A is for Apple…….P is for Pay

I expect that most people feel they are underpaid.  I would also suspect that if asked how salaries should be fixed, most people would struggle to agree on one universal method to do so.  Extend this across industries, markets, and regions and there would be an even more wide ranging points of view and justifications for how salaries need to be fixed and why.

In his column “Are Ontario teachers underpaid?” (Toronto Star, March 1, 2012), Sachin Maharaj offers us several reasons why he feels teachers are underpaid. He claims that teachers salaries should be viewed as an investment for ‘great teachers’ have life-changing impact on their students’ and in referencing a Harvard University on long term impact of teachers’, he goes on to state that ‘even if teachers’ salaries  reach the $100,000 mark, it would appear that they are worth many times that to their students in the extra income they (the students) will earn’.  In addition, he writes, that the social value of teachers’ – in making students more socially responsible and effective – needs to be taken into account as well when fixing their salaries.

Now, I have tremendous respect for teachers and there is no doubt in my mind that great teachers can have positive influence on students in developing them into social and economic successes.  I do believe that teachers play a critical role in society. However, till these investments can be effectively measured, qualified and priced, it would be exceedingly difficult to use this as a basis for fixing a teacher’s salary.  And because they cannot be measured – or at least effectively measured – they cannot be the basis to judge if teachers are underpaid or overpaid.

Mr. Maharaj does offer some approach to measurement – referencing the same Harvard study – in using the average of the students’ test scores as a measurement of the teachers “value-add”.  Again, this is flawed, for this approach measures the success on tests and not the value of education. Nor does it take into account the ‘non-test’ value that a teacher provides. Think about the teachers who were strong role models for impressionable children, think about the advice and guidance that good teachers provide on subject matters that could be generally classified as “Life” and goes beyond text books or an examination syllabus. Surely these need to be measured if ‘value –addition’ is to be the metric to be used to fix a teacher’s salary?

So are teachers underpaid? If so, what should they be paid? Generally, those that earn high salaries are those who possess unique skills or talents that are in high demand. So Sidney Crosby is certainly a highly paid professional, as are several lawyers, investment bankers and some neurosurgeons. Teaching – as much as it is a vital and important skill –  is not unfortunately particularly rare.

There is one Sidney Crosby. They are thousands of teachers. Few would disagree that currently there is an oversupply of teachers and not enough demand to absorb the all the new teachers entering the market. A February 2011 study by the Ontario College of Teachers puts the unemployment of teachers at 43%. The study projects that the number exiting the market (teachers retiring) will remain around 5,000 annually for the next seven years. The number of new entrants to the market (new teachers) in 2010 was 11,800. So the employment outlook for teachers in Ontario will continue to be pessimistic and less likely to improve in the new future because not only is there a continuing over supply of new teachers relative to vacant teaching positions, but there is the cumulative surplus of new teachers from previous years who have not settled into full employment as well. This imbalance of supply and demand should have a downward pressure on salaries. However the role and influence of the teachers unions will delay reaching this equilibrium.  And political agendas will distort these market forces.

So what about our NHL stars? Does the scarcity of people with hockey skills relative to the abundance of those with teaching skills alone account from the high salaries earned by NHL stars? Another key economic idea is at play here when considering what determines the high salaries that NHL stars enjoy compared to teachers. Ownership of unique talents is not sufficient to earn high salaries. There must be many buyers, preferable those with a lot of spending ability. It is also necessary to exclude those who not pay for those talents from enjoying the talent to drive the price up.

In the case of hockey, arena turnstiles and television rights contracts ensures this happens. Classrooms are open to everyone and no students pay the teacher. Teaching has but just one buyer – the government.  And in the absence of any metric to effectively measure the ‘market value’ of teaching, governments will evaluate teaching from how efficiently are costs being used.

So determination of teacher’s salaries will continue to be less about good or bad teachers, less about the effectiveness or non effectiveness teachers, but more and more about cost containment and cost reduction. For the government does not have to compete, where as the Pittsburg Penguins do.