26 July 2011

Edunomics: The economics of teacher employment

I must preface the following--especially to lend credence to my arguments--with the fact that that I am a very happy teacher in an extraordinarily well-managed school that, almost universally, has excellent teachers and, moreover, is in a top public school district.  In other words, the following comments are in no way based on some angry vindictiveness but are, instead, based on a nine-year observation of the public school system as a whole.

One of the longest-running, and most contentious, debates in the United States concerns the problems with public education: How is it failing?  Why is it failing?  How can it be fixed?  As a public school teacher, these questions are of vital importance to me not only professionally but, also, as a citizen.

Education--or, as economists refer to it, "investment in human capital"-- is a cornerstone of every model of economic growth.  If our children are not well-educated and, it must be added, educated in growth-oriented sectors and skills, the American economy will stagnate, innovation and productivity will wither away, and real incomes will fall.  In other words, our long-run collective quality of life is directly dependent on how well we educate our children.  And, by most measures, we are failing.

So, that leaves two big questions.  What are we doing wrong in education?  And, how do we fix it?

I posit that many problems in education are economic in nature.  By this, I don't mean that more funding will solve these problems.  That is the simplistic, and usually misguided, politician's answer.  (Yes, I realize that was a tautology!)  Instead, I mean that the way we run public education violates virtually every basic tenant of economics.   We have constructed public school systems that seem to have been intentionally designed to provide absolutely the wrong incentives and disincentives to high performance among administrators, teachers, and students.  It is as if we have been asked to create a bizarre la-la land in which we took every possible measure to create inefficiency, waste, bad management, terrible allocation of resources, and the worst possible outcomes for students and, sadly,  that we have succeeded beyond our wildest dreams.  We will never improve public education until we begin running our schools more like businesses and less like social welfare agencies.

In this article, I will ignore macro- factors, such as political problems and necessary policy changes.  I will also ignore exogenous factors, such as familial and societal changes that have had an undeniably major impact on education in the past three decades.  Instead, I will focus on the fastest, most direct way of improving education: To get the best possible teachers in the classroom and to give them the incentives to perform at their very highest level.  To achieve this, we need to do the following:

1.  Scrap teacher tenure.  In most public schools, once a teacher has worked a certain number of years and has performed up to some minimum standard, he or she becomes tenured.  In my school system, this happens after only three (recently, it was only two) years in the classroom.  After they are tenured, teachers have what is essentially a job-for-life.   As I say to my students, I can only be fired for committing one of the Big Four: Molest them, hit them, sell drugs to them, or commit some sort of racial sin against them.  Other than that, I am almost certain of a 30-year ride to an overly-generous pension on the taxpayer's dollar, regardless of performance.  They think I am joking.  Sadly, I am not.

This system creates perverse incentives.  First, it allows teachers to settle, to become lazy, and to become professionally static.  It gives a disincentive to change, to innovate, and simply to work harder.  Perhaps less obvious, tenure attracts certain personality types to the profession: security-seekers rather than risk-takers, the easily-satisfied instead of the ambitious, the lazy in place of the industrious.  The current system provides no upward-mobility for the ambitious and no tangible incentives for the hard-working to strive for.

My assumption is that the original logic of tenure was to provide instructors academic freedom in their classrooms.  Unfortunately, in this time of standardized tests, dubious educational methods, forced political correctness, and increasing top-down micromanagement, the concept of academic freedom is close to non-existent.  There simply is no pedagogical or economic justification for the system.

2.  Allow the market to determine teachers' salaries.  The current system of teacher pay in most public school districts is based not on academic and professional background, performance, job responsibilities, subject, level of difficulty, or any other factor that one would expect in any normal profession.   Teaching is not a normal profession.

Instead, with minor exceptions based on amount of education a teacher has (I receive something like $2,500 per year for having multiple master's degrees--I'd make another $1,500 for my PhD.  Those are hardly incentives to achieve more than the minimum-necessary education levels or to further one's education), teachers are paid purely according to seniority.  In other words, every teacher is paid identically to every other teacher based solely on the time he or she has taught in his or her district.  Period.  It's not hard to imagine the problems this creates.

Once again, this system attracts the mediocre and the dilatory to become teachers.  Imagine a job where one not only cannot get fired, but where one receives automatic promotions based on simply being there.  As a result, even for the ambitious and competitive teachers, there is no incentive to do anything more than the minimum, because no matter how those teachers work, their pay remains exactly the same.  There are no cash bonuses and there is no performance-based upward mobility.  Even the most sincere, best-intentioned, and hardest working teachers after many (truly exhausting) years could not be blamed for shifting into a lower gear or, indeed quitting and moving on.  There are simply no incentives to do more than the minimum.

