Sunday, April 04, 2010

The Biggest Fiscal Issue in America Today: More Public Sector Unionization = More State Debt


From the Washington Examiner article "Public Sector Unions and State Debt Go Hand in Hand" by David Fredosso:

"The states with the highest per-capita debt all have something in common: Robust public-sector unions that have, over the years, cut sweetheart deals with politicians -- usually, but not always, Democrats. In the graph above, each blue square represents a state, plotted by its per-capita debt and the percentage of state and municipal workers in public sector unions.

The numbers for unionization run from 2006 through 2009, and the numbers for debt are 2007, before the current crisis. If anything, this presents a rosier picture for most states than the current one. A rigorous study would control for dozens of factors, but this chart demonstrates the correlation between state unionism and debt. As you can see in the graph, the states coalesce into three main groups:

•Among states whose government workers are less than 40 percent unionized, median per capita state debt is $2,238.
•Among states with between 40 and 60 percent of their government workers in public sector unions, the average debt is $3,609.
•Among states with more than 60 percent of the government workforce unionized, the average (median) per capita debt is $6,380.

As you keep an eye on the fiscal collapse of California, and New Jersey Gov. Chris Christie's (R) efforts to rein in the unions' power next year, bear in mind that this is quickly becoming the biggest fiscal issue in America today.

Do public sector unions really protect workers from exploitation, or do they merely bankrupt the treasuries of states nationwide? And more immediately, will the states that made poor fiscal choices get a second bailout from the federal taxpayer after the 2009 stimulus package?"

MP: Using the data provided in the links in the article, my chart above replicates the original chart in the article, and the OLS regression results are provided below the chart. The OLS results indicate that:

1. There is a statistically significant positive relationship between: a) the unionization of a state's government workforce, and b) the per capita public debt of a state (prob = 0.0000).

2. On average, for every one percent increase in a state's government workforce, per capita state debt increases by $64.42, or $64.42 million per 1,000,000 population.

11 Comments:

At 4/04/2010 5:44 PM, Blogger Colin said...

And make sure to watch this:

http://www.youtube.com/watch?v=9LWNTUK8KtA

 
At 4/04/2010 7:52 PM, Anonymous Anonymous said...

The bigger problem is that states, in order to balance their budget, have been underfunding their state pension plans for years. So, later it will look like the employees are the bad guys, when in fact the politicians, who have since left office, have left us with a mess.
We have a Republican governor in our state who has done this; the other party looks the other way.
This is the real problem.

 
At 4/04/2010 9:47 PM, Blogger PeakTrader said...

Pro-government states may also be pro-union states, which may influence both the dependent and independent variables, i.e. spurious correlation. Also, there may be smaller government with less per capita state debt, etc.

 
At 4/04/2010 10:46 PM, Blogger saosebastiao said...

Don't forget the BLS statistics that show that government workers are on average paid 26% more than private market workers with similar job descriptions. We are closely inching toward an inescapable insider-outsider system of government favoritism.
http://www.marginalrevolution.com/marginalrevolution/2010/02/insiders-outsiders-and-unemployment.html

 
At 4/05/2010 2:05 AM, Blogger sethstorm said...

saosebastiao said...
If you want to see it in action, go to Southwest Ohio, specifically Dayton. NCR is gone, GM is gone, but it is full of government contractors.


Long-term unemployment is at shockingly high levels which in itself creates a dynamic of persistence because the longer a worker is unemployed the less employable they become (in part due to loss of human capital and signaling problems). Thus, getting these workers back to work is going to be hard enough as it is. Labor regulations which raise wages and make hiring and firing workers even more costly will make re-employing the long-term unemployed even more difficult.

Make length of employment, unemployment (whether it is direct or indirect in indication) or formal education status illegal lines of questioning. Cover anyone who informs of its action under whistleblower protection. Then make the thresholds for temps being considered full-time workers so low that they're considered full-time at the door.

Problem solved.

 
At 4/05/2010 9:49 AM, Anonymous Junkyard_hawg1985 said...

Following the link, I see that Tennessee has the lowest per capita debt inb the nation. Makes me proud to be a Tennessean. Having run for State Representative in Tennessee, I can tell you that people here have ownership for state spending. Why? Because Tennessee is a sales tax state (no general income tax) and everybody pays the tax. Please notice that TN, TX, and NV all sit at the bottom of the correlation curve. All three are sales tax states.

 
At 4/05/2010 9:49 AM, Anonymous morganovich said...

while this is certainly an interesting relationship, coincidence is not causality. it may be that both are caused by a third factor such as strong populism among the voter base or poor economic/employment conditions in the state leading to both worker organization and and strained fiscal condition.

to see if one causes the other, it would be interesting to look at individual states over time and see what happens after unionization.

 
At 4/05/2010 9:54 AM, Anonymous geoih said...

Quote from sethstorm: "... illegal lines of questioning. Cover anyone who informs of its action under whistleblower protection."

So, your solution is to make asking questions of perspective employees illegal, and to open every employer subject to government legal attacks without being allowed to cross examine the accusers.

Yeah, that will definitely increase the number of people who get hired.

 
At 4/05/2010 1:14 PM, Blogger sethstorm said...


So, your solution is to make asking questions of perspective employees illegal, and to open every employer subject to government legal attacks without being allowed to cross examine the accusers.


Not completely - it only applies to anything that would indicate long-term unemployment.

 
At 4/06/2010 3:24 PM, Blogger Ron H. said...

Wait! Wait! Sethstorm, please don't start responding to your own comments. I'll jump in here.

>"Make length of employment, unemployment (whether it is direct or indirect in indication) or formal education status illegal lines of questioning."

Hmmm. Let me see if I understand this. I can no longer ask job applicants questions about prior employment, and formal education?

Let's pretend I'm a hospital administrator who is interested in hiring a resident brain surgeon. Can I not ask prospective doctors what their qualifications are? Have they ever done this type of work before? Can't I at least ask if they stayed at a Holiday Inn Express the night before?

I don't think your idea will work.

 
At 4/06/2010 3:52 PM, Blogger Ron H. said...

Sethstorm, you quoted something in one of your comments, but didn't indicate what or who you were quoting.

>"Long-term unemployment is at shockingly high levels which in itself creates a dynamic of persistence because the longer a worker is unemployed the less employable they become..."

If these are former auto workers in Dayton, they may have a VERY long wait for comparable work to reappear, and might want to completely re-evaluate what they consider acceptable employment.

>"Thus, getting these workers back to work is going to be hard enough as it is."

Who is it here that's assuming responsible for getting workers back to work?


>"Labor regulations which raise wages...

read 'Minimum Wage'

...and make hiring and firing workers even more costly will make re-employing the long-term unemployed even more difficult."

Very true.

 

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