How Much of that Flat Hourly Fee Would Be Overtime?

In the Orange County Register, Pacific Research Institute's Jason Clemens proposes putting government employees back on something like a contract basis. Urging Gov.-elect Jerry Brown to acknowledge that "employers, in this case, the state government, don't, or shouldn't, care about the composition of employee compensation," Clemens suggests bringing in public sector unions as administrators over a payment pool:

Our new governor should submit a proposal for completely overhauling the compensation system of all unionized state workers. Specifically, the state should, beginning in 2011, compensate all unionized employees with a flat hourly fee. The fee would include all sources of compensation (i.e. pay and benefits) and would be based on private-sector equivalents…

Have the state government remit the flat per-hour payment to the respective unions, which then would be charged with determining the preferences of their members, in terms of the mix of pay and benefits to come from the flat payment. If workers want to retain gold-plated pensions, for example, that's fine under this system, except that the cost of those pensions would result in less straight pay and other benefits.

The key under this approach is that the unions would be responsible for fitting the pay and benefits into a single envelope of compensation based on the flat hourly fee paid by the state.

In addition, the unions would be free either to contract out the management of their benefits (health and pensions) or provide them internally. The government would no longer be responsible for any shortfalls nor would it benefit from any surpluses. Instead, the union and its members would now be responsible for the proper management and funding of its health and pension benefits.

It's fair to say this is more in the realm of speculation than a practical proposal, so I hope it won't seem forward of me to point out some problems, starting with the claim that employers "don't, or shouldn't, care about the composition of employee compensation."

Private sector employers do take a very close interest in the composition of compensation. Since first arriving in these colonies under an indenture, I have been paid in part with: comparatively generous health insurance; gym, club and entertainment discounts; the opportunity to run a side business storing and putting out beach chairs for rich people; stock grants; stock options; employee stock option plans; a decent weed connection; a better 401(k) match; title inflation, and other lures. One prick even got a piece of work out of me in exchange for the opportunity to sell ads in his paper.

I don't know whether these employers should have been offering all these shiny beads (rather than handing me a bag of dollars or pesos or Ayn Rand silver coins every two weeks). I just know that they did. They might have been better off doing the lump payment Clemens describes: I, like many people, only pay real attention to the dollar figure I sign for and regard all the rest as happy accidents. But there is a clear advantage to an employer in micromanaging compensation: You want to pay in the asset that costs you the least to give away.

To make the conversion Clemens suggests making, you'd also have to factor in the future value of pension payouts. The amount of up-front hourly pay would not be small. This is because the unions are better bargainers – at the contract table, in the legislature, and in the streets – than the government is.

Which gets to the real weakness in this proposal. It leaves intact the public sector unions. Unless I'm missing something, it gives the unions even more power over their workers than they have now – and makes it unlikely that a future Gov. Schwarzenegger would be able to exert pressure on union members to wring compromises out of the leadership.

As Larry Elder pointed out to me this morning, it was Franklin D. Roosevelt who recognized that the "very nature and purpose of government makes it impossible for administrative officials to represent fully or bind the employer in mutual discussions. The employer is the whole people who speak by means of laws." 

Public sector collective bargaining is a relatively new development in American history. It is not hallowed by time. Based on five decades of results, it has not been ratified by history. End it don't mend it is a perfectly respectable option.

I realize the probability that Jerry Brown will repeal his own collective bargaining law is even lower than the probability that he'll institute Clemens' proposal. But if you're going to build castles in the air, they should at least be cool-looking castles.  For example, teachers—who don't work in a particularly hazardous job—are exempted from the Social Security system. What's the argument for continuing that sweet ride? Given that these people are teaching civics and government to children, is it even appropriate that they never know the pain and humiliation of seeing a chunk of their own money eaten up forever by FICA?

The public pension crisis is a symptom of the disease. The disease is unionization of government employees.