Government Spending

Why Private-Sector Union Membership Declined. And Why Public-Sector Unions Might Follow.

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Washington Post columnist Robert Samuelson has written a rarely seen, free-of-cant disquisition on the rise and fall of labor unions in the private sector. He notes that private-sector union membership is lower now (6.9 percent) than it was the Wagner Act, which mandated that employers allow and negotiate with unions, was passed in 1929. The percentage of private-sector workers in unions climbed to around 35 percent during World War II and then began a long slide that greatly accelerated in the '70s and '80s.

Georgia State's Barry Hirsch explains that, in 2006, union workers made about 19 percent more than non-unionized workers and that such a premium can exist when productivity and hence profits are higher.

The productivity advantages of unionized firms are scant, Hirsch says. The formula worked, because many heavily unionized industries were dominated by a few large firms with similar labor costs. These could be recovered in higher prices.

That changed in the 1970s and 1980s. Imports and "transplant" factories created new competition in steel and autos. Airlines, trucking and communications (telephones) were deregulated, allowing new low-cost rivals into the market. Digital technology and the Internet transformed communications and threatened many industries, including traditional phone companies and newspapers.

Samuelson, whose book The Great Inflation and Its Aftermath is one of the great explications of the post-war economy in America, goes to note that labor and management in big, typically long-protected firms, were slow in reacting to changes.

By and large, union concessions were too little, too late. Corporate managers, their business models besieged, were also slow. Both executives and union leaders underestimated the vulnerability of once impregnable market positions. The downfall of the "Big Three" automakers epitomized this disastrous cycle. Nonunion firms gained market share; union membership fell. Unions also had a harder time organizing other companies, because both managers and workers feared job loss.

How does this translate into the public sector, which is where the action is (literally: more union members are in the public sector now, despite the far lower number of workers in that sector)? This is especially a tough question since efficiency in the public sector is tough to enforce. In the private sector, increasing productivity means doing more with less, including fewer workers. In the public sector, "investment" works in the other direction. The very goal of many education reforms, for instance, is to increase the number of teachers per student, which is by definition a decline in the conventional understanding of productivity.

Among government workers, 36.2 percent are unionized. Their growth partially offset the erosion of private-sector unions (the combined unionization rate for private and public workers: 11.9 percent). Traditionally, public-worker unions flourished in an alliance with liberal Democrats. But the huge loss of state and local government revenue has—like new competitors for firms—transformed the economic and political climate. Labor costs put upward pressure on taxes and downward pressure on public services.

The result is a dilemma that transcends partisan union-bashing. Striving too hard to protect existing wages and benefits will stimulate more political opposition, and not just from Republicans (see Gov. Andrew Cuomo in New York). But sacrificing too much may trigger a revolt from angry rank-and-file members. Private-sector unions couldn't solve this dilemma; they never reconciled past successes with future survival. So Big Labor became Little Labor. If public-sector unions fail, Little Labor could become Mini Labor.

Whole column here.

Samuelson is right to note that Cuomo, along with Jerry Brown in California, are going to be doing the same thing as seen in other Republican-led states: They're going to be cutting total compensation for state workers, whether unionized or not. Progressives such as George Lakoff, Rachel Madow, and the folks at Alternet may think that the whole "we are out of money" is a "ruse" but wishing away the godawful bottom-lines of oh, about 50 out of 50 states ain't gonna help unions or taxpayers in the long run. That's exactly what the brainiacs at GM and US Steel did on both sides of the bargaining table did back when the world changed and look where they are now.

Check out Andrew Cuomo's ruse in this video about why state budget showdowns are coming to your state's capital city soon:

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  1. The very goal of many education reforms, for instance, is to increase the number of teachers per student, which is by definition a decline in the conventional understanding of productivity.

    Like those “8 unionmen driving a forklift” jokes of the 80s.

