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Teacher Compensation. Michael Podgursky Department of Economics University of Missouri – Columbia NCSL Conference Phoenix, AZ Dec. 1-2, 2007 Co-investigator, CALDER, NCPI. Teacher Quality/Compensation Qauntity-Quality Tradeoff. Student Enrollment, Teacher and Non-Teacher Employment

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teacher compensation

Teacher Compensation

Michael Podgursky

Department of Economics

University of Missouri – Columbia

NCSL Conference

Phoenix, AZ Dec. 1-2, 2007

Co-investigator, CALDER, NCPI


Student Enrollment, Teacher and Non-Teacher Employment

In Public Schools: 1980 - 2003

3.049m Public School Teachers

Fall, 2003

teacher compensation1
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
teacher compensation2
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
difficulty in filling vacancies by teaching field
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

Staffing Difficulties in Low (<25%) and High (>75%) Poverty Schools:

Elementary Ed 2003-04

Source: Schools and Staffing Surveys 2003-04


Potential supply

Current supply

New Hires

consequences of salary schedules
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)

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 …”

teacher pensions some stylized facts
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
incentives in teacher pension systems
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

Typical DB teacher pension


Pension = S x FAS x r(S,A)

S = service years

FAS = final average salary

r(S,A) = replacement factor

incentives for work and retirement
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) )

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


r = 2.5% S ≤ 30

r = 2.55% S ≥ 31

Changed in July 2001

unintended consequences of early retirements
Unintended Consequences of Early Retirements
  • Retiree Health Insurance (OPEB)
other post employment benefits opeb
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

2006 GASB 45 Estimates, LAUSD



unintended consequences of early retirements1
Unintended Consequences of Early Retirements
  • Retiree Health Insurance (OPEB)
  • Reemployment of Teachers/ Administrators (“double-dipping”)