Who's to blame for the pension shortfall?

Unions are not to blame for the severity of public pension shortfalls, but that doesn't mean that taking a hard look at collective bargaining is a bad idea. Matthew Di Carlo at Shanker Blog called yesterday for pols and commentators to stop blaming the nation's public pension issues on collective bargaining. He has a point, but I can't run with his conclusions here:

I find little evidence that the unionization of public employees has any effect ? whether positive or negative ? on the fiscal soundness of state pension plans. This, along with the fact that we already know why pensions are in trouble, and it has little to do with unions, once again represents strong tentative evidence that the push to eliminate collective bargaining is misguided, and the blame on unions is misplaced. States with little or no union presence are, on average, in no better shape.

Pensions are far from the only issue at hand. The Pew report cited by Matthew shows that, in addition to the $660 billion gap in pension systems, there is a $604 billion shortfall to pay for generous health benefits for public-sector retirees. This gap has little to do with the financial crisis, because states didn't have much savings to lose in the markets to begin with.

The absolute level of health care liability per person ? not the gap, but the dollar amount states will have to shell out eventually ? seems to be related to unionization density. I plotted the money owed to public-sector retirees by each citizen of a state against the percentage of public workers covered by union contracts using the data Matthew identified. The result is a weak but statistically significant (95% level) relationship:

So unions do seem to have had a hand in securing pricier health care benefits for their members in retirement. It's sort of odd that the Shanker Institute would make the contrary argument ? namely that unions are ineffective at improving their members' compensation!

I don't really think "who's to blame?" is the right question to ask, however. The real question is, which kinds of compensation strike the right balance between attracting the best and brightest to teaching and maintaining financial sustainability? Retirement and health care benefits that are expensive, blow up in times of fiscal crisis, and overwhelmingly benefit teachers near retirement do not seem to fit the bill.

I agree with Matthew that there's no need to vilify unions. That does not mean we shouldn't reform the systems that lead to massive unfunded liabilities and a profession that is unattractive to the entrepreneurial, high-performing college kids we want to draw into education.

Chris Tessone
Chris Tessone is a Director of Finance and Operations; at the Thomas B. Fordham Institute