the turmoil in the badger state

 

(Image from everydayshouldbesaturday.com)

As a Wisconsin native, it has been interesting to watch the battle in Madison over collective bargaining rights for public sector workers. I can’t remember any time when politics in Wisconsin has been (a) so contentious and (b) at the forefront of the national political dialogue.

One of the first things to note is that Wisconsin’s state pension is relatively well-funded. As of 2008, Wisconsin ranked 4th in terms of funding levels for their pension plans at 99.8% funded, behind New York (107.4%), Florida (101.4%), and Washington (100.3%). While the funding levels have likely decreased over the past few years as the economy has struggled, the state pension plan in Wisconsin does not appear to be crippling the state budget.

It has become apparent, as Governor Walker rejects the attempts at compromise from the 14 Democratic State Senators that have fled the state to prevent the quorum that would allow a vote on Walker’s bill, that Walker is not only interested in improving the financial situation of Wisconsin’s pension plan. Unions have expressed a willingness to accept Walker’s financial cuts, but Walker has refused their compromises. It appears he won’t be happy without dealing a death blow to the unions.

I think there’s some reasoning behind Walker’s view, though I don’t agree with it. From Walker’s perspective, he seems to think that the “hidden costs” of state worker compensation are a major driver of the budget troubles that Wisconsin is having. His solution to this is to eliminate the ability of public sector unions to bargain for anything besides wage increases, and to cap those wage increases at the annual percentage change in the Consumer Price Index. This would eliminate the temptation that exists now to defer compensation of public sector workers to a later date (i.e. through a pension plan), which has the effect of hiding the true costs of public sector workers.

The problem is that public sector workers are possibly the ones most in need of unions, because of the government’s role providing services that generate positive externalities. Classical economics says that in the absence of government (or some other actor concerned with the public good), goods like education that exhibit positive externalities will be undersupplied. These goods need government subsidization to ensure their provision at a welfare-maximizing level. But government subsidization means costs, and government costs mean taxes. And nobody likes taxes. So you have goods that would be undersupplied without government intervention, and taxpayers across the state who want to keep their hard-earned money, but also want the same level of services they’ve become used to from the government. Public sector unions provide some protection for government workers against the politically easy route of cutting taxes and wages.

More importantly, perhaps, is the elimination of the ability to bargain regarding hours and conditions of employment. It wouldn’t be hard to reduce the tax burden of public workers by forcing them all to work 60 hour weeks, and allowing firing-at-will, but that’s not the kind of work environment that is going to attract high quality teachers for Wisconsin youth.

It’s hard, in the midst of all this, to ignore the fact that unions typically support Democrats over Republicans. Walker will deny that this has any relevance, but looking at Wisconsin campaign donations from 1999-2010 shows that 93% of union donations went to Democrats and only 7% to Republicans, while 72% of civil servant/public employee donations went to Democrats compared to 28% to Republicans. So there’s some incentive for Republicans to reduce the influence of unions anyway.

I plan to write some more about this issue in the coming days, as the battle in my hometown continues and the 14 State Senators in exile return. For now, I want to express my support for those 14 Democratic senators that have done so much to bring this to the attention of the nation and wish them continued success in their fight on behalf of Wisconsin’s workers.

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