Can State & Local Government Consolidation Really Save Money?

Abstract

The recent economic crisis was especially damaging to state and local governments’ financial situations. One suggested solution to these difficulties is to consolidate smaller political jurisdictions into larger ones to reduce costs. This paper presents a theoretical model for the determination of wages and salaries in the public sector with implications for the variation of public sector salaries across jurisdictions of different sizes. Data is presented for public school teachers’ salaries in Illinois by district size which shows that salaries are higher in larger districts. This would seem to suggest that consolidating smaller school districts into larger ones will result in higher salaries, leading to the question: Will political consolidation really save money?