ARE TEACHERS UNDERPAID?
As an economist, I find it difficult to question market outcomes. Goods and services generally cost the market price. Only in the event of some kind of "market failure" do we say that goods or services are either over- or underpriced--meaning that they cost more or less than the price would have been in a fluid, competitive market.
At first glance, it is hard to see how the market for teachers could fail. True, most teachers' salaries are set by governments in a noncompetitive environment. But candidates choose freely whether to become teachers, in full knowledge of what salaries they will receive. In this sense, the people who choose to become teachers are paid a salary commensurate with their skills, preferences, and working conditions. These teachers are not underpaid relative to what they could earn in other occupations.
But what if we wanted to draw a higher-quality pool of candidates to teaching? Are we paying too low a price to accomplish that? I argue that the market for teaching has failed--in the sense that we are paying low salaries for low-quality teachers when we would prefer high-quality teachers. This is the result of two main flaws in the market: the difficulty of identifying who will be a good teacher and the reliance on an obsolete conception of the pool of potential teachers.
Squeezing the Lemons
Nobel Laureate George Akerlof's "lemons model" of market failure helps to explain why schools may not be willing to pay the market price for good teachers. Consider the market for used cars. Buyers want to purchase good cars, but they wonder if only "lemons" are put up for sale. And they have no easy way of evaluating whether a particular car is a lemon. They can look under the hood, take it for a test drive, even ask for the owners service records, but none of those will guarantee a vehicle's integrity. The buyer's concern for quality without a corresponding ability to evaluate that quality can cause markets to fail. Buyers may not be willing to pay the price necessary to draw high-quality cars into the market, thus ensuring that the proportion of lemons in the market will be higher than if the market were functioning well.
Likewise, schools are deeply concerned with the quality of their teachers, but quality is difficult to discern when hiring a new teacher. Studies have found that graduating from a good college and achieving high scores on tests of verbal aptitude are reasonable, though highly imperfect, indicators of teacher quality. In addition, licensing and certification rules attempt to ensure that teachers possess a certain level of skills, Nevertheless, many of the attributes that make for a good teacher are outside the bounds of a regime for testing or licensing teachers. A high-quality teacher is one who can energize and motivate students in addition to imparting information--qualities that are hard to recognize at the hiring stage. Teachers themselves may know how good they are, but the principals and school boards who hire them have far less information, as in the lemons model. They might desire a higher level of quality, but they are reluctant to pay the salaries necessary to obtain it because of the difficulty of choosing quality teachers,
Teachers are thus underpaid in the sense that we are paying low salaries for low-quality teachers. If we wanted, we could reach a different point in the market, where we would pay high salaries for high-quality teachers. As with used cars, a small salary increase would not change the quality of aspiring teachers; only a dramatic increase would attract a different pool of candidates and prove sustainable. It has been hard to make this kind of radical change because of historical patterns in the workforce that once allowed schools to educate on the cheap.
Women once considered teaching a highly attractive profession because their opportunities were tightly circumscribed. …