Unions and America’s Ills

Yesterday the Detroit News, as part of its “Labor Voices” series, published a guest editorial by the President of the International Brotherhood of Teamsters, James Hoffa, entitled “American ills not caused by unions.” In this editorial Hoffa made many statements that require a rebuttal, starting with this: “Across the country, new governors and new legislatures are demanding cuts to jobs, pensions and concessions from public employee unions. Their demands are nothing more than payback for the billions of dollars that the ultra-rich have poured into political campaigns.”

What Hoffa ignores is the political fundraising reality in America, which is that corporations are split relatively evenly between those who will back union reformers – usually Republicans, and union protectors – usually Democrats. Corporations hedge their bets. Very few large corporations openly challenge the union agenda, or even have reason to, since unionization drives off emerging competitors.

Similarly, wealthy individuals are split relatively evenly in their political affiliations in America. For every billionaire who backs Republicans, there is a billionaire who backs Democrats – for every Koch, there is a Soros.

At the grassroots, however, something very different occurs. Because labor unions, which still command over 16 million members in the United States (ref. U.S. Census, Bureau of Labor Statistics), nearly always give money to union-friendly Democratic candidates and issues. If you estimate the average annual dues of a union member at $500 per year, this means unions in America have over $8.0 billion per year that they can spend any way they please. There is simply no source of grassroots political fundraising that comes anywhere close to the financial power of unions, and unlike every other grassroots political fundraising entity in America, union compel their members to pay union fees, which in effect means they compel their members to support their political activity. Our own analysis, Public Sector Unions and Political Spending, estimates that public sector unions in California spend over $250 million per year on political activity. The idea that any competing interest comes even close to that is absurd.

Hoffa goes on to suggest that “government employees did not blow a hole in any state budget…” He points out as an example that “the typical public employee’s pension is only $19,000 per year.” This is all simply inaccurate. Using California as an example, here is the true figure for pensions as reported by Daniel Borenstein in his February 5th column in the Contra Costa Times entitled “Public employee pensions much higher than advertised:”

“In fact, CalPERS data shows the average career public employee, who put in at least 30 years of service and retired in the 2008-09 fiscal year, collected a starting pension of $67,000 a year, or 2.5 times the advertised figure. The higher number is buried deep in the retirement system’s financial statement and never makes it to the promotional material CalPERS hands out.”

As for compensation, as noted in our post of February 9th, entitled “What Percent of California’s State Budget is Employee Compensation?” the average total compensation for a worker employed by the state of California is $106,000 per year, before increasing their pension contribution to reflect the higher contributions necessary to keep those funds solvent under the current benefit formulas. At least two-thirds of California’s state budget is to cover personnel costs.

In his editorial, Hoffa apparently believes the real culprit in America’s current ills is Wall Street. Well there certainly is blame to go around, and Wall Street shouldn’t be spared. As Hoffa puts it:

“Public employees didn’t create a huge housing bubble. Wall Street did that. And public employees didn’t cause the Great Recession through reckless speculation. Wall Street did that, too. State governments didn’t get $3 trillion dollars in loans from the Federal Reserve and profit from those loans by relending them. Again, that was Wall Street.”

Taking Hoffa’s three points about Wall Street one at a time: (1) Failure to regulate mortgage lending was indeed the primary reason for the housing bubble – but public agencies, thirsting for the income tax and property tax revenue, had no incentive to pull the plug, and they didn’t. They did, however, use the unsustainable increase in tax revenues as their pretext for unprecedented, ridiculous increases in their public employee compensation packages. (2) As for “reckless speculation,” who does Mr. Hoffa think provides the backbone of funding to Wall Street for their gambling escapades? There is no source of new money pouring into Wall Street that begins to match the monies coming from public employee pension funds. These funds, which in aggregate manage trillions in assets, are under severe and unrelenting pressure to deliver higher returns than are possible over the long-term. “Reckless speculation” is largely driven by Wall Street’s incestuous, unhealthy partnership with public sector unions. (3) And as for those “trillions in loans from the federal reserve,” most of that borrowed money went to preserve public sector jobs at their inflated rates of compensation.

Here’s what’s really happening, Mr. Hoffa:  For over 20 years, with increasing influence and with worsening effect, public employee unions have used taxpayer’s money, confiscated from public worker paychecks, to buy our politicians and control our elections. They have used this power to “negotiate” grossly over-market rates of compensation and benefits to unionized government workers, especially at the entry and mid-level jobs, and because employee compensation is by far the largest category of government expenditures, it is breaking budgets, leading to tax increases and service cuts. Meanwhile, public employee unions, in their insatiable demand both for more revenues to pay their over-paid members, as well as to expand their memberships, are prevailing upon politicians to expand government and expand regulations – increasing the cost of living for everyone. This translates into cost-of-living increases for the unionized government workers, and a lower standard of living for the rest of us whose taxes support the entire corrupt mess. At the same time, Mr. Hoffa, your public sector union pension funds are the collection agent for the overbuilt Wall Street machine you claim to abhor.

