Public Sector Unions and Privatization: Evidence From the Eldercare Sector in Danish Municipalities

Abstract

Privatization varies considerably among local governments. One of the oft-listed explanations is the ability of public employees to block privatization. However, many studies on the influence of public employees on privatization do not use very precise measures of the influence of public employees, they have been unable to isolate a one-way effect, and the studies have not been attentive to whether the effect varies for different market forms. In this article, we focus on privatization in Denmark through a voucher market without price competition for eldercare services. Using new data for all 98 Danish municipalities in 2012, we are able to measure the strength of the public eldercare union as well as the number of the public eldercare workers relative to the number of local voters. We find that the increased union strength measured in terms of union density at the municipal level leads to substantially and significantly less privatization through the voucher market. By comparison, the estimated relationship between the relative number of public workers and privatization does not reach statistical significance. Features of the voucher market and qualitative evidence suggest that the union influence primarily goes through a direct user channel, that is through union influence directed at the service users, while a minor effect possibly runs through a political channel, that is lobbying directed at the local politicians.

What have we learned from the last three decades of empirical studies on factors driving local privatisation?

“…Moreover, recent US studies present mixed results with respect to the influence of fiscal stress, reported as being relevant in Carr et al (2009), but found not to be significant in Fernandez et al (2008) and Mohr et al (2010). Interestingly, a few studies conducted in European countries [Bhatti et al, 2009;Foged and Aaskoven, 2017;Rodrigues et al, 2012] find evidence of a negative relationship between fiscal stress and contracting out, which could lead to privatization being seen as the 'politics of good times'. Note that the first two studies do not apply a discrete choice analysis, and both consider the share of services privatized in the municipality as the dependent variable.…”

Political Ideology and Social Services Contracting: Evidence from a Regression Discontinuity Design

“…Arguments about the salience of local political ideology are supported by empirical studies in Italy (e.g., Garrone and Marzano ), Spain (e.g., Plata‐Díaz, Zafra‐Gómez, and Pérez‐López ; Zafra‐Gómez et al ), and Sweden (e.g., Elinder and Jordahl ; Sundell and Lapuente ). However, much of the other empirical literature from Europe reports that political ideology has little influence on local governments’ contracting decisions (e.g., Alonso, Andrews, and Hodgkinson ; Bel and Miralles ; Foged and Aaskoven ; González‐Gómez, Picazo‐Tadeo, and Guardiola ; Pallesen ; Wassenaar, Groot, and Gradus ) . Some studies suggest that ideological effects may be more nuanced and complex than the basic assumptions of the citizen‐candidate model and partisanship theory suggest.…”

Local institutions and public service outsourcing: Managerial professionalism, mayoral strength, and electoral rules

“…Inspired by the high‐powered incentive to win elections, strong mayors are keen to cater to the interests of a broad range of constituents (Frant, 1996). Therefore, when formulating local policies concerning public service delivery, strong mayors are unlikely to be manipulated by a single interest group (Bhatti et al, 2009; Foged & Aaskoven, 2017). The political positions claimed by politicians are usually shaped by the preference of the median voter of local communities, and efficiency improvement in public service provision has long been the pursuit of ordinary citizens (Rho, 2013).…”