"[If Parliament] may take from me one shilling in the pound, what security have I for the other nineteen?" ~ Richard Henry Lee
Reflections on Public Sector Unions
Column by Alex Schroeder.
Exclusive to STR
Let’s say you and your friends are bored one evening, looking for a way to pass the time. You see there is a high school basketball game in which the hometown favorites will be playing their county rivals. You decide to attend and show up along with your friends and much of the town. The game begins. The crowd quickly realizes that the referees are making obviously biased calls and fans begin to intemperately jeer. All of a sudden there seems to be a collective realization that the referees are actually players from the opposing team. The gymnasium erupts in angry pandemonium.
This scene wonderfully illustrates the phenomenon of unionized public sector workers collectively bargaining with their governmental employers. Recent high-profile protests in Wisconsin and other states have demonstrated that public employees are by no means prepared to relinquish their collective bargaining rights. This author doubts that such employees have considered the perverse incentive structure that characterizes the relationship between unionized public employees and the state.
When private sectors unions collectively negotiate with their employers for better pay, benefits, sick leave, etc., the relationship between the two parties is such that unionized workers want to maximize benefits and firms to minimize costs. Competition from competitors and stockholder demands for profitability, among other factors, function to incentivize company bosses to keep labor costs at a reasonable level. A failure to do so could result in the company being financially outperformed by a competing firm, potentially resulting in its failure. Although this is not the case in our age of bailouts, this is ideally how union demands are kept in check in a free market economy.
Contrast this to government employees collectively bargaining with the state for better compensation. What incentive do the relevant government officials have to moderate the compensation packages of public sector employees? The money used to pay these workers is, after all, forcibly confiscated from the taxpaying citizenry. That is, these officials’ personal bottom lines are unaffected by inordinately high levels of compensation. Moreover, this manner of funding public sector labor costs means the connection between satisfied customers and commensurate compensation that exists in a free market is severed. In the private sector, unduly high labor costs will lead to a loss of market share and in severe cases, result in that entity going out of business. In the public sector, by contrast, there is no entity that can legally compete with these public services, which would function as a check on compensation.
It conversely seems that officials have every incentive to raise the salaries of their “employees.” Unions contribute significant amounts of money to campaigns; as such, these hikes can be viewed as simply another means by which politicians buy votes. Whether there exists inefficiency, corruption, waste, etc., in these entities is of lesser concern to the authorities. Pubic sector unions are, in essence, bands of thieves. They have no ethical qualms about exploiting the coercive state machinery, which realizes its revenue through violent means, to receive compensation packages that their private sector counterparts could only dream of.
So there you have it. The referee is analogous to the government official, a member of the union “team” who has every incentive to heed their demands, however irrational. Some would contend that the citizenry can vote out the politicians who give in to these demands, which would thereby serve as a check on the extent to which they were willing to raise public sector union compensation. This is a weak argument for a number of reasons, one that commonly appeals to those who see little or no distinction between the nature of the public and private sectors. One is characterized by peaceful, voluntary trade, the other by force, violence, and compulsion. The behavior of the protesting teachers in Wisconsin, who are meanwhile neglecting their responsibilities to their students, should demonstrate that they belong to the latter cohort.