Are Public School Teachers Overpaid?New Evidence on Salaries, Benefits and Job Security
Date: Tuesday, November 1, 2011 Time: 3:00 PM -- 5:00 PM Location: Wohlstetter Conference Center, Twelfth Floor, AEI
1150 Seventeenth Street, N.W., Washington, D.C. 20036
Going against popular opinion, Andrew Biggs and Jason Richwine released a teacher pay study on Tuesday at the American Enterprise Institute in which they argue that public school teachers’ total compensation is roughly 50 percent higher than they would likely receive in the private sector. Richwine, a senior policy analyst at The Heritage Foundation, addressed the perceived low salaries of public school teachers compared to similarly educated private-sector workers by pointing out that teachers enter college with below-average SAT scores but have much higher GPAs than other students who choose more challenging majors than education. When salaries are compared based on objective measures of cognitive ability—such as SAT, GRE, or IQ scores—the teacher salary penalty disappears. Biggs, a resident scholar at AEI, highlighted the shortcomings of the Bureau of Labor Statistics data on the benefits aspect of compensation. These data omit the value of retiree health coverage, which is uncommon for private workers but worth about an extra 10 percent of pay for teachers; understate the value of teachers’ defined-benefit pensions, which pay benefits several times higher than the typical private 401(k) plan; and ignore teachers’ long summer vacations, which are not counted as a benefit. After adjusting for these problems, Biggs said that teacher benefits are worth about double the average private-sector level. Finally, Biggs touched on the extra job security that teachers enjoy, estimated to be worth about an extra 9 percent of total compensation. Robert Costrell, a professor of education reform and economics at the University of Arkansas, provided evidence to support much of Biggs and Richwine’s findings but did stress that the key question is not whether teachers are over- or underpaid but what changes can be made to the compensation structure to improve teacher quality.
1150 Seventeenth Street, N.W., Washington, D.C. 20036
Assessing the Compensation of Public-School Teachers
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The teaching profession is crucial to America's society and economy, but public-school teachers should receive compensation that is neither higher nor lower than market rates. Do teachers currently receive the proper level of compensation? 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. We show 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 curriculums.
• 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.
We 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. Teacher compensation could therefore be reduced with only minor effects on recruitment and retention. Alternatively, teachers who are more effective at raising student achievement might be hired at comparable cost.
Andrew G. Biggs is a resident scholar at AEI, and Jason Richwine is a senior policy analyst in the Center for Data Analysis at The Heritage Foundation Source: http://www.aei.org/paper/100259
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