    And it’s not just a “conventional” understanding of economic efficiency – doing more with less IS economic efficiency, whereas doing the same or less with more is wasting of resources: the working definition of a government department.

    1. I have to disagree with Samuelson’s metric. Productivity in education is not just how many students you crank through the system, but how well educated they are. Smaller class sizes do increase the total output of education. Give every student total 1-on-1 tutoring for twelve years, and you end up with a whole lot of education production.

      Of course, there are costs involved too. While smaller class sizes do result in more education (assuming teach quality remains the same, ceterus parabus, yada, yada), the extra labor costs may outweigh the benefits. In a public school system there’s no way to know, because the consumer of the education is not paying for it, and so does not care.

      1. Yes, I remember well when the teacher unions were soooo consistent in wanting to use the Japanese test scores to justify hiring more teachers, even tho the Japanese had huge class sizes. Of course that part of the Japanese education system was not to be talked about.

      2. Smaller class sizes do increase the total output of education.

        Wrong – there is no functional difference in teaching a class with 20 kids and teaching a class with 25 kids, which is what we are discussing, not 1 on 1 tutoring. All the decrease in class size does is add more union members (teachers) and thus more dues.

  2. “but wishing away the godawful bottom-lines of oh, about 50 out of 50 states”

    FTR, Montana has a budget surplus (that is, if the governor wasn’t lying on TV a couple of days ago.

    1. Well, were his lips moving?

    2. I was flipping through the channels this morning, and Bloomberg TV had an interview with the governor of Wyoming, which was one of only four states not to be facing a budget shortfall.

      The other three were Alabama, Arkansas, and North Dakota, I think.

      I’m not certain what metric they were using.

  3. Georgia State’s Barry Hirsch explains that, in 2006, union workers made about 19 percent more than non-unionized workers and that such a premium can exist when productivity and hence profits are higher.

    This is true only over a long time frame.

    The wage gap can continue with flat or lower productivity and lower profits for the firm for quite awhile; as long as the firm makes a profit, it can stay in business and pay above-market wages.

    Eventually, of course, a firm with a bad cost structure is going to get caught out during a downturn, and is going to go under. But you can look at Detroit to see that it can take “eventually” quite awhile to get here.

  4. The formula worked, because many heavily unionized industries were dominated by a few large firms with similar labor costs. These could be recovered in higher prices.

    Takes some big balls to state that fact – the unions were being subsidized through bilking the consumer.

    That changed in the 1970s and 1980s. Imports and “transplant” factories created new competition in steel and autos. Airlines, trucking and communications (telephones) were deregulated, allowing new low-cost rivals into the market.

    Protectionism and merchantilism can only take you so far. Market forces will ALWAYS prevail, either positively (bypassing the strongholds) or negatively, by choking economic growth.

  5. This is especially a tough question since efficiency in the public sector is tough to enforce. In the private sector, increasing productivity means doing more with less, including fewer workers. In the public sector, “investment” works in the other direction. The very goal of many education reforms, for instance, is to increase the number of teachers per student, which is by definition a decline in the conventional understanding of productivity.

    Exactly. That EPI “pay equality” study which the liberals have been hitting people over the head with is essentially a giant red herring; individual teachers (or other public servants employees) may not be grossly over paid, but in aggregate, there are too many of them, and we spend too much for the services they provide.

    Hence, my new hobbyhorse of “marginal value added”. In the real world, you don’t hire new employees for fifty (or twelve) thousand bucks annually, unless they bring revenue substantially in excess of that.

    1. If it’s the study I’m thinking of, it has bigger issues than that. The EPI studies I’ve seen on public vs private sector compensation all use the trick of controlling for degree level and years of experience, but not controlling for what the degree is in or what occupation the work is. So they count someone with a MFA in creative writing doing clerical work as a day job the same as someone with a masters in an engineering field leading a project team. I found one study from another group that ran the calculations with and without controlling for occupation and controlling for occupation, not controlling for occupation make the relative wages of goverment workers look about 4% smaller than they would if occupation was controlled for.

