After last week’s post on more than a half century of steadily declining unionization rates, several readers asked me to comment on the reasons behind the vast disparity between union densities in the private (6.6%) and public (35.9%) sectors. While other factors may help explain these numbers, here are a few of the most significant differences between unionization in the public and private sector:

  • Symbiosis.  In the private sector, unions and management usually face a zero sum game. Management’s success (including potential bonuses and even continued employment) is almost invariably linked to controlling costs and increasing sales and margins, which usually includes resisting union demands. Public sector unions, on the other hand, frequently donate to the political campaigns of the very government officials whose employees they seek to organize and represent. These officials’ reelection chances are enhanced when they are “union friendly.”  Is it really surprising that “universal pre-school” education was part of the President’s State of the Union Address, with the potential for thousands of new public school teachers paying dues to one of the two main teacher unions, the NEA or AFT, so that the unions could fund the Democratic party?
  • Monopoly.  In the private sector, employers compete with each other on the basis of quality, efficiency and price. Since consumers have choices, private sector employers have a greater business need to control costs and resist union demands. Public services, however, are usually a monopoly. No matter where you live, you have a single provider for police and fire protection, public schools, parks and other essential services. With a monopoly on services, unions can make demands without fearing that a competitor can undercut them. And when the potential for competition does occur, such as the establishment of charter schools, is it any wonder that public sector teachers’ unions vigorously oppose them in their districts?
  • Hidden Costs of Labor for Consumers.  In the private sector, costs — whether materials, labor, advertising, capitalized buildings and equipment or G&A — are passed through to consumers directly in the price of the product. In today’s environment, those labor costs are far more important than they had been in the past. For example, in the UAW’s heyday in the 1950’s and 1960’s, when Detroit’s “Big 3” automakers had a near monopoly on US auto sales, the UAW could engage in “pattern” bargaining where automakers competed based on quality, style and other variables, but not on the cost of labor. All employers had the same essential labor terms and costs. These labor costs became more obvious when  lower cost, non-union foreign automakers entered the US domestic market. And as consumers in the private sector opted to buy based on price, the Big 3 and UAW now have a fraction of the market share they once enjoyed.  It’s different in the public sector, however, where any costs of public sector unions are passed on to consumers (taxpayers) much more indirectly. Not only is there typically no choice made by taxpayers as to how much to pay for their government services, but real estate, income and sales taxes that provide these services are diffused among all of the different functions that government performs. Any individual tax increases due to collective bargaining not only cannot drive consumers to other providers, but are largely invisible.
  • Degree of Risk.  In the private sector, unionized employees face risks in collective bargaining, since the primary way to enforce bargaining demands is through a strike. Strikers lose wages, typically receive no or low union strike benefits, and in many states are ineligible for unemployment compensation. In the public sector, the risk is far different. Essential services such as police and fire protection are usually prohibited from striking, but in exchange for this, enjoy “interest arbitration” as a way of setting their wages and benefits. In the interest arbitration process, unions point to comparable groups — often unionized — in neighboring cities, towns and counties to emphasize the wages and benefits that those employee receive. Because the arbitrator must set a “fair” wage and benefit package based on comparable data, this process results in an ever increasing ratcheting up of costs. (As arbitrators place lower-paid groups higher on the scale, the “average” necessarily increases, leading the next group to obtain even greater increases, thereby increasing the average even further.)  Even where public sector employees are allowed to strike, there is often far less risk. Teachers, for example, are typically guaranteed and obligated to teach a certain number of days per school year. So even if teachers go on strike — whether for a week or two months — winter or spring breaks may be shortened and the school year may be extended, but teachers risk no real loss in income because their school year is guaranteed. Any temporary losses will be made up for on the back end.

These differences have real significance to organized labor’s success. When Michigan becomes the 24th state with a “Right To Work” law for both public and private sector employees next Wednesday, March 28, the statute specifically “grandfathers” and permits union security clauses (requiring the payment of dues or fees from all bargaining unit employees) for the remaining duration of any collective bargaining agreements in effect on that day. In the public sector, Michigan unions representing school districts, colleges and universities, and other public bodies are now seeking multiyear collective bargaining agreements to enshrine their continued collection of union dues. While private sector employees have no incentive to agree to such long-term contracts, public sector unions are enjoying significant success, including a 10-year collective bargaining agreement for one suburban Detroit school district. Thus, there are reasons why unions have succeeded in the public sector in ways that they have not matched in the private sector.