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Mar 01 2011

The myth of the parasitic union

There is this odd notion that the public sector employees are living off the largesse of the rest of us, i.e., the taxpayers, and that they have used their union power to somehow pull a fast one. This is false. As David Cay Johnston points out, the pension benefits that unionized workers get is not something that is a gift to them from us. It is essentially deferred compensation that was negotiated with employers. In other words, part of the wages they were entitled to was deferred until their retirement.

Out of every dollar that funds Wisconsin’ s pension and health insurance plans for state workers, 100 cents comes from the state workers.

How can that be? Because the “contributions” consist of money that employees chose to take as deferred wages – as pensions when they retire – rather than take immediately in cash. The same is true with the health care plan. If this were not so a serious crime would be taking place, the gift of public funds rather than payment for services.

Thus, state workers are not being asked to simply “contribute more” to Wisconsin’ s retirement system (or as the argument goes, “pay their fair share” of retirement costs as do employees in Wisconsin’ s private sector who still have pensions and health insurance). They are being asked to accept a cut in their salaries so that the state of Wisconsin can use the money to fill the hole left by tax cuts and reduced audits of corporations in Wisconsin.

The labor agreements show that the pension plan money is part of the total negotiated compensation. The key phrase, in those agreements I read (emphasis added), is: “The Employer shall contribute on behalf of the employee.” This shows that this is just divvying up the total compensation package, so much for cash wages, so much for paid vacations, so much for retirement, etc.

The fact is that all of the money going into these plans belongs to the workers because it is part of the compensation of the state workers. The fact is that the state workers negotiate their total compensation, which they then divvy up between cash wages, paid vacations, health insurance and, yes, pensions. Since the Wisconsin government workers collectively bargained for their compensation, all of the compensation they have bargained for is part of their pay and thus only the workers contribute to the pension plan. This is an indisputable fact.

NPR’s All Things Considered had an interesting interview with Philip Dray, author of There is Power in a Union: The Epic Story of Labor in America in which he too debunks the idea of parasitic unions and points out that pension benefits were given to teachers to in lieu of immediate salary benefits or improvements in working conditions.

The workers are entirely funding their own pensions, health, and other benefits. It is the employers who reneged on the deal by not paying sufficiently into the retirement funds. That is like an employer arbitrarily holding back some of your salary and using it for other things.

Paul Krugman says that the focus is being placed on contributions to retirement plans to mislead people that public sector workers are a pampered lot compared to the private sector because the truth does not serve the desired ideological ends:

Why, then, are we hearing so much about the meaningless contribution comparison?

The answer is simple: it’s because doing the comparison right doesn’t yield the desired answer. The new report by the Times gets the same answer as other studies: low-paid government workers do a bit better than their private-sector counterparts, but others if anything do worse.

Luo and Cooper report this as a “mixed answer” — but in terms of the political debate, it’s a body blow to the union-bashers, whose whole position is that public-sector workers are welfare queens in Cadillacs. They need to show outrageous overpayment, not rough equivalence at best.

And so they turn to a meaningless comparison that, to the unwary, sounds as if it supports their case.

Yes, some public-sector workers are overpaid. So are some private-sector workers. Doesn’t anyone read Dilbert? But the whole idea that union excesses are at the core of state and local fiscal problems is false, and only deliberate obfuscation keeps that from being obvious.

Thomas Kochan, a professor of management at MIT’s Sloan School says that when we take an evidence-based approach to such comparisons, we can arrive at solutions that are fair to every one.

The unions negotiated for their benefits fair and square. If not for the unions, all of us, unionized or not, would be far worse off.

2 comments

  1. 1
    Joel

    Another fact that is often hidden is that these pensions may be the *only* retirement benefit that public union workers may get.

    I only recently learned that public workers with a pension plan are usually not paying into social security, so this deferred compensation is also replacing the retirement program that most of us take for granted.

    Apparently the same is also true for Medicare, though in recent years this is much less common. So that lifetime health plan was just a substitute, as well.

  2. 2
    Dick D'Anton

    Business school teaching has come to apply the term ‘legacy costs’ to the type of deferred payments to which you refer. During the past several years this misnomer has crept into public and political discourse.
    This is the explanation that I gleaned from my community college Human Resources professor back in 2003.
    “Amounts paid or not paid to an employee subject to the terms of a pension, medical or other such plan that has been negotiated through a collective bargaining process are to be considered ‘legacy costs’ and, as costs, attempts can and should be made to reduce or eliminate them. These do not constitute a debt; they are, rather, current and continuing costs that must be addressed as would any other costs. This is essential with regard to responsible business management.
    “The deferred income of an individual who was employed as an officer of the company is a different matter altogether.”

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