Pensions and Unionization and Did You Notice That Change by the BLS?

Categories: Commentary, Uncategorized |

March 10, 2014

I was inspired to delve into a potentially touchy subject by an article I read last week around California mayors opposing legislation that would allow them to make changes to public sector employee pension plans.  This occupies a portion of this week’s commentary.  Please do not read this thinking I have a political ax to grind – my objective is to continue to promote discussion around the highly important area of the unfunded status of public sector pension plans.  I then go on to look at the latest employment data at the State level and alert you to some adjustments the BLS has made to prior months and years data.  You may want to see if your data source captures the revised data for you.

Pensions and Unionization

This initial part of my commentary is not going to win me friends amongst the labor movement.  Thankfully, I have no plans to run for public office.

As so many are focused on trying to solve the reality of unfunded pension liabilities in the public sector and avoid another Detroit, I was dismayed to learn that 17 California mayors opposed (only three favored) a pension-reform referendum that would allow the mayors to reduce future pension benefits for municipal employees (Bloomberg, March 5, 2014).  The bill’s sponsor, who is not running for re-election, summed-up the political reality by saying, “Public-sector unions are very powerful, very influential and generally say ‘no’ to any kind of changes.  It is impossible to get elected to statewide office unless you have union support.”

Putting aside feelings about the pros and cons of labor unions, some facts to consider and then a look at some data around funded status of plans. First off, according to Hirsch and Macpherson (accessed via DIVER Data Services) about 35% of public sector employees are unionized (that’s about 20.4 million people v. a voting age population of over 240 million).  Before I get to other data, perhaps if we had better voter turnout (according to the US Elections Project, 58.7% Turnout Rate – thanks again, DIVER Data Services), the power of any one group would be minimized and the “will of the people” would be what our politicians focused on as opposed to the will of those on the extreme right and left.  Detroit did not happen overnight and one has to marvel at where Chicago is on their pension funded status and what has not taken place.

For my brief experiment, I am looking at Funded Ratios at the State level (using 2012 because not all of 2013 data is in) and two measures of unionization – at the State level overall and just amongst the public sector.  The question to ask yourself is not whether there is a correlation between funded status and percent of the workforce unionized; but, what percent of the workforce is unionized in places that have a Funded Ratio below your gag level (for me, using the discount rate provided by the States, it is 80%).  In the below map, anything other than blue is below the 80% Funded Ratio.


DIVER Analytics, Map Module, State CAFRs

Below I provide the unionization figures and highlight those States below the 80% Funded Ratio.  How dominant are unions in those places where pension reform may be required and will the legislature have the backbone to act, or will they follow the path of the California mayors?

Unionization — Public Sector and Overall
State Public Sector % Union Total % Union   State Public Sector % Union Total % Union   State Public Sector % Union Total % Union
Alabama 26.6 10.8   Kentucky 21.4 11.2   North Dakota 18 6.4
Alaska 55.8 23.1   Louisiana 12.7 4.3   Ohio 45.6 12.7
Arizona 16.2 5   Maine 46.8 11.1   Oklahoma 20.6 7.5
Arkansas 10.9 3.5   Maryland 31.8 11.6   Oregon 50.9 13.9
California 55 16.4   Massachusetts 54 13.6   Pennsylvania 50.5 12.7
Colorado 21.5 7.6   Michigan 54.8 16.2   Rhode Island 66.2 16.9
Connecticut 56.4 13.5   Minnesota 53.1 14.3   South Carolina 9.9 3.7
Delaware 35.1 10.3   Mississippi 4.9 3.6   South Dakota 14.9 4.7
D.C. 21.2 9.3   Missouri 16.3 8.7   Tennessee 21.6 6.1
Florida 24.4 5.4   Montana 36.6 13   Texas 17 4.8
Georgia 11.7 5.3   Nebraska 23.8 7.2   Utah 11.7 3.9
Hawaii 53.4 22.1   Nevada 38 14.6   Vermont 40.7 10.9
Idaho 14.6 4.7   New Hampshire 50.3 9.5   Virginia 11.7 5
Illinois 52.3 15.7   New Jersey 60.7 16   Washington 57 18.9
Indiana 21.9 9.3   New Mexico 15.1 6.2   West Virginia 24.2 12.7
Iowa 29.2 10.1   New York 69.9 24.3   Wisconsin 35.8 12.3
Kansas 18.7 7.5   North Carolina 9.7 3   Wyoming 9.7 5.7
DIVER Data Services; BLS; Barry T. Hirsch and David A. Macpherson.          

Taking it one step further, last week, DIVER released their monthly Geo Score – a measure of the economic well-being of States, counties and over 350 cities.  Using the Filter Module in Analytics, I highlight those States with a Funded Ratio below 80% and a Geo Score less than three.

State Funded Ratio (2012) Geo Score (Feb 2014) Total % Union
Alabama 63.58 2 10.8%
Arizona 61.71 2.6 5%
Illinois 40.37 1.8 15.7%
Indiana 42.53 2.8 9.3%
Kentucky 46.77 1.4 11.2%
Michigan 65.77 1 16.2%
Mississippi 57.91 0 3.6%
Nevada 68.62 0.2 14.6%
New Mexico 63.86 1.6 6.2%
Ohio 59.5 2.4 12.7%
South Carolina 67.89 0.6 3.7%

DIVER Analytics, Filter Module; State CAFRs and DIVER Data Services

I will leave it to you to assess and comprehend the correlation but I would be interested in understanding the wherewithal of elected and union officials to address this serious topic, especially in those States where politicians rely on a heavy union vote to carry the day.

State Employment Data

Did you know that the BLS, in their ongoing effort to be sure we all have the best data available, does annual updates to Labor Force estimates and Population control data?  As a result, all State and sub-State models are reviewed and updated as necessary.  So, if you looked at data a month ago and then revisited the data today, you might see some changes.  Ditto if you are looking at data from another source – data provider, CAFR, OS, etc.  The DIVER database is updated to reflect these changes not just for this year but for the corresponding changes that, as a result of changes this year, go back five years.

Now to the data.  Unless you are new to this commentary, you know how I feel about the First Friday Report and the Unemployment Rate as reported.  I routinely encourage readers to go beyond and, with the December State data available, I offer a few morsels to chew on.

For my first cut at the data, I looked for States where the rate was above 7% and found 12 States (while the reported rate for the US is 6.7%, I prefer something minimally higher for a host of reasons).

3-10 2

DIVER Analytics, Filter Module, BLS.

However, to get a real sense of where the employment picture may be improving – irrespective of rate – look to the number of Employed people rose, I found 39 States where the number of Employed people increased year on year (“Job Growth”).  To me, that’s the real starting point for where the rate is going down.   One other bit to consider, and I wouldn’t consider this data point in a vacuum but would suggest looking it at it along with Income data and Labor Force data.

If you would like to assess the employment data you use against our database to ensure you are using the updated, please let us know.  We would be happy to do a little spot-checking for you.

Have a great week,


Michael Craft, CFA, Managing Director, Credit
Lumesis, Inc.


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