Post-Event Summary

Neither the policy nor political implications for public sector compensation and collective bargaining are as clear-cut as advocates on either side might have you believe. While proposed reforms to public-sector pensions may seem straightforward as a matter of economics, they are embedded in a morass of political questions, all being debated against the backdrop of the 2012 elections. In an event at AEI Wednesday morning, economists and public opinion experts came together to consider these complicated questions and their implications for policy.

Experts in the first panel were unanimous in calling for a move from defined-benefit to defined-contribution pensions for public-sector workers. Contrary to the claim that such a change would be mathematically difficult, Scott Beaulier suggested that  states could finance pension reform through a one-time debt issuance, just as they do to finance major infrastructure projects. Eileen Norcross highlighted successful reforms in New Jersey and Rhode Island, and Beaulier pointed to Michigan and Utah as other models. Jason Richwine emphasized just how emotionally charged the issue is; his second grade teacher wrote him in response to a recent study Richwine co-authored with Andrew G. Biggs regarding teacher compensation to ask, “How do you sleep at night?”

The second panel highlighted a range of views on how public-sector politics will play out in 2012. Henry Olsen argued that the debates about public-employee collective bargaining and compensation fit into the larger discussion and narrative about fairness and earned success, and he cautioned Republicans against seeing the white working class as “neolibertarian.” Sean Trende pointed out that Governor John Kasich’s reform proposals in Ohio (what Ruy Teixeira called a “political miscalculation”) were defeated by opponents’ making the battle about all-encompassing “universalist messages,” not collective bargaining. Ultimately, Teixiera concluded, for victory in this year’s elections, Republicans have to win the white working class by a substantial margin, and public-sector collective bargaining reform is an unattractive issue for them. In the medium term, Trende argued that unfunded pension liabilities are a political hot potato neither party really wants to address, and Teixeira suggested the GOP will ultimately have to take collective bargaining reform off the table, as it’s not technically necessary for addressing state budget deficits.
--Daniel Rothschild

About this Event
In states around the country, 2011 was marked by substantial and sometimes acrimonious debate over reforms to public-sector employees' compensation, especially pensions and fringe benefits. States including Massachusetts, Michigan, New Jersey and Rhode Island enacted a variety of reforms designed to shore up ailing state finances and reduce future liabilities. In Wisconsin, the debate over reform virtually paralyzed the state government for weeks. And in Ohio, a vote to eliminate public-sector collective bargaining and trim benefits was roundly rejected by voters.

What does 2012 hold, both in terms of policy and politics, for the developing relationship between public-sector workers and taxpayers? What does a proactive reform agenda for 2012 look like? Is a pro-reform platform a winning issue for reformers or their opponents? This event will address these and other questions in two panel discussions: the first looking at the state of public employee pensions and potential future reforms, and the second examining the politics surrounding public employee compensation reform, including who won and lost politically in 2011 and what these state-level skirmishes can tell us about the 2012 elections.