New Study on How Government Employee Unions Squeeze Public Budgets
Remember the California budget debacle? Now it seems like not a month goes by without another state facing a budget crisis. Now it’s Michigan’s turn. Predictably, state politicians are trying to scare the public with talk of cutting funding for libraries and prisons, in order to make tax increases an easier sell. Also predictably, policy makers appear to be avoiding looking for budget savings where substantial ones could be realized: government payrolls. As The Detroit News points out:
Employee pay and benefits make up one of the biggest costs of state government. Michigan had 52,769 workers as of March and a state classified payroll of $4.73 billion for fiscal year 2007-08. When the auto industry was larger, Michiganians were among the top 20 states in per-capita income. But that income has declined to 11 percent below the national average. The state with the nation’s worst unemployment rate can no longer afford to pay above-average compensation. Michigan state workers earn 6 percent more than the national average in salary and benefits, according to the U.S. Bureau of Economic Analysis. Michigan private-sector workers make 29 percent less than the national average for state workers.
As in other states, government employee unions oppose cuts that would affect their members. All unions do this, but public sector unions are different in that they don’t have to fear putting their employer — government — out of business, so they can ratchet up demands, which are fulfilled at taxpayer expense, to a much greater extent than private sector unions generally are able to. The upward spiraling public sector pay and benefits that result from this can wreak havoc on public finances.
For an in-depth analysis of the effect of the widespread unionizaiton of government employees, see the new Cato Institute Policy Analysis, “Vallejo Con Dios: Why Public Sector Unionism Is a Bad Deal for Taxpayers and Representative Government,” co-authored by University of South Florida economics professor Don Bellante, David Denholm of the Public Service Research Foundation, and myself.