Chicago Teacher's Union Discrimination Case
Increasing worker’s rights is a principle that unions embrace. Workers who feel there is equal treatment and fair compensation, are generally more productive. With all the generous benefits unions provide for their employees, who is incurring the hefty costs? When the Chicago Teacher’s Union (CTU) went on strike in September 2012, teachers asserted a larger pay increase. Among other grievances, the CTU was negotiating for a 17 percent increase over four years. When negotiations failed with Chicago Mayor Rahm Emmanuel, the teacher’s union decided the only course of action was to strike. That strike caused Chicago’s public schools to close down, leaving 350,000 kids out of school and many parents wondering how soon a compromise
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would be reached. Mayor Emmanuel was constantly portrayed as the greedy antagonist in this story. Illinois, facing a budget crisis, did not have the resources to support the wage increases that the CTU was demanding. Inevitably, taxpayers would incur the costs, not the mayor or the public schools. Public sector unions like the CTU are destroying the economy with their oversized pensions, non-coop health plans, collective bargaining advantages, and political agendas.
Unions have the hard-working employee’s rights at heart. The American Federation of Labor and Congress of Industrial Organizations is the largest federation of unions in the United States. AFL-CIO makes up 56 national and international unions and as of 2011, has approximately 12 million members. AFL-CIO’s views on the function of a union are pretty straightforward.
“Unions are about a simple proposition: By joining together, working women and men gain strength in numbers so they can have a voice at work about what they care about. They negotiate a contract with their employer for things like a fair and safe workplace, better wages, a secure retirement and family-friendly policies such as paid sick leave and scheduling hours (Trumka)”.
AFL-CIO and other unions will many times attribute the establishment of an 8-hour workday and 5-day workweek to unions. What AFL-CIO doesn’t like to mention is how unions contributed to the downfall of US industrial cities. Stephen J. K. Walters, author of Unions and the Decline of U.S. Cities, provides compelling insight into how the economy in Detroit collapsed due to union greed. He claims that United Auto Worker (UAW) directly impacted the big automobile companies relocation out of Detroit due to high labor costs in the 1940’s and 50’s. These high labor costs are because of the increased wages the UAW secured by striking. Since UAW members represented the majority of automobile labor workers, companies such as Chrysler, GM, and Ford were forced to meet union demands, or relocate. Relocation, or flight of capital, was the option that these companies chose (126-8). The automobile industries spent between $700 million - $3.4 billion on new facilities outside Detroit in rural areas “as a means of reducing wages and inhibiting union militancy in manufacturing cities like Detroit” (129).
Public Sector v. Private Sector
In What Public-Sector Unions Have Wrought, Boston Globe columnist Jeff Jacoby points out that public sector unions have grown tremendously in recent years. According to the Bureau of Labor and Statistics (BLS), in 2009 public sector unions surpassed private sector union members, 7.9 million - 7.4 million. Unions represent 7.2 percent of the private sector labor force. The public sector unions, on the other hand, represent 37.4 percent of the labor force (Jacoby, 36). The public sector refers to any job in which goods or services are produced either by or for the government or its citizens. This can be federal or state governments and often include local municipalities. On the other hand, the private sector refers to any person, people or enterprise that operate mainly for a profit and is not directly controlled by the government. Both rely on revenues, private sector using revenues stay in business.
Companies thrive on competition and are constantly looking to better their product. Even the biggest companies such as Apple has competitors for their products. The public sector’s main product is labor, and the unions’ main goals are to monopolize the industry. Nowhere was this clearer than in the CTU’s strike. When the strike forced 350,000 kids out of school for more than a week, the CTU proved that the teacher’s union had monopolized their services and the city was forced to meet their demands. Figure 1 shows just how concentrated the nation’s public school teachers are in unions.
Fig. 1 (Coulson) Public sector unions often claimed that their wages were not as high as private sector counterparts and demanded greater job security and bigger pensions. That is no longer the case; public sector jobs not only have better wages, but are also ahead of the private sector in all benefits. In 2005 the Citizens Budget Commission found that in New York City, the average hourly wage for public sector employees exceeded those of private sector employees by an average of 15 percent, $28.26 to $24.62. Citizens Budget Commission (CBC) compares data from the BLS and shows how unions often rely on the myth that private employees earn more to justify robust benefits. Diana Fortuna, President of CBC explains,
“This data highlights the need for governments in the greater New York City area to rethink their fringe benefits packages for public employees. The perception that public-sector wages are lower than those in the private sector has been used to justify relatively generous benefits packages. Those packages should now be brought more in line with the private sector.”
This phenomenon is not just concentrated in NYC alone. In 2009 BLS national data shows that state and municipal employees were paid 34 percent more than private, $26.01 - $19.39. What is more compelling is the difference in fringe benefits, including retirement, an astonishing 70 percent (“Average”). What supporters want to argue is, public sectors unions prevent employers from taking advantage of the workers. In a paper on a nurses pubic sector union in Boston, Lydia Savage demonstrated the positive impact that public sector unions have. Professor Savage argued that the Service Employees International Union (SEIU) offered protection for quality public healthcare and labor practices favorable for workers. She goes on to claim that public sector unions typically devote vast resources on battling efforts to outsource, subcontract, and privatize with good reason (558). Private sector employers will often outsource their labor force to Third World countries where wages are generally lower than in the US.
