- The Washington Times - Thursday, March 24, 2011


Given all the recent discussion about collective bargaining, it’s surprising how misunderstood it is. The most pernicious myth - which serves as the foundation of many others - is that public employees have a “right” to collectively bargain over wages, benefits and working conditions.

Those employment “rights” (a term too loosely thrown around) are derived from various laws - not from the U.S. Constitution or that of any state. And laws can be repealed.

By definition, “rights” can’t be taken away. So collective bargaining doesn’t qualify. It’s not a right. It’s a privilege.

Government employees who enjoy this privilege can lose it at any time, since they’re entitled only to the privileges granted by their employer. All it takes is a new statute to replace the old one.

Franklin D. Roosevelt championed the law that created private-sector collective bargaining, but he recognized that it “cannot be transplanted into public service.” Legendary AFL-CIO President George Meany expressed similar doubts.

Why were these liberal stalwarts wary? Simple economics.

If labor costs go up in the private sector, prices rise accordingly, and consumers can take their business elsewhere. That dynamic (usually) provides a sobering check on new competitive demands. But the government has a monopoly on most public services, so there are no market pressures to keep costs down.

If labor expenses go up in the public sector, tax increases are the usual “remedy.” And unless the “consumer” wants to move out of the state, he must pay the new prices.

The feature that most defines collective bargaining is its adversarial nature: Labor and management represent two independent, opposing sides. But in the public sector, “management” isn’t nearly as independent. It consists of elected officials for whom replacements can be found - and whose political opponents can be funded - if unions become displeased.

This is why public unions are among the most powerful forces in American politics. The American Federation of State, County and Municipal Employees (AFSCME) spent more than $87.5 million influencing the most recent election cycle. The National Education Association poured $40 million into campaigns. The American Federation of Teachers added $16 million.

All that money determining political winners and losers is an incentive for “management” (politicians) to avoid antagonizing “labor” (those moneyed public-sector unions). No wonder some unions brag about being able to “elect their own bosses.”

In the end, public-sector unions and government engage in a sort of collective conspiracy to drive up the costs of employing teachers, meat inspectors, meter maids and the countless bureaucrats who manage them. And taxpayers foot the bill for every pay raise.

Most politicians understand this. And they know they can’t continue robbing Peter to pay Paul an ever-higher salary. Eventually, Peter’s going to figure out what’s going on.

In order to keep voters in the dark, politicians and their union allies have beefed up public pension plans and retirement benefits instead of salaries, while also picking up the tab for health care premiums. Since 2002, every $1-per-hour pay increase public employees have received came with $1.17 in new benefits. (Private-sector workers received less than half that - just 58 cents in new benefits for each $1-per-hour pay increase.)

These benefits, with their long-term payouts, are easier to hide than big, immediate wage increases - until we reach a tipping point. With 44 states and the District of Columbia facing budget deficits and with unfunded pension liabilities totaling $1 trillion, we’re clearly there today.

Where did those liabilities come from? For decades, states made minuscule contributions to pension plans while making unrealistic assumptions about rates of return on investments. Many state governments assumed they would earn as much as 8 percent on their money.

When a state invests $1 million and actually gets a steady 8 percent rate of return, that $1 million has grown to $4.7 million after 20 years. But what if the rate of return is only 6 percent each year? Then you’re looking at only $3.2 million.

In other words, a drop of just 2 percentage points on the 20-year rate of return shrinks the state’s earnings by more than one-third. Multiply that by billions and billions of dollars, and you see the problem states are facing.

If nothing else, one thing is clear about state governments and their budget shortfalls: They can’t afford to make them any worse.

We all know the legendary First Rule for Getting Out of Holes: “Stop digging.” But there’s a lesser-known observation: “Once you stop digging, you’re still in a hole.”

Labor costs, it seems, are the shovels. And no one has the “right” to dig us all the way to bedrock.

Rick Berman is the executive director of the Center for Union Facts.



Click to Read More

Click to Hide