'Exit option' complicates picture for Illinois pension reform

Union opposition to proposed pension reforms have sparked a new wave of protests in France, a little more than a year after the onset of the "yellow vest" protest movement. These twin threads of civil unrest followed French government fiscal actions following the election of President Emmanuel Macron in mid-2017.

Could protests like these erupt in Chicago and Springfield?

In early December 2019, Macron announced plans to consolidate public and private pension plans, creating a single system managed by the state. Proposals also include raising the retirement age and moving to a system linking benefits more closely to contributions. Union leaders believe lower benefits will be the result, and transportation, health and education workers have since responded, sometimes violently.

France had earlier implemented pension reforms back in 2010, sparking protests like those being repeated today. But other government reforms after Macron became president in mid-2017 sparked a different set of protests (the "yellow vest" movement) that have also played out over the past year and a half.

The latest labor protests have significantly different origins from the yellow vest movement. Time will tell if, and when, the two forces diverge or come together.

The yellow vest anger arose after a green tax was imposed on motor fuel, largely in rural areas where people spend more time behind the wheel - in vehicles required to carry yellow vests. The movement did not die out after the government backed down on the tax increase, carrying on with broader working-class concerns about the cost of living.

In the last month, the labor union protesters have raised related but potentially contradictory concerns. The cost of pensions is causing financial stress in government in France as in the U.S., and the French labor unions have been wooing the yellow-vest protesters to join them to oppose pension reform.

What's good for the goose isn't always good for the gander, however. In this case, what's good for the pensioners isn't always good for the taxpayers. Your cost of living depends on the influence of government. Regulation and taxes also matter for living costs, and the cost of labor - and pension benefits - can drive the cost of living higher for more generally.

Efforts in France to merge the union protests with protests by people concerned about the cost of living are likely to face significant obstacles.

But could similar protests occur in the U. S.? If so, when and where?

Back in 1970, organizational theorist Albert O. Hirschman penned his classic book Exit, Voice, and Loyalty. Hirschman's main thesis is that people have two basic possible responses when they are concerned about the value of an organization. They can speak up and try to change policies, or they can leave. Loyalty plays a role in keeping people around to change things for the better.

Looking across the 50 states, the "exit" option has become increasingly attractive to people concerned about high taxes. Civil strife related to pension reform and/or tax concerns might arise first in states (and cities) where out-migration leaves the remaining population bearing a heavier burden. States like Illinois, New Jersey and Connecticut come to mind. These three states are seeing some of the highest out-migration in the nation.

Chicago and Springfield have seen protests when past pension reforms have been proposed. Could protests like these return, and turn violent, as the money available for pensions shrinks?

Of course, following the 2015 Illinois Supreme Court ruling that pension benefits are constitutionally protected, significant pension reforms depend on an amendment to the state constitution. But legal changes have a way of being forced by economic and financial realities.

And in Illinois, the exit option has taken a new twist. There is a movement in downstate Illinois called "New Illinois." Some people in rural areas and smaller towns have become so concerned about the state's financial condition, and its Chicago leadership, that they have organized to peacefully create a new state. What will pensions look like in any New (or Old) Illinois?

Bill Bergman, of La Grange Park, is director of research at Chicago-based nonprofit Truth in Accounting, and he teaches finance courses at Loyola University Chicago.