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Vallejo Con Dios: Why Public Sector Unionism Is a Bad Deal for Taxpayers and Representative Government, Cato Policy Analysis No. 645

Vallejo Con Dios: Why Public Sector Unionism Is a Bad Deal for Taxpayers and Representative Government, Cato Policy Analysis No. 645

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Published by Cato Institute
Rates of unionization in the United States
today are at historic lows and are unlikely to rebound.
However, there is one sector in which organized
labor is growing in strength: government.
This has severe implications for the future of public
finances for state and local governments across
the nation, and for the nature of organized labor
itself.

High rates of unionization in the public sector
have led to very high labor costs in the form
of generous collective bargaining contracts. Now
state and local governments are under increasing
financial pressure, as a worsening national economy
has led to decreased revenues for states and
municipalities—many of which remain locked
into the generous contracts negotiated in more
flush times. Thus, as businesses retrench, governments
find themselves in a financial straitjacket.
In addition, as government unions grow
stronger relative to private-sector unions, their
prevalence erodes the moderating influence of
the market on the demands that unions make of
employers.

Now, as an economic downturn threatens state
and local government revenues, officials who
want to keep their fiscal situations under control
would do well to look skeptically at public-sector
bargaining—especially since the existing political
checks on it have proven ineffective. Public officials
should eschew public-sector bargaining
when possible, or at the very least, seek to limit its
scope.

As keepers of the public purse, legislators and
local council members have an obligation to protect
taxpayers' interests. By granting monopoly
power to labor unions over the supply of government
labor, elected officials undermine their
duty to taxpayers, because this puts unions in a
privileged position to extract political goods in
the form of high pay and benefits that are much
higher than anything comparable in the private
sector.

This paper shows how the unionization of
government employees creates a powerful, permanent
constituency for bigger government—
one that is motivated, well-funded, and organized.
It also makes some recommendations as
to how to check this constituency's growing
power—an effort that promises to be an uphill
struggle.
Rates of unionization in the United States
today are at historic lows and are unlikely to rebound.
However, there is one sector in which organized
labor is growing in strength: government.
This has severe implications for the future of public
finances for state and local governments across
the nation, and for the nature of organized labor
itself.

High rates of unionization in the public sector
have led to very high labor costs in the form
of generous collective bargaining contracts. Now
state and local governments are under increasing
financial pressure, as a worsening national economy
has led to decreased revenues for states and
municipalities—many of which remain locked
into the generous contracts negotiated in more
flush times. Thus, as businesses retrench, governments
find themselves in a financial straitjacket.
In addition, as government unions grow
stronger relative to private-sector unions, their
prevalence erodes the moderating influence of
the market on the demands that unions make of
employers.

Now, as an economic downturn threatens state
and local government revenues, officials who
want to keep their fiscal situations under control
would do well to look skeptically at public-sector
bargaining—especially since the existing political
checks on it have proven ineffective. Public officials
should eschew public-sector bargaining
when possible, or at the very least, seek to limit its
scope.

As keepers of the public purse, legislators and
local council members have an obligation to protect
taxpayers' interests. By granting monopoly
power to labor unions over the supply of government
labor, elected officials undermine their
duty to taxpayers, because this puts unions in a
privileged position to extract political goods in
the form of high pay and benefits that are much
higher than anything comparable in the private
sector.

This paper shows how the unionization of
government employees creates a powerful, permanent
constituency for bigger government—
one that is motivated, well-funded, and organized.
It also makes some recommendations as
to how to check this constituency's growing
power—an effort that promises to be an uphill
struggle.

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Published by: Cato Institute on Sep 22, 2009
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Rates of unionization in the United Statestoday are at historic lows and are unlikely to re-bound. However, there is one sector in which orga-nized labor is growing in strength: government.This has severe implications for the future of pub-lic finances for state and local governments acrossthe nation, and for the nature of organized laboritself.High rates of unionization in the public sec-tor have led to very high labor costs in the formof generous collective bargaining contracts. Now state and local governments are under increasingfinancial pressure, as a worsening national econ-omy has led to decreased revenues for states andmunicipalities—many of which remain lockedinto the generous contracts negotiated in moreflush times. Thus, as businesses retrench, gov-ernments find themselves in a financial strait- jacket. In addition, as government unions grow stronger relative to private-sector unions, theirprevalence erodes the moderating influence of the market on the demands that unions make of employers.Now, as an economic downturn threatens stateand local government revenues, officials whowant to keep their fiscal situations under controlwould do well to look skeptically at public-sectorbargaining—especially since the existing politicalchecks on it have proven ineffective. Public offi-cials should eschew public-sector bargainingwhen possible, or at the very least, seek to limit itsscope. As keepers of the public purse, legislators andlocal council members have an obligation to pro-tect taxpayers’ interests. By granting monopoly power to labor unions over the supply of govern-ment labor, elected officials undermine theirduty to taxpayers, because this puts unions in a privileged position to extract political goods inthe form of high pay and benefits that are muchhigher than anything comparable in the privatesector.This paper shows how the unionization of government employees creates a powerful, per-manent constituency for bigger government—one that is motivated, well-funded, and orga-nized. It also makes some recommendations asto how to check this constituency’s growingpower—an effort that promises to be an uphillstruggle.
Vallejo Con Dios
Why Public Sector Unionism Is a Bad Deal forTaxpayers and Representative Government 
by Don Bellante, David Denholm, and Ivan Osorio
_____________________________________________________________________________________________________
 Don Bellante is professor of economics at the University of South Florida.David Denholm is the president of the Public Service Research Foundation, a nonprofit organization that studies unions and union influence on public  policy. Ivan Osorio is editorial director and a labor policy researcher at the Competitive Enterprise Institute.
Executive Summary 
No. 645September 28, 2009
 
