Virginia Postrel surveys research on teacher quality. The bottom line is that teachers' unions have compressed wages, and hence those with the most potential find jobs in other sectors.
This is consistent with what is currently happening in South Carolina. A program to introduce sizeable tax credits for any child in any school - public or private - is being attacked by the SC Education Association (the union). The program would allow any child to remain in pubic school at no extra cost, or to use the credit to subsidize tuition elsewhere. This program would not decrease demand for teachers.* Rather, it would make earnings more sensitive to teacher quality. That's what competition does naturally, and unions and state monopolies suppress. Can't have that now, can we kids?
*Indeed, the union's advertisements imply that spending on education would increase as a result of the program..