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Bargaining and Budget Shortfalls: Are They Linked?

Wisconsin’s fiscal free-for-all over limiting collective bargaining raises hard-to-answer questions about public unions and state deficits. Answers vary by the measures chosen.

Wisconsin Gov. Scott Walker’s ongoing political showdown is premised on the idea that public-sector unions — and their ability to bargain collectively — are closely tied to the presence and size of the state’s budget fiasco.

The more powerful the union, in other words, the more dire the state’s money woes. Walker seems to accept this correlation as self-evident. “Collective bargaining is a fiscal issue,” repeats a popular refrain by his office throughout the standoff.

But is it really? This should be a testable hypothesis, if a messy one to isolate. Is collective bargaining — or the power of any public union — actually correlated with state deficits?

“It’s an extremely difficult question to answer,” said Matthew Di Carlo, a senior fellow with the pro-organized-labor Albert Shanker Institute. “You’re talking about drawing a causal connection between collective bargaining and state budget troubles, and there are countless factors mediating that relationship.”

States have different tax structures, foreclosure rates and unemployment figures and all contribute to income flow and the presence and size of any deficit. It’s possible, Di Carlo says, that someone could draw an association between collective bargaining and deficits as well.

THE IDEA LOBBYMiller-McCune's Washington correspondent Emily Badger follows the ideas informing, explaining and influencing government, from the local think tank circuit to academic research that shapes D.C. policy from afar.

Miller-McCune's Washington correspondent Emily Badger follows the ideas informing, explaining and influencing government, from the local think tank circuit to academic research that shapes D.C. policy from afar.

“But saying that unions actually caused that situation is a whole different ballgame, and we should be careful about that,” he said. “And this applies when making pro-union arguments, too, by the way.”

In his own analysis (done before state employees began camping out in the capitol building in Madison), Di Carlo looked at state budget gaps (as a percentage of total budgets) in comparison to the share of public-sector employees represented by unions in each state. He controlled for median income and unemployment, and he separately examined states with collective bargaining and those without.

He acknowledges that the analysis is limited, particularly dealing with a state-level data set of only 50 cases. But his results at least suggest that Walker’s certainty is misplaced. Di Carlo found no consistent relationship between budget gaps and unionization. George Washington University political scientist John Sides ran a similar analysis and also couldn’t find a definitive correlation.

“I have not seen any evidence, whether in what I did or what anyone else did, that the presence of collective bargaining or the strength of unions is related to the size of states’ budget shortfalls,” Di Carlo said. “It would seem to me the reasons for state budget shortfalls are rather clear — they are predominantly massive revenue declines due to circumstances created by the financial crisis, especially unemployment and foreclosures. I thought this was pretty clear to everyone else, too.”

Nevada, for example, doesn’t allow collective bargaining for state government workers but has the largest percentage budget gap in the country (perhaps more telling, Di Carlo suggests: It ranks in the top five in the nation in foreclosure rates). Blaming unions, he said, is a little absurd. Public-sector unions have, after all, been around for years, and today’s budget shortfalls are an unprecedented phenomenon.

But Chris Edwards, director of tax policy studies at the libertarian Cato Institute, says others are looking at the wrong statistics.

“Deficits aren’t really a good measure of anything,” he said. “They don’t really mean anything because states have to balance their budgets every year. By July 1 of this year, state deficits will all be at zero. Those deficit measures really have more to do with how accurate states are at doing their budget forecasting.”

Edwards has, instead, looked at state-level debt as a percentage of gross domestic product, a measure that he says more accurately takes into account the long-term accumulation of all those deficits that get reset each summer. Like Di Carlo, he compared those numbers to the level of unionization among states’ public workers.

“Stats show that it’s not random,” Edwards said. “It’s strongly correlated.”

Today’s state budget problems may be relatively new in scope, he said, but they’re the product of fiscal trends as old as the state employee unions themselves.

“There’s lot of other factors here,” he said, “but [my] suggestion was that over time, over many years, if you have heavily unionized states like California, and it becomes very difficult for policymakers to make needed reforms, states gets further and further into debt.”

It’s a far leap, though, from correlation to causation, and causation seems to be what Scott Walker is counting on. He must weaken state employee unions, he suggests, so that Wisconsin can manage its budget better in the future. That is, at the very least, an assumption that should be questioned.

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