Asymmetrical Information - Megan McArdle

New York City Bus Strike: A Cosy Cartel, Running Out of Gas

For years, unions and companies have cooperated to push up the cost of New York's school bus contracts. That may end.

01.17.13 2:35 PM ET

New York City's school bus drivers have gone on strike over job protections. Specifically, they are striking because the city is preparing to put its bussing contracts out for bid, and refuses to require that the contracts go to union workers. The result has been chaos for parents. As New York City has increased school choice, and special ed provision, more and more children are being bussed to far flung locations. Now their parents are scrambling to get them there without missing too much work themselves.

It's understandable that the workers don't want to give up such a lucrative job protection (Mayor Bloomberg says that after an adverse court decision about the city's Pre-K bussing, it is no longer legal for the city to offer them). And it's clear from the New York Times account that the union's desire to keep job protections has evolved into a cozy cartel relationship with the bus companies, in which they jointly work hard to protect each other from competition:

The history behind the current standoff can be traced back at least to 1979. Before then, a single company, Varsity, ran most of the roughly 2,000 bus routes. According to former Mayor Edward I. Koch, the schools chancellor at the time believed opening the bus contract to bids would save money. But, Mr. Koch said, it did not. And when the city put out the routes for bid, it did so without the job protections that had previously been in place. That touched off a strike that featured Operation Kiddie Lift, a thrown-together effort by city correction officers to ferry disabled children in buses borrowed from Rikers Island.

The city decided to end things. A judge brokered an arrangement that required the city’s 70 or so new bus vendors to hire the old union labor, setting in motion the job security clauses known as employment protection provisions that are at the heart of the current dispute.

“The pressures became so great,” Mr. Koch recalled on Wednesday. “The mothers and parents were so distressed.”

From 1979 on, the city did not again put out its contracts to open bid. Typically, it would simply renew its contract with the companies it was already using. In 1995, Mayor Rudolph W. Giuliani backed off a plan to reopen contracts to bid after the union threatened a strike.

The city was often loath to change companies, in part because it feared the disruption that canceling their routes might cause.

“The department was put in a position where it had its back against the wall,” said Eric S. Goldstein, the chief executive for school support services for the Education Department. “The bus companies negotiated as one bloc and the contracts needed to be extended.”

No wonder New York's school bussing costs $7,000 a year per student.

The extent to which unions help create and support expensive oligopolies is surprisingly little remarked upon. Unions, for example, helped sustain the Big Three monopoly far longer than it otherwise might have lived. Pattern bargaining ensured that no one really competed on costs, and in exchange for raises, labor threw its political weight behind government protections that were "Good for Detroit", most recently the bailout of Chrysler and GM. Collusive labor makes it easier for employers to collude to extract maximum rents from customers.

Eventually, the collusion gets too expensive, and the cartel collapses unless it gets support from the government. And while 30 years ago, the government would probably have helped them, this time the courts and even the politicians seem to have decided to put down the cartel. The union's arguments, in which they painfully try to draw a distinction between Pre-K bussing and school-age bussing, or pretend that they don't understand what the ruling meant, seem like a wistful last resort rather than a serious attempt to convince anyone. Unless the city collapses under the strike, and declines to put the contracts out to bid, it seems very likely that the cozy cartel has extracted its last gold-plated contract.