If you've followed the painfully drawn-out negotiations between Clark County and its firefighter union over the past year, you've no doubt learned much about the power that public-employee unions can exert over local governments in the Silver State.
Local governments' collective bargaining process is governed by Chapter 288 of the Nevada Revised Statutes, a set of laws which labor unions pushed through the state legislature 40 years ago. Among the major provisions of the chapter is a concept known as "binding arbitration," which awards unions massive leverage in contract negotiations. Through binding arbitration, or even the threat of it, unions are able to force local governments — as agents for you and other taxpayers — to give government unions compensation packages that far surpass those in the private sector.
Basic economics teaches that, in a free market, wages are primarily a function of productivity. Workers with special knowledge and training, for example, are able to use more advanced capital equipment such as robotics or computer programs to increase their output per hour. Naturally, a firm that produces more is able to sell more, earning higher returns. This, in turn, increases the firm's demand for labor, which drives up wage rates.
Occasionally, however, a firm's workers may decide to unionize and seek to coerce management into paying wages that are above the level justified by productivity — which means: above the market-clearing price for labor. Wages at such a level place the firm at a competitive disadvantage because, at the higher wage rates, the firm's level of production per dollar of labor input declines. Therefore, in competitive industries, unionization — to the extent that it pushes wages above the market-clearing price — tends to drive firms out of business.
Because of this tendency, union influence is generally only prevalent in noncompetitive or monopolistic industries — such as government or industries that are offered some form of governmental protection.
Inside a unionized government, wages often have no relationship to productivity levels and are frequently held far above the market-clearing price for labor. Local governments in Nevada demonstrate this phenomenon well. With a current unemployment rate above 14 percent, the state has a large supply of available labor. Yet, local governments in the Silver State offer salaries that are, on average, 30 percent ahead of those in the private sector, according to the state budget director.
In a competitive industry, numbers like this would almost surely lead to firm closure. Government, however, has something private firms do not — the power to tax. This power allows public-employee unions, through their bargaining power, to stealthily, but forcibly, seize ever greater sums of wealth from the bank accounts of private citizens.
The only protection that private citizens have from the predation of public-employee unions is the ability of government administrators to control the increase in labor costs. The binding arbitration provisions of NRS 288 were specifically engineered to torpedo this protection.
Because nearly all local governments in Nevada pay wages exceeding the market-clearing price for labor, administrators typically benchmark their offers to the wages paid by neighboring jurisdictions as a method of controlling labor costs. However, the existence of binding arbitration allows unions to refute the initial offer and demand arbitration, where they insist on ever-higher salaries.
This allows local unions to play off each other by continuously elevating the benchmark. Indeed, even the threat of binding arbitration can be enough to compel administrators to grant across-the-board salary increases.
Making matters more egregious, the entire bargaining process is hidden from public view. Negotiations are not subject to the state's open-meetings law and take place behind closed doors. As a result, the taxpaying public is kept almost completely in the dark regarding how public-employee unions are preying upon them.
Nevada's state budget director recently said that local government salary levels are "not sustainable" and that, to avoid large tax increases, "you would have to open up the collective bargain statutes and make some changes."
Indeed. It's time for lawmakers to stand up for taxpayers and shut down the union racket.
Geoffrey Lawrence is a fiscal policy analyst at the Nevada Policy Research Institute. For more information visit http://npri.org/. This article first appeared in the September 2010 edition of Nevada Business.