Collective Bargaining
A tool that unions utilize to accomplish increases in wages is collective bargaining, a very serious issue in the wake of state budget deficits. Some critics have even gone as far to claim that collective bargaining is unconstitutional in its nature. Collective bargaining is a term that refers to any negotiations between an employer and labor unions acting on behalf of its union members. These negotiations usually are aimed at reaching an agreement on terms ranging from worker’s rights to working conditions. In the early 1900’s collective bargaining was used heavily to gain better rights and working conditions. In 1901 Detroit, Oldsmobile workers organized a strike to increase their wages and obtain shorter workdays (Walters, 120-1). Collective bargaining has been used in this fashion for many decades. Different states have varying collective bargaining laws as is shown in Figure 2. Fig 2. (Marshall)
When private sector unions collectively bargain for better wages or working conditions, negotiations take place with owners or corporations. The owners must decide whether it is in the best interest of the company to oblige the union demands, usually taking into account revenues or profits. Companies must deliberate between risking a strike and accepting those demands. Many times companies would rather risk a strike, hoping that their employees’ finances suffer more and decide to rescind their strike. If union members stand their ground, private sector companies might even decide to take their companies to another location where unionism might be less prevalent. This was as the case in 1901 when Oldsmobile decided to build a new facility 90 miles from Detroit, to Lansing, MI because of labor strikes from their automobile union. This was probably the first case of a union-related flight of capital (Walters, 121). Collective bargaining gives private sector unions an equal voice with the employers.
The problem with collective bargaining lies within the public sector. Franklin D. Roosevelt wrote in 1937 a letter to the National Federation of Federal Employees warning of the dangers of collective bargaining of public employees. He stated,
“The very nature and purposes of Government make it impossible for administrative officials to represent fully or to bind the employer in mutual discussions with Government employee organizations. The employer is the whole people, who speak by means of laws enacted by their representatives in Congress (Woolley).”
President Roosevelt understood that government employees have a duty to the people; an obligation to make sure the community runs smoothly. Employees are hired on the premise that this obligation will be met. When public sector unions make demands against their employer, there are no business owners to negotiate with. Citizens who pay taxes in the community sit across the table. Elected officials should have the taxpayer’s finances and future in mind when representing them. Public sector unions benefit greatly from this arrangement, more so than in the private sector
Pensions
With a weapon such as collective bargaining in the public sector unions’ arsenal, many states struggle to fund oversized pensions. Since collective bargaining allows unions to demand better pensions, public sector unions will almost always get their way. If an elected official decides the union’s demands are ludicrous and refuses to give in, the public sector union goes on strike. This will undoubtedly lead to 350,000 kids out of school, garbage on the street, or even patients without care. Pressure of this magnitude would eventually force the officials to grant the benefit increase the union was seeking. The costs of these pensions have already begun to have dire consequences for towns and cities all over the US.
When the recession hit in 2008, the nation’s economy took a drastic plunge. Income plummeted substantially, which led to a decrease in sales and vice versa. With income dropping overall, tax revenues also fell. State and local governments greatly depend on revenues, and when unable to meet their expenses, there are but few choices. Most governments will choose to increase taxes or make cuts to government programs. When these options are not viable, local governments have little choice but to face bankruptcy. This, unfortunately, has become an epidemic.
Fig 3. (“More Cities”)
Most state and local governments are in deep financial crisis. Local governments, like the ones shown is Figure 3, have already chosen to declare bankruptcy because of debt. Central Falls, RI’s government was unable to pay pensions to state retirees. After the retirees refused pension and benefit cuts, the municipality was pushed into insolvency. This led to Central Falls asking Rhode Island courts to allow bankruptcy. City municipalities are the biggest form of government allowed to file bankruptcy, but many conservatives have begun proposing that state governments should be allowed to file for bankruptcy as a tool to force concessions from public sector unions. Conservatives like Newt Gingrich, former speaker of the House of Representatives and presidential candidate, feel that bankruptcy will help states recover from debt.
“We 're faced with the danger that the states are going to try to show up and say to Washington: You have to give us money," Gingrich said. "And I think we have to have an alternative that allows us to say no (Walsh)."
Conservatives point out that more states have ballooning pension gaps and offer bankruptcy as a temporary solution.
Northwestern University’s Kellogg School of management reported that the unfunded pension liability of 8 of the states in the worst financial condition have exceeded 25% of their Gross State Product (Farmer, 37). Gross State Product measures the economic output of a state, just as Gross Domestic Product (GDP) measures the nations. Such a high portion going to pensions takes away from other programs or services that the government allocates elsewhere, like fixing streets or funding better educational programs. CNN Money contributor Chris Isidore points out that the public pension gap ranges from $1 trillion to $3 trillion, and that doesn’t include what was promised to most retirees. In the June 2012 article, Isidore blames elected officials that are more than happy to accommodate unions because of their short tenure in office. The map in Figure 4 illustrates the six worst funded states in the US.
