A Defense of Public Sector Unionism - Part the Second

In part 1 of "In Defense of Public Sector Unions," I concentrated mostly on the ideological side of public sector unions - both why the existence of public sector unions is troubling to some progressives, and why ideologically progressives should support public sector unions. However, in the comments on the various sites where part 1 was cross-posted, one of the frequent themes of discussion was a request for some hard numbers to prove that public sector union workers aren't the goldbricking, featherbedding "thugs" they're made out to be.

So let's talk numbers.

A Correction on "Overpaid":

The strange thing about the economic security of public sector workers is that it's raised an unhealthy amount of envy in the public discourse. News stories about budget deficits abound with scare stories about "over-paid bureaucrats" - which fuels a right-wing anti-union politics and the mistaken belief that tax increases are unnecessary because eliminating "waste, fraud, and abuse" will solve our fiscal problems without reducing public services. This is turn hides the reality that cutting public sector wages and benefits, forcing state employees to take unpaid furloughs, and firing thousands of teachers and other public servants is a major reduction in public services.

But the problem with stories like that is they overwhelmingly rely on broad comparisons between average public sector and private sector workers - which often has the effect of hiding a more complex statistical reality than the simple comparisons describe. Public sector workers are overwhelmingly likely to be full-time, whereas the private sector has many more low-wage part-time, temporary, and "contingent" workers - which distorts comparisons. Similarly, averages don't always show us the reality of the situation if you have heavy concentrations at the low or the high-end of the income scale pulling the average up or down.*

* For example, let's take education, where you can see a substantial gap between the highest and lowest paid. The median pay for elementary and secondary school teachers is $49,000 and $51,000 respectively - and the lowest paid teachers earn $33,000 and 34,000 respectively. The median pay for elementary and secondary school administrators is $83,880 - and the lowest paid administrators still earn $55,000 a year, more than the median for the workers they manage. And yet when the reports go out on public sector pay levels, workers and management are bundled together, which makes it look like the average wage in public education (and by extension in the public sector) is higher than it actually is.

If we compare apples to apples though, the difference largely disappears. The median weekly pay for public sector workers is $842 and the median weekly pay for private-sector unionized workers is $839 - in other words, the difference is about unions, since public and private-sector union workers earn essentially the same wage. When we look at the private sector, the union differential is clear: private-sector workers in the service sector earn 57% more if they're union than if they're not; union workers in sales earn 22% more than non-union workers; and union workers in construction earn 57% more than their non-union peers.

But what happens when we compare union public-sector to union private-sector, to compensate for the fact that public-sector workers are more likely to be union (37.4% unionization rate) than private-sector workers (a paltry 7.2%)? To continue using education as an example, the median weekly earnings for union private-sector workers in "educational services" are 18% higher than their non-union brethren, and median weekly earnings for union private-sector "education, training, and library" professionals (i.e, teachers, librarians, and the like) are 23% higher than their non-union brethren. And when we compare our unionized private-sector professionals with our unionized public-sector teachers (which isn't the neatest comparison, but it was the best I could do), the total public vs. private sector differential is a whopping 8.2%. That's not nothing - but it's not the "61% more" than the conservative Manhattan Institute trumpets as the difference between public school teachers and private school teachers, and it's not anything like the 23% gap between union and non-union.

It couldn't be clearer: the major difference is union vs. non-union, not public vs. private. Because they lack union organization, too many private-sector workers are being under-paid.

Let's take pensions, another sore spot. We hear a lot about over-funded, overly-generous public sector pensions, but if you actually burrow down in the stats, it gets more complicated. The median income of "aged units" (i.e, retirees) with only Social Security pensions is a paltry $16,527. The median income for "aged units" with a private pension and Social Security is $31,227, which shows how important pensions are to preventing old age poverty, and why the dismantling of private sector pensions is so troubling. The median income for "aged units" with Social Security and a Federal pension is a whopping $33,918 - a whole .8% difference. Even in the case of "aged units" with Social Security and state, local, or military pensions, the median income is $39,364. That's a more substantial 26% difference, but even then the spread would get smaller if you subtract out military pensions and account for the higher percentage of defined-benefit plans and higher contribution rates in the public sector.

