CHARTER SCHOOL COMPETITION AND ITS IMPACT ON EMPLOYMENT SPENDING IN MICHIGAN'S PUBLIC SCHOOLS

I. INTRODUCTION The idea of school choice originated with Friedman (1962), who envisioned a system where every student in the country receives a voucher to be used only for schooling. Friedman argued that vouchers would create competition and market mechanisms would force schools to improve. If a school did not improve, few, if any, parents would choose to have their children attend that school and it would go out of business. The current reality of school choice is different from what Friedman (1962) envisioned. Currently there are two main types of school choice reform: vouchers and charter schools.(1) Vouchers are usually provided to children whose parents have low levels of income.(2) These parents are then free to choose for their children any private or public school which in turn receives the money from the voucher. Charter schools are for the most part public schools. Once a group receives permission to open a charter school (approval mechanisms vary from state to state), the charter school attempts to attract students. The school receives a set amount of funding (again the amount varies from state to state) for each attending student. (3) Despite these differences, both charter and voucher schools have the ability to create competition that was previously nonexistent for the traditional school. This paper focuses on the effect charter schools (most likely through competition) have on the traditional public school's demand for particular types of labor. Most previous studies have addressed the impact of school choice on educational outcomes. Hoxby (2002a, 2002b), Holmes, De-Simone, and Rupp (2003), Booker et al. (2004), Bettinger (2005), Bifulco and Ladd (2006), Sass (2006), and Chakrabarti (2008) examine voucher and charter schools' effects on public schools' test scores; these studies, with the exception of Bettinger (2005) and Bifulco and Ladd (2006) find that with an increase in competition, there is a small but significant positive effect on competition. (4) There has been little research on the impact of school choice on public spending decisions in general and employment mix in specific. For the most part, these studies were conducted prior to actual school choice reforms so they used traditional forms of choice, competition from private schools or number of school districts in a location (Tiebout choice) to measure the effects on inputs. Hoxby (1999) looks at how district choice affects the inputs of school districts. In a related study, Hoxby (2000b) finds that school choice increases demand for teachers that have a degree from a high quality college, that are highly skilled in math and science, that put out effort, and that are independent. She also finds that there is less demand for teachers that have certification-Hanushek and Rivkin (2003) use district choice in Texas in an attempt to measure how competition affects teacher quality. They find with more district choice, teacher education and test scores increase and that there is an increase in demand for teachers with more experience. Another related recent paper has also examined teachers in a school choice enviroment. Carruthers (2009) uses data from North Carolina to examine the difference among teachers who move to charter schools, those who move from one traditional school to another, and those who do not move. Among other results, she finds that those teachers moving to charter schools had students that did better on exams than those of teachers moving to other schools, but worse than of those teachers who did not move. My study uses panel data from Michigan along with fixed effects, lagged dependent variable, and instrumental variable techniques to examine how a school district's reaction to competition from charter schools affects the employees of the school district. Specifically this paper examines the effect that charter school competition has on the following variables in the traditional public schools: percentage of total general fund expenditures allocated toward instructors, administrators, and support personnel, along with average teacher salaries. …