The Problem with Public Sector Unions, Part 1

With all the hullabaloo going on in Wisconsin over the recent Republican move to strip collective bargining rights from public sector workers (excluding the police and firefighters unions) I feel there is alot of untruths and falsehoods that are being shot around. For those unfamiliar with the situtation, here is a video of Stefan Molyneux giving a good summary.  Now,  I’m in no position to be prognosticating from on high as some expert — these are just my musings about the concept of public sector unions vs. private sector unions.

Who are they organizing against?  One of the main problems I’ve never been able to understand is what exactly a public sector union is supposed to be protecting their workers from? There are no stockholders, no investors, no group of people that are looking to make more money for themselves while at the expense of the worker. Since the profit motive is not used when carrying out tax-funded services, it doesn’t really make sense for public workers to organize against “profits over people” managers.

Now I want to get it out there that I’m am not against the concept of unions. Unionization is grounded in our right to contract. Any group of people that want to join together and contractually agree to collective representation is fine by me as long as the process is completely voluntary.

The basic concept of unions, specifically when discussing wages, is that in the market a business has certain costs. Raw materials, energy, taxes, licenses, and property are typically a set cost, though they can sway as the prices for these services are always changing in the market. The one cost that has the greatest variance is always labor costs, whether because of the skills required or the ability of workers to organize. This also tends to be the highest cost for businesses, which is why you never really see a “Help Wanted” sign outside small, family-owned shops. The reason is that after all these costs of running the business are paid for, anything left over is profit.

Now profit is an important thing. It can be used in a multitude of ways. Profits often go back into the business, expanding production, hiring new labor, etc.  If the profits exceed the owner’s plan to expand the business, many times the profits are paid as dividends to the investors in the company. In the past, many companies would put the profits in savings and create company banks that would use them as assets with which they could make loans. I know in my home area of upstate New York, the  Endicott-Johnson Shoe Company basically built the cities of both Endicott and Johnson City through this method. A more modern day example would be Google’s practice of funding pet projects of their employees, basically giving them “small business loans” to try new ideas.

It is only through profits that unionization actually makes some kind of sense. Using the Labor Theory of Value (which I disagree with but which is necessary to understand unionization), any money taken in over the cost of production is labor that is being exploited from the workers. So accordingly, workers should be able to unionize to put pressure on management so that all profits lead to higher wages, creating basically a zero sum setting. This is what Marx meant by workers controlling the factories — eventually management would subside as worker unions took control of the means of production allowing all profits to be spread equally to all workers.

Though when a company operates in the free market they are subject to market forces, of which unions must recognize. There is a balance that must be accepted by all involved parties including union negoiators because the business is open to failure. If wages under union contracts get too high, or dramatic shifts in the cost of materials happen, the business can shut down putting all parties out of work. Something that both union organizers and managment can agree upon as a bad thing.

However, when you apply this model to the public sector it just doesn’t work. There are no profits — or at least there isn’t supposed to be. Since these services are not being provided by an institution that is subject to free market forces, specifically failure, the balance is thrown into whack. The union, which is supposedly there to give equal power between workers and management, ends up having alot of clout. Since the legislative bodies are in effect management, they weaken the ability of effective bargining because it is open to political pressures. They don’t have the capitalists “reset” button of selling the business and closing up shop should the unions become too overbearing.

Because of this imbalance we see outrageous benefits like full retirement packages at the age of 55, pension as high as or even higher than 90% of your highest total income for the rest of your life, and completely free cadillac health plans for your entire life and up to two ex-spouses. Unions have no need to create a balance because of the belief that the state will never fail. Perhaps this is why in the private sector unionization has had a steady decline, where as public sector unionization is growing rapidly.

Now that we are in a recession and heading to a depression, states are needing to cut their budgets because they can no longer count on the tax revenues of years past. But because of unions, they are contractually obligated to pay them. Unless, as we’ve seen in Wisconsin, the legislature does something. With tax revenues going down and spending going up, we are coming to a crossroads and when you look at it, the biggest cost to state governments is just that, cushy union benefits.

Coming soon: Part 2, the Political Circle of Public Sector Unions.

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