Testimony before the Insurance, Commerce, and Labor committee, 17 February 2011
Good morning Chairman Bacon, Vice Chair Farber, Ranking Member Schiavoni and distinguished Committee members. Thank you for giving me the opportunity to testify before your Committee on this important matter. The purpose of my testimony this morning is to speak in opposition to the passage of Senate Bill 5.
Before I offer my testimony, I want to share with you some information about my background. I hold the economics Ph.D. from the University of Missouri and am a Professor of Economics at Wright State University. I am a labor economist and have published more than 35 articles in scholarly journals including several on the impact of unions on labor markets. Since 1998 I have been the chief negotiator for the Wright State Chapter of the American Association of University Professors and I am also a Past-President and current member of the Board of Trustees of the Ohio Conference of the AAUP.
For those of you unfamiliar with AAUP, our organization was founded in 1915 by Arthur Lovejoy — a Professor of Philosophy at Johns Hopkins University — and John Dewey — our great American philosopher, psychologist and educational reformer. The incident that prompted Lovejoy and Dewey to found AAUP was the firing of a labor economist at Stanford because a member of the Board of Trustees did not like his views on immigrant labor and railroad monopolies. Since that time AAUP has worked to protect academic freedom and to provide fair procedures for resolving grievances, to promote the economic well-being of faculty and other academic professionals, and to advance the interests of higher education.
In her sponsor’s testimony introducing SB 5, Senator Jones stated that she was not introducing this bill to punish public employees, acknowledging that most are dedicated to serving the citizens of Ohio. She also stated that the purpose was not to punish unions or to seek political retribution, and we take Senator Jones at her word.
So the only possible reason for introducing SB 5 at this time is the belief that somehow it is collective bargaining in Ohio that has created our budget crisis, or that abolishing or curtailing collective bargaining rights for public employees will help solve Ohio’s future budget woes. Perhaps this is based on the myth that public employees are overpaid relative to employees in the private sector — a myth stemming from simple comparisons of earnings between public and private sector employees. Such comparisons fail to take into account differences in education between public and private sector employees.
Several recent studies using data from the Census Bureau and the Bureau of Labor Statistics cover wage and compensation differences between public and private sector employees.
A recent study by John Schmitt “The Wage Penalty for State and Local Government Employees” found that among employees in private sector, 20.9% had a college degree and 8.9% had an advanced degree. In comparison, among state employees, 27.5% had a college degree and 25.6% had advanced degrees. For local government employees, the figures are 27.4% and 22.3% respectively. After controlling only for education and age, he found that state and local workers actually earned 6.4% less than their private sector counterparts. After controlling for age, education, race, gender, and region, Schmitt still found that state and local government employees earned 3.7% less.1
In their study “Out of Balance: Comparing Public and Private Sector Compensation over 20 Years,” Keith Bender and John Heywood found that employees in the public sector were twice as likely to have a college or advanced degree than their private sector counterparts. After controlling for education and a number of other variables, state employees earned 11% less and local employees earned 11.6% less. In addition, they also concluded that even after taking benefits into account, state and local public sector workers still earned less.2
Finally, Jeffrey Keefe published “Are Ohio Public Employees Over-Compensated?” in which he controlled for education and several other variables. He found that full-time state and local public employees earn about 5.9% less than their private sector counterparts. When hours worked are factored in, they earn 3.3% less. Keefe also studied total compensation (wages plus benefits) and found state and local public employees have annual compensation about 6% less, and hourly compensation about 3.5% less.3
Is there any relationship between collective bargaining for public employees and the budget deficit? According to a study by Policy Matters, the nine states banning collective bargaining among public employees have an average budget deficit of 16.5% compared to 16.2% for the fifteen states that allow collective bargaining. If we expand this to the 42 states and the District of Columbia that allow collective bargaining for some public employees, the deficit is 16.6%.4
However, there is a relationship between budget deficits and the unemployment rate, and this points to the fundamental reason for our budget deficit in Ohio. For decades, Ohio has underinvested in education. As a result, Ohio is 37th in the nation when it comes to the percentage of our population that has a college degree.5
Senator Jones is correct when she says the world has changed, and it is time for government to change. Today the good jobs are in the knowledge economy, and these jobs require highly skilled workers. Innovative technology and knowledge-based jobs are changing our labor market.
The changes in our labor market mean that our colleges and universities are increasingly important to Ohio’s economy. We train the workers and citizens of the future and we generate many discoveries that drive economic growth. In short, to create the high paying middle class jobs of the future, we need a world-class system of higher education, and this means attracting the best and brightest from around the world to come teach and undertake research at state universities in Ohio.
