Summary:
Teacher salaries are among the highest of any profession. When augmented by the value of the pensions, starting-teacher remuneration is approximately 30% greater than the remuneration received by the average private-sector IT professionals, despite the more rigorous training required for the IT professional. It remains this same percentage higher for the remainder of their teaching career. The high remuneration may explain, at least in part, for the fact that, well before the current joblessness, 11 teaching-qualified people applied for each teaching-job opening in Fairfax County.
Although non-pension benefits are not included in our analysis, a report by the Bureau of Labor Statistics (ftp://ftp.bls.gov/pub/special.requests/ocwc/ect/ececqrtn.pdf) shows that, on a national average, local government workers receive non-pension benefits that are 15.5% greater than private-sector workers, the percentage being based on the salaries of the employees.
In a separate study, we found that student performance is independent of teacher salaries, at least over the small range of salaries for which we had data; therefore, the salaries appear to be past the point of diminishing returns.
Discussion:
A Hypothetical Case to Illustrate the Issue
In the private domain, salaries depend on the sale of a product and/or generation of a profit. In the public domain, salaries depend on the tax revenue, rather than a successful product. Public salaries depend only remotely on voter satisfaction. Both politicians and teachers want high teacher salaries, but they are limited by what the politicians think the taxpayers are willing to pay. Because taxpayers want the best education for their children, they accept high taxes; however, they have no idea if the point of diminishing returns has been exceeded (Exhibit 1) so that increasing salaries has no significant effect on student performance. (Ask yourself: If Exhibit 1 were true, so that the Student Average SAT Score did not increase significantly when teachers were paid $65000 instead of $60000, would you pay teachers $60000 or $65000 for a nine-month contract? Would you pay them $100,000?)
Exhibit 1: Illustration of the Point of Diminishing Returns
The point of diminishing returns is not the only criterion. We must be sure that we are paying the teachers a living wage and a wage that is commensurate with the wages of the community. We must also be sure that we are paying enough to attract qualified people to teach.
If the salaries were too low, we would expect to find the quality of teachers being too low so that the performance of the students would be low – as shown in the illustration of Exhibit 1 for a salary of $40,000. In addition, if the salaries were too low, we would expect few qualified teachers to be applying for the jobs. If the salaries were too high, we would expect to find that student performance was independent of teacher salaries, as shown in Exhibit 1 for a salary of $65,000. In addition, if the salaries were too high, we would expect many qualified teachers to be applying for the jobs. In a separate study, we found that student performance did not depend on the average Fairfax County teacher salary, as if the point of diminishing returns has been realized, over a salary range from $58,000 to $68,000. We also found that, for every teacher position that is open in Fairfax County, 20 people apply – people who are graduates of an accredited teacher-education program and thereby qualified for the job.
The Actual Situation in Fairfax County
A second benchmark is the annual income that qualifies a person for affordable housing. To qualify for affordable housing, a household’s salary can be as high as 120% of the household annual median income (AMI)[3]. The AMI in Fairfax was $105,200 per year in 2007. Correcting for inflation, this would amount to $110,000 for a 12-month job; therefore, most teachers qualify if their summer earnings are not too great and if their spouses do not earn too much. Although a teacher may qualify for affordable housing, the housing may not be available because of the limited supply. In other words, teachers qualify for subsidized housing.
A third benchmark is the salary of other professionals. The following table shows a comparison. The D.C.-area professional salaries are the national salaries multiplied by 1.10, the ratio of D.C. professional salaries to national professional salaries (http://www.bls.gov/ro3/vapayrel.htm). We would expect the private-sector salaries to be determined by supply and demand, the supply being limited to some extent by the difficulty of the undergraduate programs. Because teachers are more likely to take social sciences such as psychology, we might expect their salaries to be commensurate with those of graduates of the social sciences. The salaries in the table show that, when the teacher 194-day salary is adjusted to the 235-day schedule of the other professions (260 days less 5 weeks for personal time off and holidays), by multiplying by 235/194 as if teachers could find summer jobs of equal pay, the Fairfax County teacher salaries are among the highest of all professions.
