Do Unions Kill Prosperity?

You hear from lots of people — including lots of economists — that they do. Because they’re monopolistic price-fixers, they distort economic decisions and make us all worse off.

The theory makes sense, as far as it goes. But if it were really true you’d expect to see it in the data.

Not so much: compare percent union representation to GDP/capita by state:

The correlation is actually pretty strongly positive — .56. More union representation, more prosperity. (Or the other way around…)

It’s also worth noticing: Lower-left, red states. Upper right, blue states. Go figger.

Update: I really do have to point out the other delicious oddity here: Sarah Palin’s Socialist Utopia of Alaska is second only to the Evil Empire, New York, in union representation.

Union density:

State GDP/capita:







15 responses to “Do Unions Kill Prosperity?”

  1. Chris T Avatar
    Chris T

    Keep in mind that a lot of people (including myself) have no problems with private unions, but significant qualms about public unions.

    A lot of the promises made to Public Unions (ie: pensions and health care) are only coming into play now.

  2. Michael Avatar

    Hi Steve,

    I recently read a comment you left on an INC. article, and had a few questions for you. Would it be possible for you to shoot me an email?

    Thank you very much,


  3. Asymptosis Avatar

    @Chris: Yeah, I get it. Just presenting some data that I came across. As usual, I had no idea how it would plot out.

    @Michael: Sent.

  4. jazzbumpa Avatar

    Steve –

    The way it plots out is pretty impressive.

    @ Chris – The only reason I can think of to have qualms about public union would be if you buy into the right wing meme that these union members are overcompensated, have cushy benefits, and rich pensions that they have wormed out of their employers because they have no concern about bankrupting their employer; OTOH, a private sector employee reasonably would be affected by these concerns.

    Compelling story. Or it would be, if any of it were true.

    They make less, and have comparable-to-inferior benefits and pension. They gave up these things in exchange for job security decades ago.


  5. Asymptosis Avatar

    I would say: should public employees be blamed because the states failed to fund their promised pensions adequately (i.e. by not taxing enough)?

  6. Chris T Avatar
    Chris T

    -Defined benefit pensions are a rarity in the private sector, but the norm in the public sector. The standard is the 401k which is subject to the vagaries of the market.
    -Wisconsin union members do not pay much if anything into the pension system. This is rare even in other states.
    -Wisconsin union employees currently pay 6.3% of their health premiums versus 25% everywhere else.

    However, this is a side issue for me. The real problem is the lack of an effective check on public union interests. Make no mistake, unions are interest groups and exist for the benefit of their members. This is all well and good as long as there is an effective counterbalance. In the private sector, the shareholder/owner desire for profits balances the union’s desire for more pay/benefits.

    Public unions do not have such a counterbalance. They negotiate with elected officials who nominally represent the public, but owe their jobs to votes. Public unions have substantial influence over large numbers of voters who also have a personal stake in electing officials that give them whatever they want. Thus we have a situation where the people negotiating with the unions have every incentive to be generous and no one to answer to (particularly if what is promised won’t show up in budgets until they’re out of office). To top it off, the administrative task of collecting dues is shouldered by government, effectively giving a group who’s purpose is to lobby a guaranteed revenue stream without any of the costs of managing it.

    This is not simply limited to matters of budget, but public policy as well. PSUs wind up pushing for expanded public services because it increases their membership role and therefore their power regardless of whether they’re needed or not. Senior members wield the most power and therefore push for rules and regulations that protect them at the expense of newer employees.

    It is this conflict of interest I have a problem with. I do not begrudge them lobbying for the interests of their members – that’s why they exist – but there needs to be an effective balance.

    I would say: should public employees be blamed because the states failed to fund their promised pensions adequately (i.e. by not taxing enough)?

    I cannot blame them for taking advantage of the system as it exists, but I can support changing the system.

    On a side note, the state’s power to tax is a major reason why union power is as strong as it is. Officials do not have to worry about keeping costs down to attract customers, they can simply raise taxes (or make sure the bill comes due when they’re safely out of office).

  7. ramster Avatar

    Apropos of public vs. private union discussion. David Brooks writes here:

    Private sector unions push against the interests of shareholders and management; public sector unions push against the interests of taxpayers. Private sector union members know that their employers could go out of business, so they have an incentive to mitigate their demands; public sector union members work for state monopolies and have no such interest.

    Private sector unions confront managers who have an incentive to push back against their demands. Public sector unions face managers who have an incentive to give into them for the sake of their own survival. Most important, public sector unions help choose those they negotiate with. Through gigantic campaign contributions and overall clout, they have enormous influence over who gets elected to bargain with them, especially in state and local races.

  8. Asymptosis Avatar

    @Chris: “they can simply raise taxes”

    I think you’ve noticed over the last thirty years that there’s a pretty effective curb on tax-raising politicians? It’s amazing that *anyone* gets elected (or stays in office) who raises, much less says he/she is going to raise, taxes.

    But the “till they’re out of office” is true.

    And the conflicts, that I agree with. What kind of rule(s) could we put in place that would balance the game? What kind of teeth would they have?

