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California’s Public Sector & Teacher Unions' Monopsonies



Because California’s public sector and teacher unions are, or to a high degree, the sole supplier of “labor” for public sector and educational organizations (the definition of a monopsony) they can act like a monopoly (which is a sole supplier of “product”) and ask for whatever wage rate they can obtain for their workers—along with the benefits, pensions, and political power that come with them--all paid for by California’s ambivalent tax payers.

It is no secret that California has its own myriad of economic issues: high taxes, a bloated government, overly powerful unions, and underfunded pension funds. California’s total state and local government debt now stands at almost $1.6 trillion, or about half the state’s GDP —and the common denominator for California's underfunded pension funds is the state's Democratic Party, beholden to California's powerful public sector unions and their political contributions.

A popular TV commercial from 2010 below shows how:

The camera focuses on an official of the Service Employees International Union (SEIU), one of California’s three largest public-employee union, sitting in a legislative chamber and speaking into a microphone. “We helped to get you into office, and we got a good memory,” she says matter-of-factly to the elected officials outside the shot. “Come November, if you don’t back our program, we’ll get you out of office.”

The 2010 video become a sensation among California taxpayer groups for its vivid depiction of the audacious power that public-sector unions wield in their state. The unions’ political triumphs have molded a California in which government workers thrive at the expense of a struggling private sector. The state’s public school teachers are the highest-paid in the nation. Its prison guards can easily earn six-figure salaries. State workers routinely retire at 55 with pensions higher than their base pay for most of their working life.

Meanwhile, what was once the most prosperous state now suffers from an unemployment rate far steeper than the nation’s and a flood of firms and jobs escaping high taxes and stifling regulations. This toxic combination—high public-sector employee costs and sagging economic fortunes—has produced recurring budget crises in Sacramento and in virtually every municipality in the state.

How public employees became members of the elite class in a declining California offers a cautionary tale to the rest of the country, where the same process is happening in slower motion. The story starts half a century ago, when California public workers won bargaining rights and quickly learned how to elect their own bosses—that is, sympathetic politicians who would grant them outsize pay and benefits in exchange for their support.

Over Time, the Unions Have Turned the State’s Politics Completely in Their Favor

The result: unaffordable benefits for civil servants; fiscal chaos in Sacramento and in cities and towns across the state; and angry taxpayers finally confronting the unionized masters of California’s unsustainable government.

A politically created crisis of epic proportions is brewing in California and elsewhere across the United States. For decades, public pension officials and politicians of both parties have promised their employees increasingly generous retirement benefits—while low-balling the contributions from government agencies and employees that are needed to cover these promises—presenting our greatest financial challenge since the Great Depression.

Pushing the pension liability from today and onto our children and grandchildren leaves them with a depleted future and a potentially bankrupt California. Why?

• State and local governments will scramble to find funds, forcing them to raise taxes, slash public services, and/or declare bankruptcy.

• Schools, parks, emergency services, and public-employee retirement benefits will be at risk.

• Politicians will defer until circumstances force them to reckon with a disaster of their own making.

The problem? For far too long, state, and local governments have promised their employees increasingly generous retirement benefits—but without ensuring that sufficient funds will be on hand when the pension payments come due.

This article content is from the Spring 2010 City Journal article “The Beholden State: How public-sector unions broke California” by Steven Malanga.

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