The debate over public sector unions has been lacking in economic arguments, and the justifications argued on unions behalf have not been of the kind one usually finds in these debates among labor economists. The two main economic arguments for unions are to provide workers with voice, and to counteract monoposonies. My main concern here is the latter, but I’ll briefly address both with regard to teachers unions in particular.

With respect to the voice function of unions, a standard reply of labor economists is that the National Labor Reform Act should be changed to allow more non-union types of voice. For instance, the act prevents  firms from supporting any type of labor organization. That means a firm is unable to organize a non-union way for  workers to voice complaints, settle disputes, negotiate over working conditions. As Barry Hirsch argues, these parts of the NLRA, while not without legitimate purposes,  “restrict development of nonunion vehicles for employer-employee, cooperation and productivity-enhancing voice.” Canada, in contrast, does not bar employer-initiated or supported labor groups. And every progressive loves Canada, right?

The second economic argument for unions is to help counteract the power of monopsonies. In the public sector, this is certainly a plausible complaint. Given that governments are often the only ones providing some services, they may have large degrees of labor market power, also called oligopsony power. While few may be explicitly making this economic argument, the common concerns about teacher powerlessness in the face of fickle administrators certainly reflects this problem. In a well-functioning and competitive market, administrators would face repercussions for firing good teachers. For one thing, parents would be upset, and competitive enterprises suffer consequences when customers are unhappy. In addition, competitive labor markets would mean teachers would demand a risk premium to work at firms where they could be fired for political or illegitmate reasons. When there is no competitive check on a school, neither of these repercussions is as important.

Thus if we are concerned about the oligopsony power of schools, and we want teachers to be treated as other comparable professionals are treated, then one possible solution is to make schools more competitive by allowing more school choice, either through charters, vouchers, or simple choice among public schools. This way, if an administrator has a reputation for firing good teachers, there are consequences. This will not prevent unjust firings from happening ever, as no system could, but it will make it less likely. After all, we don’t worry too much that about good accountants getting fired, do we?

On the other hand, the lack of competition for government, and schools in particular, also provides the opportunity to earn so-called economic rents just as lack of competition does in the private sector. These rents may be shared in an organization among administrators and teachers, meaning that less competition means higher pay for teachers. So while more competition can mean more labor market power relative to administration, it may also theoretically mean lower pay.

In order to shed some empirical light on this issue, a recent paper (I can’t find an ungated version) by Lori Taylor at Texas A&M looked at teacher pay in Texas. Importantly, Texas is a right-to-work state so collective bargaining does not confound her analysis. What she found was that in a handful of very uncompetitive markets, teacher salaries actually would decrease as a result of more competition, meaning that they were sharing in some of the economic rents. In most markets however, oligopsony power meant that increasing competition among schools would actually increase teacher salaries. Here is how Taylor summarizes her results:

More than 88% of the teachers with less than 20 yr of experience would benefit from increased competition. Seventy-nine percent of the highly experienced teachers would also benefit. Only 2% of beginning teachers, 5% of experienced teachers, and 6% of highly experienced teachers could expect increased competition to lower their pay.Profits and Rent-Sharing.

To provide one example, she highlights the Houston, Dallas, and San Antonio areas, home to more than 70% of the charter schools in Texas. Prior to the existence of these charter schools, a 1% increase in competition would increase teacher salaries by 2.5%. Given these increases in salaries, it seems likely that non-wage power of teachers is increased as well, meaning it’s harder to fire a good teacher for bad reasons.

Despite the theoretical ambiguities discussed above, these really are common sense results: the more labor market opportunities you have, the less power your bosses have over you, and the more competition there will be to hire the best teachers. The only place this isn’t going to be the case is areas where teachers are earning rents and schools are very uncompetitive. In these areas teachers are already likely to be overpaid, and the other benefits from competition, like better student outcomes, are likely to be the greatest. Long story short: more competition helps the teachers who need it.

About these ads