How Teachers can be Both Undervalued and Overpaid

Filed Under (Other Topics, U.S. Fiscal Policy) by Jeffrey Brown on Jan 24, 2012

In recent months, there has been a spirited debate about the value of teachers and whether they are undervalued or overpaid.  The point of this post is to explain how both statements can be simultaneously true.    

 Before continuing, I should disclose that I come from a family of teachers.  My mother and father were both public high school teachers.  My niece, who I adore, is about to enter the profession after she graduates later this year.  If that were not enough to bias me in favor of teachers, I count myself among the millions who attribute much of my success in life to a handful of incredible educators who really made a difference in my life.  And I am impressed on a daily basis with the phenomenal teaching that my children receive. 

 Many of those in the teaching profession feel that they are under-valued by society.  And given some of the recent political rhetoric, their beliefs are not unfounded. 

 At the same time, my good friend Andrew Biggs of the American Enterprise Institute has written a number of highly interesting and provocative pieces arguing that public school teachers are over-paid.  And, as an economist, I find many of his points quite persuasive.        

 So how do I reconcile these views?  After giving this issue much thought, I have concluded that teachers are undervalued.  But this does not necessarily mean that they are underpaid. 

 Let me begin in a roundabout way by reminding readers of what economists call the “diamond water paradox.” 

 Water is critical for life.  Yet in the United States, we treat water as virtually free: when was the last time you were required to insert a few quarters to get a drink from a water fountain? 

 In contrast, diamonds serve very little practical purpose to individuals (I am ignoring industrial uses of diamonds as well as any romantic purposes).  They certainly do not help keep us alive.  And yet they are enormously expensive. 

What is going on here?  In a nutshell, water is plentiful, while diamonds are scarce.  Thus, while water creates enormous social value, it is relatively inexpensive “on the margin.”  This does not mean it is not valuable overall!  To put it in the language of economics, water generates enormous amounts of “consumer surplus.”  This means that, overall, the value that water creates for society far exceeds its market price. 

Yet few would argue that we should have to pay diamond-like prices for water just to prove to water that we understand how much more important it is to our lives than those silly, useless diamonds.

Like water, good teachers add enormous value to society.  This is not just a “feel good” statement written by the son of teachers:  there is strong empirical evidence to back it up.  Most recently, a new NBER working paper by three brilliant economists (Raj Chetty, John Friedman and Johah Rockoff) is able to link school district data on 2.5 million kids to the tax returns of these children many years later (after they have grown up and entered the labor force).  Their results show that good teachers create enormous social value.

The authors state:  “Replacing a teacher whose [value-added] is in the bottom 5% with an average teacher would increase students’ lifetime income by more than $250,000 for the average classroom in our sample.”

Think about that for a moment:  in a single year, an average quality teacher (relative to a low quality teacher) can create a quarter million dollars of economic value!  Needless to say, that is far above what we pay our good teachers.  Like water, teachers are generating enormous “consumer surplus” for the students and communities that they serve.

Those who advocate for teachers sometimes use data like the above to argue that teachers are underpaid.  Indeed, in a recent NYT piece, David Hambrick wrote “where I live, the average starting pay for a teacher is about $20 per hour.  A bartender can make double that.  Which job is more important?” 

While the NBER researchers referenced above did not measure the lifetime economic value created by good bartenders, I am going to simply assert that “teachers are more important.” 

But does that mean teachers are underpaid? 

Not necessarily. 

Just like we do not pay diamond-like prices for water even though water is more important, neither should we necessarily pay teachers more than plumbers, bartenders, or professional athletes. The reason, to be blunt, is that we do not have to, because we have plenty of smart, dedicated individuals that are willing to teach at current compensation levels.

My father – who dedicated 30 years of his life to teaching high school social studies – once reposted a quote on Facebook along the lines of “teachers are not in it for the income, we are in it for the outcome.”  

I believe that.  Indeed, many of the best teachers that I have had in my life were teachers because they loved the job.  They believed what they were doing made a difference in the lives of the students and their communities.  And they were right.

But, in the cold, hard logic of economics, these intangible benefits to teaching are precisely why we have so many people willing to teach, even though the compensation is far below the value-added to society.  The same is true for other professions that attract passionate, selfless, and altruistic individual, such as social work or those who work in the not-for-profit sector.  Fortunately for society, but perhaps unfortunately for those in these professions, there are plenty of people motivated to do these jobs in spite of the pay. 

Some will say this is “not fair.”  That may or may not be true, depending on one’s definition of fairness.  But is it rational?  Absolutely.  Almost nobody likes to pay more than necessary to obtain the goods and services they value, and that includes education.  And if the calculations of Biggs and Richwine http://www.aei.org/papers/education/k-12/assessing-the-compensation-of-public-school-teachers/are even approximately correct, taxpayers may be paying more than necessary to attract and retain the teachers that we have.            

Like water, good teachers are critical for meaningful human life.  They create tremendous value for society.  And we should respect and honor them for what they do.  But it does not necessarily mean that we should pay them like diamonds.