Thursday, November 3, 2011

Do teachers currently receive the proper level of compensation?

Assessing the Compensation of Public-School Teachers

Standard analytical approaches to this question compare teacher salaries to the salaries of similarly educated and experienced private-sector workers, and then add the value of employer contributions toward fringe benefits. These simple comparisons would indicate that public-school teachers are undercompensated. However, comparing teachers to non-teachers presents special challenges not accounted for in the existing literature.

First, formal educational attainment, such as a degree acquired or years of education completed, is not a good proxy for the earnings potential of school teachers. Public-school teachers earn less in wages on average than non-teachers with the same level of education, but teacher skills generally lag behind those of other workers with similar "paper" qualifications. The authors claim that:

• The wage gap between teachers and non-teachers disappears when both groups are matched on an objective measure of cognitive ability rather than on years of education.

• Public-school teachers earn higher wages than private- school teachers, even when the comparison is limited to secular schools with standard curricula.

• Workers who switch from non-teaching jobs to teaching jobs receive a wage increase of roughly 9 percent. Teachers who change to non-teaching jobs, on the other hand, see their wages decrease by roughly 3 percent. This is the opposite of what one would expect if teachers were underpaid.

Second, several of the most generous fringe benefits for public-school teachers often go unrecognized:

• Pension programs for public-school teachers are significantly more generous than the typical private sector retirement plan, but this generosity is hidden by public-sector accounting practices that allow lower employer contributions than a private-sector plan promising the same retirement benefits.

• Most teachers accrue generous retiree health benefits as they work, but retiree health care is excluded from Bureau of Labor Statistics benefits data and thus frequently overlooked. While rarely offered in the private sector, retiree health coverage for teachers is worth roughly an additional 10 percent of wages.

• Job security for teachers is considerably greater than in comparable professions. Using a model to calculate the welfare value of job security, we find that job security for typical teachers is worth about an extra 1 percent of wages, rising to 8.6 percent when considering that extra job security protects a premium paid in terms of salaries and benefits.

The authors conclude that public-school teacher salaries are comparable to those paid to similarly skilled private sector workers, but that more generous fringe benefits for public-school teachers, including greater job security, make total compensation 52 percent greater than fair market levels, equivalent to more than $120 billion overcharged to taxpayers each year.


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