The Consequences for Government Spending

There is little doubt that unionization can drive up the cost of employees, which is why unionization is frequently resisted by for-profit companies. While the mechanisms by which unions drive up wages and benefits in government might be different from those used in the private sector, the effect is not: Wages and benefits for unionized government employees are generally higher than for non-unionized employees.

The American Federation of Teachers' latest survey of state government employee salaries shows that employees in states with public-sector collective bargaining laws receive pay that is 14 percent higher than comparable workers in states that do not have collective bargaining.[19]

It should be noted that the AFT's survey focuses on state employees, and that employees of the state of Michigan are not covered by PERA. They are mostly unionized, however, under rules established by the state's Civil Service Commission, and the CSC's rules also follow the NLRA model in most respects. Our calculations based on the AFT's figures show that state government employees in Michigan receive a salary that is 10.4 percent higher on average than comparable state government employees, both union and non-union.[*]

If the state of Michigan were to reduce government employee wages to the national averages found by AFT, the state itself would have saved roughly $568 million in employee wages during 2002 and similar amounts every year since. This amounts to annual savings of around $55 annually for every man, woman and child in Michigan. Savings from abolishing or reforming government employee bargaining could approach or even exceed these amounts. (Recall that AFT assigns an even larger value to the effect of unionization itself on government employee salaries. We are merely returning Michigan state government employees to national averages, an amount that includes unionized and nonunionized workers.) Assuming that the repeal of PERA would have a similar effect on local governments, including school districts, the potential savings in employee wages would amount to $1.368 billion, about $135 for every man, woman and child in the state annually.[20]

Along with inflated salaries, unionization also is prone to inflate the costs of benefits for government employees. If anything, the potential savings of reforming employee benefits dwarfs the savings from salaries. For decades, the Michigan Education Association has pressured school districts to provide teachers and staff with insurance through its own preferred provider, the Michigan Education Special Services Association, an organization with extensive ties to the MEA itself.[†] It has been estimated that switching from MESSA to a state-run health insurance system would save taxpayers as much as $281 million per year.[21] The MEA has gone to great lengths to maintain MESSA coverage; threats of illegal strikes against districts that propose alternate insurance programs are not unheard of.[22] Effective reform or abolition of PERA would, among other things, ensure that school districts were free to utilize a wider range of insurers, allowing Michigan taxpayers to realize considerable savings.

More generally, Mackinac Center analysts have found that if state and local government employee benefit packages in Michigan were limited to the amount typical for workers in the Midwest region, taxpayers would save as much as $5.7 billion annually. This sum is well in excess of $500 annually for every person in the state, or $2,000 annually for a family of four.[23] A more modest proposal to create a state-run health insurance program for all state and local government employees is still expected to result in savings of $900 million.[24] To give a sense of proportion, Michigan state government was briefly shut down in 2007 on account of political disputes between the governor and Legislature stemming from a deficit of about $1.5 billion, which was covered almost entirely by tax increases.[25]

While it is undeniable that the repeal or restructuring of PERA would be a dramatic step in Michigan, the potential rewards in fiscal policy alone are tremendous. At a minimum, repeal or reform of PERA would go a long way toward resolving the continuing financial crisis of state and local governments. It is not fanciful to suggest that such an action by itself could, over time, eliminate government deficits throughout Michigan and create surpluses that could be returned to Michigan families in the form of tax cuts that would revitalize the state's economy.

[*] The fact that this figure is lower than the pay increase that AFT attributes to unionization should not be taken to mean that government employee unions have less of an effect in Michigan. This average figure includes salaries from states that allow and disallow government employee unionization.

[†] MESSA itself is not an insurance provider; instead, it administers insurance provided by Blue Cross Blue Shield of Michigan.