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When up is down: A post-Labor Day look at public-sector unions and pension funding

September 7, 2021

Labor Day first became a federal holiday in the late 1800s. It has since become a statutory holiday in all 50 states, reflecting the influence of organized labor. Now that our day off yesterday is over, let’s take a look at one lay of the land – and a very curious tendency for states with strong public-sector unions.

At our Data-Z website, we include data from the Union Membership and Coverage Database. That database tracks the percent of workers covered by collective bargaining agreements (CBAs) in both the private and public sectors. Since 1983, the 50-state average for the private sector share has fallen from 16 percent to 7 percent, but in the public sector, it has only fallen from 42 percent to 36 percent, and actually rose in 2020.

There is wide variation among the 50 states in the unionization of public sector workforces. What does the condition of state government finances -- and public sector pensions specifically -- look like in strong public sector union states compared to other states?

One might expect pension funding to be stronger in states with stronger public sector unions. And one would be wrong.

The 50 states can be ranked on the share of public sector workers covered by CBAs in 2020, and put in three groups – the 15 states ranking highest, the 15 states ranking lowest, and the 20 states in the middle of the pack. The 15 states ranking lowest had an average of 17 percent share, down from 28 percent in 1983. The 15 states ranking highest had a 60 percent share, just down a smidgeon from a 61 percent average in 1983. For the 20 states in the middle of the pack, the share was 33 percent in 2020, down from 39 percent in 1983.

What do these three groups look like, in terms of their average public sector pension funding ratios and overall state government financial conditions?

The 15 states with higher unionization in the public sector had significantly lower, not higher, pension funding ratios in 2020 than either of the other two groups, and those funding rations fell significantly more from 1983 to 2020 in those unionized states. This curious result was even stronger for looking at the bleak status of public sector retiree health care benefit plans.

And when looking at Truth in Accounting’s “Taxpayer Burden” measure of overall financial condition, the unionized states tend to have state governments in significantly worse shape, and their condition has deteriorated significantly since 2009, in contrast to those other two groups. Here’s a look at the average TIA Taxpayer Burden for the three groups:

                                                                                2009                       2019

                Less unionized                                   -3,300                      -500

                Middle of the pack                           -7,100                    -2,300

                Most unionized                                 -15,900                 -20,700

 
 
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