Public-School Teachers are Overpaid, Heritage/AEI Study Finds

Elizabeth Harrington | November 1, 2011 | 6:10pm EDT
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School classroom. (AP photo)

( – A new study conducted by the Heritage Foundation and the American Enterprise Institute (AEI) finds that, contrary to popular belief, public-school teachers receive total compensation more than 50 percent greater than that of private sector employees – if you take into account benefits, job security, summer vacations and other factors.

“There’s a widespread belief among people -- really across the political spectrum -- from laymen, to politicians, to scholars, that existing teachers are underpaid in terms of their wages and benefits,” said Jason Richwine, Ph.D., senior policy analyst for empirical Studies at the conservative Heritage Foundation, and coauthor of the study.

“The reality is that it’s just not true,” Richwine said.

The study,  “Assessing the Compensation of Public-School Teachers,” was unveiled Tuesday, in an event held at AEI, in Washington, D.C.

In 2010, an Associated Press-Stanford University poll found that 57 percent of people believe teachers are underpaid. The same poll found that only 7 percent believe teachers are overpaid.

“There’s no way to look at the data and conclude that they are underpaid,” Richwine said.  “They are certainly paid more than they can get if they work in the private sector and certain policy implications flow directly from that.”

In fact, Richwine and co-author Andrew G. Biggs, a resident scholar at AEI, found that “public-school teachers receive compensation about 52 percent higher than their skills would otherwise garner in the private sector,” Richwine said.

While overall compensation between public-sector teachers and private-sector workers appears equal, the new study identifies flaws in statistical data when accounting for the benefits received by teachers.

By factoring in discrepancies in benefits in the private versus the public sector, as well as in education and skills of teachers and non-teachers, the study found the disparity is “equivalent to more than $120 billion overcharged to taxpayers each year.”

The study asked the fundamental question: “Do teachers currently receive the proper level of compensation?”  Richwine says no.

“The average public school teacher -- certainly not all -- but the average school teacher makes considerably more as a teacher than he or she would if they were in the private sector,” he said.

The study finds that when a teacher leaves the profession their wages decrease, and when measured against private schools, public teachers earn nearly 10 percent more.

By accounting for paid leave, insurance and retirement plans, and legally required benefits, the study finds public-sector teachers receive benefits worth 41.2 percent of their salaries, compared to 43.5 percent for the private sector.

(AP Photo/file)

However, “a more complete accounting puts the true value at 100.8 percent,” the report finds after adjusting for the public sector’s more aggressive funding rules, adding retiree health coverage and adding in the shorter work year.

The study created a separate category for teachers to account for teachers’ substantial increase in time off with summer vacation.

“A teacher who receives a given salary for nine months of work is clearly better compensated than someone who earns the same salary for a full year’s work,” Richwine and Biggs write.

Speaking on the reasons behind the study, Richwine said the report takes aim at reform.

“We want to reform the way teachers are paid,” Richwine said.  “We want to pay the good teachers a lot and the bad teachers not much, or move them out of the profession.  We can’t really get pay reform of that kind without understanding the current situation.”

Currently, the evidence shows that teaching majors meet lower grading standards in university education departments than other fields, the authors said.

“Given the relative lack of rigor of education courses, many teachers have not faced as demanding a college curriculum as other graduates,” the report states.

The study cites several studies that validate this fact. In 1960, The Journal of Higher Education reported, “32 percent of students in education courses received ‘A’ grades, compared to just 16 percent in business courses.”

Wake Forest University economist Kevin Rask conducted a study in 2009 on education majors’ grades at a northeastern liberal arts college, and found that the major “awarded the highest grades.”

A more comprehensive study, recently conducted by University of California–San Diego economist Corey Koedel, looked at grade point averages (GPAs) and found “that education majors had substantially higher GPAs than students majoring in the hard sciences, social sciences, or the humanities.”

(AP Photo)

“These results could mean that education majors are the brightest and hardest-working college students,” the paper states.  However, “it is more likely that education courses are simply easier than, say, chemistry and math classes, which feature stricter grading.”