Unfortunately, there is a growing gap nationally between salaries for faculty between public and private universities. Moreover, faculty salaries at Ohio’s public universities have fallen behind those at public universities nationally, thus compounding our competitive disadvantage. Taking into account the number of faculty at each of our doctoral level public universities, our faculty earn an average of $4,800 a year less than faculty at other doctoral public universities in the U.S.6 Eliminating collective bargaining in higher education will only exacerbate this gap and make it more difficult for us to attract the faculty we need to build a world-class system of public colleges and universities.
Faculty alone cannot create a world-class system of colleges and universities. We also need students who are prepared for college, and this means having a world-class K-12 system — and we won’t have one without attracting the best and the brightest to become teachers. There is a positive correlation between teacher’s salaries and the percentage of a state’s citizens that have a college degree. Controlling for general economic conditions, I found that each $1,000 increase in teacher’s salaries raises the percentage of the population having a college degree in a state by nearly 0.5 percentage points.7 So limiting the collective bargaining rights of teachers will not help Ohio’s economy to become more competitive and create the knowledge workers of the future.
Other public employees are also important to creating a vibrant economy in Ohio, one that attracts others to come to Ohio and keeps Ohio’s best and brightest here. We need police and firefighters. These people put their lives on the line every day. There are no statues of Wall Street bankers who have died keeping us safe or carrying children from burning buildings. Without strong public safety forces, crime will increase and response times for emergencies will increase, raising insurance rates in Ohio and driving out those who have the knowledge economy credentials to successfully seek employment elsewhere.
Turnover costs are frequently overlooked and can be substantial. The American Management Association reports that an employee departure costs 25% to 200% of the employee’s annual salary; and that for highly skilled employees, these costs tend to the higher end of this range.8 According to a study by Selden and Moynihan “A Model of Voluntary Turnover in State Government,” collective bargaining reduces turnover among public employees.9 Ohio has about 727,000 state and local employees. Suppose each turnover costs 100% of the departed employee’s salary — a reasonable number given the high skill level of public employees; and the average public employee earns $40,850 annually; then, a 1 percentage point reduction in turnover saves Ohio taxpayers $297 million every year.10
So the bottom line is that public employees in Ohio are not over-paid, and they are not responsible for the current budget crisis. Ohio’s public employees are not the problem. They are part of the solution! It is unfortunate that the issue of collective bargaining rights for public employees has even come up at this time when Ohio faces a budget crisis. The Bill’s sponsor, Senator Jones, acknowledged in her testimony that eliminating collective bargaining rights for public employees would have little if any effect on Ohio’s immediate budget problems. I submit that curtailing collective bargaining rights for public employees will be outright harmful to Ohio in the longer term — by weakening our state’s competitive position in having a well educated citizenry, a safe environment in which to raise families, and workplace conditions that engender satisfied employees who will stay with their public employer rather than leaving at the first opportunity.
I would be happy to answer any questions.
1 John Schmitt, “The Wage Penalty for State and Local Government Employees,” May 2010, Center for Economic and Policy Research.
2 Keith Bender and John Heywood, “Out of Balance: Comparing Public and Private Sector Compensation over 20 Years,” April 2010, Center for State & Local Government Excellence and The National Institute on Retirement Security.
4 Wendy Patton, “Press Briefing on Unions, Working Families, Public Employees and Public Budgets,” December 30, 2010 Policy Matters Ohio.
5 The 2011 Statistical Abstract of the United States, Table 229.
6 “The Annual Report on the Economic Status of the Profession, 2009-10,” Academe March-April 2010, Survey Report Table 4 and Appendix 1.
7 Estimate from a regression using percent of population in a state with a college education as the dependent variable and average faculty salaries from the National Education Association www.nea.org/home/29402.htm and state unemployment rates from the Bureau of Labor Statistics www.bls.gov/.
9 Sally Selden and Donald Moynihan, “A Model of Voluntary Turnover in State Government,” Review of Public Personnel Administration, April 2000 vol. 20 no. 2 63-74.
10 Data on the wages and salaries of state and local employees in Ohio from Regional Economic Information System, Bureau of Economic Analysis, US Department of Commerce www.bea.gov/regional/docs/footnotes.cfm?tablename=SA07N and data on employment of state and local employees from www.bea.gov/regional/docs/footnotes.cfm?tablename=SA25N.
The text of the testimony was first published in the Web site of the American Association of University Professors (Ohio University Chapter); it is reproduced here for non-profit educational purposes. For more information, visit <oh.aflcio.org/index.cfm?action=calendar>, <www.afscmecouncil8.org> and <www.facebook.com/pages/Stand-Up-For-Ohio/167952849919161>. See, also, “Ohio Labor: No on SB5!”; Dan La Botz, “A New American Workers Movement Has Begun” (MRZine, 18 February 2011); Dan La Botz, “Thousands Rally in Columbus to Stop Anti-Union Bill” (Labor Notes, 18 February 2011).