A 2009 study by economists Robert Novy-Marx and Joshua Rauh, published in the Journal of Economic Perspectives, estimated that these government pensions are underfunded by $3.2 trillion, or $27,000 for every American household.
The fiscal damage done by the unions is fairly obvious if one examines the data on the public-collective-bargaining states such as California, New York, New Jersey and Hawaii.
The political rent-seeking is very simple: unions invest heavily to get friendly state politicians elected. Those politicians repay the unions with continuously increasing wages and benefits that are totally out of touch with the market.
The Cato Tax and Budget Bulletin has an up to date report dated March 2010 [PDF]. And do not miss the Capital Hill Briefing Are Unions Good for America? available as video or audio podcasts.
These unions have one purpose: to extract from taxpayers above market compensation for their members. This purpose is implemented via a suite of destructive policies all of which are designed to increase inefficiencies in government (which means more union members and bigger union budgets). Example union policies are blocking school choice, privatization, and free trade.
In Unions, the Rule of Law, and Political Rent Seeking, Armand Thieblot outlines the threat — a threat which has become especially troubling in the short history of the Obama administration.
Consider that there are no market constraints on the power of unions to award themselves an increasing share of the nations production. No business fails due to excessive costs, the obvious constraint on private-sector unions — the government just borrows more or expropriates more from taxpayers. Thieblot writes:
They do this as economic rent seekers— hoping to secure for themselves and their members rewards greater than the value society accords them in a free market. Second, they dishonor the very principles of the rule of law by engaging in a corrupt, symbiotic relationship with lawmakers. They do this as political rent seekers—hoping to secure rewards of their own choosing, independent of economic or market restraint
Public employees salaries average 28% higher than private workers, and benefits are 70% higher.
This means that for every $1 in pay and benefits a private employee earned, a state or local government worker received $1.45.
This is all due to the compensation of union employees as non-union employees are compensated at about the same as the private sector. The WSJ editorial has a few shocking examples:
The Orange County Register reports that California has 3,000 retired teachers and school administrators, who stopped working as early as age 55, collecting at least $100,000 a year in pensions for the rest of their lives.
Illinois’s pension obligations are so costly the state had to issue $3.5 billion of bonds merely to meet its mandatory contribution to the worker retirement program, which faces $85 billion, or three years of state tax revenues, in unfunded liabilities. Near-bankrupt New Jersey would have to pay $7 billion a year if it properly accounted for its pension and health benefits.
Wouldn’t you like to be able to retire and rehire?
California, Nevada New Jersey and Ohio all allow double dipping, which lets government workers retire in their 50s and then work another full-time job while collecting retirement checks. In Ohio, police, firefighters and teachers can retire after 30 years on the job, collect a full benefit each year and go back to work full-time doing the same job. This is called retire and rehire.
As the Columbus Dispatch reported last year: “Across the state, Ohio’s State Teachers Retirement System paid out more than $741 million in pension benefits last school year to 15,857 faculty and staff members who were still working for school systems and building up a second retirement plan.” Some teachers can earn nearly $200,000 a year in pensions and salaries.
One last fact: 70% of the 40 states running deficits would have a balanced budgets but for the raid on the taxpayers by the unions. The political reality of Obama’s “Stimulus Package” is that a big portion of it went to state and local governments to pay the inflated wages of public-sector employees. This means that taxpayers in well-governed states like Texas are paying the excessive wages of California employees. The WSJ editorial closed with this:
So if your state is broke, this is a major reason. Eventually, governors, state legislators and city council members are going to have to decide whether protecting America’s privileged class of government workers is a higher priority than funding such core functions of government as public safety. Something has to give. It’s time to close the biggest pay gap in America.
Recent Comments