But a median state or local public sector pension of $22.8k a year isn't anything like the horror stories of $100k public sector pensions that get trumpeted in the media - and the reason is that, while those pensions do exist, they are a statistical blip. The number of public sector employees who receive affluent pensions is a mere 1.3% of the workforce. Moreover, the gaps between public sector workers and public sector managers make it very clear that the runaway pensions and overly generous wages are happening within the ranks of management, not the unions. If we look back at the asterisked section above, we see that elementary and secondary school teachers' salaries top out at $78-80,000 (in the top 10% of teachers), which mean that they're not within the 15,000 California public employees making more than $100,000 a year, and they're not within the 1,000 making more than $200,000 a year. And since pensions are based on wages, they're not going to be among those drawing $100,000 a year pensions either. Their bosses, however, are more likely suspects: the top 25% of education administrators make more than $100,000 a year.

However, it remains the case that even public sector management golden parachutes still represent a statistical blip - and that you can't solve California's (or any other state's) budget crisis by attacking "waste, fraud and abuse." Even if you stripped out every last overpaid manager and got rid of that 1.3% of the public workforce who're receiving affluent pensions, you'd still be left with massive budget deficits - because the problem isn't overly-generous pensions, but a structural revenue gap between what the cost of the services we demand and the taxes we've been willing to pay.

Conclusion:

All of this should raise a major point for progressives - given the more modest reality of public sector pay and benefits, why are public sector workers considered a "problem"? Progressives are supposed to be in favor of a living wage for all workers, so why hesitate when it comes to public sector workers? Progressives also are supposed to believe that a decent pension is a basic right for all workers, so why shy away when it comes to public sector retirees?

Are progressives really in favor of a public sector run on the Wal-Mart model? I hope not.

And in part 3 of this series, I outline an alternative model for progressive public sector labor relations.

Meta: 

Comments

It's about time somebody said it

I'm so sick of turning on the news and some over paid bobble head is vilifying a public employee because he's making a living wage.

Thank You.

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Living wage

Well, you must be living in a world that is other than most in my State.

In my State government employees are in the upper tier of middle income earners, they have medical insurance that is (sorry to use this word) Cadillac type coverage and they are just about the only group that get defined benefit plans.

I would say that they are making a living wage while the non-government people are dying on the vine.

I have a friend of 50 years and his wife works for the city. She has 25 years in service and will get free health care for life. On top of that her defined benefit plan is very robust. As a tax paying business owner, my friend is a bit torn over it. He knows his taxes went to help pay for her great pay and benefits but......as he said, she isn't going to turn it down. :)

California defined pension plans are in the red to the tune of $500 billion. Where in the world are they going to find the money to pay those sugar coated promises.

Can I ask why a 2nd grade teacher of 10 years earns$75,000 a year, gets free health care for the family and is making equivalent to a physicians assistant salary? Or even equivalent to some GP's in hospital owned organizations.

In twenty years my school taxes have gone up over 700%. My income sure as heck has not gone up 700%. If I don't or can't pay those taxes.....I loose my home. I have no choice in the matter.

The dog is dying and you want more and more from the poor thing. Ask Greece how well it is going for them? They are in debt to what 125% of GDP or something like it.

China is just laughing and laughing at our adventurous social experiment.

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it is not wages causing the debt

Over and over we've shown that's not the case. It's doing things like currency swaps, and debt hiding, the "free flow" of capital around the globe (as in out), LBOs and other selling a nation's public assets down the river that is the cause. Look at Iceland! That's not at all caused by wages, it's pure banking offering absurd rates and other nonsensical financial "investment" vehicles, which collapsed their economy.

So, instead of pickin' on public service workers, who are strongly unionized, you might be pointing out the real problem is corporations have been sucking off the money from the rest of the U.S. middle class and that's the real cause!

In other words, your pickin' on these guys when the reality is all of America should have similar wages and benefits and one can see, just by looking at any income distribution graph what's going on. The super rich, the executive class, now has that money and no, they are not paying that money back in taxes.

