Collective Bargaining and Public Employee Unions

In
light of all the recent discussions about collective bargaining and
public employee unions, I would like to spend a little time
discussing the affects of collective bargaining, and explaining why
collective bargaining by public sector labor unions is not a good
idea.

Collective
bargaining is simply the process by which an appointed entity
(usually a labor union, represented by a handful of officials chosen
by its members) negotiates worker compensation with an employer. The
entity negotiates on behalf of the entire group of workers that it
represents, and each represented worker receives equal pay and
benefits (or an agreed-upon variable pay scale based on merit,
tenure, etc.) under the agreement. Usually this is done on a
contractual basis, where contracts are in force for a certain amount
of time and must be re-negotiated when they expire.

When
unions are allowed to collectively bargain with employers, the
resulting contracts generally guarantee that workers are receiving a
fair share of the income generated by the company. Overall this is
not a bad thing. Satisfied workers are more productive and more
willing to assist the company in efforts to become more profitable.
And when similar union contracts are signed among competitors, these
contracts prevent one company from “cherry-picking” the labor
force of its competitors by offering disproportionate compensation.
Labor contracts also help employers by providing a fixed cost for
labor, thus allowing companies to plan better financially.

Yet
collective bargaining also has serious drawbacks. First and
foremost, it gives unions the power to resist cutbacks and other
austerity measures, even when such measures are crucial for the
financial well-being of the company. During the 1950’s the ‘Big 3’
automakers signed labor contracts with the UAW that were the envy of
America: generous wages, retirement benefits, health care, protection
from lost income due to strikes, accident insurance, extended
vacation and sick leave time, annual cost of living raises, and so
on. At that time, the ‘Big 3’ owned 95% of the domestic automobile
market share. Detroit was literally awash in a sea of money, and
could easily afford that level of employee compensation.

But
the good times didn’t last forever. When the price of oil spiked in
the early 1970’s and the US economy soured, Detroit automakers found
themselves in dire financial straits. Certainly they tbore a great
deal of the responsibility for their predicament – they failed to
listen to their customers and virtually ignored potential competition
from foreign car companies, and they created their own insulated
internal bureaucracy that rewarded company loyalty over merit or
performance.

Yet
when GM attempted to introduce austerity measures and restructure
operations at its massive new Lordstown, Ohio assembly plant in the
early 1970’s, workers viscously revolted, staging wildcat strikes,
taking unscheduled leaves of absence, ignoring build quality on the
assembly line, and in some cases deliberately sabotaging cars.
Discipline was lax because the United Auto Workers protected assembly
line workers from retribution or dismissal by GM. This episode
effectively ruined the Chevy Vega and cost GM over $150 million in
production losses. The attitude of the Lordstown UAW members toward
GM is known today as “Lordstown
Syndrome.”

Although the misbehavior ended, the
Lordsdown attitude continued among UAW leaders and members, who
continually pushed automakers for bigger and more generous
compensation packages. Only within the last two years, as GM and
Chrysler collapsed and had to be bailed out by the government, and
Ford Motor Company suffered a nearly fatal financial code blue, has
the UAW finally allowed car companies to make significant reductions
in employee compensation. (But at the same time, the UAW received a
generous number of shares of “New GM” and Chrysler/Fiat stock;
also, their investments in the old company pension funds were made
whole by the government, and they negotiated a generous “profit
sharing” plan for employees with the new car companies – UAW
workers at the Big 3 are already slated to receive their first checks
based on 2010 company performances.)

Taking all of this into consideration,
we need to ask a tough question: how will the history of union
resistance to austerity measures affect public employee unions, whose
workers are employed by the government, and whose compensation is
funded by our tax dollars?

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A
privately owned company with unionized labor is governed through
cooperation between its management, its shareholders, and labor
representatives. This cooperation provides a system of checks and
balances against abuse by one or more of these entities. Company
finances are bound on the lower end by profit (which the company must
earn in order to survive) and on the upper end by competition (which
keeps the price of its goods or services within the range that
consumers are willing to pay).