Fig 4 (Luh)
Just as recent as February most states were forced to make cutbacks impacting state workers and their future pensions. On another report from CNN Money Melanie Hicken reported that in California,
“A state highway patrol officer hired before September 2010 can retire at age 50 after 30 years on the job with 90% of his salary. At an average salary of $100,000, that would translate into a pension of $90,000 a year. But if that same officer was hired this year instead, his annual retirement check at age 50 would total $60,000. That 's a $900,000 difference over the course of a 30-year retirement (Hicken).”
California has had three large municipalities file for bankruptcy in a two-year span, 2011-2012.
Hicken also says that even though cutbacks have begun, only new hires will be affected since most states carry legislation where benefit cuts of current employees is illegal. The most criticism against pension cuts is applicants will find government jobs less attractive. Pensions create a safety net on which people depend on during retirement, so decreasing the amount may deter potential applicants.
Politics
One big reason why elected officials are easily persuaded to give in to union demands stems from a special relationship with unions. Unions generate capital from the dues that members pay. In return, unions hire employees that negotiate for rights and often represent the members at the bargaining table. Unions also use the funds collected in order to pay for salaries of representatives and to construct union headquarters. What people don’t realize is that some of the funds that public sector unions accumulate are used for political purposes. As John McGinnis and Max Schanzenbach write in Case Against Public Sector Unions,
“Public employee unions, by virtue of the dues they collect from members, possess war chests from which they can contribute to politicians who support their goals. These goals, not surprisingly, involve first and foremost accruing benefits for their members
(4-5).”
McGinnis and Schanzenbach, professors of law at Northwestern University School of Law, say that unions tend to closely monitor government officials in order to determine who would benefit the interests of the union best. Contributions are used towards chosen politicians to ensure favorable policies. Taxes go into revenue for the state government, which pay the salaries of public sector employees, who in turn pay union dues, and these unions make hefty contributions for pro-union politicians. This vicious cycle is hard to break because unions have strong collective bargaining power that is utilized extensively. Politicians often give in to public sector unions’ demands for increased pensions and higher wages. Since elected officials serve short term, the problems that arise from these increases are only seen well after the politicians have left office (McGinnis and Schanzenbach, 8). Contributions towards political activity have increased over recent years thanks to the Supreme Court hearing in 2010, Citizens United v. Federal Election Commission. The Court held that the Bipartisan Campaign Reform Act of 2002, which prohibited corporations and unions from making political contributions, was in violation of the First Amendment. This gave political action committees the freedom to accept an unlimited amount of donations. The Wall Street Journal reported in July 2012 that unions spent $1.1 billion on political action committees that were reported to the Federal Election Committee and Congress, with an additional $3.3 billion reported to the Labor Department. Figure 5 graph shows how much unions have contributed toward candidates and political parties in a 20-year period. Figure 6 demonstrates how contributions increased the month before a federal election.
Fig 6. (McGinnty and Mullens)
Fig 5 (Davies) .
Right-to-Work and Other Solutions Currently, Congress does not allow state governments to apply for bankruptcy. This law may soon change if states, such as Illinois, continue to fall into debt. Illinois has been unable to meet obligations, such as its ballooning pension fund. Public sector unions in Illinois have used unfair advantages with politicians to collectively bargain. Illinois’s unfunded pension liability has grown so massive that reform is in dire need. Unless Illinois passes a bill by the end of May 2013, the state’s unfunded liability will accrue another $2.45 billion to a colossal $94.6 billion. In order to continue paying off its debt, Illinois must make an annual pension fund payment of $5.1 billion. With a big portion of the state’s revenue going to its pension debt, 22.1 percent of its general fund, Illinois may soon be unable to pay for its other bills (Associated Press). Other states also have a deep budget deficit and in order to emerge from the crisis, there must be a solution to the public sector union’s detriment.
While pension funds provided a great deal of security for those looking to plan for the future, public sector unions have found ways to exploit their pensions. In the midst of Illinois’ crisis, Governor Pat Quinn has begun to make his assault on their exploitation and the state’s debt by freezing the wages of some state employees. Quinn’s wage freezing was not well received with the American Federation of State, County, and Municipal Employees who represent most of those state employees. Gov. Quinn’s decision make budget cuts with public employees proves that he will not be bought out or bullied by employees or their unions (Bogart).
