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January 9, 2011 / passiveprogressive

US Government: more perfect unions

I wanted to write a quick post about an article I just read in The Economist. As is so often the case in these blurb articles, the topic could be easily summed up in one graph:


It’s interesting that the public sector has paradoxically allowed unions to flourish, even after Ronald Reagan made it the federal agenda to pit the government against unruly workers. Indeed, his dissolution of PATCO (the Professional Air Traffic Controllers Association) in 1981 shows up on the graph as over 13,000 union members were fired.

Unions and Inflation

According to the Federal Reserve, inflation is under control. However, there is a large segment of the American public that believes otherwise. Investments in gold and other commodities with “real” value signal that people are looking for ways to invest other than the dollar. Or, perhaps more accurately, places other than the stock market.

Many remember the >5% rate of inflation in 2008 and see the dollar as an unsafe option. Regardless, employees in unions will be far more likely to fare well during times of inflation than those without union protection.

Take the example of Europe and the U.S. back in 2008: unionized workers received pay increases equal to that of the rate of inflation (then up 3.4% from the previous year). In the U.S. however, workers received less relative to the inflation rate. Economists typically argue that higher wages mean higher production costs, leading to a vicious cycle of price-increasing inflation.

However, there is a beneficial side to having a workforce that isn’t worried about reduced pay due to inflation: consumption would hypothetically stay the same. This lack of a social safety net could be what’s contributing to more conservative spending patterns and lower sales (see an article on consumer frugality).

Nonetheless, government employees are not the public at large, and they don’t have the same overall influence as private sector employees.

The Good, the Bad, and the Ugly

In most minds, this debate would come down to the idea that we ought to have well-paid public servants vs. an efficient government.

But the issue goes deeper than this; unions also benefit workers through lobbying for post-employment compensation. Certainly there are merits to retirement plans and pensions, but they can also be sources of problems. Generational gaps can cause large fluctuations in the amount of post employment dollars that must be paid – certainly a looming problem in a country of Baby-Boomers and their children.


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