Next, this system deters highly-qualified potential teachers from entering the field.  Although purely anecdotal, my personal experience is illustrative of the problem.  I was, as we say in the education business, a "career changer".  I entered public education as a 37 year-old with, at the time, graduate degrees in my field(s), and 15-years of collective job experience as an intelligence officer, a diplomat, and a business-person.  Nonetheless, when I started teaching, I began--in both salary and in rank--as a so-called "first year teacher".  That meant that, despite my background, I was treated like, and earned essentially the equivalent of, a 21 year-old teaching second grade. Nothing separated that kid and me.

It doesn't take the sharpest imagination to understand why this would be a disastrous way to run any organization.  If I were, say, managing a pharmaceutical company, would I pay someone with 15 years of experience in pharmacological research the same as the new undergraduate intern simply because they were both new-hires?  Could I expect the same outcomes from both?  The same product?  The same productivity?  The same handling of challenges and problems?  Of course not.  Then, why would I pay them both identically?  Again, there is no rational answer.  Yet, it has become the norm in public education.

This leads to the third, and worst, problem as far as society is concerned: The mis-allocation of limited resources.  Teachers' unions never fail to natter on about teachers' "low pay".  But, with pay artificially set through collective bargaining at what is, probably for most, an artificial economic price floor, we have created surpluses in many fields and extreme shortages in others.  Indeed, by interfering with the price mechanism, we have no idea what teacher salaries should be.  This creates enormous inefficiencies that cost the taxpayer and, far more important, cost students.

For example, we hear almost daily about the shortages of math and science teachers at the upper-levels (and, sadly, don't hear about the shortage of economics experts).  Yet, with our collectivized system, we pay them the same as the special education teacher who follows one child around a school all day or the elementary teacher who teaches third grade.  It's not that those people do not have very challenging jobs or do not do a vital service, it's just that it takes much more background--and, with it, presumably skills, knowledge, education, and, of course, abilities, to teach advanced science, math, computer science, and other hard-to-find teaching areas.
Prices are far more powerful and miraculous than most of us realize.  Freely-determined prices emerge through the interaction of millions of people making individual choices.  As a result, with no need for a central planner deciding what they "should be", prices steer scarce resources toward their most valued uses.  Prices are signals telling us what society wants and how much it wants it.  When we interfere with prices, we distort this intricate system, creating shortages in some sectors and surpluses in others.

Salaries are simply the price of labor.  Allowing the market to determine salaries would allocate scarce resources (teachers) to where they are most needed.  If the salaries of science, math, computer science, foreign language, economics, and other teachers who possess high-demand skill sets were allowed to rise, more people--and, presumably, more capable people--would be steered from alternative choices into teaching careers.  Moreover, in areas where there are significant surpluses of teachers of, say, English and history, those at the margin will make a decision to pursue more attractive options or to teach in high-need areas.  As the surpluses clear in those areas, the price for these teachers will rise in response.  This not only would result in providing teachers where there is a critical need and a far more efficient use of resources, it would also result in a far more efficient use of taxpayer dollars.

3. Eliminate the seniority system.  In addition to paying teachers purely according to the amount of time served, most school systems also operate according to a very strict seniority system.  This ranges from something as relatively picayune as classroom allocation to, far more serious, the assignment of courses to a particular teacher.  For example, in many schools, university-level Advanced Placement and International Baccalaureate courses are given to the most senior teachers, not to those with the strongest academic backgrounds or the best skill set.

This results in several undesirable outcomes.  First, junior teachers will, by default, teach the most challenged and most-challenging classes.  This means that students in those classes will never benefit from the experience of the senior teachers.  It also means, of course, that the most capable students in the advanced classes may be taught by teachers who have an inadequate academic background or lesser intellectual abilities, but happen to have seniority.  An additional long-run effect is that capable young teachers become discouraged and leave the career altogether, often because, unlike their more limited colleagues, their ambitions and skill-sets allow them to make the choice to leave.  In other words, the system is discouraging energetic, highly-skilled young people from teaching and encouraging older, perhaps less dynamic, perhaps less skilled, perhaps less ambitious teachers just to stay in place.  Again, the economic structure of public schools encourages the mediocre to stay and the capable to leave.

Perhaps the most economically counter-intuitive example of the dysfunctional seniority system is the stubborn adherence to a last-in, first-out system in dealing with staff surpluses.  For example, if prior to a new school year there are not enough classes to justify the number of teachers in a department, a teacher must be "surplussed" from that department.  That is, he or she will involuntarily be moved to another school (not fired, of course).  But, the person who loses her job is not necessarily the teacher of the least value to the department but is, instead, always the teacher who was last hired, regardless of his or her skills or abilities.  As a result, many young people are surplussed over and over again, because they are always at the bottom of the totem pole at their new schools.  Needless to say, this is another deterrent to the young and capable to enter the profession.    

