Number 7 - January 1996
US Urban Transport (Transit) Labor Law
Above Riders & Taxpayers:
How US Transit Labor Privileges Violate the Public Purpose
...services are run for the benefit of those who work in them
rather than those who desperately need them
- The Sunday Times (London)
Paying more than necessary for labor: There has been opposition to
competitive tendering (competitive contracting, also called public-private competition in Vice-President Gore's National Performance Review [Reinventing Government]) on the basis that private companies
compensate their employees at a lower rate than public agencies.
While the savings from public-private competition involve more than
labor savings, on balance, private sector employee compensation
tends to trail public sector employee compensation in transit. This
raises two issues: how employee compensation is determined, and
whether public employees should be paid more than private employees
doing the same work.
1. Public and Private Compensation: For decades, governments have
attempted to set public employee compensation at market rates
at the same rates as employees in the private sector
performing comparable tasks. This principle of comparability
is achieved with respect to bus drivers, for example, where
wages and benefits per public driver is the same in economic
terms as that of private bus drivers. The difference between
public and private bus driver compensation is not a "union premium," it is rather a "monopoly premium." In San Diego, unionized public drivers
are paid the market rate for services provided through public-private competition. In Seattle, public transit drivers are
compensated at approximately 150 percent above that of private
drivers who operate services under public-private competition.
Both groups of drivers are unionized and are represented by
the same local of the same union. Compensation for unionized
bus drivers must remain, by definition, within the market
range, for companies with unionized drivers to survive.
2. How employee compensation is set: In the competitive market,
which is the model for reinventing government, employee
compensation is set by customers as reflected in the prices
that they are willing to pay for the goods and services they
purchase. This is also referred to as market determination of
wages and benefits. Above market compensation can be sustained
only where legal barriers protect employees from the
competitive market. The result is that, through higher taxes,
employees who are paid market rates subsidize employees who
are paid above market rates. While it might seem desirable for
all employees to be paid above market rates, the financing of
such an endeavor would result in hyper-inflation or massive
Riders and taxpayers pay more than necessary for transit service
where public transit employee compensation, or any other cost
factor, exceeds the rates that customers are willing to pay in the
competitive market. The result is less effective and efficient
transit lower levels of service are provided and fares are higher
than they would otherwise be.
Job Security: US transit competitive tendering has been
routinely implemented without laying off public employees. San Diego
especially indicates the potential for implementing public-private
competition while preserving job security and compensation levels
for public employees (even at above market levels). On the other
hand, as the public financial situation becomes more constrained,
there may be a need to consider layoffs in the future. Vice-President Gore's National Performance Review provides an approach
(which will be made available to federal employees) where layoffs
we will help that employee find another job offer, either with
government or in the private sector.
Special Labor Protection: At present, Section 13(c) of the Federal
Transit Act, transit employees are accorded special protection,
which can equal up to six years of severance pay where their
positions are eliminated due to economies or efficiencies. Payment
is not in a lump sum, rather it is paid over the severance period
as if the employee were still working. This protection is far
greater than that available to other public and private employees.
Vice President Gore's National Performance Review characterizes
extraordinary protection as "special interest privilege(s)"
obtained by "holders of some occupations."
Researchers have found that Section 13(c) is costly, because it
discourages innovation that could reduce costs. Section 13(c) may
add as much as $2.5 billion annually to the cost of transit
services. Congress has provided no funding to offset these costs,
and Section 13(c) represents one of the most expensive unfunded
federal mandates. However, transit agencies have shown that a
healthy program to reinvent transit through public-private
competition is possible under Section 13(c) so long as implementa
tion is limited to the natural rate of employee attrition. In
Denver, conversion to contracting occurred at a greater pace as
public sector drivers were paid for not working until natural
attrition opened new positions (and money was still saved).
Focusing on Policy: One of the most fundamental principles of
reinventing government is a focus on public policy objectives.
Public services (of required quality and quantity) should be
produced for a price that is no higher than necessary. This means
that all factors of transit service production labor, supplies,
equipment, etc. should be obtained for the lowest cost, consistent with specified service and safety standards. The
public can be assured that it is not "paying higher prices than
necessary." if transit is reinvented if transit agencies
routinely apply public-private competition, and rely on entrepre
neurial services wherever service to the customers --- the riders
and taxpayers --- can be improved.
Transit labor law violates the public purpose. By requiring that more than necessary be spent to provide transit service, federal transit labor law violates the very purpose for which public subsidies are granted to transit. Public transit is not subsdized to better employees. Public transit is subsidized to provide mobility to the poor, and to attract drivers from automobiles in congested corridors. Transit's continuing market share decline is stark testimony to the failure of public transit policy.