Tag: unions

Wednesday Links

Bailout Coming for the Postal Service?

The U.S. Postal Service is in financial trouble. Undermined by advances in electronic communication, weighed down by excessive labor costs and operationally straitjacketed by Congress, the government’s mail monopoly is running on fumes and faces large unfunded liabilities. Socialism apparently has its limits.

While the Europeans continue to shift away from government-run postal monopolies toward market liberalization, policymakers in the United States still have their heads stuck in the twentieth century. That means looking for an easy way out, which in Washington usually means a bailout.

Self-interested parties – including the postal unions, mailers, and postal management – have coalesced around the notion that the U.S. Treasury owes the USPS somewhere around $50-$75 billion. (Of course, “U.S. Treasury” is just another word for “taxpayers.”)  Policymakers with responsibility for overseeing the USPS have introduced legislation that would require the Treasury to credit it with the money.

Explaining the background and validity of this claim is very complicated. Fortunately, Michael Schuyler, a seasoned expert on the USPS for the Institute for Research on the Economics of Taxation, has produced such a paper.

At issue is whether the USPS “unfairly” overpaid on pension obligations for particular employees under the long defunct Civil Service Retirement System. The USPS’s inspector-general has concluded that the USPS is owed the money. The Office of Personnel Management, which administers the pensions of federal government employees, and its inspector-general have concluded otherwise. Again, it’s complicated and Schuyler’s paper should be read to understand the ins and outs.

Therefore, I’ll simply conclude with Schuyler’s take on what the transfer would mean for taxpayers:

Given the frighteningly large federal deficit and the mushrooming federal debt, a $50-$75 billion credit to the Postal Service and debit to the U.S. Treasury will be a difficult sell, politically and economically. Although some advocates of a $50-$70 billion transfer assert it would be “an internal transfer of surplus pension funds” that would allow the Postal Service to fund promised retiree health benefits “at no cost to taxpayers,” the reality is that the transfer would shift more obligations to Treasury, which would increase the already heavy burden on taxpayers, who ultimately pay Treasury’s bills. (The Congressional Budget Office (CBO) prepares the official cost estimates for bills before Congress. Judging by how it has scored some earlier postal bills, CBO would undoubtedly report that the transfer would increase the federal budget deficit.) For those attempting to reduce the federal deficit, the transfer would be a $50-$70 billion setback.

Sounds like a bailout to me.

See this Cato essay for more on the U.S. Postal Service and why policymakers should be moving toward privatization.

Wisconsin: Post-Mortem & Predictions

Last night’s vote by the Wisconsin-based portion of the Wisconsin Senate has received enormous attention. The scope of collective bargaining by school district and other government employees has been narrowed, and the state will no longer automatically garnish workers’ wages to pay union dues.

This was the right thing to do. But how much of a difference will these changes actually make to the state’s bottom line? As I’ve noted, the presence or absence of collective bargaining is not strongly correlated with school district spending. Instead, unions have won their massively (42%) above- market compensation through well-funded political action; which brings us to the question of automatic paycheck deduction of union dues.

Without automatic dues withdrawals, will public school unions still be able to afford their fantastically successful political activities? There’s no reason to doubt it. Given the huge compensation premium public school employees enjoy over their private sector counterparts, they have a powerful incentive to voluntarily keep funding the political action that helped win it.

Indeed, we can see this already in right-to-work states like South Carolina. Public school employees there have no collective bargaining rights and there is no automatic union dues withdrawal, but the Palmetto State nevertheless has a teachers’ union and an administrators’ association that have spent large sums of money on political action. It’s worked. Despite not being the wealthiest of states, South Carolina still spends roughly $12,000  per pupil on its public schools, and its public school teachers earn more than the state’s median household income. The teacher and administrator groups have also successfully defeated every legislative effort thus far to open up the state’s education system to private sector competition and parental choice.

The only way to rein-in out-of-control public school spending is thus to give both families and taxpayers an alternative to the government monopoly status quo. Cut taxes on folks who pay for their own children’s education, or who donate to non-profit scholarship organizations that subsidize private school tuition for the poor. Many states are doing this already on a small scale. By so doing so on a larger scale, families will have much greater choices and taxpayers will reap enormous savings.

