Public employees have been cramming the Wisconsin state Capitol to protest the governor's plan to cut their take-home pay and gut their collective bargaining rights. You can't blame them for objecting when the state reneges on a deal. But they should have been protesting years ago, when politicians and union leaders struck a bargain that was too good to be true.
Government workers have long accepted a tradeoff. They get lower pay than they might get in the private sector, but better retirement benefits. They give up some current luxuries for more security later on. The great majority of them have pension plans with guaranteed payouts -- an option that has largely disappeared from the private sector.
Most businesses long ago abandoned defined-benefit plans because they were unaffordable. The public sector has stayed with them, though -- apparently to prove those private companies right. State and local governments, according to pension expert Joshua Rauh of Northwestern University, have promised $3 trillion more in benefits than they have set aside to pay for them.
Why? Because there are powerful incentives for both legislators and union leaders to do that. Politicians (particularly, though not exclusively, Democratic ones) want to ingratiate themselves with unions, whose members can be a huge help on Election Day. Union leaders want to keep their members happy and return their favored elected officials to office.
The problem, of course, is that such generosity costs a lot of money, which taxpayers may resist paying. That's where the back-loading of compensation comes in.
Promising government workers excellent retirement plans, off in the future, gratifies union members without outraging the taxpayers. The burden is postponed until some future date, which makes the process painless -- until the future arrives.
Wisconsin is a typical state, with more than $45 billion in unfunded obligations by Rauh's calculation. Taken as a percentage of gross state product and state revenue, he informed me, that makes it about average or "maybe slightly worse."
But the phenomenon is a national one. Though Republican Gov. Scott Walker has targeted union negotiations, the same problem exists in states where public employees lack the collective bargaining rights at issue in Madison. South Carolina, Alabama and Mississippi are among those, and their unfunded obligations loom even larger than Wisconsin's.
If collective bargaining gave too much power to public employee unions, you might expect states that mandate collective bargaining to have (SET ITAL) lower (END ITAL) unfunded obligations -- because the unions would be able to demand full funding. But that's not the case.
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