The Wrong Target

Public Sector Unions and State Budget Deficits

The economy fell off a cliff in 2008 as we experienced the most devastating downturn since the Great Depression. Unemployment hit double digits resulting in significant economic hardship and increasing demands on government safety nets and services to help those in need. At the same time, state revenues plummeted as workers lost their jobs and business activity contracted. As states struggled to balance their budgets in this weak economic climate, public officials in multiple states argued that the fiscal gaps were due to government workers and their unions.

The fallout from the political jostling around public workers has been that hundreds of bills related to public employees and unions were introduced in state legislatures—most of which sought to restrict public sector unions. At least twelve states have significantly restricted collective bargaining through new legislation in 2011 including: Wisconsin, Ohio, Indiana, Arizona, Idaho, Michigan, New Hampshire, Oklahoma, South Carolina, Tennessee, Utah and Wyoming. A common rationale for these proposals is that growing costs associated with public sector workers, especially union-represented workers, are at the root of state budget deficits. Governor Scott Walker of Wisconsin said “we can no longer live in a society where the public employees are the haves and taxpayers who foot the bills are the have-nots.” A conservative columnist in the Daily Journal noted “like Governor Christie, he [Governor Walker] decided to actually fix the problems that brought Wisconsin to this point. His budget limits government collective bargaining…” But, were public sector workers and their unions to blame for state budget problems?

In this brief, we review the relevant research and analyze the relationship between public sector workers, their unions and state budget deficits. Our analysis finds that the size of the public sector workforce per thousand residents is not growing and previous studies have found that public sector compensation, as a share of public budgets, has not grown. Researchers have consistently found that public sector workers are not compensated more highly than their private sector counterparts after taking into account level of education, experience and other important factors. Finally, our regression analysis shows large state deficits were due, in large part, to the decline in house prices and not due to public sector workers and their unions. The bursting of the housing bubble was the precursor to the Great Recession and it is clear that the large drop in house prices (which capture much of the deteriorating economic climate) was central.