Why Public Sector Unions Are Worse Than Private Sector Unions

Economics, Unions

Kevin Drum, as usual, gets it wrong on public sector unions:

Public sector unions are a lot like that: conservatives don’t like them in the first place, and crippling them would also seriously cut into a major funding source for the Democratic Party. It’s another twofer. And as Surowiecki notes, they’re a ripe target right now.

I left the below comment over there:

I’m as free-market libertarian as they come, but yet I understand the potential benefits of private sector unions. If a union is smart, they position themselves as creating value both for workers and for the employer — i.e. a union can take the place of eseentially an outsourced HR division from the employer. By doing so, the union through collective bargaining can take the responsibility to negotiate individual salaries (obviously this is most important in jobs where individual workers have low differentiation) and work conditions. Collective bargaining has a place.

But there’s a key — in the private sector, there is always a profit/loss number. The employer has a constraint on behavior in that if he cannot generate enough revenue to pay his workers and still make a profit, he must either cut costs or go out of business. Thus, sometimes he has a responsibility to the company to tell the union “No” with regards to a request. A union that understands this and works with an employer (i.e. the exact opposite of UAW behavior) to find solutions that protect the workers and helps the employer stay in business adds value. A union that won’t acknowledge a symbiotic relationship with the employer, or an employer who fails to say “No” when necessary will be punished by the market — and the Big Three & UAW are perfect examples of both.

The problem with public-sector unions is that there is no profit/loss. The unions are in a position of power because “management” (i.e. politicians) are not punished for their failure to say “No”. In fact, the story of politics is promising the moon and figuring out a way to deliver later, whether it be a promise to the voters or a promise to the unions. Coupled with a media that is typically pro-unionization (after all, what reporter wants to be seen as “anti-worker”), and the politician WILL be punished by public opinion for standing up to the union and saying no. All the incentives align not to have a union and politicians form a symbiotic relationship to be both efficient and responsible, the incentives align for the union & politician to push for the most lavish benefits possible, and put the taxpayer on the hook. Then, when the excrement hits the air circulation device, they scream about cuts to pension programs and fall back on their tried-and-true response, raising taxes.

The reason that “the Right” is so against public sector unions may partially be due to an overall anti-union sentiment. However, they’ve got ample reasons to be especially critical of public sector unions, as the natural check on their outrageous demands (i.e. the market) doesn’t exist for government.

Brad Warbiany