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Changing How We Pay Teachers

May 22, 2013 by Ike Brannon

We do a lousy job of compensating teachers. It’s not that we pay them too little, but the way we compensate them makes little sense in today’s world. Fixing that would allow us to attract higher-caliber teachers without costing our governments any more money.

A goodly portion of 20-something college graduates hold jobs that have little in the way of fringe benefits. While some people find that state of affairs shameful, few 20-somethings share that indignation. Most of this cohort has inexpensive health care costs and are decades away from retirement, meaning generous health insurance and pensions — the sort of benefits that the typical teacher receives — hold little attraction to them. Generous health insurance with nominal co-pays saves the typical new college graduate little money, given how infrequently they utilize the health-care system, and the defined-benefit pension plans that cover most public school teachers accrue very slowly for new employees.

Fringe benefits aren’t free: If a firm ups its health-insurance benefits, it comes at the expense of higher wages. Most employers don’t care how they compensate workers, at least to a degree: it’s how much it costs them that matters. For the last few decades teacher compensation — like that of most other government workers — has tilted towards fringe benefits, in no small part because of the wishes of the unions that represent them.

Older teachers with families greatly value generous health insurance with small co-payments, because they are more likely to utilize insurance and, if they have a spouse earning a decent income, they’d rather have a bigger benefit than more wages that would be subject to higher tax rates. But future teachers aren’t represented in such negotiations, and they vote with their feet — by selecting other professions. An ambitious 20-year-old who compares starting salaries across professions sees teaching lagging behind most other jobs available to new college grads and chooses another major, and mediocre college students with few other prospects drift into studying education.

The teaching profession is being buffeted in a number of ways. First, the lifetime-tenure protection of teachers is beginning to wither as communities — nudged by the federal government — place a renewed emphasis on quality education. Furthermore, states are coming to grips with the fact that they can no longer afford the generous defined-benefit pensions for their employees. The Affordable Care Act will begin taxing high-cost health insurance benefits in 2017, making it more costly to offer rich fringe benefits. And finally, the push for a longer school year will erode one major fringe benefit to teachers: a long summer vacation.

In short, there are a number of reasons why schools will need to change how — and how much — they compensate teachers in the next few years. The key is to change compensation structures in a way that encourages bright college students to try their hand at teaching. More money — and smaller fringe benefits — are the main ingredients in that mix.


Author

Ike Brannon
Ike Brannon

Ike Brannon served as an Economic Growth Fellow of the George W. Bush Institute from 2012 to 2015. He has a Ph.D. in economics from Indiana University and a B.A. in math, Spanish, and economics from Augustana College. View his full bio

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