Bigger Impact: Public Sector Costs or Flexibility?

In the aftermath of the recall election in Wisconsin – driven by public sector unions opposing Governor Walker’s aggressive reforms – Reihan Salam discusses the lessons from that state and fellow-reforming state Indiana.

The post discusses insights from Josh Barro and Stephen Smith  (on transport union rules, well worth reading), as well as Governor Daniels of Indiana. But of real interest:

[…]the control unions exert over work rules is actually far more important than the leverage they have over setting wages and benefits, as work rules essentially determine staffing levels. To the extent other states pursue public sector reform, I might even recommend a strategy that focuses on just two pillars: end mandatory dues collection and end collective bargaining over work rules.

This is a tweak on the debate because the most contentious of Walker’s reforms was the end to public sector collective bargaining over wages. For workers, that is. Unions were more panicked by ending the gravy train of automatic union payroll deductions.

While total labour cost is the key issue facing Western governments, there is nothing instrinsically wrong with high public sector wages if workers are highly productive. Attacking the real value of public sector wages without addressing union influence over management decision-making will be high-conflict, low-impact.

But, as Salam points out, reducing union-driven work rules and influence over management decisions may well deliver the change that will put US public sector reform on the right path.

The Australian public sector doesn’t suffer from the same level of egregious overspending as in the US, as our pension and health arrangements are very different, and there is greater oversight of local (Municipal) wage levels.

But people not involved in public sector management would be surprised at the level of overt union intervention in management decisions. More importantly, they would be amazed at the level of internalised censoring management apply to themselves.

As one of my Singaporean friends once said:

In Singapore we don’t need police on the street. Our police are already in our heads.

In our experience, some of the most basic management decisions – org structure, Grade composition of divisions or departments, even work allocation – are made with the implicit, self-imposed limit of “will this get past the Union”.

Managing poor performers is always done with one eye on the Union.

The policeman is well and truly embedded. Throw in formal MoUs with unions, awards, and legislation-based personnel management, and managerial discretion looks distant.

And unless this work rule rigidity is addressed, major changes like Mike Baird’s 10,000 worker reduction in the recent NSW budget will only ever be partial and temporary steps.

As an aside, Coalition politicians need to stop apologising for doing the right thing on public sector management, and start selling the story behind public sector reform. Too often change is hidden behind “get the Budget back into surplus” waffle. Otherwise changes seem to come out of the blue, and the narrative is in the hands of public sector unions. It’s Politics101, and incredibly disappointing to watch.


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