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Massive Protests Threaten To Topple New Regime

Thousands of protesters gathered outside government headquarters this week, ultimately seizing the legislature building on Friday and Saturday. Estimates ran as high as 68,000 people crammed into the main square. Sunday marked the sixth day of protests organized by labor unions and university students.  Protesters shouted angrily and signs denouncing the regime were evident everywhere. On Saturday, a smaller pro-government group invaded the square, but thanks to the action of the state police, the two groups were kept apart and no violence resulted. The protesters had high praise for the police.

The regime was not deterred by the protesters' demands. Newly elected Wisconsin Republican Governor Scott Walker refused to compromise his position against public service unions. "The protesters have every right to have their voices heard, but I'm not going to be intimidated into thinking I should ignore the voices of the five-and-a-half million taxpayers," he said.

Governor Walker and his majority Republican Wisconsin legislators would deprive public unions of collective bargaining rights:

Gov. Scott Walker proposed a bill that would close a projected $3.6 billion shortfall by forcing public employees to pay 5.8% of their salary toward their pensions and 12.6% of healthcare premiums, up from 6% on average. On top of that, Mr. Walker aims to cut many of the collective bargaining rights from union members, a move he says will prevent massive layoffs but which union members say will take away a basic human right.

In exchange, Mr. Walker has pledged no layoffs or furloughs for the state's 170,000 public employees. He has said 5,500 state jobs and 5,000 local jobs would be saved under his plan, which would save $30 million in the current budget and $300 million in the two-year budget that begins July 1.

It is no surprise that the unions are unhappy about this. They very quickly agreed to the pension reforms, but vehemently oppose the stripping away of collective bargaining rights. They know if they don't take a wage hit, the public backlash could be far worse for them in the future.

This has become a national issue. If Wisconsin succeeds in this time of state budget deficits, then other states will try the same thing. As a result unions are gearing up to aid the Wisconsin public service unions. Even President Obama is getting into the issue to shore up his union base. It is going to be very nasty.

Public employees are one the few "growth" areas for unions. In fact union membership has been drastically shrinking during the past 30 years:

In 2010, the union membership rate--the percent of wage and salary workers who were members of a union--was 11.9 percent, down from 12.3 percent a year earlier, the U.S. Bureau of Labor Statistics reported today. The number of wage and salary workers belonging to unions declined by 612,000 to 14.7 million. In 1983, the first year for which comparable union data are available, the union membership rate was 20.1 percent, and there were 17.7 million union workers.

Why is that? Unions have become irrelevant. Stroll down to any union hall and you will still hear rhetoric from the 1930s. Employers are still the bad guys and, according to them, but for the unions, wages would be at slave rates. Many workers now see with their own eyes that this isn't the case. Who needs 'em, they say. And they have a point. Real wages (adjusted for inflation) have risen steadily over the years.

Yet, according to Cato's Chris Edwards,

In 2010, 36 percent of state and local workers were members of unions, which is five times the union share in the US private sector. Yet prior to the 1960s, unions represented less than 15 percent of the state and local workforce.

Edwards notes that:

These differences in unionization between the states affect fiscal policy. Statistical studies find that unionized public sector workers earn a wage premium of about 10 percent over non-unionized public sector workers. This is important because employee compensation represents half of all state and local government spending.

Aside from inflated wages, public sector unions have pushed for excessive pension benefit levels, which are creating a fiscal crisis for many governments. That's another reason unions are so angry in Wisconsin: Governor Walker is demanding that state workers carry more of the burden for their health and pension plans.

Defined benefit pension plans are available to about four-fifths of state and local workers but just one-fifth of private workers. And public sector plans are typically about twice as generous as remaining private plans.

Unions serve no real purpose today other than to keep wages and benefits artificially higher than what the market has determined. Why have all new auto plants been opened in the South? To avoid the UAW.

It is simple economics. If labor costs are higher than the market determines they should be, after taking into account all other factors that make up production, then workers will be laid off or their compensation will be decreased. The "greedy capitalists" (derisively call "management" by the unions) aren't the culprits for wage pressure. It is ultimately the consumers of products who are the drivers of wages, not management. If "management" has a higher cost of production than their competitors, they will go out of business. Wages are an important factor of production.

Unions actually harm the economy. Artificially high wages were one of the factors that drove GM and Chrysler into bankruptcy.

[Unions] protect poorly performing workers, and they usually push for larger staffing levels than required. Unions typically discourage the use of inexpensive volunteers in government activities, and they create a more bureaucratic and inefficient workplace.

Further they prevent competition by urging union-supporting Congressmen to pass legislation to prevent free trade in order to protect less efficient U.S. industries and their workers. Ultimately higher prices are forced on consumers who have "voted" every time for lower cost goods.

Public service unions have a good deal. There are no consumers or competition with which to discipline their inefficient and wasteful labor practices. Their mostlyDemocratic supporters pass legislation that favor them and they let "tomorrow" take care of itself.

Unfortunately tomorrow has come for these union-friendly fiscally irresponsible states.

This article originally appeared in The Daily Capitalist.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.