Research on Public Sector Unions & Allocation of Public Resources

Yesterday the US Supreme Court ruled public employees could not be compelled to pay union dues, which is widely interpreted as a major blow to public unions. I therefore thought it apropos to share a recent working paper from Eric Brunner, Joshua Hyman, and Andrew Ju on “School Finance Reforms, Teachers’ Unions, and the Allocation of School Resources.” In the 1970’s and 80’s, there were a wave of school finance reforms around movements to bring state spending on local schools up to adequacy standards or to make it more geographically equitable. These reforms have been studied in hundreds of papers with a mix of findings, but Brunner et al.’s clever twist is to see if the heterogeneity is explainable by the strength of teacher’s unions. From page 2:

Regardless of the teacher union power measure we use, we find that unions played a critical role in determining both the amount of state aid that translated into education expenditures and the allocation of these funds. Consistent with a basic model of teacher union preferences, school districts in states with the strongest teachers’ unions increased education expenditures nearly one-for-one with increases in state aid in response to school finance reforms, whereas states with the weakest teachers’ unions reduced local tax effort by about 75 cents on the dollar. The additional school spending in strong teacher union states was allocated primarily toward teacher salaries, while districts in weak teacher union states spent the money primarily on teacher hiring. Finally, spending in non-instructional areas such as classroom support, school administration, and capital outlays, also increased more in strong teacher union states than in states with weak teachers’ unions.

My favorite identification strategy in the paper is a border discontinuity approach, where the sample is restricted to school districts along state borders, where local population characteristics and unobservables are likely similar but state policy on collective bargaining powers can differ sharply.

Overall, the finding is rather agnostic on the social value of unions in the sense that you can either interpret this result as unions capturing public budgets as a well-organized interest group, or as unions ensuring that these reforms actually accomplished intended outcomes of generating more investment in school inputs. For work on that distinction, I would recommend starting with Jan Brueckner and David Neumark’s (2014) “Beaches, Sunshine, and Public Sector Pay: Theory and Evidence on Amenities and Rent Extraction by Government Workers” in American Economic Journal: Economic Policy.

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