The day of reckoning for public employees unions is here

Steven Pearlstein
Columnist January 11, 2011

In July 2009, economist Barry Bluestone wrote an op-ed article for the Boston Globe warning that his state’s public employees unions were on the same path to economic and political decline as the United Auto Workers was back in the mid-1980s.

Voters, he warned, would no longer accept wages and benefits for government employees that had grown more generous than their own. They would no longer pay for public services whose costs were growing half again as fast as the cost of services in the private sector.

Steven Pearlstein is a business and economics columnist who writes about local, national and international topics. View Archive

Nor would the public tolerate continued union resistance to efforts to improve the quality and efficiency of government services. Through tax caps, outsourcing and charter schools, governments were already finding ways to circumvent public employees unions and limit their political power. Unless the unions moved quickly to strike a new “grand bargain” with government officials and taxpayers, Bluestone wrote, they would soon face an even more painful “day of reckoning.”

Barry Bluestone is not just any economist. He is the son of Irving Bluestone, a legendary UAW negotiator, a reliably liberal, union-friendly scholar who has spent a career studying the declining fortunes of the American working and middle class. And since his op-ed, things have only gone from bad to worse in terms of the financial distress now faced by all levels of government. The “day of reckoning” that Bluestone forewarned has now arrived.

A recession-weary public is now well aware of New York firefighters who retire after 20 years at half pay, of California prison guards who rake in $120,000 a year and of New Jersey teachers who pay little or nothing for health insurance. A parade of actuaries and economists has stepped forward with estimates of unfunded retiree obligations for state and local governments that now top $1 trillion.

Reflecting the frustration with the lack of progress on school reform, no less a liberal than Davis Guggenheim, director of Al Gore’s “An Inconvenient Truth,” is now out with “Waiting for ‘Superman,’ ” a scathing critique of teachers unions. Rahm Emanuel, running for mayor of Chicago, has vowed to cut pension benefits not just for future city workers but current ones as well. And in solidly Democratic New Jersey, Republican governor Chris Christie has become something of a folk hero for taking on his state’s once-formidable public employees unions.

All the while, public employees unions and their leaders remain in a defensive crouch, refusing to accept any responsibility for looming service cuts and tax increases. Many are launching last-ditch political efforts to hold on to what they still have, but so far their appeals to working-class solidarity have largely fallen on deaf ears.

The better approach for public sector unions would be to acknowledge that the status quo is unsustainable and take up Bluestone’s suggestion of a new “grand bargain.”

Such a bargain inevitably begins with a freeze on current wages in exchange for future increases when the economy improves. Going forward, unions might propose tying overall compensation to the rhythms of the business cycle, making up in good times what is lost in bad.

Rather than continuing to fight reform of work rules and protecting underperformers, unions could trade those away for across-the-board bonuses for service improvements and a guarantee that employees get a sizable share of any productivity gains.

To preserve health benefits for retirees, active workers will need to accept greater cost sharing on their health insurance policies, which will not only reduce the cost to government in the short run but slow the growth in premiums for everyone over the long haul.

And on pensions, the unions ought to get real about the dismal state of their defined-benefit plans and use their assets to finance a new arrangement. Start with enrolling government workers in Social Security. Supplement that with a defined-contribution plan that could be taken to a new job, would give workers some flexibility in how their pension money was invested and would automatically be converted into a fixed-benefit annuity upon retirement.

Such an arrangement would give governments the budget certainty they need to meet pension obligations without the financial risk of market fluctuations. It would also put an end to the extensive gaming of the system in the final years of a public employee’s career during which made-up disabilities and excessive overtime are sometimes used to inflate monthly pension checks.

Given the political and economic realities, these kinds of wage and benefit changes are inevitable. Not coincidentally, they are also pretty much where things stand in the private sector. Rather than resist at every turn and have the conditions dictated under duress by someone else, public employees unions would do better to accept unpleasant realities, embrace the future and hammer out more favorable terms while they still have some leverage.

As Bluestone would point out, there are hundreds of thousands of former autoworkers who would probably be a lot better off today if only their once-mighty union had been willing to look forward rather than backward and focus on what could be rather than what once was. The question now is whether public employees and their unions will learn from those mistakes, or whether they are determined to repeat them.

pearlstein@washpost.com

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