November 18, 2014

Together They Bargain?

Scott Beaulier

Academic Dean, College of Business at North Dakota State University

George R. Crowley

Summary

Last Friday, America’s four postal employee unions organized a mass protest against Postmaster General Patrick Donahoe’s plan to shut down 80 distribution centers in January 2015. The postal workers, quite understandably, see their livelihoods at stake. Many reformers, however, see the rising share of public sector unionization as a drain on our tax dollars and a likely source of government growth—which, as new research reveals, may not be the case.

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Last Friday, America’s four postal employee unions organized a mass protest against Postmaster General Patrick Donahoe’s plan to shut down 80 distribution centers in January 2015. The postal workers, quite understandably, see their livelihoods at stake. Many reformers, however, see the rising share of public sector unionization as a drain on our tax dollars and a likely source of government growth—which, as new research reveals, may not be the case.

Regardless of where one falls on controversies like the postal worker strike or the attempted recall of Wisconsin Governor Scott Walker in 2012, most of us recognize the need for states to keep their promises to government workers, retirees, and citizens who rely on essential state services like education, Medicaid and public safety. In a study published today by the Mercatus Center at George Mason University, we outline just how challenging this can be for policymakers. Public sector unions are highly effective at securing pay and benefits for their members, but appear to have no effect on overall government spending. This leaves an obvious question: How are we paying for everything?

In our new research, we examine public sector union lobbying and collective bargaining activity. Because unions have several tools at their disposal to influence policy, it is difficult to gauge each tool’s effect on workers and taxpayers. To address this, we measured the impact of unions’ collective bargaining rights and political contributions on state budgets and employee compensation. After controlling for a number of factors, we made two important findings:

First, political activity by public sector unions works. Specifically, more collective bargaining tends to mean more government jobs, and more union political spending tends to mean higher growth in employees’ incomes. Rather than demonize unions, we should recognize that they are responding to strong political incentives. Their job is to take care of their members, and they do this extremely well. In economic terms, public sector unionization functions as a “club good” where members pay dues and, in return, receive higher salaries.

Second, while many public sector union critics believe they are a driving force behind government growth—according to the numbers we examined—union political activity does not appear to lead to higher state government spending. Instead, our findings suggest that it is geared toward securing a larger share of an existing pie, rather than growing the government pie. There appears to be a tradeoff between spending on public services and spending on employees.

We also find similar results for teachers’ unions: They take care of their members, and the data clearly indicate that stronger unions and more activity guarantee higher salaries for teachers. But, again, a larger spillover effect is that the data do not show an obvious correlation between increased teachers’ union spending leading to increases in state spending. So it’s reasonable to wonder if in-classroom funding is suffering.

In our current economic environment—where wages are stagnated and state budgets are already being squeezed by less revenue—these findings are doubly important for policymakers. Budgets are unlikely to rise, so increased public sector union activity seems likely to come at the cost of other services. As a result, we can expect to hear more stories like those coming from Detroit, San Bernardino, and Stockton, California—municipal bankruptcies driven in large part by policymakers’ inability to balance union priorities with financial commitments to the general public.

While our data indicate that the unions may not drive much new spending growth, they carve out such a large share of budgets for their members that municipal governments seem destined to fail. If the nationwide pension crisis—which could very well be related to the dynamic we’ve uncovered—is any indication, the longer politicians wait to address the problem, the more painful the fix will be for public workers and retirees.

The scene from failing cities is not all that different from what we’re seeing this week with postal employees: Their unions are fighting hard to protect their members and are willing to go down swinging to get the job done. But with states either unable or unwilling to increase the overall size of government, the result for American taxpayers is an increasingly squeezed public sector that is being asked again and again to do more with less.

Policymakers have a different job: to balance the priorities of different interest groups and the general public. Let’s hope they’re up to the challenge.