How the Janus Decision Could Vastly Improve Public Education

This article appeared at the Foundation for Economic Education on September 24th, 2018

On June 27, 2018, the Supreme Court ruled 5–4 in favor of the plaintiff in the case of Janus v. American Federation of State, County, and Municipal Employees, Council 31 (AFSCME). Dry as it sounds, this was a landmark ruling; the Court said that public sector unions could not force non-members to pay fees to them. Furthermore, in the future employees will have to “opt in” to pay fees; their consent cannot be assumed.

What is likely to happen to teachers and students in the wake of Janus v. AFSCME? Typically, teachers unions have argued that weakening their power to collectively bargain would hinder both students and teachers. Fortunately, however, two new pieces of research give us reason to be encouraged by the Janus decision.

More Freedom Yields Better Results

The first is a paper titled “The Labor Market for Teachers Under Different Pay Schemes,” by economist Barbara Biasi.

The vast majority of districts pay teachers according to similar lock-step schedules. This means that all teachers with the same education degree and years of experience are paid exactly the same amount, regardless of their effectiveness, their skills, or the demand for their labor. There is often little variation in these schedules across all districts within a state, owing to pattern bargaining, facilitated by the state’s teachers’ union, one of those services allegedly at risk following the Supreme Court’s decision.

Biasi’s paper asks, “If allowed to set pay in a more flexible way, could school districts improve the quality of the teaching workforce?”

Data from Wisconsin allow Biasi to address this question. In 2011 the Wisconsin legislature passed Act 10. The law limited collective bargaining over teachers’ salary schedules in the state. Previously, Wisconsin had seen strict adherence to lock-step schedules, which were negotiated between each school district and its teachers’ union. Act 10 gave districts full autonomy to decide on compensation, allowing them to negotiate salaries with individual teachers using any criteria the two sides desired.

The result, according to Biasi, was that “Teacher quality increased in these districts [which adopted flexible pay schedules] relative to those with seniority pay, due to a change in workforce composition and an increase in effort.”

A switch away from seniority pay [SP] towards flexible pay [FP] in a subset of Wisconsin districts, following the interruption of [collective bargaining] on teachers’ salary schedules mandated by Act 10 of 2011, resulted in higher-quality teachers moving to FP districts and lower-quality teachers either moving to SP districts or leaving the public school system altogether. As a result, the composition of the teaching workforce improved in FP districts compared with SP districts. Effort exerted by all teachers also increased.

In short, the labor market for teachers in Wisconsin worked much as you’d expect. There was more movement, better teachers earned more money, and teachers were encouraged to work harder.

Collective Bargaining’s Effects on Students

The second paper is “The Long-run Effects of Teacher Collective Bargaining” by economists Michael Lovenheim and Alexander Willén. They investigate how teacher collective bargaining, one of the key services offered by their unions, “impacts student outcomes.”

The authors focused on “duty-to-bargain (DTB) laws, which require districts to negotiate with teachers’ unions in good faith.” These laws have been shown to increase union membership and the likelihood that a district elects a union to bargain collectively. Lovenheim and Willén use the timing of the passage of DTB laws between 1960 and 1987 and data on educational and labor market outcomes among 35-49 year-olds to investigate how teacher collective bargaining impacts a broad array of long-run outcomes.

They find, among male past students, “negative effects of exposure to teacher collective bargaining laws on the long-run labor market outcomes of students who grew up in states with these laws. These results are consistent with the “rent-seeking” hypothesis of teacher unionization.”

This hypothesis, according to the authors, states that “unions lead to a re-allocation of resources towards teachers while also making educational resources less productive.” Specifically, Lovenheim and Willén find that ten years of exposure to collective bargaining reduces annual earnings by $2,134.04 (or 3.93%) and weekly hours worked by 0.42 (or 1.09%). These individuals are also 1 percentage point less likely to be employed, are 0.8% less likely to be in the labor force and find themselves in lower-skilled occupations.

Furthermore, the negative effects of collective bargaining are particularly pronounced among black and Hispanic males. Here, ten years of exposure to collective bargaining lower annual earnings by $3,246 (9.43%), hours worked per week by 0.72 (2.18%), and the likelihood of being employed by 1.3 percentage points. All told, the authors concluded the following:

A back-of-the-envelope calculation indicates these laws reduce total labor market earnings by $213.8 billion per year, which suggests our findings have large implications for earnings in the US due to the prevalence of duty-to-bargain laws…In total, our estimates indicate that state duty-to-bargain laws have sizable, negative labor market consequences for men who attended grade school in states with these laws.

The teachers’ unions might be correct that the Janus vs AFSCME verdict will compromise their ability to effectively offer its membership such services as collective bargaining. But, on the basis of these two new pieces of research, it is unclear that its other warnings stack up. They suggest that teacher pay will be more closely related to their output and that students—particularly black and Hispanic boys—will be better off.

Whenever a representative of producers, like teachers unions, claims to be motivated by a concern for the welfare of their consumers, students, it might be more appropriate to raise a quizzical eyebrow. This new research suggests that, contra union claims, it is they who will be negatively impacted by Janus vs AFSCME. Students and even teachers may well be better off thanks to the Supreme Court’s decision.

Why WNBA Stars Make (Way) Less Than NBA Backups—and Why That’s Okay

This article appeared at the Foundation for Economic Education on September 7th, 2018

In 1881, Freidrich Engels wrote an article for the Labour Standard titled “A Fair Day’s Wages for a Fair Day’s Work.” You still hear the phrase today. It sounds unarguable. But on a fundamental economic level, it is wrong, and the disparities we see between athletes’ salaries illustrate why.