4.  Provide labor mobility.  Closely tied to the seniority system is the lack of labor mobility in public education.  A well-functioning labor market requires easy mobility of labor, so that workers can move to the areas and jobs that best meet their skill sets.  Full labor mobility for teachers would mean that experienced teachers could move wherever their skills and experience were in greatest demand.  

But public school teachers face extremely difficult barriers to labor mobility.  In recent years, there has admittedly been some de jure movement in many states for reciprocity in teacher certification (a problem in itself), but this in no way means universal recognition of certification.  Indeed, many states create barriers, both implicit and explicit, to hiring teachers from other states.  These include forcing certified, experienced, out-of-state teachers to take additional coursework, to retake standardized tests and, in some cases, to re-do their student teaching--regardless of experience.

Even if a teacher decides to change schools within her own district, she will retain her pay grade, but she will start at the bottom rung of the seniority pecking-order in her new school.  In other words, despite her experience and skills, she will once again be vulnerable to surplussing and, more than likely, will not be able to teach the courses she once taught at her prior school.  Moving to a different school district is far more problematic.  Even within state, many school districts do not recognize time-served in other districts.  Out-of-state teachers are highly unlikely to receive full (if any) credit for their experience or for their retirement.

To put this in context, imagine a vice president with 15 years of experience from, say, Citibank moving from New York to Chicago.  In Chicago, he is fortunate to get a job with Lasalle bank.  But, at Lasalle, he is told that his Master in finance and experience aren't enough.  He will have to go back to graduate school for three more classes.  Oh, and he will also have to start over again in a branch bank working behind the counter and to accept a drop in salary from his current $250,000 to $35,000.  Would he make this choice?  Of course not.  But, let's look at Lasalle.  Why would they not do everything they could not only to hire this experienced, presumably very successful, banker, but also to up the ante to keep him?

That's the point.  If schools and school systems are serious about improving teacher quality, why wouldn't they throw the doors open to teachers from outside and do their utmost to recruit the best quality teachers?  Points one-through-three above obviously play powerful roles.  I believe, however, there is something even more myopic, if not sinister, going on.  States, counties, and unions, instead, deceptively claim that barriers to outside labor ensure a higher-quality of teachers in their areas and that they are, and this is always disturbing to economists, "protecting jobs". This is simply self-destructive nonsense.

Many politicians and teachers' unions see labor competition as a zero sum game.  Their thoughts go like this: "If we provide jobs to outsiders, an insider's job will be lost.   Even worse, our people might leave, and that would force us to compete with outside districts and states.  That would significantly diminish our power.  Out teachers would be far less reliant on us.  That would put us out of business."  Of course, this is all populist twaddle.  But, as almost all public-choice economists would tell us if they were going to put it in a trite phrase, most political economic decision-making is populist twaddle.

These barriers to labor mobility are a highly destructive form of worker protectionism.  As almost any economist will tell you, protectionism only benefits the people protected, but inevitably results in losses to all of the rest of society.  In this case, local teachers are protected, but the rest of society, especially taxpayers and, most important, students, lose.

5.  Eliminate teacher certification for upper-level high school instructors (and, at the same time, eliminate unpaid student teaching). 
Again, this will be completely anecdotal but, hopefully, illustrative.  In my mid-30s, when I first thought about teaching, I called my county school system.  I told them the rudiments of my resume.  I was my undergraduate class valedictorian, had worked in intelligence, diplomacy, and business, and had significant graduate education in my respective academic fields.  They told me to apply immediately.  I was, of course, very interested.

Then, I found out that I would only be employed as a "non-certified teacher".  As such, I was apparently not qualified to teach history, political science, or economics, all of which I had undergraduate and graduate degrees--as well as real-life experience-- in by that point. (I should point out to my university-level friends that, regardless of their education and experience, they would also be considered to be unqualified to teach their respective subjects in the public school system.)  Until I achieved my certification, I would be treated as a "long-term substitute", i.e. full hours, low pay, no benefits, and an almost certainty of being released at the end of the year.

Because of these requirements, I could not receive a contract until I had 29 credit hours of certified teacher training.  Apparently, after taking these 29 hours, I would transform from an intellectual zygote to a fully gestated, mature teacher of high-level history, economics, and six other fields.  After looking at my state's certification requirements, I decided to get a Master in Teaching, because it required only 10 hours more than the state's requirements. As far as my qualifications and ability to teach, the entire exercise was meaningless.

