The public employe wage bubble

Gross Domestic Product of California 2008 (mil...Image via Wikipedia
IBD:

A guest on Fox Business Network said last week that public employee unions are bankrupting state governments. Isn't it time that legislators outlaw collective bargaining for public-sector workers?

Working for the government as a member of a union is an easy path to prosperity. On average, the yearly compensation for a public sector worker is, according to Bureau of Economic Analysis data, $67,812. In the private sector, that average is $59,909.

Put another way, when measured as total compensation per hour, state and local government wages are 45% higher ($39.66) than private-sector wages ($27.42).

To understand the problem created by high wages and gold-plated benefits for public sector workers, one needs only to read the work of Chris Edwards writing in the Winter 2010 issue of the Cato Journal:

"In 2008, the total cost of wages and benefits for state and local workers was $1.1 trillion, which was half of the $2.2 trillion in total spending by state and local governments."

In highly unionized states, the ratio is far worse. As columnist George Will notes today on Page A13 of IBD, "about 80 cents of every government dollar" in California "goes for government employees' pay and benefits."

Take a moment to digest that. Then move on with us to Edwards' next statement:

"Compensation costs are expected to rise rapidly in coming years due to growing pension and health care costs."

The total unfunded liability for pensions at the state and local levels, which now stands at almost $4 trillion, is enough to alone sink state and local governments.

...
Those pensions are going to have to be reworked. However, to start to cure the problem, we must make it illegal for public employee unions to contribute to campaigns or organize for campaigns. We can also start to cut salaries for state employees and adjust their pension expectations. If that is not possible under current law, Congress must amend the bankruptcy code to permit states to reorganize, but they must not be allowed to put pensions ahead of bond holders who have a prior lean on the revenues of the state. To do so would mean teh state will have difficulty financing projects in the future and would have to pay significantly higher interest rates.
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