Oligopsony and Collective Bargaining

Employers facing limited labor market competition may suppress wages below socially optimal levels. Unions can counteract wage suppression through collective bargaining, though they may also push wages above the socially optimal level and lead to job rationing. We estimate a structural model of labor supply, labor demand, and Nash-in-Nash bargaining over wages between local teacher unions and school districts in Pennsylvania’s K-12 public school system from 2013 to 2019. We compare negotiated equilibrium wages and employment to oligopsony wage posting and social planner scenarios. On average, oligopsony reduces wages 7 percent below the social optimum, while collective bargaining raises wages 8 percent above it. Averages mask substantial district-level heterogeneity driven by bargaining power variation. Twenty-eight percent of school districts have salaries lower when public schools are unionized than when they are not due to cross-district externalities, where high salaries at one school cause hiring reductions that increase labor supply elsewhere.