Studies of the impact of public sector unions on public policy have struggled to disentangle the effects of unions from the effects of the broader social and political contexts in which they are most likely to flourish. But a new analysis by Andrea Louise Campbell and Michael Sances of MIT uses the economic shock of the Great Recession to provide a clearer view of the impact of public sector unionization on fiscal policy in the American states.
Campbell and Sances examined variations in the magnitude of the “budget gap” between expenditures and revenues in each of the 50 states in 2009, 2010 and 2011. In the wake of the Great Recession, plunging tax revenues and escalating demand for Medicaid and other social services put states in a fiscal vice. Federal aid (mostly from the 2009 stimulus package) helped to cushion the shock, covering about 25 percent of state budget shortfalls.
Nevertheless, most states were forced to impose significant spending cuts and lay off government workers. In total, state and local governments eliminated more than half a million jobs. The best predictors of large budget deficits were fundamental economic factors — large declines in incomes and home prices. Political and institutional factors were generally much less important.
Notably, the extent of public sector unionization had no discernible effect on the size of each state’s budget gap. Thus, the shock of the recession provides a “natural experiment” of sorts, shedding light on the role of public sector unions in shaping states’ fiscal policies. Campbell and Sances found that states with powerful public sector unions imposed smaller cuts in state spending and were more likely to raise taxes. (Despite these effects, spending cuts accounted for 45 percent of states’ overall gap-closing efforts; increases in taxes and fees accounted for only 16 percent, with the remainder coming from federal aid, rainy day funds, asset sales and other one-time measures.) Thus, public sector unions seem to have played a significant role in shielding state government services from the budget ax.
However, what is more surprising is that states with powerful public sector unions were no less likely to respond to the fiscal crisis by cutting state government employment. Most states, regardless of unionization, shed state workers. Given temporizing measures and lags in policy-making, the steepest cuts in public employment did not occur until 2010 and 2011 — well after private sector employment had already begun to rebound. However, by 2012, government employment per capita (federal, state, and local) was about 5 percent lower than it had been before the recession.
According to Paul Krugman, “Republicans know, just know, that government has surged under Obama. But it ain’t so.” He might have added that they know, just know, that public sector unions are to blame. But apparently that ain’t so, either.
Campbell and Sances’ piece is part of a symposium on “The Effects of the Great Recession” in the current issue of the Annals of the American Academy of Political and Social Science. Other essays in the symposium focus on health, wealth, employment, politics (that would be me) and family life, among other topics.