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How Massachusetts Can Stop the Public-Sector Virus by Thomas A

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How Massachusetts Can Stop the Public-Sector Virus by Thomas A March 2011 How Massachusetts Can Stop the Public-Sector Virus By Thomas A. Kochan (MIT Sloan School of Management) America is in the early stages of what are these the causes or convenient This Policy Brief is based on remarks could be the largest labor protest of scapegoats and targets? made by Professor Thomas A. Kochan our lifetime. Starting in Wisconsin, at “Collective Bargains: Rebuilding and Let me be clear about the deeper issue Repairing Public Sector Labor Relations the battle over public-sector wages, at stake in these debates that give them in Diffi cult Times,” a Boston 101 event on benefi ts, and collective bargaining February 23, 2011. A full video of the event such a viral character. Wisconsin’s can be found at http://www.hks.harvard. rights is now spreading like a virus to governor would strip employees of edu/centers/rappaport/events-and-news/ Indiana, Ohio, New Jersey, and God audio-and-video-clips/collective-bargains- their rights to collective bargaining rebuilding-and-repairing-public-sector- knows where next. So, like exposure and make it essentially impossible labor-relations-in-diffi cult-times. to any virus, we have two questions for any union to represent its Thomas A. Kochan on our mind: Will we get it here in Thomas A. Kochan is the George M. Bunker members in a stable and responsible Professor at MIT Sloan School of Massachusetts? Is there a treatment fashion. In doing so, he is attacking a Management. He is also co-Director at the that makes us immune and stops it MIT Institute for Work and Employment fundamental human right, the freedom Research. from spreading around the country? of association and the right to have © 2011 by Professor Thomas A. Kochan. The contents refl ect the views of the author I believe we have within our own an independent voice at work. This (who is responsible for the facts and experience the potential treatment and is not only unacceptable; I hope we accuracy of the research herein) and do not represent the offi cial views or policies of the immunity. But we must act proactively will have the courage to call it un- Rappaport Institute, Harvard University, or now. We can build on our own positive American. America must stand up for the Employment Policy Research Network. experiences in confronting public- basic human rights at work as we do in More information on both the Rappaport Institute for Greater Boston and the sector challenges over the past year all parts of society. Employment Policy Research Network can be found at: and chart a new course for tackling This is a teachable moment, but we public-sector challenges here, and Rappaport Institute for Greater Boston have to get the lesson right. We have Harvard Kennedy School in doing so lead the nation on a allowed worker rights to quietly and 79 John F. Kennedy Street Cambridge, MA 02138 new course for public-sector labor- slowly erode in the private sector for management relations. The way to http://www.rappaportinstitute.org a long time without recognizing its 617-495-5091 do so is to put the modern tools of consequences or getting irate about Employment Policy Research Network negotiations, problem solving, and 121 Labor and Employment Relations Bldg. it. Now we see it happening in a bald 504 East Armory Avenue political leadership to work. I will give and sudden form in the public sector. Champaign, IL 61820 it a name: Call it the Grand Bargain The 70,000 people in the streets http://www.employmentpolicy.org (217) 333-0072 2.0. of Madison should be a wake-up The proximate trigger of the battles call. When people’s basic rights are going on around the nation is the fi scal attacked they will react. So the virus crises state and local governments on our doorstep will come in, if we do are experiencing. Out-of-control not get our house in order. public-sector wages, health care costs, Our approach has to start by unions, and collective bargaining are getting the facts right. Public-sector being signaled out as the causes. But employees are not overpaid relative How Massachusetts Can Stop the Public-Sector Virus Rappaport Institute | EPRN POLICY BRIEFS to their private sector counterparts. Rutgers than highly paid professionals. In doing so it University Professor Jeffrey Keefe has done helps reduce income inequality. This has been the analysis both at a national level and known to be an effect since the 1980s research within states like Wisconsin, New Jersey, by Harvard colleagues Richard Freeman and and others.1 Controlling for education and James Medoff, and now we see the same effects other standard human-capital variables, he in the public-sector studies cited above.3 found that nationally, public-sector workers What about arbitration? In