Introduction
Rates of unionization in the United Statestoday are at historic lows, and unlikely torebound. According to the federal Bureau of Labor Statistics, union membership stood at12.4 percent of the nation’s workforce as of theend of 2008.
1
However, there is one sector inwhich organized labor is growing in strength:government. This has severe implications forthe future of public finances for state and localgovernments across the nation, and for thenature of organized labor itself.High rates of unionization in the publicsector have led to very high labor costs in theform of generous collective bargaining con-tracts. Now state and local governments areunder increasing financial pressure, as a wors-ening national economy has led to decreasedrevenues for states and municipalities—many of which remain locked into the generous con-tracts negotiated in more flush times. Thus, asbusinesses retrench, governments find them-selves in a financial straitjacket. In addition, asgovernment unions grow stronger relative toprivate-sector unions, their prevalence erodesthe moderating influence of the market on thedemands that unions make of employers—throughout all of organized labor.Unlike businesses, governments face littleincentive to hold down labor costs. Politiciansand bureaucrats, however, do have an incen-tive to gain public approval in order to securetheir positions. Many public-sector employeesare employed as police, firefighters, and para-medics—public services that people genuinely want and need, while many others are admin-istrative bureaucrats whose work is not as visi-ble to the public. Thus, when the workers whoprovide those services are unionized, govern-ment officials have a strong incentive to giveunions what they want, rather than risk incur-ring the public’s wrath through the disruptionof those services because of strikes. As long aspublic services continue to function, the pub-lic has little incentive to pay attention to thecost. This means that public-sector unionsend up getting most of what they ask for,while taxpayers foot the bill. In time, of course,such profligacy catches up to local govern-ments—but by the time they seek to curb costsit is often too late to avert financial disaster.Financial disaster visited the city of Vallejo,California, last year. Vallejo, about 30 milesnortheast of San Francisco, declared bank-ruptcy in May 2008. The city governmentcould not pay the lavish salary commitmentsit had made to public safety workers undersome extremely generous union contracts. Vallejo is an egregious case, but the trends thatbrought it to financial ruin are present in pub-lic sector union negotiations and contractseverywhere. Some states and municipalitiesare especially squeezed by the fact that, duringthe 1990s boom years, they had even lessincentive than usual to control their own laborcosts because they collected increased tax rev-enues. Now that those boom times have cometo an end, those years of profligacy threaten tocreate severe problems for state and local gov-ernment finances—and for the taxpayers whofoot the bill.This paper shows how the unionization of government employees creates a powerful,permanent constituency for bigger govern-ment—one that is motivated, well funded,and organized. Now, as an economic down-turn threatens state and local governmentrevenues, officials who want to keep their fis-cal situations under control would do well tolook skeptically at public-sector bargaining.They should eschew public-sector bargainingwhen possible, or at the very least, seek tolimit its scope.
Shift from Private to Public
Unionism grew in the private sector as a result of government support through the pas-sage of laws and the establishment of regulato-ry bodies intended to encourage the expansionof unionism and collective bargaining through-out the workforce. America’s first nationallabor law was the Railway Labor Act of 1926,which was limited to a single industry.
2
TheNational Labor Relations Act, also known as
2
High rates of unionization inthe public sectorhave led to very high labor costsin the formof generouscollectivebargainingcontracts.
 
the Wagner Act, enacted in 1935, extended gov-ernment support of unionism and collectivebargaining to private employers. And thencame war. During World War II and the KoreanWar, war labor boards imposed union relation-ships, including union shops, on many employ-ers in order to ensure continued productivity.The years following World War II were thegolden era of American organized labor. WithEurope and Japan devastated, American man-ufacturers faced little foreign competition.That enabled large industrial firms to providegenerous contracts to their unionized employ-ees while passing the costs of those contractson to consumers with little difficulty. Yet, likethe economic prostration of Europe and Japan, this would not last.The 1948 Taft-Hartley Act, passed in thewake of a public backlash against aggressiveunion strikes, repealed the Wagner Act’s“closed shop” provision. Taft-Hartley gavestates the option of enacting right-to-worklaws, which bar union membership frombeing a precondition for employment.
3
In the28 states that do not have right-to-work laws,unions may still require individual workersto pay “agency fees” allegedly to avoid “freeriders”—that is, to cover the costs of repre-sentation, which the unions argue benefitsboth union and nonunion workers at a givenworkplace.In the late 1950s, union membership as a percentage of the private-sector workforcebegan to decline; the shift from private- topublic-sector unionism had begun. In 1959,Wisconsin became the first state to enact com-pulsory public-sector bargaining legislation.Since then, the federal government and moststates have instituted compulsory public-sec-tor bargaining schemes. In 1958, when theBureau of Labor Statistics first began keepingtrack of public sector union membership as a distinct category, there were only 1,035,000government-employee union members, or 12percent of a workforce of about 8.5 million.
4
Between 1958 and 2008, public employmentgrew by almost 250 percent and government-employee union membership increased by more than 750 percent to 7.8 million. In 2008,36.8 percent of the government workforce was
3
Between 1958and 2008, publicemploymentgrew by almost250 percent andgovernment-employee unionmembershipincreased by more than750 percent, to7.8 million.
02,0004,0006,0008,00010,00012,00014,00016,00018,00020,000
1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
Private sector unionized workersPublic sector unionized workers
Figure 1Changing Composition of U.S. Organized Labor, 1983–2008 (public, private, and total)
Source: Barry T. Hirsch and David A. Macpherson, “Union Membership and Earnings Data Book,” Bureau of NationalAffairs, chart prepared by the Public Service Research Foundation.
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