Wage spillovers in public sector contract negotiations: the importance of social comparisons

We explore the existence of wage spillovers in public sector teacher contract negotiations. We focus on the role that informal social comparisons have in determining wages. Using a combination of survey and administrative data, we estimate the relationships among a district's negotiated salary and the wages negotiated in that district's reference districts. Using panel data and spatial econometrics, we control for observed and unobserved factors that jointly determine salaries in a local labor market to isolate the causal influence of wage spillovers. We find that there are indeed causal relationships among salaries and that union “strength” influences these relationships.