One politician who has also infuriated his state government employees was Puerto Rican governor Luis Fortuno. Gov. Fortuno spent the first year of his 2008-2012 term cutting the state budget drastically in order to bring down a $3.2 billion deficit that Puerto Rico was facing. He did so by cutting government spending across the board, starting with his own salary first. He then laid off 12,000 government workers, and instead of raising taxes, which is what some unions propose, he in fact cut taxes for business and individuals. He also found that his predecessors had been giving contracts to public sector vendors that had marked up prices significantly, and that 1 in 3 people were government workers. Fortuno felt that the tax break would bring in private sector business in order to bring in revenue. While he ended his term with the state budget balanced, his decision to privatize state pension plans would not be as accepted in the US as was in Puerto Rico. Privatization of pensions in the U.S. would more than likely be construed as greedy capitalism. Although Fortuno’s lay-offs were on the more extreme side, he understood that major changes were crucial to the survival of the Puerto Rican economy (Stossel “Public Sector Unions”). Yet another elected official who has targeted public sector employees is Governor Scott Walker. He took on the mammoth task of bringing the budget up from the depths, to the dismay of Democrats and unions. Furious at Walker’s Budget Repair Bill, Senator Jon Erpenbach, along with 13 other democratic members of Wisconsin’s state senate, fled to Illinois in February 2011. Democrats did so to delay the voting of Gov. Walker’s bill. These Democrats, with the support of many unions, garnered nearly 1 million signatures and forced a recall election. Gov. Walker eventually won by a bigger margin than his initial election. When faced with a $137 million deficit, he decided that some drastic changes were in order. Gov. Walker proposed that employees contribute to their own pension, doubled the amount paid into health insurance, and stripped most collective bargaining rights for state employees (Jaffe, Hartfield, and Byron, p.12). In hopes of targeting the illegality of Gov. Walker’s law, many labor unions took to the courts. The Wisconsin Education Council and other unions challenged whether the Budget Repair Bill’s collective bargaining restrictions were constitutional. While a county circuit judge found that most provisions of the restriction were illegal, Gov. Walker’s intentions were to serve the taxpayers (CNN Political Unit). His fight to diminish collective bargaining for state employees is essential to the vitality of the economy.
Another weapon in politician’s armory is right-to-work laws. Right-to-work laws are starting to become more frequent; 23 states have adopted the legislation. Right-to-work prevents employers from forcing any new employees to join a union, or pay any dues the union may impose. Right-to-work laws don’t prevent an employee from voluntarily joining the unions; it simply gives the employee the freedom to choose. Although Right-to-work laws indirectly take power away from unions, there is no conclusive evidence proving their economic value. No correlation has been uncovered connecting unemployment decreasing, or job creation with states that have right-to-work laws. Governor Mitch Daniels (R-IN) has claimed that right-to-work laws attract new business to relocate their facilities to states with these laws.
"The only change will be a positive one. Indiana will improve still further its recently earned reputation as one of America 's best places to do business, and we will see more jobs and opportunity for our young people and for all those looking for a better life (Rader and Associated Press)." The very company he was using as an example has refuted this claim (Lafer, Wolfson, and Guyott). While Right-to-work does offer freedom of choice to employees, we have yet to see where the rule would combat the budget deficits state and local governments’ are facing.
Governors like Fortuno, Quinn, and Walker were brave enough to make drastic changes in order to prevent any further economic damages. Other states face similar problems and are at risk of sinking deeper and deeper in debt. States that are financially unstable are less attractive for entrepreneurs and companies looking to construct new facilities. These opportunities would positively influence the economy, ensuring a better economic future for the state. Public sector unions have shown to not only hinder economic growth, but also have the ability to negatively impact state or local governments. For this reason voters must voice their concerns against unions, and more importantly take back control that unions have over the state.
Works Cited
"Average Hourly Wages of Public-Sector Employees Exceed Those of Private-Sector Employees in the Greater New York City Region | CBC." CBC. CBC, 21 Apr. 2005. Web. 15 Feb. 2013. .
"More Cities in US Declare Bankruptcy." China Dailey. China Dailey - Rueters, 21 July 2012. Web. 11 Feb. 2013. .
Associated Press. "Report: Illinois Unpaid Bills to Hit $22B by 2018." Abc7local.com. WLS-TV/DT, 25 Feb. 2013. Web. 25 Feb. 2013. .
Bogart, Rachel. "Gov. Quinn, State Employee Union Reach Deal After 15 Months of Talks." Yahoo! News. Yahoo!, 28 Feb. 2013. Web. 5 Mar. 2013. .
CNN Policies Unit. "Judge Tosses Much of Wis. Collective Bargaining Law." CNN Political Ticker RSS. Cable News Network, 14 Sept. 2012. Web. 25 Feb. 2013. .
Coulson, Andrew J. "Cato At Liberty." Cato Institute. N.p., 1 Mar. 2011. Web. 15 Feb. 2013. .
Davies, Antony. "What Interest Group Gives the Most Money to Politicians?" Clermont Tea Party. N.p., 10 June 2012. Web. 18 Feb. 2013. .
Farmer, Brian. "Public-Sector Unionism Vs. The Public Interest." New American (08856540) 27.23 (2011): 34-39. Academic Search Complete. Web. 6 Feb. 2013.
Fraser, Steve, and Freeman, Joshua B. "IN THE REARVIEW MIRROR: A Brief History Of Opposition To Public Sector Unionism." New Labor Forum (Murphy Institute) 20.3 (2011): 93-96. Academic Search Complete. Web. 6 Feb. 2013.
Hicken, Melanie. "State Workers Face Smaller Pension Benefits." CNNMoney. Cable News Network, 11 Feb. 2013. Web. 11 Feb. 2013. .
Isidore, Chris. "Huge Government Pensions Gap Spark Backlash." CNNMoney. Cable News Network, 06 June 2012. Web. 12 Feb. 2013. .
Jacoby, Jeff. "What Public-Sector Unions Have Wrought." Commentary 130.3 (2010): 36-42. Academic Search Complete. Web. 7 Feb. 2013.
