Teacher Compensation Michael Podgursky Department of Economics University of Missouri – Columbia NCSL Conference Phoenix, AZ Dec. 1-2, 2007 Co-investigator, CALDER, NCPI

Teacher Quality/Compensation Qauntity-Quality Tradeoff

Student Enrollment, Teacher and Non-Teacher Employment In Public Schools: 1980 - 2003 3.049m Public School Teachers Fall, 2003

Falling Student-Teacher Ratios U.S. and Missouri, 1987-2004 Missouri school districts traded off the opportunities to raise relative teacher pay and choose instead to hire relatively more teachers per student. The student-teacher ratio has been falling in the United States and Missouri. Currently there are 15.8 students per teacher nationally and 13.8 in Missouri. This means that some of the increased real spending per student was “spent” in lowering the student teacher ratio. (Source: Digest of Education Statistics, various years)

Teacher Compensation Salary and Benefits account for roughly 90 percent of K-12 instructional costs Data Quality Issues (NCES plans) Single Salary Schedule Retiree Benefits

Teacher Compensation Single Salary Schedule Compensation Policy Affects the Behavior and Composition of the Workforce “You can’t repeal the law of supply and demand” Rigidities by Teaching field (esp. math, science, special ed) School Conditions Quality of Effort

San Diego School District: 2006-07 Salary Schedule

Difficulty in Filling Vacancies by Teaching Field Varies considerably by field Generally somewhat easier in 2003-04 than 1999-00 NCES Schools and Staffing Surveys, 1999-00 and 2003-04

Source: Schools and Staffing Surveys, 1999-00, 2003-04

Staffing Difficulties in Low (<25%) and High (>75%) Poverty Schools: Elementary Ed 2003-04 Source: Schools and Staffing Surveys 2003-04

Source: Schools and Staffing Surveys, 1999-00, 2003-04

Source: Schools and Staffing Surveys, 1999-00, 2003-04

Source: Schools and Staffing Surveys, 1999-00, 2003-04

Source: Schools and Staffing Surveys, 1999-00, 2003-04

Source: Schools and Staffing Surveys, 1999-00, 2003-04

Source: Schools and Staffing Surveys, 1999-00, 2003-04

Potential supply Current supply New Hires In 2003-04 the flow of new secondary mathematics teachers statewide from schools of education was only 122 teachers. (These are program graduates, recommended to DESE for certification, who passed the Praxis II exam.) This flow falls far short of the new hires by Missouri public schools. In the same year, 196 secondary math teachers were in their first year of teaching. Note that the flow of baccalaureate graduates in engineering and mathematics far outstrips the flow of secondary math ed majors. With the right incentives and aggressive recruitment, some of the engineering and math majors might be willing to teach in public schools.

The imbalance is even more striking in science The imbalance is even more striking in science. Missouri teacher training programs only produced 113 secondary science teaching candidates. This fell well short of the new hires and represents a small fraction of the total flow of engineering and science graduates.

Consequences of Salary Schedules School Conditions School with highest percentage of poor children likely to have least experienced teachers Quality of Performance Performance-based pay School-wide or individual Role of test scores Size of bonuses Encourage Districts to Experiment Federal Teacher Incentive Fund (TIF) Grants NCPI Vanderbilt – IES funded experiment Implement in a way that permits evaluation (pilots)

Types of Incentives: Teacher Weights “Does the district currently use any pay incentives such as cash bonuses, a salary increase, or different steps on a salary schedule to reward …”

Incentives by Teaching Field

Total Compensation = Current + Deferred Compensation

Teacher Pensions: Some Stylized Facts Mostly state-wide systems Roughly 70 percent of teachers are in Social Security. Generally state decision. Nearly all teachers are in Defined Benefit plans. DC and CB options very limited Mean retirement age is well below Social Security and Medicare ages 58 years (retired and stopped teaching, SASS TFS) Very Expensive Many are under funded

Incentives in Teacher Pension Systems In public sector DB pension systems accrual of pension wealth is highly non-linear and back-loaded State systems generally have sharp “spikes” in accrual rates Pull teachers to spike Push out after Not inherent in DB pension systems. “cash balance” (IBM and other firms) Can smooth spikes

FAS = final average salary r(S,A) = replacement factor Typical DB teacher pension Annual Pension = S x FAS x r(S,A) S = service years FAS = final average salary r(S,A) = replacement factor

Lots of moving parts…

Incentives for Work and Retirement Compute pension wealth at each year of work life Compute growth of pension wealth from an addition year of work Representative teacher Enters at 25, continuous spell of work Standard assumptions concerning PV of pension wealth. (see Costrell and Podgursky (2007) )

Increment to PV of Pension Wealth from Working an Additional Year: Missouri

Source: Costrell and Podgursky (2007)

Source: Costrell and Podgursky (2007)

Source: Costrell and Podgursky (2007)

Ohio

Do these spikes affect teacher behavior? Yes

Increment to PV of Pension Wealth from Working an Additional Year: Missouri r = 2.5% S ≤ 30 r = 2.55% S ≥ 31 Changed in July 2001

Unintended Consequences of Early Retirements Retiree Health Insurance (OPEB)

Other Post-Employment Benefits (OPEB) Retiree Health Insurance Largely Unfunded Estimates of Liabilities Required Under New Accounting Rules GASB 43, 45 Initial Estimates of UAL Very Large LAUSD - $10b

2006 GASB 45 Estimates, LAUSD http://notebook.lausd.net/pls/ptl/docs/PAGE/CA_LAUSD/FLDR_ORGANIZATIONS/COMMITTEE_MAIN/ABT_HOME/ABT_AGENDA/ITEM %203%20-%20HWACTUARIAL.PDF

Unintended Consequences of Early Retirements Retiree Health Insurance (OPEB) Reemployment of Teachers/ Administrators (“double-dipping”)