State-mandated teacher certifications (backed now by No Child Left Behind-based rules) are preventing highly-qualified candidates from becoming teachers.  I was an all-too-rare exception.  My wife and I were, at the time, in a secure enough financial position that I could take a risk, take two years off without any income, and become a teacher at around $40,000 a year.  What qualified professional, especially those with families, could do that?  Only the insane or the vulgarly wealthy.  I was clearly in the former group.   Yet, the skills I had to have both academically and pedagogically to become a teacher were already there prior to all the time, money, and effort it took to that graduate degree in education.

What skilled professionals would ever leave their jobs if they knew they would have to spend two unpaid years taking essentially useless classes and then, working full-time in an unpaid, occasionally,  slave-like, job to finish the program?  The answer: Almost none.  There is no clear, rational incentive for them to do so.  The result is that we are preventing highly qualified individuals from becoming teachers and are, instead, recruiting inexperienced kids to do a very, very mature job.  And, afterward, as mentioned earlier, we drive them out of those jobs.

6.  Give principals the ability to hire and fire at will.  High school principals have the hardest, most thankless job I can imagine.  They are, collectively, answerable to the county council, school board,  community, parents, students, and their staffs.  That means that most principals are faced with eternal, unending conflict: Conflict with the community, conflict with the parents, conflict with the students.  Nobody is ever satisfied.  They are also held responsible for everything from broken urinals to hundreds or, more likely, thousands of students' performances on standardized tests.  These are extremely disparate tasks that would try the skills of even the most capable, trained managers.

Most principals, however, lack one vital set of powers necessary for any effective manager.  They do not have the ultimate power to construct their own workforce as they envision it, and they have little power to get rid of the useless, the non-performing, the trouble-making, and otherwise unproductive.  As unpleasant as it may sound to many, the ability to hire and fire is the ultimate tool managers have to ensure staff quality and discipline.

In my district, principals can not only not attract the best candidates to their schools, they are actually prohibited from doing so.  Instead, potential candidates are screened at the county-level by both capable and, more often, less-capable, bureaucrats.  Only after this selection are schools permitted to bid for candidates.  But, this means that front-line managers of very large organizations with enormous responsibilities have their pools of potential candidates culled long before they get a chance to see who is available.    Clearly, a principal knows more about the needs of her school and has a far better idea how how she wishes to push forward her plans for that school than some central planner.  Yet, we continue to limit principals' ability to choose their own teachers.

Much more devastating is the fact that principals have virtually no power to fire teachers.  In my school system, a principal may "involuntarily transfer" one teacher per year.  This does not mean that a problematic or ineffective teacher is fired.  That would, half-jokingly, require an act of the state legislature, a judgment from the Supreme Court, and an official pronouncement from at least three major faith groups.  Instead of being fired, most poor or misbehaving teachers are, wait for it, simply transferred to another school.  Even more bizarre, these failed teachers have the right to interview for open jobs in schools before new applicants to the system.  In other words,  a problem or weak teacher has first-dibs on any open job in the system over a potentially great, highly-qualified new teacher.

Other than that, principals have no power whatsoever to remove poor or problem employees.  Not only does it leave principals without their ultimate management tool, it provides weak employees with no incentive to perform well.  Why does the weakling care if he can't get fired?  The consequences are minimal and, if he is tenured, he will almost certainly retain his job.

For example, I worked in a school in which a teacher would "become sick" every March or April.  He would leave school for the remainder of the year, every year.  That is, he would take April, May, and June off, every year.  At the beginning of the next year, he would show up, ostensibly ready to start yet another truncated year, but fully secure in his job.  When he finally did decide that he was never going to return, he phoned in on the first day of the school year to say he wasn't coming in.  And, there is nothing the system could do about it. 

In the environment we have established, how could we expect otherwise?


Most people would certainly agree that teacher quality is the most major controllable key to improving public education in the United States.  The points above nonetheless establish that we have created an economically dysfunctional way of employing and managing teachers.  As a result, we have built a system where we, though poorly-planned economic incentives, recruit and retain the least knowledgeable, the least capable, the least passionate, and the least ambitious teachers and actively exclude their opposites.  If our objective is to recruit the teachers who are the best, the most knowledgeable, the most energetic, and the most committed to students, we are doing an extraordinarily poor job of it.  If we are truly to improve our educational system, then, we must first start with changing the economic incentives that both encourage good teachers to perform and poor teachers to leave.

As a post-script, I would add the obvious questions:  If this is so logical, why aren't we doing it?  What is preventing this from happening?  If educational excellence is truly their mutual objective, why aren't the politicians and the teachers' unions advocating these changes?  My point exactly.