No. 61 • March 2010

Public-Sector Unions

by Chris Edwards, Director of Tax Policy Studies, Cato InstituteLabor unions play a diminishing role in the privatesector, but they still claim a large share of the public-sectorworkforce. Public-sector unions are important to examinebecause they have a major influence on governmentpolicies through their vigorous lobbying efforts. They areparticularly influential in states that allow monopolyunionization through collective bargaining.Collective bargaining is a misguided labor policybecause it violates civil liberties and gives unionsexcessive power to block needed reforms. To providepolicymakers with greater flexibility and to improvegovernment efficiency, states should follow the lead of Virginia and ban collective bargaining in the public sector.

Growth in Public-Sector Unions

In 2009, 39 percent of state and local workers weremembers of unions, which was more than five times theshare in the private sector of 7 percent, as shown in Figure1.

About two-thirds of government fire department andeducation workers are members of unions.

If you includefederal workers, the public sector accounts for more thanhalf of all union members in the nation.Prior to the 1960s, unions represented less than 15percent of the state and local workforce.

At the time,courts generally held that public-sector workers did nothave the same union privileges that private workers hadunder the 1935 Wagner Act, such as collective bargaining.That changed during the 1960s and 1970s, as a floodof pro-union laws in dozens of states triggered a dramaticrise in public-sector unionism.

Many states passed lawsthat encouraged or required collective bargaining in thepublic sector, and states also passed laws to imposecompulsory union dues and fees on government workers.Princeton University’s Henry Farber has documentedthe rise in public-sector unionism since the 1950s.

Hefound that the number of states allowing collectivebargaining for public-sector workers jumped from just onein 1955 to 10 by 1965. New York City granted collective-bargaining privileges to most city workers in 1958.

Source: U.S. Bureau of Labor Statistics.

Figure 1. Union Member Shares of Employment

0%10%20%30%40%19651975198519952005

U.S. Private SectorState and Local Governments

By 1970, about half of the nation’s state-level workershad collective-bargaining privileges, while more than half of the states allowed collective bargaining in localgovernments. Pro-union legislation advanced furtherduring the 1970s, but the advance has slowed since then.Today, about 26 states have collective bargaining foressentially all state and local workers. A further 12 stateshave collective bargaining for a portion of their state andlocal workers. The remaining 12 or so states do not havecollective bargaining in the public sector.

Why has public-sector unionism thrived while private-sector unionism has shriveled? One reason is that publicagencies tend to be static—once a union has organized agroup of workers they tend to stay organized. By contrast,the private sector is dynamic, with businesses goingbankrupt and new businesses arising all the time. Since allnew businesses start out nonunion, greater organizingefforts are needed to sustain private-sector unions.Another factor is that many government services arelegal monopolies, such as police and fire. The result is thatconsumers don’t have the option of abandoning unionizedpublic services if they become too inefficient, as they canwith unionized services in the private sector.

Finally, public-sector unions push for higher pay andhigher government spending with little restraint. Theydon’t care if the cost of government services goes upbecause the burden is borne by someone else. By contrast,private-sector unions are aware that higher costs foremployers may result in lost sales and fewer union jobs.

Union Shares by State

Table 1 shows theshares of union members in stateand local workforces.

These shares are strongly correlatedwith state rules regarding collective bargaining. The rulesrange from states that actively require collectivebargaining, to states that allow it, to states that ban it, suchas Virginia and North Carolina. In states that requirecollective bargaining, half or more of public workers areunionized. In states with no collective bargaining, public-sector union membership averages just 17 percent.

State union shares are also correlated with “agencyshop” rules. Agency shop rules require workers to either join the union or pay a fee to the union. Today, 28 stateshave agency shop rules, while 22 are “right-to-work”states where workers cannot be forced to join a union orpay union fees.

Right-to-work states generally have muchlower union shares in their workforces.

Some of the most pro-union states also allow public-sector strikes and some have mandatory arbitration, whichusually works in favor of the unions. Note that union rulescan vary within states for different types of public-sectorworker. For example, teachers are more likely to beallowed to strike than police or fire department workers.

Table 1. Union Shares of State and Local Government EmploymentNew York73%Vermont45%New Mexico18%Rhode Island71%Ohio44%Utah17%Hawaii67%Montana43%Tennessee17%New Jersey66%Maryland41%North Dakota16%Connecticut64%Delaware40%Kansas16%Alaska61%Nevada37%Idaho15%Massachusetts61%Alabama32%Texas14%Washington59%Iowa31%Kentucky14%Michigan58%Nebraska28%Wyoming14%California58%West Virginia27%Louisiana13%Oregon57%Indiana27%Virginia11%Pennsylvania55%Florida25%Arkansas10%Minnesota55%Colorado24%Georgia10%Wisconsin52%Arizona22%South Carolina9%Illinois50%Missouri19%Mississippi9%New Hampshire48%Oklahoma19%North Carolina8%Maine45%South Dakota18%Source: James Sherk based on Bureau of Labor Statistics data.

Unions Increase Costs and Reduce Efficiency

Unionized public sector workers have much higheraverage wages and benefits than nonunionized publicsector workers. Bureau of Labor Statistics data in Table 2show that union members have a 31-percent advantage inwages and a 68-percent advantage in benefits.

Table 2. State and Local Workers, Union vs. Nonunion, 2009Average Compensation in Dollars per Hour WorkedUnionNonunionRatioTotal compensation$47.46$33.331.42Wages and salaries29.9022.861.31Benefits17.5710.471.68Health insurance5.913.071.93Defined-benefit pension3.981.942.05Defined-contribution pension0.250.360.69Other benefits7.435.101.46Source: U.S. Bureau of Labor Statistics. Data for June.

However, part of this union-nonunion pay differencestems from general labor market variations across states.States with generally higher wages tend to be moreunionized. Analyses that hold constant such cross-statedifferences find that public-sector unions increase averagepay levels by roughly 10 percent.

Besides raising compensation costs, unions reducegovernment efficiency in other ways. Unions tend toprotect poorly performing workers, they often push forlarger staffing levels than required, and they discouragethe use of volunteers in government activities. Further,they tend to resist the introduction of new technologies andthey create a more rule-laden workplace.In the private sector, businesses can mitigate suchunion-caused inefficiencies. In response to union demandsfor higher pay, for example, businesses can substitutecapital for labor. Unfortunately, public-sector managershave little incentive or flexibility to make such changes.A final type of inefficiency created by public-sectorunions is the cost of strikes. In November, for example,transit workers in Philadelphia wenton a six-day strikeover disagreements regarding pay.

The strike createdchaos for the 800,000 residents of the city who rely ongovernment subway and bus services, and it likely causedsubstantial damage to the local economy.

Unions and Public Policy

Public-sector unions are some of the nation’s mostpowerful special interest groups. They generally favorincreases in government spending because they personallybenefit from expanded programs. The rise of public-sectorcollective bargaining in the 1960s and 1970s encouraged