The Most Underpaid Job

In my last blog post, I discussed some of the problems with the labor market, focusing on the overpaid. I this post, I’ll discuss the group that is most underpaid in society: teachers.

Are teachers really underpaid? Really? You know they have summers off, right?

Many CEOs are overpaid because the market for CEOs has been distorted by the crony capitalisms of boards and nonsensical pay policies. If that’s the case, what’s distorting the market for teacher’s pay?

Nothing. I think teachers are paid market or above-market rates. There is a fair amount of education required to become a teacher–often an undergraduate degree and a teaching certificate. Nevertheless, enough people want to be teachers that there’s not really a shortage of teachers. There is a constant demand, but also a large supply.

What’s more, the correlation between teachers and making money is hard to determine and indirect. It’s harder to measure than, say, the correlation between sports stars and sporting ticket revenue. Most of the time, you can’t say “Billy had Mr. Abecendari as a teacher, and because of that, he’s making twice the salary he would otherwise.”

So if that’s the case, why are teachers underpaid?

I don’t think they’re overpaid according to the rules of economics. Instead, I think they’re underpaid in the sense that society would benefit greatly out of proportion to the salary increase if they were paid more.

The power of leverage

Teachers are among the jobs with the most leverage in the entire economy because of the massive impact they can potentially have on children. A teacher can make a huge difference in life outcomes, raising a child out of poverty into the middle or upper class. They can turn someone with just potential into someone who wins Nobel prizes or builds companies that change the world, improving the standard of living for everyone.

If each teacher has a class of 40 students, over a 30-year career, they’ll have the ability to significantly influence 1,200 lives. If they simply increase the standard of living of each of those students by 10%, then the return is huge. Ignoring the effects of inflation, we’re talking $5,000 per student, about $6 million per year, or $180 million over the course of their thirty-year careers.

The average teacher salary in the USA is about $55,000. If you were to double it, that’s about $1,600,000 in extra expense over the course of a 30-year career, a significant portion of which come back in income taxes right away. So, you’re making $180M for a 1.6M in investment, over a 100 times return, and that’s just on incomes. When you add in other things that correlate with education and wealth, like less crime, lower incarceration rates, reduced healthcare spending, and increased life expectancies, the leverage you potentially get from excellent teachers is clearly huge.

So, if you really believe that teachers can potentially have this sort of leverage over children’s life outcomes, economically, it’s a no-brainer.

How do you do it?

The strategy, I think, is to start to treat teachers like professionals–doctors, lawyers, etc. Make the job prestigious and well-paid. However, also increase the requirements for becoming a teacher. Ensure that the teachers are truly experts. Take away the union-derived security that teachers have so that, like most other employees, they can be laid off simply for not being great at their job. Pile more money into teacher training and make it competitive, like med school. Measure the short term and long term outcomes of students.

We want to ensure that the teachers we have are among the best in society we have at teaching, rather than ones who want to teach, but are not necessarily that good at it. We want that great teacher who could be making $200K in the private sector instead decide to teach because the position pays enough and is prestigious enough to make it worth it to them. The most valuable teachers aren’t the ones who have done the job for the longest time, but rather those have the best outcomes.

Why aren’t we doing this already?                                                                                                    

The problem with doing something like this is that the benefits derived from education appear long after the education itself. The students that we educate today will be at peak earning levels thirty years down the road. Thus, right now, teachers are viewed as an expense, rather than an investment.

If you’re a politician, you can’t get away with playing the long game. Sure, the decision you make today to increase funding for education could pay off in a big way, but the electorate doesn’t understand that. Instead, they’ll whine about “inefficient, big government” and send you home in the next election cycle. So if you’re a politician, you can’t really care about putting your country in the best position for the future. You have to get elected today.

And what’s more, while you’ll get huge support from the teachers for higher salaries, you’ll have massive opposition to accountability measures. This is understandable, since a large percentage of teachers may not make the cut.

So, you have a situation where the people with the ability to change things will likely get punished for making those change, and the people who care most about education would hate many of the changes. Thus, it no surprise that something like this won’t get done. That sort of thing happens with many interesting ideas.

The bottom line

So, the outcome will be muddling along as we are, with minor incremental changes. We won’t take full advantage of the huge leverage teachers have to make the world a better place. But at least we won’t know how big a mistake that is, because we’ll never see how great the world would 30 years from now if we piled resources behind maximizing our children’s potential.