Jaffe, Matthew, Elizabeth Hartfield, and Z. Byron Wolf. "Gov. Scott Walker Defeats Recall Challenge in Wisconsin." ABC News. ABC News Network, 05 June 2012. Web. 14 Feb. 2013. .
Jamieson, Dave. "Richard Trumka, AFL-CIO Head, Says 'Weak ' Gov. Rick Snyder Signifies Troubles For GOP." The Huffington Post. TheHuffingtonPost.com, 21 Dec. 2012. Web. 29 Jan. 2013. .
Lafer, Gordon, Marty Wolfson, and Nancy Guyott. "The Economic Policy Institute." Economic Policy Institute. Economic Policy Institute, 11 Dec. 2012. Web. 23 Feb. 2013. .
Luh, Tami. "Pension Gap of States Widens." CNNMoney. Cable News Network, 19 June 2012. Web. 10 Feb. 2013. .
Marshall, Josh. "Look at the Map." TPM News Combined. N.p., 18 Feb. 2011. Web. 17 Feb. 2013. .
Mcginnis, John O., and Schazenbach, Max. "The Case Against Public Sector Unions." Policy Review 162 (2010): 3-12. Academic Search Complete. Web. 6 Feb. 2013.
McGinty, Tom, and Brody Mullins. "Political Spending by Unions Far Exceed Direct Donations." Wall Street Journal. Dow Jones & Company, 10 July 2012. Web. 14 Feb. 2012. .
Rader, Kevin, and Associated Press. "Indiana Joins Right-to-work Ranks, Gov. Daniels Signs Bill - 13 WTHR Indianapolis." WTHR.com. World Now, 1 Feb. 2012. Web. 8 Mar. 2013. .
Savage, Lydia. "Public Sector Unions Shaping Hospital Privatization: The Creation Of Boston Medical Center." Environment And Planning A 36.3 (2004): 547-568. EconLit. Web. 18 Feb. 2013.
Stossel, John. "John Stossel - Public Sector Unions." YouTube. YouTube, 30 Nov. 2011. Web. 04 Feb. 2013. .
Stossel, John. "John Stossel - Unions: The Costs & Benefits 9/20/12." YouTube. YouTube, 17 Nov. 2012. Web. 01 Feb. 2013. .
Trumka, Richard L. "Statement by AFL-CIO President Richard Trumka on Right to Work in Michigan." AFL-CIO. AFL-CIO, 6 Dec. 2012. Web. 02 Feb. 2013.
Walsh, Mary W. "A Path Is Sought for States To Escape Debt Burdens." The New York Times. The New York Times, 21 Jan. 2011. Web. 01 Mar. 2013. .
Walters, Stephen J. K. "Unions And The Decline Of U.S. Cities." CATO Journal 30.1 (2010): 117-135. Business Source Complete. Web. 13 Feb. 2013.
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would be reached. Mayor Emmanuel was constantly portrayed as the greedy antagonist in this story. Illinois, facing a budget crisis, did not have the resources to support the wage increases that the CTU was demanding. Inevitably, taxpayers would incur the costs, not the mayor or the public schools. Public sector unions like the CTU are destroying the economy with their oversized pensions, non-coop health plans, collective bargaining advantages, and political agendas.
Unions have the hard-working employee’s rights at heart. The American Federation of Labor and Congress of Industrial Organizations is the largest federation of unions in the United States. AFL-CIO makes up 56 national and international unions and as of 2011, has approximately 12 million members. AFL-CIO’s views on the function of a union are pretty straightforward.
“Unions are about a simple proposition: By joining together, working women and men gain strength in numbers so they can have a voice at work about what they care about. They negotiate a contract with their employer for things like a fair and safe workplace, better wages, a secure retirement and family-friendly policies such as paid sick leave and scheduling hours (Trumka)”.
AFL-CIO and other unions will many times attribute the establishment of an 8-hour workday and 5-day workweek to unions. What AFL-CIO doesn’t like to mention is how unions contributed to the downfall of US industrial cities. Stephen J. K. Walters, author of Unions and the Decline of U.S. Cities, provides compelling insight into how the economy in Detroit collapsed due to union greed. He claims that United Auto Worker (UAW) directly impacted the big automobile companies relocation out of Detroit due to high labor costs in the 1940’s and 50’s. These high labor costs are because of the increased wages the UAW secured by striking. Since UAW members represented the majority of automobile labor workers, companies such as Chrysler, GM, and Ford were forced to meet union demands, or relocate. Relocation, or flight of capital, was the option that these companies chose (126-8). The automobile industries spent between $700 million - $3.4 billion on new facilities outside Detroit in rural areas “as a means of reducing wages and inhibiting union militancy in manufacturing cities like Detroit” (129).
