Public Affairs

The New York Times has an excellent piece today on public union pensions, which gives a very good idea of the political economy behind public sector unions and why they are different from private sector unions. The gist of it is in this quote:

…public workers have a unique relationship with elected officials, because government employees are effectively negotiating with bosses whom they can campaign to vote out of office if they don’t get what they want. Private unions, in contrast, don’t usually have the power to fire their members’ employers.

The method to get what they want is quite simple. Public sector employees are a relatively small but well organized interest group that can use the romantic image attached to their professions and the monetary heft of the anticipated spoils of their lobbying to extract favors by political blackmail:

…lawmakers were told if they didn’t vote for the plan, public employee groups would attack them in ads and give their opponents tens of thousands of dollars in contributions, and they could lose endorsements from police, firefighters or other influential groups….

These kinds of tactics also involve psychological reminders of the union’s force. If you heard about a group of politically powerful people stealing billions from taxpayers and using their political influence to intimidate legislators, you probably wouldn’t have thought that the people being talked about are firefighters:

At a recent city council meeting, Mr. Righeimer and his colleagues sat in session for more than six hours…In the audience sat three local firemen wearing Costa Mesa Fire Department T-shirts, all of whom declined to give their names. “I’m not here on anything official,” one said. “We just like the council to know that we’re watching them.”

What effect do these tactics have? Well, in the first place, you get to have a job where your salary and benefits have no correlation to the success of your organization, because the people who pay your salary are taxpayers who are obliged by sovereign force. That means that even in the financial crisis, when normal peoples’ retirement funds would take a hit from the downturn in the stock market and private sector workers take wage cuts to adjust their salaries to the productivity of the economy, public sector unions can happily splurge at other peoples’ expense:

When the financial crisis hit in 2008…[t]he value of Calpers’s[California Public Employees Retirement System] fund dropped $100 billion from its peak, losing over a third of its worth. The cost of pension promises, however, was still going up. More than 190 California cities and agencies have increased government workers’ benefits since the economic downturn began

But it’s all for the improvement of public services right? Definitely not anymore, once the bill of the extravaganza has to be paid:

In California, New Jersey and Illinois, lawmakers may eventually need to increase taxes more than 17 percent or cut government services to pay public retirees’ benefits

Whether the necessary cutbacks in spending on education and health care and other budget items are weighed up by the fact that the firefighters and police men in question will be very happy with their pension packets is a normative question. However, the current slack in the labor market suggests that incentivizing these public employees to keep their jobs should not require a large amount of resources. To the first approximation, a good test of whether or not someone is underpaid should be whether many people are quitting that job for better alternatives. Somehow I doubt that many police chiefs and firefighters are eager to give up their positions.

What is certain, is that a sizable group of public sector employees will get legally guaranteed pensions at zero risk far exceeding any payments they made into the pension fund, thereby seriously draining the funds of their state governments, which are unable or unwilling to resist because they have been captured by the political lobbying of the public sector unions. In this light, I hope you can appreciate the bitter irony of the following statement:

“But why are we making this a race to the bottom? Why aren’t we making sure every working American gets a decent pension after a lifetime of work?” [general manager of the Orange County Employees Association] Mr. Berardino asked.

Really, why can’t everyone extract money for their own benefit by taxing other people to pay for pensions that they didn’t earn? Unfortunately the answer seems to elude many people.




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