Disappointed with their students’ performance in international tests, educators and
school officials in the U.S. have been trying to improve the quality of public education. In particular, the quality of teaching forces has been pointed out as the key to a successful educational reform. Many blame teachers unions for being a hindrance to the educational reform. They point out that the teacher salaries keep increasing while the academic achievement of students still remains poor. They argue that public school teachers in the U.S. are being “overpaid” considering the decrease in teacher quality. Biggs and Richwine (2001)
claimed in their article in The Wall Street Journal that there was no teacher wage penalty if they compared teachers and non-teachers with similar Armed Forces Qualification Test (AFQT) scores. Moreover, they argued that teachers were receiving 52% more in average compensation (including benefits) than they could earn in the non-teaching sectors. On the other hands, according to the research by National Education Association (NEA), teachers have been “underpaid” compared to other college graduates in non-teaching industries and
the wage gap between non-teaching careers and teaching careers among college graduates was about 60% for males and 16% for females in 2000.
The standard approach by labor economists says that a queue for a specific occupation is an indication that the occupation is overpaying its workers. However, even with the queue of applicants in the teaching sector, it is also important to consider the quality of the applicants to determine whether teachers are truly overpaid or not. If the queue mostly consists of low quality people, it could be the case where teachers have been underpaid, so the high quality people no longer enter the teaching sector while only the low quality people
remain in the applicants’ pool. Thus, it is critical to understand the dynamic relationship
between teacher salaries and the quality of teachers that is associated with educational outcomes.
This paper utilizes the data from Current Population Survey merged Outgoing Rotation Group (CPS ORG) and CPS Supplements between 2001 and 2010. I find that the US public school teachers are paid less relative to other college graduates, controlling for relevant wage determinants. Young teachers who are in their 20s get teacher premium of 6%, but the premium quickly disappears and turns into teacher penalty over their lifetime. Teachers of age 30 or older earn 4% less than comparable college graduates in the non-teaching sector. The wage penalty for teachers is greater and more significant for male teachers than for female teachers.
My identification strategy is to study the change in earnings of teachers who move into non-teaching sectors and of non-teachers who move into teaching sectors. Comparing the changes in earnings after career changes provides additional evidence that public school teachers are losing grounds in their earnings. I find that public school teachers in their 30s and 40s increase their earnings when they move into non-teaching occupations. This is larger than the increase in earnings of non-teachers who change to other non-teaching occupations.
I use a simple two-sector version of Roy Model to show that there is positive selection when public school teachers move into the non-teaching sectors whereas there is negative selection when non-teachers move into the teaching sector. On average, teachers who leave the teaching profession have had higher pre-earnings than the teachers who remain in the teaching sector, but they still choose to leave the teaching sector for better earning opportunities in the non-teaching sectors. Non-teachers who change into the teaching sector
have had significantly lower pre-earnings than other non-teachers who stay in their careers. The difference in the pre-earnings between the career-stayers and career-changers suggest that this is beyond the simple case of compensating differentials.8 Therefore, considering that the pre-earnings are the proxy for the ability/aptitude of workers, my study suggest that high quality teachers tend to leave teaching careers whereas low quality non-teachers tend to enter the teaching sector under the current pay scheme for teachers,
Studies on the effect of teachers unions face endogeneity problem of unionization. Teachers unions may behave differently under different legal environments towards collective bargaining of teachers. Thus, if a study does not take this into account, the estimates for union effects may suffer from omitted variable bias. To ease this problem, I classify 50 states into three categories based on their legal status regarding collective bargaining of teachers unions; states with compulsory collective bargaining laws, states that do not have collective bargaining laws but allow the collective bargaining to occur, and states that prohibit collective bargaining of public school teachers. The CPS ORG data reveals that teachers unions increase the teachers’ earnings only in the states that have collective bargaining laws. In all three
groups, public school teachers who leave the teaching career have had higher pre-earnings while non-teachers who enter the public school teaching sector have had lower pre-earnings. This pattern leads to the decrease in the average quality of public school teachers. The adverse trend is more substantial in the states that prohibit collective bargaining of teachers, where teachers face a larger wage penalty compared to their comparable non-teachers.
8
According to compensating differentials, teachers switching into non-teaching sector are willing to take less benefits in exchange of higher wage whereas non-teachers moving into teaching sector are willing to take less wage and more benefits, but their total compensation should remain the same as