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Public unions have done great things for many of their members. The common public employee has enjoyed generous pension, healthcare, job security, and vacation benefits in comparison to their private employee counterparts. With government revenues at the local, state, and federal levels generally lower over the last few years, largely due to the economic downturn, their constituents have been far more critical of expenses in an effort to balance budgets. Across many governments, rising employee pension and healthcare expenses have been among the quickest escalating costs. Public unions will put forth a strong effort to defend the packages they have helped negotiate for their members, but governments at all levels would benefit from reforming the system to closer resemble the private sector.

Battles between governments and public unions have risen considerably in the last month. Across many states, including Wisconsin, Ohio, Indiana, Tennessee, Illinois, California, Michigan, Alaska, Iowa, and New Jersey, lawmakers have debated various bills which essentially target collective bargaining and public union benefits. Collective bargaining is the process by which an employer and a representative from a group of employees negotiate terms of employment for the given group. While collective bargaining can generally help the majority of the union members with improved wages and benefits, it tends to discourage rewarding productive employees, makes it challenging to remove less productive employees, and can encourage inefficiencies within organizations.

The State of Wisconsin has been among the more significant battles. Governor Scott Walker proposed a bill that would limit the rights of collective bargaining, have public employees (except police and firefighters) increase their pension contribution from 0% to 5.8% of their salaries, and increase their healthcare premiums from 6% to 12%. Opponents of the bill refer to it as “tyrannical” and “union-busting”. Governor Walker has stated if the bill is not passed, the State may have to layoff 1,500 workers in the near future, and may have to layoff as many as 6,000 workers in the next fiscal year. Fourteen members of the Wisconsin Senate have fled the state to prevent a quorum and stall the vote. Public union members throughout the state have been flowing into the capital, Madison, to protest the bill. Walker is proposing “fundamental changes” in Wisconsin, and the results could impact municipalities across the country, including California.

Governments at all levels have the opportunity to reform the existing public employee system, and make it more productive for the long-term. Private employee unions have dwindled over the last several decades, which have resulted in greater competition, more merit-based pay, greater efficiency, and more productivity among employees. Private companies have the ability to declare bankruptcy in the event a union is not reasonable; bankruptcy can be a more challenging option for governments, especially when they hold a monopoly on the services they provide. Public unions have been growing and have helped negotiate compensation to be approximately one third better than the average private sector employee, according to the American Bureau of Labor Statistics, albeit opponents of the statistic state public employees are generally better educated. To be more sustainable for the long term, the private sector has reformed many of their wages and benefits over the last several decades. Public unions would serve themselves well by following suit.

Billy Schmohl
Investment Information Coordinator

This report is prepared for informational purposes only. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument or service.  Market prices and other data may be obtained from outside sources and is not warranted as to completeness or accuracy. Any comments, statements and/or recommendations made herein are subject to change without notice, and may not necessarily reflect those of Alamo Capital.  Alamo Capital has no affiliation with any political party. Investing involves risk. Consult with a Financial Professional for additional information to determine the suitability of this or any other financial product or issue as it relates to your particular situation.