Economic Effects of Municipal Government Institutions

This paper presents an analysis of employment and compensation practices under alternative institutions of municipal government which demonstrates that institutional variations have significant, important, and predictable effects upon outcomes in municipal labor markets. Municipal institutions in which a single official is responsible for office performance provide that official with incentives to emphasize efficiency in the production of municipal services. Institutions in which responsibility is shared provide individual officials with incentives to emphasize the allocation of municipal resources to their particular constituencies, among whom municipal employees may be prominent. Independently, city managers and mayors chosen through direct election reduce levels of employment and increase employee compensation. Managers offer compensation packages which emphasize nonwage components. In cities which have both institutions, competition between the two nullifies employment reductions and exacerbates compensation increases. Employment increases with the age of the manager's office. City council members chosen through at-large or nonpartisan elections increase levels of both employment and compensation. Compensation packages under both emphasize current components. With both reforms, employment and compensation increases are compounded.