The views expressed in this column are those of the author and not SVB Financial Group.
Labor Day is a good time to reflect on the benefits we all enjoy from those union activists of the last century. Looking at the workplace today they would be astonished at the utopian environment we enjoy. Somewhere in your office near the coffee maker or the water cooler you will find a gigantic poster detailing our rights and benefits as employees. Quite a list: the 40-hour week, minimum wage, overtime pay, vacation time, safety and health rules, regulated coffee breaks, whistle-blower protections even maternity leave for men. For all of this we must thank the decades of agitation by the courageous and creative labor leaders of the last century. Mission accomplished.
With all these accomplishments institutionalized in legislation for everyone, the benefits of union membership began to pale. This was especially true for those who prefer the freedom to sell their services in the marketplace unfettered by the limitations on individual success that unionization ultimately requires. Unfortunately, the mindset of today’s union leaders did not allow them to simply declare victory and move on. They continued to push for more, wielding the power of sector-wide strikes to bring employers to their knees.
So it was that the most noteworthy recent event in the labor movement was the takeover through bankruptcy of General Motors and Chrysler by the United Auto Workers. The ultimate goal was finally achieved as the means of production were now firmly in the hands of the workers. The unholy alliance of management making unrealistic promises and assertive union negotiators gradually transferred the value of these two American icons from shareholders and bond holders to union pensioners. In this event we also find the final limit to employee benefits in the private sector. With key employers going bankrupt or their core manufacturing driven overseas, union membership evaporated at a rapid pace. The movement needed a host with unlimited resources. Government was the answer.
According to the Bureau of Labor Statistics (BLS) only 7.2 percent of private sector workers are union members mostly in utilities, telecommunications and transportation industries. Conversely, fully 37.4 percent of government employees carry union cards. Overall there are more public sector workers in unions (7.9 million) than in all of the private sector (7.4 million). Within this monumental shift towards public sector control by the labor unions we see a meaningful cultural and economic storm brewing.
Although union leaders may speak of their support of "working families" and their concern for creating "good manufacturing jobs," it appears to me that their real constituents are the elected officials that have so generously enhanced their numbers and their pay packets over the last 30 years. According to the BLS, the average federal employee makes 44 percent more than his or her private sector counterpart. This premium is composed of 35 percent higher wages and 69 percent more in benefits. In California, average state workers make 32 percent more than those in private companies. These premiums combined with the nature of the government workforce are a growing source of friction. A CNN poll last April showed that 74 percent of voters believed that "a lot of their tax dollars are wasted."
Similar to the bankruptcies of the airline industry, the railroads and the auto industry, the bill for this excessive largesse for government workers is now coming due. In a study by Orin Kramer, Chairman of New Jersey’s State Investment Council, the unfunded public pension benefits in the 50 states now total over $2 trillion. Add to that another $1 trillion for the unfunded healthcare benefits. Unlike the federal government that seemingly can borrow and print money without limit, the states must face a reckoning in the near future. Negotiating with the unions does not appear to be a promising alternative as they routinely point to their contracts and threaten to strike over any unilateral reduction of pay or benefits. Outside of government, the traditional way to alter these pension contracts is through the court system via bankruptcy. But how does a state file for bankruptcy?
Now voters are becoming aware of the approaching calamity. They know that it takes the taxes of at least five private sector workers to carry the pay and benefits of one government employee. In some districts, close to half of the tax receipts are paid to retirees, forcing cuts in education, fire and police services.
So it is no surprise that it appears union leaders find themselves firmly ensconced with the ruling power. Service Employees International Union President Andrew Stern was the most frequent visitor to the White House in 2009. Union leaders who speak of their support for the working man seem to be very interested in increasing the tax burden on that working man to finance support for more members. After their agenda failed with private sector employees, government represents the only source of growth and survival.
Nor is it surprising to me that they operate as newly entitled. Similar to today’s academics who grew up marching for free speech occasionally limit free discussion on campus, the successful leaders in the union movement are adopting the same uses of power they battled against in the 1930s. Once the revolutionaries take over the palace, it is exceedingly difficult for them to resist sampling the champagne and caviar.
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