Stop watching Glenn Beck and start reading the graphs and stats on this site. Seriously, the problem is not the workers, who have managed to hold onto some benefits while everybody else is getting decimated. We showed that over and over on GM...look to GMAC as a real problem, it was not the unions, the total losses were not caused by the workers.

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Pension Time Bomb

You seem to be ignoring the pension plan time bomb. RI state employees have a built in 3% COLA every year and up until last year had free lifetime medical benefits which still applies to people who retired through last year. Then they retire elsewhere to avoid the high taxes here which is their right but you can see the irony I hope.

The private sector no longer has defined pension plans such as these for anything close to the average worker.

Its estimated that state and local employee pension plans nationwide are over $2 trillion under water.

These plans have to invest in riskier and riskier investment vehicles because they need higher rates of return to keep the contractual promises
hence someone can lay the blame on the financial sector which could not be blamed if the investments were put into lower yield safer vehicles.

Regarding GM their cost per employee was $75 an hour and much of that was due to the defined pension plan medical costs of their retirees. Ford is building cars in Mexico at a total labor and benefit cost of $10 an hour. Are any local or state or Federal jobs being shipped to Mexico? How much could Social Security save if their call centers were relocated to the Philippines? Thats how it works on this side of the fence.

Yes all of America should have these wages but the reality is without huge tariffs to allow for unionization of the rest of the work force the ability of the average private sector worker to pay higher and higher taxes to support faster than inflation spending is decreasing.

When the government starts shipping massive numbers of government jobs overseas that side of the fence may see whats been going on.

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they already do ship fed/state gov jobs overseas

and this is pathetic violation of Keynesian economics too (perhaps you forget this). We have U.S. taxpayer funds being used in all sorts of offshore outsourcing agreements. The most obvious is call center for food stamps and welfare.

So, instead of giving those people who need a job, one, we have people in India answering questions on food stamps.

There are many, many others, IBM for example gets a lot of Federal and State contracts. They fire the gov. workers, turn it into a contract, then offshore outsource it.

There are so many methods and ways to deal with the trade deficit and tariffs is just one. I've written about the tax code, the investment "funds" pouring U.S. dollars into EEs, instead of the U.S., the tax haven system and I've written enormous amounts on a VAT as well as a national trade strategy board. When a good bill is introduced in Congress on trade, I try to write that up as well to promote public support and get folks to write their Reps as to co-sponsor those bills. I'm making a point to write about China currency manipulation since that is where the potential political will in Congress is at the moment and also is a real problem!

Yet in comments I see this mantra answer, as if all of my efforts are not even read! That's frustrating! I've also written tons of posts on the offshore outsourcing of Federal and State jobs, which is U.S. taxpayer dollars being used to fund job creation in other nations.

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Early Retirement

Another aspect to the unsustainable pensions is the early retirements that allow some of these groups to retire and collect healthy pensions after 20-25 years so that more people are collecting than are paying into the retirement system. There are currently about 15,000 state workers here paying for 26,000 state retirees. A similar situation to social security except instead of the system being broke and changing the taxpayer will pick up the tab.
Until recently here state employees could retire and then go back to work on their second retirement with the state, double dipping. Raise your hand if you work in a private industry that allows full retirement after 20-22 years.

Outsourcing and the wholesale movement of jobs overseas and to Mexico has been happening in the private sector since the late 1950's culminating with NAFTA which completely emasculated manufacturing here. My next door neighbor has been out of work for a year now since the factory where he worked for 20 years moved to Mexico. They were a customer of mine also.

I'd love to know what the percentages are for government jobs shipped overseas for comparison to private sector losses. Miniscule in comparison I bet.

Taxes outpace the CPI almost every year. My local property taxes are going up 4.5% and the school system isn't happy with that they are suing for a larger increase. But wait the CPI was only 2.7% last year. They want a 6% increase in spending. My neighbor and I are just thrilled with their demands.

There is no movement towards protecting jobs here in this administration at all. Its not even on the agenda. Based on that why should the private sector taxpayer be motivated to keep government costs high by protecting ONLY those jobs?

