For those who are unaware, street protests have come to Wisconsin. Literally tens of thousands (a local Fox news affiliate admitted they numbered at least 70,000 on Saturday) for what is now at least 4 consecutive days of protests in Madison, Milwaukee, and other cities. The issue that has brought them out is a proposal that recently elected Republican governor Scott Walker made and looked ready to jam through the Wisconsin legislature (Republican majority) without hearings was allegedly a deficit-reduction budget bill. But the bill contained provisions to outlaw or severely curtail the rights of public employees to collective bargaining. It is an interesting situation. 52 years ago, in 1959, Wisconsin became the first state to allow unionization and collective bargaining by state and local employees. Now the governor wants to lead (?) by abolishing it. For more on the protests in general see most any major news outlet. Here are two reports: ABC News and CNN. This is a significant issue and possible turning point in American political economy. The proposals to end public employee collective bargaining and the protests are spreading to other states such as Ohio, Indiana, Tennessee, and Nevada.
Most of the national news coverage is taking the governor’s claims at face value. In particular the assertion that the state faces a severe deficit, that public employees are “overpaid” and have too-rich benefits, that the only way to balance the budget is to cut benefits, and that only by ending collective bargaining can that happen. As usual, the news media have failed. The facts are otherwise. I turn to Menzie Chinn, one of the country’s premier econometricians, who happens to be on the scene (he teaches at Univ Wisconsin Madison) for a few of his recent dispatches from the front.
First up, the governor had carefully planned this. Including alerting the National Guard well over a week ago:
From The Isthmus:
The Wisconsin National Guard has not been activated but it is on alert.
“Plan for the worst, expect the best,” Gov. Scott Walker explained to a jam-packed press conference this morning in the State Capitol.
It was the official roll-out of his broad rollback of collective bargaining rights for unionized government employees, part of his budget repair bill, seeking to resolve a $150 million shortfall in the next five months.
Walker said he was well aware that “some union leaders will try to incite their members.”
Next, the governor and Republicans (and Fox news) are repeating ad nauseum the assertion that public workers, both in Wisconsin and in general, are overpaid and overcompensated when compared to the private sector. The only studies I’ve seen that draw that conclusion are studies that compared the compensation per job of college-educated full-time public employees to non-educated part-time private sector employees. Menzie Chinn (he is an econometrician) crunches the numbers and finds public workers are lower paid than comparable private sector employees:
Using the March 2010 CPS data, regression analysis controlling demographic characteristics (full-time, education, years of economic experience, gender, race, citizenship, and organizational size) confirms that total hourly compensation for Wisconsin public sector workers is 4.8% lower than for private sector (-5.1% for Wisconsin State workers, and -4.7% for local government). The differentials are bigger for annual compensation. These estimated differentials are statistically significant, as shown in Table 4. (graphs and tables at the link)
On Friday, the unions called the governor’s bluff. They proposed to accept the benefit cuts (the financial part) if the governor would give up on the ending collective bargaining. Again Menzie reports:
From Milwaukee Sentinel Journal:
…The Walker statement was in response to a statement earlier Saturday from [State senator] Erpenbach, who said he had been informed that all state and local public employee unions had agreed to the financial aspects of Walker’s budget-repair bill. Erpenbach added in his statement that the groups wanted, in turn, for Walker to agree to let labor groups bargain collectively, as they do now.
Since collective bargaining rights do not in themselves have direct budgetary implications, then it is unclear — from a fiscal perspective — why agreement can not be made.
Local Fox news affiliate estimates the anti-bill crowd at 70,000, and tea party supporters of the governor’s bill in the hundreds.
If the governor has rejected this proposal, then it is clearly NOT about the money or the alleged deficit. It is about power and breaking unions. It is interesting then that the governor, whose real intent is now clear (break the unions) did not try to propose and argue a change in collective bargaining on any merits of it’s own. Instead, he claimed it was necessary because of money, not because he wanted to argue the inherent rightness or desirability of ending collective bargaining. It is not surprising then that we find that even the claim of deficit and the necessity of trimming state spending was false. In fact, while Wisconsin faces some deficit – with 9% national unemployment, all levels of government are short of revenue, it was in relatively good shape until Scott Walker came into office as governor in January. Among Walker and his legislature’s first actions in January were to make the deficit worse by giving tax breaks to special corporate interests. The Cap Times reports how “Walker gins up crisis to reward his cronies”. It turns out that the $137 million deficit Walker claims is the reason for breaking the unions, is actually the result of the $140 million dollar special interest tax breaks bill passed by Walker and his Republicans. As recently as January 31, the state of Wisconsin was forecasted to end the year with a surplus, not a deficit.
How this all turns out will, I think, have significant repercussions beyond Wisconsin. The governor of Wisconsin has even managed to anger the Super-bowl champion Green Bay Packers. I don’t think that’s a good move in the cheese state.
EconProph 
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