      1. “…The EPI studies I’ve seen on public vs private sector compensation all use the trick of controlling for degree level and years of experience, but not controlling for what the degree is in or what occupation the work is….”

        Reading the abstract is almost a good stand-up routine; you can see these folks mining the data twenty different ways until they found one metric that agreed with their agenda.
        If cherry-picking were an Olympic event, we found the gold team.

        1. Hmmm…

          Do we need a Postmodern Pentathlon?

    2. It’s really all the useless administrators that make about $100k in salary and another $50k in benefits. There are hoards of them in each state.

      1. Definitely a less politically charged place to start cutting the fat (though I imagine that many administrators are technically management and thus not unionized anyway).

      2. Chris Christie said that of the total expense of Newark Cops, 63% is benefits i.e. benefits are 170% of salary. Cops would likely command better than average public employee benefits but it’s still pretty dramatic. Private sector benefits run around 30% of salaries, based on my experience across three well known corporations.

  6. And another thing; in the real world, you don’t maintain Christmas Rush -level staffing year round; you add people when they will be needed, and you cut them loose when things are slow.

    No government job, once created, ever becomes “redundant” absent torches and pitchforks.

    1. that’s certainly not true w the military which significantly downsized following the collapse of the soviet union.

      1. “that’s certainly not true w the military which significantly downsized following the collapse of the soviet union.”

        Nope, not by much and not for long:
        http://en.wikipedia.org/wiki/F…..ending.PNG

  7. I like how George Lakoff makes the helpful suggestion that, to fix budget deficits, states can just “raise revenue”.

    “Don’t worry kids, you can still eat at the steakhouse every night. You just have to make more money!”

    1. I couldn’t make it through more than three paragraphs of his article. He seems woefully ignorant. Do they just give Ph. D.’s in linguistics to people who ask nicely?

      1. LOL

        I read a few of Noam Chomsky’s book. Yes I do mean “book” singular and “a few of” plural.

        I came away with some questions. First, why is this guy supposed to be worth reading? Second, what the fuck do linguists actually do?

  8. Why is Brando peeing in the corner?

  9. Is there anyone else who finds the picture in the second blockquote makes it hard to tell that it’s all one blockquote, and not two blockquotes with commentary from Gillespie in between? It’s a problem I’ve had with other Hit-and-Run posts in the past, too.

    1. Re: reneviht,
      “Follow the lefthand grey line!
      Follow the lefthand grey line!”

  10. Cuomo, along with Jerry Brown in California, are going to be doing the same thing as seen in other Republican-led states: They’re going to be cutting total compensation for state workers, whether unionized or not.

    But the main contention in Wisconsin and Ohio is that the collective bargaining will be abolished. The Dem governors are cutting but leaving the unions intact. When you eliminate the unions, you cut out a huge corporate supporter of Dem politicians and you had better bet your ass that it is now a political battle.

    1. “The Dem governors are cutting but leaving the unions intact.”

      That’s like giving someone relief for their cancer symptoms but refusing to cut out the tumor. They’re fucked. Unions do not inhibit their growth naturally, they simply grow and consume as many resources as are made available to them. The Republicans are probably fucked too, but at least they have a shot. Chemotherapy hurts. Give the taxpayers a wig and some pain relievers and get on with it.

      1. I was just pointing out that there is a difference between what the Dem govs and Repub govs are doing, and why there is more vehement backlash in the latter case.

  11. The Dem governors are cutting but leaving the unions intact.

    You cannot eliminate a structural deficit without making structural reforms. Budgets that may be balanced for one budget cycle with cuts but no reforms will not stay balanced.

  12. Sorry Nick…the Wagner Act was passed in 1935, not 1929.

  13. Georgia State’s Barry Hirsch explains that, in 2006, union workers made about 19 percent more than non-unionized workers and that such a premium can exist when productivity and hence profits are higher.

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