Economists still debate exactly what impact public-sector unions have on pay but, you probably already know the answer to this one. Evidence from the American Bureau of Labor Statistics support the conservative argument that they have used their power to extract a wage premium to wit public-sector workers earn, on average, a third more than their private-sector counterparts.
Three economic facts are clear:
· Unions have suppressed wage differentials in the public sector.
Wage differentials are relatively small in the public sector. Lower-level workers, such as secretaries, are usually better paid than their private-sector equivalents, whereas higher-level workers are worse paid. This not only makes it difficult to attract high-flyers into the public sector, but also makes it hard to raise standards by, for instance, putting the best head teachers in charge of groups of schools.
· They have extracted extra-ordinary benefits for their members.
Why are benefits are generous in the public sector? Easy answer – corrupt and lazy politicians. Governments tend to give their workers light workloads and generous pensions in lieu of higher wages (which have to come out of the current budget). In America teachers teach for a mere 180 days a year. In Brazil they have the right to take 40 days off a year—out of 200 working days—without giving an explanation or losing a centavo of pay.
The defined-benefits revolution that has swept through the private sector has hardly touched the public one: 90% of American state- and local-government workers have defined-benefit plans, compared with 20% of private-sector workers.
Generous pensions have produced an epidemic of early retirement. In Brazil civil servants can retire on full pay after 35 years on the job (30 for women) and teachers can retire after 30 years (25 for women). The result is that Brazil spends as high a proportion of its GDP on pensions (12%) as Britain does, even though the population is much younger. In Poland soldiers and policemen can retire after just 15 years, so it is possible to come across 33-year-old retirees.
· They have protected underperforming workers from being fired in order to create a reason for the existence of the union (not to mention the retention of the dues revenue stream!)
Unions have made it impossible to shit-can incompetent workers. In Greece there is a law against sacking government workers solely on grounds of poor performance.
In other countries there might as well be. Mary Jo McGrath, a Californian lawyer, says that “getting rid of a problem teacher can make the O.J. trial look like a birthday party.” In 2000-10 the Los Angeles school district spent $3.5m trying to get rid of seven of its 33,000 teachers, and succeeded with only five.
Incompetence is so endemic that several countries have invented phrases to deal with it. Brazilians joke that public-sector workers turn up on the first day, hang their jackets on the back of the chair, and are never seen again. The Greeks talk about putting incompetents “in the fridge”—giving them pretend jobs. In France it is the cupboard. Americans refer to “the dance of the lemons”—the practice of reassigning bad teachers to new schools rather than getting rid of them. They also refer to the “rubber room” where incompetent or criminal teachers bounce around, often for years, while administrators and unions haggle over what is to be done with them.
The unions’ influence extends to the size and nature of the public sector. Private-sector unions have learned to exercise self-restraint when it comes to pushing for more manpower: they realize that more workers may reduce the wages of their members and that a higher wage bill may drive their employers out of business. But public-sector unions are relentless in demanding more resources and more personnel, which conveniently translate into more members and more dues.
In California, the prison guards’ union has been one of the leading advocates of getting tough on crime. The result of this policy has been a dramatic increase in both the size of the state’s prison-industrial complex (from 12 prisons in 1980 to 33 in 2000) and the pay of the people who run it (prison guards in 2006 made $70,000 a year in base salary and $100,000 with overtime).
But public-sector unions can prosper simply by opposing rationalization: Buffalo, in New York state, has as many public workers in 2006 as it did in 1950, despite the fact that the city has lost HALF its population.
Public-sector unions combine support for higher spending with vigorous opposition to more accountability, performance based pay or outsourcing.
The teachers’ unions have an impressive record of terminating reformers. When Marietta Giannakou, the education minister in the last New Democracy government in Greece, insisted on teacher accountability, she lost her seat at the next election. Michelle Rhee, the chancellor of the awful school system in Washington, DC, closed failing schools, fired more than 200 ineffective teachers and principals, and advocated merit pay. But the unions fought her every step of the way, using their muscle first to get rid of her patron, the city’s mayor, and then to bring about her own resignation.
Next posting: Hate working weekends? Thank a union member. Part 3 of 3.
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