Let the Market Set Teacher Pay
By Craig J. Cantoni
May 03, 2000
Facts are thrown around in the debate over teacher pay like baseballs at Bank One Ballpark. But many facts are either misleading, incomplete or irrelevant to the question of what teachers should be paid.
For example, proponents of a pay increase say that Arizona teachers are paid about 10 percent less than the national average for teachers. They fail to mention that white-collar professionals in Arizona’s private sector also are paid about 10 percent less than national averages. But no one suggests increasing pay for private sector workers en masse.
Proponents also fail to mention that teachers not only have better job security than the average private sector worker, but also a much more generous benefits package. Teacher benefits, including paid time off, are equal to about 40 percent of base pay. When benefits are factored in, a $40,000 teacher really earns $56,000. And of course teachers do not have to work 12 months to earn that $56,000.
Then there is the argument that teachers are underpaid relative to other occupations that have less responsibility and lower educational requirements. That argument overlooks the fact that the same thing can be said about virtually every job in the private sector. People are paid in the private sector according to what they are worth in the free market, which only partly reflects responsibility or education.
If pay were solely determined by level of responsibility instead of the free market, a control room operator at the Palo Verde nuclear plant would earn more than anyone else in the state. Or if pay were determined only by educational level, economics professors would earn more than Bill Gates.
Many proponents of a pay increase seem to believe that some sort of a central committee can outsmart the market and objectively determine the value of a teacher. The renowned economist F.A. Hayek had a label for such fallacious and arrogant thinking. He called it “The Fatal Conceit,” which was also the title of his landmark book on the subject.
Those who doubt the folly of a pay committee should be asked to form one to determine the value of every job in the state, including their own. They would find a professional wrestling match or Jerry Springer show to be dignified by comparison.
An unfettered free market sets pay in two ways: one, through supply and demand and, two, by placing a higher value on those individuals and organizations that produce more and get better results. Accordingly, occupations in short supply are worth more in the free market, as are those organizations and individuals that outperform their peers.
The problem with public school teacher pay is that it is determined largely by factors other than supply and demand, and other than individual and organizational performance.
Teacher pay is determined at present through a political process heavily influenced by public opinion and the teachers’ union, with market signals and performance information filtered through leaden-layers of education bureaucracy. The problem is compounded by teacher licensing, which creates artificial and unnecessary barriers to more people entering the profession, perhaps with better qualifications.
Charter schools are a notable exception. They have much more flexibility to set pay and to hire non-licensed teachers than traditional public schools. That flexibility should be expanded throughout the system. Over time, the law of supply and demand will begin to work its wonders, as decisions about staff and pay are decentralized to local principals, and as more teachers are rewarded for results. The new education tax credit and the AIMS test will facilitate the transformation.
In the meantime, as a short-term measure, a proxy for the free market should be used to set pay in traditional schools. The best proxy would be what teachers in charter and private schools are paid on average. That can be determined easily by retaining an independent compensation firm to conduct a survey of the average pay and benefits offered by charter and private schools throughout the state. Such surveys are commonplace in industry.
A proxy is less perfect that a completely unfettered free market. But until public education is opened up to more competition, basing teacher pay on objective survey data is better than relying on the subjective and emotional arguments of politicians, teachers, the public and the union. It is a home run for everyone. Craig J. Cantoni is an adjunct scholar at the Goldwater Institute.
Note: Nothing written here is to be construed as necessarily reflecting the views of the Goldwater Institute or as an attempt to aid or hinder the passage of any legislation. Permission to reprint is granted provided credit is given to the author and the Goldwater Institute.
[Source: http://www.goldwaterinstitute.org/]