Should local legislators get to unionize?
Sen. Cortese has coauthored the proposed AB 1, which would allow legislature members to participate in collective bargaining. But just how beneficial are public sector unions, to employees and taxpayers? In a Hoover Institution analysis, John O. McGinnis and Max Schanzenbach explain why public employee unions create unneeded, costly privileges to a sector already heavily protected and compensated. What’s more, the unions’ expand-taxes-to-expand-benefits cycle could contribute to CA’s outmigration crisis.
But the potential benefits of unions in the private sector are very attenuated and probably nonexistent in the public sector. First, public employees are typically protected by civil service statutes that provide an important measure of job security and protection from arbitrary hiring and firing decisions. These statutes also tend to regulate promotion and compensation decisions. The potential for a spoils system to arise or for politicians to seek vengeance on opponents in government employ provide strong arguments for such statutes. Their omnipresence, however, at the very least mitigates the need for an additional layer of union protection. Second, governments typically face lower borrowing costs and enjoy easier access to sources of direct financing (i.e., taxation) than private sector employers, which insulates the public sector from the business cycle. Indeed, despite much talk of layoffs in government, since the present recession began in 2008, private sector payrolls have declined by over seven million, while government payrolls overall hardly budged. Third, workers who prefer government employment typically have a variety of options (federal, state, county, city) or possess skill sets that are transferable to the large private service sector. In short, the potential social benefits offered by private sector unions are not present in the public sector.
The cost of public sector unions, however, is very high. For a number of reasons, public sector unions are likely to impose larger wage and benefits premiums than private sector unions, as well as creating additional problems, like inhibiting democratic decision-making. Industrial unions faced natural checks on their own power — most importantly the power of the free market — and the free market constrains super-competitive wages and benefits. Unionized companies must raise capital and compete in the product market. For this reason, economists have suggested that unions can flourish indefinitely only when a firm has the ability to raise prices above a competitive level, an increasingly rare circumstance in the private sector.
By contrast, state and local governments typically have the ability to “raise prices” through higher taxes or worse services. The cost of moving from state to state is generally far higher than that of switching products. States also face less stringent controls from financial markets. While state and local governments do compete in some measure for residents and businesses, such a dynamic clearly takes much longer to play out in the public sector relative to the private sector, or indeed only becomes realizable in circumstances like the present crisis. In particular, places with significant local amenities (think California and New York) may be able to persist under a dreadful public sector because residents are willing to pay, in terms of higher taxes and worse services, to enjoy the weather or cultural opportunities offered. This dynamic transfers the benefits of those amenities from taxpayers and consumers of public services to public sector employees, a wealth transfer that is not, we suspect, one which most advocates of redistribution would choose as a first (or even third, fourth, or fifth) option.
This article originally appeared in the Hoover Institution. Read the whole thing here.
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