Reassessing the Cost of Labor

As I was considering what to write about in this blog this past weekend, I started thinking about Labor Day and its meaning. I was a little embarrassed that I didn’t understand all of the origins behind this national holiday – typically, it has been seen as an end to summer. After a little Google search (God bless the Internet), I found out that it had some origins in my hometown, Chicago. While Labor Day was first recognized in NYC in 1882, it became a federal holiday in 1894 following the deaths of a number of workers during the Pullman Strike (a nationwide conflict between labor unions and railroads which originated in Pullman, Illinois). The holiday pays homage to the strength of the trade and labor organizations.

Armed with this new knowledge, I thought it would be fitting to talk about the cost of labor organizations in government today. We keep hearing about the cost of labor agreements (salaries and benefits) and their effects on government operations. One example is seen in the City of Vallejo, CA where the town became the first city in California to ever declare bankruptcy. One of the reasons attributed to this filing was the cost of police and fire contracts. As the City was dealing both with its bankruptcy and a $20 million shortfall in the budget year, officials had to factor in 7.5% salary increases for police officers. Many cities are finding that city revenues are not supporting payroll demands.

On the flipside of the Vallejo example, we see an arbitrator settle a police contract dispute in Chicago. When the City walked away from negotiations after the union rejected its 16% over 5 years contract offer, many were taking bets on what the arbitrator would come back with. On one side, some felt that the arbitrator would give officers more (the last arbitration in 2005 gave officers a 4%/year hike); on the other, with the economy and city finances in such a state of flux, many felt it was like trying to get blood out of a turnip. In the end, the arbitrator came back with 10% over 5 years, the lowest in any 5 year period since 1981. In a time when unemployment is just under 10%, is this really all that unreasonable? Let’s look at some of the facts.

According to a World at Work Survey, the average annual salary increase for 2010 is 2.5%. This is close to the Society of Human Resource Management (SHRM) estimates of 2.68% increases for 2010 in the United States. SHRM further reports that 13% of US companies (across all jobs) project salary freezes for 2010. Lastly, in February, President Obama recommended a 2% salary increase for federal employees for 2010 ( To me, this suggests that we need to examine the annual increases that we provide via contracts, their terms, and their alignment with the national market.


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