This absurdity of extending so-called hazard schedules to professions that just aren’t hazardous has grown to Hellenic proportions.Greece’s hairdressers retire from their work with dangerous chemicals at age 53. Is it any less ridiculous that New York’s sanitation workers receive their pensions after all of 20 years?
But rock-bottom retirement ages aren’t just huge burdens on the state and wasteful privileges for certain workers. They also epitomize the perverse nature of public-sector collective bargaining, which tends to be exacerbated by a lot of optimistic projections, back-loaded spending, and ill-conceived promises.
Imagine the basic bargaining game. A public union goes to the table, asking for increased compensation. The government usually realizes that pay increases are unaffordable or fiscally irresponsible, and does not want to provide them.
So the two parties reach a compromise: Instead of increasing current pay, increase future compensation by a present value roughly equivalent to what the union wanted now. But because governments (though they have improved in recent years) operate by optimistic standards or none at all, they don’t fairly evaluate the costs of what they’ve just promised. The more unfairly they evaluate the compensation, the more the union gets.
Agreement on early retirement works for both sides. It’s psychologically less costly. For state and local government officials, increasing salaries, retirement benefits, or health-care benefits involves very obvious financial commitments, whether present or future. Lowering the retirement age, especially for new employees, does not, though it does no less to immanentize the fiscal equivalent of doomsday. Furthermore, lax accounting standards allow a government to ignore or distort just how big the burdens are that youthful retirees will impose — something it couldn’t do if it promised benefits in the here and now rather than deferring them.
Moreover, much of the cost that governments incur when they grant early retirement comes from health-care benefits, which are easy to promise but costly to deliver. Insuring the elderly can mean that a retiree already receiving a pension that amounts to 80 percent of his peak earnings in wages could easily be costing his public employer more than he ever did as a full-time worker.
In a nation where everyone must rely on Medicare, there’s no good reason for retirees to be provided health-insurance benefits, which shift the burden of an undersized risk pool and inflated tax-exempt benefits onto local governments and taxpayers. But these benefits are important for the unions, because otherwise employees couldn’t afford to retire before 65, when they become eligible for Medicare. And so public-safety employees whose retirement ages have always been much lower than 65 require extremely expensive health-care benefits in order to make their early-age pensions worthwhile. This practice spread as hazard schedules were applied to other professions until, eventually, it became a common retirement benefit.
As a 2007 GAO report explains, rising health-care costs make these promises extremely difficult, almost impossible, to account for — when state and local governments even bother. They usually don’t. Few still rely on pay-as-you-go budgeting for pensions, though it remains common for health care.
By almost every measure, public-sector unions have managed to extract excessive levels of retirement benefits from governments, whose obligations have been vastly increased by the early ages at which the benefits can be claimed. That the benefits enjoyed by public employees already are more generous than anything the average American knows, and that they can enjoy them at an age when the average American is still working, isn’t just adding insult to injury. It’s adding kerosene to tinder.
— Patrick Brennan is the 2011 William F. Buckley Fellow at National Review.