Are public unions our convenient economic scapegoats?

Fortune: CNN Money.com
By Elizabeth G. Olson, contributor

The tumultuous scenes in Wisconsin's capital -- with public workers fiercely defending their collective bargaining rights and opponents calling for their curtailment -- might seem to come out of nowhere.

But the recent events in Madison are part of a long, and rocky, history between public employees and the governments they serve -- a relationship that often turns especially sour during harsh economic times.

The vast majority of states have allowed collective bargaining for some 50 years, and three-fourths of states allow it for most or all public sector employees.

"It's largely been non-controversial, and the basic right to bargain has been well established for decades," says Joseph Slater, a professor of labor law at the University of Toledo College of Law.

Such rights became commonplace after World War II. In 1959, Wisconsin, ironically enough, became the first state to allow public employees to bargain collectively.

But despite the middle-class financial security that union-negotiated pacts bring to workers, their ranks have steadily diminished over the years. The Bureau of Labor Statistics reported that last year just under 12% of American workers were unionized. That figure was lower than previous years, and was nearly half the 20.1% of unionized workers recorded in 1983, the first year such information was collected officially.

Union membership for public sector workers, however, has always been a rocky proposition for the American public. The latest federal figures, from the Bureau of Labor Statistics, show that union membership among public sector workers was 36.2% last year, a rate about five times higher than the 6.9% for private sector workers -- a divide that appears to have been widened by the troubled economy.

The current conflict, which already has spread to Ohio and Indiana, states that are also facing crippling budget problems, highlights a continuing public unease over whether public workers should unionize.

The inflammatory issue has cropped up from time to time, notably when former President Ronald Reagan fired the nation's air traffic controllers en masse when they refused to return to work after striking for better working conditions.

The issue surfaced again during the George W. Bush years over whether government employees who work in homeland or airport security could join unions, and have the right to strike. And, public resentment and anger flared recently when Detroit automakers needed federal assistance to dig out of their financial hole, some of which was blamed on overly generous wage and benefit packages for unionized auto workers.

This time, gaping shortfalls in state budgets have pushed the contentious issue to the fore, as public officials scramble to slash expenditures without taking the universally unpopular step of raising taxes.

Some officials blame generous union-negotiated health and other benefits for budget overruns. Scott Walker, Wisconsin's Republican governor, is trying to limit union bargaining strictly to wages, and eliminate negotiation over other aspects including working hours, health care and vacations. So far, the state's assembly -- without a quorum that requires Democratic lawmakers -- voted to strip public workers of their collective bargaining rights in an early-morning vote last Friday, but the conflict is far from settled.

Union critics, such as James Sherk, a labor economist at the conservative Heritage Foundation, call union benefits "gold-plated" and far more generous than what other workers receive -- using money, he maintains, that should be spent on services or returned to taxpayers.

Public unions, he says, "don't negotiate over how to divide profits, they negotiate for the government to spend more on their members."

As a result, he said, "unionized government employees enjoy benefits that few private-sector workers can dream of." That includes job security, retiring with a full pension in their mid-50s, contributing little or nothing to their health-care costs and ample health benefits.

These benefits, he argues, "are driving state and local governments into insolvency." Retirement plans for state and local governments are "$3 trillion in the red."

Despite what are viewed as steep overruns generated by public benefits programs, are unions and public employee benefits really to blame for the enormous budget crises throughout the nation?

"Unionized workers didn't sow the seeds of the economic downturn, deregulation of the financial industry did," says Robert Bruno, a University of Illinois professor of labor and employment relations. "We've suffered billions in losses because of greed, gross mismanagement and illegal activity in the financial industry."

"Unions are an easy target because the largest cost in a state budget is always labor," says Bruno, who studies employee and union issues. "Why are we scapegoating teachers? Is the American love affair with capitalism so irrational that it knows no bounds?"

Joseph Slater at Toledo's law school agrees: "It's easy to paint a portrait of public workers as overpaid, not working very hard and being fat cats on the tax dollar. But there's no correlation between collective bargaining and the state budget crises."

For example, huge state pension obligations - which have grabbed headlines because of state underfunding, and which Sherk points to as a major deficit-maker for states, are not the result of collective bargaining.

"The vast majority of states have pensions set by law, not by collective bargaining," Slater says. "So it's a common misperception that these costs are a result of collective bargaining."

For now, cash-strapped states are not allowed to go bankrupt, but negotiated public employee benefits and wages could be wiped out if states like Wisconsin or Ohio require a bailout from the federal government.

If states were allowed to declare bankruptcy, Bruno says, "that could spell the wholesale destruction of all state-based union contracts, as well as provisions for pensions and health care.

"In one broad stroke, you could de-unionize the public sector," says Bruno.

Labor supporters fear that in the short-term labor unions may well be dealt a major blow. President Barack Obama did not help, says Bruno, when he ordered a two-year freeze of government employee salaries as part of trimming the federal government deficit.

"He sent a signal that public sector workers do not merit a raise, therefore they are part of the problem," Bruno says.

Abridging worker rights "can do serious damage to a modern working economy," he says. "A whole lot more is at risk than balancing the budget in a few states."

But by trying to eviscerate collective bargaining, officials also may "tap into the American sense of fair play and things could change," he adds, "Americans don't like bullies."