Powerful Government Unions Make the Economy Weaker

Commentary, Public Sector, Matthew Lau

American taxpayers and workers won a big victory recently, with the United States Supreme Court ruling 5-4 in June in Janus v. American Federation of State, County and Municipal Employees (AFSCME) that government employees not part of a union could not be forced to pay union dues.

Previously, government employees in 22 states were forced to pay union dues to cover the cost of collective bargaining, even if they were not members of the union. One such employee, Mark Janus, at the Illinois Department of Healthcare and Family Services, contended that the union dues he was obligated to pay the AFSCME violated his rights.

When Janus was hired for his job, he was not told and had no idea that a union was involved until he noticed the deductions coming from his paycheque to pay the union. These union dues, which he never agreed to, forced him as a condition of employment to pay for political advocacy undertaken by the union that he did not support.

The Court’s ruling means that unions can no longer force Janus, along with millions of other government employees, to pay into the unions without the worker’s consent. This makes unions more accountable to workers – if they don’t think the union is representing them well, or if the union takes political positions contrary to what workers want, the workers can withhold funds.

By striking a blow against powerful government unions, the Court’s decision – in addition to benefiting workers who don’t want to pay into public sector unions – is a victory for taxpayers and the private economy. That’s because the presence of powerful unions tend to make government workers more expensive and less productive.

Emily Raimes, Vice President and Senior Credit Officer at Moody’s, said that the Court’s decision “may lower public union revenues, membership, and bargaining power in the 22 states that can no longer allow mandatory fees.”

Indeed, the Empire Center think tank notes that New York’s public sector unions stand to lose $110 million in fees collected from 200,000 non-unionized workers, and will lose even more funds if additional workers choose to leave the union.

According to Raines, lowering the revenues and membership of public sector unions “could change how state and local governments set employee wages and pensions, resulting in a positive long-term impact on government finances.”

Adam Schuster of the Illinois Policy Institute agreed, pointing to data showing that median incomes in the private sector were relatively flat compared to the rapid growth of AFSCME workers employed by the state of Illinois – an “unsustainable trend.”

But while the US is moving in the right direction by curtailing the strength of powerful public sector unions, in Canada (where more than 70 percent of public sector workers are unionized, roughly double the unionization rate of US public sector workers), the federal and provincial governments’ finances continue to be stretched by the high cost of public sector workers.

One study by the Canadian Federation of Independent Business estimated that on average, federal government employees receive 33 percent higher compensation (salaries and benefits) than comparable private sector workers, with taxpayers paying a cost premium of over 20 percent for provincial and municipal workers.

Similarly, a Fraser Institute study estimated that Canada’s public sector workers enjoy a wage premium of 10.6 percent over comparable private sector workers. Consider that more than 80 percent of public sector workers have defined benefit pension plans (compared to only about 11 percent in the private sector), and the damage to taxpayers is even higher.

If the federal and provincial governments in Canada want to improve public finances and save taxpayers’ money, they should to learn from the United States and start cracking down on powerful public sector unions.