The Effects of Public Unions on Compensation: Evidence from Wisconsin

Source: Andrew Litten, University of Michigan: Department of Economics and Ford School of Public Policy, December 3, 2016

This paper seeks to identify the effect that public sector unions have on compensation. Specifically, I look at the compensation premium associated with teachers’ unions in Wisconsin. In 2011, Wisconsin passed a landmark law (Act 10) which significantly lowered the bargaining power of all public sector unions in the state. Using an event study framework, I exploit plausibly exogenous timing differences based on contract renewal dates, which caused districts to be first exposed to the new regulations in different years. I find that the reduction in union power associated with Act 10 reduced total teacher compensation by 8%, or $6,500. Roughly two-thirds of this decline is driven through reduced fringe benefits. Sub-group analysis shows that the most experienced and highest paid teachers benefit most from unionization. I supplement the event study approach with synthetic control and regression discontinuity methods to find that regulatory limits on contract terms, rather than other mechanisms such as state financial aid cuts or union decertification, are driving the results.