I agree with yout ideas on the VAT as a way to tariff other countries but how would that fly with NAFTA? More to the point with an admin who ran in part on killing tax breaks for companies that send jobs overseas but has already flaked out on that would you expect any real action on a VAT?

Private sector jobs are tax positive. They create wealth and the taxes they pay are from created wealth. Thats with the exception of defense contractors and government sub contractors. Public sector jobs are tax negative with every penny of the outlay coming from taxes. The more public sector jobs are created and the higher the cost the more taxes are required to pay for them. Public sector jobs create value in return for the cost outlay though and thats why they are created. However as with anything there is a tipping point on value. So when you are say redesigning your kitchen you may not use Italian marble for the countertops because it isn't in your budget.

Apparently it is beyond the realm of possibility that the cost of government here is not within our budget.

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Again

What I find strange here is the attitude that it's better if no one has economic security - should everyone be able to retire after giving 20-25 years of their life to a company? Most of my relatives in Europe who're retired, retired in their 50s, and have moved on to more personally fulfilling jobs and activities, whether it's local politics, or prisoner's rights, etc.

But I am glad that you noted that public sector jobs great value - which actually includes wealth. The question before us is how valuable that wealth/value is. Given that output per worker in the U.S is $105k a year, and that the median public sector pay is $40k a year, I'd say you're getting a pretty good return on your money.

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Steve I Am Not Against Public Sector Unions

But lets not forget that a state employee making only $40k has a $35k a year benefit package. Rightly so but its a part of the costs, just noting that.

I noted value in public sector jobs - they exist for a reason, a good reason but as with everything else people can price themselves out of a job. Plus the value is not equated in income either so those stats you have while I'm sure they exist I'm not sure how tangible they are. Is me not waiting an extra minute in line once every 5 years for my license renewal worth the cost of hiring extra clerks? I'd rather they hire an extra garbage man first! But I hope you get what I mean.

Thats the point no one seems willing to discuss. Its not a black or white issue. Of course we need government but do we need as much as we have at the cost of it? In fact thank God for the government we all need a strong government. We also need a government that is focused on the forgotten middle class! 'Change I did believe in' included killing tax breaks for US companies sending jobs over seas. What has happened to that promise?

Its simple math. The earning ability of the middle class is being squeezed and reduced simultaneously.

We are rapidly approaching a turning point in US economic history where a large number of people will at some point as a group be transferred from the unemployment rolls to welfare. Think about that. Taxes will have to rise at some point to cover all these expenses and there are less people to pay them. Really very scary.

I'm sure everyone is already seeing increases in economic crime at the local level, I know I have seen it. Pizza delivery people being held up at gunpoint - just for the pizza! Things like that. There are people starving and the government can't hire them all realistically.

The only reason a lot of this is coming up locally and online etc is because people are being squeezed. Its not a hate of government or its workers. Those are my neighbors also. I would just like to see the cost of government held in check by the same CPI that holds many things in check and it always goes up by more.

BCBS ended up with a 9% increase here (they asked for 20+%) National Grid 11%, Cox Cable 9% (I note that this is not a necessity by any means although for people with children maybe it is), and my property taxes will be 4.5-6% depending on the school systems lawsuit outcome.

At this point I would welcome Nixon's wage and price controls as long as they applied to everyone.

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well

I notice this thread is getting into philosophy instead of numbers. While it's much harder to get the numbers, that's why we're here, let's shred some real data on this debate.

On NAFTA, I think digging around on some new stats from just Mexico might be in order. I think the issues with China and other ASIAN countries literally low balling those already slave wages from NAFTA, plus over 80% of our non-oil trade deficit is with China, really makes NAFTA a little less strategically important. That's why I'm pounding on Chinese currency manipulation.

And these people who claim the Yuan will decrease are smokin' somethin'. There is no evidence to support that, which is another topic to write up, with the numbers, with the stats.

On the VAT, a VAT can be for all countries, it's an at the border tax, so it can apply to all imports, regardless of country of origin. It also can be legally fine tuned, per item, per import and it can be dynamically changed. That's what China is doing and the WTO already ruled VATs legal...we're about the only nation who doesn't have one.

