Tear Up That Lousy Contract

Wednesday, July 13, 2011

How ironic that Wisconsin became ground zero for the battle between taxpayers and public-employee labor unions. Wisconsin was the first state to allow collective bargaining for government workers, in 1959. It also was the first to introduce a personal income tax (in 1911, before the introduction of the current form of individual income tax in 1913 by the federal government).

Labor unions like to portray collective bargaining as a basic civil liberty, akin to the freedoms of speech, press, assembly, and religion. For a teachers’ union, collective bargaining means that suppliers of teaching services to all public school systems in a state—or even across states—can collude with regard to acceptable wages, benefits, and working conditions. An analogy for business would be for all providers of airline transportation to assemble to fix ticket prices, capacity, and so on. From this perspective, collective bargaining on a broad scale is more similar to an antitrust violation than to a civil liberty.

In fact, labor unions were subject to U.S. antitrust laws in the Sherman Antitrust Act of 1890, which was first applied in 1894 to the American Railway Union. However, organized labor managed to obtain exemption from federal antitrust laws in subsequent legislation, notably the Clayton Antitrust Act of 1914 and the National Labor Relations Act of 1935.

Remarkably, labor unions not only are immune from antitrust laws but can also negotiate a “union shop,” which requires nonunion employees to join the union or pay nearly equivalent dues. But somehow, despite many attempts, organized labor has lacked the political power to repeal the key portion of the 1947 Taft-Hartley Act that allowed states to pass right-to-work laws, which now prohibit the union shop in twenty-two states. From the standpoint of civil liberties, the individual right to work—without being forced to join a union or pay dues—has a much better claim than collective bargaining. (Not to mention that “right to work” has a much more pleasant, liberal sound than “collective bargaining.”) A renewed push for right-to-work laws, which haven’t been enacted anywhere but Oklahoma over the past twenty years, seems about to take off.

Collective bargaining is like letting all providers of airline transportation meet to fix ticket prices, capacity, and everything else.

The current pushback against labor-union power stems from the collision between overly generous benefits for public employees—notably for pensions and health care—and the fiscal crises of state and local governments. Teachers and other public-employee unions went too far in persuading weak or complicit state and local governments to agree to obligations, particularly defined-benefit pension plans, that created excessive burdens on taxpayers.

In recognition of this fiscal reality, even the unions and their Democratic allies in Wisconsin agreed to Governor Scott Walker’s proposed cutbacks in benefits, though they dug in their heels over restrictions on collective bargaining. This “compromise” left intact the structure of strong public-employee unions that helped create the unsustainable fiscal situation. The next governor, after all, may have less fiscal discipline than Walker. A long-run solution requires a change in structure: for example, restricting collective bargaining for public employees and, further, introducing a right-to-work law.

There is evidence that right-to-work laws—or, more broadly, the pro-business policies offered by right-to-work states—matter for economic growth. In research published in 2000, economist Thomas Holmes of the University of Minnesota compared counties close to the border between states with and without right-to-work laws (thereby holding constant an array of factors related to geography and climate). He found that the cumulative growth of employment in manufacturing (the traditional area of union strength before the rise of public-employee unions) in the right-to-work states was 26 percentage points greater than that in the non-right-to-work states.

Teachers and other public-employee unions went too far in persuading weak or complicit state and local governments to agree to obligations that created excessive burdens on taxpayers.

Which states are likely to be the next political battlegrounds on labor issues? One can interpret the extreme reactions by union demonstrators and absent Democratic legislators in Wisconsin not so much as attempts to influence that state—which may be a lost cause—but rather to deter politicians in other states from taking similar actions. This strategy may be working in Michigan, where Governor Rick Snyder recently asserted that he would not “pick fights” with labor unions.

In general, the most likely arenas are states in which the governor and both houses of the state legislature are Republican (often because of the 2010 elections) and in which substantial rights for collective bargaining by public employees currently exist. This group includes Indiana, which has recently been as active as Wisconsin on labor issues; Indiana actually enacted a right-to-work law in 1957 but repealed it in 1965. Otherwise, my tentative list includes Michigan, Pennsylvania, Maine, Florida, Tennessee, Nebraska (with a nominally nonpartisan legislature), Kansas, Idaho, North Dakota, and South Dakota.

The national fiscal crisis and recession that began in 2008 had many ill effects, including the ongoing crises of pension and health care obligations in many states. But there was at least one positive consequence. The required return to fiscal discipline has caused a re-examination of the growth in economic and political power of public-employee unions. We can hope that embattled politicians like Governor Walker in Wisconsin will maintain their resolve and achieve a more sensible long-term structure for the taxpayers of their states.