Eliminating Fair Share Fees and Making Public Employment “Right-to-Work” Would Increase the Pay Penalty for Working in State and Local Government

Source: Jeffrey Keefe, Economic Policy Institute, EPI Briefing Paper #408, October 13, 2015

From the summary:
The U.S. Supreme Court will soon consider a case that may require all states to have public-sector open-shop laws. The case, Friedrichs v. California Teachers Association, involves whether Abood v. Detroit Board of Education should be overruled. ….

…..If the Supreme Court overturns Abood and eliminates agency fees, it would essentially make all states right-to-work states (also known as “no-fair-share” states) in the public sector. Such a decision would weaken public employee unions and undermine their effectiveness in collective negotiations, and may push public-employee compensation below market levels in that minority of states where public employees actually make as much as their private-sector counterparts. In the long run, it will reduce public-employee union representation. (In this paper, “public employees” refers to state and local government employees and excludes federal government workers and members of the armed services.)
This report focuses on the effects of collective bargaining and union security on public employees’ wages and compensation and consequently the ability of public-employee unions to close the gap between private-sector and state- and local-government pay.
Following are the main findings of the report:
• State and local government employees earn less than similar private-sector workers, even though their education level (the most important predictor of earnings) is higher; however, they receive better health benefits and pensions. Previous research has found a public-sector compensation “penalty” of 2 percent to 11 percent, with state employees at the higher end of the penalty spectrum. (The penalty is how much less they earn in wages and benefits than private-sector workers with the same education, experience, etc.). Studies alleging that public employees are overcompensated do not control for skill levels and education.
• Public-sector unions raise wages of public employees compared with similar nonunion public employees, which helps to narrow the private-public wage gap in those unionized sectors. The current public-employee union wage boost of 5 percent to 8 percent (Keefe 2013) is rather modest and considerably less than the boost that private-sector unions provide. Thus public employee unions, on average, do not raise wages to meet the wages paid to similar private-sector employees.
• However, public-employee unions in full collective-bargaining states that permit union security (i.e., agency shop clauses) do raise total compensation to competitive market standards set by the private sector. In other words, only public employees in states with full collective bargaining make as much as their private-sector peers. In partial collective bargaining states, right-to-work states, and states that prohibit collective bargaining, public employees earn lower wages and compensation than comparable private sector employees, and this low compensation may impede state and local governments from recruiting and retaining highly skilled employees for their many professional and public safety occupations.
• If the Supreme Court renders agency shop clauses unenforceable for public employees, it will shrink union membership because more people will try to gain services without paying for them (the “free-rider” problem). In RTW states in between 2000 and 2014, free-riders represented 20.3 percent of public-employee bargaining units (i.e., the public-sector unions were certified to represent them but they had decided not to join their workplace’s union nor to pay dues), while public-sector union density (the share of public-sector workers in a union) was only 17.4 percent. In states permitting agency-shop agreements (i.e., non-RTW states) only 6.8 percent of the bargaining units were nonunion members (but in this case not free-riders but agency-fee-payers paying fees equivalent to about 85 percent of dues) and union density was 49.6 percent . This near threefold gap in union density between RTW and non-RTW states underscores the importance of agency fees to the functioning of public employee unions and their ability to provide representation to their members.
• If the court renders agency-shop clauses unenforceable for public employees, it will reduce public-employee compensation by increasing the pay penalty for working in state and local government. Using American Community Survey data, this report finds that the public-sector pay penalty is 1 percent in non-RTW states and 10 percent in RTW states, a net RTW compensation penalty of 9 percentage points….
Press release