Ditching Collective Bargaining Won’t Control Public School Costs. Here’s What Will…

Lawmakers in Wisconsin and elsewhere are seeking to eliminate collective bargaining rights for public school employees as a means of controlling runaway spending (it has tripled in real terms since 1970, despite stagnation or decline in student achievement at the end of high school–see the last chart in this post). But even if collective bargaining is forbidden to state school employees, the savings will likely be negligible.

Surprising as it may seem, that conclusion follows directly from the research on school employee unions, which I reviewed last year for the Cato Journal. Differences in spending between school districts with and without collective bargaining are modest to non-existent. Does this mean that the unions are impotent and that their members have been wasting their $600 annual dues payments? Not quite.

Though employee compensation varies little from one school district to the next, based on the presence or absence of collective bargaining, public school employees enjoy far better compensation than their private sector counterparts. The combined salary and retirement benefits of public school teachers are 42 percent larger than those of private school teachers (see link above).

Public school employees win this generous compensation premium through political action backed by monumental campaign contributions. Democrats receive the overwhelming share of these contributions (93% from the NEA; 99% from the AFT, see Cato Journal link), but many Republican lawmakers are also swayed, fearful that the unions will finance their primary opponents the next time they face voters.

To further increase their clout, union leaders have sought to grow their membership. More members mean more dues revenue with which to influence legislators. In this regard, too, they have been enormously successful: the number of public school employees has grown ten times faster than the number of students for two generations—a major factor in the system’s exploding cost and collapsing productivity (see figure below).

Public school employees clearly understand that union membership has benefitted them handsomely in both compensation and job security. Over the past forty years, union membership as a share of the public school workforce has increased from 42 percent to 70 percent. Even if collective bargaining were eliminated tomorrow, school employees would have every reason to continue funding the self-interested political action that has served them so well in the past.

So what would provide a counterbalance to unsustainable union demands?

To find the answer, it helps to know that while union membership was rising in the public sector it was falling steadily in the private sector—to just 6.9 percent of the workforce in 2010 (see figure below). The reason is simple: when a business makes excessive concessions to a union and is thereby forced to raise prices above those of its competitors, it loses customers. As it loses customers, it lays off workers. If this situation continues, the business fails. Private sector unionization is thus self-regulating to a significant degree.

Public school employee unions, by contrast, have no direct competitors. They cannot drive their employer out of business because there is only one employer in the sector and its existence is mandated by law. The only real solution to the spiraling cost of our state school monopolies is thus to open them up to private sector competition, so that both parents and taxpayers have an alternative to the no-longer-affordable status quo.

There are several ways of doing this, of which education tax credits seem the most promising. In Florida, Arizona and other states, taxpayers can claim a dollar-for-dollar credit for donations to non-profit scholarship organizations. These organizations, in turn, subsidize private school tuition for low-income families. In Illinois and Iowa, families who pay for their own children’s education are eligible for tax credits to directly offset part of the cost.

Though most of these programs currently impose tight caps on the total value of credits available, they are already generating substantial savings to taxpayers while simultaneously expanding the choices available to families. Florida’s k-12 scholarship donation credit saves taxpayers $1.49 for every dollar it reduces state revenue, and the new private sector competition has improved achievement in public schools.

So while curtailing collective bargaining won’t rein in out-of-control spending, introducing real private sector competition will. And as the final figure reveals, we have got to get spending under control….

…..

Update: I should add that, as NRO’s Rich Lowry notes, the plan for the state to stop garnishing public school employees’ wages and sending the money to the union is highly commendable. If employees want to pay union dues, they should be free to do so, but the choice should be theirs.  Of course, since public school employees benefit very handsomely from the status quo monopoly (see below), it’s likely that most will continue to pay voluntarily for the lobbying and political contributions that will preserve their above-market compensation. So it’s still the case that introducing private sector competition is the best way to control education costs.

Everything You Need to Know about Whether State and Local Bureaucrats Are Over-Compensated, in One Chart

The showdown in Wisconsin has generated competing claims about whether state and local government bureaucrats are paid too much or paid too little compared to their private sector counterparts.

The data on total compensation clearly show a big advantage for state and local bureaucrats, largely because of lavish benefits (which is the problem that  Governor Walker in Wisconsin is trying to fix). But the government unions argue that any advantage they receive disappears after the data is adjusted for factors such as education.