Not that I'm real thrilled with any tax on end consumer goods, but this is to do something about trade, jobs, manufacturing so obviously we need a serious Progressive "leveler" somewhere else in the tax code to balance out a VAT effects on the overall taxes paid by middle class and poor Americans.

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Precisely

Arguably, it's the lack of wages.

The real problem here isn't that the fellow with the well-paid teacher friend is paying higher taxes - it's that their income isn't growing.

BTW: $75k a year is waaaay over the average for any state in the Union.
http://dcjobsource.com/teachersalaries.html

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There is another aspect....

...to URDRWHO'a complaint about how good public employees have it. First let's recognize that there are many public employee entities in this country: City, county, state, police, fire, school districts, and others. As such, the salaries and benefits vary considerably, thus the danger of using one example as if it were representative. URDRWHO's friend's wife will be getting free medical for life. I agree this is unsustainable, but I disagree that it is typical, although I confess I do not have data on this nation-wide. To use a California counter-example, the state-wide teachers' retirement system, to which all school districts must subscribe, does not pay medical benefits, although individual school districts are free to provide them. Most school districts either do not, or the medical benefits stop at age 65. But the Los Angeles system provides life-long medical, leading to a false public perception that California teachers in general enjoy such largesse. Does anyone have nation-wide data on how common this is? I would love to see it.

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Ray Joiner

Precisely!

Disaggregate, disaggregate is always the way.

I can't find data specifically on public sector union workers, but I do know that 92% of union workers get health insurance, so it's a good bet.

LIfelong medical is probably much less common.

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Statistics vs. Anecdote

The median pay for an elementary school teacher - which is a job that requires at least a Bachelor's and a Master's - is $49,000 a year. So your friend happens to be in the top 10% of teachers. Just as many teachers are making $33,000 a year as are making your friend's wages.

Moreover, I doubt that her health care is free - are you saying she pays no health insurance premiums, no co-pays, no deductibles?

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Generality

It does not require a Masters degree here anyway to be an elementary school teacher. A job that consists of a 180 day work year 6 hours a day minus one mandatory free period and lunch equaling (here) 4 and 1/2 hours a day of actual teaching by contract. Much of that average pay for teachers is set by a flux of seniority. They are all on their way to the top step its just a matter of breathing long enough to get their.

Here in RI the starting wage is just under $40,000. The highest hourly wage is about $90 an hour and thats calculated by the union because the teachers are paid by the hour for anything outside of their contractual obligations.

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Fair enough

But it still requires additional certification, no? My point is, one needs at least a four year college degree and some form of further achievement.

And for crying out loud, you never never calculate a teacher's work hours based on just the school day. Grading, lesson plans, and other forms of preparation add up to a second shift when you get home.

What's wrong with a share under $40k? That's actually fairly low - at the 25th percentile for teachers. And I would imagine that the hourly rate is designed to discourage teachers from being asked to do work outside their contract.

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Rising Faster Than Private Sector Wages & Ability to Pay

I agree education costs have gone through the roof. I can't see how education costs which are 90% labor are related to Wall Street greed. Maybe some small portion.

Its not just wages either (which was a response to this), but the benefits side of the coin and the early retirements also.

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Steve

You might really go digging into union/labor costs vs. other costs on some of these jobs and esp. pension costs. There is a real problem with pensions assisting in funding Wall Street, additionally, getting hoodwinked by Wall Street due to needed returns. That said, most manufacturing, the real costs are in the plants, esp. in Silicon/tech/advanced manufacturing. There are other issues as well, but we have a real political problem going on where they continually will blame the workers for just about anything, the disposable worker syndrome and as you note, now they are blasting the last remaining work group which has managed to hang onto those benefits/wages which used to be pretty standard across the U.S. workforce.

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Believe me, I've tried

This is the best I could find after a week of looking - if you can recommend some more sources, that'd be great.

Here's what I can tell you about manufacturing:
The average U.S manufacturer's costs break down as such:
Raw materials 45.98%
Labor 21%
Advertizing and marketing 9%
R&D 8.5%
Interest 4.55%
Transportation 2.9%
Health and safety 1.5%
Energy 1.53%
Environmental protection 1.48%
Land and rent 1.46%
Utilities 1.16%
Software .8%

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Misplaced Sympathies?

