28 November 2014

UK teacher unions as legal insurance

Richard Murphy of the University of Texas confirms something that a teacher told me in person just last year - teachers in the UK only join unions because it provides legal insurance in the event of getting sued. 
This paper identifies the threat of accusation as a new source of demand for union representation and how this has increased union density in specific labour markets. Society has become increasingly litigious and this may have many repercussions on labour markets, especially those where employees have unsupervised interactions with vulnerable groups. A rational response to such changes would be an increase in demand for insurance against these risks. I model union membership as a form of private legal insurance, where the decision to join is partly determined by the perceived threat of having an allegation made against the agent. This is examined by estimating the demand for union membership amongst UK teachers, which has been increasing over the last twenty years. I use media coverage of allegations relating to local teachers as an exogenous shock to the perceived threat. I find that unionisation rates increase with media coverage of relevant litigation at the regional and national levels. Ten relevant news stories in a region increases the probability of union membership by 5 percentage points. Additionally, the size of the effect is dependent on the relevance of the story to the teacher. This paper provides a reason why the demand for union membership in this and related sectors has increased, despite the possibility of freeriding as pay and working conditions are set centrally.
Are insurance companies missing an opportunity here? Or would they face adverse selection issues?

1 comment:

Post a Comment