Compensation and Employment Policies in the U.S. Public Sector

Abstract

How do compensation and employment policies distinct to the public sector affect the quality of public services in the United States? I explore labor-market reactions to de-unionization, defined-benefit pensions, and statutory expenditure limits. I find that a Tennessee ban on collective bargaining in school districts modestly reduced both teacher compensation and student-teacher ratios, but had no significant effect on student test scores or per-pupil expenditure. Similarly, local referendums to override a tax and expenditure limit in Wisconsin prompted school-district administrators to decrease class sizes without altering teacher compensation. Parents responded by enrolling their children in funded schools. Lastly, I show that transitioning from a defined-benefit to a defined-contribution pension increased mid-career mobility among state employees in Michigan. Older workers were willing to remain an additional four years in government service to receive pension benefits worth twice their salary at separation. Younger workers did not persist to earn benefits equal to their final salary.