With Mitt Romney‘s selection of Paul Ryan as his running mate, the conventional wisdom is that the presidential election is now a referendum on the size of government. If so, it’s a national stage for a debate that has already been taking place in state capitols from Albany to Sacramento about the burden of public sector unions.
Neither conservatives nor liberals disagree that these unions raise wages and employment for their members (i.e., firefighters, teachers and police). But research I recently completed finds a solid empirical relationship between public sector unions’ concentration and the size and cost of state government, suggesting that what’s good for the public sector employee goose might not be good for the taxpayer gander.
Over the last three decades, union membership in the private sector has fallen precipitously, from 24.2% in 1973 to just under 7% in 2011. Over the same period, public sector union membership jumped by 14 points, from 23% to 37%.
The different directions of these trend lines have much to do with the nature of public sector employment. For instance, unlike the private sector, public sector wages that exceed an employee’s productivity don’t directly threaten employment — if you need proof of this point, head down to your local DMV office.
The excess cost of overpaid public employees is deflected onto taxpayers. Many states, including my home state of California, are learning the hard way that there’s a limit to this tax-and-spend cycle.
The stability of public sector employment is reflected in Bureau of Labor Statistics job tenure data, which find that median tenure for a government employee is anywhere from 37% to 97% higher than in the private sector. And recent research published in the Journal of Economic Perspectives concluded that the salary and benefits of state and local government employees is as much as 21% higher than of private sector employees doing similar work.
And the political power of public workers is undeniable: The American Federation of State, County and Municipal Employees spent $87.5 million in the 2010 election, leading all independent groups.
Tenured, well-paid and politically powerful — all would suggest a link between union concentration and the size and cost of government. My study tested this hypothesis, and over the period of 2003 to 2010 found that a 10% increase in public union membership expands government by as much as 4.25%.
The effect of this relationship on taxpayers is obvious, but there’s also a clear effect on a state’s business climate. Business owners small and large must navigate the higher taxes and debt along with the regulatory maze and Escher-like tax codes favored by government bureaucracies.
Chief Executive magazine publishes an annual survey of 650 CEOs on the best and worst states in which to do business. All 50 states are evaluated on metrics like taxes, regulation, quality of the workforce and living environment (where 1 is best and 50 is worst).
I compared these rating to public union density, yielding an unsurprising conclusion: Expanding union memberships worsen business climates.
States where union membership was highest (New York, Rhode Island, New Jersey, Connecticut, Hawaii, Minnesota, Massachusetts, Michigan, Washington and California) averaged 43.4 on the business climate index; the states with the least union concentration (North Dakota, Texas, Idaho, Louisiana, Arkansas, Georgia, Mississippi, South Carolina, Virginia and North Carolina) averaged 13 on the business climate index.
Public unionism trends should be a concern for those interested in creating job opportunities outside of government, but also to union members, since they rely on businesses, their employees and customers to pay for the very government they are so expert in expanding.
Fewer opportunities in business threatens their livelihoods, too — biting the hands that feed them.
Marlow is a professor of economics at California Polytechnic State University.
