The emergence of educational management organizations to run charters raises questions about the pursuit of profits and the quality of educationOne of the most significant developments associated with the introduction of charter schools is the rapid emergence of educational management organizations.Unlike the schools with which they contract, which are legally prohibited from seeking profits, EMOs usually are for-profit firms that seek to earn profits from their provision of administrative and educational services to schools. Rapid expansion in the number of charter schools has opened the door to the public school system for these firms, and they have been quick to enter.A critical question is whether this development is good or bad for students. Our research in Michigan raises concerns, while pointing to the importance of the rules that govern the emerging market for schooling. The rules embodied in charter school legislation determine whether expanding private participation in the public school system will help or harm children.

Different rules create different incentives, and different incentives produce different outcomes. A carefully designed policy framework can ensure that the market for schooling works efficiently and effectively to improve the educational opportunities available for all children. There are two questions we need to answer as we seek to evaluate the role of EMOs in the public school system. First, can EMOs produce student educational outcomes that are equivalent or superior to traditional public schools while generating profit rates sufficient to attract private investors? Second, can EMOs generate profits from increased efficiency and improved performance - and not at the expense of students who remain in traditional public schools? Even if privately managed schools satisfy both of these efficiency conditions, thoughtful people may disagree as to whether they advance or undermine other values that are important in the public school system.

Public school educators know this. In recent years many public school districts have turned to private-sector contractors to provide food, transportation and other services previously offered in house. Districts facing budgetary difficulties routinely seek to reduce labor costs by cutting back the number of teachers, offering retirement incentives to highly paid veterans or shifting administrators back to classrooms.Educational management organizations have tried to reduce their labor costs in charter schools in a variety of ways . Teachers in Michigan charter schools are commonly younger and less experienced than teachers in neighboring public schools. Beginning salaries are generally competitive, but seniority brings smaller rewards. Teachers' benefits are generally far less costly because EMOs do not have to participate in the state's retirement system. Class sizes are sometimes significantly larger. Support services can be either contracted out to low-wage firms or provided on a limited basis by parent volunteers.

It is not yet clear whether reducing labor costs is a strategy that promises long-term profitability for EMOs. If charter schools consistently pay teachers less than they could earn in nearby public schools, then their EMOs will have to provide some compensating advantage (stock options?) To make charter school employment attractive or else develop instructional strategies that make effective use of less qualified and less experienced staff. Teachers, parents and students strongly prefer smaller classes, so the potential for significantly increasing class sizes is limited.It is not yet clear whether reducing labor costs is a strategy that promises long-term profitability for EMOs. If charter schools consistently pay teachers less than they could earn in nearby public schools, then their EMOs will have to provide some compensating advantage (stock options?) To make charter school employment attractive or else develop instructional strategies that make effective use of less qualified and less experienced staff. Teachers, parents and students strongly prefer smaller classes, so the potential for significantly increasing class sizes is limited.Reducing labor costs without compromising the educational services that children receive is likely to prove difficult. On the one hand, teachers may resist charter schools' expectations that they work harder for less money. For example, the professional staff in one Michigan charter school has recently voted to affiliate with the Michigan Education Association. Still, it may be hard to demonstrate educational success while relying on young and inexperienced teachers in large classes.