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Matthew Weinberg (Ohio State University): Oligopsony and Collective Bargaining

Abstract: Employers facing limited labor market competition may suppress wages below socially optimal levels. Unions can counteract this wage suppression through collective bargaining, though they may also push wages above the socially optimal level. To assess these forces, we estimate a structural model of labor supply, labor demand, and Nash-in-Nash bargaining over wages between teacher unions and school districts in Pennsylvania’s K-12 public school system from 2013 to 2020. Using the estimated parameters, we compare negotiated equilibrium wages and employment to the pure oligopsony scenario and the social planner scenario. On average, pure oligopsony reduces wages 16 percent below the social optimum, while collective bargaining raises wages by 9 percent above the optimum. This average masks substantial district-level heterogeneity driven by variation in bargaining power. Twenty-seven percent of schools have negotiated salaries below the social optimum due to cross-district externalities, where high salaries at one school lead to hiring reductions, which increase labor supply in competing districts.