Professor Evans, you hit the nail right on the head!

"We should be very clear that the causes of the current public sector crisis does not lie with the employees. It is widely believed that public sector workers are better paid than private sector workers. This is not true. When we compare employees with similar levels of responsibilities in the public and private sectors there is little difference between in terms of overall compensation."
http://www.metrowestdailynews.com/opinion/x1291971286/Evans-Collective-bargaining-isnt-the-problem

Evans: Collective bargaining isn't the problem

By Martin G. Evans/Guest columnist

May 15, 2011

Last month, Wisconsin passed a bill forbidding Public Sector Unions from bargaining over pensions and health benefits. Implementation of that law has been stalled by the courts. Last week, Ohio passed a law that forbade Public Sector Unions from bargaining over pensions and health benefits. No doubt, a similar legal challenge will be made.

Even in progressive Massachusetts, a Republican State Representative, Daniel Winslow, recently introduced a similar bill. A milder version, introduced by Speaker Robert DeLeo, has passed the House. The trouble is that these bills show a serious disconnect from the reality of bargaining. The difficulty is that an employee's compensation is made up of cash pay AND the benefits received. Pay is the money that goes into the bank or the pocketbook. Benefits represent compensation diverted to other purposes. Benefits vary a great deal across employers, including public agencies, but include such things as pension, health-care, sick day provisions, flexible hours, transportation, and, more rarely, child care provisions (as at MoJo, described by Jen Abelson in the Globe a few weeks ago).

The link between pay and benefits is most clear with the case of the pension. Pensions are funds that the employer and employee divert from the pocketbook and place in trust for payments that come on stream when the individual retires. The money is the employee's, the employer is merely the trustee. David Clay Johnston has written tellingly about the failure of most commentators to notice that employees pay 100 percent of the costs of their pensions. A pension is simply deferred pay. Individuals and Unions bargain with employers on the total size of the compensation package and then agree on what proportion of that compensation is to be paid out immediately, what proportion is to be set aside for a pension, what proportion is to be used to by health insurance, what proportion is to be allocated to pay for flexible hours, for daycare, and even for transportation to and from work; these last four benefits merely represent a diversion of cash payments into these alternative forms of compensation.

The employee pays the whole shot based on the compensation agreed to in the collective bargaining process. It is probably the case that employees who enjoy good benefits did so by accepting lower cash wage payments in previous negotiations.

This complete interdependence between cash pay and benefits makes it the height of absurdity for legislators to allow collective bargaining on one aspect of compensation but to forbid collective bargaining on other aspects. Such an artificial division will make it very difficult for managers to present a sensible compensation proposal to its employees.

We should be very clear that the causes of the current public sector crisis does not lie with the employees. It is widely believed that public sector workers are better paid than private sector workers. This is not true. When we compare employees with similar levels of responsibilities in the public and private sectors there is little difference between in terms of overall compensation.

The reason that citizens are balking at the compensation enjoyed by public sector employees is that their wages have been stagnant over the past 25 years (except for the top 1 percent of wage earners); while corporations have failed to compensate employees in line with productivity increases, they have also fed them a story about the excesses of the public sector.

These attacks on public sector workers are appealing to the rest of us who have lost our good pensions and health benefits, but they miss the target of restoring fiscal balance. The real money lies with the rich. The only way to get the states, cities, and towns out of the mess they are in is by the Federal government providing additional stimulus funding. This should be roughly equivalent to 20 percent of their 2007 budgets.

This would enable states to pull through until unemployment drops to more normal levels. To pay for this, the Federal government should institute a tax on financial transactions (a good idea from Dean Baker and others). That is where the money is, that is where a tiny tax on each transaction will result in a flow of funds to the treasury without crimping normal economic activity on main street.

It is only right that Wall Street should help out at this time.

(Martin Evans is a professor emeritus at the Rotman School of Management and Centre for Industrial Relations, University of Toronto.)

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