Equal Pay for Equal Effort? Not Exactly.

Dallas Wings point guard Skylar Diggins-Smith recently told Wealthsimple that she wanted to be paid like a man. Diggins-Smith has made hundreds of thousands of dollars during her five seasons in the WNBA, yet she feels it’s unfair that she makes considerably less than NBA players.

I’m the highest paid player on the Dallas Wings, and my salary is in the low six figures. [Harrison Barnes, the highest paid player on the Dallas Mavericks, made $24 million last season.]… To think of that and then to see how the numbers translate for guys who are bench players, guys who never see the floor…

The interview with Wealthsimple took place a month after Diggins-Smith told a Dallas Morning News writer it was “appalling” what WNBA players make compared to their male counterparts in the NBA.

This pay gap is very real. As David Berri wrote for Forbes recently,

This season, Sylvia Fowles led the WNBA in field goal percentage, finished second in rebounding per game, tied for second in blocks per game and ranked fifth in points per game. Her team—the Minnesota Lynx—also finished with the best record in the WNBA. For all this, Fowles was named league MVP.

According to Summit Hoops, Fowles was paid $109,000 for all she did in 2017. Meanwhile, Leandro Barbosa is scheduled to earn $500,000 from the Phoenix Suns in 2017-18. This past July, though, Barbosa was waived by the team. So Barbosa will be paid nearly five times what the WNBA MVP earned, and Barbosa won’t even play for the Suns.

Diggins-Smith also spoke about the sheer physical efforts of female basketball players.

Not to discredit any work that they’ve put in, but you have women playing year-round basketball going overseas to have more opportunities for higher wages. I’ve never been overseas to play…But 90% of the league goes overseas. And so these women are playing year-round, which is terrible for your body. It’s so much wear and tear.

So female basketball players work just as hard as male basketball players, yet even the best WNBA players are paid much less than the mediocre and below average NBA ones. Where is the fair day’s wage for the fair day’s work?

It’s Not Actually about Effort

The answer is that reward is not necessarily proportional to effort. Reward is not a function of inputs such as work or effort; it is a function of the outputs, the product.

The ability to turn inputs into outputs is what economists call productivity. Sometimes, it is pretty easy to see why vast amounts of effort generate little output and, hence, low incomes. According to a 2012 report in The Lancet, Bangladesh has the most physically active population in the world. As one writer explained,

Bangladeshis are exceptionally active due to the country’s primary industries which require physical labour. Most Bangladeshis earn a living through agriculture, primarily cultivating rice and jute but also maize and vegetables.

And yet, for all this effort, there is little economic reward. Of 199 countries for which the World Bank has GDP data for, in 2012 Bangladesh ranked 175th. Bangladeshis, on average, work very hard but lack the institutions and the capital to be productive, As a result, they produce very little output and so, despite their intensive physical efforts, they remain poor.

Just as the Bangladeshis aren’t poor because they are lazy, Americans aren’t rich because of hard work. Instead, they have capital inputs and institutions to leverage their labor inputs into far greater levels of output: they can produce far more while working much less. For example, according to World Bank data, in 2012, the value added per agricultural worker was $61,634 in the United States. For all that backbreaking labor, in Bangladesh, it was just $662.

Input and Basketball

But how does this apply to basketball? Kevin Durant doesn’t produce more basketball per hour worked than Breanna Stewart, the Seattle Storm forward who claimed the WNBA MVP award in just her third season.

One might argue that male players produce more points. Stats show that in 2018, the top scoring team in the WNBA, the Connecticut Sun, averaged 87.6 points per game. By contrast, the highest scoring team in the NBA that year was the Golden State Warriors, who averaged 112.8 points per game. So, if the output of basketball is points, then the pay disparity between male and female players begins to make more sense.

Or does it?

From the point of view of the team owners, the measure of output that matters is the revenue the players generate. And when LeBron James steps onto the court, it generates far more revenue for the Heat, Cavaliers, or Lakers than it does for the Lynx when Maya Moore does so. They may exert the same physical effort, but far more money is handed over by consumers to the NBA than the WNBA in return for all this. Dave Berri of Forbesexplains,

…NBA’s teams generated $5.9 billion in revenue in 2015-16. Similar analysis doesn’t seem to exist for the WNBA, but we do know its revenue is far lower. Therefore, it is not surprising the WNBA pays lower salaries… In 2017, the WNBA posted its highest attendance in six years. Total attendance in the WNBA’s 21st season was 1,574,078, with teams averaging 7,716 fans per game. This per game mark is more than 10,000 fans below the per game mark seen in the NBA in 2016-17.

TV viewership tells a similar story. In 2015, the WNBA averaged 202,000 viewers on ESPN and ESPN2. Last season, NBA broadcasts averaged around five times that.

As an Englishman, my knowledge of basketball amounts to Nike Air Jordans, White Men Can’t Jump, and Space Jam. I do not know if the difference in demand for men’s and women’s basketball is because of a difference in the quality of the product or because of sexism on the part of consumers. But in a sense, it doesn’t matter. Whichever it is, the answer is not for WNBA teams simply to start paying their players as much as the NBA does theirs. They can’t. The money isn’t there.

Considering the widespread acceptance of something like Engels’ formula, to say that a hard day’s work doesn’t guarantee a fair day’s pay is one of the more “shocking” things an economist can say in polite company. But the incredible rise in living standards which we have seen since the Industrial Revolution has not been the result of working harder. Indeed, in the developed world, we work much less than our ancestors did, and we do it for a far higher standard of living. Whether you’re toiling in a field in Bangladesh or shooting hoops in the USA, it is outputs, not inputs, that matter.