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Housing Bust Caused Deficits, Not Public-Sector Contracts, Study Finds


When housing prices began to take a dive, revenues to state and local governments plummeted. Housing construction shuddered to a halt, creating ranks of unemployed workers who began drawing unemployment benefits rather than paying local taxes on their previously middle-class salaries. The businesses of suppliers and service-providers to contractors were forced into downturn. And many states continued to cut taxes, causing a perfect storm of budget woes for the states.

Yet who got the blame for this economic morass? Public-sector employees and their unions, who have been made the scapegoats for a budget crisis that had nothing to do with them–convenient targets for the right-wing forces that seek an end to unionization in all sectors.

“The Wrong Target: Public Sector Unions and State Budget Deficits,” a new study released today by the Institute for Research on Labor and Employment at the University of California, Berkeley, makes clear the real causes of the state- and local-government budget crisis. Using data compiled from the U.S. Bureau of Labor Statistics, authors Sylvia Allegretto, Ken Jacobs and Laurel Lucia show that when the impact of the housing bust is added into tables that purport to link public-sector labor contracts with state-level budget crises, public workers’ compensation becomes statistically insignificant.

The findings are especially significant in light of the Issue 2 ballot measure on which Ohioans will vote next month when they decide whether to accept or reject the anti-labor bill, S.B. 5, that passed the Ohio legislature earlier this year. The bill would sharply curtail collective bargaining for public-sector workers and eliminates binding arbitration for the settlement of disputes.

On a conference call with reporters today, hosted by the Economic Policy Institute (EPI), the authors made the following observations:

  • Despite fear-mongering, the size of the public sector has not grown in recent years, neither in terms of public-sector employment levels nor in public sector-compensation.
  • State spending on compensation of public-sector workers has actually declined–falling steadily between 1992 and 2002 and remaining stable from 2002 to 2009.
  • When compared with workers of comparable education levels in the private sector, public-sector workers are under-compensated.
  • States with higher union density actually employ fewer public workers than those with low union density.

Talking with reporters, author Allegretto expressed rueful astonishment at the need for her own study:

The way I often talked about this paper as we were writing it was, it was the “Duh” paper. I mean, really? We have to write a paper to basically show that this $8 trillion housing bust that was the impetus for the Great Recession–that to [not take stock of that] in this debate [about state budget crises] was pretty remarkable.

Joining the authors on the call was Amy Hanauer, executive director of Policy Matters Ohio. We asked her if she thought the message was getting to Ohio voters that the housing bust was to blame for their state’s budget woes, and not the public workers whose bargaining rights they’re set to vote on. Hanauer said:

Most polls show Ohioans favor retaining collective bargaining rights, by a small double-digit margin. The Occupy Wall Street protests are having a little echo effect here in Ohio. I think people don’t want [public-sector] workers to be devalued…Whether people connect it to the housing crisis–you know, I think that some people do, and some don’t. These are complicated issues.

Allegretto followed up with this comment:

The attack on pubic-sector workers–it turned worker against worker…I think workers now are starting to understand now [thinking], “I shouldn’t be so angry that public-sector workers have what is really the last bastion of a solid, middle-class, quality job–that have health care, that have retirement benefits. Private-sector workers are now saying, “Why don’t I have those things?”

Allegretto also credited the Occupy Wall Street movement with calling attention to the wealth inequality that’s been growing for decades.

As their libraries are closing, as their parks are closing, as their kids’ teachers are being laid off, as schools are closing, as school class sizes are getting larger, people are starting to understand that public-sector workers play a crucial role in the community…