public sector benefits the new battleground

Long running tensions between taxpayers and public sector workers have exploded into conflict recently, thanks to the financial crisis and its devastating impact on government bottom lines.

Long running tensions between taxpayers and public sector workers have exploded into conflict recently, thanks to the financial crisis and its devastating impact on government bottom lines.

Austerity plans from Greece to Wisconsin have sparked protests led by public sector unions and their supporters. Brussels, Paris, Athens and London have all seen large crowds, sometimes over 100,000 people. Greece just had its eighth – yes, eighth – general strike against the budget cuts linked to its bailout by the European Union and International Monetary Fund.

The trend is spreading. According to a handy protest tracker provided by Socialist World, even North Cyprus is already on its second general strike.

In the United States, the biggest protests so far have been in Wisconsin. Thousands have turned out in Madison to attack plans by newly elected Republican Governor Scott Walker to dramatically cut public sector benefits.

What makes this round of protests so different is that the public sector unions are clearly on the defensive, after decades of growth in both membership and political clout. Despite the occasional setback, public sector unions have done very well since the 1970s in extracting generous pay and benefits packages from governments.

A front page story in USA Today this week notes that average public sector compensation including benefits is higher than the private sector in 41 of the 50 states. In California, for example, public employee compensation has risen 28 per cent faster than inflation since 2000. In Nevada, government staff make 35 per cent more than the private sector average.

In Canada, the percentage of public sector workers in unions has risen from 12 per cent in 1960 to more than 70 per cent today according to the Economist. Statistics Canada reports that hourly wages for hourly-paid public sector employees rose 28 per cent between 2005 and 2009. The average for employees from all sectors was just 12 per cent. And that’s before public sector health plans, dental benefits, better job security and defined benefit pensions (a rarity for private sector and non-profit employees these days).

The recession has also highlighted the better job security of public sector workers. Workers laid off in Ontario factories last year watched in frustration as many public sector employees got raises. In the US, Tea Party commentators have ranted about public sector “haves” and private sector “have nots,” as factory closings, layoffs and mortgage foreclosures have rippled through the economy. Pensions and health-care benefits that seem “normal” to long-time government employees look like “gold-plated perks” to people who have just lost their homes.

In a sign that public sympathy has shifted away from the unions, horror stories long shared by right-wing critics of public sector unions are now spreading more widely. The Economist recently shared some examples. In Poland, some police can retire after just 15 years of service, resulting in 33-year-old retirees. In Brazil, teachers are supposed to work 200 days but have the right to take up to 40 fully paid personal days per year. In California, 82 per cent of senior California Highway Patrol officers “discover a disabling injury about a year before they retire.”

Governments under severe fiscal pressure are now being forced to address the issue. Nowhere is this more true than in the US, where, unlike Canadian provinces, many states have written constitutions that forbid going into debt. It’s not like the Yukon, where the government can amend the Taxpayer Protection Act when it becomes inconvenient.

And some, like Gov. Walker of Wisconsin, are taking advantage of the trend to (they hope) permanently roll back union power. Walker’s proposed budget, which has passed the state house but not yet the senate, is shocking to Canadian (and union) eyes. He proposes to limit collective bargaining for public workers, raising worker contributions to their own pensions and doubling the health-care premium to 12 per cent. He would also stop collecting union dues, forcing the unions to get their members to pay directly and would let workers opt out of unions. His law would also limit future public sector raises to the rate of inflation.

Walker and his allies clearly want to not just balance the budget, but also weaken the ability of unions to resume the growth in benefits after the recession ends.

Politically, Walker is trying to box the unions in by telling voters that the alternative is laying off 6,000 state workers and killing Medicaid coverage for hundreds of thousands of children. Other governors and mayors across the country are making similar arguments. Mayor Bloomberg, in traditionally more liberal New York, is also arguing for cuts in public sector pension rights and more flexibility to lay off public workers.

It’s still too early to say whether this taxpayer pushback is a blip, or a new era for public sector wage and benefit growth. In retrospect, even union nemeses like Margaret Thatcher and Ronald Reagan did not succeed in their efforts to slow the growth of the state.

One thing that is clear is that this trend is highly unlikely to come to the Yukon.

Firstly, the Yukon government is awash in cash and still receiving higher transfer payments each year.

Secondly, such a large percentage of voters are public sector employees that is nearly impossible to picture a politician campaigning against unions like Scott Walker has done in Wisconsin. There are more than 7,500 public sector workers in the Yukon and most are unionized. That’s a lot, especially when you remember that the Yukon Party won the last election by only 807 votes.

Keith Halliday is a Yukon economist and author of the Aurore of the Yukon series of historical children’s adventure novels.