A data set composed of teachers' contracts in the Canadian province
of British Columbia is used to examine the effect of arbitration on
collective bargaining outcomes. The data set is unique in that it
spans 35 years of arbitration experience.
I do not find any evidence of an effect of arbitration on wage
rates. Strong positive state—dependence exists in the data: Bargaining
pairs that used arbitration last period are more likely to do so this
period. However, the probability of going to arbitration is only
marginally increased by arbitrations that occured more than one year in
the past. Fixed effects associated with bargaining pairs were not as
important as theories which link dispute rates to characteristics of
individual bargainers would suggest.
No relationship was found between the percentage of arbitrations and
levels of macro-economic variables. Some evidence is presented that
the moving average of the percentage of arbitrations is high when there
is upward pressure on teacher's wages. The coefficient of variation of
the Canadian CPI was positively correlated with the percentage of
arbitrations, which suggests that economic uncertainty increases the
number of disputes.
Finally, a simple model of arbitrator behavior proposed by
Ashenfelter et al., is remarkably consistent with these data.
In particular, I find that arbitrated settlements can be predicted solely
on the basis of the negotiated settlements reached in the nine month
period prior to arbitration. I also find that the variance of
arbitrated settlements is significantly lower than the variance of the
preceding negotiated settlements in 13 of 21 years. On the other hand,
the estimated coefficients in the prediction equations for arbitrated and
negotiated settlements are significantly different, with the arbitrated
settlements giving more weight to lagged wage outcomes.