We Could Also Pay Teachers More if We Didn’t Discriminate Against Young Ones

by Patrick Brennan

Justus Myers discusses below the big ways in which teacher compensation is distorted away from teacher quality and toward rewarding certain cohorts in ways encouraged by collective-bargaining agreements. I couldn’t say it much better than his title did: “We could pay teachers more if we didn’t pay them so foolishly.”

The most obvious (and, in some sense, easily fixed) way in which this is the case is teachers’ extremely generous defined-benefit plans. The Vox piece to which Justus is responding, by the way, doesn’t even wrestle with this issue: It concludes teachers are underpaid just be looking at BLS earnings data, which doesn’t, so far as I can tell, take into account the huge amounts of wealth teachers are effectively given via their pension plans.  

The Manhattan Institute, always a superb source on these issues, published a report last fall that touched on these issues, and looked at how bizarrely defined-benefit plans compensate teachers.

It contains charts analyzing the compensation systems of ten different school districts. As an example, here’s New York City:

“Pension wealth” is their calculation of the value of the annuity that teachers will receive as their pension in retirement. As you can see, while teachers receive basically no compensation in pension benefits for the first ten or so years of their career, it then slopes up dramatically, expending a great deal of money to tie them to their jobs in the later years of their career. (The sheer size of this wealth and the rate at which it appreciates later in life, by the way — $20,000 a year in some cases — is a good reason to dismiss Vox’s analysis on this out of hand, and evidence of why looking at teachers’ salaries is almost meaningless.)

Anyway, the rapid appreciation of pension wealth in the final years of a teacher’s career: As Justus points out, there’s no justification for it. There’s a pretty clear research consensus that teachers get better with experience, but that this happens in the first five or so years, after which teachers don’t get much better. In other words, there’s no justification for paying teachers with lots of experience dramatically more. And yet that’s what we do.

What if we didn’t? We could pay lots of teachers substantially more. In two ways: For one, if teacher compensation were weighted between salary and retirement benefits the way the private sector does so, most teachers could receive an across-the-board salary raise: In New York City, MI calculates that it’d be 3.6 percent; in Los Angeles County it’d be 7 percent.

But more important, if we shifted to a system in which pension wealth accrued smoothly rather than the backloaded way almost all systems do it, compensation would be noticeably higher for younger teachers and those earlier in their careers than it is now. Here’s the percentage change in annual compensation for a teacher who starts working at age 25, if we moved just to a smooth accrual pension system (this does assume that the composition of teachers by age and experience remains static, which of course it wouldn’t):

That’s with a system that preserves step raises at various points rewarding teachers for service all the way up to 22 years — and preserves the current, exceptionally pension-heavy breakdown of salaries versus pension benefits, and the current, exceptionally health-care-heavy breakdown of cash compensation versus health-care benefits. There are a lot of distortions here, none of which, so far as I can tell, make the system work better for teachers or students. A system with smoother compensation would do a much better job of attracting younger or older individuals who don’t want a 30-year career in teaching, who are more risk-friendly and value cash salaries much more than they value the automatic accumulation of pension wealth, etc. 

Obviously we ought to have a discussion about how important it is to retain senior teachers — even if they don’t improve in quality, they probably do bring something to the system that’s worth rewarding them for.

On the other hand, given the incredible importance of having quality teachers — which, as TFA shows, can sometimes be inexperienced twentysomethings — we need to think a lot harder about how compensation can be structured to accomplish this goal. In a world of scarce resources and beleaguered city governments, this doesn’t have to mean more total compensation for teachers. It might just mean better executed compensation.

All of this is could be done without getting into the thorny, though important, question of how to pay effective teachers more. For now, the typical compensation system basically assumes that teachers grow exponentially more effective from years 20 to 30 of their career. Since there’s no reason to think that’s the case (and lots of evidence to think big improvements happen at other points), stopping that practice is a great way to move toward a system that’s, relatively speaking, more closely tied to effectiveness.

Lastly, as concerns the feasibility of this all: It’s very difficult to tweak teacher compensation to affect the benefits of teachers currently in the workforce, but it’s doable. (The legal challenges tend to come up regarding the protection of already-earned benefits, not benefits that current teachers are set to earn.) And of course, because cities have so underfunded their pension plans and done so with such unrealistic actuarial assumptions, tweaks to teacher compensation in the coming years may have to focus on closing those gaps rather than rewarding new teachers. However, all of the above is a way forward for a positive agenda about fiscally sensible teacher compensation. Green eyeshades really can mean more green for teachers, in other words. This doesn’t make the politics of it easy, of course, but the legal and policy cases are clear.

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.