Wednesday, December 21

MTA v TWU

The New York transit strike continues.

I know that Mayor Bloomberg wants to be liked, doesn't want to be seen as a hard-hearted Giuliani, but his timidity in dealing with the TWU is costing his city hundreds of millions of dollars a day, wrecking small businesses, and consigning seven million citizens to the frozen streets.

The day before the TWU strike, Bloomberg should have ordered all bus drivers to report to work on pain of losing their jobs with no chance of ever being rehired--the same fate met by the 11,000+ Air Traffic Controllers who struck illegally back in 1981. Bus driving is not a high-skill job and other cities have replaced bus drivers at very short notice before. More likely, the drivers would have balked at the prospect of losing their careers, and such measures would not have been necessary. Replacing subway drivers might have been harder (though no more difficult than replacing air traffic controllers), but there is no reason the buses couldn't have been run by replacement drivers (including management and retired drivers) lured by double-time pay until new full-time drivers could be hired.

The MTA was demanding that the retirement age be changed 62 for new workers (a demand it has since, foolishly, dropped in favor of a request that workers contribute 6% of their pre-tax salaries toward their pension for their first 10 years on the job and pay 1% of their salaries for health insurance), and offered 3%, 4%, and 3.5% wage increases over the next three years. In response, the TWU demanded that the MTA lower the retirement age to 50 for current workers and provide 8% annual wage increases over the next three years.

I wonder what country the TWU leaders think they are living in. Their workers' jobs are not particularly skilled, and are in high demand (30 applicants per opening). TWU bus drivers earn, on average, $63,000 annually, subway drivers make $54,000 and subway cleaners make $40,000. Workers get full health benefits, make no contributions to insurance premiums and can retire after 25 years of service or at age 55.

In what private sector industry can workers retire at 50 (as the TWU has demanded) with 50% of their final salary, cost-adjusted, for life? Who do they think pays their salary? The TWU points to a $1 billion surplus in the MTA's operating budget last year, but the MTA also has a $1 billion unfunded pension liability. And pension liability is what this is all about. Underfunded pension-funds--the result of decades of lavish defined-benefit pension plans--have already forced many large private corporations into bankruptcy (United Airlines and Delphi being the most notable), but until now public sector employees have escaped the pension reforms that have swept the private sector over the last few years. The corporations have nobody to blame but themselves for caving in to voracious union demands and are being soundly punished by their shareholders and the bankruptcy system (which, if anything, has coddled them and underwritten their worst excesses). Governments, on the other hand, do not have clear bottom lines--they can always shift liabilities within the budget or raise taxes to compensate for their sops to the unions. Even worse, politicians can make sweeping pension commitments knowing that their successors (potentially even their rivals) will be stuck paying for them decades hence. Bloomberg, a successful private sector boss, has an opportunity to bring some sense to this irresponsible system.

This profligacy has created a situation in New York in which public sector workers earn 15% more, on average, than private sector workers (according to a this report by the New York Citizens Budget Commission, which measured only wages, excluding benefits). Nationally, when benefits packages are included, total compensation is 47% higher in the public than in the private sector.

In New York City, "pension and benefits costs have soared 60%, or about $4 billion, in just four years. The transit system's pension costs alone have tripled since 2002, while the bill for health benefits is up 40%." (source: WSJ).

This is the context in which the TWU is striking (in violation of state law, as if it needed to be added), and the reason why Bloomberg should stick to his demand that the pension age increase to at least 62 (65 or 67 would be preferable), in addition to doing away with defined benefit plans in favor of the defined contribution plans that the rest of the country's workers have. See Time, "Where Pensions are Golden," Dec. 31, 2005. ("Overall, 90 percent of public employees enjoy a defined-benefit pension, compared with only 20 percent (and falling) of the private work force.") (thanks to John Derbyshire for digging this up).

I will save the arguments for why public sector employees should not be allowed to unionize for another post. Instead, I will end with a blast from the past: an audio clip of Reagan's 1981 speech to the air traffic controllers.

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