America's Public Sector Union Dilemma

December 12, 2011

Since the Great Recession began in 2008, there has been a growing criticism of public sector unions.  Responding to budgetary issues and this public criticism, cash-strapped governments in many states are considering ways to reduce the costs associated with public unions.  In doing so, the stark contrasts between the public sector and private sector in unionization become clear as many question what the true costs of unions are, says Lee E. Ohanian, a senior fellow at the Hoover Institution.

  • The private sector once boasted a high unionization rate of 35 percent during World War II, but this figure has since fallen to approximately 6 percent.
  • Oppositely, public sector unionization has not fallen at all over time, but has remained steady at around 45 percent since the early 1980s.
  • In response to the pervasiveness of unions, many states have drastically reduced their effectiveness in collective bargaining via legislation, with 23 states having implemented "right to work" laws.

However, unionization continues within the public sector, largely because government services need not maximize profits.  If this were their goal, they would not accept the wage-inflating policies of unions and would instead deal with their workers' compensation individually.  However, because they need not operate within this traditional business model, unions continue to dominate the public sector.

  • Starting in 1980, public sector compensation began to diverge from private sector compensation significantly, as public sector compensation rose to nearly $70,000 per worker while private sector compensation rose to only about $60,000.
  • Comparisons of private sector and public sector compensation also often fail to account for the increased job security that accompanies union membership -- generous assessments suggest that public wage reductions of 10 percent would be of similar value.

Valuations of the potential wage-reducing effects of removing unions point to alleviated state budgets and cross-sectional equivalence in wage compensation.

Source: Lee E. Ohanian, "America's Public Sector Union Dilemma," The American, November 26, 2011.

For text:

http://www.american.com/archive/2011/november/americas-public-sector-union-dilemma

 

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