Teacher salaries remain close to computer-science salaries even after many years of experience. The salary of an IT software engineer with no management responsibilities ranged from $69,250 to $104,500 nationally (http://itmanagement.earthweb.com/career/article.php/11067_3782086_7) – the highest salary being for someone with over 20 years of experience. A teacher with 20 years of experience and a Bachelor’s degree earns $78,449 for a 194-day contract, which amounts to $95,028 when adjusted to 235 days.
Most private-sector professionals, such as the IT software engineer, have 401k-type defined-contribution pensions[8] that they are paid starting at age 65. They work ten years longer and have no assurance that their pension will be sufficient for retirement. In Virginia, the teachers do not contribute to their State pensions but do contribute 4% to their County pensions. The IT software engineer typically would contribute 6% of his salary, with the company contributing 6%.
An alternative, and perhaps more significant way of computing the total remuneration for the teacher is to allocate the pension amount in proportion to the salary for each working year. Allocated this way, the pension payment amounts to 54.2% of the salary during each year worked; however, the teacher contributes 4% to the County pension fund, so the net added compensation by way of the pension is 50.2%. The starting salary-plus-pension for a teacher with a Bachelor’s degree amounts then to 1.502 times $44,789, or $67,273, for 194 days of work whereas for the private-sector, the starting salary-plus-pension for an IT engineer is 1.07 times $58,736, or $62,848 for 235 days of work. The starting teacher, therefore, received a total remuneration that is 1.07 times what the starting IT engineer receives ($67,273/$62,848). If the teacher worked the same 235 days that the IT engineer worked, the teacher would receive 1.297 times as much as the IT engineer (1.07*235/194). The starting-teacher remuneration is thus 29.7% (approximately 30%) higher than that of the starting IT engineer.
The foregoing comparison is based on neither the teacher nor the IT engineer having an advanced degree, but only a Bachelor’s degree. It is also based on neither having supervisory responsibility. Teacher salaries are set by a formula that depends on years of experience and level of education. The salaries cited herein do not include bonuses, which teachers have received from time to time[9]. IT engineers are paid on a merit system. The salary for the IT engineer and other professionals quoted herein are the averages for all IT engineers with a given level of experience.
The high remuneration may explain, at least in part, for the fact that, well before the 2009-present joblessness, for each teaching-job opening, 11.7 teaching-qualified people applied[10].
Appendix A: Computation of the Teacher’s Retirement Benefits
That a teacher receives 75% of his/her salary, averaged over three years, was derived using the on-line calculators for teacher retirement benefits. The following two screen-shots show that, for the average salary of $94,707 a teacher will receive an annual pension of $71,030, the sum of monthly pensions of $1894.14 and $4025.05. The ratio of $71,030/$94707 is 75%. The teacher pays 4% of his/her salary for the County pension, according to a County retirement counselor at 1-800-426-4208. Teachers also contribute to and receive Social Security, just as people in the private sector do. Both the VRS and ERFC benefits continue until death. They do not end when Social Security starts.
All County employees would receive this same benefit. This is not for teachers alone. The ERFC applies only to those in the public-school system.
Retirees also receive a monthly subsidy of $100 per month for medical insurance, which partially offsets the premium that the retiree pays. For an individual, this reduces the monthly premium from $515 per month to $415 per month.
[2] http://www.fairfaxcounty.gov/hr/PAY-PLAN/FY10/SPlan10.pdf
[3] http://www.fairfaxcounty.gov/springfield/pdf_files/herrity_report/budget_edition_2008.pdf . If the maximum salary to qualify for affordable housing was 100% of AMI, half of the families in Fairfax County would qualify. At 120%, more than half qualify.
[4] http://www.bls.gov/ro3/vapayrel.htm
[5] http://itmanagement.earthweb.com/career/article.php/11067_3782086_7
[6] The 1.9% is typical of those with more than a Bachelor’s degree. The Fairfax County teacher pay scales give no information on step increases past the 20th year.
[7] This entire analysis is based on 2009 dollars as if the pension benefits and salary scales increase in step with inflation.
[8] http://en.wikipedia.org/wiki/Pension
[9] http://www.encyclopedia.com/doc/1P2-1174641.html; http://www.fcps.edu/supt/bcac/min_120203.htm
[10] From the caption on a graph of applicants vs. openings at http://www.fcta.org/index.html
