The Difference Between Private and Public Sector Unions


At The Washington Post, Ezra Klein makes the case that it's a mistake to separate private sector unions from their public sector counterparts. For one thing, he says, the costs they create are born by the rest of us regardless of whether the unions are public or private:

Lets let go of the idea that the public is on the hook for unions made up of government workers but not for unions made up of janitors in Las Vegas hotels.If private-sector unions negotiate higher wages that lead to higher corporate costs, those costs are passed on to the consumer. If public unions negotiate higher wages that lead to higher taxes, those taxes are paid for by the taxpayer. If public or private unions negotiate work rules that stifle innovation or impede good service, the public bears the brunt of that, too.

It's true that deals made by private sector unions can impose higher costs on others. But Klein overlooks a major difference: In the private sector, consumers have the right to opt out.

If private sector unions negotiate deals that make their respective industries more expensive to operate, and thus their products more expensive, consumers have the right to buy less, or to go elsewhere to get what they want. Businesses can send fewer employees to Las Vegas conferences. Families can pinch their food budgets if labor costs at grocery stores make prices more expensive, or replace their cars less often if union benefits add too much to the price of an automobile. If too many people opt out, or buy too little, the company in question goes out of business. And unless the government offers a bailout, that's the end of the story. When dealing with the private sector, unions generally have some incentive not to overreach to the point where their employer goes out of business.

The story's not the same in the public sector. When government employees negotiate added salary and benefits, those who are not directly employed by the government—which is to say, the vast majority of taxpayers—can't really opt out. So one of three things has to happen: 1) Taxes are raised to pay for the added compensation costs. 2) Services are cut in order to pay for the additional compensation. 3) The additional compensation isn't ever paid—a situation that usually comes with, at minimum, some sort of minor political drama, if not a serious showdown. This is why the power of public sector unions is such a big deal: When they negotiate better benefits, the majority of taxpayers usually end up forced to bear the cost, somehow, whether they want to or not. With private sector unions, that's not necessarily the case.