Teacher Compensation Analysis: Trends, Incentives, and Challenges in U.S. Public Schools

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

2. Teacher Quality/CompensationQauntity-Quality Tradeoff

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

4. Falling Student-Teacher RatiosU.S. and Missouri, 1987-2004

5. 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

6. 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

7. San Diego School District: 2006-07 Salary Schedule

8. 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

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

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

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

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

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

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

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

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

17. Potential supply Current supply New Hires

19. 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)

20. 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 …”

21. Incentives by Teaching Field

22. Total Compensation = Current + Deferred Compensation

23. 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

24. 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

25. 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

26. Lots of moving parts…

27. 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) )

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

29. Source: Costrell and Podgursky (2007)

30. Source: Costrell and Podgursky (2007)

31. Source: Costrell and Podgursky (2007)

32. Ohio

33. Do these spikes affect teacher behavior? • Yes

34. 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

37. Unintended Consequences of Early Retirements • Retiree Health Insurance (OPEB)

38. 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

39. 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

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