a recent nation- earn 11.5 percent less than their private- wide study I found that arbitration settlements sector counterparts in wages and salaries. basically mirror outcomes negotiated in states Taking fringe benefi ts into account shrinks without arbitration and those settled voluntarily the difference to 3.7 percent. The same is in collective bargaining. This is not surprising, true in Massachusetts. Jeffrey Thompson because most arbitration statutes require and John Schmitt from the University of arbitrators to use these comparisons along with Massachusetts’ Political Economy Research cost of living, ability to pay, and other objective Institute and Center for Economic and Policy factors in shaping their awards.4 Research found public employees’ wages are approximately 2.3 percent less than their But are collective bargaining and arbitration private-sector counterparts and their total blameless? No. The incremental bargaining process observed at the local level is too The 70,000 people in the streets politically constrained, too incremental, and too of Madison should be a wake-up slow to solve the problems of rising health-care call. When people’s basic rights costs and growing pension liabilities facing are attacked, they will react. So local and state governments. Despite the need to reign in health care costs, few municipalities, the virus on our doorstep will despite heroic efforts in places like Arlington, come in, if we do not get our took up the Governor’s proposal to negotiate house in order. their way into the state’s less expensive insurance program (called the General compensation is 1.4 percent less than their Insurance Commission or GIC). A stronger private-sector equivalently educated workers.2 shock is needed for the system to change. It Thus, public-sector workers have lower wages needs a Grand Bargain 2.0. and higher fringe benefi ts (yes, pensions and So how to proceed? I think we can learn health-care benefi ts are the two standouts). But from two recent experiences we’ve had in overall, they are not overpaid compared to the public-sector disputes in Massachusetts. Both private sector. No easy scapegoat here. examples convince me that if we apply a So are the public-sector collective bargaining modern approach to negotiations—evidence- and/or the arbitration process that governs based, transparent, problem solving (we call some public-sector disputes the problems? this “interest-based negotiations”) we can I have studied these processes intensively, address the challenges. fi rst in Wisconsin and then in New York State The fi rst example is last summer’s highly and nationally. Here is a quick summary of visible dispute over the Boston fi refi ghters’ what we know. First, collective bargaining arbitration award. As we recall, that award protects wages of lower paid employees more offended the public by providing a wage 2 How Massachusetts Can Stop the Public-Sector Virus Rappaport Institute | EPRN POLICY BRIEFS increase as a reward for mandatory drug and just that. A negotiated resolution was reached alcohol testing. The public essentially said loud that added a fi fth year to the agreement and and clear: “Give me a break, you mean we reduced the costs of the increase and deferred have to pay these guys to come to work clean implementing it into the future. and sober?” At the same time the Mayor of This was a victory for all and especially for the Boston went on a media campaign arguing the public. The community held the parties’ feet wage increase was way above the norm—19 to the fi re, so to speak, until a better outcome percent over four years. was negotiated. The lesson here is we are in a The public pressure led the Boston City transparent, media-intensive world. Fairness Council to call for a study of the award. I did and public acceptability ruled the day. the study and came to two conclusions: The A second example involves a complex merger basic arbitration award matched the negotiated of the state’s different transportation agencies. police settlement for 2006-2010 and amounted This involved integrating multiple workforces, to essentially a 14 percent increase for those organizations, and unions from the Mass four years. Second, it was the quid pro quo for Turnpike, Tobin Bridge, Registry of Motor the drug and alcohol testing that pushed up the Vehicles, Mass. Aeronautics Commission, and Highway Department into a single The incremental bargaining Massachusetts Department of Transportation process observed at the (MassDOT). local level is too politically The 2009 transportation reform law creating constrained, too incremental, and the new agency called for Draconian wage cuts too slow to solve the problems (more highly paid Turnpike employees would of rising health care costs and be placed on the state schedule and receive growing pension liabilities facing the considerably lower pay).
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