Bonus anger will shift to government workers

Posted: Thursday, February 25, 2010

Move over, investment bankers. The next victims of populist backlash are going to be state- and local-government workers.

As usual, it's all about the numbers, except this time we're not talking about dollars in a bonus check. No, this time it's about numbers of jobs.

Businesses have fired 8.5 million people, or 7.4 percent of those on the payroll when employment peaked in December 2007. Local governments kept hiring through September 2008, and since then have fired 141,000 workers, less than 1 percent of the 14.6 million they had at the top, according to the Bureau of Labor Statistics.

In good times, few people focus on how government payroll expands, or how elected politicians raise salaries and enhance pensions and benefits. Americans like government services, and their public officials are happy to comply with their wishes.

Now the good times are over, at least for a while, and Americans find themselves with local-government payrolls that in many cases remain at record levels. They also now see unions refusing to reduce headcount, and are forced to wonder what planet the union bosses are on.

The unions seem to be as tone-deaf as the ranks of investment bankers were in late 2008. Even after $1 trillion in writedowns and losses and $700 billion in bailouts, bankers still collected $18.4 billion in bonuses that year. What's more, they defended the life-altering windfalls their industry had doled out for almost a decade.

Exhibit One is Los Angeles, where Mayor Antonio Villaraigosa asked the City Council to fire 1,000 of its 35,000- plus workers.

The council and labor unions balked, and on Feb. 17 Moody's Investors Service revised its outlook on the city's bonds to negative. The rating company said the plan to eliminate those jobs could generate $65 million in savings.

"Predictably, this proposal has met with opposition," Moody's said. "It is, unfortunately, one of the plan's few immediate, tangible cost-saving elements, and delaying its implementation will, while preserving jobs, potentially weaken the city's long-term credit quality."

It is rare for rating companies to comment on such things as proposed layoffs. With this salvo, Moody's said: It's time to resort to the ax.

As the national numbers show, politicians have been talking about firing employees for years.

They haven't done it.

L.A.'s city council later voted to approve the 1,000 cuts, and said it would seek to fire 3,000 more. Now we'll see what the unions have to say.

I'm not betting that sweet reason will prevail. By refusing to reduce headcount, labor unions are telling the taxpayers that their local government is already at its most efficient, optimal level, something we all know isn't true. They are also ordering everyone to pay up, in the form of higher taxes and fees.

There's a lot of headline risk to this strategy because it focuses on an area that few people paid attention to in the past. Almost every day, California newspapers and blogs carry stories about cities contemplating bankruptcy because of labor and pension costs. They also write about members of the $100,000 Club, those government workers who have been able to retire with six-figure pensions, often while they are still in their 50s.

Rising labor costs and unfunded pension and benefits liabilities aren't confined to California state and local government. This is a national issue, one that hasn't been covered very well and hasn't received a lot of attention.

Unlike the outrage provoked by Wall Street's bonus babies, there's no element of class warfare here. The hard-working men and women whose jobs, retirement savings and benefits have been whittled away in the recession won't be too sympathetic to the men and women who have eight-hour days, overtime pay, guaranteed pensions and full health plans.

And unlike the bonus imbroglio, which relies upon understanding how banks leveraged big bets, it's easy to see how government employees built their own entitled little world. What's a little harder to comprehend is how we all let it happen.

• Joe Mysak is a Bloomberg News columnist.

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