Public Sector Unions Have the Power to Tax?

Public sector collective bargaining and tax dollar claims

Its long been argued that the present value of future public sector benefits, or what some characterize as unfunded liabilities (future cost of health-care benefits/future cost of defined benefit pension) are in essence an ever increasing claim against the stream of future tax dollars.

The implication is that as unfunded future benefits become more and more expensive to fund, more and more tax dollars are diverted from the stream of tax dollars to fund the benefits and less and less tax dollars are available for the actual business of government. Its further been argued that public sector debt held by bondholders is threatened as the stream of tax dollars must first be used for funding future benefits, then the remaining stream of tax dollars are used to provide the now reduced business of government, leaving an insufficient remainder to service past debt.

Should Unions Have the Power to Tax? - William Dunkelberg

William Dunkelberg, professor of economics at Temple University makes the case that private sector and public sector unions do in fact have the power to tax. How so?

“We have laws that prevent firms from exercising monopoly power and charging prices that are well above the real costs or value of production. But what if a group of workers conspires (usually with the help of government) to overcharge for their services at the expense of the larger public?


The UAW successfully used market power to raise their compensation above levels that the “market” was paying. In simple terms, they “taxed” individual purchasers of cars, extracting as much as $1,500 per car just for healthcare in addition to their higher wages, making it possible for union members to live better, but, dollar for dollar, buyers of cars to have less.”

“Only about 7% of the private workforce is unionized today, but their ability to “tax” union members through union dues and make political contributions gives them top priority in the White House today. Public sector unions represent about a third of public sector workers.

Here, we are held hostage by threats to not pick up our garbage or teach our children. Politicians, not facing a bottom line performance measure like GM or the steel companies but worried about re-election, give in to demands to keep voters from being unhappy. But, over time, this has produced a generally over-paid and over-benefited public sector workforce (compared to market wages).


Their generous compensation can only be supported by reducing the welfare of citizens through higher and higher levels of taxation. The “employers” (taxpayers through their elected officials) have slowly lost their ability to determine the terms of employment offers. The unions now determine working hours, hiring criteria, the quantity of “output” to be produced per day, the number of sick and vacation and holiday days, how their performance will be evaluated etc. No longer can the employer make an “offer” for a job with requirements that fit the needs of the public institution.

The workers themselves now determine these things through the exercise of union power.

Bottom line, union members get higher compensation than the market would pay, but dollar for dollar, that higher compensation comes out of the pockets of taxpayers and customers, leaving them worse off. These are not “high paying jobs” that reflect the value produced by the workers but instead reflect the power of the organized group to impose “pain and suffering” on unorganized individuals in society.

The prices companies can charge are disciplined by competition as is the wage I can earn offering my services in the marketplace. Unions seem to be exempt from this, granted the power to tax individuals to support the lifestyle to which they feel they are entitled. (1)

Unorganized Individuals in Society

One should take note and further reflect on the this statement by Dunkelberg:

“These are not “high paying jobs” that reflect the value produced by the workers but instead reflect the power of the organized group to impose “pain and suffering” on unorganized individuals in society".

Maybe there is something to this unorganized individual within society. Walter E. Williams, professor of economics at George Mason University, sheds some additional light on the “unorganized”:

With all of the union strife in Wisconsin, Indiana and New Jersey, and indications of more to come, it might be time to shed a bit of light on unions as an economic unit.

First, let's get one important matter out of the way. I value freedom of association, and non-association, even in ways that are not always popular and often deemed despicable. I support a person's right to be a member or not be a member of a labor union. From my view, the only controversy regarding unions is what should they be permitted and not permitted to do.

According to the Department of Labor, most union members today work for state, local and federal government. Close to 40 percent of public employees are unionized. As such, they represent a powerful political force in elections. If you're a candidate for governor, mayor or city councilman, you surely want the votes and campaign contributions from public employee unions. In my view, that's no problem. The problem arises after you win office and sit down to bargain over the pay and working conditions with unions who voted for you.

Given the relationship between politicians and public employee unions, we should not be surprised that public employee wages and benefits often average 45 percent higher than their counterparts in the private sector. Often they receive pension and health care benefits making little or no contribution.

How is it that public employee unions have such a leg up on their private-sector brethren? The answer is not rocket science. Employers in the private sector have a bottom line. If they overcompensate their employees, company profits will sink. The company might even face bankruptcy.

Of course, if private companies can count on federal government bailouts, as did General Motors and Chrysler, they can maintain a comfy relationship with their unions. No such bottom line exists in the government sector. Politicians have every reason to grant benefits to their political allies, in this case public employee unions. They don't pick up the tab; it's unorganized taxpayers who face higher taxes. (2)

The Aristocracy of Labor and the De-facto Aristocracy

Milton Friedman in his famous PBS documentary Free to Choose referred to unionized labor as “the aristocracy of labor”. That is, Friedman was pointing out a class of labor holding exceptional rank and privilege. (3)

The exceptional rank and privilege was gained through “rent seeking” and sponsored by politicos (the true aristocracy) through the concept of “political constituency building” in order for the politico (aristocracy) to perpetuate their class position as part of the lofty de-facto aristocracy. (4)

One then has to wonder who in the devil funds this hierarchy of aristocracy? Hmmm. Yes you guess it! You….. the unorganized tax payer! (5) The organized take advantage of the unorganized and create a hierarchy of aristocracy and all the while the unorganized are duped into funding the entire process!

The Political-Economy of the Organized Aristocracy Hierarchy and the Unorganized

Once in a great while a sea-change occurs in which the unorganized metaphorically
storm the castle walls and want accountability, the end of the hierarchy of aristocracy, and no longer are they willing pay the tax collector the tribute needed to perpetuate the aristocracy class.

Oh but no! You see, being in the aristocracy is comfortable. Holding exceptional rank and privilege at the expense of the unorganized is the high life. (6)

Hence the hierarchy of the aristocracy must reshape the argument. The unorganized, now enlighten enough to be metaphorically standing outside the castle walls with torch and pitchfork in hand, are portrayed as the evil doers. It becomes time for the “organized” to show their organizational prowess!

The hierarchy of the aristocracy slips out the back gate of the castle and begins to protest the end of the hierarchy of aristocracy. You see, the debate must be reshaped. That is, the unorganized are really the evil doers. That the unorganized are mistaken and that you must pay tribute to the life style of the entitled as its your lot in life. That its blasphemy to believe other than what is written from on high. And what is written is that you pay and we receive.

That is, the hierarchy of the aristocracy is merely a fuzzy little white rabbit.

Notes:
(1) http://www.cnbc.com/id/41717876/Dunkelberg_Should_Unions_Have_the_Power_to_Tax

(2)http://townhall.com/columnists/walterewilliams/2011/03/03/public_employee_unions

(3) http://miltonfriedman.blogspot.com/

(4)(5) http://thelastembassy.blogspot.com/2011/03/state-tax-revenues-consequential.html

(6)http://washingtonexaminer.com/politics/it039s-wonderful-life-working-government