You'll pardon me if I have little sympathy for government aparatchiks, cops, teachers and the like given the typical stench permeating the work environment they populate. Its hard for me to appreciate the distinctly proletarian character of folks whose selection for these positions not infrequently entails the friendly intervention of the very bacteria that set policy for them. The only thing less meritorious than the cause of the local cop is an argument in favor of watching local TV news.

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What's To Argue

Steven,

Frankly, I'm long past the point in life that I feel it necessary to justify an opinion or explain myself to anyone but God, Steve. Its enough that I have the opinion. And how that fact might strike another human being is a matter of the most monumental insignificance to me, truthfully. Perhaps one day, you'll feel a similar comfort with yourself. We certainly can hope that you do, eh?

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This site would be radically different...

...and pretty damn useless, if people just gave their opinions without giving reasons for them. You have your opinion(s) and I have mine. What would be the point? But the reasoning, data, and justifications give others food for thought, allowing others to learn something from the whole process, whether they are convinced or not. There is nothing wrong with your refusal to adopt the dominant habits here (of explaining and justifying), but why even share the opinion then? I could call you names too, but I choose not to.

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Ray Joiner

Folks

ya all need to read the FAQ in the about section. The point of EP is discuss and learn about economics, policy details and what that actually really implies. The rules are when in doubt, use a calculator. That means one should try to ferret out the details and that is a group effort, no doubt about it. But just getting into the typical comment world of "other sites", I hope and try to make sure that happens here.

There is so much BS out there, critically important to America's pocket book, the key is to focus on that and start researching out the details as well as what can we do about it.

Take financial reform, right now we have the usual war going on with out the facts! The entire resolution authority stuff is a disaster but when it comes to breaking up the big banks, period or say break up commercial from investment banking or anything known to work, those solutions are now getting buried alive in the non-debate debate....just like health care.

So can we please learn the facts, the details, and that's from each other instead of whatever this latest brew is?

Realize there is BS everywhere, from the most liberal think tank to the most conservative and including Academia...that's why it's so difficult to understand what policy has what effect and frankly to understand that, one really has to get their head around a lot of theory, statistics and details. You just cannot jump on some political philosophy or lobbyist group bandwagon because superficially "it sounds good".

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That'll Do It

"There is nothing wrong with your refusal to adopt the dominant habits here ..."

My, I'm relieved to have your approval, son.
Perhaps you'd want to offer us your reasons for having given it.

"I could call you names too, but I choose not to."

Yeah, I noticed that. What was the expression you used, "pretty damn useless"?

Let me explain something to you in plain English, chief. Here's my "dominant habit". I put up with an abusive tone from someone exactly once. And I put up with it exactly once whether its delivered to me in private e-mail through the site or here in the comments area. I'm not here to satisfy your arrogant demands for answers and the sooner you come to terms with that the happier you're likely to be, capische? The next one of these tantrums I get from you goes to Robert Oak and he can make a decision as to whether he'd want me to continue commenting here, its just that simple. I mean, do I need you? Not really.

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sigh

Look, this site isn't kindergarten and we need a hell of a lot more content in terms of detailed analytical posts. I primarily look for economic fiction, that's veiling policies which may say one thing but are actually another and that's because I do not want policies promoted that by any economic theory are going to hurt the U.S. as well as working America. That's the spin zone and the point of this site is to try to navigate through that, learn what's really going on and bring the facts to light as well as solutions that are plausible.

So, I personally would appreciate it if people fostered legitimate discussions on the topic at hand, with well sourced facts that aren't from some lobbyist spin machine.

he's not saying a tantrum and you're over reacting but the point is these comments are devoid of facts and statistics. I don't even know what anyone is arguing about.

So, consider EP to be like a classroom or a business meeting and write accordingly. If you wouldn't say it to your Grandmother, it's probably not appropriate to this site, including continuing on a non-issue non-issue whatever this is thing. Drop it.

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