draw from this important year, marching forward in the fight for workers’ rights and fiscal responsibility:
1. Public sector unions are the biggest threat to state and city governments’ fiscal health.
It’s no secret that the American states are in fiscal crisis. Taxpayers are constantly reminded of the $1.1 trillion of debt our states owe, but an even larger number often escapes the conversation: $2.9 trillion. That’s how much the states owe in unfunded pension promises to their civil service retirees. For decades, state and local governments have offered their employees fiscally unrealistic retirement benefits, often up to 90% salary pay for life, and they are beginning to experience serious economic repercussions. The city governments of Stockton, California and Harrisburg, Pennsylvania, for example, filed for bankruptcy in 2012 largely because of their impractical pension promises.
Most of the blame rightfully lies with state and local elected officials, who ultimately consented to make these bankrupting contracts. Since governments have no market competition and a massive revenue base, they are often tricked into thinking they can afford unrealistic compensation and pension promises. However, public sector unions also share part of the blame; they hasten our ship of state’s sinking by bankrolling supporters of the status quo with multimillions in campaign contributions and ferociously opposing fiscal reform.
Plenty of the latter was seen in 2012, with union interests challenging Gov. Scott Walker’s collective bargaining reform in Wisconsin and striking against Mayor Rahm Emanuel’s teacher compensation reform in Chicago. When the dust settled, Gov. Walker’s efforts succeeded through defeating a close recall effort, while Mayor Emanuel’s efforts failed with Chicago Teachers Union defeating almost all of proposals for reform. This contrast is awfully telling about each party’s future fiscal and economic health. In the Windy City, Mayor Emanuel’s concessions is estimated to increase the city’s public school deficit to more than $1 billion every year beginning in 2014 at a time when Chicago and Illinois are already some of the highest-taxed localities in the country and Gov. Pat Quinn is seriously considering a federal government pension bailout.
Just north of the state line, by contrast, Gov. Walker’s reforms have spurred economic growth. In fact, the Federal Reserve Bank of Philadelphia projected last January that Wisconsin would experience growth of 1.95% in 2012 – the highest rate since 2003. These contrasting developments speak volumes about the benefits of standing up to public sector unions.
With taxes and debt piled up, the fate of state and local governments lie at stake. Now is the time for responsible citizens to demand that their elected officials not fall for the public sector unions’ swindle again but instead stand up for fiscal reform to ensure prosperity for ourselves and our future generations.
2. Private sector unions can drive companies out of business if they don’t get their way.
In the wonderful world of labor relations, private sector unions have much less red ink on their hands than their public sector brethren since they actually have to face market forces. After all, companies consent to collective bargaining deals with private sector unions voluntarily and pay for the negotiations out of their own pockets, not the taxpayer’s. Thus, a company that bankrupts itself because of impossible promises it makes to its employees is fundamentally mismanaged. Nevertheless, companies should beware that conceding to every single anticompetitive demand a union makes will come back to bite them.
2012’s case in point is Hostess. After a massive strike by its bakers’ union, the beloved American artery clogger went out of business in November, leaving 18,500 workers losing their jobs. Hostess had been bogged down for years by giving into its union’s nonsensical demands. Most destructively, the company agreed to major restrictions on how its product is shipped, agreeing to a Teamster demand that bread and pastries be shipped separately. Furthermore, the company agreed to a $100 billion increase in health benefits for its retirees in 2011, almost half of which didn’t even go to Hostess employees because of the Teamster’s multi-employer pension plan.
Employers should be careful in making such anticompetitive agreements in the future because many unions will stop at nothing to get their way – even if it ultimately means putting their company out of business. Additionally, citizens should stand up against private sector labor laws that inherently favor Big Labor like union shop laws where workers are forced to pay dues to unions even if they choose not to join one. Such legal favoritism doubtlessly led to the downfall of Hostess and countless other bankrupt companies. Now is the time to demand a neutral legal environment for employers and employees to fairly negotiate.
3. Standing up against unions for worker’s choice and fiscal responsibility is possible and popular.
Despite 2012’s major losses for fiscal sanity, the seeds of hope have doubtlessly been planted in labor relations. In Wisconsin, Scott Walker’s daring collective bargaining reforms were upheld in the court of public opinion, with the governor escaping a recall attempt unscathed. In fact, more Wisconsinites voted for Walker in the recall election than in the gubernatorial election in 2010. Considering the economic growth the Badger State has experienced since his reforms went into effect, Wisconsin has sent a clear message to the rest of the nation that standing up to public sector unions is both politically popular and advantageous to prosperity.
However, 2012’s greatest glimmer of hope came not from Wisconsin but its Great Lake neighbor Michigan. After resoundingly rejecting union interests’ attempts to make collective bargaining a state constitutional protection and nullify hundreds of existing labor laws along the way, Michigan shocked its special interests by passing right-to-work legislation in December. As the birthplace of United Auto Workers and the cradle of American unionism, this is a momentous victory for advocates of workers choice to join a union free from force.
These two critical wins are waking up reform-minded politicians into taking a stand for economic liberty. Since Michigan’s success last month, talks are underway in states like Pennsylvania and Ohio to follow suit. Americans are finally sending the message that pro-freedom labor reform is not idealistic but politically preferable. Indeed, a bipartisan coalition is emerging in favor of fiscally responsible labor relations, as evidenced by recent statements from prominent liberal mayors Michael Bloomberg and Rahm Emanuel in favor of reform. With support from free market proponents, this positive trend towards workers choice and fiscal responsibility can continue in 2013.