Public Sector v. Private Sector
In What Public-Sector Unions Have Wrought, Boston Globe columnist Jeff Jacoby points out that public sector unions have grown tremendously in recent years. According to the Bureau of Labor and Statistics (BLS), in 2009 public sector unions surpassed private sector union members, 7.9 million - 7.4 million. Unions represent 7.2 percent of the private sector labor force. The public sector unions, on the other hand, represent 37.4 percent of the labor force (Jacoby, 36). The public sector refers to any job in which goods or services are produced either by or for the government or its citizens. This can be federal or state governments and often include local municipalities. On the other hand, the private sector refers to any person, people or enterprise that operate mainly for a profit and is not directly controlled by the government. Both rely on revenues, private sector using revenues stay in business.
Companies thrive on competition and are constantly looking to better their product. Even the biggest companies such as Apple has competitors for their products. The public sector’s main product is labor, and the unions’ main goals are to monopolize the industry. Nowhere was this clearer than in the CTU’s strike. When the strike forced 350,000 kids out of school for more than a week, the CTU proved that the teacher’s union had monopolized their services and the city was forced to meet their demands. Figure 1 shows just how concentrated the nation’s public school teachers are in unions.
Fig. 1 (Coulson) Public sector unions often claimed that their wages were not as high as private sector counterparts and demanded greater job security and bigger pensions. That is no longer the case; public sector jobs not only have better wages, but are also ahead of the private sector in all benefits. In 2005 the Citizens Budget Commission found that in New York City, the average hourly wage for public sector employees exceeded those of private sector employees by an average of 15 percent, $28.26 to $24.62. Citizens Budget Commission (CBC) compares data from the BLS and shows how unions often rely on the myth that private employees earn more to justify robust benefits. Diana Fortuna, President of CBC explains,
“This data highlights the need for governments in the greater New York City area to rethink their fringe benefits packages for public employees. The perception that public-sector wages are lower than those in the private sector has been used to justify relatively generous benefits packages. Those packages should now be brought more in line with the private sector.”
This phenomenon is not just concentrated in NYC alone. In 2009 BLS national data shows that state and municipal employees were paid 34 percent more than private, $26.01 - $19.39. What is more compelling is the difference in fringe benefits, including retirement, an astonishing 70 percent (“Average”). What supporters want to argue is, public sectors unions prevent employers from taking advantage of the workers. In a paper on a nurses pubic sector union in Boston, Lydia Savage demonstrated the positive impact that public sector unions have. Professor Savage argued that the Service Employees International Union (SEIU) offered protection for quality public healthcare and labor practices favorable for workers. She goes on to claim that public sector unions typically devote vast resources on battling efforts to outsource, subcontract, and privatize with good reason (558). Private sector employers will often outsource their labor force to Third World countries where wages are generally lower than in the US.
Collective Bargaining
A tool that unions utilize to accomplish increases in wages is collective bargaining, a very serious issue in the wake of state budget deficits. Some critics have even gone as far to claim that collective bargaining is unconstitutional in its nature. Collective bargaining is a term that refers to any negotiations between an employer and labor unions acting on behalf of its union members. These negotiations usually are aimed at reaching an agreement on terms ranging from worker’s rights to working conditions. In the early 1900’s collective bargaining was used heavily to gain better rights and working conditions. In 1901 Detroit, Oldsmobile workers organized a strike to increase their wages and obtain shorter workdays (Walters, 120-1). Collective bargaining has been used in this fashion for many decades. Different states have varying collective bargaining laws as is shown in Figure 2. Fig 2. (Marshall)
When private sector unions collectively bargain for better wages or working conditions, negotiations take place with owners or corporations. The owners must decide whether it is in the best interest of the company to oblige the union demands, usually taking into account revenues or profits. Companies must deliberate between risking a strike and accepting those demands. Many times companies would rather risk a strike, hoping that their employees’ finances suffer more and decide to rescind their strike. If union members stand their ground, private sector companies might even decide to take their companies to another location where unionism might be less prevalent. This was as the case in 1901 when Oldsmobile decided to build a new facility 90 miles from Detroit, to Lansing, MI because of labor strikes from their automobile union. This was probably the first case of a union-related flight of capital (Walters, 121). Collective bargaining gives private sector unions an equal voice with the employers.
The problem with collective bargaining lies within the public sector. Franklin D. Roosevelt wrote in 1937 a letter to the National Federation of Federal Employees warning of the dangers of collective bargaining of public employees. He stated,
“The very nature and purposes of Government make it impossible for administrative officials to represent fully or to bind the employer in mutual discussions with Government employee organizations. The employer is the whole people, who speak by means of laws enacted by their representatives in Congress (Woolley).”
President Roosevelt understood that government employees have a duty to the people; an obligation to make sure the community runs smoothly. Employees are hired on the premise that this obligation will be met. When public sector unions make demands against their employer, there are no business owners to negotiate with. Citizens who pay taxes in the community sit across the table. Elected officials should have the taxpayer’s finances and future in mind when representing them. Public sector unions benefit greatly from this arrangement, more so than in the private sector
Pensions
With a weapon such as collective bargaining in the public sector unions’ arsenal, many states struggle to fund oversized pensions. Since collective bargaining allows unions to demand better pensions, public sector unions will almost always get their way. If an elected official decides the union’s demands are ludicrous and refuses to give in, the public sector union goes on strike. This will undoubtedly lead to 350,000 kids out of school, garbage on the street, or even patients without care. Pressure of this magnitude would eventually force the officials to grant the benefit increase the union was seeking. The costs of these pensions have already begun to have dire consequences for towns and cities all over the US.