Furthermore, the study compares SAT, ACT and the Graduate Record Examination (GRE) to conclude, “As both a direct measure of acquired knowledge and an indirect measure of innate ability, teacher education does not compare well to education in other fields. The result is that years of education could be a highly misleading measure of teacher skill.”

The study also finds that workers who switch from non-teaching to teaching jobs receive on average an increase of 8.8 percent in compensation.  “Teachers who change to non-teaching jobs, on the other hand, see their wages decrease by 3.1 percent,” states the paper.

“In other words, the effect on wages of switching into or out of a teaching job is precisely the opposite of what one would expect if teachers were underpaid,” the study said.

To find the best comparison between public-teacher pay and private workers, the study looked at the compensation for private-school teachers.

Excluding religious private schools, given that those teachers may choose the profession for personal beliefs where pay is irrelevant, Richwine and Biggs cited a study by Michael Podgursky, an economist at the University of Missouri–Columbia, that found “public-school teachers earn higher salaries than teachers in non-sectarian and standard-curriculum private schools,” with a salary premium for public-school teachers range from 9 percent to 28 percent.

Overall, “public-school teachers nationally earn 9.8 percent more in salaries than private-school teachers,” according to the Heritage/AEI study.

Additionally, the study estimates a monetary value for job security for public-school teachers, given that “once hired, most public-school teachers face a short probationary period when they may be fired relatively easily. After that, teachers rarely lose their jobs,” states the report.

A major factor in the pay discrepancy involves the structuring of public-sector pensions.

“A lot of people don’t realize just how much more valuable a pension is in the public sector, as it is in the private,” said Richwine.

“Public-sector pensions invest in assets with an expected return of around 8 percent, which allows them to make lower contributions as long as the returns come as expected,” the study states.

Conversely, private sector pension plans do not hold the same return. “If you want a guaranteed return on your money with a 401 (k) you can probably get—at best—a 4 percent return by investing in treasury bonds,” said Richwine.

Back to school. (AP Photo).

“It’s that difference that really leads to teacher pensions being almost absurdly higher than private sector pensions in value,” Richwine said.

The study also states that in public plans the risk is borne by the taxpayer, while in the private market, the risks are borne by the worker.

The authors find that a public sector teacher earning an annual salary of $40,000 would receive $20,330 annually in pension benefits.  In the private sector, that worker would only receive $4,450 per year in pension benefits at a 4 percent rate.

Pension plans are also an issue for state and local budget shortfalls.

“It’s not appropriate to bail out state and local districts, which is what the federal government has done in the past,” said Richwine.  “Instead they should be reducing teacher pay in order to do it.”

The study, while not aimed at offering solutions, identifies the current difficulties associated with teacher pay in conjunction with state and local budget shortfalls, and thus opens the door for further debate on issues of reform such as merit pay, Richwine said.

“We do know that teacher quality matters,” he said.  “And that’s a question that we can’t answer with this particular study, but we feel like we’re laying the groundwork for it by saying, you can’t do pay reform before you know the basics about what’s going on with existing teachers.”

Richwine suggests that policies like blanket pay increases are not appropriate.  “Under a market-driven pay-for-performance system, teacher compensation will begin to move toward levels matching those of similarly skilled private-sector employees,” the report states.  The study lists expanding charter school options or vouchers and reducing teacher compensation and “overly generous benefits,” to balance budgets.

“I do think pay reform is important and I do think that the best teachers, the ones that are most effective, should be paid as much as they need to be paid in order to keep them in the profession, absolutely,” Richwine said.

“But at the same time, that realization has to come along with the fact that there are a lot of existing teachers who make more than they should, and really, probably, should not even be in the profession.”

The United States is second only to Luxembourg for education spending per pupil, spending on average $10,499 per student in 2009, according to the U.S. Census Bureau, while earning only an “average” ranking from the Organization for Economic Cooperation and Development (OECD), based on international test scores.

“We can’t merely pay teachers more and expect results,” said Richwine.  “We have to pay teachers more in a way that encourages the best ones to stay and the worst ones to leave.”

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