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Public Sector Unions, Problem Or Scapegoat?

August 21, 2012

It’s a fact that union employees earn more than non-union employees. It’s also a fact that union membership rates are higher in the public sector than in the private sector. Conventional wisdom concludes that union employees – and, therefore, public sector workers – are overpaid. (In a future post, I will make the case that the opposite is more likely true – non-union workers are actually underpaid).

A popular idea coming from the GOP is that unions are one of the major problems with today’s economy and a significant contributor to government deficits. Mitt Romney’s Plan for a Stronger Middle Class includes “Protect workers and businesses from strong-arm union tactics” as one of his twenty bullet points. (I assume Mr. Romney is speaking of public sector unions, since private sector union membership has declined dramatically since 1980, while public sector union membership has held steady at about 37%). And a new conservative book, The New Leviathan: The State Versus the Individual in the 21st Century, even includes a chapter by Daniel DiSalvo titled, “Government Unions and the Bankrupting of America”.

But are public sector unions really a problem, or are they just a scapegoat? Are they a significant contributor to our large federal budget deficits? According to a recent study by the CBO:

In fiscal year 2011, the government spent roughly $200 billion to compensate federal civilian employees— about $80 billion for civilian personnel working in the Department of Defense or on defense-related activities in other departments, and about $120 billion for non-defense personnel…

Overall, the federal government paid 16 percent more in total compensation than it would have if average compensation had been comparable with that in the private sector, after accounting for certain observable characteristics of workers.

According to this CBO analysis, 2011 federal government compensation would have been $27.6B lower if public sector compensation was the same as the private sector. Considering the total federal budget for 2011 was $3.63T, this works out to 0.76%. It seems pretty ridiculous to suggest that 0.76% of the federal budget can cause the “Bankrupting of America”.

Now that we’ve quantified the fiscal effect of public sector unions, we can rephrase the initial question posed by this post: 0.76%, Problem or Scapegoat? The answer is pretty obvious.

  1. Without unions there would be no middle class. Unfortunately, unions make themselves outsized targets by demanding some things that mobilize the right. Part of the problem is that during the 30s the union movement was driven by ideology. Now it’s contract terms. Take a look at how the union movement works in Germany. It sits at the same table with corporate directors because labor is fundamental to the functioning of the German economy, not just a cost to be minimized.

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