When the recession hit in 2008, the nation’s economy took a drastic plunge. Income plummeted substantially, which led to a decrease in sales and vice versa. With income dropping overall, tax revenues also fell. State and local governments greatly depend on revenues, and when unable to meet their expenses, there are but few choices. Most governments will choose to increase taxes or make cuts to government programs. When these options are not viable, local governments have little choice but to face bankruptcy. This, unfortunately, has become an epidemic.
Fig 3. (“More Cities”)
Most state and local governments are in deep financial crisis. Local governments, like the ones shown is Figure 3, have already chosen to declare bankruptcy because of debt. Central Falls, RI’s government was unable to pay pensions to state retirees. After the retirees refused pension and benefit cuts, the municipality was pushed into insolvency. This led to Central Falls asking Rhode Island courts to allow bankruptcy. City municipalities are the biggest form of government allowed to file bankruptcy, but many conservatives have begun proposing that state governments should be allowed to file for bankruptcy as a tool to force concessions from public sector unions. Conservatives like Newt Gingrich, former speaker of the House of Representatives and presidential candidate, feel that bankruptcy will help states recover from debt.
“We 're faced with the danger that the states are going to try to show up and say to Washington: You have to give us money," Gingrich said. "And I think we have to have an alternative that allows us to say no (Walsh)."
Conservatives point out that more states have ballooning pension gaps and offer bankruptcy as a temporary solution.
Northwestern University’s Kellogg School of management reported that the unfunded pension liability of 8 of the states in the worst financial condition have exceeded 25% of their Gross State Product (Farmer, 37). Gross State Product measures the economic output of a state, just as Gross Domestic Product (GDP) measures the nations. Such a high portion going to pensions takes away from other programs or services that the government allocates elsewhere, like fixing streets or funding better educational programs. CNN Money contributor Chris Isidore points out that the public pension gap ranges from $1 trillion to $3 trillion, and that doesn’t include what was promised to most retirees. In the June 2012 article, Isidore blames elected officials that are more than happy to accommodate unions because of their short tenure in office. The map in Figure 4 illustrates the six worst funded states in the US.
Fig 4 (Luh)
Just as recent as February most states were forced to make cutbacks impacting state workers and their future pensions. On another report from CNN Money Melanie Hicken reported that in California,
“A state highway patrol officer hired before September 2010 can retire at age 50 after 30 years on the job with 90% of his salary. At an average salary of $100,000, that would translate into a pension of $90,000 a year. But if that same officer was hired this year instead, his annual retirement check at age 50 would total $60,000. That 's a $900,000 difference over the course of a 30-year retirement (Hicken).”
California has had three large municipalities file for bankruptcy in a two-year span, 2011-2012.
Hicken also says that even though cutbacks have begun, only new hires will be affected since most states carry legislation where benefit cuts of current employees is illegal. The most criticism against pension cuts is applicants will find government jobs less attractive. Pensions create a safety net on which people depend on during retirement, so decreasing the amount may deter potential applicants.
Politics
One big reason why elected officials are easily persuaded to give in to union demands stems from a special relationship with unions. Unions generate capital from the dues that members pay. In return, unions hire employees that negotiate for rights and often represent the members at the bargaining table. Unions also use the funds collected in order to pay for salaries of representatives and to construct union headquarters. What people don’t realize is that some of the funds that public sector unions accumulate are used for political purposes. As John McGinnis and Max Schanzenbach write in Case Against Public Sector Unions,
“Public employee unions, by virtue of the dues they collect from members, possess war chests from which they can contribute to politicians who support their goals. These goals, not surprisingly, involve first and foremost accruing benefits for their members
(4-5).”
McGinnis and Schanzenbach, professors of law at Northwestern University School of Law, say that unions tend to closely monitor government officials in order to determine who would benefit the interests of the union best. Contributions are used towards chosen politicians to ensure favorable policies. Taxes go into revenue for the state government, which pay the salaries of public sector employees, who in turn pay union dues, and these unions make hefty contributions for pro-union politicians. This vicious cycle is hard to break because unions have strong collective bargaining power that is utilized extensively. Politicians often give in to public sector unions’ demands for increased pensions and higher wages. Since elected officials serve short term, the problems that arise from these increases are only seen well after the politicians have left office (McGinnis and Schanzenbach, 8). Contributions towards political activity have increased over recent years thanks to the Supreme Court hearing in 2010, Citizens United v. Federal Election Commission. The Court held that the Bipartisan Campaign Reform Act of 2002, which prohibited corporations and unions from making political contributions, was in violation of the First Amendment. This gave political action committees the freedom to accept an unlimited amount of donations. The Wall Street Journal reported in July 2012 that unions spent $1.1 billion on political action committees that were reported to the Federal Election Committee and Congress, with an additional $3.3 billion reported to the Labor Department. Figure 5 graph shows how much unions have contributed toward candidates and political parties in a 20-year period. Figure 6 demonstrates how contributions increased the month before a federal election.
Fig 6. (McGinnty and Mullens)
Fig 5 (Davies) .