American ills today may not be entirely attributable to unions, but to suggest that the drive to reform unions, public sector unions in particular, is nothing but “payback” to special interests who oppose unions is to ignore where the money is spent in politics, where the money is spent in the public sector, and how union control of public policy is distorting our financial markets and bankrupting our government.

3 replies
  1. Avatar
    bill says:

    A “non-partisan” site? That’s laughable. This article is saturated with distortions and flat out lies. First, and last visit to this garbage dump!

  2. Avatar
    Tough Love says:

    Here’s a commentary (with supporting numbers) that crystallizes the real cause:

    It’s interesting how the focus of the discussion is always directed at the poor funding (with some note of “structural problems”), but not one mention of the ROOT CAUSE of the problem … overly generous Pensions & Benefits.

    With cash pay in the Public & Private Sectors now relatively close (yes, I know we have dueling studies going both ways), there is no justification for higher pensions in the Public Sector, to the extent TAXPAYERS pay for that excess.

    Yet the while typical Private Sector employer contribution to their employees’ pension generally costs 3%-8% of cash pay, the TOTAL cost (as a % of pay) of funding the Public Sector’s DB Plans (for a 30-year employee retiring at age 55) are as follows:

    2% formula w/o COLA = 29%
    2% formula with COLA 39%
    3% formula w/o COLA = 44%
    3% formula with COLA = 58%

    (And yes, I’m competent to do such calculations)

    While Private Sector employees generally do NOT contribute to the cost of their Plans, in the Public Sector there usually is an employee contribution of about 5% (sometimes a bit higher for safety workers). If we subtract this employee-paid 5% from the above total-cost-of-Plan percentages, we have 24%, 34%, 39%, and 53% respectively. These %s are effectively what the TAXPAYERS must pay to fully fund the pension of each employee who retires at 55 with 30 years of service.

    Theses are apples-to-apples comparable with the 4-8% Private Sector employees get from their employees. Again, with comparable cash pay, this HUGH extra compensation hidden in the funding extraordinarily rich pensions is absurd, unsustainable, and grossly unfair to taxpayers.

    It’s clear to me why the intelligent among Public sector workers are willing to contribute “a bit more”. To erase the advantage afforded Public Sector workers, the employee contributions would need to go up, not by “a bit more”, but by the four percentages above (24%, 34%, 39%, and 53% ) less the 4%-8% (call it 6% on average) contributions of Private sector employers. .. resulting in INCREASE Public Sector employEE contributions ranging from 24-6% = 18% for the least-rich pension formula (the 2% w/o COLA) to 53-6% = 47% for the most-rich pension formula (the 3% with COLA).

    We know you’ll never increase your contributions level anywhere near that …. and few persons (other than the few like myself capable of these calculations) are aware of the huge disparity. That’s why YOU know even contributing an additional 5% of pay STILL leaves you with a HUGE advantage.

    It’s also why the necessary solution cannot come via employee contribution increases alone, but NECESSITATES a significant reduction in the rate of pension accrual for FUTURE years of service for CURRENT (yes CURRENT) employees. Even with a 50% reduction in the rate of accrual going forward, an advantage would STILL exist … in PUBLIC SECTOR employees’ favor.

  3. Avatar
    Editor says:

    Thank you for your comment. This commentary was offered as rebuttal to what we find to be a grossly distorted editorial by James Hoffa. Here are just a few examples of misinformation spread by public sector union spokespersons:

    1 – the “average” pension is only $19,000 per year. Absolutely false, that figure includes every recipient who may have barely vested a pension and only worked a few years in the public sector. The average pension for a career public servant in California is over $60,000 per year.

    2 – public safety employees have an average life expectancy of 6-7 years after retirement. Absolutely false, CalPERS own data shows their average life spans are equal or greater than the public at large.

    3 – public employees make less than private sector employees. Absolutely false, in California the average public employee collects total compensation per year (including benefits) of over $100,000 per year, which is nearly twice that of the average private sector worker.

    4 – pension funds are not in danger of going insolvent because over the long-term these funds will recover. Baloney. The funds have set totally unrealistic return expectations that they got away with during the internet bubble and the real estate bubble. Now they have to be honest about what their real expected rates of return are going to be.

    Bill, you are invited to explain exactly what “distortions and flat out lies” are in our commentary.

    The basic difference of opinion here is what is considered “partisan.” We believe public sector unions are explicitly partisan organizations, favoring bigger and more expensive government, primarily for the benefit of their members. We do not think this is in the public interest, and we believe that Democrats will eventually join with Republicans to curb their power.

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published.