But
this system does not exist in the public sector. Public sector
employees are paid through tax dollars, the collection of which is
compulsory, not through voluntary sales of goods or services. There
is no “competition” to control pricing or offer alternatives to
government-provided services. And, as public sector unions have long
ago discovered, it is very easy for unions to control elections by
marshaling votes and providing campaign contributions to favored
candidates; those politicians then return those favors by endorsing
government policies that favor unions.

With
this in mind, can public sector unions be trusted to ensure the best
interests of their members, and of John Q. Taxpayer, who finances
their members’ compensation (and by default, the operation of the
union, which is supported by dues paid out of its members’
taxpayer-financed compensation)?

Currently,
all 50 states are facing serious budget crises. State employee
pension funds currently have a combined funding shortfall of $1
trillion. States face billion-dollar budget deficits due to
recession-induced losses in tax revenue, and the continuing fragile
state of our economy makes major tax hikes all but out of the
question. Some state officials have quietly began discussing ways to
create a legal mechanism that would allow states and large
municipalities to declare bankruptcy.

Yet
just as their UAW brethren did thirty five years ago when faced with
the prospect of cutbacks in compensation from the Big 3 automakers,
public sector union leaders are actively resisting any attempt to
limit their members’ compensation, or union collective bargaining
power. Before General Motors was reorganized, over $1500 of the
sticker price of each automobile that it sold went to pay for
employee and retiree health insurance costs; these “legacy costs”
were a major contributing factor to the eventual insolvency of the
company. We simply cannot allow our state and local governments to
be pushed into a similar corner through union contracts.

It’s
also unrealistic to argue that the Federal government can fix the
problem through bailouts or stimulus money. A significant portion of
the money in President Obama’s stimulus bill was apportioned to the
States, specifically to finance public sector jobs that might have been
threatened due to revenue shortfalls. In Texas, for example, 78% of
the $25 billion given to the state in Federal stimulus money has
already been spent, and 7 out of 10 stimulus jobs “created or
saved” in Texas were in public education. There is currently no
plan for funding those jobs once the Federal stimulus money runs out.

And
in New Jersey, former governor Jon Corzine spent an entire $1 billion
one-time Federal aid package for public education in one year –
coincidentally an election year, which also turned out to be his
final year as governor. The resulting hole in the following year’s
budget precipitated the highly publicized standoff between current
governor Chris Christie and the New Jersey teacher’s unions. The
unions refused to accept a pay freeze for their members, and
districts around the state were forced to lay off hundreds of
teachers.

Another
question we must ask is, can we tolerate “Lordstown syndrome” among
public employees? Admittedly, police and firefighters have a strong
ethical commitment to their work, but the dereliction of duty by New
Orleans police officers at least illustrates that these ethics are
not universal. And what about the recent episodes in Wisconsin,
where doctors openly handed out false notes to teachers so that the
teachers would not be in violation of the “no unscheduled leaves of
absence” clause in their contracts? All we can say for sure is
that some Wisconsin teachers have no qualms about flagrant
dishonesty, if it results in the preservation of their jobs and their
union contract. That’s not exactly something to be proud of.

Few
of us have any “beef” with teachers, firemen, policemen,
employees of state agencies, or any other public servants. We do not
wish to see them “trampled”, nor is it realistic to assume that a
loss of collective bargaining power would return public service
employment conditions to the era of the Great Depression – there
are already enough Federal and State laws governing workplace safety,
job training, mandatory compensation requirements, etc. to preserve
virtually all of the rights that public employees currently enjoy
under collective bargaining agreements.

But
we can ill afford a system of union representation that historically
has ignored the financial plight of businesses until time has
literally run out and, with respect to public employee unions, has
created for itself a system of bought-and-paid-for politicians
beholden to the special interests of labor unions and not to the
general interest of taxpayers. It’s time to loosen the grip of
public employee unions on the public purse strings, before we dig
ourselves into a financial hole that we cannot climb out of.