Right-to-Work and Other Solutions Currently, Congress does not allow state governments to apply for bankruptcy. This law may soon change if states, such as Illinois, continue to fall into debt. Illinois has been unable to meet obligations, such as its ballooning pension fund. Public sector unions in Illinois have used unfair advantages with politicians to collectively bargain. Illinois’s unfunded pension liability has grown so massive that reform is in dire need. Unless Illinois passes a bill by the end of May 2013, the state’s unfunded liability will accrue another $2.45 billion to a colossal $94.6 billion. In order to continue paying off its debt, Illinois must make an annual pension fund payment of $5.1 billion. With a big portion of the state’s revenue going to its pension debt, 22.1 percent of its general fund, Illinois may soon be unable to pay for its other bills (Associated Press). Other states also have a deep budget deficit and in order to emerge from the crisis, there must be a solution to the public sector union’s detriment.
While pension funds provided a great deal of security for those looking to plan for the future, public sector unions have found ways to exploit their pensions. In the midst of Illinois’ crisis, Governor Pat Quinn has begun to make his assault on their exploitation and the state’s debt by freezing the wages of some state employees. Quinn’s wage freezing was not well received with the American Federation of State, County, and Municipal Employees who represent most of those state employees. Gov. Quinn’s decision make budget cuts with public employees proves that he will not be bought out or bullied by employees or their unions (Bogart).
One politician who has also infuriated his state government employees was Puerto Rican governor Luis Fortuno. Gov. Fortuno spent the first year of his 2008-2012 term cutting the state budget drastically in order to bring down a $3.2 billion deficit that Puerto Rico was facing. He did so by cutting government spending across the board, starting with his own salary first. He then laid off 12,000 government workers, and instead of raising taxes, which is what some unions propose, he in fact cut taxes for business and individuals. He also found that his predecessors had been giving contracts to public sector vendors that had marked up prices significantly, and that 1 in 3 people were government workers. Fortuno felt that the tax break would bring in private sector business in order to bring in revenue. While he ended his term with the state budget balanced, his decision to privatize state pension plans would not be as accepted in the US as was in Puerto Rico. Privatization of pensions in the U.S. would more than likely be construed as greedy capitalism. Although Fortuno’s lay-offs were on the more extreme side, he understood that major changes were crucial to the survival of the Puerto Rican economy (Stossel “Public Sector Unions”). Yet another elected official who has targeted public sector employees is Governor Scott Walker. He took on the mammoth task of bringing the budget up from the depths, to the dismay of Democrats and unions. Furious at Walker’s Budget Repair Bill, Senator Jon Erpenbach, along with 13 other democratic members of Wisconsin’s state senate, fled to Illinois in February 2011. Democrats did so to delay the voting of Gov. Walker’s bill. These Democrats, with the support of many unions, garnered nearly 1 million signatures and forced a recall election. Gov. Walker eventually won by a bigger margin than his initial election. When faced with a $137 million deficit, he decided that some drastic changes were in order. Gov. Walker proposed that employees contribute to their own pension, doubled the amount paid into health insurance, and stripped most collective bargaining rights for state employees (Jaffe, Hartfield, and Byron, p.12). In hopes of targeting the illegality of Gov. Walker’s law, many labor unions took to the courts. The Wisconsin Education Council and other unions challenged whether the Budget Repair Bill’s collective bargaining restrictions were constitutional. While a county circuit judge found that most provisions of the restriction were illegal, Gov. Walker’s intentions were to serve the taxpayers (CNN Political Unit). His fight to diminish collective bargaining for state employees is essential to the vitality of the economy.
Another weapon in politician’s armory is right-to-work laws. Right-to-work laws are starting to become more frequent; 23 states have adopted the legislation. Right-to-work prevents employers from forcing any new employees to join a union, or pay any dues the union may impose. Right-to-work laws don’t prevent an employee from voluntarily joining the unions; it simply gives the employee the freedom to choose. Although Right-to-work laws indirectly take power away from unions, there is no conclusive evidence proving their economic value. No correlation has been uncovered connecting unemployment decreasing, or job creation with states that have right-to-work laws. Governor Mitch Daniels (R-IN) has claimed that right-to-work laws attract new business to relocate their facilities to states with these laws.
"The only change will be a positive one. Indiana will improve still further its recently earned reputation as one of America 's best places to do business, and we will see more jobs and opportunity for our young people and for all those looking for a better life (Rader and Associated Press)." The very company he was using as an example has refuted this claim (Lafer, Wolfson, and Guyott). While Right-to-work does offer freedom of choice to employees, we have yet to see where the rule would combat the budget deficits state and local governments’ are facing.
Governors like Fortuno, Quinn, and Walker were brave enough to make drastic changes in order to prevent any further economic damages. Other states face similar problems and are at risk of sinking deeper and deeper in debt. States that are financially unstable are less attractive for entrepreneurs and companies looking to construct new facilities. These opportunities would positively influence the economy, ensuring a better economic future for the state. Public sector unions have shown to not only hinder economic growth, but also have the ability to negatively impact state or local governments. For this reason voters must voice their concerns against unions, and more importantly take back control that unions have over the state.
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