  9. Leroy Dumonde Avatar

    Yeah, to square the socialist geographic conspiracy circle: Paul Krugman in from New York, Barak Obama comes from Hawaii and Glenn Beck is from Washington state. I can already here the “screeching media dillweed” (Taibi, 2011) scribbling furiously on his blackboard.

  10. Chris T Avatar
    Chris T

    I meant in the sense of the expectation that they can raise taxes (or preferably someone else will).

    As far as solutions, I don’t know. It’s hard enough just getting people to acknowledge there is a problem. The left has a bit of a blind spot when it comes to unions – ignoring that they’re capable of causing many of the same problems they castigate corporations for if unchecked.

  11. jazzbumpa Avatar

    @ Chris –

    Again – a compelling story, that alas does not jibe with the facts. The WI govt, some time in the past, agreed to fund the pension in exchange for not giving the union a pay raise. That was considered to be in their best interest at the time. Remember the bargaining part of collective bargaining – there is somebody on the other side of the table. WI workers make about 5% less than their private sector counterparts. A HS math teacher with a M.S makes $36,500. Average pension is $24,500.

    Your underlying assumption is that the State will not bargain in an effective or good faith way, and the union will steam roll them, having an advantage in an asymmetrical relationship. However, real world data does not support that position.

    BTW – Rachel Maddow did a take down of Politifact tonight, after they called her a liar, got that wrong, and refused to retract it. Their credibility is nil. And George Will is a Koch bothers tool.

    You’re worried about unions going unchecked, when their power is at an all time low, wealth disparity is at an all time high, and the Citizen’s United decision handed Corporations the power to buy elections. Why aren’t you worried about something that matters – like the destruction of the middle class?

    Here’s a quote from the Brooks article ramster linked.

    Walker’s critics are amusingly Orwellian. They liken the crowd in Madison to the ones in Tunisia and claim to be fighting for democracy.
    Bullshit straw man. He made that up.

    Whatever you might say about Walker, he and the Republican majorities in Wisconsin were elected, and they are doing exactly what they told voters they would do.

    Brooks is either flat-ass wrong or a bare-faced liar. Both are inexcusable, since this can be fact checked – and it has. Walker did not campaign on union-busting – and there is no doubt that this is what he is doing.

    It’s the Democratic minority that is thwarting the majority will by fleeing to Illinois. It’s the left that has suddenly embraced extralegal obstructionism.
    It’s clearly not extralegal. And this bill got ramrodded through to a prospective fast vote that the dems left to avoid. The budget year ends on June 30. There is plenty of time to do this whole thing right. That is most emphatically NOT what Walker wants.

    And the 144 page bill contains a lot of things that should not be acceptable to anyone – Dem or Rep.

    frex: (h/t to Ed at Gin and Tacos)

    16.896 Sale or contractual operation of state−owned heating, cooling, and power plants. (1) Notwithstanding ss. 13.48 (14) (am) and 16.705 (1), the department may sell any state−owned heating, cooling, and power plant or may contract with a private entity for the operation of any such plant, with or without solicitation of bids, for any amount that the department determines to be in the best interest of the state. Notwithstanding ss. 196.49 and 196.80, no approval or certification of the public service commission is necessary for a public utility to purchase, or contract for the operation of, such a plant, and any such purchase is considered to be in the public interest and to comply with the criteria for certification of a project under s. 196.49 (3) (b).

    Walker didn’t campaign on this either.

    Brooks is no journalist, and shouldn’t have a job. Ditto Will. Ditto the boneheads at politifact.

    Find some reliable sources, guys.


  12. Chris T Avatar
    Chris T

    A HS math teacher with a M.S makes $36,500. Average pension is $24,500.

    Sources? Using budget data from Wisconsin’s Dept. of Public Instruction website yields an average salary of $49,000 for 2010. The true average will tend to be higher, as the three major population centers of Milwaukee, Madison and Green Bay have respective averages of 56,000, 52,000, and 51,000. Average high is $63,000 (there is considerable variation between districts).

    However, real world data does not support that position.

    A 1991 study found that state and local public employees were 9 times more likely to vote in off year elections then private employees (federal had a negative correlation) in state and local elections.

    the Citizen’s United decision handed Corporations the power to buy elections.

    A) The decision affected unions as well.
    B) Public unions influence is mostly at the state and local level.
    C) Public unions offer something far more valuable then money to politicians: votes.

    Walker’s critics are amusingly Orwellian. They liken the crowd in Madison to the ones in Tunisia and claim to be fighting for democracy.

    Bullshit straw man. He made that up.

    I’m from Wisconsin and most of the people I know are from WI. My Facebook wall was overflowing with comparisons to the Midleeast demonstrators.

    Find some reliable sources, guys.

    Why on earth would you consider Rachael Maddow a reliable source?

  13. Chris T Avatar
    Chris T

    @Chris T
    Sigh, and I accidentally hit ‘submit’ just as I misspell ‘Middle East’.

    Anyway, I’m curious jazzbumpa, are there any policies the Democrats support that you disagree with or Republican policies you agree with?

  14. Derek Werner Avatar

    Say, Asymptosis, could you post references for the stats, who compiled them, who interpreted them, and who illustrated them graphically? All of this would help the credibility of my arguments in repost.

  15. Asymptosis Avatar

    @Derek Werner Oops. Thanks. See update above. I did the scatterplot.