This is a fair point, so we need to find some objective measure that neutralizes all the possible differences. Fortunately, the Bureau of Labor Statistics has a Job Openings and Labor Turnover Survey, and this “JOLTS” data includes a measure of how often workers voluntarily leave job, and we can examine this data for different parts of the workforce.

Every labor economist, right or left, will agree that higher “quit rates” are much more likely in sectors that are underpaid and lower levels are much more likely in sectors where compensation is generous.

Not surprisingly, this data shows state and local bureaucrats are living on Easy Street. As the chart illustrates, private sector workers are more than three times as likely to quit their jobs.


This helps explain why the unions are treating the Wisconsin debate as if it was Custer’s Last Stand. The bureaucrats know they have comfortable sinecures and they are fighting to preserve their unfair privileges.

The only bit of semi-good news for Wisconsin taxpayers is that state and local bureaucrats are not as lavishly over-compensated as federal bureaucrats.

This Center for Freedom and Prosperity video looks at all of the data and reveals a pecking order. Federal bureaucrats are at the kings and queens of compensation. State and local bureaucrats are like the nobility. And private sector taxpayers are the serfs that worker harder and earn less, but nonetheless finance the entire racket.

The video closes with a very important point that the right pay level for many bureaucrats is zero. This is because they work for programs, departments, and agencies that should not exist.

Union Membership Continues Its Long Decline

According to a report out this morning from the U.S. Labor Department, the number of American workers belonging to labor unions declined again in 2010, continuing a long slide that began in the 1950s.

The number of unionized workers in the private sector fell by 339,000 last year, while the number in the government sector fell by 273,000. The share of private-sector workers belonging to a union dropped to 6.9 percent in 2010, the lowest “union density” in more than a century.

Union leaders are running out of excuses. They can’t simply blame a slowly recovering economy; the number of non-union workers employed last year actually increased by a small amount. And they can’t blame a hostile federal government; President Obama and the Democratic Congress that organized labor helped elect in 2008 tried to give unions just about everything they wanted during the 111th Congress.

The seeds of organized labor’s decline lie within the movement itself. Private sector unions are literally pricing themselves out of America’s increasingly competitive and open markets.

As I pointed out in an article [PDF] for the Cato Journal last year, unions are effective at raising wages and benefits for their members, but not at raising productivity. The result is a “union tax” on certain U.S. companies and sectors, a tax that puts them at a competitive disadvantage against non-unionized firms, resulting in a long-term loss of market share and reduced employment for union members.

Unless America’s private-sector unions change their approach and work more collaboratively with employers in the marketplace, they will continue to commit slow suicide.

Postal Service Announces $8.5 Billion Loss

The U.S. Postal service has announced a net loss of $8.5 billion for fiscal 2010. Since 2006, the USPS has lost $20 billion, and the organization is close to maxing out its $15 billion line of credit with the U.S. Treasury. Although the USPS has achieved some cost savings, they haven’t been enough to overcome a large drop in revenue due to the recession and the greater use of electronic alternatives by the public.

The USPS is required to make substantial annual payments to pre-fund retiree health care benefits. Last year, Congress allowed the USPS to postpone $4 billion of its fiscal 2009 into the future. However, Congress did not provide similar relief on this year’s required payment of $5.5 billion.

Critics of the retiree health care pre-funding requirement argue that no other federal agencies or private companies face such obligations. The argument is largely irrelevant for two reasons. First, the federal government’s financial practices are nothing to emulate. Second, very few private sector workers even receive retiree health care benefits.

In 2008, only 17 percent of private sector workers were employed at a business that offered health benefits to Medicare-eligible retirees, down from 28 percent in 1997. The actual number of private sector workers receiving these benefits is even lower as not all employees employed at the 17 percent of businesses that offers retiree health benefits are eligible to receive them.

The retiree health care benefit pre-funding requirement has become a rallying cry for the postal unions, as any threat to USPS solvency is a threat to the excessive compensation and benefits they’ve been able to extract from the postal service for their membership over the years.

Policymakers should properly view the retiree health care benefit as a symbol of postal labor excess, which continues to weigh the USPS down like an anchor. Therefore, they should avoid allowing the USPS to further postpone these payments into the future, which could lead to a taxpayer bailout. Instead, policymakers should recognize that the USPS’s financial woes require bolder action: privatization.