An Empirical Study of Dispute Resolution Under an Arbitration System: The Case of British Columbia's Teachers

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.