Welcome to the Profit of Education website. Continuing the conversation begun in the book Profit of Education, we discuss the latest economic evidence on education reform.

Better pay, fairer pensions?

The new Manhattan Institute report, “BETTER PAY, FAIRER PENSIONS: Reforming Teacher Compensation,” by Josh McGee and Marcus Winters, has been receiving well-deserved attention. McGee and Winters look at the idea of changing teacher compensation by (a) making pension accruals higher in earlier years and lower in later years, and (b) raising the part of compensation paid in salaries by reducing the part of compensation paid out as pensions.

Some of the quick blog-bytes can be a little misleading if you don’t read what the report actually says. First, the authors are careful to point out that their proposal is cost-neutral. But the flip side of that is that it is also compensation neutral. The proposal doesn’t raise average teacher compensation. The proposal may be a good idea (I strongly suspect that it is), but the economic arguments are in areas where we’re short on hard evidence.

First, for someone considering a lifetime career economic theory suggests that they care primarily about their total lifetime compensation and that how much comes early versus late isn’t very important. Thus standard theory tells us that re-arranging the pension system to re-arrange when compensation arrives isn’t that important. I suspect most economists don’t think that any of us are quite that rational about not caring whether compensation arrives now or later. So maybe moving compensation earlier in a teaching career does make it more attractive.

Second, most teachers aren’t in it for a lifetime career. The author’s have a great quote that deserves more attention, “… only about 28 percent of American public school teachers remain in the profession for even 20 years.” So what their proposed changes do is reduce the compensation of lifers and give the saved money to relative short-timers. (“Short-timers” probably means teachers with a five to 10 year career.) Does it make sense to raise total pay for short-timers at the expense of “lifers?”

While I suspect it does, we don’t have any direct evidence on the effect of making shorter teaching careers more attractive at the expense of making longer teaching careers less attractive. On the other hand, the authors (being economists after all) do point out that their suggested compensation path is closer to what we see in the private sector. That’s certainly suggestive at least.

More next time.


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